Satoshi Nakamoto, the person who created the digital currency Bitcoin, is our person of the year.
Although to this day no one knows who Satoshi Nakamoto is (or are — for the latest theories check out Chart Girl’s running chart) Bitcoin evangelists make the case that his true identity doesn’t matter: what he’s created is changing the world.
It’s an assertion you hear a lot in the arts world too: you should know the man (or men, or woman — there’s nothing to suggest Satoshi couldn’t be one) by their works, not their biography.
This is a convincing argument.
But Satoshi managed to come up with something that is simply more farsighted and bulletproof than anything else, combining the best features of existing digital coins while adding his own perfections.
In particular, he addressed one of the biggest problems in online transactions: fraud. In the real world, it’s the job of a centralized authority to prevent that from happening. But Satoshi figured out a workaround by cutting out that middleman: just make all transactions public, and have the entire community confirm a transaction is legit. “We have proposed a system for electronic transactions without relying on trust,” Satoshi wrote in his 2008 spec paper laying out the currency — a line which, it now seems, will echo through generations.
Perhaps his most brilliant idea was making sure you couldn’t hack the ability to create excess Bitcoins.
Bitcoins are “mined” by computers unscrambling blocks of “hashes” or complex strings of numbers and letters. Satoshi’s solution was to continuously increase the difficulty of unscrambling the hashes as more Bitcoins were created. As he wrote, “To compensate for increasing hardware speed … the proof-of-work difficulty [the unscrambling] is determined by a moving average targeting an average number of blocks per hour. If they’re generated too fast, the difficulty increases.”
Even the folks behind hashcash, an early digital currency which Satoshi admits he was inspired by, had to admit Bitcoin was “an extremely clever innovation and invention,” and “a first.”
But why is Bitcoin such a big deal?
Bank of America analyst David Woo’s recent note best boiled down Bitcoin’s three main uses: as a store of value, like gold; as a way to buy stuff online, and as a means for remitting money. And in most instances it’s cheaper, easier, and more secure to do all these things with Bitcoin.
The first two have been occurring since Bitcoin’s birth, and the advent of the last one is imminent.
In absolute dollar terms, Bitcoin has already surpassed Western Union for transaction volume, and is nipping at the heels of PayPal.
Of course this is all entirely subjective, and even Bitcoin’s most passionate evangelists don’t rule out that some technological or regulatory catastrophe could cause its value to plunge to zero.
When we decided to name Satoshi “Person of the Year,” we considered who and what else has changed society in the past 12 months.
We respect the actual choice made by Time — Pope Francis has a clear set of goals, is hyper aware of the issues of the day, and really lives his religion.
Obviously, though, we have a business bias. We were not about to give the title to Paul Volcker, whose rule, while extremely meaningful, does not possess the same kind of worldwide reach as Bitcoin.
Ben Bernanke could have gotten it (and possibly the Nobel Peace Prize) every year since 2009, but consecutive years of basically doing the same great stuff rules him out for 2013.
Carl Icahn made an extremely impressive case for putting the fear of god into companies, but he is not quite a household name.
Neither, of course, is Satoshi. But what were you talking more about over cranberry and stuffing a few weeks ago: Carl Icahn’s Tweets? Or regrets about having not gotten in on Bitcoin sooner?
One final use of Bitcoin that is often under-discussed: its use as a solution for the “unbanked,” or people without access to financial instruments.
As with everything Bitcoin, this may seem far-fetched at first blush. How could people who may lack access to the Internet use Bitcoin?
But investors have made the case that these communities would use their cell phones — which are widespread in the developing world — as the primary medium through which these people would interact with the currency.
Possessing the ability to securely send and receive funds from your pocket is a big deal for someone without access to a bank account.
If that takes hold, Bitcoin could even begin nibbling at inequality — something Pope Francis could respect.