Satoshi: The World’s first Trillionaire?

This is my very first blog post and I’ve been inspired to write this in the middle of the night, after attending a thought provoking lecture by Prof. Joseph Bonneau in my ‘Cryptocurrencies and Decentralized Ledgers’ Graduate CS class at NYU Courant.

Now for those who are wondering who the hell Satoshi is, fear not. You’re not alone as many people who are unacquainted with the cryptocurrency space don’t know who he is.

Satoshi Nakamoto is the infamous creator of Bitcoin and can be considered as the father of decentralized cryptocurrencies. I’m pretty sure you’ve heard about Bitcoin or atleast seen it referenced in some news articles after the dizzying heights it’s achieved currently. As of this moment, 1 BTC is around $4750.

However, Satoshi Nakamoto is just a pseudonym of a person or a group of people who designed Bitcoin and created its original reference implementation. His original whitepaper on Bitcoin can be found here. Satoshi announced Bitcoin via the MetzDowd cryptography mailing list and his original email can be found here. This email list was a hangout for a loosely coupled group known as the ‘Cypherpunks’, which focused on using cryptography to preserve privacy. Eric Hughes’ ‘Cypherpunk Manifesto’ lays it out.

What’s bizarre is that even people who have conversed with him over email and forum posts during the early days of Bitcoin do not know who he or she truly is. Satoshi had taken great care to keep his identity secret by employing the latest encryption and obfuscation methods in his communications. This factor adds to his mystery and the intrigue of Bitcoin.

Now I’m not going into the complexities of Bitcoin and its underlying technology called the Blockchain, as I’m reserving them for future posts. But just know that Satoshi devised the first proper modern implementation of the blockchain technology and in the process, was the first to solve the double spending problem for digital currency and that too in a decentralized system in a trustless manner. For novices, that’s a truly hard problem to solve in Computer Science and that is what caused previous digital currencies such as DigiCash to fail. This solution is what kicked off the modern cryptocurrency train.

Now that I’ve introduced Satoshi, let me explain why he’ll be the world’s first trillionaire.

According to the bitcoin protocol, a certain amount of bitcoin (12.5 BTC currently) is mined (Consider this process analogous to gold mining for now, I shall explain it properly in future posts) and released into the network every 10 mins (It’s the time span for a block to be found in the bitcoin blockchain — I shall explain this in future posts as well). This amount halves every 4 years (210,000 blocks) according to the protocol. When Bitcoin started on January 3rd, 2009 the mining reward was 50 BTC which halved to 25 BTC after 4 years, which further halved to 12.5 BTC after another 4 years and remains at that amount for the moment. This amount will continue halving every 4 years indefinitely.

For those of you who remember your 11th grade Mathematics, you will notice that this is an infinite geometric series with a common ratio less than 1. And the property of such a series is that its sum is finite and converges to an actual value. Which in this case is 21 million.

Note this point very carefully!! The total amount of Bitcoin that will ever be in existence is 21 million and it should be reached by around the year 2140. Currently around 16.6 million bitcoins have been mined and 99% should be mined by around 2032.

Now you start noticing that Bitcoin has the intrinsic properties of gold, i.e, a highly limited supply. By just using the basic ‘Supply and Demand’ curve that we’ve all learned in economics, the price of bitcoin should theoretically keep going up, provided there are no other major external influencing factors that create setbacks (This is an assumption that can be fairly made considering how big the value of bitcoin can reach).

With the rate of growth of Bitcoin that we are witnessing at the moment, a $1 million valuation per Bitcoin is not hard to imagine in the near future. Many are speculating that it could happen in the next 10–15 years.

But now you’ll be thinking, that’s all good but how will Satoshi be a trillionaire even at that valuation? What if I tell you he owns 1 million bitcoins that have been untouched and stored in multiple addresses to which only he knows the private key (Imagine this to be analogous to storing gold in multiple vaults to which only you have the key).

Yup, it’s true. He owns that much because he was the sole miner during the initial months of the Bitcoin System and owns all the addresses to which the system rewarded bitcoins.

It can be seen from the figure below as shown by Sergio Demian Lerner, a prominent bitcoin security researcher and as stated here. I shall explain the intricate details of the technical terms in the picture in future posts.

Now let’s do some basic math here:

$1,000,000 per BTC * 1,000,000 BTC = $1 Trillion.

Hence, it’s easy to see how Satoshi Nakamoto could become the world’s first Trillionaire.

P.S. It’s interesting to note that Satoshi will own 1/21 of the total bitcoins in existence. There are some interesting ramifications to this that I plan on elaborating in later posts.