The controversy over Satoshi Nakamoto’s true identity is jeopardizing Bitcoin’s future

Earlier in May, Australian entrepreneur Craig Wright made headlines with the claim that he was in fact the mysterious creator of Bitcoin, known as “Satoshi Nakamoto.” While Wright has yet to offer concrete public evidence to back up his claim, some in the Bitcoin community have insisted that even if Wright is Nakamoto, it doesn’t matter.

This is a classic engineer’s fallacy. I say this with love—I’m an engineer myself—but it exemplifies a blinkered worldview which is both wrong and dangerous. The identity of the Bitcoin creator matters because if he or she were to come forward, they might have a real shot at finally uniting a fractious community. At the very least, the creator could provide some clarity on a host of unresolved, fundamental questions that are damaging Bitcoin’s credibility with investors and potential users alike.

The network is not the project is not the network

It is true that Satoshi’s true identity is irrelevant to the Bitcoin network. The network was (brilliantly) designed so that its transactions require no trust or central authority. This will remain true as long as no entity controls too much of the “mining” computational power—more than one quintillion computations per second—that secures Bitcoin’s revolutionary blockchain.  More than the sum of its code, the Bitcoin project has been divided by bitter disagreements.  (Blockchain, for the uninitiated, is a digital platform that verifies and creates a permanent record of online transactions.) Nakamoto is believed to control 7% of all extant bitcoin, worth roughly $450 million today. That’s enough to influence Bitcoin’s spot price, but not enough to control it.

But the Bitcoin network is a living, changing thing, composed of constantly evolving software. More than the sum of its code, the ongoing Bitcoin project has been divided by very public, bitter disagreements. These have at best slowed progress, and at worst dragged Bitcoin into something like a civil war.

How Bitcoin is governed

Final decisions regarding what software runs on the Bitcoin network are made by Bitcoin’s miners. Armed with cheap electricity and custom hardware, miners secure the blockchain and are rewarded with newly minted bitcoin. But miners do not (currently) develop new Bitcoin software; they merely choose what to adopt.

This can be a fraught process. If different miners run fundamentally incompatible versions of the Bitcoin software—a situation known as a “hard fork”—then the blockchain will split in two. In theory the chain supported by the most mining power will ultimately be triumphant, but the outcome could be quite costly for those who choose the wrong side or fail to upgrade quickly.

Bitcoin software is open source. Anyone can copy it, build on it, or release their own version. (Most “altcoins,” such as Litecoin and Dogecoin, adapt the Bitcoin code.) But in practice, for seven years, Bitcoin software was built by a small, tight-knit group of engineers—including Satoshi Nakamoto, until 2010, when he/she/they retired and vanished—whose code was universally accepted by miners. Then came 2015.

A brief and civil war

Last year, the increasing popularity of the Bitcoin network began to threaten its capacity limit of roughly 7 transactions per second, and Bitcoin’s engineers fragmented into factions. One group, now known as Bitcoin Classic, wanted to immediately promote a hard fork that would double the bandwidth of the Bitcoin network. Another faction, Bitcoin Core, believed that this was too risky, and promoted a different short-term solution to the looming capacity crisis.

As it turned out, however, the scuffle over capacity was only a symptom of a larger debate. To oversimplify: Bitcoin Classic and its backers believe the Bitcoin network should quickly scale to handle the same volume of transactions as mainstream platforms like Visa, regardless of the consequences. Bitcoin Core believes that Bitcoin should remain maximally decentralized and trustless, while new, more scalable solutions are developed that can handle millions of transactions per second. These solutions would be separate networks that use Bitcoin only sporadically, to settle large numbers of small transactions all at once. As it turned out, however, the scuffle over capacity was only a symptom of a larger debate. 

The argument was vitriolic and often very personal. Accusations of conflict of interest were flung around on Reddit like confetti. Several Bitcoin Core members are cofounders of the startup Blockstream, which has raised more than $70 million in pursuit of its vision of Bitcoin’s future. The CEO of the equally well-funded startup Coinbase threw his weight behind the hard fork strategy espoused by the Bitcoin Classic factions. One well-known developer publicly abandoned the project entirely, claiming “it has failed because the community has failed.”

In the end, the miners chose Bitcoin Core’s solution rather than risk a hard fork—at least for now. But it seems unlikely that the debate has entirely ended, and its consequences were decidedly negative. Venture capitalists and tech media who once trumpeted Bitcoin as the Next Big Thing now seem far more skeptical. Data from Y Combinator indicates that the incidence of Bitcoin-related startups has plummeted over the last year. In some ways, everybody lost.

It cannot be measured, and yet it exists

This will not be the last Bitcoin battle, or the last stain on its public image. But the public perception of Bitcoin would certainly take another hit if, for instance, Nakamoto is revealed as Wright, whose public behavior has been inconsistent and confusing. Public perception filters into industry perception, and the attitudes held by venture capitalists and entrepreneurs alike. Simply put, the identity of the Bitcoin creator matters.

Nakamoto’s secret identity has in some ways been very helpful to the Bitcoin project. Its mystery is alluring, and for those who dig deeper, the elegant brilliance of Nakamoto’s code and prose continue to inspire by example. But in the current environment, mystery may not be as helpful as clarity. If he/she/they were to reveal themselves, they could help resolve disputes before they become civil wars. As Mark Zuckerberg, who knows a thing or two about the merits of the iconic founder, says:

The social capital and moral authority that comes from being the founder and having built many of the company’s key products means that on balance people trust you more and give you the benefit of the doubt more when you make tough calls. Fewer people complain and take your time to manage. Fewer people quit and slow your execution. Everything is easier with social capital.

Bitcoin is an open-source project, not a company, but the same truth applies. The engineer’s fallacy is to assume that things that cannot be measured do not matter. Social capital is hard to measure, but it is extremely powerful. The attitude that technical projects are somehow beyond such human considerations is common, wrong, and dangerous. In the end, if Bitcoin ultimately fails to achieve its potential, it will be because of human failures, not technical ones.
Follow Jon on Twitter at @rezendi. We welcome your comments at ideas@qz.com.

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