Decoding the Enigma of Satoshi Nakamoto and the Birth of Bitcoin

20 May

http://www.nytimes.com/2015/05/17/business/decoding-the-enigma-of-satoshi-nakamoto-and-the-birth-of-bitcoin.html

By NATHANIEL POPPER

It is one of the great mysteries of the digital age.

The hunt for Satoshi Nakamoto, the elusive creator of Bitcoin, has
captivated even those who think the virtual currency is some sort of
online Ponzi scheme. A legend has emerged from a jumble of facts:
Someone using the name Satoshi Nakamoto released the software for
Bitcoin in early 2009 and communicated with the nascent currency’s
users via email–but never by phone or in person. Then, in 2011,
just as the technology began to attract wider attention, the emails
stopped. Suddenly, Satoshi was gone, but the stories grew larger.

Over the last year, as I worked on a book about the history of
Bitcoin, it was hard to avoid being drawn in by the almost mystical
riddle of Satoshi Nakamoto’s identity. Just as I began my research,
Newsweek made a splash with a cover article in March 2014 claiming
that Satoshi was an unemployed engineer in his 60s who lived in
suburban Los Angeles. Within a day of publication, however, most
people knowledgeable about Bitcoin had concluded that the magazine
had the wrong man.

Bitcoin Believers

While regulators debate the pros and cons of bitcoins, this volatile
digital currency inspires the question: What makes money, money?
By Channon Hodge, David Gillen, Kimberly Moy and Aaron Byrd on
Publish Date November 24, 2013.

Many in the Bitcoin community told me that, in deference to the
Bitcoin creator’s clear desire for privacy, they didn’t want to see
the wizard unmasked. But even among those who said this, few could
resist debating the clues the founder left behind. As I had these
conversations with the programmers and entrepreneurs who are most
deeply involved in Bitcoin, I encountered a quiet but widely held
belief that much of the most convincing evidence pointed to a
reclusive American man of Hungarian descent named Nick Szabo.

Mr. Szabo is nearly as much of a mystery as Satoshi. But in the
course of my reporting I kept turning up new hints that drew me
further into the chase, and I even stumbled into a rare encounter
with Mr. Szabo at a private gathering of top Bitcoin programmers and
entrepreneurs.

At that event, Mr. Szabo denied that he was Satoshi, as he has
consistently in electronic communications, including in an email on
Wednesday. But he acknowledged that his history left little question
that he was among a small group of people who, over decades, working
sometimes cooperatively and sometimes in competition, laid the
foundation for Bitcoin and created many parts that later went into
the virtual currency. Mr. Szabo’s most notable contribution was a
Bitcoin predecessor known as bit gold that achieved many of the same
goals using similar tools of advanced math and cryptography.

It may be impossible to prove Satoshi’s identity until the person or
people behind Bitcoin’s curtain decide to come forward and prove
ownership of Satoshi’s old electronic accounts. At this point, the
creator’s identity is no longer important to Bitcoin’s future. Since
Satoshi stopped contributing to the project in 2011, most of the
open-source code has been rewritten by a group of programmers whose
identities are known.

But Mr. Szabo’s story provides insight into often misunderstood
elements of Bitcoin’s creation. The software was not a bolt out of
the blue, as is sometimes assumed, but was instead built on the
ideas of multiple people over several decades.

This history is more than just a matter of curiosity. The software
has come to be viewed in academic and financial circles as a
significant computer science breakthrough that may reshape the way
money looks and moves. Recently, banks like Goldman Sachs have taken
the first steps toward embracing the technology.

Mr. Szabo himself has continued to be quietly involved in the work.
In the beginning of 2014, Mr. Szabo joined Vaurum, a Bitcoin
start-up based in Palo Alto, Calif., that was operating in stealth
mode and that aimed to build a better Bitcoin exchange. After his
arrival, Mr. Szabo helped reorient the company to take advantage of
the Bitcoin software’s capability for so-called smart contracts,
which enable self-executing financial transactions, according to
people briefed on the company’s operations who spoke on condition of
anonymity.

After Mr. Szabo led the company in a new direction, it was renamed
Mirror, and it recently raised $12.5 million from several prominent
venture capitalists, these people said. The company declined to
comment for this article.

