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How Craig Wright Solved The Electronic Money Puzzle With Bitcoin

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Bitcoin was not created by coding, but by an academic approach to a real problem. The problem to be solved was: how to have sustainable electronic money? Certainly not by implementing anonymity and possibly getting arrested by law enforcement.

To create a law-abiding electronic money system, the inventor of Bitcoin had to pay attention to many details: knowing the history of digital money, the failures of systems that were proposed and tried before Bitcoin, as well as understanding the legal implications and economic incentives. .

The trouble with academic literature is that if it’s good, every sentence is important. This 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 payment approaches.

The problem of double spending

Who ensures that a single satoshi is not spent twice? Bitcoin nodes do this, according to the rules laid out in the Bitcoin whitepaper. Dr. Wright shows in his article that since at least 1994, various authors have discussed the problem of double spending in electronic payment systems.

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

I recommend reading Dr. Wright’s entire article. It takes you through the history of electronic payment systems, which helps to understand what is so special about Bitcoin. Bitcoin as an invention took previous authors’ suggestions into consideration, but nailed it through economics. Dr. Wright says:

Therefore, bitcoin was designed as an economically salable token. By presuming security on an economic process where individuals do the work to validate transactions – when tokens are paid for – a trading system can be built where economically incentivized nodes compete to validate solutions, de-anonymizing these observation systems .

It is a passage to ponder. Let me put it this way to make it easier to digest:

Bitcoin was designed as:

  1. economically salable token,
  2. paid at nodes,
  3. i.e. a trading system,
  4. and thanks to this commerciality, the nodes are de-anonymized
  5. in their role as network observers.

Bitcoin Watchers Are Not Anonymous

The nodes themselves will not be anonymous thanks to the distribution of satoshis – which were already issued when Bitcoin was created – as traceable payment at the nodes. Dr. Wright points out that the nodes will have to sell the tokens to cover their operational costs.

If a node operator is commercially active, it means that the node operator cannot remain unidentified, as everything related to commerce beyond the exchange of small currency is done through entities legal entities such as private persons or companies. Enterprise-level node operators have invested large sums in their mining capabilities and are therefore not hidden somewhere, but simply large companies with an address and people as representatives.

This is all set in stone via Bitcoin as a unilateral contract offer. Dr. Wright explains how he, as the creator of Bitcoin, is related:

Nodes validate transactions, but do not decide but rather apply existing rules (Wright, 2008, p. 8). This way, users can be assured that the transaction is valid and alerted in case of a double spend attempt.

(…)

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 in the form of a combination of grants and fees when other nodes verify – up to a depth of an additional 100 blocks – the block that a node has created . At this point, the creation of a unilateral contract occurred (Pettit, 1983). A unilateral contract is accepted as soon as the offer is completed

(…)

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

People must investigate Bitcoin regarding its contractual dimension. This is why changing Bitcoin is a problem. We have already discussed this topic with Dr. Wright:

So with Bitcoin we have an electronic payment system with nodes as observers against double spending, but not anonymous observersplus traceability of tokens. However, this incentive system by itself did not solve the confidentiality problems that the authors pointed out from 1994 concerning traceability in a network.

Privacy in Bitcoin, According to Dr. Craig Wright

Dr. Wright points out that many of the previous e-money proponents attempted to create anonymous and untraceable e-money systems to eliminate their privacy concerns. Bitcoin suggests privacy, but not anonymitythanks to bitcoin scaling.

The subject of bitcoin and identity is important to understand in the following passages. In bitcoin you are not the private keyyou can have access to the private key, and therefore you can use tokens. But the private key itself does not verify your identity.

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

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

(…)

Bitcoin balances this dichotomy by providing privacy through scale. Although every transaction retains full traceability, the cost of monitoring all users globally is prohibitive. Further, suppose users maintain separate keys for each transaction and firewall their identities. In this case, it becomes impossible for people to randomly determine other people’s identities or even link identities. The creation of filters, controls and software can simplify the problem and allow payments that are not joint and therefore do not expose the identity of the user or link the transactions (Wright, 2008).

Bitcoin guarantees privacy if it evolves. 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 find you should invest. Law enforcement will make this investment with respect to criminal offenders. But randomly tracing all or just one Bitcoin user is expensive and will become more so over time.

We start with a private key that is tightly linked to your identityoutside of Bitcoin, for example, through a government agency. You then make sure not to reuse the same addresses during Bitcoin transactions.

It will get better with every transaction we make on the BSV blockchain. The more Bitcoin transactions, the more privacy you getautomatically.

Bitcoin Inventor Understands Bitcoin Better

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

Nobody in Bitcoin has the knowledge described in this double spend article we just went through. Check the item for yourself Is Satoshi Nakamoto an academic?

New to Bitcoin? Discover CoinGeek bitcoin for beginners section, the ultimate resource guide to learn about bitcoin – as originally envisioned by Satoshi Nakamoto – and blockchain.

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