Generating a Bitcoin address

By Craig Wright | 26 Apr 2016 | Bitcoin & Blockchain Tech

Although several good Bitcoin libraries are available, to ensure the compatibility and security of software
using Bitcoin, it is important to understand how a Bitcoin address is generated. In this post, we show how to
generate a Bitcoin address step by step, covering the various Bitcoin address formats as well.

When writing software that uses Bitcoin, it is important to understand the process to ensure the security
and compatibility of the transactions. In this post, we show the reader how a Bitcoin address is generated
step by step. The input field within the generator page generates an example bitcoin private key and public
address. Together, these enable secure bitcoin transactions.

Several good Bitcoin libraries are available in several languages such as:

C
Java
C#
Ruby
Python
Go
JavaScript

Here, we use several of the JavaScript libraries that are publicly available.

RANDOM NUMBERS
Random number generation is important because it is the basis of most cryptography. When numbers are
not suitably random, the amount of entropy is low, and it becomes simple to guess the private keys
associated with your publicly known key. The most commonly function used on many systems is
Math.random(), which generates predictable numbers that can be attacked. Many alternatives including
hardware based-RNGs exist, but we will discuss good random number generation in detail a later article.
Ultimately, the security of your Bitcoin address relies on ensuring that you have a secure random number
generator.

This post takes you through the creation of a Bitcoin address, assuming that a good random number has
already been selected. One widely deployed method of creating a Bitcoin address relies on the use of
matched word phrases. These are easier for people to remember, but also need to be difficult to guess. This
is the approach used within the Bitcoin Address Generator.

BITCOIN KEYS, ADDRESSES, AND FORMATS

Bitcoin uses a public key cryptographic scheme based on elliptic curve cryptography . This scheme is more
efficient than several other widely deployed public key systems such as RSA.

Spec. 2.2.1 provides the generalized equation used in all elliptic curve cryptography:

Here, the elliptic curve domain is defined as a sextuple of the form:

The particular curve deployed within Bitcoin is defined under the secp256k1 standard, which is based on
the use of Koblitz curves . In these curves, our sextuple parameters are defined using the following values:

Inserting these values into the equation above gives us the final reduced form equation used in Bitcoin:

In the section below, we take you through the creation of a Bitcoin private key and its associated public keys
given a suitable random number.

SECTION 1: GENERATE PRIVATE KEY

The private key is the part of the key pair that needs to remain secret. This key is used to sign messages,
including those that authorize the movement of bitcoins or, more accurately, the creation of a transaction
that assigns entries in the blockchain ledger to another address.

STEP 1.1: ENTRY OF PASSPHRASE

In the generator application, there is a passphrase entry box.

STEP 1.2: HASH PASSPHRASE TO GENERATE PRIVATE KEY

A private key d is generated from the passphrase consisting of an integer that lies within the range [1,( n −1)],
where n is 2​ 256 ​ , which is the largest number that can be returned by the SHA256 hash function.

CODE FRAGMENT

The code to create a private key is as follows:

Code fragment in javascript to generate a private key

SECTION 2: ENCODE PRIVATE KEY

The elliptic curve key pair that we create takes the form of ( d, Q ) where Q represents the public key that we
create later.

Private keys have been standardized to use a format defined under the Wallet Import Format (WIF) .

STEP 2.1: PREPEND VERSION NUMBER

The first part of this format is to take the number we created in step 1.2 and add a version number. This is
done by adding a byte of hex value 0x80 to the start of the WIF format private key.

A list of the address prefixes is available from the Bitcoin wiki.

STEP 2.2: APPEND THE COMPRESSION FLAG

In the WIF, a compression flag is also appended to the private key. The least significant bit of a byte added
to the end of the key functions as the compressed private key flag and takes the following values:

0x00 uncompressed
0x01 compressed

Some of the details for this specification are defined here .

When Bitcoin was first created, compressed keys were not used. This resulted in a larger public key (65
bytes rather than the compressed 33 byte format). There are no compatibility or security issues resulting
from using compressed keys. The fact that keys could be compressed was simply missed because of the
poor documentation on OpenSSL at the time. Some minor additional computation is required, but this is
minimal.

The original format used to represent private keys was a Base58 form (detailed later) that would typically
begin with the value ”5.” In the Bitcoin Address Generator as the private key is incorporated into the
compressed encoding of the public key, it is changed to incorporate an extra 0x01 byte at the end. This
results in a Base58 form that starts with a “K” or “L.”

Later versions of this page will update the code to allow for this change and to represent the keys on the
page in both formats.

STEP 2.3: CALCULATE AND APPEND CHECKSUM

Finally, a checksum is appended to the end of the string. This is calculated using the first four bytes of a
double SHA256 hash process that takes the private key of whatever is being validated by the checksum.

CODE FRAGMENT

The code to encode a private key is as follows:

Javascript code fragment to encode a private key

STEP 2.4: BASE58 ENCODE

Lastly, an encoding scheme known as Base58 is used to convert the data from binary to text. This final form
of a private key is easier to manage. In this format, the code is able to be used in a wide variety of
applications.

As a result of prepending the version number, the available range of private keys in the Base58 encoded
format is limited to the following:

Lowest possible value: KwDiBf89QgGbjEhKnhXJuH7LrciVrZi3qYjgd9M7rFU73Nd2Mcv1

Highest possible value: L5oLkpV3aqBjhki6LmvChTCq73v9gyymzzMpBbhDLjDpKCuAXpsi

The lower value is the one that you will notice in the form on this page when no values have been entered.
On the Base58 proposal page in the Bitcoin wiki, we can see some other possible ranges for alternative
private key formats.

SECTION 3: PLOT THE PRIVATE KEY

The elliptic curve public key is generated using our private key generated in step 1.2. This key Q = ( x Q , y Q )
forms the point Q = dG .

In this equation:

STEP 3.1 / 3.2: GENERATING THE PUBLIC KEY FROM THE PRIVATE KEY

In order to obtain the public key, we need to multiply the private key by the elliptic curve point generator.
The public key is formed from the x and y coordinates of a point on the elliptic curve, and is a 65-byte long
value consisting of a leading 0x04 and x and y coordinates of 32 bytes each.

The full public key is defined as k ​pub ​ and this is shown in step 3.1.

From this value, we can obtain the x and y coordinates as demonstrated in step 3.2.

CODE FRAGMENT

The code to generate the public key co-ordinates is as follows:

Javascript fragment to plot public key co-ordinates

SECTION 4: GENERATE PUBLIC KEY

The first versions of the Bitcoin client used the public key directly. Bitcoin addresses are a simpler method
to allow people to exchange bitcoins. A Bitcoin address consists of a Base58 encoded string of a 25-byte
binary address. An example of this is shown in final Base58 encoding in step 5.3.

All standard addresses start with a “1.” Other formats are available, including multisig addressing, which is
not covered in this post.

STEP 4.1: DETERMINE Y COORDINATE PARITY

We use the parity of our y coordinate to calculate a flag that is added to the front of our string.

STEP 4.2: APPEND PARITY INDICATOR BYTE

If the y coordinate or value is odd, we add 0x03. If it is even, we add 0x02 in front of the complete x
coordinate. We use this string to represent the public key.

An alternative string is created by taking the corresponding public key generated above as a string formed
using:

65 byte public key

0x04 (1 byte)
32 bytes corresponding to the x coordinate
32 bytes corresponding to y coordinate

STEP 4.3 / 4.4 HASH PUBLIC KEY

To create the address, we take the value created in Step 4.2 and hash the public key twice. Step 4.3 applies a
SHA256 hash, and step 4.4 applies a RIPEMD160 hash over the result.

This obfuscates the public key as well as making it simpler to use. There have been many attacks against
hashing algorithms. Some, such as MD5 and SHA1, have been widely attacked and shown to be vulnerable
to collision attacks. However, no hash has been shown to have an attack that aligns with the hash of
another family of algorithms. As a result, it is infeasible for an attack to succeed against one family of hash
algorithms used simultaneously with another family.

The double hash shown below should be robust to length extension attacks .
SECTION 5: ENCODE THE PUBLIC KEY
STEP 5.1: PREPEND THE VERSION

The version is added to the front of the hash value. The public key version number that is added to the
address calculation is not the same as the one used in the private key. Details are available here .

STEP 5.2: CALCULATE AND APPEND THE CHECKSUM

The checksum is calculated in the same manner as in step 2.3 and appended to the end of the hash value.

CODE FRAGMENT

The code to apply the double hash, prepend the version and calculate and append the checksum is as
follows:

Code fragment in javascript to generate and encode a private key

STEP 5.3 BASE58 ENCODING

The hashed value with the prepended version and appended checksum is encoded using the Base58
process. This ensures that the final address is easy to read and copy.

CONCLUSION

In this post, we have stepped through the creation of a Bitcoin address with its associated public and
private keys. You should now be able to see the differences between the address formats and how the
values are calculated at each stage of the process. In later posts, we will cover the creation of secure random
numbers and bitcoin transactions.

Bitcoin Address
Tulips and Other Myths
By Craig Wright | 26 Apr 2016 | Economics

What common knowledge tells us and the truth of a matter is not always the same
thing. Sometimes history is hidden behind stories generated among regular people.
One example is the relationship between tulips and economies. The 1000-year history
of the tulip, its markets, and its popularity give us the background to understand
today’s market volatility and challenges. Understanding the historical contexts in
which financial risks are taken makes us smarter risk takers today.
History is full of stories. A story with some traction is that carrots are good for our eyes. This World War II
propaganda from the UK led generations of children to eat excessive amounts of carrots based on the false
belief that doing so will improve their eyesight.

Another false story is that tulips entered Europe from the Middle East in the 16th century, which led to an
economic bubble and collapse . People who promote this story tend to believe that it is extremely rational.
This story has become so widely accepted in the centuries since that few people even question whether it is
true. It is easier to accept and spread the idea than to check the facts.

It is efficient to use a well-known meme to spread misinformation, and, when something has become
accepted as a fact, it tends to take a great deal of effort to challenge that authority . Even people who do
not accept a story often accept the meme, leading to logical inconsistencies in their arguments. This is a
concern regarding market bubbles because people who verbally attack markets do so on the belief that
‘markets are not perfect’. However, nowhere in the economic literature are markets seriously described as
perfect; they are identified as optimally efficient compared to other options.

To promote an alternative to a market-based solution, the proponents of that solution need to demonstrate
that their solution is more efficient than the market solution. Because they cannot do that, their strategy is
to attack the market. ‘Markets are not efficient or perfect’ is a catch phrase that is used over and over again,
but no evidence is offered that an alternative would be economically more efficient.

The economic fable of a failed market did not begin in the 17th century; it started with an invented tale
created by Charles Mackay [1] in the mid-19th century. At that time, it was not important whether the story
was true; what mattered was its impact. Mackay offered no evidence that could withstand scrutiny, but few
of us actually take the time to validate facts anyway. Stating that people act wildly when they act together is
a good story, and we instinctively enjoy listening to it. The only problem with it is that it isn’t true.

There are several problems with tulipmania [4]. Most important, the effects of the so-called ‘tulip crash’
were not as widespread as they were reported to be. Some of the problems with these forms of bubble
theory derive from a misunderstanding of the Broken Window fallacy . The belief that we can make more
money through destruction and capital creation is widespread, but it is flawed. Foremost is the fact that we
have a growing society and capital creation. At all points, we have more capital than we had in the
beginning. The simple consequence of this is that destruction (such as the crash that follows a bubble) is
not the source of creation. If it were, rational businessmen would tear down their old factories and replace
them with new equipment before their depreciation dates. The simple fact that this does not happen
demonstrates a flaw in the argument.

Many errors have been promulgated about the Dutch tulip crash and little has been done to counter them.
The contracts used to buy tulip bulbs were one of the first types of futures contract. These contracts were
somewhat similar to over-the-counter derivatives because exchange-based contracts did not exist. Tulip
bulbs are seasonally marketed, and they are sold only between June and September.

Merchants would market these bulbs throughout the year if it made sense, but that arguably would be risky
speculation without a purpose. The reality is far from that contention.

Similar to the way that modern exchanges sell grain futures, the early guilds of the 1630s initiated a futures
trading scheme. These early futures contracts allowed farmers to select what they would grow and to
hedge against the risks associated with everything from the weather to the vagaries of fashion. Like modern
futures contracts, early Dutch merchants traded contracts to buy and sell goods at a future time. Many
times, merchants decided not to honour the contracts. Just like a modern breach, the courts awarded the
monetary difference and did not enforce contractual compliance. This system worked well during the early
1630s, but problems arose in about 1636 when, recognizing that profits could be made in the international
tulip trade, a group of government officials decided to get involved.

However, these officials were less successful than the merchants; they did not buy well and they suffered
losses on their investments. Despite the early failures, these officials predicted some changes to the market
and petitioned to work with the florist guild. This intervention led to a formally supported announcement
that all of the contracts were only options to buy [6]. The penalty for violating this was limited and similar to
option prices in a modern futures exchange. Fortunately, this step was anticipated and the losses were far
less than are currently widely believed.

Futures contracts in the 1630s were defined as gambling debts. There were longstanding problems
regarding the nobility’s wagering of their estates, it was a long-term practice of the courts to refuse to
enforce repayment of gambling debts. For example, the Court of Holland decided that tulip sales were bets
under Roman law [7].

All futures contracts exhibit power law distributions. For this reason, they are counterintuitive. We
instinctively understand Gaussian mathematics regarding normal distributions, but we fail to understand
power law processes. It is intuitive to understand that some people are short, others are tall, and heights are
distributed in the shape of a bell curve. But, that does not apply to prices or incomes.

So, it is easy to state a maximum and falsely suggest a mean of a distribution. At

its peak in 1635, one particular tulip bulb was extremely expensive. This bulb was
the ‘Semper Augustus’, and it was the most prized flower in Europe. Its
spectacular red ‘flames’ on white petals made it a remarkably beautiful flower,
and it was widely sought by European royalty.