Mr. Szabo’s role at Vaurum has been kept a secret because of his
desire for privacy, and he left in late 2014 after becoming nervous
about public exposure, according to the people briefed on the
company’s operations. While he was still there, though, the array of
arcane skills and knowledge at his command led several colleagues to
conclude that Mr. Szabo was most likely involved in the creation of
Bitcoin, even if he didn’t do it all himself.

I met Mr. Szabo, a large bearded man, in March 2014 at a Bitcoin
event at the Lake Tahoe vacation home of Dan Morehead, a former
Goldman Sachs executive who now runs a Bitcoin-focused investment
firm, Pantera Capital. Mr. Szabo worked for Vaurum at the time. Mr.
Morehead and other hedge fund executives in attendance dressed in
expensive loafers and slim-cut jeans; Mr. Szabo, his bald pate
encircled by a ring of salt-and-pepper hair, wore beat-up black
sneakers and an untucked striped shirt.

While he kept to himself, I managed to corner him in the kitchen
during the cocktail hour. He was notably reserved and deflected
questions about where he lived and had worked, but he bristled when
I cited what was being said about him on the Internet–including
that he was a law professor at George Washington University–and
the notion that he had created Bitcoin.

“Well, I will say this, in the hope of setting the record straight,”
he said acidly. “I’m not Satoshi, and I’m not a college professor.
In fact, I never was a college professor.”

The conversation grew less heated when I asked about the origin of
the many complicated pieces of code and cryptography that went into
the Bitcoin software, and about the small number of people who would
have had the expertise to put them together. Mr. Szabo mentioned bit
gold, saying it harnessed many of the same obscure concepts, like
secure property titles and digital time stamps, that made Bitcoin
possible.

“There are a whole bunch of parallels,” he told me. “I mean, the
reason people tag me is because you can go through secure property
titles and bit gold–there are so many parallels between that and
Bitcoin that you can’t find anywhere else.”

When I asked if he believed that Satoshi had been familiar with his
work, Mr. Szabo said he understood why there was so much speculation
about his own role: “All I’m saying is, there are all these
parallels, and it looks funny to me, and looks funny to a lot of
other people.”

Dinner began, interrupting the conversation, and I never got another
chance to talk to Mr. Szabo.

When I emailed him on Wednesday, he repeated his denial: “As I’ve
stated many times before, all this speculation is flattering, but
wrong–I am not Satoshi.”

Many concepts central to Bitcoin were developed in an online
community known as the Cypherpunks, a loosely organized group of
digital privacy activists. As part of their mission, they set out to
create digital money that would be as anonymous as physical cash.
Mr. Szabo was a member, and in 1993, he wrote a message to fellow
Cypherpunks describing the diverse motivations of attendees at a
group meeting that had just taken place. Some people, he wrote, “are
libertarians who want government out of our lives, others are
liberals fighting the N.S.A., others find it great fun to ding
people in power with cool hacks.”

Mr. Szabo had a libertarian mind-set. He was drawn to those ideas
partly, he told me, because of his father, who fought the communists
in Hungary in the 1950s before coming to the United States, where
Mr. Szabo was born 51 years ago. Reared in Washington State, Mr.
Szabo studied computer science at the University of Washington.

Several experiments in digital cash circulated on the Cypherpunk
lists in the 1990s. Adam Back, a British researcher, created one
called hashcash that later became a central component of Bitcoin.
Another, called b money, was designed by an intensely private
computer engineer named Wei Dai.

When these experiments failed to take off, many Cypherpunks lost
interest. But not Mr. Szabo. He worked for six months as a
consultant for a company called DigiCash, he has written on his
blog. In 1998, he sent the outline for his own version of digital
money, which he called bit gold, to a small group that was still
pursuing the project, including Mr. Dai and Hal Finney, a programmer
based in Santa Barbara, Calif., who tried to create a working
version of bit gold.

The concept behind bit gold was very similar to Bitcoin: It included
a digital token that was scarce, like gold, and could be sent
electronically without needing to pass through a central authority
like a bank.

This history points to the important role that Mr. Szabo and several
others played in developing the building blocks that went into
Bitcoin. When Satoshi Nakamoto’s paper describing Bitcoin appeared
in the fall of 2008, it cited Mr. Back’s hashcash. The first people
Satoshi emailed privately were Mr. Back and Mr. Dai, both men have
said. And Mr. Finney, who recently died, helped Satoshi improve the
Bitcoin software in the fall of 2008, before it was publicly
released, according to emails shared with me by Mr. Finney and his
family.

