Digital Gold (2 page)

The morning after the big poker game, as the guests were packing up to go, Voorhees sat at the end of the pier behind Morehead's
house, which was sitting high above the water after a winter with little snowfall. The joy he had shown at the poker table the night before was gone. He had a look of chagrin on his face as he talked about his recent decision to resign as the CEO of the Bitcoin startup he had been running in Panama. His position with the company had prevented him from speaking about the revolutionary potential of Bitcoin, for fear that it could hurt his company.

“My passion is not running a business, it is building the Bitcoin world,” he explained.

On top of that, his girlfriend had grown tired of living in Panama and Erik was missing his family back in the United States. In a few weeks he was planning to move back to Colorado, where he grew up. Because of Bitcoin, though, he would be going home a very different person from what he was when he left. It was a situation that many of his fellow Bitcoiners could sympathize with.

January 10, 2009

I
t was a Saturday. It was his son's birthday. The Santa Barbara weather was beautiful. And his sister-in-law was in from France. But Hal Finney needed to be at his computer. This was a day he had been anticipating for months and, in some sense, for decades.

Hal didn't even try to explain to his wife, Fran, what was occupying him. She was a physical therapist and rarely understood his computer work. But with this one, where would he even begin? Honey, I'm going to try to make a new kind of money.

That, in essence, was his intention when, after a long morning run, he sat down in his modest home office: a corner of his living room with an old sectional desk, taken up primarily by four computer screens of different shape and make, all wired to the separate computers he used for work and personal pursuits. Any space that wasn't occupied by computer equipment was covered in a jumble of papers, exercise books, and old programming manuals. It wasn't much to look at. But sitting there, Hal could see his patio on the other side of his living room, bathed in California sun, even in the middle of January. On the carpet to his left lay Arky,
his faithful Rhodesian ridgeback, named after a star in the constellation Boötes. This was where he felt at home, and where he had done much of his most creative work as a programmer.

He fired up his hulking IBM ThinkCentre, settled in, and clicked on the website he'd gotten in an e-mail the previous day while he was at work: www.bitcoin.org.

Bitcoin had first crossed his screen a few months earlier, in a message sent to one of the many mailing lists he subscribed to. The back-and-forth was usually between the familiar personalities he'd been talking to for years who inhabited the relatively specialized corner of coding where he worked. But
this particular e-mail came from an unfamiliar name—Satoshi Nakamoto—and it described what was referred to as an “e-cash” with the catchy name Bitcoin. Digital money was something Hal had experimented with for a long time, enough to make him skeptical about whether it could ever work. But something jumped out in this e-mail. Satoshi promised a kind of cash that wouldn't need a bank or any other third party to manage it. It was a system that could live entirely in the collective computing memory of the people who used it. Hal was particularly drawn to Satoshi's claim that users could own and trade Bitcoins without providing identifying information to any central authorities. Hal had spent most of his professional life working on programs that allowed people to elude the ever-watchful gaze of the government.

After reading
the nine-page description, contained in what looked like an academic paper, Hal responded enthusiastically:

“When Wikipedia started I never thought it would work, but it has proven to be a great success for some of the same reasons,” he wrote to the group.

In the face of skepticism from others on the e-mail list, Hal had urged Satoshi to write up some actual code for the system he had described. A few months later, on this Saturday in January,
Hal downloaded Satoshi's code from the Bitcoin website. A simple .exe file installed the Bitcoin program and automatically opened up a crisp-looking window on his computer desktop.

When the program opened for the first time it automatically generated a list of Bitcoin addresses that would be Hal's account numbers in the system and the password, or private key, that gave him access to each address. Beyond that, the program had only a few functions. The main one, “Send Coins,” didn't seem like much of an option for Hal given that he didn't have any coins to send. But before he could poke around further the program crashed.

It didn't deter Hal. After looking at his computer logs, he wrote to Satoshi to explain what had happened when his computer had tried to link up with other computers on the network. Apart from Hal, the log showed that there were only two other computers on the network and both of those were from a single IP address, presumably Satoshi's,
tied to an Internet provider in California.

