Who exactly is Satoshi Nakamoto, the enigmatic creator behind Bitcoin? Among the leading candidates is Hal Finney, but close behind him is Nick Szabo. A notable figure in the Bitcoin movement, PlanB, recently brought to light two articles from Nick Szabo in 2005, allowing everyone to draw their final conclusions on the search for Bitcoin’s founding father and the secret to its success.
Central to these discussions is the concept of “unforgeable costliness,” which stands as Bitcoin’s main secret and its key distinction from all other asset classes and currencies. Szabo’s insights shed light on the fundamental nature of value that transcends the digital realm, comparing it to the intrinsic worth of antiques, time, and gold – all valuable either due to their initial cost, the improbability of their history, or both, making this value difficult to counterfeit. This principle is not only fundamental to civilization but also underpins our modern economic systems, from time-based labor payments to the value assigned to money, whether it be through collectibles, commodity standards, or contemporary fiat currencies’ accounting practices.
Szabo outlines a model for unforgeable costliness that involves identifying or creating an extremely rare class of objects that are difficult to produce or verify in value by others, and then using these objects to maintain trust boundaries within protocols or institutions. This approach addresses the challenges of implementing unforgeable costliness digitally, leading to the possibility of creating “bit gold.”
This concept of bit gold, as Szabo discusses and Hal Finney further developed, represents the first online currency based on widely distributed trust and unforgeable costliness, rather than reliance on a centralized organization and traditional accounting control. It was an early vision for what Bitcoin would eventually achieve.
Understanding how money works requires grasping its essential functions, including serving as a medium of exchange, a measure of value, a medium of circulation, a store of value, and as global money. The creation of vast amounts of “crypto-trash” by those who missed Bitcoin’s defining difference from fiat currencies—a predictable scarcity and the significant characteristic identified by Hal Finney, the unforgeable costliness of its creation—underscores the missteps of many in the crypto space.
Creating a trillion dollars might be straightforward in a legislative or symbolic gesture, but where does the unforgeable costliness of creation come into play? Have you built data centers, spent gigawatts of electricity, or created a unique masterpiece? If not, then what value do your tokens truly hold?
This examination reveals Bitcoin’s unique proposition: its predictable scarcity combined with the costliness of its mining process sets it apart from fiat currencies like the dollar and the euro, and other cryptocurrencies like XRP. It’s this foundational principle that has solidified Bitcoin’s position as a groundbreaking financial technology, underscoring the importance of understanding the underlying economics and value propositions of digital currencies.