Original text: Fixing money: Satoshi's disruption of human society

By Eli Ben Sasson

Quick Facts

The core of Bitcoin's innovation lies in its universality (decentralization), incentivized integrity, and public verifiability.
Challenges and opportunities facing Bitcoin
I hope that one day Bitcoin will be able to integrate zk-STARK technology through soft fork

Bitcoin means different things to different people. I want to share with you what Bitcoin means to me and explain what I believe to be Satoshi Nakamoto’s core innovation. First, I want to make it clear that Bitcoin’s true innovation is not in cryptography, the Internet, or computer technology. These emerging technologies are just a means to an end. What Satoshi Nakamoto really innovated was one of the most important inventions of mankind: social structure.

Social structure requires integrity and consensus

“Integrity: Doing the right thing even when no one is watching.”

—CS Lewis

When you think of social structures, you might think of friendship, cultural traditions, or, in today’s fashion, social media. However, people often overlook the fact that money is also a social structure. In fact, the essence of money is social structure.

Money is a system that carries a great deal of value, and the existence of this value depends entirely on everyone agreeing that money should "work like money." Therefore, to understand the nature of money as a social structure, we need to clarify two questions: first, what does money "work like money" mean, and second, why everyone needs to reach a consensus on this.

People have some basic expectations about money: you can’t just print an unlimited amount of it; the money you hold won’t disappear or increase without reason; you can spend your money freely, etc. These characteristics constitute what I call the inherent integrity of money. In other words, the nature of money determines that it will work as you expect it to work even if you are not always monitoring it.

However, the intrinsic integrity of a currency is only one aspect. On the other hand, a currency also needs credibility (i.e. perceived integrity), which means that there must be a broad consensus on its integrity across society, otherwise the currency will not be able to maintain its value. For example, if there are rumors that the government will force banks to freeze assets, this will seriously undermine the credibility of the currency. Even if the rumors are false, the currency may start to depreciate.

In summary, the value of money depends on both its intrinsic integrity and credibility. Any structure whose value is based solely on intrinsic integrity and credibility is a social structure. And money is the purest and most influential form of social structure (other forms will be discussed at the end of this article).

Human societies have been constantly inventing and redefining money. The simplest approach is for society to pick a homogeneous and scarce physical resource to serve as money. In my elementary school days, that physical resource was gum wrappers. In prisons, cigarettes were currency; in some societies, it was shells, salt, and stones; and for thousands of years until the eve of modern times, gold played the role of currency. But today, most currencies are digital, their scarcity relies on state endorsement, and the power to manage this resource is delegated to a few specific companies (i.e. banks). To a large extent, the value of a currency depends on how much we trust the integrity of the country and its mechanisms that run the monetary system.

Bitcoin is a completely new way to implement the social structure of money. Its innovation is not in the use of computers and Internet technology, but in how it uses the Internet to implement the social structure of money. Specifically, Bitcoin follows the following three unprecedented principles: (1) universality (i.e., decentralization), (2) incentivized honesty, and (3) public verifiability. We will explain these principles separately below.

Extensive (decentralized)

Bitcoin is defined by a protocol, which is a set of programs that are run by many computers connected via the Internet. Traditional currencies also rely on protocols (such as the SWIFT system), but Bitcoin is different in that its protocol invites everyone to participate in the operation of the system as an equal. Each of us is free to download the open source software that defines Bitcoin miners, and participate in creating new blocks and updating the status of the Bitcoin ledger (i.e. who owns how many Bitcoins) through our own computers. Moreover, widespread participation is not just for convenience, the security, integrity, and value of Bitcoin are directly related to the breadth of its running nodes. The more people participate in mining, the more secure the Bitcoin network is, and the more the public trusts its integrity.

In contrast, the traditional banking system does not welcome us to participate in its operations. At best, we have only a very limited understanding of the status of our accounts. "Inclusiveness" is a true innovation in the history of human society, built on the principles of equality, autonomy and democracy, which are the cornerstones of a free society. "Inclusiveness" echoes the old and charming idea of direct democracy, but goes further than it. Here, we are not only invited to participate in voting and expressing our opinions, but also given equal rights to operate the "state". It is no coincidence that Bitcoin was born in the aftermath of the 2008 financial crisis. The crisis at that time brought quantitative easing (i.e. unlimited money printing) and the rescue of "too big to fail" banks. As the number of unbanked people in the world increases and large-scale surveillance gradually penetrates our daily financial transactions, the continued development of Bitcoin is a direct response to this status quo. In other words, the emergence of Bitcoin is a rebellion and response to the continuous erosion of the credibility and inherent integrity of the traditional financial system.

