A Vision in the Code: Has Bitcoin Lost Its Guiding Road?

On October 31, 2008, a pseudonymous entity, Satoshi Nakamoto, published a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic System.” This 9-page whitepaper outlined a digital currency allowing two individuals to transfer value between themselves without intermediaries.

Right from the beginning of the whitepaper, Satoshi’s vision was clear: To create a decentralized currency that eliminates third parties (financial institutions, banks, government, etc). This digital currency promises a secure and transparent system that is resistant to centralized control.

It’s been over a decade since the release of the Bitcoin whitepaper and the creation of the digital currency. Is the currency still aligned with Satoshi’s original vision, or has it chosen a different path?

In this article, we’ll analyze the whitepaper, explore the current state of the cryptocurrency, and check whether it remains true to its original founding principle or has drifted away from the path. Without ado, let’s get to it!

Understanding Satoshi Nakamoto’s Vision

From the whitepaper, Satoshi is concerned about three main things:

• an electronic cash system that can be used as a medium of exchange and store of value
• a trustless system that eliminates third parties and is free from centralized control
• and a cryptographically secure system that gives you full custody of your money

In this section, we’ll discuss these visions from Satoshi’s point of view.

1. Store of Value and Medium of Exchange

“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”

From the above excerpt from the white paper, Satoshi wants Bitcoin to be used as a medium of exchange. A digital cash that can be transferred between two interested parties securely, as fast as possible, and with meager transaction fees. With that excerpt, we realized Satoshi aims to make Bitcoin a better alternative to the conventional currency. For this to happen, it must function as a unit of account, store of value, and medium of exchange.

Unlike the current currency, Satoshi aims to integrate Bitcoin into the internet — trustless (verified cryptographically), can be moved across any part of the world, is resistant to censorship, and can be easily transferred from one party to another as easily as sending email.

From Satoshi’s POV, Bitcoin would be used as a medium of exchange to buy groceries and as a reserve asset (like gold) that safeguards your wealth during economic uncertainty.

2. Privacy and Financial sovereignty

From its inception, Bitcoin was designed to operate on a pseudonymous basis. We also discovered from the whitepaper that Satoshi’s vision for Bitcoin also centered on privacy and financial sovereignty.

Financial sovereignty is the sense that individuals have self-custody of their money. Bitcoin empowers individuals by separating money from the state, i.e., it replaces intermediaries with cryptographic proofs, which help put power in the hands of individuals (the owners of assets).

Moreover, in a world where you need to reveal your private information to a third party before you can conduct a transaction, Bitcoin empowers individuals to act/operate outside these systems. When there is no third party serving as a transaction facilitator, there is no need to share private information.

The removal of intermediaries enhances privacy and also offers individuals power over financial activities. In the conventional financial world, accounts can be frozen, payments can be reversed, and personal data can be shared with whoever they care to share it with. Even though it's your hard-earned money, you’re still at the mercy of the government and corporations.

With Bitcoin design, no central authority can control the network. As a result of this, they can’t control your actions, freeze funds, or censor transactions. Satoshi’s vision aims to let individuals manage their money without interference from anyone.

Decentralization and Peer-to-Peer Network

One final thing Satoshi Nakamoto wants to solve with Bitcoin, as seen from the whitepaper, is the pervasive control exercised by central banks over monetary policies. Satoshi aims to end this control through decentralization. Bitcoin wants to distribute power evenly among several entities. No single individual would have the sole control over the network. As a result of this, no one can influence decisions and exert control over them.

Corporations, financial institutions, and the government have the power to control the supply of money. As a result of this, they can manipulate interest rates, print more money, and impose capital control that affects the common man. With Bitcoin, Satoshi aims to end its reign with decentralization.

Decentralization means that Bitcoin can operate through a global network of computers run by individuals or organizations around the world, and they have equal decision-making power.

Decentralization also enhances security and eliminates a single point of failure. Bitcoin offers financial freedom and safeguards against censorship and financial operation in regions where authoritarian governments can freeze bank accounts, control access to funds, and devalue currencies at will.

Satoshi's vision is to democratize power by empowering individuals to manage and control their finances without interference or oversight from centralized third parties.

How Bitcoin Has Evolved Over Time

It’s been 15 years since the whitepaper was first published. Has Bitcoin evolved over the years? This section answers the question.

1. Institutional Adoption

In less than twenty years, Bitcoin has moved from an ordinary idea and an experimental digital currency into a global phenomenon. It has gained the attention of different governments, major corporations, financial institutions, and hedge funds.

