Bitcoin Studies: Finding Nakamoto Satoshi【10】——Satoshi win the significance of the Nobel Prize
ZWS(Zhu Weisha), a Famous Chinese Entrepreneur
10.1 Satoshi Nakamoto pioneered cryptoeconomics
Satoshi Nakamoto winning the Nobel Prize needs to meet three primary conditions.
10.1.1 Basic requirements for winning the Prize
1. Satoshi Nakamoto must announce his true identity to be eligible for the Prize.
Professor Bhagwan Chowdhry proposed that the prize money could be converted into bitcoins and credited to Satoshi Nakamoto's bitcoin address, but the Nobel Foundation disagreed. In other words, Satoshi Nakamoto must show up.
2. It fits the Nobel Prize's tastes and preferences.
The Nobel Prize favors theory, all winners have monographs, and white papers seem weak as monographs. It's not a lack of innovation; it's a lack of description. How should it be described? Obviously not a problem. It's something that will benefit the bitcoin community, The description ability of the overall community is enough to surpass Nobel Prize winners.
3. It must be a groundbreaking theoretical contribution and have a significant practical impact.
Satoshi Nakamoto is qualified to win the Nobel Prize for theoretical contributions and practical impact. It is the spirit of the Nobel: to reward those who have made significant contributions to humanity!
What kind of Nobel Prize is available to Satoshi Nakamoto? Writing in the Huffington Post, UCLA finance professor Bhagwan Chowdhry said he had nominated Satoshi Nakamoto for the 2016 Nobel Prize in economics. Lex Fridman, a leading artificial intelligence scholar at MIT, suggested in 2021 that the Bitcoin creator, who goes by the pseudonym "Satoshi Nakamoto," should win the Nobel Prize in economics. The professors believe Satoshi Nakamoto is suitable for the Nobel Prize in economics. There should be no disagreement on this issue.
How should Satoshi Nakamoto's contributions to economic theory be described? Using Nakamoto economics to describe Nakamoto's economic theoretical achievements involves too many aspects, and it is challenging to generalize. However, one of the economic characteristics can be explained by Satoshi Nakamoto's Cryptoeconomics.
10.1.2 Basic content of cryptoeconomics
Cryptoeconomics has some weight in Bitcoin, but only some of it. Bitcoin is not a derivative of Cryptoeconomics. Instead, it's the Bitcoin system that derives Cryptoeconomics.
Cryptoeconomics is a whole new branch of economics. Cryptoeconomics is a discipline that uses modern technology, such as cryptography, to solve economic problems; uses economic means, such as incentives and games, to solve technical issues. For example, thanks to encryption, a credit between transactions is significantly reduced. For this reason, Satoshi Nakamoto described machine trust. However, because it was too innovative, the founders chose to remain anonymous for fear of encountering disasters similar to those of Bruno and Galileo.
Its novelty is that trust is accomplished through machines.
1. The trust process is achieved through machine program rules and verification.
2. A game is generated, and the consensus winner obtains the right to bookkeeping and receives a reward.
3. A chain record of trust results is formed.
4. All machines involved in the trust process keep the trust results.
5. Anyone is eligible to participate, and everyone is eligible to view the chain record.
Machine trust replaces trust in third parties, commonly known as decentralized trust, in other words, distrust of traditional financial intermediaries. People's trust in the Bitcoin system is machine trust, trust in its underlying technical program and the computing power, including trust in the underlying program team and the computing team involved in the computation. For example, believe that the lousy node income is less than the honest income. Of course, including people comes with a risk factor, and there are differences in the different teams and consensus approaches that require evaluation criteria. Satoshi Nakamoto's machine trust criteria can be summarized as 6.
1. The fewer people to trust, the better.
2. The fewer trust links, the better.
3. The more secure the trust link, the better.
4. The more extended the trust has been experienced, the better, i.e., trust should be accumulated over time.
5. Don't control user data.
6. The general ledger is open and transparent and cannot be tampered with.
As explained, it needs a lot of words; readers can look at WEB3.0 Chainless Financial Platform White Paper (1).