The 12 Semper Augustus bulbs sold for high prices because they were the only
Semper Augustus bulbs in existence. At its peak demand, we know that this
particular flower sold in the Haarlem markets for 6,000 guilders. This was a
phenomenally large amount of money at that time equivalent to the cost of 16
fat pigs, eight fat oxen, or 100 tons of wheat. Prices are extremely different now
than they were then, and a comparison is difficult. However, 100 tons of
wheat traded for GBP 10,000 in 2014. The purchase of a Semper Augustus bulb
included all rights to the flower bulb and all derivatives that immediately came from it. To some people, it
might seem to be a phenomenally high price for one flower bulb, but the reality is that it is nowhere near as
bad as it seems.

In the modern world, excessively high prices are also paid, even during
my lifetime. For example, in the flower world, black is a particularly
elusive and desirable flower colour. Whenever something is rare and in
demand, we can expect it to command astonishingly high prices. In
1997, Thompson & Morgan purchased three hyacinth bulbs from the
yearly show in Holland for GBP 150,000. This sum was more than five
times that of any tulip bulb. After eight years of cultivation, the
progeny of these bulbs went on sale to the public under the
marketing name ‘Midnight Mystic’. In 2005, the company sold the
bulbs for GBP 7.99 each.

Even this amount might seem excessive to some people, but the
company, Thompson & Morgan, holds all rights to sell and market this
flower. In 17th-century Europe, before genetic engineering, propagating slow-growing bulbs, such as tulips,
was not reliable as a large-scale process. Thompson & Morgan’s financial records indicate that the company
is profitable. As expensive as the initial purchase was, the company has propagated and sold enough flowers
to generate a profit.

As the above shows, when we make profits we are happy to stand by our gains. It is only when we make a
loss that it is easy to call ‘foul’ and blame the market for these losses. It is more honest to follow a practice
where we admit our losses. The truth is that any purported losses and gains that exist on paper never come
to fruition and hence do not change the overall wealth of society.

POWER LAWS
A power law system is skewed to form a long tail . This is similar to
most commodity markets. In other words, when a range of goods of
various quality levels or grades plus a strong desire for limited
products exists, aspects of the resulting market create long tail prices
such as we saw above regarding tulips.

This is different from the traded price. One exercised strike price for a
single (exceptional) sale of 12 bulbs did not reflect the entire market.
The figure on the right appears to illustrate the tulip bubble. This
figure demonstrates the difference between spot futures pricing and
the traded, but an exercised strike price of tulips. The first thing to
note is that the graph highlights a peak rather than the long term
average. More important, what is not reported here is that the price of
tulips stabilised and, by 1638, had returned to its 1635 price.

The fallacy in the argument for using exercised strike prices for
exceptional goods in a power law system to demonstrate excessive
spot prices should be obvious. They simply are not the same.
Unfortunately, there is a common but widely held misunderstanding regarding the futures and derivatives
market. It is easy to mislead people when they do not understand the difference between a spot price and
an unexercised strike price. For example, I could list my house for sale for USD 100 million, although it is
worth far less than that, and the house would never sell for that price, but I could use that asking price to
mislead people. The irrationality is not in the market.

THE PLAGUE
A rarely reported side note will inform this discussion: In 1636 and 1637, the Plague was ravaging parts of
Europe. Haarlem was hit particularly hard during this period, and as many as one in four people in the city
died [2]. Many families in the wealthy nobility and merchant class fled the city. This level of disruption tends
to change people’s perspectives [3].

In times of great crisis and upheaval, such as the Plague in 1636, we tend to worry most about survival and
are more likely to take risks . In this instance, trade in early futures contracts were widely adopted. In
modern futures trading, exchange-based futures contracts require margin accounts to lower the risk of
default [5]. This innovation did not exist in the 17th century.

MORE ADVERSITY
As if the plague were not bad enough, the early to mid-17th century
marked the period of the Little Ice Age . During this period, winters are
believed to have been about two degrees Centigrade colder than they
are today. Winters were reported as bitterly cold, and the growing
season was shorter than usual. Food was already scarce, and a
significant drop in agricultural productivity caused widespread
famine. For many people, gambling on life and death was a common
practice. Yet, in many ways, this was a rational reaction because when you do not expect yourself or your
family to live very long, there is little reason to be oriented toward the future. Short-term thinking would be
the rational response in that context and, in the early 17th century, it was better to chance risky profits now
then to build a business over time.

WHY TULIPS?
It is easy to understand why any rare item that is beautiful and in demand would command a high price.
But, how did the tulip market begin? For a long time, we believed that the tulip entered Holland some time
in the late 16th or early 17th century. The myth tells us that this new flower was widely popular as soon as it
was introduced. However, modern science and, in particular, DNA testing and analysis, have debunked this
fallacy.

Studies, such as those published in the Journal of Economic Botany and summarised in the journal,
Science , describe interesting histories of flowers, such as the tulip, definitively documenting the path taken
by the tulip to arrive in Europe. In fact, the tulip arrived about 500 years before the Holland bubble incident
described above. The 19th-century theory of a tulip bubble was invented, as noted above, to
propagate a meme. It has been widely believed for a long time that the tulip was introduced to Europe in
the 17th century, but that was only a way to support a false economic theory. As is often the case, the truth is
stranger than the fiction.

Thus, the tulip was widely available in Europe from at least the 11th century and possibly earlier. At that
point, the yellow petals on the simple tulip was called the Macedonian Onion. There were no variations at
that time. Many people do not know that today it is a common practice to plant tulip bulbs around castles
and to hold festivals to celebrate the planting of tulip bulbs .

Many of our current traditions are followed without question or knowledge of how they came about, similar
to Morris dancing. Planting bulbs on castle grounds is a common practice in many areas although, for
villagers and peasants of the 13th through the 15th centuries, it would not have been an activity meant to
increase agricultural production. At the time, the amount of food available could be critical by spring, so any
way to increase yields could be the difference between life and death.

So, why would people plant flowering bulbs on castle grounds? The main challenge to answering this
question today is our inability to see the world with the eyes of the past. For the feudal villager, the castle
represented society and safety, and a large area around the castle was cleared so that the castle guards
would be able to see an attack well before it occurred. If the trees were to grow throughout the grounds
and close to the castle walls, attackers could hide undercover and launch surprise attacks. Today, grass
might be the ground cover of choice because it is easy to plant and maintain. But, nearly 1000 years ago,
there were no weed killers and riding mowers was many centuries from being invented. When tulip flowers
die down, thick mats of leaves cover the ground and prevent the growth of woody weeds and trees.

CONCLUSION
A contract is a legal promise. In modern futures systems traded over an exchange, margin accounts are
used to minimise risk. But, that does not prevent over-the-counter exchanges and contracts. For these, the
risk of default always should be incorporated into the price. It is always important to account for the risks
associated with an exchange and account for the risk in the profit expected from the exchange. There is
never a scenario in which the counterparty cannot collapse or negate a deal in another way. To the other
party, the risk of default might be small. For this reason, when a contract is important, it is necessary to
ensure that the other party’s commitment is tangible, not only monetarily, but also regarding time and
reputation.

Mackay [1] greatly overstated the losses associated with the collapse of the tulip market after the courts and
guilds became involved. When people believe that their exchanges will not be enforced, it is more likely that
their behaviour will become more reckless. The risk taking behaviour seems reckless from the perspective of
those looking in from the outside. However, we cannot determine that it is reckless behaviour when, due to
unforeseen circumstances, it seems likely that one of the parties of the exchange could die before fulfilling
his or her end of the bargain. In 17th-century Europe, unexpected deaths were a real possibility because the
Plague was an imminent danger.

People who lose in high-risk exchanges often complain that the exchanges were unfair. When their profits
are high, they are happy; however, the other side of any exchange is the potential for loss. Many times, loss
associated with so-called economic bubbles result from perceived beliefs and fears that the aggrieved party
will be ‘bailed out’, that losses will somehow be magically recovered, and that one can gain from the risk
when it is positive but not suffer from it when it is negative. This belief incentivises greed. When we reward
people and companies by bailing them out of losses, we encourage them to take bigger risks that
potentially lead to larger losses. Bubbles are not the result of free markets; they are the result of
interventions in the market.

References
[1] M ackay, Charles (1841). Memoirs of Extraordinary Popular Delusions and the Madness of Crowds .
I (1 ed.). London: Richard Bentley. Retrieved 29 April 2015.Mackay, Charles (1841). Memoirs of Extraordinary
Popular Delusions and the Madness of Crowds .
II (1 ed.). London: Richard Bentley. Retrieved 29 April 2015.Mackay, Charles (1841). Memoirs of Extraordinary
Popular Delusions and the Madness of Crowds .
III (1 ed.). London: Richard Bentley.

[2] Terence Ranger and Paul Slack, eds., Epidemics and ideas. Essays on the historical perception of
pestilence. (Cambridge: Cambridge University Press, 1992.).

[3] A. C. DeSerpa, A Theory of the Economics of Time, The Economic Journal, Vol. 81, №324 (Dec., 1971), pp.
828–846, Published by: Wiley on behalf of the Royal Economic Society ,
http://www.jstor.org/stable/2230320 .

[4] Calvo, Guillermo A. 1987. “Tulipmania” in The New Palgrave: A Dictionary of Economics . John Eatwell,
Murray Milgate, and Peter Newman, eds. 4 vols. New York: Stockton Press.

[5] Garber, P. M. (1989). ‘ Tulipmania ’. Journal of Political Economy , 535–560.

[6] Thompson, Earl A., The tulipmania: Fact or artifact?, Journal of Public Choice, Vol. 130, №1, Pp 99–114,
http://dx.doi.org/10.1007/s11127-006-9074-4 .

[7] Gelderblom, Oscar, and Jonker, Joost. n.d. “Amsterdam as the cradle of modern futures and options
trading, 1550–1650.” Unpublished paper. Utrecht University.

[8] Hull, John. 2006. Options, futures, and other derivatives. Upper Saddle River, N.J.: Pearson/Prentice Hall.
Bitcoin Mining: Consistency and the Distribution of
Transactions
By Craig Wright | 28 Apr 2016 | Bitcoin & Blockchain Tech

Misunderstandings in the bitcoin community have led to false conclusions about the
way that bitcoin works. The bitcoin mining process is fundamentally competitive, and
personal gains are made through competition, regardless of how it appears. The
complex reality is counter-intuitive, but understanding the differences among miners’
approaches to processing can disabuse us of the notion of a ‘standard’ block.
Comparing the bitcoin to Hashcash eliminates false beliefs about the bitcoin hashing
algorithm, verifies that each individual block is unique, and demonstrates that each
individual miner acts independently of the others.
Many common but false beliefs in the bitcoin community have led to common misunderstandings, such as
the ‘selfish miner attack’ [1]. Some of these beliefs arise from misunderstandings about the bitcoin block.
These misunderstandings have led, in turn, to false conclusions on blocksize debates and an incorrect
understanding of the way that bitcoin works. Simply put, there is no such thing as a consistent block before it
is mined and included within the chain.

In fact, a consistent block is not even maintained across a single mining entity, let alone across a pool of
miners or in the overall network. Individual blocks are not consistent series of transactions with a nonce;
rather, each block is a series of transactions that changes moment by moment. In addition, there is no need
for consistency within a block before it is mined. Each attempt to solve the next block remains independent
of the previous attempt. Therefore, adding a transaction to a block has no effect on the overall time required
for solving that block. The result is that individual miners experience discrepancies in the information that
they are solving.

The order in which miners receive information leads to radically different solutions to the block puzzle. For
example, if two miners were to receive two separate transactions that were released from slightly different
locations and at slightly different times, it is likely that one miner would exhibit a different transactional order
than the other miner in the block that they were attempting to solve.

The original bitcoin paper [2] notes transactional order within blocks, particularly on pages 2, 3, and 4. The
error of using this format for describing unmined blocks derives from a misunderstanding of the bitcoin code
implementation. The paper describes solved blocks, in which the transaction order is fixed. The nature of the
hashing algorithm is such that any alteration or change to the order [3] creates a widely divergent numerical
output. This means that changing the order of Tx0, Tx1, and other transactions in a solved block leads to a
widely divergent hash unlikely to represent a solution to the hashing puzzle that, therefore, would not be
considered a validly mined block.

What seems to be misunderstood here is that separate miners can mine transactional data in any order. The
addition of a nonce to seek a solution provides miners with the ability to add verified transactions in any order
while they equally and fairly compete using their levels of computational power. As a consequence, miners
do not benefit by pruning transactions in blocks or by seeking a common ordering of transactions. If a miner
were to seek to align a transactional order with other miners, the likely result would be a scenario in which
any miner seeking to align transactional positions would be economically disadvantaged due to the extra
cost of this pre-processing.

Furthermore, a miner who selects random transactional orders based on the time of receipt of each
transaction would have a slight advantage and be able to apply the computational power that he or she
controls to solving more hash puzzles than miners who seek an aligned strategy. The costs of coordinating
transactions among miners add latency to the communications as well as a high degree of inefficiency. In
such a process, a miner would need to discard many possible solutions that could be solved while
negotiating a consistent strategy with other miners.

The mining process is competitive. Miners seek to maximise their personal gains by competing with other
miners. The competitive process verifies and disseminates a consistent ledger throughout the system.

WHAT IS A BLOCK?
A block does not emerge until a hash puzzle has been solved. In attempting to solve a proof or work a puzzle,
each miner takes a set of transactions, adds a timestamp, and then adds a nonce. This is a highly simplified
version of what actually occurs, but this process captures the basics of the block creation process. For several
reasons, there is flexibility in the timestamping protocol. First, there is latency between nodes and, more
importantly, exact timekeeping is not required. Nodes are allowed some variation in their system times if they
remain within an acceptable range. The time range function used by bitcoin mirrors several authentication
protocols such as Kerberos [4] but with a wider drift range. Bitcoin is a far more forgiving protocol [6].

The bitcoin protocol is designed to allow for a wide range of time discrepancies, and it discards any
discovered block that incorporates a timestamp outside its large defined range. This range is calculated
based on two factors.

1. The timestamp in a block must be larger than the median distance from the timestamps recorded in the
previous 11 mined blocks.
2. It must be lower than the ‘network-adjusted time’ plus 7,200 seconds.

