DEDICATION

FORMYMOMANDDAD

CONTENTS

DedicationIntroduction

PartOneChapter1Chapter2Chapter3Chapter4Chapter5

Chapter6Chapter7Chapter8Chapter9Chapter10Chapter11

PartTwoChapter12Chapter13Chapter14Chapter15Chapter16

Chapter17Chapter18Chapter19Chapter20Chapter21Chapter22

PartThreeChapter23Chapter24Chapter25Chapter26Chapter27

Chapter28Chapter29Chapter30Chapter31

TechnicalAppendixAcknowledgmentsSourcesIndex

AbouttheAuthorCreditsCopyright

AboutthePublisher

INTRODUCTION

It was after midnight andmany of the guests hadalready gone to bed, leavingbehind their amber-tailed

tumblers of high-endwhiskey. The poker dealerwho had been hired for theoccasion from a local casinohad left a half hour earlier,buttheremainingplayershadconvinced her to leave thetable and cards so that theycould keep playing. Thegroup still hovering over thefeltandchipswasdwarfedbythe vaulted, wood-timberedceiling, three stories up. The

largewallofwindowsonthefar side of the table lookedoutontoalongdock,bobbingontheshimmeringsurfaceofLakeTahoe.

Sitting at one end of thetable, with his back to thelake, twenty-nine-year-oldErik Voorhees didn’t looklikesomeonewhothreeyearsearlierhadbeenunemployed,miredincreditcarddebt,anddoing odd jobs to pay for an

apartmentinNewHampshire.Tonight Erik fitted right inwith his suede oxfords andtailoredjeansandhebanteredeasily with the hedge fundmanager sitting next to him.His hairline was alreadyreceding, but he still had adistinct, fresh-facedyouthfulnesstohim.Showinghis boyish dimples, Erikjoked about his poorperformance at their poker

game the night before, andcalled it a part of his “longgame.”

“I was setting myself upfor tonight,” he said with abroad toothy smile, beforepushing a pile of chips intothemiddleofthetable.

Erik could afford tosustain the losses. He’drecently sold a gamblingwebsite thatwas powered bythe enigmatic digital money

and payment network knownas Bitcoin. He’d purchasedthe gambling site back in2012 for about $225,rebranded it as SatoshiDice,and sold it a year later forsome $11 million. He wasalso sitting on a stash ofBitcoins that he’d begunacquiring a few years earlierwhen each Bitcoin wasvaluedatjustafewdollars.ABitcoin was now worth

around $500, sending hisholdings into the millions.Initiallysnubbedbyinvestorsand serious business folk,Erikwasnowattractinga lotof high-powered interest. Hehad been invited to LakeTahoe by the hedge fundmanagersittingnexttohimatthe poker table, DanMorehead, who had wantedto pick the brains of thosewhohadalreadystruckitrich

intheBitcoingoldrush.For Voorhees, like many

of the other men atMorehead’s house, theimpulse that had propelledhim into this gold rush hadboth everything and nothingto dowith getting rich. Soonafterhefirstlearnedaboutthetechnology from a Facebookpost, Erik predicted that thevalueofeveryBitcoinwouldgrowastronomically.Butthis

growth,hehadlongbelieved,would be a consequence ofthe multilayered Bitcoincomputer code remakingmanyoftheprevailingpowerstructures of the world,including Wall Street banksand national governments—doing to money what theInternet had done to thepostal service and the mediaindustry. As Erik saw it,Bitcoin’s growth wouldn’t

just make him wealthy. Itwouldalsoleadtoamorejustand peaceful world in whichgovernments wouldn’t beable to pay for wars andindividuals would havecontrolovertheirownmoneyandtheirowndestiny.

It was not surprising thatErik, with ambitions likethese,hadaturbulentjourneysince his days ofunemployment in New

Hampshire. After moving toNew York, he had helpedconvince the Winklevosstwins,TylerandCameron,ofFacebookfame,toputalmostamilliondollarsintoastartuphe helped create, calledBitInstant. But thatrelationship ended with aknock-down, drag-out fight,after which Erik resignedfromthecompanyandmovedtoPanamawithhisgirlfriend.

More recently, Erik hadbeen spending many of hisdays inhisoffice inPanama,dealing with investigatorsfrom the US Securities andExchange Commission—oneofthetopfinancialregulatoryagencies—who werequestioning a deal in whichhe’d sold stock in one of hisstartups for Bitcoins. Thestockhadendedupprovidinghisinvestorswithbigreturns.

And the regulators,byErik’sassessment, didn’t seem toeven understand thetechnology. But they wereright that he had notregistered his shares withregulators. The investigation,in any case, was better thanthe situation facing one ofErik’s former partners fromBitInstant, who had beenarrested two months earlier,in January 2014, on charges

relatedtomoneylaundering.Erik, by now, was not

easily rattled. It helped that,unlike many passionatepartisans, he had a sense ofhumor about himself and thequixotic movement he hadfound himself at the middleof.

“I try to remind myselfthat Bitcoin will probablycollapse,”hesaid.“Asbullishas I am on it, I try to check

myself and remind myselfthat new innovative thingsusually fail. Just as a sanitycheck.”

But he kept going, andnotjustbecauseofthemoneythat hadpiledup in his bankaccount. It was also becauseofthenewmoneythatheandtheothermen inLakeTahoewere helping to bring intoexistence—a new kind ofmoneythathebelievedwould

changetheworld.

THE BITCOIN CONCEPT firstcameonto the scene inmoremodest circumstances, fiveyears earlier, when it wasposted to an obscuremailinglist by a shadowy authorgoing by the name SatoshiNakamoto.

From the beginning,Satoshi envisioned a digital

analog toold-fashionedgold:a new kind of universalmoney that could be ownedby everyone and spentanywhere. Like gold, thesenewdigital coinswereworthonly what someone waswilling to pay for them—initially nothing. But thesystemwassetupsothat,likegold, Bitcoins would alwaysbescarce—only21millionofthemwould ever be released

—andhard tocounterfeit.Aswithgold,itrequiredworktorelease new ones from theirsource, computational workinthecaseofBitcoins.

Bitcoin also held certainobviousadvantagesovergoldasanewplacetostorevalue.It didn’t take a ship tomoveBitcoinsfromLondontoNewYork—it took just a privatedigitalkeyand theclickof amouse. For security, Satoshi

relied on uncrackablemathematical formulas ratherthanarmedguards.

But the comparison togold went only so far inexplainingwhyBitcoinendedup attracting such attention.Eachingotofgoldhasalwaysexisted independent of everyother ingot. Bitcoins, on theother hand,were designed tolive within a cleverlyconstructed, decentralized

network, just as all thewebsites in the world existonlywithin the decentralizednetwork known as theInternet.LiketheInternet,theBitcoin network wasn’t runby some central authority.Instead it was built andsustained by all the peoplewho hooked their computersinto it, which anyone in theworld could do. With theInternet, what connected

everyone together was a setof software rules, known asthe Internet protocol, whichgoverned how informationmovedaround.Bitcoinhaditsown software protocol—therules that dictated how thesystemworked.

The technical details ofhowall thisworkedcouldbemind-numbingly complicated—involving advanced mathand cryptography. But from

its earliest days, a smallgroup of dedicated followerssaw that at its base, Bitcoinwas,verysimply,anewwayof creating, holding, andsending money. Bitcoinswere not like dollars andeuros, which are created bycentral banks and held andtransferred by big, powerfulfinancial institutions. Thiswas a currency created andsustained by its users, with

newmoneyslowlydistributedto the people who helpedsupportthenetwork.

Given that it aimed tochallenge some of the mostpowerful institutions in oursociety, the Bitcoin networkwas,fromearlyon,describedby its followers in utopianterms. Just as the Internettook power from big mediaorganizationsandputitinthehands of bloggers and

dissidents, Bitcoin held outthe promise of taking powerfrom banks and governmentsand giving it to the peopleusingthemoney.

This was all rather high-minded stuff and it attractedplenty of derision—mostordinary folks imagined itfalling somewhere on thespectrum betweenTamagotchi pet and Ponzischeme, when they heard

aboutitatall.ButBitcoinhad thegood

fortune of entering theworldat a utopian moment, in thewakeofafinancialcrisisthathad exposed many of theshortcomings of our existingfinancialandpoliticalsystem,creating a desire foralternatives. The Tea Party,Occupy Wall Street, andWikiLeaks—among others—haddivergent goals, but they

wereunited in their desire totake power back from theprivilegedeliteandgive it toindividuals. Bitcoin providedan apparent technologicalsolution to thesedesires.Thedegree to which Bitcoinspoke to its followers wasapparent from the variety ofpeoplewholefttheiroldlivesbehind to chase the promiseof this technology—aficionados like Erik

Voorhees and many of hisnewfriends.Itdidn’thurtthatif Bitcoin worked, it wouldmake the early usersfabulously wealthy. As Erikliked to say, “It’s the firstthing I know where you canboth get rich and change theworld.”

Given the opportunity tomakemoney,Bitcoinwasnotonly attracting disaffectedrevolutionaries. Erik’s host,

Dan Morehead, had gone toPrinceton and worked atGoldman Sachs beforestarting his own hedge fund.Morehead was a leadingfigure among the moneyedinterests who had recentlybeen pumping tens ofmillions of dollars into theBitcoinecosystem,hopingforbigreturns.InSiliconValley,investors and entrepreneurswere clamoring to find ways

to useBitcoin to improve onexistingpaymentsystemslikePayPal, Visa, and WesternUnion and to steal WallStreet’sbusiness.

Even people who hadlittle sympathy for OccupyWall Street or the Tea Partycouldunderstand thebenefitsof a more universal moneythat doesn’t have to beexchanged at every border;the advantages of a digital

paymentmethod that doesn’trequireyoutohandoveryouridentifying information eachtime you use it; the fairnessof a currency that even thepoorest people in the worldcan keep in a digital accountwithout paying hefty fees,rather than relying only oncash; and the convenience ofapaymentsystemthatmakesitpossibleforonlineservicesto charge a penny or a dime

—to view a single newsarticleorskipanad—skirtingthecurrentlimitsimposedbythe 20- or 30-cent minimumcharge for a credit cardtransaction.

