Money Without Boundaries

Chapter 5The Rise of Cryptocurrency

“It is very attractive to the libertarian viewpoint if we can explain it properly. I'm better with code than words, though.”

– Satoshi Nakamoto

In 2008, an important development occurred in the digital world. Just a month after the stock market crashed, a writer using the pseudonym Satoshi Nakamoto released a whitepaper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” proposing a “purely peer-to-peer version of electronic cash” that would allow parties to send online payments directly without going through a financial institution. Nakamoto described a network of nodes, or computers running the Bitcoin protocol, that would timestamp, or verify, transactions between anonymous public keys by hashing them into an ongoing chain of hash-based proof-of-work to create a permanent, unchangeable record. A timestamp server would widely publish a block of items to be time-stamped, and every node on the network would collect them and work on finding a difficult proof-of-work in a process called “mining.” The node that found it first would broadcast it to all other nodes, which would accept the block by using its hash as the previous hash when it began creating the next block in the chain. As a reward for finding the proof-of-work, the winning node would get a newly minted “bitcoin,” providing a means of initially distributing this new form of money into circulation.¹

For readers who are new to bitcoin, blockchain, and proof-of-work, a lot of this ...