DEFINITION of Satoshi Nakamoto
Satoshi Nakamoto is among the biggest pioneers of cryptocurrency.
BREAKING DOWN Satoshi Nakamoto
Satoshi Nakamoto is considered the most enigmatic character in cryptocurrency. To date it is unclear if they are a single person, or if the name is a moniker used by a group. What is known is that Satoshi Nakamoto published a paper in 2008 that jumpstarted the development of cryptocurrency.
The paper, “Bitcoin: A Peer-to-Peer Electronic Cash System”, described the use of a peer-to-peer network as a solution to the problem of double-spending. The problem – that a digital currency or token can used in more than one transaction – is not found in physical currencies since a physical bill or coin can, by its nature, only exist in one place at a single time. Since a digital currency does not exist in the physical space, using it in a transaction does not remove it from someone’s possession, at least not immediately.
Solutions to combating the double-spend problem had historically involved the use of trusted, third-party intermediaries that would verify whether a digital currency had already been spent by its holder. In most cases, third parties, such as banks, can effectively handle transactions without adding significant risk. However, this trust-based model still results in uncertainty. Removing the third-party could only be accomplished by building cryptography into transactions.
Nakamoto proposed a decentralized approach to transactions, ultimately culminating in the creation of blockchains. In a blockchain, timestamps for a transaction are added to the end of previous timestamps based on proof-of-work, creating a historical record that cannot be changed. As the blockchain increases in size as the number of transactions increase, it becomes more difficult for attackers to disrupt it. The blockchain records are kept secure because the amount of computational power required to reverse them discourages small scale attacks.
Satoshi Nakamoto was involved in the early days of bitcoin, working on the first version of the software in 2009. Communication to and from Nakamoto was conducted electronically, and the lack of personal and background details meant that it was impossible to find out the actual identity of Nakamoto. Nakamoto’s involvement with bitcoin tapered off in 2011; reportedly, the last correspondence anyone had with Nakamoto was in an email to another bitcoin developer saying that they had "moved on to other things."
The inability to put a face to the name has led to significant speculation as to Nakamoto’s identity, especially as cryptocurrencies increased in number, popularity, and notoriety. While their identity has not been uncovered, it is estimated that the value of bitcoins under Nakamoto's control - which is thought to be about 1 million - may exceed $5 billion in value. Given that the maximum possible number of bitcoins generated is 21 million, Nakamoto, with about 5% of the total bitcoin holdings, would have considerable power over the market.