In the end, though,manyof the people interested inmorepracticalapplicationsofBitcoin still endedup talkingabout the technology inrevolutionary terms: as anopportunity to make money

by disrupting the existingstatus quo. At the dinner afew hours before the late-night poker game, Moreheadhadjokedabout thefact that,atthetime,alltheBitcoinsinthe world were worth aboutthe same amount as thecompany Urban Outfitters,the purveyor of ripped jeansanddormroomdecorations—around$5billion.

“That’s just pretty wild,

right?” Morehead said. “Ithink when they dig up oursociety, all Planet of Apes–style,inacoupleofcenturies,Bitcoin is probably going tohavehadagreater impactonthe world than UrbanOutfitters.We’restillinearlydays.”

Many bankers,economists, and governmentofficials dismissed theBitcoin fanatics as naive

promoters of a speculativefrenzy not unlike the Dutchtulip mania four centuriesearlier.On severaloccasions,theBitcoinstoryboreoutthewarnings of the critics,illustrating the dangersinvolved inmoving toward amoredigitizedworldwithnocentral authority. Just a fewweeks before Morehead’sgathering, the largest Bitcoincompany in the world, the

exchangeknownasMt.Gox,announcedthatithadlosttheequivalent of about $400million worth of its users’Bitcoinsandwasgoingoutofbusiness—the latest of manysuch scandals to hit Bitcoinusers.

But none of the crisesmanaged to destroy theenthusiasm of the Bitcoinbelievers, and the number ofusers kept growing through

thickandthin.AtthetimeofMorehead’s gathering, morethan5millionBitcoinwalletshad been opened up onvarious websites, most ofthem outside the UnitedStates. The people atMorehead’s houserepresented the wide varietyof characters who had beendrawn in: they included aformer Wal-Mart executivewho had flown in from

China, a recent collegegraduate from Slovenia, abankerfromLondon,andtwoold fraternity brothers fromGeorgia Tech. Some weremotivatedbytheirskepticismtoward the government,others by their hatred of thebig banks, and yet others bymore intimate, personalexperiences. The ChineseWal-Mart executive, forinstance, had grown up with

grandparentswhoescapedthecommunist revolution withonly the wealth they hadstored in gold. Bitcoinseemed to him like a muchmore easily transportablealternative in an uncertainworld.

It was these people, indifferentplaceswithdifferentmotivations, who had builtBitcoin and were continuingto do so, and who are the

subject of this story. Thecreator of Bitcoin, Satoshi,disappeared back in 2011,leaving behind open sourcesoftware that the users ofBitcoin could update andimprove. Five years later, itwas estimated that only 15percent of the basic Bitcoincomputer codewas the sameas what Satoshi had written.Beyond the work on thesoftware, Bitcoin, like all

money, was always only asuseful and powerful as thenumber of people using it.Each new personwho joinedin made it that much morelikelytosurvive.

This,then,isnotanormalstartup story, about a lonegenius molding the world inhisimageandmakinggobsofmoney.Itis,instead,ataleofagroupinventionthat tappedinto many of the prevailing

currents of our time: theanger at the government andWall Street; the battlesbetween Silicon Valley andthefinancialindustry;andthehopes we have placed intechnology to save us fromour own human frailty, aswellasthefearthatthepowerof technology can generate.Each of the people discussedin this book had his or herown reason for chasing this

new idea, but all their liveshave been shaped by theambitions, greed, idealism,and human frailty that haveelevated Bitcoin from anobscure academic paper to abillion-dollarindustry.

Forsomeparticipants,theoutcomehasbeenthetypeofwealth on display atMorehead’shouse,where thestone entranceway isdecorated with Morehead’s

personal heraldic crest. Forothers,ithasendedinpovertyandevenprison.Bitcoinitselfis always one big hack awayfromtotalfailure.Butevenifitdoescollapse,ithasalreadyprovided one of the mostfascinating tests of howmoney works, who benefitsfrom it, and how itmight beimproved. It is unlikely toreplace the dollar in fiveyears, but it provides a

glimpse of where we mightbe when the governmentinevitably stops printing thefaces of dead presidents onexpensivepaper.

Themorningafterthebigpoker game, as the guestswere packing up to go,Voorheessatattheendofthepier behind Morehead’shouse,whichwassittinghighabovethewaterafterawinterwith little snowfall. The joy

he had shown at the pokertable the night before wasgone. He had a look ofchagrin on his face as hetalked about his recentdecisiontoresignastheCEOof theBitcoin startup he hadbeen running inPanama.Hisposition with the companyhad prevented him fromspeaking about therevolutionary potential ofBitcoin, for fear that it could

hurthiscompany.“My passion is not

running a business, it isbuilding the Bitcoin world,”heexplained.

On top of that, hisgirlfriend had grown tired ofliving in Panama and Erikwas missing his family backintheUnitedStates.Inafewweeks he was planning tomove back to Colorado,wherehegrewup.Becauseof

Bitcoin, though,hewouldbegoing home a very differentperson from what he waswhen he left. It was asituation that many of hisfellow Bitcoiners couldsympathizewith.

PARTONE

CHAPTER1

January10,2009

ItwasaSaturday.Itwashisson’s birthday. The SantaBarbara weather wasbeautiful. And his sister-in-lawwas in fromFrance.But

Hal Finney needed to be athiscomputer.Thiswasadayhe had been anticipating formonths and, in some sense,fordecades.

Hal didn’t even try toexplain to his wife, Fran,whatwasoccupyinghim.Shewas a physical therapist andrarely understood hiscomputerwork.Butwiththisone, where would he evenbegin? Honey, I’m going to

try to make a new kind ofmoney.

That, in essence, was hisintention when, after a longmorning run, he sat down inhis modest home office: acornerofhislivingroomwithan old sectional desk, takenup primarily by fourcomputer screensofdifferentshape andmake, allwired tothe separate computers heused for work and personal

pursuits. Any space thatwasn’toccupiedbycomputerequipment was covered in ajumble of papers, exercisebooks, and old programmingmanuals. It wasn’t much tolookat.Butsittingthere,Halcould see his patio on theothersideofhis livingroom,bathedinCaliforniasun,evenin themiddle of January.OnthecarpettohisleftlayArky,his faithful Rhodesian

ridgeback, named after a starin the constellation Boötes.This was where he felt athome,andwherehehaddonemuch of his most creativeworkasaprogrammer.

He fired up his hulkingIBM ThinkCentre, settled in,and clicked on the websitehe’d gotten in an e-mail thepreviousdaywhilehewasatwork:www.bitcoin.org.

Bitcoin had first crossed

his screen a few monthsearlier, in a message sent tooneof themanymailinglistshe subscribed to. The back-and-forth was usuallybetween the familiarpersonalities he’d beentalking to for years whoinhabited the relativelyspecialized corner of codingwhere he worked. But thisparticular e-mail came froman unfamiliar name—Satoshi

Nakamoto—and it describedwhatwasreferredtoasan“e-cash” with the catchy nameBitcoin. Digital money wassomething Hal hadexperimentedwith fora longtime, enough to make himskeptical about whether itcould ever work. Butsomething jumpedout in thise-mail. Satoshi promised akind of cash that wouldn’tneedabankoranyotherthird

party to manage it. It was asystemthatcouldliveentirelyin the collective computingmemory of the people whoused it. Hal was particularlydrawntoSatoshi’sclaimthatusers could own and tradeBitcoins without providingidentifyinginformationtoanycentral authorities. Hal hadspentmostofhisprofessionallifeworkingonprogramsthatallowed people to elude the

ever-watchful gaze of thegovernment.

After reading the nine-pagedescription,containedinwhatlookedlikeanacademicpaper, Hal respondedenthusiastically:

“When Wikipedia startedI never thought it wouldwork,but ithasproven tobea great success for some ofthe same reasons,” he wrotetothegroup.

In the face of skepticismfromothersonthee-maillist,Hal had urged Satoshi towriteupsomeactualcodeforthe system he had described.A few months later, on thisSaturday in January, Haldownloaded Satoshi’s codefrom the Bitcoin website. Asimple .exe file installed theBitcoin program andautomatically opened up acrisp-looking window on his

computerdesktop.When the program

opened for the first time itautomaticallygenerateda listof Bitcoin addresses thatwould be Hal’s accountnumbers in the system andthe password, or private key,that gave him access to eachaddress. Beyond that, theprogram had only a fewfunctions. The main one,“Send Coins,” didn’t seem

like much of an option forHalgiventhathedidn’thaveanycoinstosend.Butbeforehecouldpokearound furthertheprogramcrashed.

It didn’t deter Hal. Afterlookingathiscomputer logs,hewrotetoSatoshitoexplainwhat had happenedwhen hiscomputerhadtriedtolinkupwith other computers on thenetwork.Apart fromHal, thelog showed that there were

only two other computers onthenetworkandbothofthosewere from a single IPaddress, presumablySatoshi’s, tied to an InternetproviderinCalifornia.

Within an hour, Satoshihad written back, expressingdisappointment with thefailure. He said he’d beentesting it heavily and neverencountered any trouble. Buthe told Hal that he had

trimmeddowntheprogramtomake it easier to download,which must have introducedtheproblem.

“IguessImadethewrongdecision,”Satoshiwrotewithpalpablefrustration.

Satoshi sent Hal a newversion of the program, withsome of the old materialrestored,and thankedHal forhis help. When it, too,crashed, Hal kept at it. He

finally got it running using aprogramthatoperatedoutsideMicrosoft Windows. Once itwas up, he clicked on themost exciting-soundingfunction in the drop-downmenu: “Generate Coins.”When he did this, theprocessor in his computeraudiblyclicked intogearatahighclip.

With everything running,Hal could take a break and

attend to his familial duties,includingafamilydinneratanearbyChineserestaurantandasmallbirthdayparty forhisson. The instructions Satoshihad included with thesoftware said that actuallygenerating coins could take“days or months, dependingon the speed of yourcomputerandthecompetitiononthenetwork.”

Hal dashed off a quick

note telling Satoshi thateverything was working: “Ihave to go out but I’ll leavethis version running for awhile.”