In short: a mechanism and system for issuing currency that does not or cannot do evil through Cryptoeconomics machine trust.
10.2 Solving financial problems with cryptography and other technologies
The following explanation corresponds to the first sentence of the definition of Cryptoeconomics: it uses modern technology, such as cryptography, to solve economic problems. The financial issue here refers to currency issuance, specifically bitcoin issuance.
Bitcoin uses crypto technology to issue asset-based currencies fairly using a distributed consensus approach. All this without artificial credit backing. Note: Bitcoin is not an air currency; it's an asset currency. Even in the "air" phase, where Bitcoin has no price, there is a cost to mining Bitcoin. Costs are necessary to convert the value, and it is a complete misconception to say that bitcoin is an aircoin. People with this idea must understand the difference between asset value and value-in-use evaluation criteria. We will introduce this in detail later.
10.2.1 The problem of over-issue of fiat currency
Bitcoin's issuance method is a significant innovation in the history of money. Bitcoin's emergence began to end the evil of issuing air money without assets in the electronic age. Fiat currency, while not precisely air, is based on a few assets issued primarily on credit. Different countries have different degrees of money "air."
The central bank regulates the economy through the fiat currency mechanism to maintain economic development. The practice has proved that the central bank cannot reasonably handle the money supply by mathematical means. All kinds of theories around the issuance of flat currency have all failed and become the source of almost all economic crises. Satoshi Nakamoto's quote in the Genesis block, The Times 03/Jan/2009, "Chancellor on brink of second bailout for banks," makes it clear fiat currency will collapse without the bailout. That Bitcoin is designed to solve the problem of economic crises caused by creditless currencies.
With the massive over-issuance of fiat currency-based global currencies, governments, banks, and financial institutions have an exclusive legal advantage. As a result, more and more people are replacing fiat currency with safe-haven assets such as stocks, real estate, gold, and bitcoin. Investors, real estate developers, and those close to the capital took advantage of one bubble after another to share the monetary dividends. This kind of asset holding does not generate tax; in the United States is stock; in China is house property, causing an imbalance in fiat currency circulation. The easiest way to change this imbalance is to over-issue currency; over-issuance causes devaluation. Disguised plundering of wage earners who acquire wealth through labor alone widens the gap between rich and poor, creates economic crises, and causes new uncontrolled government over-issuance to delay the outbreak of social problems. It also created the monstrosity of the finance business, which has become a parasite that eats up social wealth.
According to Yan Xiong's 2012 article, a clear example is, "Half of the combined profits of China's 2,500 listed companies are harvested by 16 listed banks." (2). It is a very old statistic, and the situation is even more severe now. Financial bubbles lead to economic turmoil. Turbulence is an opportunity. The idea that speculation is easy to obtain wealth has weakened the concept of holding assets for a long time and getting stable returns through labor. It causes young people to engage in full-time and part-time financial speculation, which reduces the productivity of their primary business, the effective labor force, and inflation and further causes financial and real economy imbalances. The imbalance needs to be adjusted, and the financial markets are shaken dramatically, intensifying the opportunity for speculative profits. The speculative profits generated further push up prices and create the expectation of currency devaluation, prompting people to spend the money they have quickly. As a result, personal spending power is limited; also, they go for further speculation that eventually affects the cornerstone of faith in society.
Interesting experiments in blockchain show the state of various air coin offerings and the apparent hazards, all of which are present in fiat currencies. If a fiat currency has no asset endorsement, it is air currency, and air currency is the root of all evil. Human Society Lab-blockchain amply confirmed it. Henry Ford said: "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” (3) The existing fiat currency system is only a temporary measure in the long history, and will definitely be replaced by an alternative.
