How Craig Wright Solved the Electronic Money Puzzle with Bitcoin

Bitcoin was not created by coding, but by an academic approach to a real-life problem. The problem to solve was: how to have sustainable electronic cash? Certainly not by implementing anonymity and being taken down via law enforcement in the end.

To create a legal electronic cash system, the inventor of Bitcoin had to take into account many details: to know the history of digital cash, the failures of systems proposed and tried before Bitcoin, as well as to understand legal implications and financial incentives.

The problem with academic literature is that if it’s quality, every sentence is important. Such is the case with Dr. Craig Wright’s new article, “Solving Double Spending.” In it, Dr. Wright explains the uniqueness of Bitcoin compared to previous electronic cash.

The problem of double spending

Who makes sure that a single satoshi is not used twice? The Bitcoin nodes do so, according to the rules laid down in the Bitcoin White Paper. Dr. Wright shows in his article that since at least 1994, various authors have discussed the problem of double spending in electronic cash systems.

Some suggested that traceability needs to be implemented to combat double spending, but with traceability privacy can be at risk. Others pointed to the role of observers in the network. The observer status would have required a trusted third party, which is a single point of failure and costly, or anonymous observers who are not trusted at all.

I recommend reading through the entire article from Dr. Wright. He takes you through the history of electronic cash systems and this helps you understand what is so special about Bitcoin. Bitcoin as an invention took the suggestions of previous authors into consideration but nailed it through economics. Dr. Wright states:

Accordingly, bitcoin was designed as an economically tradable token. By basing security on an economic process where the individuals do the work to validate transactions – when tokens are paid – a commercial system can be built where economically incentivized nodes compete to validate solutions, de-anonymizing such observer systems.

This is a passage to meditate on. Let me put it this way so it’s easier to digest:

Bitcoin was designed as a:

1. economically tradable token,
2. paid to the nodes,
3. which means a commercial system,
4. and through this commerciality the nodes are de-anonymized
5. in their role as observers of the network.

Bitcoin watchers are not anonymous

The nodes themselves will not be anonymous through the distribution of satoshis – which were already issued at the creation of Bitcoin – as a traceable payment to the nodes. Dr. Wright points out that the nodes need to sell tokens to cover their operating costs.

If a node operator is commercially active, it means that the node operator cannot remain unidentified – as everything in trading over the exchange of petty cash is done through legal entities such as individuals or companies. Enterprise-level node operators have invested large sums in their mining capacity and are therefore not hidden somewhere, but regular large companies with addresses and people as representatives.

All of this is set in stone through Bitcoin as a unilateral contract offering. Dr. Wright explains how, as the creator of Bitcoin, he is bound:

The nodes validate transactions, but do not decide, but rather enforce existing rules (Wright, 2008, p. 8). In this way, users can be sure that the transaction is valid and notified if a double spend attempt occurs.

(…)

As Wormser (1916, p. 136) demonstrated in an early treatise on unilateral contract, “a unilateral contract is created when the act is done.” In the case of a Bitcoin node, payment is received as a combination of subsidies and fees when other nodes confirm – to a depth of 100 additional blocks – the block that a node has created. At this point, the creation of a unilateral contract has occurred (Pettit, 1983). A unilateral contract is accepted as soon as the offer is completed

(…)

Rather, Bitcoin is the first financially incentivized system that distributes payments through a unilateral contract-based automated system that does not require a central operator.

People need to examine Bitcoin regarding its contractual dimension. Therefore, changing Bitcoin is a problem. We have discussed this topic with Dr. Wright before:

So with Bitcoin we have an electronic cash system with nodes as observers against double spending, but not anonymous observers—plus the traceability of tokens. However, this incentive system by itself has not solved the privacy concerns that the authors from 1994 onwards pointed out regarding traceability in a network.

Privacy in Bitcoin, according to Dr. Craig Wright

Dr. Wright points out that many of the earlier proponents of electronic cash tried to create untraceable, anonymous electronic cash systems to eliminate privacy concerns. Bitcoin proposes privacy but not anonymity—through scaling Bitcoin.

The topic of Bitcoin and identity is important to understand in the following passages. In Bitcoin, you are not the private key—you can have access to the private key and therefore you can use tokens. But the private key itself does not confirm your identity.

We can connect identities to private keys, but this has to happen outside Bitcoin. In Solving Double-Spending, Dr. Wright states:

Implementing a system designed not to reuse keys and to be able to form private key pairs based on the ECDH properties associated with ECDSA (Wright & Savanah, 2022) allows a solution to the double-spending problem. By requiring new keys derived from a master key, privacy is maintained while identity is linked. Since the participants in a transaction can securely create new keys without interacting, based on information such as PKI-based identity keys, privacy can be maintained between individuals while information is broadcast to observers.

(…)

Bitcoin balances such dichotomy by achieving privacy through scale. Even if every transaction retains full traceability, the cost of monitoring all users globally is prohibitive. Furthermore, assume that users maintain separate keys for each transaction and firewall their identities. In that case, it becomes impossible for people to randomly determine others’ identities or even connect identities. The creation of filters, controls and software can simplify the problem and allow payments that are not shared and thus do not reveal the identity of the user or link transactions (Wright, 2008).

Bitcoin ensures privacy if it scales. The millions of transactions seen on the BSV blockchain ensure that your transaction cannot be tracked by others easily or for free. Anyone trying to track you has to invest. Law enforcement will make this investment regarding criminal offenders. But randomly tracking all or individual Bitcoin users is costly and will become more costly over time.

We start with a private key that is actually linked to your identity—outside of Bitcoin, for example through a public body. You then ensure that you do not reuse the same addresses when you trade in Bitcoin.

This will improve with each transaction we perform on the BSV blockchain. The more transactions in Bitcoin, the more privacy you get—automatic.

The inventor of Bitcoin understands Bitcoin best

The Solving Double-Sending article showed me what I already know: Craig Wright is the inventor of Bitcoin, and Bitcoin is a beautiful tool. BTC has changed its protocol and is therefore no longer Bitcoin. However, Bitcoin is doing very well in the BSV blockchain.

No one in Bitcoin has the knowledge presented in this double spending article we just went through. Check the article yourself— is satoshi nakamoto an academic?

New to Bitcoin? Check out CoinGeeks Bitcoin for beginners section, the ultimate resource guide for learning more about Bitcoin – originally envisioned by Satoshi Nakamoto – and blockchain.