Currency System Repair: Satoshi Nakamoto's Disruption of Human Society

Original Title: Fixing money: Satoshi's disruption of human society

Original Author: Eli Ben Sasson

Original Translation: Starknet 中文

Selected Overview

• The core innovation of Bitcoin lies in its broadness (decentralization), incentive-based integrity, and public verifiability.
• The challenges and opportunities faced by Bitcoin.
• Looking forward to the day when Bitcoin can integrate zk-STARK technology through a soft fork.

Bitcoin means different things to different people. I would like to share what Bitcoin means to me and explain what I believe to be Satoshi's core innovation. First, I want to clarify that the true essence of Bitcoin's innovation does not lie in cryptography, the internet, or computer technology. These emerging technologies are merely means to achieve a goal. What Satoshi truly revolutionized is one of humanity's most important inventions: social structure.

Social Structure Requires Integrity and Consensus

"Integrity: doing the right thing even when no one is watching."

------ C.S. Lewis

When it comes to social structure, you might think of friendship, cultural traditions, or today's popular social media. However, people often overlook that money is also a form of social structure. In fact, the essence of money is social structure.

Money is a system that carries immense value, and the existence of this value entirely depends on everyone collectively recognizing that money should "operate like money." Therefore, to understand the essence of money as a social structure, we need to clarify two questions: what does it mean for money to "operate like money," and why is it necessary for everyone to reach a consensus on this?

People have some basic expectations of money: it cannot be printed endlessly at will; the money you hold will not disappear or increase without reason; you can freely use your money, and so on. These characteristics constitute what I call the inherent integrity of money. In other words, the essence of money determines that even if you are not constantly supervising it, it will still operate as you expect.

However, the inherent integrity of money is only one aspect. On the other hand, money also requires public trust (i.e., perceived integrity), meaning that there must be a broad consensus on its integrity across society; otherwise, money cannot maintain its value. For example, if there are rumors in society that the government will force banks to freeze assets, it will severely damage the public trust in money. Even if the rumors are false, money may begin to depreciate.

In summary, the value of money depends on both its inherent integrity and public trust. Any structure whose value is entirely based on inherent integrity and public trust is a form of social structure. Money is the purest and most influential form of social structure (other forms will be discussed at the end of this article).

Human society has been continuously inventing and redefining money. The simplest method is for society to select a homogeneous and scarce physical resource to serve as money. In my elementary school days, this physical resource was chewing gum wrappers. In prisons, cigarettes served as currency; in some societies, it was shells, salt, and stones; for thousands of years until the eve of modern times, gold played the role of money. But today, money is mostly digital, its scarcity relies on state endorsement, and the power to manage this resource is entrusted to a few specific companies (i.e., banks). To a large extent, the value of money depends on how much we trust the integrity of the state and its mechanisms that operate the monetary system.

Bitcoin is a completely new way to realize the social structure of money. Its innovation does not lie in the use of computer and internet technology, but in how it utilizes the internet to realize money as a social structure. Specifically, Bitcoin adheres to the following three unprecedented principles: (1) broadness (i.e., decentralization), (2) incentive-based integrity, and (3) public verifiability. We will explain these principles one by one.

Broadness (Decentralization)

Bitcoin is defined by a protocol, which is a set of programs run by numerous computers connected via the internet. Traditional money also relies on protocols (e.g., the SWIFT system), but the difference with Bitcoin is that its protocol invites everyone to participate in the operation of the system on an equal basis. Each of us can freely download the open-source software that defines Bitcoin miners, participate in creating new blocks with our own computers, and update the state of the Bitcoin ledger (i.e., who owns how many bitcoins). Moreover, broad participation is not just for convenience; the security, integrity, and value of Bitcoin are directly related to the broadness of its operating nodes. The more people participate in mining, the more secure the Bitcoin network becomes, and the more the public trusts its integrity.

In contrast, the traditional banking system does not welcome us to participate in its operations. At best, we can only understand our account situation within a very limited scope. "Broadness" is a true innovation in the history of human society, built on the principles of equality, autonomy, and democracy, which are the cornerstones of a free society. "Broadness" resonates with the ancient and fascinating idea of direct democracy, but goes further. Here, we are not only invited to participate in voting and expressing opinions, but we are also equally empowered with the right to operate the "state." Bitcoin was born after the 2008 financial crisis, and this is no coincidence. The crisis at that time brought about quantitative easing (i.e., unlimited money printing) and bailouts for "too big to fail" banks. With the increasing number of unbanked people globally and large-scale surveillance gradually infiltrating our daily financial transactions, the continued development of Bitcoin is a direct response to this situation. In other words, the emergence of Bitcoin is a rebellion and response to the continuous erosion of the public trust and inherent integrity of the traditional financial system.