The modern theory of currency issuance is that currency issuance corresponds to economic growth, and moderate over-issuance is good for economic growth. This degree is difficult to grasp; only the bubble bursting produces a return to value. But the value return is often a negative overshoot, forcing the controllers to steer the direction again and cause a new overshoot. The economic crisis comes and goes. Is a modest increase in issuance more destructive or more growth? As a short-term strategy, it can be considered, but as a long-term strategy, it must be wrong. Control is easy for systems with simple factors; for systems with many factors, it is uncertain and uncontrollable. So the "degree" of moderate development is unrealizable nonsense. Uncertain systems follow the law of natural growth, and every change impacts the future. The consequences are speculative in the short term but are incorporated into the natural growth in the long term.
12.2.2 Use crypto technical means to prevent fiat currency from doing evil and realize Bitcoin standard
Section 12 of this paper will describe how to achieve the Bitcoin standard. Here is a general point of view to illustrate the use of technical means to solve economic problems.
The emergence of bitcoin makes it possible for modern human production and creation to form a natural counterpart to currency issuance, that is, the possibility of returning to the era of the digital gold standard, where Everyone can issue currency, no assets can not issue currency, should be the consensus of the future.
Bitcoin uses software protocols to reasonably produce and record an untameable currency, challenging the problem of uncontrolled government coinage and showing people the possibility of achieving a "digital gold" standard. It is a fundamental problem of economics. Economists, starting with Mises, and Hayek, only saw the problem but no solution. Satoshi Nakamoto came up with a solution. Unfortunately, the Nobel Prize in Economics has no tradition of rewarding solutions.
Bitcoin uses encryption and other technical means to create a "digital gold" with better characteristics than gold. As a result, Bitcoin is a super-sovereign currency, and the coin's stability will not be affected by the differences in sovereignty; later, we will talk about how to achieve the "digital gold" standard, the bitcoin standard. It provides the possibility to solve the economic problems that the fiat currency cannot solve.
10.3 Solve the problem of automatic currency issuance by economic means
The following explanation corresponds to the second sentence of the definition: the use of economic means, such as incentives and games, to solve technical problems.
Bitcoin solves technical problems by economic means, i.e., incentives and games. For example, it solves the Byzantine General problem. The problem was proposed by Leslie Lamport, one of the pioneers and founders of distributed systems and a Turing Award winner in 2013. The highest-level solution to this problem was PBFT (Practical Byzantine Fault Tolerance) by Barbara Liskov, a Turing Award winner, in 2008, and PBFT can only operate in minimal networks. Satoshi Nakamoto used a very simple way to match and surpass the algorithms of the Turing Award winners. It is actually the longest-chain problem. How to ensure that the chain of evil does not exceed the chain of honesty, some mathematical experts have proved that Satoshi Nakamoto's method is mathematically incomplete and Satoshi Nakamoto's success is pure luck. Satoshi Nakamoto said, "The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes." (4) When the benefits of being evil are less than the benefits of being honest, people choose not to be evil. Mathematicians have yet to calculate the human nature behind mathematics. Economics is the study of human nature but also the analysis of selectivity. There is no human nature in the mathematical formula once the mathematical formula appears in the human nature parameter, meaning that the indefinite parameter formula has no meaning.
Satoshi Nakamoto's 13 years of mining proved that systems that consider incentive rules can be automated and are more efficient. The developers who maintain the core program of the Bitcoin system are just a dozen people. Satoshi Nakamoto’s Bitcoin system has not had a single penny of outside investment besides himself. After two years of being his customer service, a complex technical system has been running automatically. Automatic systems are common, but distributed systems that operate automatically by rules have never existed. The solution to these problems is economic instruments. The resulting Bitcoin system is fair to all participants： Fair incentives, forming a spontaneous order that technology cannot solve, spontaneous participation under machine rules, automatic operation, autonomous governance, and self-actualization. It is a Nash equilibrium. The non-cooperative game is a Nash equilibrium approach, but Bitcoin is not a strategy-selective Nash equilibrium. It is a probabilistic Nash equilibrium, and writing a paper on this point is Nobel Prize level.