Incentive Integrity

Bitcoin mining is profitable — you get rewarded with Bitcoins for mining a new block, and it’s open to everyone! This is perhaps the most amazing and amazing part of Satoshi’s invention. The Bitcoin protocol provides financial incentives (i.e., rewards) to perform certain actions (creating valid blocks) and to ensure the integrity of the system. This incentivizes and forces all miners to “do the right thing” even when no one is watching. If you stray from the “right path” (i.e., the Bitcoin protocol), you lose money because the electricity costs of mining invalid blocks are wasted, and you don’t get any Bitcoins in return. The clever thing is that the value miners receive is not paid in dollars or euros, but in Bitcoin itself. And Bitcoin, as a social construct, can only maintain its value if the public trusts its integrity. This creates a virtuous cycle: miners are incentivized to operate honestly without coordination, because violating the protocol is a stupid thing to do — and your hard-earned Bitcoins will be worth less, and you will suffer the consequences.

Let’s compare this principle of “incentivized integrity” with the traditional monetary system. In the traditional system, we are not invited to participate in the operation of the bank (the bank lacks universality), and those who actually participate in the operation of the bank do not receive equal direct value returns for maintaining the integrity of the bank or the national currency. Instead, the bank operates the system itself or hires service providers. The integrity of the system does not rely on the incentives of the agreement, but is enforced by contracts and the national legal system.

Imagine a world where banks offer equity (a share of the bank) or revenue (a portion of the bank’s fees) to a broad and open network of operators in return; and where nations open up their citizens to participate in the operation of their monetary system and reward their contributions with newly issued currency. I believe this is a superior and more democratic way for national currencies to operate. I believe that nations that adopt this higher standard will have more autonomous citizens and more thriving and free societies. Perhaps one day, inspired by Satoshi Nakamoto’s invention of Bitcoin, nations will move toward this more ideal system. But at least today, this is not a reality—and if society ever makes this leap, it will be entirely thanks to Satoshi Nakamoto’s invention.

Public Verifiability

The third and final core part of Satoshi Nakamoto’s innovation is public verifiability. This means that anyone can verify the complete integrity of Bitcoin, including all transactions since the genesis block in 2008. More importantly, you don’t need a supercomputer to verify all this, just a laptop! This also means that I can use this laptop, typing this moment, to verify the latest Bitcoin block in real time, and personally participate in this broad and democratic integrity and the social consensus it relies on. As long as someone tries to undermine the integrity of Bitcoin (that is, the integrity of the network), all of us will know.

It is necessary to compare it with the traditional payment network again. In the traditional system, centralized institutions (such as banks, credit card companies, etc.) rely on huge computing nodes to process transactions. And we ordinary users have no way to directly verify the integrity of the system. Even if we can obtain some kind of viewing permission, the huge amount of calculation is impossible to complete on an ordinary laptop.

Bitcoin Innovation — Challenges and Opportunities

Let’s summarize. Bitcoin’s innovation is that it re-implements the ancient social structure of money in a completely new way. This new implementation uses new technologies such as the Internet and the widespread availability of low-cost computing devices, but its core innovation is that the social structure of money is based on three new principles: universality, incentivized honesty, and public verifiability.

Broad sustainability?

The most vulnerable and worrisome feature of Bitcoin is its ubiquity, which is also the one I worry about the most. Creating a new Bitcoin block requires either a large amount of electricity or a great deal of luck. Obviously luck is uncontrollable, so we can only focus on the electricity issue. It is possible to imagine a dystopian future in which the operation of the Bitcoin network—especially the large amount of electricity consumed to secure the network—is completely controlled by a single or a few powerful entities (such as countries or large corporations). This worrisome future is not far-fetched for two reasons: (1) economies of scale may give large operators an advantage, gradually controlling a larger proportion of the computing power (i.e., Bitcoin's electricity consumption); and (2) as Bitcoin becomes more important in our lives and the economy, powerful forces such as countries and large corporations will inevitably try to control Bitcoin. If this happens, and Bitcoin mining is controlled by a single entity or a few coordinated entities, then the consensus around Bitcoin's integrity will be weakened. This consensus includes, for example, its censorship resistance, its lack of barriers to entry, its issuance cap of 21 million coins, and its payment mechanism that does not require reporting additional information to a centralized authority. If these core principles are eroded, Bitcoin will lose its value.

