There's No Such Thing as Crypto Crime

6Mining: The Key to Cryptocurrencies

Back in my first book in 2018, we talked at some length about the currency used on the island of Yap in the South Pacific. They use huge stone coins made of calcite, which they use as currency by sharing who owns each stone through word of mouth, essentially creating the world’s first decentralized ledger. The “ledger” exists in the memories of each villager, very similar to how cryptocurrency decentralized ledgers work. What is interesting about the Yap system is that the stone coins are not mined on the island, but rather on the island of Palau, which is a 310-mile round trip by boat across a dangerous stretch of Pacific Ocean. This is notable because it’s the difficulty of creating new stones that gives them an inherent value.

To mine a new stone, you have to employ boat builders, sailors, miners, and other staff. Having built your oceangoing boats, you have to sail them to Palau, mine and cut new stones, and sail them back to Yap, where they are unloaded and positioned somewhere on the island. The very fact that the stones are on the island is proof of the work that went into obtaining them. In fact, that phrase, proof of work, is key to understanding traditional cryptocurrency mining. It is the significant cost of obtaining a new coin, the proof of work, that gives the stones their inherent value.

When Satoshi Nakamoto, the enigmatic designer of Bitcoin, was working on the original Bitcoin code, they had two significant problems to ...