10.4 The achievements of cryptoeconomics on the Bitcoin system
What problem does Cryptoeconomics solve.
1. The innovation of saving money with privacy
The application of cryptographic public-private key technology to creating private accounts allows people to have accounts anonymously, resistant to censorship, and no one can manipulate and freeze your account at will. Corresponding to a Bitcoin address account, the person with the unique private key has control over the assets stored in the address. In cryptocurrencies, Bitcoin uses the UTXO unspent account model, and blockchain projects that do not use the UTXO account model do not achieve the level of privacy protection of Bitcoin. The downside is that assets are lost when the private key is lost. This drawback is a significant pain point that cryptocurrencies must change. Privacy protection became the origin of Web3, and What is Web3? can also refer to Reference (1).
2. An innovation in wealth creation and exchange
Every transaction in Bitcoin is both transparent and anonymous. The general ledger is transparent and global users can view it freely. The specific address account is anonymous, and ordinary people cannot determine the ownership of the Bitcoin address account. Bitcoin makes the property in its address account inviolable, unfreeze, and untraceable. You are in control of your wealth without the need for bank custody. No need to trust third parties, peer-to-peer transactions and no double payments, clearing and settlement all in one is the innovation that Bitcoin's general ledger is designed to be.
3. The innovation that demands expectations determine the Bitcoin price
The bitcoin creation process is competitive and requires time, energy, and other tangible cost inputs. Halving the cycle and linear minting creates clear expectations of shrinkage. There are also total amount limits. The amount of gold mined is unpredictable, and an increase in the price of gold inevitably leads to a rise in the amount mined, which produces a price retreat. It is the pattern where cost and demand together determine the price. Since Bitcoin is a linear mint, a price rise cannot lead to an increase in mining volume but only to a rise in computing power, which leads to a further increase in scarcity, which pushes up the cost of mining, and constitutes a moat for the price. Moat features drive moat demand, forming an upward spiral. Bitcoin is demand-driven rather than cost-driven, which is a vast difference from gold and is an innovation after Bitcoin benchmarked against gold. Think carefully about what other asset is the only demand expectation driving it, and what other asset doesn't have a price ceiling? Gold, fiat currencies, and securities are not. Aircoin is, but it's not an asset. There's another thing on the market that is demand-driven and does not have a price ceiling. It's very close to the characteristics of bitcoin, except for the word "expected." That's economic growth. Economic growth is demand-driven, and economic growth has no ceiling; how well matched are the two? I'm not a good brain, but I can't think of anything else with this characteristic.
The question here is why the four-year halving and Why halving is instead of any other shrinkage method. Some say the four-year halving corresponds to the four-year election in the U.S. The government is much more complicated to run and involves all aspects. Bitcoin is simple; it is the replacement cycle of the computer; according to Moore's law, 18 months of chip capacity doubled, and two years of replacement is enough. If it's a two-year cycle and reduces the number of coins minted, the coin price may rise even faster. Of course, Satoshi Nakamoto was not too familiar with hardware and did not think of AISC miners.
4. Inflationary predictable innovation
Bitcoin will cease to be inflationary by the end of the growth cycle in 2140, becoming the standard currency scale and the price ruler of goods. Bitcoin's P2P distributed nature, and decentralized design structure precludes, at least in theory, any institutional manipulation of the total bitcoin supply. Bitcoin has to move the decimal point to the right a few more times before it becomes the price ruler for a commodity.
How much has the creation of a standard currency scale contributed to humanity? It must be in the spirit of the Nobel: rewarding those who have made significant contributions to society!
10.5 Features of the Bitcoin system that cryptoeconomics cannot summarize
Bitcoin is far richer than Cryptoeconomics, and some contents are distinctive.