Note that the median timestamping function has a limiting adjustment in which a difference limit of 4,200
seconds is the maximum possible adjustment allowed.

Each node polls the nodes to which it is connected using a ‘network-adjusted time’ function, which is
calculated using the median of the timestamps returned by all the nodes connected to the local node.

Thus, a block is formed from the proof of work (PoW) solution to the ordered transaction data. This
incorporates four items.
1. A set of transactions that can be in any order, although each order comprises a separate possible solution to
the hash puzzle.
2. A timestamp that is limited in range by the bitcoin time adjustment functions and that is accurate to the
second.
3. The 256-bit hash of the preceding block, which limits the discovery of a solution to the proof of the work
puzzle to the chain of discovered blocks. With this limitation, there is no way that an attacker can circumvent
the PoW limitations by pre-mining or adding targeted solutions.
4. A nonce sufficient to limit the hash of the block cannot exceed the current difficulty target.

The timestamp function utilized in the block structure is an open-source IEC 61850 ‘uint32_t’ implementation
[5]. The accuracy of this function is derived as a 32-bit calculation of the number of seconds since 1970. It
differs from the ‘uint64_t’ bit value because ‘uint32_t’ is accurate to the second whereas ‘uint64_t’ is
accurate to the millisecond. Because this is an unsigned integer, the bitcoin network supports twice the total
number of seconds as the standard Unix time format.

There are standardized orders to the way that the blocks are presented, but the protocol allows for a wide
variety of methodologies for solving the hash puzzle of an individual block.

AN ALTERNATIVE STRATEGY
It is highly unlikely that we would find the following strategy used by a miner because it is more difficult to
ensure sorting order than to update a nonce. However, we present it for illustrative purposes.

It is feasible to set a standard nonce that is never updated and update the order of transactions. Each
possible ordering of transactions in a possible block solution will lead to a separate proof or attempt at a work
solution. Simply changing the order of transactions without updating the nonce is, in itself, a way to create a
new hash value that can be checked against the PoW difficulty requirements. Reordering of transactions is a
combinatorial permutation problem [6]. The difficulty with this scheme would be in creating a system faster
than the existing mining solutions based on ASIC hardware.

The number of possible solutions to a reordering of transactions is derived from a factorial calculation of the
number of transactions in the possible block. Moreover, because there is a wide range of acceptable
timestamps, these could be adjusted to each possible solution based on permutations in the time range to
further extend the number of possible PoW solutions. Ignoring the increased number of permutations that
derive from a change in timestamps, we can calculate the number of possible permutations that can be used
as a possible block solution as follows:

n=(t​i​​)!

where n n indicates the number of possible permutations obtained through reordering transactions and ( t ​ i
​ ​ ) indicates the set of combinational permutations of the transactions for block i .

If we estimate the maximum number of transactions in a 1MB block to be defined as (1) five
transactions/second and (2) 600 seconds (average)/block, we obtain 3,000 transactions/block, which equates
to n = [(ti)!] = 3000! = 4.149 x 10 9130 possible transaction combinations even before accounting for the
timestamps. A more accurate calculation based on existing conditions would be derived through a range
based on the existing moving average target of the mean rate of transactions that are included in a block . At
the time of writing, this range is 1,049–1,760 with an expected range based on α = 5 % confidence interval.

At this level, we still observe the range of permutations in the order of [1.343×10 ​2715 ​,5.833×10 ​4949 ​]
permutations. Even at the lower bound, this order of difficulty exceeds the calculations of the hash itself. In
fact, the lowest number of transactions that have been included in a block in the previous two-year period
was 248 transactions. At this volume, the number of combinations would be n=5.193×10 487 .

Through this exercise, we can quickly recognize that the probability of two mining nodes working on the
same transaction order at the same time is phenomenally small. It is more likely that the same SHA-256 value
would be returned as a collision between two separate blocks than within a single block to be calculated in
two locations.

This logic might seem counterintuitive to many people because it seems likely that each miner would
process the same transaction data in the same order. However, reality is more complex. If a transaction were
broadcast close to one mining node and were more distant, in terms of latency, than another, then there
would be a delay in the receipt of the transaction at the more distant node.

When we then incorporate other transactions that might be closer to the second node than to the first node,
we can quickly obtain an intuitive understanding of the differences in ordering. At node 1, we would expect
the following order to result,

Tx0 Tx1;

at node 2, we would expect the order to be

Tx1 Tx0.
The change is extremely small, but the important thing is that, even if this change were a single transactional
difference in the entire block, it would lead to a completely different hash value. When each of the nodes
calculates the hash value of these two transactions, the numerical outcome will not be the same and,
because this is propagated through the Merkle route calculation, the value that is finally returned in the block
as the hashMerkleRoot will be completely different for each node.

Widespread misunderstanding of this point has led to the common belief that a particular block is
competitively solved. However, the fact is that no standard block exists before the solution of the PoW
through the addition of a nonce with the corresponding values of the blockhead that must be included.

This error in understanding leads to the false belief that a node can hide information from other nodes to
gain a competitive advantage. Two nodes each independently attempt to solve a PoW puzzle, but this puzzle
is independent in each instance [8]. Therefore, the problem is a competing Poisson problem. The rate of
discovery for a mining node is defined by λ​ 1 ​, where the rate of discovery is set to {\lambda _2} λ ​ 2 ​ ​ for the
sum of all other nodes in the network.

Together, we obtain a rate for an individual mining node of λ 1 /λ 1 + λ 2 ​ ​ ​ ​ . For example, if we had a large
mining pool with 1/3 ​ ​ of the total computational power of a given difficulty period, we would have a value of λ​
<sub<1 ​ ​ = 2 and λ​ 2 ​ = 4 for the corresponding nodes. This result derives from the expected discovery rates. The
mining pool with 1/3 ​ ​ of the total hashrate would be expected to solve two blocks per hour from a system
with a difficulty that overall leads to six blocks being solved (on average) per hour. This results in the
remainder of the mining nodes solving λ ​ 2 ​ ​ = λ − λ ​ 1 ​ ​ , or four blocks. The overall system discovery rate would
be defined in the protocol as λ = 6 .

One of the properties of the Poisson process is in an area referred to as ‘competing processes’. If we assume
that N 1 (t), t > 0 and N 2 (t), t > 0 are independent Poisson processes with the respective rates of \lambda λ
and {\lambda _2} λ ​ 2 ​ ​ (as defined above), and we let S_n^i S ​ n ​ i ​ ​ represent the {n^{th}} n ​ t h ​ ​ event (or
discovery of a valid block) for process i, j = 1, 2 i , j = 1 , 2 , then we have the well-known condition [9, 10, 11]:

This equation can be used to determine the probability of a node calculating one or more blocks before the
rest of the network.

THE HASHING ALGORITHM USED IN BITCOIN.

There is a common, but false, belief that Adam Back is the original source of the hash puzzle used in bitcoin.
This belief derives from the paper’s references to ‘Hashcash’ [2]. Instead, we find the base algorithm defined
on page 4 of ‘DOS-resistant authentication with client puzzles’ [12]. The authors did not release code, and a
modified protocol and code were used in the bitcoin core release of 2009.

The original implementation of Hashcash is available via the Internet Archive project here and the original
code here. The false belief that Hashcash was ‘used as the mining function in bitcoin ’ can be quickly
dispelled by comparing the codes used in each.

This exercise will demonstrate that the variables and functions written for bitcoin, such as nTotalLower and
nTargetValue , differ radically from the functions used in Hashcash.

It was implemented simply in bitcoin, where comparisons, such as the following, were used instead of
schemes that are more difficult to implement:

if(hash <= hashTarget)

{pblock->nNonce = tmp.block.nNonce;

assert(hash == pblock->GetHash());

and

// Check proof of work matches claimed amount

if(CBigNum().SetCompact(nBits) > bnProofOfWorkLimit)

return error(“CheckBlock() : nBits below minimum work”);

if(GetHash() > CBigNum().SetCompact(nBits).getuint256())

return error(“CheckBlock() : hash doesn’t match nBits”);

Other methods, including seeking matched hash collisions, such as are found in Hashcash, could have been
incorporated; but this would have involved additional changes that would have made the initial
implementation of bitcoin more difficult. The originally incorporated code derives from implementations
developed by Wei Dai and Steve Reid.

BLOCKS ARE UNIQUE

What the reader should take away from this exercise is that each individual block is unique. This has become
more complicated since the introduction of mining pools, in which groups of individual miners act in a
concerted manner to solve a shared problem. However, that scenario does not change the way that
transactions are distributed in a block. The effect is that each mining pool mimics a large mining node.

To many people, it seems counterintuitive; however, it is critically important to remember that each
individual miner acts independently of all other miners in the system. What is even more counterintuitive is
that each individual attempt is completely independent and unrelated to all previous attempts. Each
attempt to solve a bitcoin block puzzle is like a coin toss in the sense that the results are truly independent
from all other coin tosses.

REFERENCES
I. Eyal, & E. Gun Sirer, “ Majority is not Enough: Bitcoin Mining is
[1]
Vulnerable ” 2013
[2] “ Bitcoin: A Peer-to-Peer Electronic Cash System ” 2008
J.S. Coron, Y. Dodis, C. Malinaud, P. Puniya. “Merkle-Damgård
revisited: How to construct a hash function.” In Advances in
[3]
Cryptology–CRYPTO 2005, 2005 Aug 14 (pp. 430-448). Springer
Berlin Heidelberg
C. Neuman, T. Yu, S. Hartman, & K. Raeburn,“ The Kerberos
[4] Network Authentication Service (V5) ,” Network Working Group,
RFC 4120, 2005
[5] “Open-source IEC 61850 MMS/GOOSE server and client library”
TechNet, Viewed from: “Maximum tolerance for computer
[6]
clock synchronization” , 2005
L. Lovasz, “Combinatorial Problems and Exercises,” Publishing
[7]
House of the Hungarian Academy of Sciences, Budapest, 1979
W. Feller, “An introduction to probability theory and its
[8]
applications,” 1957
M. S. Bartlett. “An Introduction to Stochastic Processes, with
[9] Special Reference to Methods and Applications.” Cambridge
University Press, Cambridge/New York, 1980
A. Stuart. “Kendall’s Advanced Theory of Statistics.” Wiley,
[10]
Chichester, 1994
U. Narayan Bhat and G. K. Miller. “Elements of Applied
[11]
Stochastic Processes.” Wiley-Interscience, Hoboken, N.J. 2002
Aura, Tuomas, Pekka Nikander, and Jussipekka Leiwo. “DOS-
[12] resistant authentication with client puzzles.” In Security
Protocols, pp. 170-177. Springer Berlin Heidelberg, 2000
Bitcoin and the costs of consumption
By Craig Wright | 28 Apr 2016 | Bitcoin & Blockchain Tech
Bitcoin is under attack, but the arguments are misdirected at the ‘strawman’ of total consumption. Bitcoin is
painted as a wasteful system that uses too much electricity. The question of bitcoin’s efficiency can only be
answered by addressing its comparative efficiency. By considering the cases of Denmark and bitcoin in a
global context of countries, banking institutions, and business enterprises, absolute and relative contrasts
focus on the real questions. Only a purely economic approach that considers specialisation and the zero-
sum nature of the context can correctly determine the bitcoin costs and benefits.

In a long line of attacks, it was recently noted that Bitcoin Could Consume as Much Electricity as Denmark
by 2020 .

This is not the first, nor will it be the last, attack on bitcoin and its perceived inefficiencies. These attacks take
the form of a type of logical fallacy known as the ‘strawman’. In this type of attack, rather than arguing
against the actual opposition, a third-party opposition is created and attacked. The third-party ‘strawman’ is
purposefully easy to defeat. Once defeated, a victory over the actual opponent is claimed. A ‘strawman’ is
employed to falsely refute and defeat the real opponent. The attacks are rhetorical flourishes designed to
divert attention away from the truth, which most often is that the actual opposition is too strong an
opponent to be defeated.

Douglas Adams proposed, in his Hitchhiker’s Guide to the Galaxy series, that the meaning of life could be
found in the number 42. The main point of his argument was that any answer is irrelevant unless the
question is valid and cogent.

The question of the efficiency of the bitcoin system is not related to the total consumption of the solution,
but, rather, to its comparative efficiency. A solution is not optimal based on its overall use of a consumable
item, but as a comparative solution. To assess bitcoin, we must analyse and compare the costs to the
benefits in context. To assume that electricity can be made to run more efficiently in an alternative protocol
is the logical flaw of the argument, and it is the ‘strawman’ in all of the attacks.

We understand the ‘strawman’ fallacy better by understanding its structure as provided by Wikipedia :

The straw man fallacy occurs in the following pattern of argument:

Person 1 asserts proposition X.

Person 2 argues against a superficially similar proposition Y, falsely, as if an argument against Y were an
argument against X.

This reasoning is a fallacy of relevance: it fails to address the proposition in question by misrepresenting the
opposing position.

The real issue of bitcoin is its relative efficiency. It is not whether bitcoin is using large amounts of electricity,
but, rather, whether it is more or less efficient than the options with which it competes. For instance, we
should consider whether bitcoin is optimally efficient compared to the existing (brick-and-mortar and
virtual) banking and payment system. Therefore, this post analyses the usages of power within the bitcoin
network as it has been extrapolated for growth and compared to the overall power usages and efficiencies
of the alternatives, including the existing banking system.

The portrait commonly painted of bitcoin is as a system that wastefully performs calculations for no
particular reason. It has been argued (and this particular fallacy has resulted in the creation of many
altcoins) that a more efficient system could be created that uses less electricity. This post responds by
examining the costs associated with the existing system, how they compare to bitcoin’s costs, and
assessing the effects of using an alternative system that requires less electricity per calculation.

POWER USAGE IN DENMARK

Denmark consumes about 34,000 GWhr per year of electricity, making it a net producer of electricity, which
is then exported to other parts of Europe. These figures are derived from data that can be obtained from the
US Department of Energy (DOE). To obtain information closer to the source, the Danish Energy Agency
(DEA) could be used.

