Bitcoin operators have completely betrayed Satoshi Nakamoto and his manifesto

The former FBI director said blockchain is easier to track than paper money.

Bitcoin has failed. Cryptocurrencies and DeFi platforms are now more vulnerable to privacy breaches and hacks than traditional banks.

Bitcoin operators have completely betrayed Satoshi Nakamoto and his manifesto

In the original Bitcoin manifesto, creator Satoshi Nakamoto specifically talked about how the “traditional banking model” maintains privacy by “restricting access to information by interested parties and trusted third parties.”

Here, the weak link is a trusted third party, which is usually the financial institution that controls the bank accounts and electronic systems we use. These agencies may be pressured by law to hand over information or simply be compromised by malicious actors.

In contrast, Satoshi Nakamoto used a distributed ledger technology called blockchain to design Bitcoin, which uses a network of voluntary computers (called nodes) across the internet to keep records and process transactions. Counterparties can only be identified by encrypted key pairs, which are regenerated with each transaction. This prevents transactions from being continuously tracked and “linked to a co-owner”.

Bitcoin operators have completely betrayed Satoshi Nakamoto and his manifesto

“Bitcoin: A Peer-to-Peer Electronic Cash System,” Satoshi Nakamoto

Unfortunately, most cryptocurrencies today work in such a way that your identity as a counterparty is easier to confirm than using traditional banking channels or cash. That’s what blockchain expert Gurvais Grigg said in a recent interview with CNBC.

Bitcoin operators have completely betrayed Satoshi Nakamoto and his manifesto

CNBC’s “What is Defi and Can It Disrupt the Financial Industry as We Know It?”

“Unlike other forms of fiat fraud, with cryptocurrencies in the blockchain… There is a record… This transparency and the speed of global access to that record make the investigation of these types of fraud faster than traditional finance. ”

—Gurvais Grigg, chief technology officer of Chainalysis and former assistant director of the FBI

Bitcoin operators have completely betrayed Satoshi Nakamoto and his manifesto

A complete betrayal of Satoshi Nakamoto and his manifesto

Now is the time for blockchain enthusiasts to ask this question. Have the main principles of Bitcoin’s design – privacy, fraud prevention, non-inflation – been completely undermined by today’s blockchain operators?

The recent spate of losses suffered by cryptocurrency exchanges and digital wallets due to hacks does raise doubts about whether their systems are worse than the traditional banking model.

On October 8, 2022, Binance, the world’s largest cryptocurrency exchange, was hacked for $570 million. This is just the latest in a spate of 13 different blockchain hacks that occurred during 2022, resulting in the theft of about $2 billion.

In this Binance incident, the hacker minted 2 million Binance coins (BNB) – the fifth-largest cryptocurrency in the world – and transferred most of them to his own digital wallet.

Such a situation is exactly what Satoshi Nakamoto wanted to prevent when he created Bitcoin. In a long section entitled “Computing”, he specifically describes mathematical proofs as to why his design does not “open the system to arbitrary changes, such as creating value out of thin air or taking away money that never belonged to the attacker”.

Bitcoin operators have completely betrayed Satoshi Nakamoto and his manifesto

“Bitcoin: A Peer-to-Peer Electronic Cash System,” Satoshi Nakamoto

So, how does it happen with other cryptocurrencies?

Crucial to Satoshi’s outstanding design, transactions need to be processed and verified by a large number of nodes that voluntarily join or leave the network. Because transactions are only approved if a majority of nodes agree on the authenticity of the transaction, it makes it theoretically nearly impossible for a single hacker to “forge” the transaction. He must be able to identify and take over more than 51% of nodes at the same time to do this.

Unfortunately, most blockchains used for other cryptocurrencies have far fewer nodes in their verification network. In the case of Binance coin, it only has 44 nodes.

What makes these newer cryptocurrencies even more vulnerable today is the “blockchain cross-chain bridge” used to transfer from one blockchain to another as users convert and move their digital wealth. Conceptually, these are like the digital equivalents of Western Union. Most hackers in 2022 target this point of vulnerability in blockchain networks.

In other words…

It doesn’t matter if the bank has an impenetrable vault. When the money is transferred, you can still hit the van.

The best way to get rich is to print your own money

So far, we’ve discussed how two of Satoshi’s two key principles – privacy and anti-fraud – were negated by subsequent adopters of blockchain technology.

And what about the third principle – non-inflationary?

This has to do with how Satoshi Nakamoto designed Bitcoin’s supply to be finite, so that as a means of storing wealth, its value will never diminish by simply printing more Bitcoin – as central banks do with fiat currencies.

Bitcoin operators have completely betrayed Satoshi Nakamoto and his manifesto

“Bitcoin: A Peer-to-Peer Electronic Cash System,” Satoshi Nakamoto

Unfortunately, this aspect of his brilliant design was one of the first things to be broken by later blockchain operators. Many of the cryptocurrencies created since then have an unlimited supply, including some of the most speculative ones such as Solana, Dogecoin, and Shiba Inu.

This is worse than what the central bank does. At the very least, a country’s currency is backed by its economic value. On the other hand, cryptocurrencies tend to be valued only on the perceived value of their creators and followers – a large part of which was created out of thin air by their creators in the first place.

This is exactly what Satoshi Nakamoto does not want. Bitcoin is programmed to be created only when volunteer nodes contribute to maintaining the network, generating real value for its user community.

Return to trusting someone

When you look at the world of cryptocurrencies and how it has spawned the entire decentralized finance (DeFi) movement, one wonders if we’ve gone back to where we started.

DeFi is a new term that describes the entire movement of digital exchanges, wallets, and lending platforms, basically using cryptocurrencies and blockchain to do what traditional banks have been doing for centuries.

Aside from using blockchain technology for accounting and bookkeeping, rather than traditional databases, the only difference is that the “trusted third party” is now the one who creates and runs these DeFi platforms.

In any trust system, there will inevitably be bad actors or weak links. To overcome this problem, Satoshi Nakamoto designed Bitcoin to be independent of anyone, not even himself or his early Bitcoin supporters. He also made it independent of a single computer system or network.

But now all this has been torn off.

DeFi is essentially just a copy of the traditional banking model, keeping records in a different way and being managed by new companies and individuals.

But if somehow the financial system is made more efficient and reliable, then why not?

The problem here is that as long as trust in third parties is required, then there needs to be a layer of oversight and regulation to prevent fraud and ensure accountability.

As a result, government rules and policies will emerge to govern the many DeFi companies that serve the public, which have sprung up. When the dust settles, they will become an institutionalized and regulated industry, just like traditional finance.

There’s nothing wrong with that, but that’s certainly not Satoshi’s intention.

The blockchain community needs to rethink the original purpose behind Bitcoin and blockchain technology. They need to ask themselves if they actually created something better or ignored the founder’s vision in the midst of greed and hype.

Are blockchains and cryptocurrencies really making the world fairer, free from central authority? Or are we back to square one?

P.S.: The current wave of troubles involving cryptocurrency platforms may just be the tip of the iceberg. Four years ago, I wrote about how businesses and startups jumped on the blockchain wave despite its inherent flaws. There are also many blockchain-based businesses that will soon lose money, whether due to hackers or simply teetering under their own flawed sense of feasibility.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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