1. Consensus is freedom, not democracy
There is no tyranny of the majority - i.e., democratic voting - with Bitcoin. It is because it does not contain any coercion in its design. The majority cannot force the minority, nor can the minority force the majority. Disagreements create a forked coin. There is no way to vote to require Bitcoin to go the way the majority wants it to. Consensus is the solution, which is very relevant to the nature of money. The natural evolution of a currency is the process of consensus formation. Once formed should not be easily destroyed by man. Having a strong man without democratic mechanisms of checks and balances can easily develop a dictatorship. With the disappearance of Satoshi Nakamoto, he practiced the consensus mechanism. There is no leader, no central bank, relying on natural evolution, which is a significant feature of Bitcoin. There should be a new relationship between the community and the consensus mechanism, and there should be checks and balances to make it right. Pure natural evolution seems like natural sales, feasible without competitors or with weak competitors to be viable. The fact that no rival has emerged does not mean that there will be no rivals in the future. Does the discussion about democracy and freedom belong to technology or economics? It is not generalized by Cryptoeconomics.
2. The power of open source
Bitcoin is an open-source project with no company operating, only the inventor without a person in charge, no attempt to exploit anyone, and no financing. There is no infringement on anyone's interests. In a society that speaks of the rule of law, it would be hard to throw Satoshi Nakamoto in jail, even if the authorities hated it passionately. Today it would be even less likely. I can't help but admire Satoshi Nakamoto's brilliance and prudence here.
Open source gives developers worldwide the right to contribute to Bitcoin updates. The Bitcoin Improvement proposal (BIP) arises from this. A BIP design document brings new features or information to the entire network. Due to the open-source nature of Bitcoin and the absence of a central authority in its system, the Bitcoin community wishes developers to use BIPs as a medium of communication and the primary way to interchange information. Amir Taaki submitted the first BIP0001 for the Bitcoin network. The main content was about BIP, including the definition of BIP and how to integrate BIP with Bitcoin Core clients. And BIP0001 was extended and replaced by Luke Dash in BIP 0002.
The power of the open source, the formation of the BIP, and the formation of community mechanisms for natural evolution are the power of community. One person's code can conquer the world without advertising costs and a marketing team, which is unthinkable under a corporatocracy. The community proposal mechanism is one of Bitcoin's most fabulous mechanism creations. The community was created by Satoshi Nakamoto, who created the environment, and the subsequent evolution was a creation of the power of the community. Judging from the current operating results of the community, both the technical community and the Bitcoin forum are outdated. So is it better to catch up with the times or maintain the status quo? It all makes sense. From my point of view， I hope to improve.
3. Creating a trinity of autonomous organizational forms
The power of the community comes from Satoshi Nakamoto's mechanism design. Program developers, miners, and token holders have the same interests; no company boundaries are forming a community; the commonality of the community is the coin as a bond, actions are voluntary, and contributions are voluntary. If there is a team, it's the one that maintains Bitcoin, called the Bitcoin Core development team, with a market share of over 96%. This team is a loosely organized group that is responsible for the review of code uploaded by volunteers. From the development perspective, using currency still has room for further improvement as a community bond. However, in an application scenario that relies on many users to grow, the community mechanism will undoubtedly win over the company, and that is the future.
Bitcoin shows us how to achieve lie down to win. Satoshi Nakamoto laid down and won. But early developers don't necessarily hold bitcoin the way Satoshi Nakamoto did. Because of natural evolution, no one did the organizational propaganda of the market, and a consensus was slow to be reached. The lied-down win is an inevitable social phenomenon due to the increase in productivity and the disintegration of the corporate system. How to achieve lie down win is another topic. Satoshi Nakamoto reveals the future direction and the right way to lie down win. He does not sell; you do not sell, is Satoshi Nakamoto level.
4. Bitcoin system theoretical foundation
Bitcoin is designed to continue the ideas and traditions of cypherpunk. If there is a school of thought similar to the Austrian school, this is the cypherpunk school. The fundamental theories used in Bitcoin are game theory, probability theory, cybernetics, cryptography, mathematics, cryptocurrency, philosophy, computer programming and database technology, and P2P network technology.
