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The Hunt For Satoshi Nakamoto: The Role Of Anonymity In Crypto

Bitcoin was said to have officially launched on January 3, 2009. It was the first of its kind—a decentralized currency that wasn’t under the control of any one party.

As a matter of fact, no one was even quite sure who created it (and we still don’t know). All we know is that it was launched under a pseudonym by the name of “Satoshi Nakamoto”.

A lot of people have, of course, speculated as to WHO this mysterious creator or creator(s) could be. Are they still alive? Will they ever go public? What role do they play behind the scenes if any?

Those and many other questions have riddled the crypto community for years now but by far the most fascinating is the question of WHO.

Here’s a quick summary list of a few notable suspects:

Dorian Satoshi Nakamoto—someone with a similar name, demographic, similar ideology, but claims he has nothing to do with it.

Hal Finney—the receiver of the first bitcoin transaction and is said to have worked on the project early on with Satoshi as seen in forums with the two corresponding. He claimed he never knew Satoshi’s true identity. Hal has since passed away.

Craig Wright—has widely claimed he is Satoshi, which isn’t very Satoshi-like in nature.

Nick Szabo—computer engineer credited with pioneering the concept of smart contracts in 1996. In 2008, he conceptualized a decentralized currency he called “Bit Gold”.

And most recently…

Linus Torvalds—developer behind the Linux operating system and the Git distributed version control system. The story here is that apparently someone changed a Github Linux kernel repository to say “I am satoshi” … but he has since come out to say it was just a jokester who took advantage of how GitHub works to make it seem like that was coming from him.

So all in all we are still unsure of who the mysterious creator of Bitcoin really is, but it poses an interesting question…what role does an unknown creator or participant mean in the grand scheme of crypto?

At the beginning of the cryptocurrency, one of the biggest arguments against it was that it was being used largely by criminals and for illegal purposes because no one could “track it”.

In fact, “Silk Road”, a popular online dark-web marketplace, was a place where bitcoin gained some early traction as it was seen as an easy means of transacting in a value exchange anonymously… but how anonymous is it really?

As the technology continued to become more popular there were lots of debates as to how and why this (at the time) peculiar digital currency was being used. Those defending it were stating the obvious facts: bitcoin has an open, permissionless, public ledger. This means that ANYONE can easily go and view each and every transaction that takes place.

Seems pretty silly to do a criminal transaction out in public for everyone to see right?

Well, this is where the question of anonymity comes into play in regards to how we view our economy.

If a criminal is doing transactions on the public blockchain using something like bitcoin, how traceable are they really?

The transactions themselves are public and anyone can indeed see them if they are moved on the blockchain. It’s actually very easy to see them, you can even use a site like this to see all of the recent transactions:

Source: https://www.blockchain.com/btc/unconfirmed-transactions

What you will notice though, is that you cannot necessarily tell WHO is making that transaction, though there are a variety of ways to determine this. All you see is a long string of numbers and letters followed by the time and the amounts.

When moving bitcoin, you will need to have some sort of wallet to store the strings of code that equate to your crypto holdings. When people say “not your keys, not your crypto” what they mean is that the keys to the WALLET in which you are storing your crypto, don’t actually belong to you.

This is common with popular centralized exchanges like Coinbase. They set up a wallet for you in THEIR custody which means they’re taking care of it for you. Now of course, they are a reputable company, but if they were to get hacked or decide they want to do something with your crypto, they technically own it and have the ability to do so. I prefer to “self-custody” my crypto and store it on a wallet that is owned and controlled by ME and only me.

There are popular self-custody software wallets that live online such as “Metamask” and also popular self-custody hardware wallets that live offline such as a “Ledger Nano”.

Most centralized exchanges also have what is called a KYC for all of their customers.

A KYC stands for “know your customer” and means that in order to set up a wallet with them and use their exchange, they must obtain all of your personal information and identification.

A centralized exchange that is regulated (especially in the U.S.) has to obtain this information and pass it along to the governing bodies, so yes…if you make transactions through here, the IRS can certainly see them.

When making a transaction from a centralized exchange that has your KYC information, you can imagine that it would be PRETTY darn easy to see exactly who owns that wallet on that particular exchange and figure out what types of moves they have made.

But what about with NON-KYC exchanges…or transfers made from wallets where people do not know who owns the wallet?

Sure, there are things like IP addresses that could help relate transactions and wallets back to their owners, but there are even ways to mask those…

Not to mention, the same way you could use cash today to have a transaction that’s “off the books”, you could simply have crypto on a cold wallet (hardware device) and simply hand off the wallet for cash or some other transaction in return and it would be completely hidden.