Hal had already readenough to understand thebasicworkhiscomputerwasdoing. Once the Bitcoinprogram was running, itlogged intoadesignatedchatchannel to find othercomputers running the

software—basically justSatoshi’s computers at thispoint.Allthecomputersweretrying to capture newBitcoins,whichwerereleasedinto the system inbundlesoffiftycoins.EachnewblockofBitcoin was assigned to theaddress of one user wholinked into the network andwonaraceofsortstosolveacomputational puzzle. Whenacomputerwononeroundof

the race and captured newcoins, all the othermachineson the network updated theirshared record of the numberof Bitcoins owned by thatcomputer’s Bitcoin address.Then the computers on thenetwork would automaticallybegin racing to solve a newproblem to unlock the nextbatchoffiftycoins.

WhenHal returned tohiscomputer in the evening, he

immediately saw that it hadmade him 50 Bitcoins, nowrecorded next to one of hisBitcoin addresses and alsorecordedonthepublicledgerthatkepttrackofallBitcoins.These, the seventy-eighthblock of coins generated,were among the first 4,000Bitcoins to make it into thereal world. At the time theywere worth exactly nothing,but that didn’t dampenHal’s

enthusiasm. In acongratulatory e-mail toSatoshi that he sent to theentiremailinglist,heallowedhimselfaflightoffancy.

“Imagine that Bitcoin issuccessful and becomes thedominant payment system inusethroughouttheworld,”hewrote. “Then the total valueof the currency should beequal to the totalvalueofallthewealthintheworld.”

By his own calculations,thatwouldmakeeachBitcoinworthsome$10million.

“Even if the odds ofBitcoin succeeding to thisdegree are slim, are theyreally 100 million to oneagainst? Something to thinkabout,” he wrote beforesigningoff.

HAL FINNEY HAD long been

preoccupied by how, in lookand texture, the futurewouldbedifferentfromthepresent.

Oneoffourchildrenofanitinerant petroleum engineer,Hal had worked his waythrough the classics ofscience fiction, but he alsoread calculus books for funand eventually attended theCalifornia Institute ofTechnology.Heneverbackeddown from an intellectual

challenge. During hisfreshman year he took acourse on gravitational fieldtheory that was designed forgraduatestudents.

But he wasn’t a typicalnerd.Abig,athleticguywholoved to ski in theCaliforniamountains,hehadnoneofthesocial awkwardness commonamong Cal Tech students.Thisactivespiritcarriedoverinto his intellectual pursuits.

When he read the novels ofLarryNiven,whichdiscussedthe possibility ofcryogenically freezinghumans and later bringingthem back to life,Hal didn’tjust ponder the potential inhis dorm room.He located afoundation dedicated tomaking this process a realityand signed up to receive theAlcor Life ExtensionFoundation’s magazine.

Eventually he would pay tohave his and his family’sbodiesputintoAlcor’sfrozenvaultsnearLosAngeles.

TheadventoftheInternethad been a boon for Hal,allowinghimtoconnectwithother people in far-flungplaces who were thinkingabout similarly obscure butradicalideas.Evenbeforetheinvention of the first webbrowser, Hal joined some of

the earliest onlinecommunities,withnameslikethe Cypherpunks andExtropians,wherehe jumpedinto debates about how newtechnology could beharnessed to shape the futuretheyallweredreamingup.

Few questions obsessedthese groups more than thematter of how technologywould alter the balance ofpower between corporations

andgovernmentsononehandand individuals on the other.Technology clearly gaveindividuals unprecedentednew powers. The nascentInternet allowed thesepeopletocommunicatewithkindredspirits and spread their ideasin ways that had previouslybeen impossible. But therewas constant discussion ofhow the creeping digitizationoflifealsogavegovernments

and companies morecommand over perhaps themost valuable and dangerouscommodityintheinformationage:information.

In the days beforecomputers, governmentscertainly kept records abouttheircitizens,butmostpeoplelived in ways that made itimpossible to glean muchinformation about them. Inthe 1990s, though—long

before the National SecurityAgencywasdiscoveredtobesnooping on the cell phonesof ordinary citizens andFacebook’s privacy policiesbecame amatter for nationaldebate—the Cypherpunkssaw that the digitization oflife made it much easier fortheauthoritiestoharvestdataabout citizens, making thedatavulnerable tocapturebynefarious actors. The

Cypherpunks becameconsumed by the question ofhow people could protecttheir personal informationand maintain their privacy.The Cypherpunk Manifesto,deliveredtothemailinglistin1993 by the Berkeleymathematician Eric Hughes,began: “Privacy is necessaryfor an open society in theelectronicage.”

Thislineofthinkingwas,

in part, an outgrowth of thelibertarian politics that hadbecomepopular inCaliforniain the 1970s and 1980s.Suspicion regardinggovernment had a naturalappeal for programmers likeHal, who were at workcreatinganewworldthroughcode,withoutneeding to relyon anyone else. Hal hadimbibed these ideas at CalTechandinhisreadingofthe

novels ofAynRand.But theissue of privacy in theInternet age had an appealbeyond libertarian circles,amonghuman rights activistsandotherprotestmovements.

NoneoftheCypherpunkssawasolutiontotheproblemin running away fromtechnology. Instead, Hal andthe others aimed to findanswers in technology andparticularly in the science of

encrypting information.Encryption technologies hadhistorically been a privilegelargely reserved for only themost powerful institutions.Private individuals could tryto encode theircommunications, butgovernments and armedforces almost always had thepowertocracksuchcodes.Inthe1970sand1980s, though,mathematicians at Stanford

and MIT made a series ofbreakthroughs that made itpossible,forthefirsttime,forordinarypeopletoencrypt,orscramble,messages in awaythat could be decrypted onlyby the intended recipientandnotcrackedevenbythemostpowerfulsupercomputers.

Every user of the newtechnology,knownaspublic-key cryptography, wouldreceive a public key—a

unique jumble of letters andnumbers that serves as a sortof address that could bedistributed freely—and acorresponding private key,which is supposed to beknownonly by the user.Thetwo keys are related,mathematically,inawaythatensures that only the user—let’s call her Alice, ascryptographers often did—with her private key, can

unlock messages sent to herpublic key, and only she cansign off on messagesassociated with her publickey. The unique relationshipbetween each public andprivate key was determinedby complicated mathequations that wereconstructed so cleverly thatno one with a particularpublickeywouldeverbeableto work backward to figure

out thecorrespondingprivatekey—not even the mostpowerfulsupercomputer.Thiswhole setupwould later playa central role in the Bitcoinsoftware.

Halwasintroducedtothepotential of public-keycryptography in 1991 by thepathbreaking cryptographerDavidChaum,whohadbeenexperimenting with ways touse public-key cryptography

toprotectindividualprivacy.“It seemed so obvious to

me,” Hal told the otherCypherpunks of his firstencounter with Chaum’swriting. “Here we are facedwith the problems of loss ofprivacy, creepingcomputerization, massivedatabases,morecentralization—and Chaum offers acompletelydifferentdirectionto go in, one which puts

power into the hands ofindividuals rather thangovernments andcorporations.”

Asusual,whenHalfoundsomethingexciting,hedidn’tjust passively read up on it.On nights and weekends,after his job as a softwaredeveloper, he began helpingwith a volunteer project,referred to as Pretty GoodPrivacy, or PGP, which

allowed people to send eachothermessages that could beencrypted using public-keycryptography.Thefounderoftheproject,PhilZimmerman,was an antinuclear activistwhowantedtogivedissidentsa way to communicateoutside the purview ofgovernments. Before long,Zimmerman brought Hal onasthefirstemployeeatPGP.

Idealistic projects like

PGP generally had a smallaudience. But the potentialimport of the technologybecame apparent whenfederal prosecutors launcheda criminal investigation intoPGP and Zimmerman. Thegovernment categorizedencryption technology, suchas PGP, as weapon-grademunitions, and thisdesignationmade it illegal toexport. While the case was

eventually dropped, Hal hadto lie low with his owninvolvementinPGPforyearsand could never take creditfor some of his importantcontributionstotheproject.

THE EXTROPIANS ANDCypherpunks were workingon several differentexperiments that could helpempower individuals against

traditional sources ofauthority. But money was,from the beginning, at thecenter of their efforts toreimaginethefuture.

Money is to any marketeconomywhatwater, fire, orblood is to the humanecosystem—abasicsubstanceneeded foreverythingelse towork. For programmers,existing currencies, whichwere valid only within

particular national bordersandsubjecttotechnologicallyincompetent banks, seemedunnecessarily constrained.The science fiction that Haland others had grown up onalmost always featured somekind of universalmoney thatcould span galaxies—in StarWarsitwasthegalacticcreditstandard;intheNight’sDawntrilogyitwasJoviancredit.

Beyond these more

fanciful ambitions, theexisting financial systemwasviewed by the Cypherpunksas one of the biggest threatsto individual privacy. Fewtypesofinformationrevealasmuch about a person likeAlice, the cryptographers’favorite, as her financialtransactions. If snoopers getaccess to her credit cardstatements they can followher movements over the

course of a day. It’s noaccidentthatfinancialrecordsare one of the primary waysthat fugitives are trackeddown. Eric Hughes’sCypherpunk Manifesto haddwelled on this problem atgreat length: “When myidentity is revealed by theunderlyingmechanismof thetransaction, I have noprivacy. I cannot hereselectively reveal myself; I

must always reveal myself,”Hugheswrote.

“Privacy in an opensociety requires anonymoustransaction systems,” headded.

Cold, hard cash had longprovided an anonymous wayofmakingpayments,but thiscash did not make thetransition over to the digitalrealm. As soon as moneybecame digital, some third

party, such as a bank, wasalwaysinvolvedandthereforeable to trace the transaction.What Hal, Chaum, and theCypherpunks wanted was acash for the digital age thatcould be secure anduncounterfeitable withoutsacrificing the privacy of itsusers. The same year asHughes’s manifesto, Halwrote an e-mail to the groupimagining a kind of digital

cash for which “no recordsarekeptofwhereIspendmymoney.Allthebankknowsishowmuch I have withdrawneachmonth.”

A month later, Hal evencame up with a cheekymonikerforit:“Ithoughtofanew name today for digitalcash: CRASH, taken fromCRyptocASH.”