Within an hour, Satoshi had written back, expressing disappointment with the failure.
He said he'd been testing it heavily and never encountered any trouble. But he told Hal that he had trimmed down the program to make it easier to download, which must have introduced the problem.

“I guess I made the wrong decision,” Satoshi wrote with palpable frustration.

Satoshi sent Hal a new version of the program, with some of the old material restored, and thanked Hal for his help. When it, too, crashed, Hal kept at it. He finally got it running using a program that operated outside Microsoft Windows. Once it was up, he clicked on the most exciting-sounding function in the drop-down menu: “Generate Coins.” When he did this, the processor in his computer audibly clicked into gear at a high clip.

With everything running, Hal could take a break and attend to his familial duties, including a family dinner at a nearby Chinese
restaurant and a small birthday party for his son. The instructions Satoshi had included with the software said that actually generating coins could take “days or months, depending on the speed of your computer and the competition on the network.”

Hal dashed off a quick note telling Satoshi that everything was working: “I have to go out but I'll leave this version running for a while.”

Hal had already read enough to understand the basic work his computer was doing. Once the Bitcoin program was running, it logged into a designated chat channel to find other computers running the software—basically just Satoshi's computers at this point. All the computers were trying to capture new Bitcoins, which were released into the system in bundles of fifty coins. Each new block of Bitcoin was assigned to the address of one user who linked into the network and won a race of sorts to solve a computational puzzle. When a computer won one round of the race and captured new coins, all the other machines on the network updated their shared record of the number of Bitcoins owned by that computer's Bitcoin address. Then the computers on the network would automatically begin racing to solve a new problem to unlock the next batch of fifty coins.

When Hal returned to his computer in the evening, he immediately saw that it had made him 50 Bitcoins,
now recorded next to one of his Bitcoin addresses and also recorded on the public ledger that kept track of all Bitcoins. These, the seventy-eighth block of coins generated, were among the first 4,000 Bitcoins to make it into the real world. At the time they were worth exactly nothing, but that didn't dampen Hal's enthusiasm. In a congratulatory e-mail to Satoshi that he sent to the entire mailing list, he allowed himself a flight of fancy.

“Imagine that Bitcoin is successful and becomes the dominant payment system in use throughout the world,” he wrote. “Then
the total value of the currency should be equal to the total value of all the wealth in the world.”

By his own calculations, that would make each Bitcoin worth some $10 million.

“Even if the odds of Bitcoin succeeding to this degree are slim, are they really 100 million to one against? Something to think about,” he wrote before signing off.

H
AL
F
INNEY HAD
long been preoccupied by how, in look and texture, the future would be different from the present.

One of four children of an itinerant petroleum engineer, Hal had worked his way through the classics of science fiction, but he also read calculus books for fun and eventually attended the California Institute of Technology. He never backed down from an intellectual challenge. During his freshman year he took a course on gravitational field theory that was designed for graduate students.

But he wasn't a typical nerd. A big, athletic guy who loved to ski in the California mountains, he had none of the social awkwardness common among Cal Tech students. This active spirit carried over into his intellectual pursuits. When he read the novels of Larry Niven, which discussed the possibility of cryogenically freezing humans and later bringing them back to life, Hal didn't just ponder the potential in his dorm room. He located a foundation dedicated to making this process a reality and signed up to receive the Alcor Life Extension Foundation's magazine. Eventually he would pay to have his and his family's bodies put into Alcor's frozen vaults near Los Angeles.

The advent of the Internet had been a boon for Hal, allowing him to connect with other people in far-flung places who were thinking about similarly obscure but radical ideas. Even before the
invention of the first web browser, Hal joined some of the earliest online communities, with names like the Cypherpunks and Extropians, where he jumped into debates about how new technology could be harnessed to shape the future they all were dreaming up.