Incentive-Based Integrity

Bitcoin mining is profitable—if you successfully mine a new block, you receive a Bitcoin reward, and this process is open to everyone! This may be the most marvelous and astonishing part of Satoshi's invention. The Bitcoin protocol encourages participants to perform certain specific actions (creating valid blocks) through economic incentives (i.e., payment rewards), thereby ensuring the integrity of the system. This method incentivizes and compels all miners to "do the right thing" even without supervision. If you deviate from the "right track" (i.e., the Bitcoin protocol), you will face economic losses, as the electricity costs incurred for mining invalid blocks will be wasted, and you will not receive any Bitcoin as a reward. Cleverly, the value miners receive is not in dollars or euros, but in the form of Bitcoin itself. And Bitcoin, as a social structure, can only maintain its value if the public trusts its integrity. This creates a virtuous cycle: miners are incentivized to operate with integrity without needing to coordinate with each other because violating the protocol is a foolish thing to do—your hard-earned bitcoins will depreciate, and ultimately, you will suffer the consequences.

Let’s compare this principle of "incentive-based integrity" with traditional monetary systems again. In traditional systems, we are not invited to participate in the operation of banks (banks lack broadness), and those who truly participate in the operation of banks do not receive equal direct value rewards for maintaining the integrity of the bank or state currency. Instead, banks operate the system themselves or hire service providers. The integrity of the system does not rely on the incentives of the protocol but is enforced through contracts and the legal system of the state.

Imagine a world where banks offer equity (shares of the bank) or income (a portion of bank fees) as compensation for participation in a broad and open operational network; where the state opens up the authority for citizens to participate in the operation of the national monetary system and rewards their contributions with newly issued currency. I believe this would be a superior and more democratic way for a state to operate its currency. I believe that adopting this higher standard would lead to more autonomous citizens and a more vibrant free society. Perhaps one day, inspired by Satoshi's invention of "Bitcoin," various countries will move toward this more ideal system. But at least today, this has not yet become a reality—and if one day society can truly achieve this leap, it will be entirely thanks to Satoshi's invention.

Public Verifiability

The third and final core part of Satoshi's innovation is public verifiability. This means that anyone can verify the complete integrity of Bitcoin, including all transaction records since the creation of the genesis block in 2008. More importantly, verifying all this does not require a supercomputer; it can be done with just a laptop! This also means that I can use this laptop I am currently typing on to verify the latest Bitcoin block in real-time, personally participating in this broad and democratic integrity and the social consensus it relies on. As long as someone attempts to undermine the integrity of Bitcoin (i.e., the integrity of the network), we will all be aware of it.

It is necessary to compare this with traditional payment networks again. In traditional systems, centralized institutions (such as banks, credit card companies, etc.) rely on a large number of computing nodes to process transactions. Ordinary users have no way to directly verify the integrity of the system. Even if we could gain some sort of viewing permission, the massive computational load could never be handled by an ordinary laptop.

The Innovation of Bitcoin - Challenges and Opportunities

Let’s summarize. The innovation of Bitcoin lies in re-establishing the ancient social structure of money in a completely new way. This new realization leverages the internet and widely available low-cost computing devices, but its core innovation is based on three new principles of the social structure of money: broadness, incentive-based integrity, and public verifiability.

The Sustainability of Broadness?

Broadness is the most fragile and concerning characteristic of Bitcoin, and it is the attribute I worry about the most. Creating a new Bitcoin block requires a significant amount of electricity or relies on a great deal of luck. Clearly, luck is uncontrollable, so we can only focus on the electricity issue. One can imagine a dystopian future where the operation of the Bitcoin network—especially the massive electricity consumption used to secure the network—is completely controlled by a single or a few powerful entities (such as states or large corporations). This concerning future is not far-fetched for two reasons: (1) economies of scale may give large operators an advantage, gradually controlling a larger proportion of the computing power (i.e., Bitcoin's electricity consumption); (2) as Bitcoin becomes increasingly important in our lives and economy, powerful entities such as states and large corporations will inevitably try to control Bitcoin. If this happens, and Bitcoin mining is controlled by a single entity or a few collaborating entities, the consensus around Bitcoin's integrity will be weakened. These consensuses include, for example, its censorship resistance, no entry barriers, the issuance cap of never exceeding 21 million coins, and the payment mechanism that does not require reporting additional information to centralized institutions. Once these core principles are eroded, Bitcoin will lose its value.