Power consumption in Denmark

The above graph was created using a DEA 2008 Energy Statistics report that contains links to a set of
Excel worksheets. The current annual statistics covering this period are available online . The data end at
2008, and an analysis of the DEA data demonstrates that it is unlikely that Denmark would exceed 40,000
GWhr of electricity consumption per year by 2020.

During past particularly volatile economic periods, Denmark has experienced relatively more volatility. For
the purposes of our argument, and to ensure that we avoid a ‘strawman’ argument against our opponents,
we simplify the calculations in this analysis by rounding up the total energy usage in Denmark to 50,000
GWhr. This is more electricity than Denmark is likely to use, and rounding this way increases our burden
because it adds weight to our opponents’ position. However, we use it to unconditionally demonstrate the
many flaws in the arguments presented against bitcoin. Our first step is to draw attention to the value of
using Denmark to make our point.

Denmark is a country of just over 5.7 million people. It is 113 th in the ranking of countries by population; in
contrast, Europe has a population of just under 750 million people. As such, Denmark comprises a little less
than 1% of Europe’s total population. Importantly, if we analyse the graph below of electricity usage in a
number of European countries, Denmark is the lowest electricity consumer in its region. Germany alone
consumes more than 16 times the electricity consumed by Denmark.

The foundation of this argument could be interpreted as ‘cherry picking’ a small country to obtain a
‘strawman’. Indeed, Denmark is a country, not an enterprise, which evokes an emotional response to a
logical question. However, we chose to examine Denmark because we argue that countries are similar to
large enterprises in many ways.
Electricity comparison between selected European countries

By classing Denmark as one of many entities, the argument repositions the rhetorical context from a logical
to an emotional base. Despite its comparative position, the absolute energy consumption of this small
country is significant. Therefore, we must analyse more than Denmark’s absolute consumption; we must
examine its usages of electrical energy and how they compare.

For our first comparison, we examine the energy consumption of a modern supercomputer . Tianne-2 has
topped the current top 500 list with its power consumption rating of 17.8 kW/Hr. If we combine the entire
power consumptions of all of the computers in the top 500 list, we total a little more than 46GWhr annual
consumption. That is about 0.1% of the combined power consumption projected for the bitcoin network
and by Denmark in 2020. Below, we return to these figures when we examine the amount of energy used in
calculations.

In contrast, CitiBank uses 1,600 GWhr in the 20 datacentres it has retained (which is down from 70). This is
not an unusual usage level, and, based on the financial figures reported by US banks, it is possible to get a
low-end estimate of the largest 100 US banks. When total expenditures on energy usage in data centres
(separate from and excluding office usage) reported by these 100 financial institutions are divided by the
retail energy price (which far exceeds that paid in bulk purchases), we obtain a total electricity usage of
60,058 GWhr for the largest 100 of the 5,309 commercial banks in the US .

It is obvious that bitcoin’s projected electricity usage for 2020 would be far more efficient than that of US
commercial banks. We recognise that, in this analysis, we are bypassing many associated aspects of a
complete bitcoin-based banking environment. It is not just about having a data centre and comparing that
to the power calculations; it requires an analysis of the entire system.

Therefore, this is what we must analyse. We must ask: What causes bitcoin to use so much electricity? In
the case of the data centres supporting the large banks, electricity usage is related to the transaction
processing associated with storing large database files and related information. Much of this processing is
not eliminated with bitcoin, and, as is true for all electronic systems that are growing in our increasingly
Internet-connected age, electricity is a key fundamental resource.

RED HERRING

The purposeful use of Denmark in this argument is particularly cogent. Other sources, such as those
reported on motherboard .com, are far more damning. Some of the articles even bring the climate change
argument into play by claiming that bitcoin will lead to the anthropogenic climate change collapse of
global society. For perspective, statistics from the DOE indicate that the US consumes 4,110,000 GWhr of
electricity.

This fact alone implies that comparing to Denmark is a little like comparing apples to motorbikes.
Extending this to the argument on climate change and global dystopian collapse, we see that electricity
usage associated with global bitcoin could increase to as much as 0.1% of US electricity usage. At that rate,
bitcoin usage would be as high as 0.8% of the predicted US electricity usage by 2020.

For a wider perspective and a better comparison to global energy, it is clear that, by 2020, bitcoin will most
likely consume 0.0016% of the electricity consumed across all nations. Extrapolated, it is a mere 0.0000899%
of the total energy consumed.

However, we can compare bitcoin to something more cogent … business enterprises. Google alone uses
0.01% of global energy [6]. That is 1,000 times the utilisation and consumption of electricity of Denmark at
present. Amazon and Facebook are on the same scale.

TO QUESTION WHY

It is pretty easy to toss out large mind-blowing complex statistics. It’s a common tactic used to distract us
from the real questions being asked. The real question here is begging for an answer we can provide and for
a prediction of what might happen as the size of the blockchain increases. It is a question that, when posed,
allows us to evaluate the energy usage and total costs associated with solutions, such as bitcoin.

The important questions to ask are: Why is bitcoin using so much electricity and what are the anticipated
effects of increased electricity usage? The reason that bitcoin uses the projected rates of electricity is not
simply about computational complexity; it is about economics. Computational complexity is nothing more
than a mechanism that allows for the standardised exchange of prices within the system. It is a means of
signalling. This function of computational complexity has been overlooked.

It does not matter how efficient the algorithm within bitcoin is nor does integrating problem solutions that
have a market-based value lead to a more cost-effective system.

First, if bitcoin were to use a more efficient algorithm, the market would equally adopt the efficiency gains,
increasing the amount of processing in that system. Overall, the volume of calculation and computation
would increase to the level of profitability. In this scenario, the cost would again increase as more systems
were deployed. The overall electricity usage would remain similar to that of the less efficient algorithm.
There are arguments that bitcoin security comes at a disadvantage because the algorithm has little real
world value . A small percentage of those who take that position actually understand that the bitcoin
mining process is associated with the security of the network. What they do not understand is that there is
no advantage gained from solutions with alternative uses. If a society is willing to invest in these other uses
of the network, they can do so now. However, adding alternative uses to the bitcoin network increases the
cost of mining and, although the effect is rather insidious, it is one that is commonly overlooked.

The problem emerges from an analysis performed from the perspective of a cryptographer as opposed to
an economist. To a cryptographer, total network security is a seemingly pure combinatorial problem. It is
about the number of permutations that need to be solved, and, by increasing the number of permutations
solved, the network becomes more secure. What is missing from this reasoning is the cost per permutation.
Bitcoin is not simply the calculation of difficult permutations. It includes the cost of the calculations.

As was noted in section 6 of the 2008 paper , an attacker ‘o ught to find it more profitable to play by the
rules ’. This is the key to the problem. The issue is not one of simple calculations; it is one of economics. As it
becomes more efficient to mine a protocol or algorithm, the spot profitability will increase for the miner. As
this profitability level increases, more miners and companies start to compete, driving the total profitability
down to a level that is commensurate to a combination of the industry risk and the risk free rate.

A ZERO-SUM GAME

In future blogs, we will delve more deeply into the details to explain the following section to the lay non-
economist readers. Here, we begin with a cost-benefit analysis. Across a society, transaction costs, benefits,
and losses through compromise are incorporated into the total costs of damages and damage prevention.
Damage prevention in this context incorporates a stronger blockchain. In this scenario, the miner and the
user of the service are in a type of competition related to the payments made across the network. In a later
paper, we provide details of the complete cost allocation equations, but these details are beyond the scope
of this particular post, and we present a simplified version here.

The allocation of bitcoin to a miner does not create wealth; it reallocates existing wealth. If we already have
n bitcoin at time t , then at time t + 1 (defined by the creation of a new block and the allocation of rewards
for mining), we would have the same wealth, W , but it would be more widely distributed. At present, the
mining reward (at the time of writing) is r = 25 BTC plus transaction fees. Transaction fees should be
understood as preferential payments to ensure that those transactions are processed more rapidly than
transactions without fees. Consequently, we ignore transaction fees for the purposes of this post because
they do not change the overall outcome.

The mining of bitcoin is a security service that alone creates no wealth. Consequently, those using the
network pay for the service. If we consider that the changes in overall wealth are influenced by the loss of
bitcoin or, when not truly lost, the overall impact of bitcoin not being moved plus the change in the utility of
bitcoin, we can add values x and y to the overall wealth equation as follows.

At time t ​i +1 ​ or block ( i + 1}, we obtain a level of wealth W ​i +1​. Assuming that the demand for bitcoin
remains static between times t ​i ​ and t ​i ​ +1, we can, for the purposes of this argument, assume that x + y = 0.

At time t ​i +1, we change from n = ni to n = ni+1 = ni + r bitcoin in circulation. Here, W ​i = niwi is a statement that
the product of wi (the value of each bitcoin) and the number of bitcoin in circulation reflects the total wealth
value associated with bitcoin. Because the wealth function remains constant in this period, or can be
approximated to be so, we can state that:

In this equation, ε accounts for the standard error in market reporting processes and would, therefore,
account for variability in the result.

For all periods where n = ni ≥ 0, we have the result that ≤ 1 and, hence, the value of wi is diminishing

without an increase in utility associated with the protocol. At the time of writing, there is a total of 15,446,950
allocated bitcoin with an imminent change in allocation rate of r = 25.

This leads to the change rate of:

The change to market each 10-minute period equates to approximately 0.000162% lost and redistributed as
a security function. This is the cost of mining, and it sets limits to the profitability that a miner could
experience. This transfer of wealth to the miners accounts for the total cost paid by the network to ensure
the security of the network at any given time. This is not the level of profitability; it is the cost function.
This calculation is a zero-sum game. The reallocation of wealth as a payment for the service is a market
transaction cost. In any reallocation, the miner is expected to reap a profit defined by the miner’s share of

the market , where λ1 accounts for the miner’s total hash power and the hash power of the

network is defined by (λ1+λ2). From this, we see that the total revenue achieved as a mining strategy is
defined by the following formula:

and, because P ​m​ = R ​m​ ​− C ​m​ , which defines the profit of the miner (P) and the cost borne by the miner (C),
we obtain the profitability calculation that provides the average profitability that can be expected for any
period (i) :

In this equation, the miner has fixed and variable costs. If we were to add any so-called ‘side benefits’ to
mining bitcoin, then we would end up with an altered equation. The utility of mining bitcoin then becomes
a combination of the profit obtained through mining bitcoin as derived from the utility factor associated
with mining bitcoin plus the profit or added utility associated with the alternative strategy. In this scenario,
as the profitability associated with a joint mining strategy increases, more players would seek to maximise
their revenues and, hence, their profits, up to a point where the profitability of each miner’s returns to the
returns expected from the risk-free rate plus the incentive for the risk taken in the capital investment and P
m + ​U = P​ ​m + P ​U .

Over time, we expect the profitability to establish an equilibrium based on the risk associated with mining
and the capital investment. The total revenue received by a miner would incorporate the cost to the bitcoin
community, which is providing the service, plus the cost of the additional utility added to the service. This
capital allocation suffers transaction costs, and the addition of the added benefits is transferred at less than
their costs. Furthermore, the effect is transference of unwanted services to all users of the bitcoin network.

SPECIALISATION

Since Adam Smith, economists have known that we enrich ourselves and, hence, society through
specialisation. Specialisation focuses on specific areas of production and trade. To enrich ourselves, we look
at peaceful activities that utilise resources and goods produced along the lines of what we freely choose.

The real issues associated with mining bitcoin for purposes other than the security of the network relate to
the inability to correctly determine the costs of the inputs and outputs to the network. Not all parties will
equally value additional output and the result will be a series of conflicting prices. The truth of the matter is
that bitcoin mining provides a service in itself. The value of that service is reflected in the amounts that
people are willing to pay for bitcoin for its utility in securing the network. When we start taxing the network
by adding additional services of somewhat dubious value, we start to increase the cost of the network and,
hence, diminish the overall benefit.

Data obtained from the US Mint indicate that the total USD Coins in Circulation (production 1999–2014) was
380,344 tonnes. In future posts, we will examine the costs of paper-, plastic-, and coin-based currencies.
However, here we must consider that the perceived cost of bitcoin mining is not limited to analysis of the
bitcoin network alone; to understand it, it cannot be investigated in isolation. Any analysis should be
performed relative to the alternatives. Indeed, everything in economics is a relative equation that contrast
related options. The choice to use bitcoin is not a choice to use bitcoin or nothing; it is the choice to use
electronic currency as opposed to the pre-existing system.

It is very easy to pick an isolated event and to use it out of context. In the future, we will continue this
discussion as a series of posts on this topic. In this process, we will analyse and link the costs of paper, the
costs of metals and coins, the fraud and transactional losses associated with traditional and online banking
that currently affect credit cards, and many more related topics.

As F. Bastiat noted in his seminal essay ‘ What is Seen and What is not Seen ’: ‘I am sorry to upset’ [those]
‘ingenious calculations, especially since their spirit has passed into our legislation. But I beg’ [you] ‘to begin
them again, entering what is not seen in the ledger beside what is seen’.

With this foundation, we can start to analyse the costs of bitcoin in contrast to its alternatives.

REFERENCES

U.S. Federal Reserve, 2014. How long is the life span of U.S. paper
[1]
money?
U.S. Federal Reserve, 2014. How much does it cost to produce currency
[2]
and coin?
[3] U.S. Mint, 2014. Circulating Coins Production Figures
[4] U.S. Mint, 2014. Coin Specifications
[5] U.S. Mint, 2014. What is the life span of a coin?
[6] Analytics Press, Growth in data center electricity use 2005 to 2010
ADAM SMITH BITCOIN ATTACK BITCOIN COST BITCOIN COST-BENEFIT ANALYSIS SPECIALISATION
Social Choice, Bitcoin, and Arrow’s Theorem
By Craig Wright | 28 Apr 2016 | Bitcoin & Blockchain Tech

What is the value of a Bitcoin blockchain alternative? Many propositions add

alternative states, which must be included in the evaluation of the resulting overall
utility and welfare. Because no two parties will see the same utility resulting from the
same expenditure, a social choice problem occurs. Condorcet’s paradox and Arrow’s
Impossibility Theorem are subjects for discussion.
There are many alternatives to the Bitcoin blockchain. Some propositions use scenarios with value that goes
beyond the problems that threaten network security. Some altcoins have proposed [email protected] style
solutions for all types of problems including the search for a cancer cure. Whenever we add additional
states, these states must be considered along with the overall utility and welfare that results. This creates a
social choice problem.

