A discussion of examples of Satoshi Nakamoto’s insight

Hi it’s Keir Finlow-Bates, here and I
promised Corey I would make a video where I looked at some of the remarkable
insights that Satoshi Nakamoto showed when he set up the Bitcoin system, so
remembering that this is now decade old I just want to draw attention to some of
the particular parts that I think are very very well thought out. Now obviously
nobody can see the future and nothing in the system is perfect, but there’s an
awful lot worth looking at. So the first thing to look at I think is the coin
issuance system: this idea of having these blocks generated every 10 minutes on
average and giving a reward, but not making it a constant reward but rather
having the amount dropping down, so the reason why this is very clever is
because I think Nakamoto saw that over time more and more people were going to
join the system as miners, and as a result there would be more participants
who were expecting to or hoping to get to the reward, and the reason why they
would be joining is because the value of the coins created was going to increase,
and as a result if the reward had stayed fixed at 50 coins per block the amount,
or the the financial value of each mined block would just continue to rise and
rise and rise and so by having the having every few years you’re reducing
the amount of coins and therefore you’re compensating for the increase in the
value of those coins. Now of course, having every two years isn’t perfect and
he had no way of knowing at what rate adoption would happen, and what the
market value of the Bitcoin would become over a year, five years, ten years,
but I’m pretty sure he must have sat down and run some numbers through a
spreadsheet. Now I think in hindsight it might have been better to go more for a
3/4ing rather than having or possibly having the event occur over longer
periods of time, but I’m not even 100% convinced of that myself, because who
knows what’s gonna happen in the next five to
ten years. So that’s the first really insightful thing. The next brilliant
insightful thing was this idea that people could just create as many Bitcoin
addresses as they like – and in fact the encouragement to only use addresses once
where possible, so this is the equivalent of these throwaway credit
card numbers, where you – if you go with one of the next-gen banks you can
actually dynamically generate a credit card number for a purchase and then
never use it again, which means you avoid the risk of credit card fraud, and that’s
baked into the Bitcoin system. So that’s very clever too then there was this idea
of using Merkle trees in order to store the validity of transactions so that you
could more quickly verify that a transaction actually did fit into the
full blockchain, and Merkle trees are used quite widely in Etherium now. So there’s
another piece that’s really insightful. Next one I would say is the idea of
having a script for transaction rather than having just a simple balance system.
So again this is what Buterin took from Bitcoin and turned into smart contracts
in Ethereum, but for Bitcoin I don’t think having put in a more
evolved scripting system would have made sense because Bitcoin is fundamentally
focused on these coin transactions, but Nakamoto recognized that just having a
simple incremental/decrement balance function was not going to be enough and
that there would be need for things like multi-signing transactions and having
conditional transactions, time lock transactions, and stuff like that.
So also very very insightful to not just go for the simple easy quick way of
setting things up. Then let’s see what other bits? So there are some things
where I think he was maybe a little bit overly paranoid, for example the fact
that your public ECDSA key is hidden in a Bitcoin address by using
not one but two different hashing algorithms SHA-256 and RIPEMD-160
and there he was guarding against one of these hashing functions getting broken.
Of course if SHA-256 was broken the whole mining process would break down
too, so I think there he hadn’t fully considered the balance, but the whole
addressing system is interesting as well – the fact that your ECDSA public key is
kept hidden up to the point that you actually try to spend the coins – that
you own so that kind of reduces the attack vector for any hackers to try to
crack your public/private key pair, and again, you know, he’s put a lot of thought
into keeping the system secure. Then this also provides for the pseudo-anonymous
nature of Bitcoin: the fact that your Bitcoin address is not easily linkable
to a particular person and also tying back into these use only once
addresses – that makes the whole transaction flow a bit more complicated,
and makes it a bit harder for people to trace the flow of funds through the
system. Now of course law enforcement and governments don’t see this as a
positive, but privacy advocates do, and it’s clear from Nakamoto’s paper that
he’s more on the privacy advocates side rather than the government’s and law
enforcement. And so not unexpected that that would be there. So these are lots of
little features that just crop up in Bitcoin that show that an immense amount
of thought must have gone into it. It’s not the kind of project that you sit
down on Friday evening and think instead of going to the pub I know what, I’m
going to invent something in the computing space. This has to have been
something the Nakamoto thought about for a long long time, because I don’t think
even the world’s most brilliant genius would be able to dream this stuff up in
a short space of time. And of course at this point I have to say that all the
components were actually all previously out there, some of them dating back to
the 50s or 60s, and most of the work actually being done
in the 80s, so it’s not that he invented everything from scratch, but rather that
he saw all these components, like walking into a hardware store and seeing
all the stuff there and everybody is just building ordinary normal stuff and
he saw that “hang on I can actually put all these things together and I can make
something amazingly different and new and valuable.” So I’m very grateful to
him because it’s Bitcoin and blockchain has been one of the most interesting
things I’ve ever looked at in my life and if you haven’t got involved in
actually looking at how all the pieces function then I really heartily recommend
it because it has an awful lot to offer. Anyway there you go a very quick video,
or rather me speaking very quickly this time, going over all sorts of insights
shown in the Bitcoin system. Hope you found that interesting; see you in the
next video soon. Bye for now!

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