Chaum himself hadalreadycomeupwithhisown

versionofthisbythetimetheCypherpunks got interested.WorkingoutofaninstituteinAmsterdam, he had createdDigiCash, an online moneythatcouldbespentanywhereintheworldwithoutrequiringusers to hand over anypersonal information. Thesystem harnessed public-keycryptography to allow forwhat Chaum called blinddigital signatures, which

allowedpeopletosignoffontransactions withoutproviding any identifyinginformation. When MarkTwain Bank in the UnitedStates began experimentingwithDigiCash,Halsignedupforanaccount.

ButChaum’seffortwouldrubHalandothersthewrongway. With DigiCash, acentral organization, namelyChaum’scompany,neededto

confirm every digitalsignature. This meant that acertaindegreeoftrustneededto be placed in that centralorganization not to tinkerwith balances or go out ofbusiness. Indeed, whenChaum’s company wentbankrupt in 1998, DigiCashwent down with it. Theseconcerns pushed Hal andothers to work toward adigitalcashthatwouldn’trely

onanycentralinstitution.Theproblem, of course, was thatsomeoneneededtocheckthatpeople weren’t simplycopying and pasting theirdigitalmoneyandspendingittwice. Some of theCypherpunks simply gave upontheproject,butHalwasn’tonetofoldsoeasily.

Ironically for a person soeager to create new money,Hal’s interest wasn’t

primarily financial. Theprogramshewaswriting,likePGP, were explicitlydesigned to be available toanyone, free. His politicaldistrust of government,meanwhile,wasnotdrivenbyselfish resentment aboutpaying taxes. During the1990s Hal would calculatethemaximumbill for his taxbracket and send in a checkfor that amount, so as to

avoid the hassle of actuallyfillingoutareturn.Heboughthis modest home on theoutskirts of Santa Barbaraand stuck with it over theyears.Hedidn’tseemtomindthathehadtoworkoutofhisliving room or that the bluerecliners in front of his deskwerewearing thin. Insteadofbeing motivated by self-interest, his work seemeddriven by an intellectual

curiositythatbubbledoverineache-mailhewrote, andbyhis sense ofwhat he thoughtotherpeopledeserved.

“The work we are doinghere, broadly speaking, isdedicated to this goal ofmakingBigBrotherobsolete.It’s important work,” Halwould write to his fellowtravelers. “If thingsworkoutwell,wemaybeable to lookback and see that it was the

mostimportantworkwehaveeverdone.”

CHAPTER2

1997

Thenotionofcreatinganewkind of money would seem,to many, a rather odd andeven pointless endeavor. Tomost modern people, money

is always and everywherebills and coins issued bycountries. The right to mintmoney isoneof thedefiningpowersof anation, evenoneas small as the Vatican CityorMicronesia.

But that is actually arelatively recent state ofaffairs.UntiltheCivilWar,amajority of the money incirculation in the UnitedStates was issued by private

banks, creating a crazypatchworkof competingbillsthat could become worthnothing if the issuing bankwent down. Many countriesat that time relied oncirculating coins from othercountries.

Thiswas thecontinuationof a much longer state ofaffairs in which humansengaged in a seeminglyceaseless effort to find better

forms of money, trying outgold, shells, stone disks, andmulberrybarkalongtheway.

The search for a betterform of money has alwaysbeen about finding a moretrustworthy and uniformwayof valuing the things aroundus—a single metric thatallows a reliable comparisonbetween thevalueof ablockofwood,anhourofcarpentrywork, and a painting of a

forest. As sociologist NigelDodd put it, good money is“able to convert qualitativedifferences between thingsinto quantitative differencesthat enable them to beexchanged.”

The money imagined bythe Cypherpunks looked totake the standardizingcharacter of money to itslogical extreme, allowing fora universalmoney that could

bespentanywhere,unliketheconstrained nationalcurrencieswe currently carryaround and exchange at eachborder.

Intheireffortstodesignanew currency, theCypherpunksweremindfulofthe characteristics usuallyfound in successful coinage.Good money has generallybeen durable (imagine adollar bill printed on tissue

paper), portable (imagine aquarter that weighed twentypounds),divisible(imagineifwe had only hundred-dollarbills and no coins), uniform(imagine if all dollar billslooked different), and scarce(imagine bills that could becopiedbyanyone).

But beyond all thesequalities, money alwaysrequiredsomethingmuchlesstangibleandthatwasthefaith

of the people using it. If afarmer is going to accept adollarbillforhishard-earnedcrops, he has to believe thatthedollar,evenif it isonlyagreen piece of paper,will beworth something in thefuture. The essential qualityofsuccessfulmoney, throughtime,wasnotwhoissuedit—or even how portable ordurableitwas—butratherthenumber of people willing to

useit.In the twentieth century,

thedollarservedastheglobalcurrency in no small partbecause most people in theworld believed that theUnitedStatesanditsfinancialsystemhadabetterchanceofsurviving than almostanything else. That explainswhy people sold their localcurrencytokeeptheirsavingsindollars.

Money’s relationship tofaith has long turned theindividuals who are able tocreateandprotectmoneyintoquasi-religious figures. Thewordmoney comes from theRoman god JunoMoneta, inwhose temple coins wereminted. In the United States,the governors of the centralbank, the Federal Reserve,who are tasked withoverseeingthemoneysupply,

are treated like oracles ofsorts; their pronouncementsare scrutinized like the goatentrails of olden days. Fedofficials are endowed with alevel of power andindependencegiventoalmostno other government leaders,andthetaskofprotectingthenation’scurrency isentrustedtoaspeciallycreatedagency,the Secret Service, that wasonlylatergiventheadditional

responsibility of protectingthelifeofthepresident.

Perhaps themost famous,if flawed, oracle of theFederal Reserve, formerchairman Alan Greenspan,knew that money wassomething that not onlycentral bankers could create.In a speech in 1996, just asthe Cypherpunks werepushing forward with theirexperiments, Greenspan said

that he imagined that thetechnological revolutioncouldbringbackthepotentialfor privatemoney and that itmight actually be a goodthing:

“We could envisageproposals in the near futurefor issuers of electronicpayment obligations, such asstored-value cards or ‘digitalcash,’ to set up specializedissuing corporations with

strong balance sheets andpubliccreditratings.”

IN THE YEARS right afterGreenspan’s speech, therewasaflurryofactivityintheCypherpunkworld.In1997aBritish researcher namedAdam Back released on theCypherpunk mailing list hisplan for something he calledhashcash, which solved one

of the most basic problemsholding back the digital-cashproject: the seemingimpossibility of creating anysort of digital file that can’tbeendlesslycopied.

To solve this problem,Backhadacleveridea,whichwould later be an importantbuildingblockfortheBitcoinsoftware. Back’s conceptmade creative use of one ofthecentralcogsofpublic-key

cryptography: cryptographichash functions. These aremath equations that are easyto solve but hard to reverse-engineer, just as it isrelatively easy to multiply2,903and3,571usingapieceof paper and pencil, butmuch,much harder to figureoutwhattwonumberscanbemultiplied together to get10,366,613. With hashcash,computers essentially had to

figureoutwhichtwonumberscan bemultiplied together toget 10,366,613, though theproblems for hashcash weresignificantlyharder than that.So hard, in fact, that all acomputer could do was tryout lots of different guesseswith the aim of eventuallyfinding the right answer.When a computer found theright answer, it would earnhashcash.

The creation of hashcashthrough this method wasusefulinthecontextofdigitalmoneybecauseitensuredthathashcashwouldbe scarce—acharacteristic of most goodmoneybutnotofdigitalfiles,which are generally easilyduplicated. A computer hadto perform lots of work tocreate each new unit ofhashcash,earningtheprocessthe name “proof-of-work”—

somethingthatwouldlaterbea central innovationunderpinning Bitcoin. Themain problem with Back’ssystem, as a type of digitalmoney, was that eachhashcash unit could be usedonlyonceandeveryoneinthesystem needed to create newunits whenever they wantedto use any. Another problemwas that a person withunlimited computing power

couldproducemoreandmorehashcash and reduce theoverallvalueofeachunit.

AyearafterBackreleasedhis program, two differentmembers of the Cypherpunklistcameupwithsystemsthatsolved some of hashcash’sshortcoming, creating digitaltokens that required a proof-of-work, but that could alsobe reused. One of these, aconcept called bit gold, was

invented by Nick Szabo, asecurity expert andCypherpunk who circulatedhisideatoclosecollaboratorslike Hal Finney in 1998, butnever actually put it intopractice. Another, known asb-money, came from anAmerican named Wei Dai.Hal created his own variant,with a decidedly less sexyname: reusable proofs ofwork,orRPOWs.

The conversation aroundthese ideas on theCypherpunk list and amongrelated groups sometimesresembled the bickering ofrivalrous brothers trying toone-up each other. Szabowould snipe at otherproposals,sayingthattheyallrelied too much onspecialized computerhardwareinsteadofsoftware.But these men—and they

were all men—also built updeep respect for each other.And even as theirexperiments failed, theirambitions grew beyond justanonymous money. Amongother things, Back, Szabo,and Finney sought toovercome the costs andfrustrations of the currentfinancial system in whichbanks charged fees witheverytransactionandmadeit

difficult tomovemoneyoverinternationalborders.

“What we want is fullyanonymous, ultra lowtransaction cost, transferableunits of exchange. If we getthat going (and obviouslythere are some people tryingDigiCash, and a couple ofothers), the banks willbecome the obsoletedinosaurs they deserve tobecome,” Back told the

Cypherpunk list soon afterreleasinghashcash.

The Cypherpunk seekersweregivenaplatonicidealtoshootforwhensciencefictionwriter Neal Stephensonpublished his bookCryptonomicon in 1999. Thenovel, which becamelegendary in hacker circles,imagined a subterraneanworld that was fueled by akind of digital gold that

allowed people to keep theiridentities private. The novelincluded lengthy descriptionsofthecryptographythatmadeitallpossible.

But the experiments thatthe Cypherpunks were doingintherealworldcontinuedtohit practical hurdles. No onecould figure out a way tocreatemoneywithout relyingon a central institution thatwas vulnerable to failure or

government oversight. Theexperiments also sufferedfrom a more fundamentaldifficulty, which was theissueofgettingpeopletouseand value these new digitaltokens. By the time SatoshiNakamoto came onto thescene,historyhadmademanyof Bitcoin’s most likely fansvery jaded. The goal ofcreating digital moneyseemed as much of a dream

asturningcoalintodiamonds.