Bitcoin was simplified to include only the solution that would ensure that no alternative could diminish the
system’s security. That is, Bitcoin forms a simple two-good, two-person Edgeworth box economy form of a
distribution problem. At each point, there is a known solution representing goods distributing between
members.

Each of these states is mutually exclusive. Although each agent expresses their own preference for
alternative uses, determining the overall maximal returns is straightforward. Without alternatives, the
mining solution becomes Pareto efficient.

The alternative of adding so-called “useful” puzzles to Bitcoin creates a scenario where there is an additional
utility to the solution itself. This additional created utility varies among network users, and no two
individuals will have the same preference for a particular use. This even assumes a single-use alternative
and precludes the addition of multiple competing solutions.

We encounter problems such as Condorcet’s paradox in the scenarios. I point the dedicated reader
towards “Advanced MicroEconomic Theory” (Jehele & Reny, 2000) where, in Chapter 6 of this book, the
authors address Arrow’s Impossibility Theorem , which is touched on only lightly in this post.

The primary problem with the addition of alternate forms of utility is choosing which form to include, how
much of the form to include, and who should decide. In locking any alternative into the protocol, we
incorporate the possibility of debate on profitability and utility. The problem here is that no two parties will
see the same utility resulting from the same expenditure.

The most important consideration is that any additional inclusion is either of no utility and, thus, should not
be incorporated, or of utility that can be expressed across a market in the form of profit. In the form of profit,
the miner will benefit from the redistribution of Bitcoin wealth in the allocation that comes from the
discovery of a block solution, and from the utility associated with the alternate use. The end result is that
miners will still seek to maximise profit. This rational behaviour leads them to the optimal strategy, seeking
returns that are just over the risk-free rate as other miners enter the market.

When the utility is split between securing the network and alternative uses, the natural end result must be
that the investment in network security in a mixed-use environment is less that the investment that will
occur in a pure single-use environment. The overall consequence is that Bitcoin becomes less secure
because the investment in mining infrastructure that would otherwise secure the network is split between
securing the network and other uses that have been tacked onto the network.

Simply put, the value of mining is not only wasted, but it is incorporated into the value that we gain in a new
transactional medium. The value of mining is the security of the Bitcoin network.

REFERENCES
Arrow, K.J. (1950). “A Difficulty in the Concept of Social Welfare”. Journal of
[1]
Political Economy 58 (4): 328–346. Archived.
Jehle, G.A. and Reny, P.J. (2000) “Advanced MicroEconomic Theory” Second
[2]
Edition. Addison Wesley Longman, US
What happens after Moore’s law….
By Craig Wright | 28 Apr 2016 | Economics
Now that it seems clear that Moore’s Law will reach its end, what will happen? Whether the predictions are of
minor or major changes, different processing paradigms will surely emerge. Software presents problems
distinct from the challenges of hardware. The key to predicting the future may lie in our recognition that
economics and energy limit human innovation. However, innovation has a history as old as humankind, and
the innovative possibilities for computing are limited only by our imaginations.

A friend recently pointed me towards an article on Moore’s Law . More accurately, it was an article that was
again predicting the imminent demise of this paradigm.

One could argue that there are strong and weak formulations of Moore’s Law. In its strong form, the
prediction is limited to an increase in the number of transistors that exist on a single microchip. In its weak or
broader form, the argument is more closely related to an economic costs effect. The former prediction heavily
relies on the type of technology being deployed. Silicon- and germanium-based transistor technologies will
face severe limits in the coming years, and, therefore, this version of the law can be safely predicted to end.

Thus, we could argue that, technically, the pessimistic predictions of the end of Moore’s Law are
correct. However, in its broader form we could argue that the end is not near. It is true that the size of
transistors has a limit, and it is true that we are quickly nearing that limit. Nevertheless, the reality is that we
are also changing the architecture and processing.

If we were limited to analysing Moore’s Law based solely on the number of transistors and, hence, the
limitations of a literal perspective, then we certainly are fast approaching the end. However, that does not
mean that we will not get more transistors onto a chip; rather, it means that the architecture will adapt and
the process will move away from a doubling period of 18–24 months. Under that scenario, we would move
into different processing paradigms.

COMPUTATION IS ABOUT ENERGY AND ECONOMICS

The reality of computation is that it is all about innovation. There is a limit to what a human mind can do,
although, working as a collective, our human minds can do far more than any single mind. Perhaps there is a
limit to human innovation, but I do not believe that we are close to that limit yet, if it even exists. I prefer to be
an optimist on the matter, and I foresee no limitation to human innovation in my lifetime or in the lifetimes
of my children or grandchildren. Beyond that, none of us can predict, and I am hopeful nonetheless.

Moore’s Law is an economic predictive model. We can build bigger chips now. Using software, we can merge
multiple CPUs, GPUs, co-processor chips, and cards into a mesh that acts as a computational model far
superior to any single machine. The limits to our doing this are not related to the technology because the
technology already exists. The limits we face are more general, and they concern economics and energy.

The human mind continues to demonstrate that it has more computational power than any system we have
developed. It is a living self-programming machine that runs with extreme efficiency. Despite all of the
human errors in programming and all of the human failures in biology, we know that our computational
limits are well beyond our present abilities.

Humans have a general problem with pessimism that has pervaded societies for as long as they have existed.
Yet, innovation has led the drive towards more diverse and wealthier societies. The driving force of innovation
and the creation of new methodologies are not new, and there is no end in sight. Even so, many people seem
to believe that we face an end to human achievements. Malthus recanted in the end, but many of us will not.
In the face of development and progress, it is easier to sell a story of gloom and doom.

Things will change. There is no doubt about it. More importantly, we cannot even begin to predict the nature
of the computational power that will exist in 2050. It could be a technology derived from our existing
computational systems or it could be some new quantum system. There is no way to know the future before
we get there, or very close to there. It seems likely that we will have a new, and as yet, unknown disruptive
technology carrying our path of growth forward. This new technology cannot be predicted today beyond
knowing that it will allow us to continue on a path of growth. To some people, this leads to theories of ‘what if’:
What if no one develops anything? What if innovation just stops? What if there is nothing left to discover?

There is nothing new in this attitude!

‘ There is nothing new to be discovered in physics now. All that remains is more and
more precise measurement’.
~Lord Kelvin, 1900
It is an attitude that has pervaded and persisted in science for generations:

‘ The more important fundamental laws and facts of physical science have all been
discovered, and these are so firmly established that the possibility of their ever being
supplanted in consequence of new discoveries is exceedingly remote. Our future
discoveries must be looked for in the sixth place of decimals ’.
~Albert Michelson, 1894
This is the attitude that led to long-term stagnation in the finance industry. Yet, even there, we see change,
which will be long-term change because of the influence of innovation. Innovation will continue in the form
of disruptive technologies that no one expects or predicts, that seem to have come out of nowhere, created
by the people we least expect to change the world.

The combined computational power is not causing our current limitations. The limitations are actually in our
software. The speed of a modern computer is not controlled by the growth in its clock cycle. It derives from a
combination of factors that are not the primary limiters of modern computers. Hardware continues to grow
according to Moore’s Law, and it is expected to do so into the foreseeable future. Software is a different
matter. The progressive improvement of modern computer software is the creative product of the human
mind. When many minds work together, more complexity enters the system, although there is a limit.

One key aspect of bitcoin that is not generally known or considered is its ability to allow for distributed and
parallelised computations. In a traditional computer, since the 1970s or 1980s, complex algorithms and
systems are simplified through iterative processes, such as looping. But, quantum computers do not work
this way. The nature of a quantum computer is to simultaneously solve all possible states, or so we hope.
Bitcoin script is aligned with this type of computation. Instead of traditional looping, bitcoin scripting is
targeted towards massively paralleled computations.

One way to achieve this can be implemented by using hash puzzles and other computational puzzles that
can be secured through Boolean statements that link the puzzle to be solved with the addition of a payment
address. Transactions that substitute each possible value of a variable can be created. If we wanted to trial a
variable from 0 to 1 billion instead of sequentially cycling through each of the states, we could run them
simultaneously in parallel. Each transaction would be executed with the one that correctly solves a puzzle
leading to the payment. This leads to the possibility of complete economic outsourcing for computation. Not
just storage, mind you, but each sub-routine and each calculation or computation.

Therefore, Moore’s Law is not about the number of transistors; it concerns the economic growth of a system.
The effectiveness of the utilisation of a system is a separate matter, and the creation of larger and faster
computers is limited by the software they run. We are now headed towards more economical systems, in
which we will see the costs of computers continue to decrease over time. Most importantly, the results of
Moore’s Law relate to the energy economy. This does not mean that we will use less energy to run our
machines; it means that the amount of energy we use to complete an individual calculation will decrease.
What truly matters is not the number of transistors we exhibit; it is the extent of our computing efficiency.
Even now, the drive towards Exascale technologies moves us into the future. The creation of systems that
run multiple cores will certainly change the nature of computing.

THE NATURE OF THE COMPUTATION IS CHANGING

Computer science and, in particular, computational theory, is a field that will be actively explored and
researched in coming years. One reason that we began extensive experimentation with technologies like
CuDa and the Xeon Phi architecture was our hope of taking one transaction processing and the bitcoin
blockchain. Many of the papers we are now writing concern the use of highly parallelised code structures.
Using a combination of puzzles and calculated ECC addresses, we can engage multiple parties or processes
simultaneously to work out computational solutions with the expectation that they will be paid. This is not a
standard pay-for-work situation; it is a distributed proof or work within a transaction.

The changes mirror and parallel several others that I have recently seen. In the move from 8-bit to 16-bit to 32-
bit and now 64-bit architectures, we have had to change and adapt our software along the way. The next
change in software will be one of highly parallelised systems running across ultra-wide buses. The next
generation of computer architecture is already available running on 512-bit registers. The change in code is
immense, but we can hope it is sufficient to keep us going for several more years.

In the aforementioned article from The Economist , there is the argument of a definite limit to clock speed
and thermal design. Soon, even the number of transistors will change. But, this does not mean that
computational power will stagnate or diminish. The article jokes, ‘Moore’s law has been predicted to end for
as long as it has been in existence’. However, many facts in the article should be corrected. For example, the
cost of computer chips has not been increasing—statements that it is increasing are not true in either
absolute or relative terms.

The most cogent concern relates to issues with the software we create. Software does not scale anywhere
near the rate that hardware does. For all the advances we have made, the one that we have not made (to any
great extent) is in software. Software is slower now and becoming bloated; many of the skills needed to create
more efficient software have been lost because we use hardware to fix software problems.

Perhaps it is not technology as much as it is economics that allows the downward slide. Market forces dictate
much of this effect. The uptake of newer types of architecture has been delayed, although by consumers
more than by manufacturers. Similar to the pain felt in the slow change from 16-bit to 32-bit architecture, the
change from our existing 64-bit registers to the newer 512-bit systems has been difficult, to say the least.

The article in The Economist did not mention many of the technological changes already available. The main
point of this is that knowledge of these areas is limited. This is not to say that changes cannot be
implemented or implemented quickly, but the software to make those changes must be developed. As
stated above, I do not see a technological end to the increase of processing power in my lifetime. I see
technological limits caused by problems of software. The level of complexity is growing faster and faster.

In our leap forward, we will create more specialised chips and better software. The chips are the easy part for
us; the software is the part that will always take us a longer time to work out. For example, multi-core chips
already exist, and the difficulty is in figuring out how best to use them.

The comment that some mathematical tasks cannot be computed is technically incorrect. It is true that
some large processing requires large chips, but the fact is that there is very little that we know of that cannot
be done on a 512-bit chip. How well we do this is a different matter. So, the introduction of multi-core
machines must be managed in new and novel ways, and, in this regard, programming has become a
different beast. We have moved from something that people could do with a small skillset into a highly
specialised technical area. I hate to admit it, but, today, the best I can do is dabble.

I am an adequate programmer for selected tasks. Algebraic mathematics, functional design stages, and
complete back-end work are all within my technical bailiwick. Recently, and, by that, I mean in the last three
years, my ability to code across parallel systems and with many threads has improved, although I remain
extremely inefficient. For this reason, we have been hiring many talented developers who are far better
coders than I could ever hope to be, demonstrating the nature of specialisation. So, in the future, Moore’s Law
will not hold us back; the boundaries of the human intellect will determine whether we stagnate or grow.

Thus, to make these new systems work effectively and efficiently, we must code and develop at a level and
pace far superior than our current activity. This is the heart of my worries. The costs and prices of computers
and computational power are decreasing daily. The skillset needed to successfully develop new systems is not
increasing as fast as it must to keep up. In the end, what we have is hope that human ingenuity and
innovation can solve the problems as they arise.

MOORE'S LAW
Jean-Paul Sartre, signing and significance
| 02 May 2016 | Bitcoin & Blockchain Tech
By Craig Wright
On Tuesday 26th of April 2016 I did the final stage of instruction to a select group of people concerning
the origins of the form of signing and a set of digital keys that I am going to communicate the origins of
on this blog. I spent time with the BBC, the Economist and GQ. Prior to this I had already met Jon
Matonis , Gavin Andresen and others. I will not provide an account of what occurred in each of these
meetings and will leave it for others to disclose if they choose. It is always preferable to have evidence
firsthand and to pass over hearsay.

All truth passes through three stages.

First, it is ridiculed.

Second, it is violently opposed.

Third, it is accepted as being self-evident.

Arthur Schopenhauer

In the last few years many people have misunderstood requests I’ve made. I’m not asking for money and
on any occurrence where I have sought to contact people, it has been for what would have been a
mutual exchange and one where I was not requesting compensation. On those occasions where I do
seek to meet someone, I do it on my own or my company’s expense; depending on the circumstances. I
will not ask for money nor do I want from you. If you feel compelled to aid my cause, the best I can offer
is that you donate money to Burnside a charity that helps single parents and children.