Anyway, as you can tell with bitcoin, public transaction data, wallet addresses, timestamps, etc. makes it more “pseudonymous” than it is “anonymous”. Meaning they may not know exactly WHO these wallets belong to in all cases, but they know a fair amount.

The point that I’m making is whether it’s using cryptocurrency or not, there has always been and will likely remain ways to hide transactions, maintain privacy, or even achieve complete anonymity.

There’s already a handful of “privacy coins” (alt-coins that provide higher levels of anonymity) that exist to fulfill this exact purpose. Here’s a list of a few of the most popular:

  • Monero
  • Zcash
  • Dash
  • Xeonbit

These are all said to have more anonymity than bitcoin.

So FINALLY, we get back to the original point of this article… thank you for being patient 😄 How does anonymity play a role in a cryptocurrency (and economies as a whole)?

I’ll start by defining the 3 areas on the spectrum of anonymity:

  1. Anonymous

    “Anonymity describes situations where the acting person’s identity is unknown. The important idea here is that a person be non-identifiable, unreachable, or untrackable.”
  2. Pseudonymous

    “A pseudonym or alias is a fictitious name that a person or group assumes for a particular purpose, which differs from their original or true name.”
  3. Identifiable

    For our purposes, this is someone who we can identify, track, trace, and is able to be recognized.

Pros and Cons of each (regarding crypto):

Anonymous

ProsCons
You are not identifiable in a central system somewhere/data is protectedMakes it easier to do illegal things in society
Allows for private transactions and dealings (personal & business)Least amount of accountability, Reputation is not taken into consideration in any form
Helps prevent hackers / targeted attacks / improves securityNo recourse for if bad things happen, can’t get help

Pseudonymous

ProsCons
Hides personal information, but allows for reputation to continue (your alias gains its reputation)Not fully accountable, and can pick up a new pseudonym (re-create)
Allows free-thinking and free-acting without worry about recourse on their core identityPossibility for people to be operating under multiple pseudonyms to benefit themselves
Middle ground level of privacy and protection against centralized systems depending on how much they know about the person behind the aliasMiddle ground level of privacy and protection against centralized systems depending on how much they know about the person behind the alias


Identifiable

ProsCons
Fully accountable and reputation follows your one open identityNo privacy: the ability to act, vote, think, or speak a certain way may be based on others’ opinions or legal ramifications more easily
Higher degrees of trust when dealing with another member in an identifiable systemYour data can be easily taken and used by others (for or against you)
Easier to govern and identify/punish bad actors who are operating negatively in societyThe ability to be manipulated and controlled is significantly higher because you have fewer options and one singular identity/reputation

To summarize…

Anonymity provides full privacy and allows for no reputational currency build-up over time, meaning you cannot establish reputation based on previous actions because the actions are anonymous.

Pseudonymity provides a medium level of privacy and enhances the ability to act freely while still allowing aliases to gain a reputation over time. But, pseudonymity (similar to anonymity) still gives leeway for popular technical attacks on blockchains such as a Sybil Attack.

“A Sybil attack is a type of attack on a computer network service in which an attacker subverts the service’s reputation system by creating a large number of pseudonymous identities and uses them to gain a disproportionately large influence.” – Wikipedia

Being fully identifiable is what we are used to in today’s society and largely means little to no privacy and requires high levels of trust in the systems that govern us. In a high-trust based system having the ability to deal with core identities that carry reputations makes people behave a certain way and oftentimes ensures a much greater degree of personal accountability.

As with most things in life, I think there’s a time and place for each of these levels of anonymity and privacy in our society and within the cryptocurrency space. This simple list of pros and cons barely scratches the surface and the list would change depending on what topic anonymity is even being related to.

Nonetheless, this is exciting because until now we have mainly only participated in an economy built upon being fully identifiable for participants at the bottom level (i.e. citizens and businesses) and fully controlled by participants at the top level (i.e. central banks, governments, militaries, etc.)

As this type of decentralized technology progresses, with cryptocurrency and the blockchain, we will hopefully see more OPTIONS get tested as to the ways we participate in the economy.

And whether or not we ever find out who the real Satoshi is, we can all be grateful for the revolutionary new options he has contributed to bringing forth in terms of the way we look at money, centralized systems, and the governance of society at large.

Maybe we are all Satoshi after all 😉

Author

  • Clay is a writer with experience in finance and business administration. He's interested in tech, marketing, finance, and health & fitness.

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