IN AUGUST 2008 Satoshiemerged out of the mists inan e-mail sent to the creatorof hashcash, Adam Back,askinghim to lookat a shortpaper describing somethingcalled Bitcoin. Back hadn’theard of it or Satoshi, anddidn’t spend much time onthee-mail,otherthantopoint

Satoshi to other Cypherpunkexperiments that he mighthavemissed.

Six weeks later, onHalloween, Satoshi sent amore fleshed-out proposal toa specialized, and heavilyacademic, mailing listfocused on cryptography—oneofthemainsuccessorstothe Cypherpunk list, whichwas defunct. As was typicalin this community, Satoshi

gavenoinformationabouthisownidentityandbackground,and no one asked. Whatmatteredwastheidea,nottheperson. In careful, drylanguage, Satoshi openedwith a bold claim to havesolvedmanyof theproblemsthat had dogged the longsearch for the holy grail ofuniversalmoney.

“I’ve been working on anew electronic cash system

that’s fullypeer-to-peer,withnotrustedthirdparty,” thee-mailbegan.

The nine-page PDFattachedtothee-mailmadeitclear thatSatoshiwasdeeplyversed in all the previousefforts to create a self-sustaining digital money.Satoshi’s paper cited Backand Wei Dai, as well asseveral obscure journals ofcryptography.ButSatoshiput

all these earlier innovationstogether to create a systemthatwasquiteunlikeanythingthathadcomebeforeit.

Rather than relying on acentral bank or company toissue and keep track of themoney—as the existingfinancialsystemandChaum’sDigiCash did—this systemwas set up so that everyBitcoin transaction, and theholdingsofeveryuser,would

be tracked and recorded bythe computers of all thepeople using the digitalmoney, on a communallymaintained database thatwould come to be known astheblockchain.

Theprocessbywhichthisall happened had manylayers,anditwouldtakeevenexpertsmonths tounderstandhowtheyallworkedtogether.But thebasicelementsof the

systemcanbesketchedoutinrough terms, and were inSatoshi’spaper,whichwouldbecomeknownastheBitcoinwhitepaper.

According to the paper,eachuserofthesystemcouldhave one or more publicBitcoin addresses—sort oflikebankaccountnumbers—and a private key for eachaddress.Thecoinsattachedtoa given address could be

spent only by a person withtheprivatekeycorrespondingto the address. The privatekey was slightly differentfrom a traditional password,whichhastobekeptbysomecentralauthoritytocheckthattheuserisenteringthecorrectpassword. InBitcoin,Satoshiharnessed the wonders ofpublic-key cryptography tomake itpossible forauser—let’s call herAlice again—to

signoffonatransaction,andproveshehastheprivatekey,without anyone else everneeding to see or know herprivatekey.*

OnceAlice signed off ona transactionwithherprivatekey she would broadcast itouttoalltheothercomputerson the Bitcoin network.Those computers wouldcheckthatAlicehadthecoinsshewastryingtospend.They

could do this by consultingthe public record of allBitcoin transactions, whichcomputers on the networkkept a copy of. Once thecomputers confirmed thatAlice’s address did indeedhave the money she wastrying to spend, theinformation about Alice’stransactionwasrecorded inalist of all recent transactions,referred toasablock,on the

blockchain.Theexactmethodusedto

add blocks to the blockchainwas perhaps the mostcomplicated part of thesystem.Atthesimplestlevel,it involved a sort ofcomputational race betweenallcomputersonthenetwork,modeledafterthecontestthatAdamBack had invented forhashcash. The computer thatwontheracewasresponsible

forinscribingthemostrecentblockoftransactionsontotheblockchain. Equallyimportant, the winner alsoreceived a bundle of newBitcoins—50 Bitcoins whenthe network actually startedoperating. This was, indeed,the only way new Bitcoinscould be brought into theworld. The reward of newcoins helped encourageBitcoin users to set their

computers to partake in thecommunalwork of recordingtransactions.

If there weredisagreements about whichcomputerwonthelottery,therecord of transactions thathad already been adopted bythe most computers on thenetworkwouldprevail.If,forexample, most of thecomputers on the networkbelievedAlicewon the latest

race, but a few computersbelieved that Bob won therace, thecomputers thatusedBob’s record of transactionswould be ignored by othercomputers on the networkuntiltheyjoinedthemajority.This democratic method ofdecisionmakingwasvaluablebecause it prevented a fewbad computers from goingrogue and assigningthemselves lots of new

Bitcoins; rogue elementswould have to capture amajorityof thecomputersonthenetworktodothis.

Alterations to theBitcoinsoftware,whichwouldrunonthe computer of every user,would also be decided bymeans of this democraticmodel.Any user couldmakea change to the open sourceBitcoin software, but thechanges would generally be

effective only when amajorityof thecomputersonthe network adopted thealtered version of thesoftware. If a lone computerbegan running a differentversion of the Bitcoinsoftware it would essentiallybe ignored by the othercomputers and would nolonger be part of the Bitcoinnetwork.

To recap, the five basic

steps of the Bitcoin processwerelaidoutasfollows:

• AliceinitiatesatransferofBitcoinsfromheraccountbysigningoffwithherprivatekeyandbroadcastingthetransactiontootherusers.

• TheotherusersofthenetworkmakesureAlice’sBitcoinaddress

hassufficientfundsandthenaddAlice’stransactiontoalistofotherrecenttransactions,knownasablock.

• Computerstakepartinacomputationalracetohavetheirlistoftransactions,orblock,addedtotheblockchain.

• Thecomputerthathasitsblockaddedtothe

blockchainisalsograntedabundleofnewBitcoins.

• Computersonthenetworkstartcompilinganewlistofunconfirmedrecenttransactions,tryingtowinthenextbundleofBitcoins.

The result of thiscomplicated process was

something that wasdeceptively simple but neverpreviously possible: afinancial network that couldcreate and move moneywithout a central authority.No bank, no credit cardcompany, no regulators. Thesystem was designed so thatno one other than the holderof a private key could spendor take themoney associatedwith a particular Bitcoin

address. What’s more, eachuser of the system could beconfident that, at everymoment in time, therewouldbe only one public,unalterable record of whateveryone in the systemowned.Tobelieveinthis,theusers didn’t have to trustSatoshi, as the users ofDigiCash had to trust DavidChaum,orusersofthedollarhad to trust the Federal

Reserve. They just had totrust their own computersrunning theBitcoin software,and the code Satoshi wrote,which was open source, andtherefore available foreveryone to review. If theusers didn’t like somethingabout the rules set down bySatoshi’ssoftware,theycouldchange therules.Peoplewhojoined the Bitcoin networkwere, quite literally, both

customersandownersofboththebankandthemint.

But so far, at least, allSatoshi had done wasdescribethisgrandscheme.

DESPITE ALL THE advancesdescribed in the Bitcoinpaper, a week after it wasposted, when Hal Finneychimed in for the first time,there were only two

responses on thecryptography mailing list.Both were decidedlynegative.Onenotedcomputersecurity expert, John Levine,saidthatthesystemwouldbeeasily overwhelmed bymalicious hackerswho couldspread a version of theblockchain thatwas differentfrom the one being used byeveryoneelse.

“The good guys have

vastly less computationalfirepowerthanthebadguys,”LevinewroteonNovember2.“Ialsohavemydoubtsaboutother issues, but this one isthekiller.”

Levine’s concern was avalidone.TheBitcoinsystemSatoshi described relied oncomputers reachingdecisionsby majority rule. Early on,when there were fewercomputers on the network, it

would be easier to becomethe majority and take over.But Satoshi’s hope was thattherewouldn’tbemuchofanincentive to take over thesystem early on, when thenetworkwas small.Lateron,if there was an incentive toattack the network, thatwould hopefully be becausethe network had attractedenough members to make ithardtooverwhelm.

Another longtime veteranof the Cypherpunk debates,James Donald, said that “wevery, very much need asystem,”but thewayhe readthe paper, the database oftransactions, the blockchain,would quickly become toobigforuserstodownload.

In the weeks thatfollowed,HalwasessentiallySatoshi’s only defender. Onthe cryptography list, Hal

wrote that he wasn’t terriblyworried about the attackersthatLevine talkedabout.ButHal admitted that he wasn’tsure how the whole thingwould work in practice, andexpressed a desire to seeactual computer code, ratherthan just a conceptualdescription.

“This does seem to be avery promising and originalidea, and I am looking

forward to seeing how theconceptisfurtherdeveloped,”Halwrotetothegroup.

Hal’s defense of theprogram led Satoshi to sendhimanearly,betaversionfortesting. In test runs inNovember and Decembertheyworked out someof theearly kinks. Not long afterthat,inJanuary2009,Satoshisent thecompletecodetothelist. The final softwaremade

some interesting tweaks tothe system described in theoriginal paper. It determinedthat new coins would beassignedapproximatelyeveryten minutes, with the hashfunctionlotterygettingharderif computerswere generatingcoins more frequently thanthat.

The software alsomandated that the winner ofeach block would get fifty

coins for the first four years,twenty-fivecoinsforthenextfour years, and half asmuchagain every four years until21 million coins werereleased into the world, atwhich point new coingenerationwouldstop.

On the first day, whenHaldownloadedthesoftware,the network was already upandrunning.Forthenextfewdays, not much activity was

beingaddedtotheblockchainother than a computeron thenetwork(usuallybelongingtoSatoshi) winning fifty coinsevery tenminutes or so. Buton Sunday evening the firsttransaction took place whenSatoshi sentHal ten coins tomakesurethatthispartofthesystem was workingsmoothly. To complete thetransaction, Satoshi signedoff with the private key

associated with the addresswhere the coins were stored.This transaction wasbroadcast to the network—essentially just Hal andSatoshi at this point—andwas registered in theblockchain a few minuteslater when Satoshi’scomputers won the nextround of the hash functionlottery.At that point, anyonewhodownloadedthesoftware

would download the entireblockchain up to the point,which included a record ofthe ten coins that Hal hadreceivedfromSatoshi,aswellasthefiftycoinsthatHalhadwononSaturday.