Few questions obsessed these groups more than the matter of how technology would alter the balance of power between corporations and governments on one hand and individuals on the other. Technology clearly gave individuals unprecedented new powers. The nascent Internet allowed these people to communicate with kindred spirits and spread their ideas in ways that had previously been impossible. But there was constant discussion of how the creeping digitization of life also gave governments and companies more command over perhaps the most valuable and dangerous commodity in the information age: information.

In the days before computers, governments certainly kept records about their citizens, but most people lived in ways that made it impossible to glean much information about them. In the 1990s, though—long before the National Security Agency was discovered to be snooping on the cell phones of ordinary citizens and Facebook's privacy policies became a matter for national debate—the Cypherpunks saw that the digitization of life made it much easier for the authorities to harvest data about citizens, making the data vulnerable to capture by nefarious actors. The Cypherpunks became consumed by the question of how people could protect their personal information and maintain their privacy. The Cypherpunk Manifesto, delivered to the mailing list in 1993 by the Berkeley mathematician Eric Hughes, began: “Privacy is necessary for an open society in the electronic age.”

This line of thinking was, in part, an outgrowth of the libertarian politics that had become popular in California in the 1970s and 1980s. Suspicion regarding government had a natural appeal
for programmers like Hal, who were at work creating a new world through code, without needing to rely on anyone else. Hal had imbibed these ideas at Cal Tech and in his reading of the novels of Ayn Rand. But the issue of privacy in the Internet age had an appeal beyond libertarian circles, among human rights activists and other protest movements.

None of the Cypherpunks saw a solution to the problem in running away from technology. Instead, Hal and the others aimed to find answers in technology and particularly in the science of encrypting information. Encryption technologies had historically been a privilege largely reserved for only the most powerful institutions. Private individuals could try to encode their communications, but governments and armed forces almost always had the power to crack such codes. In the 1970s and 1980s, though, mathematicians at Stanford and MIT made a series of breakthroughs that made it possible, for the first time, for ordinary people to encrypt, or scramble, messages in a way that could be decrypted only by the intended recipient and not cracked even by the most powerful supercomputers.

Every user of the new technology, known as public-key cryptography, would receive a public key—a unique jumble of letters and numbers that serves as a sort of address that could be distributed freely—and a corresponding private key, which is supposed to be known only by the user. The two keys are related, mathematically, in a way that ensures that only the user—let's call her Alice, as cryptographers often did—with her private key, can unlock messages sent to her public key, and only she can sign off on messages associated with her public key. The unique relationship between each public and private key was determined by complicated math equations that were constructed so cleverly that no one with a particular public key would ever be able to work backward to figure
out the corresponding private key—not even the most powerful supercomputer. This whole setup would later play a central role in the Bitcoin software.

Hal was introduced to the potential of public-key cryptography in 1991 by the pathbreaking cryptographer David Chaum, who had been experimenting with ways to use public-key cryptography to protect individual privacy.

“It seemed so obvious to me,” Hal told the other Cypherpunks of his first encounter with Chaum's writing. “Here we are faced with the problems of loss of privacy, creeping computerization, massive databases, more centralization—and Chaum offers a completely different direction to go in, one which puts power into the hands of individuals rather than governments and corporations.”

As usual, when Hal found something exciting, he didn't just passively read up on it. On nights and weekends, after his job as a software developer, he began helping with a volunteer project, referred to as Pretty Good Privacy, or PGP, which allowed people to send each other messages that could be encrypted using public-key cryptography. The founder of the project, Phil Zimmerman, was an antinuclear activist who wanted to give dissidents a way to communicate outside the purview of governments. Before long, Zimmerman brought Hal on as the first employee at PGP.

Idealistic projects like PGP generally had a small audience. But the potential import of the technology became apparent when federal prosecutors launched a criminal investigation into PGP and Zimmerman. The government categorized encryption technology, such as PGP, as weapon-grade munitions, and this designation made it illegal to export. While the case was eventually dropped, Hal had to lie low with his own involvement in PGP for years and could never take credit for some of his important contributions to the project.