No one knew who Satoshi was or exactly why he did it, but the roots of his thinking were clear to anyone who paid attention: Bitcoin was a political project to weaken not just one government but governments—plural.
It all started with the Crypto Wars of the 1990s, when a group of early computerists gathered in a niche online forum to discuss how to prevent emerging digital technologies creating a 1984-style surveillance nightmare. This eclectic band of hackers, anarchists and libertarians called themselves the “cypherpunks.” For several years, they discussed and designed encrypted web browsers and anonymous emailing systems, looking for ways to enhance online privacy and weaken overbearing governments in the process. But the one technology that really excited the cypherpunks was money. Governments had an iron grip on money—they printed it, they monitored it, they taxed it. They set the interest rates that valued it and made the rules about who could have it. As far as the cypherpunks saw it, politicians had used this power to further their own interests rather than help citizens.
For years, the cypherpunks tried to come up with a form of virtual currency that governments couldn’t control, but they always got stuck in the same place. The trouble with creating a new form of digital money was that each unit was just a string of numbers, which could be easily copied. This problem (known as the “double-spend” flaw) meant digital currency had no scarcity and subsequently no value. A brilliant mathematician called David Chaum solved the double-spend flaw in 1990 with a project called “DigiCash,” thanks to a cleverly designed database that recorded who owned what amount, but that simply created another problem: What if whoever was in charge of the database decided to keep all the money for themselves? For years that was the Gordian knot of digital money: how to create an online currency that was secure and valuable without relying on someone in charge. It seemed insoluble until October 2008 when a mysterious person calling themselves Satoshi Nakamoto posted in an obscure cryptography email list claiming to have cracked it. He called it “Bitcoin.”1 “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party,” he wrote. “It’s very attractive to the libertarian viewpoint if we can explain it properly. I’m better with code than with words though.”
Satoshi received a skeptical reception at first. But skepticism turned to curiosity and then amazement once the cypherpunks understood how it worked. A quantity of bitcoin, Satoshi explained, is just a string of numbers that can be sent to anyone who downloads the specialized software, just like sending an email. The magic lay in what follows. Every time someone sends a bitcoin, it is listed on something called a “blockchain,” which keeps a perfect record of every single transaction made in precise chronological order. But, unlike DigiCash, no one is in charge: instead an identical copy of this blockchain is maintained and verified by thousands of different computers and updates every few minutes, making it impossible for anyone to tamper or edit the entries once they are added. The smartest part was the way new bitcoin were created. In order to stop governments meddling in his invention, Satoshi programmed that only 21 million bitcoin would ever be produced, released at a pre-programmed rate until the year 2140. Every ten minutes a new batch of coins is created (or “mined”), and to receive those new coins, computers compete to crack a mathematical puzzle. As a final flourish, he made it encrypted and quasi-anonymous, which made linking a bitcoin transaction to a real-world person tricky. Even though the blockchain records the transactions, it doesn’t reveal who is behind them.
Even for the technically minded cypherpunks, it took a bit of getting used to, but pretty soon they realized Bitcoin was something special: fixed supply digital money without banks, borders or governments. Satoshi had invented cryptocurrency.
Although it’s taken for granted, money is a phenomenally strange thing. Most people think of notes or coins, but money can be almost anything if enough people believe in it. Shells, rare metals, clay tablets and even cigarettes have all been used as currency at one time or another. Until the last century, the Micronesian island of Yap used enormous doughnut stones called Rai. They were far too big to move so the Yapese maintained an oral record of who owned what, even down to small fractions of each stone. The physical location of the Rai didn’t matter: One of the stones was at the bottom of the ocean, but it continued to be used in transactions because the Yapese collectively agreed who owned it. In a way, the Rai isn’t so dissimilar to the US dollar. For several decades, every dollar could be exchanged for its equivalent value in gold, but ever since the Gold Standard was abandoned in 1971, even the mighty greenback has no inherent value beyond society’s collective belief that it is valuable and will continue to be so. Ultimately people accept dollars because they know that other people will also accept dollars.
At first, very few outside the cypherpunks paid much attention to this latest iteration of money. But, like the dollar or the Rai, a growing number of people started to collectively agree that Bitcoin might be worth something after all. In 2011, it became the currency of choice for innovative drug dealers on the dark net who appreciated its anonymity. The whistle-blower site WikiLeaks accepted it as payment when PayPal and Mastercard cut off their supply following pressure from the US authorities. Libertarians and anarcho-capitalists joined too, fascinated by the idea of a currency with a fixed supply that governments couldn’t meddle with. Pretty soon “exchange sites” turned up, where bitcoin could be bought and sold for dollars or Euros, just like foreign exchange markets. The “price” wasn’t set by Satoshi or anyone else but rather what people were willing to pay for it. In February 2011, it reached parity with the US dollar, and by July it topped $31.
Despite Bitcoin’s growing success, Satoshi never revealed his true identity. In April 2011, he sent a message to a fellow cypherpunk saying he had “moved onto other things” and was never seen or heard from again. The elusiveness of its founder merely added to Bitcoin’s mystique. Well-known stores started accepting bitcoin, the police started seizing it and news outlets started writing about it. Before long, rival cryptocurrencies were created, all based on Satoshi’s original recipe. In 2011, “Litecoin” was launched with more coins and faster mining. A couple of years later, “Dash” turned up with added privacy features. By 2014, hundreds of these “altcoins” had appeared, each promising tweaks and improvements to Satoshi’s design.