In this post, I will explain the process of verifying a set of cryptographic keys. It will be for others to
expound upon what is included here, as to the significance and on what they have seen. The nature of
evidence is the collection of body of facts that lead to belief. Right now, I am at the point where I’ve seen
the limit of what people take to be truth. It seems that a large component of this is formed through
hearsay, Chinese whispers and innuendo. For many, proof is not required when a desire to believe
something exists. In these instances, truth just gets in the way.

The process I have recently engaged in will be the only time I do this. I do not seek your approval and
nor do I seek fame.

Shortly, you will learn of the organisation I have been building. I wanted more time, but it seems that is
not available to me.

Before I start this post I will state categorically that I will never accept a cent that I have not earned. If
you decide that it is in your interest to honour me against my wishes, without consulting me; if you put
me up for an award, I will never accept the money that is associated with it . This does not matter in the
slightest whether it is a small and trifling amount or even something as large as a Nobel prize. The best I
will do is donate this money. I can appreciate you aiding causes I promote, but I will not benefit from you
directly. A process to implement a legal framework that will constrain me and never again allow me to
change my mind on this matter is underway.

“If I sign myself Jean-Paul Sartre it is not the same thing as if I sign myself Jean-Paul Sartre, Nobel
Prizewinner”
– Jean-Paul Sartre, 1964

I remember reading that quote many years ago, and I have carried it with me uncomfortably ever since.
However, after many years, and having experienced the ebb and flow of life those years have brought, I
think I am finally at peace with what he meant. If I sign Craig Wright , it is not the same as if I sign Craig
Wright, Satoshi .
I think this is true, but in my heart I wish it wasn’t.

IFdyaWdodCwgaXQgaXMgbm90IHRoZSBzYW1lIGFzIGlmIEkgc2lnbiBDcmFpZyBXcmlnaHQsIFNh
dG9zaGkuCgo=

I have been staring at my screen for hours, but I cannot summon the words to express the depth of my
gratitude to those that have supported the bitcoin project from its inception – too many names to list.
You have dedicated vast swathes of your time, committed your gifts, sacrificed relationships and REM
sleep for years to an open source project that could have come to nothing. And yet still you fought. This
incredible community’s passion and intellect and perseverance has taken my small contribution and
nurtured it, enhanced it, breathed life into it. You have given the world a great gift. Thank you.

Be assured, just as you have worked, I have not been idle during these many years. Since those early
days, after distancing myself from the public persona that was Satoshi, I have poured every measure of
myself into research. I have been silent, but I have not been absent. I have been engaged with an
exceptional group and look forward to sharing our remarkable work when they are ready.

Satoshi is dead.

But this is only the beginning.

KEY VERIFICATION

In the remainder of this post, I will explain the process of verifying a set of cryptographic keys.

To ensure that we can successfully sign and validate messages using the correct elliptic curve
parameters in OpenSSL, it is necessary to ensure that the secp256k1 curve is loaded. This is not the
default on Centos Linux. I will not detail this process here. I do point out that RPMForge maintains
binaries that have already been patched. My recommendation would be to download both the source
files from the OpenSSL website and the patch, if, like me you’re running Centos.

I will also point the reader to the following websites for some preliminary reading:

https://wiki.openssl.org/index.php/Command_Line_Elliptic_Curve_Operations

http://www.secg.org/sec2-v2.pdf

https://www.openssl.org/

https://www.bfccomputing.com/bitcoin-and-curve-secp256k1-on-fedora/

The first stage of this exercise will be to explain hash functions. In the figure below we’re displaying a file
called “sn7-message.txt”.
Script fragment

The series of hexadecimal values displayed in the figure above represents the SHA256 hash of an input
value. A good hash algorithm will produce a large string of values that cannot be determined in advance.
The amount of information and possible permutations always exceeds the range of imitations that can
be output from any hash function and as a result, collisions will always exist. What makes a hash
function such as SHA256 useful and considered “secure” is that it is infeasible given the current state of
technology to determine and find a set of input values to the hash function that collides with the same
value that is returned as output.

The SHA256 algorithm provides for a maximum message size of (2 128 – 1) bits of information whilst
returning 32 bytes or 256 bits as an output value. The number of possible messages that can be input
into the SHA256 hash function totals (2 128 – 1)! possible input values ranging in size from 0 bits through
to the maximal acceptable range that we noted above.

In determining the possible range of collisions that would be available on average, we have a binomial

coefficient that determines the permutations through a process known as combinatorics [1].

I will leave it to a later post to detail the mathematics associated with collision detection. It is important
to note though that there are an incredibly large number of colliding values associated with each hash
but that the probability of finding two colliding values or determining them in advance is infinitesimally
small. Next week, I will follow-up with a post based on combinatorics and probability theory
demonstrating the likelihood of finding collisions for “secure” hashing algorithms.

HASHING

Hash functions are relatively simple and can be done by hand. This of course belies the complexity that
is required to reverse them. A good hash function is simple to use and yet is infeasible to reverse. In the
figure below we have run the Linux hash routine “sha256sum”. This simple program will return a unique
value that corresponds to a set and fixed input.

Script fragment

In the figure above, we have run this on several files including one that we are using for this OpenSSL
signature exercise. The particular file that we will be using is one that we have called Sartre. The
contents of this file have been displayed in the figure below.
Script output

Digital signature algorithms sign the hash of the message. It is possible to sign the message itself but in
signing the hash it is possible to ensure the integrity of the message and validate that the message has
not changed. If even a single space or “.” was to be altered, the hash will be radically different to the
value returned initially.

In order write this value and save it to a file, we can use the Linux command, xxd . This will write the
ASCII values into a hexadecimal binary file. In the command below we would be writing a string of zeros
into a file called “file.name”.

In doing this, we can change the string we received as output from the hashing algorithm into a hex
encoded file. This will be the message we can sign and verify. It is important to validate the string of
numbers that you are putting into the echo command above. If a single digit has been typed incorrectly
then the message will not verify.

PUBLIC KEYS

In order to verify a digitally signed message we need number of components. These include:

The algorithm,
the public key of the signing party that we wish to verify,
the message that has been signed, and
the digital signature file.

The first part of this, the algorithm is obtained through the installation of OpenSSL with the
incorporation of the secp256k1 curve patch. In the step above we covered the creation of a hashed
message. In the next section we will cover the use of ECDSA public keys.
Script fragment

For this exercise I am using a public-private key pair that is saved is a PEM file in OpenSSL. David Derosa
has written an excellent page defining the creation of an elliptic curve key pair in OpenSSL. In the figure
above you can see the particular PEM format public key that is associated with the key pair used in
signing the message in this exercise. A thorough reading of David’s page will provide all of the
information for the reader detailing how a private key pair used in bitcoin transaction can be formatted
as a PEM file. This page details the creation of a new private key and not how an existing private key can
be imported into OpenSSL. I shall cover this additional process and demonstrate how an existing private
key pair based on elliptic curve cryptography can be imported into a ASN.1 format for use with OpenSSL
directly.

The command to export our public key is given below.

The string returned is the public key value used by programs including bitcoin for the verification and
addressing of the signing function.

Casascius has developed a nifty tool that will help you decode this public key and return the associated
bitcoin address that it maps to. We have a blog on this site that will help you understand the technical
aspects of how bitcoin addresses derived from the public and private keys. Several online tools are also
available that can calculate the bitcoin address from the public key.

SIGNING

The process of digitally signing a message using OpenSSL requires that the party signing the message
has access to the private key. I will document and cover this process further in a later post. In recent
sessions, I have used a total of 10 private keys are associated with bitcoin addresses. These were loaded
into Electrum , an SPV wallet. In one of the exercises, I signed messages that I will not detail on this post
for a number of individuals. These were not messages that I personally selected, but rather ones that
other people had selected. In some instances, we ensure the integrity of the process by downloading a
new version of the electrum program, installing it on a fresh laptop that has just been unboxed having
been purchased that afternoon and validating the signed messages on the new machine.

The version of electrum that I run is on Centos Linux v7 and runs via Python. For the exercise I noted
above we used Windows 7 and Windows 10 on different occurrences.

SIGNATURE VERIFICATION

The final component that we need to cover is the signature itself. We will be using the following
command to convert our base64 format signature into a file format that can be loaded into OpenSSL.

The signature filed we will be verifying contains the following data.

In the figure below we display the signature file as it is stored on the computer that was used for this
process and we see the result of the verification exercise. In saving this file, you could cut-and-paste the
encoded signature and insert it into a saved file using an editor program such as vim. Not that I’m
looking at getting into a holy war over the choice of editing programs.

Script fragment

There are two possible outputs from this process that concern us. OpenSSL will either return as “Verified
OK” where we have validly verified the signature. All of the information that is required to import the
public key, the message and the message signature used in this post is available on this post.

I could have simply signed a message in electrum as I did in private sessions. Loading such a message
would have been far simpler. I am known for a long history of “being difficult” and disliking being told
what “I need to do”. The consequence of all of this is that I will not make it simple.

SOME SCRIPTS

In order to simplify this process, I have included two shell scripts. For variations on scripts like these,
please visit a site such as the one hosted by Enrico Zimuel . This site is not particularly focused on elliptic
curve cryptography but it is not too difficult to update his code for the use on a bitcoin based system.

SIGNING
For you to try and test this at your leisure I have included the signing script below. To use this script, the
input consists of the variable <file> which signifies the file that you desire to sign using a selected
<private_key> under your control. In this command, the <private_key> variable represents the file
containing the private key to be used in signing the message and which will output the signature.

The output from this shell script consists of the signature saved as a Base64 encoded file. This will be
saved to your hard drive or other location using Base64 format as a file named <signature.der>.

EcDSA.sign.sh

VERIFICATION

We can use a similar process to verify the signature we have created using the script that I have
included below.

In this commandline, the variable <file> is used to signify the name of the file we seek to verify. The
variable <signature> represents the file where we have saved the signature (and coded using Base64),
and the final variable, <public_key> contains the PEM formatted public key. We use these files together
and if they are valid and correct they will allow us to successfully to verify the digital signature.
EcDSA.verify.sh

CHOICES ON FORMATTING

The signature format used within bitcoin is based on DER encoding. Other methods have been applied
in the original code has changed significantly in the last seven years. The choice of DER encoding for the
signatures and other information was based on a desire to ensure that information could be shared
between incompatible systems. It is not the most efficient means of storing information but it does allow
for disparate systems to communicate efficiently.

Like many open source projects, OpenSSL is poorly documented in many areas. bitcoin addressing and
the storage of key pairs could have been far more efficient and the code has been updated to ensure
that this is now the case. But like every new system it is far better to have something that is working on
something that is not available but is aiming at perfection.

Security is always a risk function and not an absolute.

REFERENCES
[1] Lovasz, Laszlo (1979) “Combinatorial Problems and Exercises” North Holand Publishing Co.
Amsterdam
Bitcoin vs The anti-capitalistic mentality
By Craig Wright | 18 May 2017 | Bitcoin & Blockchain Tech
Bitcoin has been created as a libertarian form
of money. Unfortunately, many of the people
currently attracted to it have a bent towards
socialism or anarchism. The primary feature of
modern capitalism has derived from the mass
production of goods and services destined for
consumption by the masses.

Bitcoin creates a system that allows any

person to challenge any millionaire or
billionaire. Taken to its conclusion, it allows a
market not sabotaged through government
mandated controls and restrictions. The
problem for many with this sort of system is
that it leaves fault exclusively on the
individual. If you fail to succeed, there is no
one but yourself to blame. In the bitcoin economy, you need to develop systems that satisfy the public in
order to be made wealthier. This lack of monopoly control through the international distribution and
geographic dispersion of the bitcoin network means that companies and individuals who seek to profit
through mining need to do so competitively.

Each of these organisations would know and understand that they cannot rest on their laurels. To do so
would be consuming the very capital that they need to prosper and advance in the future and would open
wide the door for further competition.

Any individual can decide at any point that they wish to become a miner on the bitcoin network. In the
unseen fallacy, the argument against this comes down to profitability. On one hand, the anti-capitalist states
emphatically that the greed of the miners is taking control away from the people. This greed is an
overwhelming desire for profit. Perversely, at the same time the same individuals try and tell us that we
cannot mine because it is no longer profitable to do so. They argue on one hand the need for profitability and
on the other the need to give away services altruistically. Both diametrically opposed arguments cannot be
true. This is the nature of the contradiction. Anyone can mine. The choice is one of profitability.

Miners serve the masses. This is not some nebulous economic majority or other form of demagoguery. It is
very simple; any person can vote with hash power. Bitcoin solves the byzantine general problem by creating
peer nodes that signal a level of economic intent.

As Adam Smith said: It is not from the benevolence of the butcher, the brewer, or the baker that we expect
our dinner, but from their regard to their own interest.

Bitcoin does not allow for fashionable doctrines. It does not promote either the right nor the left in politics. It
acts purely as a source of measurement. In this, it takes measure of the amount of wealth that people are
willing to value within society. It is a form of wealth that is not easily manipulated. At the limit, in a scenario
where bitcoin became the predominant form of international currency, it leads to a common measurement
that cannot be altered or manipulated easily by government. This does not say manipulation cannot occur,
rather any manipulation would come at a great cost.

A golden age

As a result of capitalism we have entered an era of unprecedented prosperity. We live in an age of amenities
that are beyond the comprehension of even the richest of individuals throughout most of history and we are
far from the end of history. This cry of utopians that we have an ultimate goal is one that cannot even be
imagined and is one that we are not even close to for all our growth. In the long run, wealth is accumulating
at greater and greater rates. The growth of capital is accumulated faster than the growth of population. At
the same time, we are in a system that is attacked through people who loathe the concept of capitalism.
They seek to revert as to the good old days, days of toil, days of despair and days of poverty.

Attacks against capitalists, especially those operating mining facilities point out the greed of the miner or
other capitalist. They liken these entrepreneurs to the aristocrats and oligarchs of times past and other
societies.