In the first weeks, otherearly adopters were slow tobuyin.Satoshiwasusinghisowncomputerstohelppowerthenetwork.Satoshiwasalsodoing everything possible to

sell the technology,respondingquicklytoanyoneshowingtheslightestinterest.WhenaprogrammerinTexaswrote to Satoshi late onenight, expressing his ownfamiliarity with electroniccurrency and cryptography,he had an answer fromSatoshithenextmorning.

“We definitely havesimilar interests!” Satoshiwrote with innocent

enthusiasm,beforedescribingthe challenge that confrontedBitcoin:

Youknow,Ithinktherewerealotmorepeopleinterestedinthe90’s,butaftermorethanadecadeoffailedTrustedThirdPartybasedsystems(DigiCash,etc.),theyseeitasalostcause.I

hopetheycanmakethedistinction,thatthisisthefirsttimeIknowofthatwe’retryinganon-trustbasedsystem.

It became clear, though,that Satoshi’s program on itsownwasjustabunchofcode,sitting on a server like somany other dreams hatchedby programmers. Most of

those dreams die, forgottenon a hard drive somewhere.Bitcoin needed more usersand defenders like Hal tosurvive, and there weren’tmany to be found. A weekafter the program wasreleased, one writer on theCryptography mailing listwrote:“Nomajorgovernmentis likely to allow Bitcoin initspresentformtooperateonalargescale.”

Hal acknowledged thatthe author could prove to beright, but came to Satoshi’sdefenseagain:“Bitcoinhasacoupleof thingsgoing for it:one is that it is distributed,with no single point offailure, no ‘mint,’ nocompany with officers thatcan be subpoenaed andarrestedandshutdown.”

Even Hal’s enthusiasm,though, appeared to flag at

times. As his computer keptworking at full capacity,trying to generate newcoins,he began to worry about thecarbon dioxide emissionscaused by all the computersracingtomintcoins.Afterhisson, Jason, complainedaboutthe wear and tear it wascausing to the computer,HalturnedofftheGenerateCoinsoption.Halalsohadbeguntofear thatwithapublic ledger

of all transactions—even ifeveryone was represented bya confusing-looking address—Bitcoin might not be asanonymous as he initiallythought.

Andthensomethingmuchworse happened. Hal’sspeech began slurring. Hebecame increasingly sluggishduring hismarathon training.Soon, all his free momentswere spent visiting doctors,

trying to identify themysterious ailment.Eventually it was diagnosedas Lou Gehrig’s disease, thedegenerative condition thatwouldgraduallycauseallhismusclestowitherawayinsidehis body. By the time helearned this, Hal was out ofthe Bitcoin game. Hewouldn’t return until hiscondition was much worseand Bitcoin’s was much

better.

CHAPTER3

May2009

In earlyMay, a fewmonthsafter Hal Finney’s lastmessages, Satoshi Nakamotoreceived an e-mailwritten instiltedbutpreciseEnglish.

“I have a good touch onJava and C languages fromschool courses (I’m studyingCS), but not so very muchdevelopmentexperienceyet,”read the note, signed MarttiMalmi.

This was clearly not thevoiceofagrizzledveteranofthe Cypherpunk movementlikeHal.ButMarttidisplayedsomethingmore important atthispoint:eagerness.

“IwouldliketohelpwithBitcoin,ifthere’ssomethingIcando,”hewrote.

Satoshi had gotten a fewpromising e-mails since Halhad disappeared two monthsearlier,butMarttiwasalreadydemonstrating morecommitment than the others.Before reaching out toSatoshi, Martti had writtenabout Bitcoin on anti-state.org, a forum dedicated

to the possibility of ananarchist society organizedonlybythemarket.UsingthescreennameTrickster,MarttigaveabriefdescriptionoftheBitcoin idea and asked forthoughts:

Awidespreadadoptionofsuchasystemsoundslikesomethingthatcouldhaveadevastating

effectonthestate’sabilitytofeedonitslivestock.Whatdoyouthinkaboutthis?I’mreallyexcitedaboutthethoughtofsomethingpracticalthatcouldtrulybringusclosertofreedominourlifetime:-)Nowwejustneedsomeconvincingproofthatthesoftware

andthesystemworksecurelyenoughtobetakenintorealuse.

Martti included a link tothispost inhis firste-mail toSatoshi, and Satoshi quicklyreaditandresponded.

“Your understanding ofBitcoin is spot on,” Satoshitoldhim.

MARTTI’SENTHUSIASMHELPEDCONFIRM the shift in strategySatoshi had made since thebeginning of the year. Backwhen Satoshi had firstlaunched the software, hiswritings were drily focusedonthetechnicalspecificationsoftheprogramming.

But after the first fewweeks, Satoshi beganemphasizing the broaderideological motivations for

thesoftwaretohelpwinovera broader audience, andprivacywasonlyapartof it.In a February posting on thewebsite of the P2PFoundation, a groupdedicated to decentralized,peer-to-peer technology,Satoshi led off by talkingabout problems withtraditional,orfiat,currencies,a term for money generatedbygovernmentdecree,orfiat.

“The root problem withconventional currency is allthe trust that’s required tomakeitwork,”Satoshiwrote.“The central bank must betrusted not to debase thecurrency, but the history offiat currencies is full ofbreachesofthattrust.”

CurrencydebasementwasnotanissuetheCypherpunkshad discussed much, butSatoshimadeitclearwiththis

posting, and not for the lasttime, that he had beenthinkingaboutmorethanjustthe concerns of theCypherpunkswhendesigningthe Bitcoin software. Theissue that Satoshi referred tohere—currency debasement—was, in fact, a problemwith existing monetarysystems that had much morepotential widespread appeal,especially in thewake of the

government-sponsored bankbailoutsthathadoccurredjusta few months earlier in theUnitedStates.

Throughout history,central banks have beenaccused of debasing theircurrencies by printing toomuch new money—orreducing the precious metalcontent in coins—thusmaking the existing moneyworth less. This had been a

passionate political cause, incertain circles, since the endof the gold standard, thepolicy bywhich every dollarwas backed by a certainquantityofgold.

Thegoldstandardwasthemostpopularglobalmonetarysystem at the start of thetwentieth century. Not onlydidgold linkpapermoney tosomething of physicalsubstance; the standard also

served as a mechanism forimposing restraint on centralbanks. The Federal Reserveandothercentralbankscouldprintmoremoneyonlyiftheymanagedtogettheirhandsonmoregold. If they ranoutofgold, nomoremoneyandnomorespending.

The restriction wassuspended during the GreatDepression, so that centralbanksaroundtheworldcould

print more money tostimulate the economy.AfterWorld War II, the world’sleadingeconomieswentbacktoaquasi–goldstandard,withall currencies having a setvalue ingold—though itwasnolongerpossibletoactuallyturn dollars in to collectphysical gold. In 1971Richard Nixon finallydecidedtocutthevalueofthedollar loose from any anchor

and end the gold standardpermanently. The dollar andmost other global currencieswouldbeworthonlyasmuchas someone was willing topay for them.Now the valueof the dollar arose from thecommitment of the UnitedStates government to take itforalldebtsandpayments.

Most economists approveof the move away from thegold standard, as it allowed

central banks to be moreresponsive to the ups anddowns of the economy,putting more money intocirculationwhentheeconomygreworwhenpeopleweren’tspending and the economyneeded a jolt. But the policyhas faced impassionedcriticism, particularly fromantigovernmentcircles,wheremany believe that the end ofthe gold standard allowed

central banks to print moneywith no restraint, hurting thelong-term value of the dollarand allowing for unbridledgovernmentspending.

Until 2008, though, thiswas a relatively niche issue,evenamonglibertarians.Thatchanged during the financialcrisis, after the FederalReserve helped bail out bigbanks and stimulate theeconomy by printing lots of

money.Thisfannedfearsthatthe new money flooding themarket would make existingmoney and savings worthless. Suddenly, monetarypolicy was a mainstreampolitical issue and the Fedwasasortofnationalvillain,with “END THE FED” bumperstickers becoming a commonsight. The issue became oneof the first criticisms of theexisting financial system that

gained popular appeal afterthefinancialcrisis.

When Satoshi releasedBitcoin, just months afterthese bank bailouts, thedesign provided a tidysolution for people worriedabout a currency with norestraints. While the FederalReservehadno formal limitson how much new money itcould create, Satoshi’sBitcoin software had rules to

ensure that new Bitcoinswouldbereleasedonlyeverytenminutesorsoandthattheprocessofcreatingnewcoinswould stop after 21 millionwereoutintheworld.

This apparently smalldetail in the system carriedpotentially great politicalsignificance in a worldworried about unlimitedprinting of money. What’smore, the restraints on

Bitcoin creation helped dealwithoneofthebigissuesthathad bedeviled earlier digitalmoneys—the matter of howto convince users that themoney would be worthsomethinginthefuture.Witha hard cap on the number ofBitcoins, users couldreasonably believe thatBitcoins would becomeharder to get over time andthuswouldgoupinvalue.

Theseruleswereallalateaddition to the code andSatoshi had not played themupearlyon.Butnow thatheneededtosellittothepublic,thisfeatureofBitcoinbecameabigdraw.MarttiMalmi,theyoung man who wrote toSatoshi in earlyMay, provedthe wisdom of emphasizingthis. Martti didn’t knowcryptography but as apolitical junkie he was

immediately drawn toBitcoin’s revolutionarypotential.

“There’s no central bankto debase the currency withunlimited creation of newmoney,”Martti wrote on theanti-state.comforum.

Thiswas the first butnotthe last time that the Bitcoinconcept’smanylayers,anditsopenness to newinterpretations, would allow

theproject topickup crucialnewfollowers.

Satoshi quickly gaveMartti practical suggestionsfor how he could help theproject. The most importantwasthesimplest:toleavehiscomputeronwiththeBitcoinprogram running. Fivemonths after Bitcoin waslaunched, it was still notpossibletotrustthatsomeonesomewhere was running the

Bitcoinprogram.Whenanewperson tried to join, therewere often no othercomputers or nodes tocommunicate with. It alsomeant that Satoshi’scomputers were stillgenerating almost all thecoins.WhenMarttijoinedin,he quickly began winningthemonhis laptop,whichhekept running exceptwhen heneeded the computing power

forhisvideogames.As to the more

complicated programmingneeds,SatoshitoldMarttithatthere was “not much that’seasyrightnow.”But,Satoshiadded, the Bitcoin websitedid need introductorymaterial for beginners andMartti seemed like the rightpersonforthejob.