It wasn’t a smooth adoption curve. Dark net drug dealers gave Bitcoin a bad reputation. Although the blockchain itself was impossible to hack, some users stored their bitcoin on specialized exchange sites, which would periodically disappear along with all the coins (850,000 bitcoin was stolen from the world’s largest cryptocurrency exchange Mt Gox around this time). Governments might not have been able to control Bitcoin, but they could make life difficult. In 2012, the FBI published an internal document entitled Bitcoin Virtual Currency: Unique Features Present Distinct Challenges for Deterring Illicit Activity.2 “Bitcoin might logically attract money launderers, human traffickers, terrorists, and other criminals,” it read, “who avoid traditional financial systems by using the Internet to conduct global monetary transfers.”
These difficulties might have killed off the experiment entirely, but political turmoil in Europe provided a timely proof-of-concept. In March 2013, the government of Cyprus announced a controversial bank bailout, paid for by forcibly lopping ordinary savers’ deposits. Suddenly a currency ruled by unchangeable math and code looked reliable in comparison to money controlled by politicians. The Cypriot “haircut” transformed Bitcoin from a cypherpunk fantasy into the hottest investment in Wall Street. By April 2013, a single bitcoin was worth $250. And when it was reported in the news that a Norwegian man had bought $27 worth of bitcoin in 2009 and was now almost a millionaire, there was an investment stampede not seen since “tulip mania” in the seventeenth century.
Nowhere was Bitcoin mad like China. The expanding cash-rich Chinese middle class saw it as an exciting investment, while Communist Party oligarchs jumped at the chance to circumnavigate the country’s strict capital controls. The Chinese search engine Baidu accepted it as payment for certain services and almost overnight dozens of warehouses full of computers mining Bitcoin were set up all over the country.
John Ng saw the Bitcoin craze grip the region and, realizing that crypto was the next big thing, designed his own Bitcoin spinoff called BigCoin. But rather than buying and selling this new coin on currency exchange websites, BigCoin would follow the MLM model: people join, buy coins, and then recruit promoters to sell the coin to other people, with commission accumulating up the levels. He started calling around to see who was interested in joining. One of the people he contacted was his former SiteTalk colleague, Sebastian Greenwood.
Sebastian was everything John Ng was not. John, who was a little older, was hard-working and organized. But he needed someone who could whip up a crowd. At a loose end and always interested in new technology, in August 2013, Sebastian flew from Cyprus to Hong Kong’s upmarket Kowloon Shangri-La hotel to attend the BigCoin launch party.3 Three hundred people listened to John talk about the future of money and explain how BigCoin was a “game changer.” Every new vitamin or energy drink is described as a “game changer” in MLM, but BigCoin had tapped into something. According to someone present that day, people from mainland China—farmers, teachers, accountants—turned up to the Kowloon Shangri-La hotel begging to invest. Some brought plastic bags full of cash, praying they’d found the next Bitcoin.
Although he continued to work on his payments start-up Loopium, which was based in Cyprus (in late 2013 he joined a hearing remotely from there, where his wife Helen was granted full custody of the children), Sebastian soon moved to Thailand. From there he started travelling regularly to Hong Kong where he was often seen flanking John Ng, discussing sales techniques and payment systems. At events he appeared onstage and wooed potential investors. Whereas John prepped his lines and rehearsed his slides, Sebastian would stroll onstage without notes and talk fluently for 30 minutes about “financial revolution” and “the future of payments.” In the previous three years, Sebastian had gone from PR expert to social media expert to payments expert. Now he was a crypto-expert too. With Sebastian’s help hundreds of thousands of dollars were pouring into BigCoin.
At some point in November 2013, as the price of a single bitcoin surged past $500, Sebastian attended a small cryptocurrency seminar in Singapore. One of the speakers at the seminar was a Bulgarian-German woman who was rumored to be a financial wunderkind.
Ruja Ignatova’s idea itself—a crypto-based pension plan—wasn’t especially memorable and she wasn’t a brilliant speaker either. But she clearly understood finance and banking.4 Around this time, a crack within the crypto world was starting to appear between those who saw it as a cypherpunk project and those who thought it should be integrated within the existing banking system. Ruja was definitely the latter—she saw crypto as a money spinner and fascinating innovation, not some anti-establishment fantasy. With her McKinsey and Oxford CV, Ruja was the establishment.
Once she’d finished her pitch, Sebastian walked over and introduced himself. Ruja had first heard about Bitcoin a couple of years earlier but had dismissed it. Yet, the more she read, the more interested she became. And a few months earlier, as Bitcoin’s price started to take off, she realized that, with her banking and finance experience, she could create her own, less anarchic, version. She was in Singapore looking to raise money to get the new idea off the ground. “Have you considered multi-level marketing?” Sebastian suggested. It was working well for him, after all. Ruja hadn’t heard of it. “I don’t know what it is,” she replied. “It doesn’t sound very good.” After Sebastian explained how it worked, she still didn’t like it. But the top-end businesswoman and the MLM grifter got on, which was unusual because Ruja didn’t usually like new people. But the pair shared a love of technology, money and fashion (Sebastian’s nickname in school was “Flash” because he was obsessed with clothes, just like Ruja).5 Years later, people close to the pair could never work their relationship out. It was rumored that they started an affair shortly after this first meeting, but no one knew for sure. Even Ruja’s brother Konstantin later admitted: “they had something strange going on. They called themselves once brother and sister. Then you see them hugging. Then you see them holding hands.… It’s just a strange relationship.” But in November 2013, all that mattered was that Ruja and Sebastian had arrived in the same place at the same time with roughly the same idea—out in the Far East, trying to figure out how to capitalize on the cryptocurrency craze sweeping the world.