The wealth obtained entrepreneurially cannot be compared with the wealth of an aristocrat. The bitcoin
miner derives wealth through a market-based process. In securing the network they are supplying the
consumers with a valuable good. The aristocrat does not serve the market and is immune to the displeasure.

Capitalism makes no pretence of rewarding people to their true merits or any moral judgements, the
prosperity that one accrues is simply the result of providing services that one’s fellow man desires and is
willing to pay for. In this system, the consumers are supreme. It is extremely simple. In a world of distributed
mining pools the capitalist owner of any individual corporation seeks to attract others to their system. The
motives for this are profit. In the event that consumers are unhappy they can at any time change allegiance
and moved to an alternative pool. In the bitcoin economy, it is not academic judgements or vocal
demagoguery but rather the valuations that manifest through choice.

Any system that does not abide within these conditions is set to fail.

It is not for the centralized whims of a few that the path of the network must be decided. It is for those who
are willing to pay that the network has been provisioned.

The hierarchy of experts and the priesthood of knowledge

As with all systems, hierarchies will exist. The expert rails at the consumer who fails to perceive the worth of
the expert opinion. The expert has knowledge and they believe others should be made to listen to them. In a
market economy, expertise is a marketable commodity and it is only when you deliver what the consumer
requires, what they ask for, and what they are willing to expend their money on that you will succeed.
The resentment of the experts
By Craig Wright | 19 May 2017 | Bitcoin & Blockchain Tech
In this paper, we will expand on some of the reasons why many of the early developers in bitcoin loathe
capitalism.

These individuals see themselves as special. They have more knowledge, and they believe they are more
intelligent than the other people around them. They look back to stories and tales of caste and status based
societies. In these, they do not think about the degradation and poverty of the many, but their own fate. In
that caste or status based society, one can always ascribe the conditions of the world to fate and to
scenarios beyond one’s own control.

If you are poor or you’re a slave, it is because it is your place in society. There is never any reason for you to be
ashamed of your place or your rank. There is nothing that is your doing. Your family cannot take fault with
you. You cannot ask “why are you not King?” for to do so would invite the rejoinder “if I were a king, you
would not be my family. If I were born a son of a king, I would have married Princess”. In this society, one
has no fault for we can never be clever enough to choose our own parents.

In a meritocracy, in the world created in free market capitalism, in the world envisioned in the creation of
bitcoin, every person determines their own fate. Your life is not fated, it comes from your own luck,
judgement, effort and sweat. Those born with gifts need to apply them. Those with aptitude need to
compete. Those who desire to alter the fundamentals of bitcoin, to restrict it, to leave it small, they will know
their own missed chances. They see that they have been found wanting by their fellow man.

In bitcoin, they see nothing special. They see that the cryptography has been available for many years and in
some cases decades. They see code that they could have created. They see missed opportunities. They are
asked, “if you were there from the beginning and saw the potential, why didn’t you start mining in 2009?”.
They see nothing special and do not understand that bitcoin is not simply an aggregation of cryptographic
techniques.

We all have missed chances and things that we have failed at. The only true failure is when you give up and
stop trying. Those trying to hold bitcoin back understand that their ambitions have not been fully gratified.
They see their missed chances. They see the system that they believe they could have developed and they
like to say how much better they could have made it. It is easy to pick on something and say that it is
flawed, that it is not perfect and that they could have done better. The fact is very simple – they did not.
They did not create the system and they are doing nothing to ensure its survival.

Bitcoin needs to grow. The only way that it will ever be successful is for it to have rapid user adoption. This is
not some half-cocked idea that every person on earth must control access by their own wallet that acts as a
full mining node. The vast majority of nodes will always be SPV nodes if bitcoin is to be successful. Most
people will access their money using third-party tools. This was the way it always was meant to be and it is
the way that it will scale and will work.

Those who resent bitcoin the most present themselves as its core supporters and experts. They state how
they know more than us. They tell us about bitcoin and its cryptographic controls and yet they overlook the
most fundamental aspect of bitcoin, the one that they could not understand and the sole reason none of
them created it. That reason is economic. It is the economic aspects of bitcoin that make it what it is. It is the
ability to take away the control others have over our lives through the reintroduction of the ability to
manage our own finances. This simple understanding is the core to what makes bitcoin all that it is. It is not
cryptography, it is not the mathematics, it is the modelling of economic risk.

No cryptographic system is perfectly secure. They are all probabilistic. Many will try and tell you otherwise
but they are either lying or seeking to subvert the truth to their own ends. It is the interaction of markets
and the individuals that make them up that creates the freedom that bitcoin can provide. This is what they
seek to subvert. Those developers, the ones that fear markets and shy away from them, the ones who failed
to understand and grasp enough of economic theory to have created bitcoin and now try and change the
model a conscious of their own inferiority and feel humiliated.

These people talk about the sternness and unfairness of capitalism. It is the system mirrored in bitcoin. It is a
system that allows everyone to provide for themselves according to their own contribution. It is not equal
and nor can any system ever be equal unless we are equally destitute.

The call of bitcoin and capitalism together is simple; to each according to his accomplishments.

Everybody understands that many like ourselves have succeeded where we have failed. We know of those
self-made people who started with less than us. We know the reproach on why we could not have been
smarter, worked harder, achieved more and for those who give up, those who say that they understand and
control bitcoin, the ones who sit dictating a world that they want to control, they look upon those who
succeed with contempt. They bundle the entirety of the Chinese market into one nebulous whole and
insult them. They call them the Chinese horde and treat them as if they are second class citizens.

The truth is that these people are fearful of their own failures. They criticise the Chinese and others in the
mining industry within bitcoin from their own fears. All of these people feel unhappy under capitalism, not
because it has not helped them immensely, but because they don’t have the position that they believe they
deserve. A position that is only granted ever to the few and capitalism is granted on merit. Bitcoin is
capitalistic. It is a system based on merit and achievement. Some of us will work forever and fail and others
will be lucky and succeed with ease but the truth of the matter is that life is never fair and it is not about
being fair it is about building as much as we can and that is something that does not lead to equality.

Many in the bitcoin community called for Satoshi’s bitcoin to be destroyed. None of these people have
moved to destroy a single one of their own coins. They talk about what they are owed. They talk about the
need for people to give back to them and forget that capitalism is about what you can give to others.
Capitalism requires the merchant to deliver the most profitable solutions to the most people.

To the people in core and those who think that they know best the bitcoin, I say you suffer an inferiority
complex. You see an unknown person and think that you must be better, that you could have created
something better, that this system has flaws and you could have a solution that is better. The truth of the
matter is none of you made a system that was better. Now, you seek to restrict and restrain, to hold back
and limit that system through a sense of your own inferiority.

The miners all know and understand that bitcoin can scale many times its current size. None of them fear
an 8MB or even a 20Mb block size increase and yet you hold the entire market hostage. You put in
arguments about compromise and ignore your customers. You lie to people and denigrate others and this is
what you call a fair and equal society.

Well, I for one reject your idea of society.

I see a world where people fight not with their fists and guns but through commerce. A world of trade. A
world of open communication with people know that they have to work harder if they want to succeed. Not
the lazy world we are in now but one where people are happy and celebrate their success. Where they are
not afraid to gain an education. Not a nebulous degree with no purpose but something that actually helps
them build a career and where academics are not lauded for their intellectual pursuits that have no focus or
purpose. A world where applied research is considered more valuable than nebulous studies that no one
will ever read.

Those who radically reject the idea of enlightenment are those who try to limit bitcoin. That philosophy of
rationalism, utilitarianism and laissez-faire that has driven progress to the heights it is now is the heart of
bitcoin. It is not altruistic, it is a struggle and it is a tragic vision but it is the only vision that has taken the
majority of humanity and raised them to the heights we now stand upon.

To those in core, we separate those who have helped build, not through a desire for altruism that is
expressed to the public but as a secret lie from those who try and tell us of the nature of bitcoin and how it
is a sharing community of altruism and care. Bitcoin is a system of self interest. This is what we need to
embrace. Those who are part of bitcoin and have been for a long many years need to remember this. Those
gains that they sit upon far exceed any investment they have made to the system. Those that have lost
because they did not invest early enough all sold out too soon can remember what could have been.

Those who seek to limit bitcoin search for a scapegoat, another the blame for their own faults and failings.
They can say it was not my fault things did not go the way I wanted, it was the actions of this other.
Capitalism and the system that will come from bitcoin is a society and social order which treats everybody
according to the contribution that each of us make to the well-being of our fellow man. We are all the
founder of our own fortune. For each in this society there is no place for those who resent the fortune of
another who has done better. The world and bitcoin is for those who try and those who succeed. For there is
no failure unless we give up.

There is no perfection. There never will be, the never can be. This is a tragic world. It is a world of pain and it
is world of suffering and the only thing we can do to make it better is to engage in trade and commerce
and seek to deliver solutions that provide profit to our investors because profit is that capital that is used to
create more.

This is the world of bitcoin. It begins.

Attacks, Slander, and Censorship
By Craig Wright | 20 May 2017 | Economics
Those who live in a society where
each cannot be equal and whose
ambitions fail to be satisfied look
to others and blame them for
what they have not achieved.

The fool releases these repressed

feelings in slander. It is simple to
defame another and it requires
little proof. Many will listen
without any evidence and be
drawn in but none of these
people matter. It is those of us
who can look above and beyond
that can check and validate and
accept more than the lies, those of us who can do this are the future of bitcoin.

It is the fool and the idiot that needs to reside in a world that offers little more than attacks and persecution
and it is the fool that makes themselves happy in this endeavour. For those who can look past this, for those
who can ignore the slanders and deformation and move forth there is opportunity. This is a hard and tragic
world and for those who can work beyond it and its associated problems there is much to be gained.

The problem is never the fool. It is the sophisticated fool. These individuals do not denigrate themselves to a
level where they will publicly degrade another that lead others to that position. They don’t lie but mislead.
Either is a deception. The worst of these create a philosophy that opposes capitalism. This anger when
focused inwards helps to silence their own inner voice, that small niggling voice that tells them of their own
faults and failures. As they see those more successful than themselves they bundle this anger into a ball that
goes deep within themselves and they say how they could have been better and could have done more if
only for a better society and that it would be so if not for capitalism

They become fanatics. Their

opposition and attacks against
capitalism focus wherever they
see it most and in many cases
that subvert the system that
they hate. We see this in bitcoin.
They critique the capitalist
mentality and call that evil. They
do this in order to feel better in
themselves and to assuage that
gnawing doubt telling them how
they are not as good as another.

In the West, we live in a society

that has grown through equality
under the law. This is not
equality of genetics and nor is it
equality of birth. It is the right to
have and own property and to do with that as we wish and even that is being eroded. Bitcoin has been
developed not for a fairer more altruistic world but for a world where people will strive to make the world
better in an endless search for profit. This is simple because it is profit and profit alone that is that saved
capital that society is built upon.
We live in a society equal under the law that is populated with people who are not equal in ability. People
with different intellects and physical capabilities.

In the world of bitcoin, everyone no matter what their origins can become a millionaire. This is the problem
that many see. This creates a divide, a gulf between us as some of us see what others have achieved. We do
not admire those who do more but rather back and think of our own failings. We daydream and imagine a
fair world. This fair world is not one where we truly seek equality but one where we all wish to equally be
treated based on our perceived “real worth.” The capitalism of bitcoin is one that is fair.

To each his own from his own ability

This is not a call to need, is a call to achieve. Those who attack and denigrate the system hide in refuge from
reality. They are plagued by their own inability and the self-loathing that they failed to admit. It gnaws at
them, it grates inside for they know not only did they not create bitcoin but they cannot save it.

Bitcoin does not need saving. Once the cap is removed bitcoin will scale and it will scale even if they
attempt to keep it down for the market will respond and they will be removed.
Genesis
By Craig Wright | 22 May 2017
| Philosophy
It seems that many people within the bitcoin community are willing to accept whatever they’re told
blindly without validation. Others have been subdued through the repeated attacks and character
assassinations. We have seen this format used in many totalitarian governments. As core say with one
voice we offer you freedom, the changes and enslave us in the shackles of artificial restrictions.

Too many of us have been “Sheeple” too long. It is time that we started to take back what is ours.
Today we are going to investigate some of the origins of bitcoin. Many of these have been subverted
and even quotes by Satoshi himself are being deleted and censored from those who seek a different
and more controlling path. In this, we will start at the beginning. This is not the first time that bitcoin
was mentioned online, but it was when any of us took notice.

To do this we need to start with a fact that you likely did not know.

In 2009, the headlines from a UK newspaper sector is a marker to demonstrate that bitcoin could not
have been pre-mined more than a few days. It was the initial statement that has been subverted into
an attack on banks and others for all reasons. It is something that has become a socialist and anarchist
cry for the dissolution of many of the systems that we have in place. Today we will investigate not that
scenario that they wanted to believe, but something that says more about bitcoin than any anarchist
utopia could.

If we pull back the veil on the message, we see Satoshi quoting The Times. The date is an interesting
point in itself. Satoshi used 3 January 2009 and this was written into the Blockchain directly in the
format “03/Jan/2009”.

This format is a standard used within the Commonwealth. The UK, Australia, Canada and other
countries with the Commonwealth use this format. In the US it is more common as month, day, year.
So this in itself tells us a little. The mixed writing style favouring British English but occasionally
reverting to the US style demonstrates that Satoshi is more likely Canadian or Australian. Both of these
countries mix grammatical standards.
Most importantly, let’s start by opening up and investigating the article.

In this article, we see reported the government’s concern with banks not simply throwing money out
there for anyone to take. They actively sought to incentivise bad behaviour and push in typical
Keynesian style the problem down the road. It would be a bigger problem, but it would be someone
else’s problem. Chancellor Alistair Darling considered actively buying bad debts and assigning them to
the taxpayer:

“Under one option, a “bad bank” would be created to dispose of bad debts. The Treasury would take
bad loans off the hands of troubled banks, perhaps swapping them for government bonds. The toxic
assets, blamed for poisoning the financial system, would be parked in a state vehicle or “bad bank”
that would manage them and attempt to dispose of them while “detoxifying” the main-stream
banking system.”