The broadness of Bitcoin is not inherently guaranteed by Satoshi's invention. Maintaining this characteristic is a long-term battle that everyone concerned about the value and mission of Bitcoin must participate in together. Even if broadness is destined to be transient, the spirit of freedom it represents will shine like the brief yet brilliant ancient Greek democracy, continuing to illuminate and inspire all those who care about human freedom throughout history.

The Global Scalability of Bitcoin

The characteristic of public verifiability comes at a high cost for Bitcoin. To ensure that transaction verification can be completed using common devices, we must limit the computational load required to verify Bitcoin transactions. Based on the principle of "public verifiability," Bitcoin's processing capacity is limited to about 10 transactions per second (10 TPS). This situation poses a significant limitation on Bitcoin's throughput and partly explains why very few people globally use Bitcoin for everyday shopping. Simply put, the current Bitcoin network lacks sufficient bandwidth to support everyone using Bitcoin for daily transactions. To achieve this goal, we need a Bitcoin network that can handle thousands or even millions of transactions per second.

Thus, we seem to be caught in a dilemma—either maintain Bitcoin's public verifiability but be limited by low bandwidth, unable to meet global usage demands; or enhance scalability to allow everyone to buy everyday goods with Bitcoin, but at the cost of losing transaction transparency, as ordinary devices can no longer easily verify all data, forcing us to rely on those powerful centralized institutions again. And this is where mathematics and cryptography come into play.

Payment channels and the Lightning Network are outstanding cryptographic solutions applied to Bitcoin since March 2018. They expand Bitcoin's throughput to nearly unlimited levels by allowing parties to settle directly. This situation is somewhat similar to a grocery store allowing customers to buy on credit and settle at the end of the month, except that the entire process requires almost no trust assumptions, with the Bitcoin network itself acting as an arbitrator to prevent one party from attempting to cheat.

However, this solution has two main drawbacks:

• Low capital efficiency. Both the grocery store and the customer must lock in a sum of money at the beginning of the month, and the locked amount often needs to be higher than the customer's monthly spending budget to complete the payment process smoothly.
• Continuous monitoring is required. Both parties must constantly monitor their payment channel status; if one party fails to monitor in time, the other party may exploit this gap to steal funds.

Although a modification to the Bitcoin protocol (i.e., a soft fork) is needed, a different and better solution already exists. This is the Bitcoin solution I have dreamed of for over a decade and the reason I dedicate myself to blockchain work every day. The zk-STARK protocol was co-invented by me and others 15 years ago when I was still a full-time academic professor of theoretical computer science. This protocol allows all of us to verify all blocks of Bitcoin on smartphones, even at a million times the data volume, without trusting any third party responsible for processing Bitcoin transactions. This solution completely addresses the two major drawbacks of the Lightning Network mentioned earlier. It has capital efficiency and no longer requires users to remain vigilant at all times. I first introduced this groundbreaking blockchain technology at the Bitcoin conference in 2013 and co-founded StarkWare in 2018 to promote the practical implementation of this technology. Since then, with the growing zero-knowledge research ecosystem working together, we have successfully established zk-STARK technology as the ultimate solution for Ethereum scaling. I look forward to the day when Bitcoin can also integrate zk-STARK technology through a soft fork, and I am working with many people in the ecosystem toward this goal.

Bitcoin Beyond Currency

Money is constructed through society to meet specific social functions. As a social structure, the value of money relies on two factors: (1) it must operate with integrity; (2) society must generally recognize its public trust.

Money may be the most typical example of a social structure, but it is by no means the only example. In fact, there are many other systems, datasets, and programs that also serve society, carrying immense value, and all this value is based on the broad consensus of society regarding their public trust. For example, land, property, and vehicle registration systems are social structures; electoral and governance processes are social structures; marriage registration systems, social titles, religious titles, and academic titles are also social structures. Even our personal reputations, such as credit history and health records, are part of social structures.

Most social structures are managed by monopolistic entities and central institutions appointed by national governments or nation-states. This leads to a question I will raise at the end of this article: Can these social structures be realized in a completely new way, namely Satoshi's way? And this way is built on the three principles of broadness, incentive-based integrity, and public verifiability.