“My writing is not thatgreat—I am a much better

coder,” Satoshi wrote,encouragingMartti to try hishand.

Two days later, Marttiproved Satoshi right bysending a lengthy butaccessible documentaddressing seven basicquestions, ready tobe postedontheBitcoinwebsite.Marttiprovided straightforward, ifoccasionally stilted, answersto questions like, “Is Bitcoin

safe?”and“WhyshouldIuseBitcoin?” To answer thelatter, he cited the politicalmotivations:

Besafefromtheunfairmonetarypoliciesofthemonopolisticcentralbanksandtheotherrisksofcentralizedpoweroveramoneysupply.Thelimited

inflationoftheBitcoinsystem’smoneysupplyisdistributedevenly(byCPUpower)throughoutthenetwork,notmonopolizedtoabankingelite.

Satoshi liked thedocumentsomuchthatMarttiwas quickly given full

credentials for the Bitcoinwebsite, allowing him tomake any improvements hewanted. Satoshi particularlyencouraged Martti to helpmake the site look moreprofessionalandgetusersuptospeed.

WHENMARTTIFOUNDBitcoininthespringof2009,hewasin his second year at the

Helsinki University ofTechnology. If Hal Finneywas the opposite of thenormal tech geek, Marttilivedup to type.Lanky,withbirdlikefeatures,Marttishiedawayfromsocialcontact.Hespokeinaslow,haltingvoicethat sounded almost as if itwerecomputergenerated.Hewashappiestinhisroomwithhis computer, writing code,whichhehadlearnedtodoat

age twelve, or hammeringaway at enemies in onlinegames, while listening toheavy metal music onheadphones.

Martti’s reclusive,computer-centric life led himto the ideas behind Bitcoin,and ultimately to Bitcoinitself. The Internet hadallowed a teenage Martti todiscoverandexplorepoliticalideas that were far from the

Finnish social democraticconsensus. The ideas of thelibertarian economists hebegan following, whichencouraged people to createtheir own destiny, alignedwith Martti’s lone-wolfapproach to life, even if itignored the incredibleeducation that Martti hadreceived thanks to Finland’sstrong government and hightaxes. Who needs the state

when you have talent andideas?

During his college years,Marttihadbecomefascinatedby the rise inScandinavia ofthe Pirate Party, whichpromoted technology overpolitical engagement as thewaytomovesociety.Napsterand other music sharingservices hadn’t waited forpolitics to reform copyrightlaw; theyforced theworld to

change. As Martti ponderedthese ideas he beganwondering whether moneymight be the next thingvulnerable to technologicaldisruption. After a briefspasm of random websearches,Marttihadfoundhisway to the primitive websiteatBitcoin.org.

Withinafewweeksofhisinitial exchanges withSatoshi, Martti had totally

revamped the Bitcoinwebsite.InplaceofSatoshi’soriginal version, whichpresented complicateddescriptions of the code,Martti led off with a brief,crisp description of the bigideas, aimed at drawing inanyone with similarideologicalinterests.

“Be safe from theunstability caused byfractional reserve banking

and the bad policies of thecentral banks,” read thenewlydesignedsite.

The onslaught of newusers was slow to arrive,however.Afewdozenpeopledownloaded the BitcoinprograminJune,toaddtothefew hundred who haddownloaded it since itsoriginal release. Most hadtrieditonceandthenturneditoff. But Martti kept at it.

After releasing the newwebsite,Martti turned to thesoftware’s actual underlyingcode.He did not knowC++,the programming languagethat Satoshi had writtenBitcoin in, so Martti beganteachinghimself.

Martti had time for all ofthisbecausehefailed to landa summer programming job—afailurethatgaveBitcoinamuch-needed boost over the

next months. Martti got apart-time job through a tempagency, but he would spendmany of his days and nightsattheuniversitycomputerlaband find himself emerging atdawn. As he learned C++,Marttiwasgoing through thelaborious process ofcompilinghisownversionofthe code that Satoshi hadwritten, so that he couldbegin making changes to it.

He and Satoshicommunicated regularly andfellintoaneasyrapport.

While Satoshi neverdiscussed anything personalin these e-mails, he wouldbanterwithMarttiaboutlittlethings.Inonee-mail,Satoshipointed to a recent exchangeon the Bitcoin e-mail list inwhich a user referred toBitcoin as a“cryptocurrency,”referringto

the cryptographic functionsthatmadeitrun.

“Maybe it’s a word weshould use when describingBitcoin. Do you like it?”Satoshiasked.

“It sounds good,” Marttireplied. “A peer to peercryptocurrency could be theslogan.”

As theyearwenton theyalsoworkedoutotherdetails,like the Bitcoin logo, which

they mocked up on theircomputers and sent back andforth,comingup,finally,withaBwithtwolinescomingoutofthebottomandtop.

Theyalsobattedbackandforth potential improvementsto the software. Marttiproposed making Bitcoinlaunch automatically whensomeone turned on acomputer,aneasywaytogetmorenodesonthenetwork.

Satoshi loved it: “Nowthat I think about it, you’veput your finger on the mostimportant missing featurerightnowthatwouldmakeanorderofmagnitudedifferenceinthenumberofnodes.”

Despite Martti’s relativelack of programmingexperience,Satoshigavehimfull permission to makechanges to the core Bitcoinsoftware on the serverwhere

it was stored—somethingthat, to this point, onlySatoshi could do. Starting inAugust,thelogofchangestothe software showed thatMartti was now the mainactor.When the next versionofBitcoin,0.2,was released,Satoshi gave credit for mostof the improvements toMartti.

But both Satoshi andMartti were struggling with

howtogetmorepeopletouseBitcoin in the first place.There were other computerson the network generatingcoins, but the majority ofcoins were still captured bySatoshi’s own computers.And throughout 2009 no oneelsewassendingorreceivinganyBitcoins. Thiswas not apromisingsign.

“It would help if therewas something for people to

use it for. We need anapplication to bootstrap it,”SatoshiwrotetoMarttiinlateAugust.“Anyideas?”

Returning to school forthe fall semester, Marttiworked on several fronts toaddressthis.Hewaseager tosetupanonlineforumwhereBitcoinuserscouldmeetandtalk. Long before Bitcoin,online forums had beenwhereMarttihadcomeoutof

his shell as a teenager,allowing him a social easethat he never had in real-lifeinteractions.Hecouldalmostbe someone else. Indeed,when Martti and Satoshieventually set up a newBitcoin forum, Martti gavehimself the screen name thatwouldbecomehisalteregointheBitcoinworld:sirius-m.

The name had a cosmicring to it, and conveyed that

this was “sirius business,”Marttithoughttohimself.Butit also had a more playfulmeaning forMartti,who hadused the alias in a HarryPotter role-playing game atagethirteen.

The Bitcoin forum wentonlineinthefallof2009andsoonattractedafewregulars.One of them, who calledhimself NewLibertyStandard,talked about the need for a

website where people couldbuyandsellBitcoins for realmoney. Martti had beentalking with Satoshi aboutsomethingsimilar,buthewasall too glad to helpNewLibertyStandard. In theveryfirstrecordedtransactionof Bitcoin for United Statesdollars, Martti sentNewLibertyStandard 5,050Bitcoins to use for seedingthe new exchange. In return,

Marttigot$5.02byPayPal.This trade raised the

obvious question of howmuch a Bitcoin should beworth.Giventhatnoonehadever bought or sold one,NewLibertyStandardcameupwith his own method fordetermining its value—therough cost of electricityneeded to generate a coin,calculated usingNewLibertyStandard’s own

electricity bill. By thismeasure, one dollar wasworth around one thousandBitcoins formost ofOctoberandNovember2009.

ForSatoshi,though,moreimportant than buying andsellingBitcoinswasawaytobuy and sellother things forBitcoins. That, as Satoshiwrote to Martti, was thecritical thing needed forenablingBitcoin to catch on:

“Not saying it can’t workwithout something, but areally specific transactionneed that it fills wouldincrease the certainty ofsuccess.”

The first, rather timidthrust in this direction wasmadebyNewLibertyStandardin a post on the newBitcoinforum:

Whatwouldyoubuy

orsellinexchangeforBitcoins?

Here’swhatIwillbuyifthepriceisright.

Paperbowls,about10ounces(295ml),nomorethan50countfactorysealed.

Plasticcups,about16ounces(473ml),nomorethan50count,factorysealed.

Papertowels,preferablyregularsizeBountyThickandAbsorbent,singleroll,factorysealed.

Another user wonderedwhatkindofwildcelebrationNewLibertyStandard wasplanning with all thatdisposableplateware.

“Bachelorhood?”NewLibertyStandard wrote

back.Soon thereafter,

NewLibertyStandard began aSwap Variety Shop on hisexchange website. Itsselectionwaslimitedtoafewsheets of postage stamps andSpongeBob SquarePantsstickers.

Giventhisactivity, itwasnot surprising thatNewLibertyStandard soonshut down his exchange,

while the network stagnated.Indeed, despite the recentinnovations,atvariouspointsduring late 2009 and early2010 it appeared that theamount of computing poweronthenetworkwasshrinking.

In the spring, Marttihimself had less time todedicate to the project afterhedroppedoutofschoolandtooka short-term, entry-levelIT jobwithSiemens.Satoshi

alsowentmissing.When Martti checked

back inwithSatoshi, inMay2010,hewrote,“Howareyoudoing? Haven’t seen youaroundinawhile.”

Satoshi’s response wasvague: “I’ve been busy withotherthingsforthelastmonthand a half—I’m glad youhave been handling things inmyabsence.”

In May a potential new

user wrote to the Bitcoinmailing list, inquiring abouthowtoacceptBitcoinforhisweb-hosting business.Sometime later he wroteagain: “Wow, not oneresponse in months.Amazing.”