What is just a hobby for some people (developers and technologists) on a private corner of the internet has attracted the interest of large corporations. Large corporations and financial institutions like Microstrategy now have a vested interest in Bitcoin.

On January 10, 2024, the Security Exchange Commission (SEC) approved the trading of Bitcoin spot ETFs in the United States. This not only increases the inflow of funds into Bitcoin but also endorses and legitimizes the cryptocurrency. Once an outcast, it has now been integrated into the financial market.

Institutional adoption brings more mainstream investors who were previously skeptical about the currency. It helps them gain exposure to Bitcoin without directly buying and holding the currency.

While Bitcoin's adoption brings legitimacy and endorses the token, it raises concerns among the community.

For one, the adoption of institutions undermined Satoshi’s vision. Institutional investors have the monetary power to influence the price of Bitcoin, which could undermine the ethos of Bitcoin. This large-scale buying of Bitcoin by institutional investors can cause price volatility, which diverges away from Satoshi's vision to use the token as a hedge against manipulation.

Moreover, institutions have the power to influence/lobby for technology regulation and develop custody solutions that would go against the principle of financial sovereignty. Satoshi’s vision for Bitcoin is to give individuals control over their finances and free them from the influence of financial institutions.

2. Layer2 Solution and Scalability

As Bitcoin moves from a niche industry to a global phenomenon, there are concerns over its scalability. Bitcoin, from inception, traded off scalability for security. It can only process 7 transactions per second (TPS). This makes it impossible to accommodate the global user base it has attracted.

For it to compete with traditional financial rails, it must be able to scale whenever it’s needed. This led to a debate on how to scale without sacrificing security or moving away from Satoshi's vision. This brought about Layer2 solutions (Lightning Network and Sidechains). These Layer2 solutions are designed to enable faster, cheaper transactions. They aim to enhance scalability and interoperability.

Sidechains like Rootstock Labs, for example, are separate blockchains that connect to a parent chain, i.e., the Bitcoin blockchain. They aim to enhance scalability and interoperability. They are linked to the Bitcoin chain using the two-way bridge.

With this new Layer2 innovation, Bitcoin can scale without congesting the network. While this helps fulfill Satoshi’s vision of making Bitcoin a medium of exchange, it also diverges from the vision of security, transparency, and trustlessness. The introduction of the Layer2 solution means transactions are pushed into layer2 solutions.

3. Store of Value Dominance

Satoshi aims to make Bitcoin a hedge against inflation. Bitcoin has evolved as a digital gold. With the fixed supply of 21 million Bitcoin, the narrative of Bitcoin becoming ‘Digital Gold’ holds. This makes it a hedge against inflation and currency devaluation. Therefore, both institutional and retail investors see Bitcoin as a long-term asset that can preserve their wealth.

While Satoshi aims to use Bitcoin as a hedge against inflation and to avoid the manipulation of the traditional currency, his vision is to strike a balance between the store of value and the medium of exchange. Over the last 15 years, Bitcoin has drifted to fully becoming a store of value because of its rising value.

People are reluctant to spend their tokens as a medium of exchange. The current trend of holding has been in vogue. Instead of being used as a medium of exchange as Satoshi Nakamoto envisioned, the token has become an investment.

Deviation From Original Path

We’ve checked Satoshi's vision by analyzing his vision from the whitepaper. We've gone through how Bitcoin has evolved over the years. The question is: Has Bitcoin moved far off from the track? Let’s check this out!

1. Mining Centralization

In Satoshi Nakamoto's original vision, he aims to secure the network through decentralization. Individuals should be able to contribute to the network's security by solving cryptographic math puzzles.

From the whitepaper, Satoshi envisioned a network where anybody could contribute to the network's security. In the early days of Bitcoin, mining was a decentralized activity. Interested parties can secure the system by setting up a node and mining blocks using basic computer hardware like CPUs and GPUs.

As Bitcoin grew in popularity, mining became specialized, and Application-Specific Integrated Circuits (ASICs) were introduced. The cost of these mining machines and the rising difficulties in mining made it impossible for individuals to contribute to the network.

Over the years, mining pools were introduced. Although this allows small participants to contribute to the network, the hash power has been concentrated in the hands of a few large players and even centralized in a few locations.