The universality of Bitcoin is not inherently guaranteed by Satoshi Nakamoto's invention. Maintaining this feature is a protracted battle that all those who care about the value and mission of Bitcoin must participate in. Even if universality is destined to be short-lived, the spirit of freedom it demonstrates will become a beacon in the long river of history, just like the short but glorious ancient Greek democracy, and continue to illuminate and inspire all those who care about human freedom.

Bitcoin’s Global Scalability

Public verifiability comes at a high price for Bitcoin. To ensure that transaction verification can be done on common devices, we must limit the amount of computation required to verify Bitcoin transactions. It is because of this principle of "public verifiability" that Bitcoin's processing power is limited to a maximum of about 10 transactions per second (10 TPS). This situation greatly limits Bitcoin's throughput and partially explains why only a very small number of people in the world use Bitcoin for daily purchases. Simply put, the current Bitcoin network lacks enough bandwidth to support everyone using Bitcoin for daily transactions. To achieve this goal, we need a Bitcoin network that can process thousands or even millions of transactions per second.

So, we seem to be caught in a dilemma - either stick to the public verifiability of Bitcoin, but then be limited by low bandwidth and cannot meet the needs of global use; or improve scalability so that everyone can use Bitcoin to buy daily necessities, but then there is a loss of transaction transparency, because ordinary devices can no longer easily verify all data, and we have to rely on those powerful centralized institutions again. And this is where mathematics and cryptography come in.

Payment channels and the Lightning Network are a prominent cryptographic solution that has been implemented on Bitcoin since March 2018. It expands Bitcoin's throughput capacity to a nearly unlimited level by allowing two parties to settle directly. This is a bit like a grocery store that allows customers to take out credit and settle at the end of the month, except that the entire process requires almost no trust assumptions, and the Bitcoin network itself acts as an arbitrator to prevent one party from trying to cheat.

However, this approach has two major drawbacks:

Low capital efficiency. Both grocery stores and customers must lock in a sum of money at the beginning of the month, and the locked amount often needs to be higher than the customer's monthly spending budget in order to successfully complete the payment process;
Continuous monitoring is required. Both parties must always pay attention to the status of their payment channels. If one party fails to monitor in time, the other party may take advantage of this gap to steal funds.

Although it would require a change to the Bitcoin protocol (i.e. a soft fork), a different and better solution already exists. This is the solution I have dreamed of for Bitcoin for over a decade and what drives me to work on blockchain every day. The zk-STARK protocol was co-invented by me 15 years ago while I was a full-time academic professor of theoretical computer science. This protocol allows all of us to verify all of Bitcoin’s blockchain, or even a million times more data, on our smartphones without having to trust any third party to process Bitcoin transactions. This solution completely solves the two shortcomings of the Lightning Network mentioned above. It is capital efficient and does not require users to be vigilant all the time. I first introduced this breakthrough blockchain technology at Bitcoin in 2013 and co-founded StarkWare in 2018 to make it a reality. Since then, together with the growing zero-knowledge research ecosystem, we have successfully established zk-STARK technology as the ultimate solution for Ethereum scaling. I look forward to the day when Bitcoin can also integrate zk-STARK technology through a soft fork, and I am working with many people in the ecosystem to make this happen.

Bitcoin Beyond Currency

Money is constructed by society to fulfill a specific social function. As a social construct, the value of money depends on two factors: (1) it must operate in good faith and (2) society generally recognizes its credibility.

Money may be the most classic example of a social structure, but it is by no means the only one. In fact, there are many other systems, data sets, and programs that also serve society and carry great value, all of which are based on a broad consensus in society about their credibility. For example, the registration system for land, property, and cars is a social structure; the election and governance process is a social structure; the marriage registration system, social titles, religious titles, and academic titles are also social structures. Even our personal reputation, such as credit history and health records, is part of the social structure.

Most social structures are governed by monopolistic entities and central institutions appointed by national governments or nation-states. This leads to a question I will ask at the end of this article: Can these social structures be implemented in a completely new way, the Satoshi way, which is based on the three principles of universality, incentivized integrity, and public verifiability?

StarkWare推出比特币扩展计划第一阶段Catnet

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