Anotherparticipantonthelist,oneofthefirstskepticstocriticize Bitcoin back in thefall of 2008, now wrote toexplain: “Yes—Bitcoin kind

ofwentdead.”He recalled the early

debates on the cryptographymailing list with Satoshiabout Bitcoin: “Long ago, Ihadanargumentwiththeguywho designed it aboutscaling.Iheardnomoreofit—ofcoursewithnooneusingit, scaling isnotaproblem. Idonotknowifthesoftwareisin usable condition, or hasbeentestedforscalability.”

But the apparent lack ofactivityincertainpartsoftheBitcoin ecosystem obscuredthe fact that at a slow butsteady rate it had beenattracting a tiny butincreasingly sophisticatedcore of users whowere easyto miss if you didn’t lookcarefully.

CHAPTER4

April2010

Laszlo Hanecz, aHungarian-borntwenty-eight-year-old software architectwho lived in Florida, heardabout Bitcoin from a

programmingfriendhe’dmetonInternetrelaychat,knownas IRC. Assuming it wassome scam, Laszlo pokedaroundtofigureoutwhowassecretly making money. Hesoon realized there was aninteresting and high-mindedexperiment going on anddecidedtoexplorefurther.

Hebeganbybuyingsomecoins fromNewLibertyStandardandthen

building software so that theBitcoin code could run on aMacintosh. But like manygood coders, Laszloapproached a new projectwith a hacker’s mind-set,probingwherehemightbreakit, in order to test itsrobustness. The obviousvulnerability here was thesystem for creating, ormining, Bitcoins. If a userthrew a lot of computing

powerontothenetwork,heorshe could win adisproportionate amount ofthe new Bitcoins. AlthoughSatoshi Nakamoto haddesigned the mining processso that the hash functioncontestwouldbecomeharderif computers were winningthe mining race morefrequently than every tenminutes, thoseuserswith themostpowerfulcomputersstill

had a much better chance ofwinning a majority of thecoins.*

Untilnow,noonehadanincentive to throw lots ofcomputing power intomining, given that Bitcoinswere worth essentiallynothing. But Laszlo decidedto test this vulnerability. Heunderstood that everyone onthenetworkwastryingtowinthe computational race with

thecentralprocessingunit,orCPU, inhisorhercomputer.But the CPU was alsorunning most of thecomputer’s other basicsystems, so it was notparticularly efficient atcomputing hash functions.Thegraphicsprocessingunit,or GPU, on the other hand,was custom-designed to dothekindofrepetitiveproblemsolving necessary to process

imagesandvideo—similar towhat was needed to win thehashracefunction.

Laszloquicklyfiguredouthow to route the miningprocess through hiscomputer’s GPU. Laszlo’sCPU had been winning, atmost, one block of 50Bitcoins each day, of theapproximately 140 blocksthatwerereleaseddaily.OnceLaszlo got his GPU card

hooked in he began winningone or two blocks an hour,and occasionally more. OnMay 17 hewon twenty-eightblocks; these wins gave himfourteen hundred new coinsthatday.

Satoshi knew someonewould eventually spot thisopportunity as Bitcoinbecame more successful andwas not surprised whenLaszlo e-mailed him about

hisproject.ButinrespondingtoLaszlo,Satoshiwasclearlytorn.Ifonepersonwastakingall the coins, there would beless of an incentive for newpeopletojoinin.

“I don’t mean to soundlike a socialist,” Satoshiwrote back. “I don’t care ifwealth is concentrated, butfornow,wegetmoregrowthby giving that money to100% of the people than

givingitto20%.”Asaresult,Satoshiasked

Laszlo to go easy with the“highpowered hashing,” theterm coined to refer to theprocess of plugging an inputinto a hash function andseeingwhatitspitout.

But Satoshi alsorecognized that having morecomputing power on thenetwork made the networkstrongeraslongasthepeople

with the power, like Laszlo,wanted to see Bitcoinsucceed. Bitcoin’s consensusmodel, which demanded thatany new additions to theblockchain—andanychangesto the Bitcoin software—hadtobeapprovedbyamajorityofthecomputersornodesonthe network, ensured thatevenifpeopletriedtochangethe rules, or screw up theblockchain, they could not

succeedwithoutsupportfrom50 percent of the othercomputers on the network.This model did leave thenetwork vulnerable if oneperson or group capturedmore than 50 percent of thecomputing power, in whatwas referred to as a 51percent attack. If Bitcoinsupporters like Laszlo couldaddlotsofcomputingpower,thatwouldmakeitharderfor

a bad guy to build up morethan51percentofthepower.And Laszlo did have thenetwork’s best interest inmind. It became clear on theforums that he was a good-natured guy and moreinterested in ideas than inpersonal wealth or success.Indeed,asheminedcoins,hewas eager to show howBitcoin could be used in thereal world. He posted in the

forumaskingifanyonewouldbake or buy him a pizza,delivered to his home inJacksonville,Florida.

WhatI’maimingforisgettingfooddeliveredinexchangeforBitcoinswhereIdon’thavetoorderorprepareitmyself,kindoflikeorderinga“breakfastplatter”ata

hotelorsomething,theyjustbringyousomethingtoeatandyou’rehappy!

Having stockpiled about70,000Bitcoins by this time,heoffered10,000forapizza.For thefirst fewdaysnooneacceptedthem.Afterall,whatwouldthepersonontheotherend do with the coins onceLaszlo sent them over? But

on May 22, 2010, a guy inCalifornia offered to callLazlo’s local Papa John’s.Ashort while later adeliveryman knocked on thedoor of Laszlo’s four-bedroom home in suburbanJacksonville bringing twopizzas, fully loaded withtoppings.

Laszlo subsequentlyfound several takers for thedeal, which meant that for a

fewweeksheatenothingbutpizza. His two-year-olddaughterwasinheavenashewatched his stockpile ofBitcoinsdwindle.Buthehaddemonstrated that Bitcoinscould be used in the realworld. When he postedpicturesfromoneofhisfeastsMartti Malmi cheered:“Congratulations laszlo, agreatmilestonereached.”

LASZLO HAD PROVED that itwas possible to pay for realthings with Bitcoins, but thetechnology was stillessentially just a volunteerproject that relied on thegoodwillofusers.Perhapsthemost notable project set upduring these months was theBitcoin faucet, a site thatgave five free Bitcoins toanyone who registered. Theproject’s creator was Gavin

Andresen, a Massachusetts-based programmer who hadspent $50 to get the 10,000Bitcoinshewasgivingaway,and who would become analmost mythic figure withinBitcoin. He first heard aboutthetechnologyinMayfromasmall item on the website ofInfoWorld. After setting upthe faucet, Gavinacknowledgedthatitsoundedsilly to give Bitcoins away,

particularly because theywere not hard to generate.But, Gavin wrote on theforums, “I want the Bitcoinprojecttosucceed,andIthinkit is more likely to be asuccess if people can get ahandfulofcoins to try itout.It can be frustrating to waituntil your node generatessomecoins (and thatwillgetmore frustrating in thefuture), and buying Bitcoins

isstillalittlebitclunky.”Gavin, a trim forty-four-

year-old with the anodynelooks of a suburban soccerdad, had time for the projectbecause he, his two children,and his wife—a geologyprofessor—had recentlyreturned from his wife’ssabbaticalinAustralia.Gavinhad quit his job as aresearcher at the UniversityofMassachusetts before they

hadgone toAustralia andhewas now trying to figure outwhat to do next from hishome office, just off thefamilymudroom.

When he first read aboutBitcoin, he had immediatelyferretedoutSatoshi’soriginalBitcoinarticle,nowknownasthe Bitcoin white paper, aswellastheBitcoinforum,allof which he read in a fewhours. The concept appealed

to him, in part, for the samepolitical reasons that drew inMartti.AftergrowingupinaliberalWestCoasthousehold,Gavin had moved towardlibertarianismduring his firstprogramming job, swayedbya persistent coworker. Thesepolitics gave him a naturalinterest in a free-marketcurrencylikeBitcoin.

Butpoliticsdidn’toccupythecenterofGavin’slifeand,

unlike many libertarians, hedidn’t particularly think thegold standard was a greatidea. For Gavin, one of theprimary attractions of thistechnology was theconceptual elegance of thedecentralizednetworkandtheopen source software, whichwas updated and maintainedby all of its users instead ofone author. Gavin’sprogramming career thus far

had given him anappreciationfordecentralizedsystems that had nothing todowith any suspicion of thegovernment or corporateAmerica. For Gavin, thepower of decentralizedtechnology came from themore workaday benefits ofsoftware and networks thatdidn’trelyonasinglepersonor company to keep themrunning.

Decentralized systemslike the Internet andWikipedia could harness theexpertise of all their users,unlike the AOL network orEncyclopaedia Britannica.Decision making could takelonger, but the ultimatedecisions would incorporatemore information. Theparticipants in decentralizednetworks also had anincentive to help keep the

systemupandrunning.Iftheoriginal author was away onvacation or asleep when acrisis hit, other users couldchip in.As it was frequentlyput, systems were strongerwhen there was no singlepoint of failure. Thesearguments were, to somedegree, technologicalanalogues of the politicalarguments that libertariansmade for taking power away

from central governments:politicalpowerworkedbetterwhen it was in the hands oflots of people rather than asinglepolitical authority.Buttheadvocatesforopensourcesoftware tended toput thingsinlessideologicalterms.

Decentralized technologywas a rather natural fit forGavin, who had little in thewayofanego.Despitegoingto Princeton, he had been

happy serving as somethingofajourneymanprogrammer,working on 3-D graphics atone point, and Internettelephony software atanother. For Gavin, the jobshad always been about whathefoundinteresting,notwhatpromised themostmoney orsuccess.

To start participating inthe Bitcoin project, Gavinquicklybegane-mailingwith

Satoshi to suggest his ownimprovements to the codeand, in short order, becamethe first person other thanSatoshiorMartti toofficiallymakeachangetotheBitcoincode.

More valuable thanGavin’s programming chopswere his goodwill andintegrity, both of whichBitcoindesperatelyneededatthis point to win the trust of

newusers,given thatSatoshiremained a shadowy figure.Satoshi had, of course,designed his software to beopen source so that userswouldn’t have to trust him.Butpeoplewerenotshowingmuch willingness to entrustrealmoney to anetwork thatwas run by a bunch ofanonymousmalcontents.

Gavinattacheda realandtrustworthy face to the

technology. He was one ofthe first people on the forumtousehisrealidentity,takingthe