(The Chart was obtained from Hashrateindex)

This centralization goes against Satoshi's vision for a truly decentralized network. A few mining pools controlling the hash rate of Bitcoin have centralized the power. This makes it easier to attack the network, which could undermine the security and integrity of the blockchain.

Learn more: Bitcoin Mining: The Past, The Present, and What’s Next?

2. Regulatory Pressure

We saw from the analysis of the whitepaper and other writings that  Satoshi emphasized the empowerment of individuals to act outside the influence of financial institutions and government. Over the years, as Bitcoin grows, government regulations and actions have redirected Bitcoin to an unknown path.

In the early years of Bitcoin, when Bitcoin acted in the regulatory gray area, users have created financial autonomy and freedom. However, as Bitcoin became more adopted, government agencies started to implement various regulations and impose taxes to put the digital currency under their control.

For example, many Bitcoin companies have to comply with KYC and AML laws, which require users to reveal their identity when transacting and trading Bitcoin and other cryptocurrencies.

Although compliance with regulations helps to legitimize Bitcoin, they are against Satoshi’s concept of privacy and freedom. Originally, Bitcoin was designed to operate outside the controls of conventional financial institutions. But over the years, the freedom has been relinquished in exchange for legitimacy.

Does Bitcoin Still Align With Satoshi’s Vision?

Is Bitcoin still aligned with Satoshi's Vision? Let's go through the efforts to bring Bitcoin back to its roots.

1. Efforts to Preserve Decentralization

As we’ve seen from the whitepaper and other writings, decentralization is a core pillar of Bitcoin. It enables secure, peer-to-peer transactions.

Over the years, the community developer has worked tirelessly to maintain this principle of decentralization. While other activities like mining and institutional control pose challenges to the core principle of Bitcoin, the community continues to prioritize decentralization through technological innovation and decentralized government processes.

Bitcoin Core (the open-source software that powers the Bitcoin network) developers are working tirelessly to implement updates that would enhance the security, privacy, and scalability of the network without compromising decentralization.

For example, the latest version of the Bitcoin Core (version 27.0) was available from April 2024. The new update:

• Has replaced the now deprecated libbitcoin consensus with Taproot. This was done through a consensus update.
• There were also changes to how the P2P network functionality worked.

Apart from implementing decentralization through technology updates, the Bitcoin communities continue to uphold Satoshi’s vision of decentralization through education.

2. Long-Term Sustainability

Is Bitcoin moving towards or away from a decentralized P2P system?

There are challenges like mining centralization, regulatory pressure, and so on. The community has continued to show that Bitcoin is still aligned with Satoshi’s vision. The introduction of Layer2 solutions like lightning networks and sidechains shows the team continues to evolve and build on Satoshi’s foundation. Layer2 solutions like Rootstock offer a path towards usability and scalability.

With Layer2 solutions, Bitcoin can still be used as a medium of exchange and still serve as a secure store of value. Although the influx of institutional investors has shifted the focus of the blockchain from being a medium of exchange to a store of value, a deep dive under the hood of Bitcoin is still decentralized architecture. Its core purpose of enabling P2P transactions without intermediaries is still possible.

Bitcoin's decentralized nature makes it resilient against the centralization of power. No single entity can influence the network. Decisions are still made through consensus. With this, Bitcoin is still aligned with Satoshi's vision and still uncontrolled by a small entity.

3. Pseudonymity and Privacy Tradeoff

Throughout his writings, Satoshi emphasized privacy — cryptographically protecting users' personal information. Transactions are public (transparency) and traceable, but the identity of the entity behind them is hidden.

As Bitcoin became mainstream, the cryptocurrency has diverged from this original vision. Regulators have imposed strict KYC and AML policies and regulations on exchanges. This requires users to reveal their identities when conducting transactions.

Despite all these, the introduction of privacy-enhancing technology has been developed. Innovations like Taproot allow users to obfuscate transaction details, making it hard to trace funds on the blockchain.

Decentralized Exchanges (DEXes) and non-custodial wallets help users hold custody of their tokens and transact without relying on centralized exchange services.

Conclusion

While Bitcoin has evolved significantly since Satoshi Nakamoto outlined his vision in the 2008 whitepaper, the community has stayed true to the core principles of decentralization, financial sovereignty, and privacy outlined in the whitepaper. Even though there have been issues like mining centralization, regulation, and institutional investments, the ongoing development surrounding the technology has ensured that Bitcoin stayed true to the original vision.

So, we can say with all assurance that even if the world is changing as we see it now, Bitcoin is still on the original path laid down by the inventor.