Cryptography includes public-private keys, cryptographic signatures, hash functions, transaction hash chains, Merkle tree, timestamps, and SHA256 encryption algorithms.
Economics is extensive, including game theory, probability theory, cybernetics, and monetary science. No other discipline can be considered creative; only economics has many unbelievable innovations.
10.6 He opened Pandora's box
Looking at the contributions of the winners of the Nobel Prize in economics, compared with them, Satoshi Nakamoto is a Grandmaster, a contribution on the level of Darwin, Einstein, and Newton. There have been countless currencies born and died over the centuries, and Bitcoin has been the most significant innovation in the currency field. "Satoshi Nakamoto brought together a variety of existing concepts to create this powerful technology that revolutionized the concept of the monetary system. He opened a Pandora's Box, and a large number of elites worked on top of the Bitcoin system to change other systems based on this set of guidelines. ........, The main impact of Bitcoin is to allow the people of the world to rethink how money should function. It has opened the door to a new monetary system for humanity, an electronic renaissance." (5)
This profound passage is the end summary of the translated version of Satoshi Nakamoto's Collected Works. First, what is the new monetary system? Next, we must consider the role Bitcoin should play in the new financial system. Finally, a focus on scheme implementation characterizes Satoshi Nakamoto's Cryptoeconomics. The following three sections are our implementation sum up.
Satoshi Nakamoto is the founder of Cryptoeconomics, which pioneered the human method of using machines to achieve global currency issuance and automatic and fair distribution of money by machines. Cryptoeconomics is the reason for Satoshi Nakamoto's Prize, and it does not encapsulate all of Satoshi Nakamoto's ideas. The award is a significant boon to himself and the Bitcoin community. The Nobel Committee's support of his award better demonstrates its actual value. The problem is that he must be contactable and must come forward. There are still many problems to be solved in this regard, and We must do them logically. This section is one of those logical nodes where we must make up the consensus blocks. Using gold as the consensus standard, Bitcoin is not a global consensus, and many people may say I don't understand it, so read my next section.
Satoshi Nakamoto: Male, then 33-34 years old, prodigy, American, lives on the West Coast, is a cypherpunk. No shortage of money. Freelancer. There is no Satoshi Nakamoto among the deceased Satoshi suspects. He has excellent programming and product design skills and an understanding of the community. Good life with a good moneymaster and schemer. Satoshi Nakamoto has a deep knowledge of finance. Influenced by the Austrian school of economics. Philosophically inclined to natural evolution and likes to live free and easy. The founder of Cryptoeconomics.
1. Web3.0 Chainless Financial Platform White Paper
Hong Kong Yuxing Technology Company (8005)
2. The Financial Industry Crowding Out Industry Resources and Profits
Xiong Yan October 30, 2012 14:48
Some data show that in the first half of this year, half of the combined profits of China's 2,500 listed companies were reaped by 16 listed banks. There is a comparison of the total profits of the top ten companies in China and the U.S. There are four banks in the top ten large companies in China, and they account for 63% of the profits of the entire top ten, while only two of the top ten large companies in the U.S. are financial institutions, and they account for only 17% of the profits of these ten. As a social sector, whether banks and financial institutions create value, which is debatable, let's put aside, but the financial sector, represented by banks, has overcrowded the scarce resources of society and enjoyed too much profit, this should be a fact that everyone acknowledges. In a forum similar to last year, a banker talked about how embarrassing it is to talk about profits, and a government official exclaimed that the whole Chinese people are working for the banks, and it's time to adjust the situation.
4. Bitcoin: A Peer-to-Peer Electronic Cash System
5. Blockchain Apocalypse: The Collected Works of Satoshi Nakamoto
(U.S.) Phil Champagne
Translator: Chen Bin Hu Fan