It is, though, Mr. Szabo’s activity in 2008, as Bitcoin emerged into
the world, that has generated much of the suspicion about his role
in the project. That spring, before anyone had ever heard of Satoshi
Nakamoto or Bitcoin, Mr. Szabo revived his bit gold idea on his
personal blog, and in an online conversation about creating a live
version of the virtual currency, he asked his readers: “Anybody want
to help me code one up?”

After Bitcoin appeared, Mr. Szabo reposted the item on his blog in a
way that changed the date at the top and made it appear as though it
was written after Bitcoin’s release, archived versions of the
website show.

Mr. Szabo’s writing about bit gold from that time contains many
striking parallels with Satoshi’s description of Bitcoin, including
similar phrasings and even common writing mannerisms. In 2014,
researchers at Aston University, in England, compared the writing of
several people who have been suspected to be Satoshi and found that
none matched up nearly as well as Mr. Szabo’s. The similarity was
“uncanny,” said Jack Grieve, the lecturer who led the effort.

When I went back and read Mr. Szabo’s online writings, it was
obvious that in the year before Satoshi appeared on the scene and
released Bitcoin, Mr. Szabo was again thinking seriously about
digital money.

He wrote frequently, over several months, about the concepts
involved in digital money, including those smart contracts, a
concept so specialized that Mr. Szabo is often given credit for
inventing the term. Smart contracts later showed up as an essential
piece of the Bitcoin software.

Mr. Szabo’s blog explained why he was examining these issues with
such passion: The global financial crisis then underway suggested to
him that the monetary system was broken and in need of replacement.

“For those who love our once and future freedoms, now is the time to
strike,” Mr. Szabo wrote in an item on his blog in late 2007
endorsing the libertarian Ron Paul’s bid for the presidency, in part
because of Mr. Paul’s views on the financial system.

For many Bitcoin watchers, just as notable as what Mr. Szabo wrote
in that period was his silence once Bitcoin appeared in October
2008. After all, the virtual currency was an experiment in
everything he had been writing about for years. Unlike Mr. Dai, Mr.
Finney and Mr. Back, Mr. Szabo has not released any correspondence
from Satoshi from this period or acknowledged communicating with
him.

Mr. Szabo first made brief mention of Bitcoin on his blog in
mid-2009, and in 2011, when the currency was still struggling to
gain traction, he wrote about it again at greater length, noting the
similarity between bit gold and Bitcoin. He acknowledged that few
people would have had the expertise and the instinct to create
either of them:

“Myself, Wei Dai and Hal Finney were the only people I know of who
liked the idea (or in Dai’s case his related idea) enough to pursue
it to any significant extent until Nakamoto (assuming Nakamoto is
not really Finney or Dai).”

That item, in May 2011, was one of the last posts Mr. Szabo made
before he went on a lengthy hiatus to work, he said later, on a new
concept he called temporal programming.

May 2011 was also the last time Satoshi communicated privately with
other Bitcoin contributors. In an email that month to Martti Malmi,
one of the earliest participants, Satoshi wrote, “I’ve moved on to
other things and probably won’t be around in the future.”

Whoever it is, the real Satoshi Nakamoto has many good reasons for
wanting to stay anonymous. Perhaps the most obvious is potential
danger. Sergio Demian Lerner, an Argentine researcher, has concluded
that Satoshi Nakamoto most likely collected nearly a million
Bitcoins during the system’s first year. Given that each Bitcoin is
now worth about $240, the stash could be worth more than $200
million. That could make Satoshi a target.

With his modest clothes and unassuming manner, Mr. Szabo could be
the kind of person who could have a fortune and not spend any of it
–or even throw away the keys to the bank. People who know him say
he drives a car from the 1990s.

That modest outward appearance hasn’t diminished the deference
toward him among Bitcoin cognoscenti. Potential employees were drawn
to Vaurum when they heard that Mr. Szabo worked there, people who
interviewed at the company said. They wanted to work alongside the
person they suspected could be Satoshi Nakamoto–or who at least
participated in Bitcoin’s invention.

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