Many people comment on the headline but it seems very very few have taken the time to read the
article. The article wrote about the erosion of markets through government intervention. Following a
£37 billion nationalisation, the government was considering devaluing the currency further. After
having set conditions that required the banks to be more aggressive, to offer home loans to people
they knew could never repay them, and to expand and heat up the economy, the banks reacted by
trying to protect the little profit that they still had. The government responded by saying they needed
to take more risk:

“They are close to cutting off their noses to spite their faces”

Lord Mandelson, Business Secretary, accuses the banks of being too conservative, Nov 30

It is interesting that we remember the concocted tales of how banks play with our money and risk our
futures. What seems to be forgotten is that when the banks try to act responsibly, the central banks
and government officials step in and change the game. They see this as something that cannot be left
to a market. It is political because it is about their being re-elected. In the election process in any
democracy the integration of the economy into the government’s sphere leads to market
manipulation.

In a well-managed market, that is one without interference and external government incentives to act
against the profit motive we see a balance of conservatism and risk within banking. This changes
radically when organisations are incentivised poorly. In this case, the policy of kicking the can down
the road only reintroduced risk. The inflationary process driven by government policy led to artificially
lowered home loan rates and lending standards. This spiralling trap of artificial value manipulation
pushes/drives the price of housing up. The price of housing that year fell by 16.2% on average. This
sounds great if you’re buying, but that neglects the cost and the other losses in society.

The fact, Bitcoin was never anti-banking. It was opposed to anti-free-market intervention.

This was far from the first time that the British government had to bail out the banks and even its own
currency. There is an earlier link to the creation of the Chicago Board of exchange. I will discuss this in
the next post.

Links to Friedman and Chicago

In 1963 Milton Friedman released a book, “Capitalism and Freedom”. In the 60s, there were many who
supported socialist and anarchist ideas. This is more widespread than ever now. The result was that
only the Times of London would review this book. The Times reprinted a review that was originally
published in the Economist of London (this was not favourable) and ran a small but positive review of
Milton Friedman’s masterful work. What is really unfortunate is that every other paper on Earth
rejected this book – and it was on the best-selling list as number 1 for over a month.

For those of us born in the late 60s and 70s and who learnt enough to reject the ill-conceived ideas of
the time we were able to grow up listening to and watching the series “Free to Choose”. The show
aired in the 80’s and we can see ideas expressed by Satoshi in this book. In the end, Milton Friedman
even admitted the problem of working with government. Satoshi was a libertarian. This is someone
who follows an Austrian / Rothbardian School of economic thought and it comes clear in the response
he had to the government’s actions in 2009.

Dushi reviewed the later book in China with a title called “Not so free to choose” by author Nan
Shizhong. The book inspired Wu Xiaoying and and Zhang Weipang who did a good deal to open up
China to capitalism (although slowly).

Free to Choose sold over 200,000 copies in Japan.

After the 60’s, the Times was one of the first newspapers to change. This paper called “Capitalism and
Freedom” one of the “hundred most influential books since the war” and started to promote Milton
Friedman. We can compare this to the New York Times was promoting Krugman. The following was
later in the year, but it gives us the flavour of the writing:
The Guardian… Nothing good to say.

The Times promoted Dr Freidman in the UK where he was taken seriously. The US, well they rejected
him:
Thatcher for all her flaws was a remarkable woman and took what Friedman had said and make the UK
a far better place, So, it is simple to see why a libertarian such as Satoshi would have chosen The
Times. It was a paper that did a good deal to promote both Friedman and Sowell.

So, before we start making assumptions about a utopian anarchist or socialist reality we need to think.
Satoshi was not a socialist and he was not an anarchist, bitcoin was never designed for either of these
philosophies. So, although many seem to want to subvert it to their own ends, the simple truth of the
matter is that bitcoin is libertarian and this is a free market approach to capitalism. The free market
embraces everything that allows people to trade openly. That has value in people’s rights and
property. It does not dictate to others what they should and should not believe but encourages them
through profit and incentivises behaviour based on what the majority are willing to pay for.

I do not see a call to tear down the banks and the message inscribed upon the foundation of bitcoin, I
see a free market money, one without central controls and one without manipulation. This is what
people want to subvert. This is why they leave the cap on bitcoin and refuse to raise it. They
introduced an artificial scarcity that the protocol was not designed to have and use this to drive bitcoin
towards a different system one that they can control and one that bitcoin was never designed to be.
Myth and Reality, Security is Really About Economics
By Craig Wright | 23 May 2017 | Bitcoin & Blockchain Tech
Many people, likely the majority, who work within the information security industry hold a misconceived
notion that information security is about technology and tools. They believe that cryptography is the answer
to all problems associated with risk and trust. Unfortunately, the same attitude has crept into bitcoin. It is
insidious and it is wrong.

Security is more about economics than it is about technical tools. Yes, it is nice to play with the new technical
toys and used wisely these can aid in securing a network, but no technical tool alone is effective. They all
require management and maintenance and monitoring or they were little more than expensive toys. I’m
hammering home this point having seen many organisations spend lots on implementing the latest tool
only to leave it and neglect between audits. Computer security is an oxymoron. It is a contradictory term. It
does not matter how good the encryption is if people do not implement it wisely and monitor its use.

The merger of Yahoo and Verizon was valued at over US$4.8 billion. This merger was nearly derailed following
a series of data breaches that exposed customer information. We have recently seen black-market extortion
schemes, hacking the hire and Internet piracy is as rampant as ever. This is not going to stop any time soon.
Our entire model is broken. We move security into centralised systems that become more and more
tempting to attackers. This is not a cyber flaw, it is a flaw in the economics of the model. Peer models do not
make anything inherently secure. What they do is distribute the risk.

An attacker seeking to breach a credit card company can make massive gains attacking a single system and
stealing a single database. Conversely, attacking a distributed database such as the one used by bitcoin is
infeasible. The reason for this is that none of the keys that control access to the ledger are stored within the
Blockchain itself. These are distributed across a myriad of diverse systems. An attacker can target any one of
these systems and at best will gain access to the funds held by an individual. If that individual has a lot of
funds, they can distribute these on multiple systems.

Using a combination of tools and techniques, this individual can hold keys in multiple locations. The
cryptography involved in bitcoin is not particularly special EcDSA has been around a long time and is widely
implemented. It is the economics of the system that make it particularly special. And this is the aspect that
most people don’t understand.

People believe that you need to validate your own transactions, this could not be further from the truth. It is
not whether you have a valid transaction, it is whether the entire network recognises your transaction. In fact,
even if you should find a discrepancy in your transaction, if it is accepted into the majority of the nodes that
mine bitcoin, then your transaction will be accepted in the way that the miners agree. Any node votes on the
acceptance of a transaction purely through mining. Any wallet that disagrees with this process is simply
isolated. No matter how many wallets disagree, they can never form a consensus.

The reason for this is that the miners on the network create blocks as transactions are propagated and
updated within the ledger inside blocks. So, contrary to popular wisdom, there is absolutely no advantage in
running a full node unless you are a merchant monitoring the double spends or a miner. In fact, even were
90% of the nodes to initially reject the transaction in favour of a double spend, as the majority of miners will
have worked on the initial transaction, the transaction in a wallet will be reorganised when the new block
comes.

Because wallets failed to create blocks at all, they have no say on the network. At present, they are not
needed for propagation of transactions and their removal would actually make the network more efficient.
There is a reason that Satoshi called these non-mining wallets SPV wallets.

It is extremely simple. As a wallet can only veto its own transactions and its own blocks, it has two options:

Isolate itself from the network, or

Accept the transaction and new block.

In order to form consensus, the system requires a majority of mining nodes to accept a block. It’s a very
simple concept. If you’re not creating a block through mining, you cannot engage in the consensus process.
At best large well-connected wallets could interfere with propagation, but as the network is so densely
connected, this matters little at all even for the largest connected wallets. We can use an analogy of voting
with the people going into the poll and casting a ballot as the miners. The wallets of those people who do not
vote but picket outside, the best that they can hope for is to slow down the propagation of a transaction.

At worst, the wallet who decides to ignore the transaction rules that are agreed in consensus through the
distribution of blocks is simply isolated. No transaction that they send outside of the ledger will have any use
or meaning.

The benefits of bitcoin include decentralising control of our money. This does not mean running a full node, it
means the ability to hold our own keys. Any individual can create a raw transaction and send it onto the
network from any machine connected to any part of the Internet. If they can validly sign that transaction and
it meets the consensus rules on the network, it does not matter if they created the transaction by hand.

The truest check of your transaction being accepted is other machines having accepted. Not your machine,
the other machines on the network. We have to rely on the former trust models to understand how bitcoin
has truly changed our environment, our money and eventually our entire system. It is not running a node
that is important, it is ensuring that our transaction reaches a node. This requires highly interconnected
mining systems that link to exchanges and online wallets. There are zero benefits in running your own wallet
if you don’t mine. Anyone who does not see this fails to understand bitcoin.

The Economics
The most overlooked aspect of bitcoin is the use of
economic incentives. Many in the industry consider
this the weakest part of the system, the reality is this
is the true strength. Attackers are more rational than
many others [1, 2]. As much as we like to deny this
fact, cyber criminals and other economic criminals
are generally more rational than the average person
and exhibit a higher risk tolerance than a more law-
abiding citizen. In [1], Wright expressed the
economic truth;

More security costs = higher costs to the consumer.

Higher expected loss from risk = higher costs to the consumer.

It is astounding that most people do not understand this. The notion that “Criminal groups act as profit
seeking enterprises, and the ability to shift the economic returns away from this activity results in a lower
amount of crime” [2] this simple to understand when you think about it even though it seems counter-
intuitive at first.
Bitcoin works in the same manner. The more we delve into the system and truly understand it, the more we
can start to see that this is a system created through economic incentives. It does not use the most modern
cryptography, it doesn’t use the coolest security technologies, what it does is truly remarkable because it is
simple. It creates economic incentives.

These incentives are aligned to the securing of the network [5]. The larger the network grows, the more
secure it becomes. This begs the question, why are people seeking to limit its growth? It is the on chain
growth that makes bitcoin secure. It is the distributed consensus mechanism and the shared nature of the
ledger, so the question is why are people trying to remove this key aspect of the protocol. Why are they trying
to move to off chain solutions that mirror the traditional security models and require secure nodes and
permissioned systems?

Do they not understand the benefits of economic controls or scarcity or is there something else at play here?

Problems of Software
There is no way to make any computer or software completely secure. Every version of code will have bugs in
some of these will end up resulting in a compromise of a system. Even if an application is written with no
flaws (and this is only possible for the simplest of systems) we need to remember that it is running on an
operating system and that operating system will have numerous bugs.

More, not less is better. The key aspects of bitcoin is competition. What we need is a central protocol that all
agree on. From this protocol, many versions of software can divulge. If we have many developers working on
new front ends, new mining systems, new exchanges and new platforms, then the chances that any one of
these will be compromised in a way that impacts a large number of users will be lowered. No matter how
many bugs impact Microsoft Windows [3], it would be rare to see these impacting a Linux or Mac
implementation and vice versa.

It is about time that we stepped back and started looking at the system we purport to know. To start
understanding these controls we want to change and what impact that change will have. The core of bitcoin
is not cryptography, that is just a tool, the core of bitcoin is economic incentives.

Attacking the network costs money. There are many ways of attacking the bitcoin network. All of these
involve trade-offs in all of these trade-offs are economic in nature. Do you buy more hash power and try to
increase your control, do you buy other systems and try and inject packets, do you hire people to attack
Routers? There are many other attacks. The issue is not whether a computer system can be attacked but
whether it can be attacked efficiently. There is no such thing as perfect security and security is always an
economic trade-off [4]. None of us choose to live in a perfectly secure environment, people living in California
live in an earthquake zone, yet few of them choose to leave. All decisions and security are risk trade-offs and
the fact of the matter is that all of these are economic.

Any change of a protocol has an economic impact. Leaving the block has an economic impact as it limits the
size of the network. This was discussed before; the security of the network is directly related to the investment
in the network and the investment in the network is related to how many people use it. Not how many
people run wallets acting as non-mining nodes, but how many people invest in creating mining systems to
secure those transactions that we wish to run. Right now, we are artificially capping the growth of the
network and the result is that we are limiting the security of the network.

I will say it again, the core of bitcoin is not cryptography, that is just a tool, the core of bitcoin is economic
incentives.

References
[1] Wright C.S., Zia T.A. (2011) “Rationally Opting for the Insecure Alternative: Negative Externalities and the
Selection of Security Controls”. In: Herrero Á., Corchado E. (eds) Computational Intelligence in Security for
Information Systems. Lecture Notes in Computer Science, vol 6694. Springer, Berlin, Heidelberg,
https://link.springer.com/chapter/10.1007%2F978-3-642-21323-6_26
[2] Wright, Craig S, (2012). “Criminal Specialization as a Corollary of Rational Choice,” International Conference
on Electronics, Information and Communication Engineering (EICE 2012), Garry Lee, ASME, New York, 6 pp.
http://ebooks.asmedigitalcollection.asme.org/content.aspx?bookid=408&sectionid=38787998

[3] Ari Takanen, Jared D. Demott, Charles Miller (2008) “Fuzzing for Software Security Testing and Quality
Assurance” Artech House information security and privacy series, IT Pro, Artech House, 2008 ISBN 1596932155,
9781596932159

[4] Andreas Gregoriades, Jae-Eun Shin, Alistair Sutcliffe (2004) “Human-Centred Requirements Engineering”
In 12th IEEE International Requirements Engineering Conference, pp. 154–163, doi:10.1109/re.2004.28

[5] Andreas Gregoriades, Alistair Sutcliffe, Jae-Eun Shin (2003) “Assessing the reliability of socio-technical
systems”, Systems Engineering, Vol. 6, №3. (16 June 2003), pp. 210–223, doi:10.1002/sys.10044
The SegWit 15% attack
By Craig Wright | 25 May 2017 | Bitcoin & Blockchain Tech
It is well known that Bitcoin solves the byzantine distribution problems through a probabilistic risk
algorithm. In this scenario, it is proven that Bitcoin is safe as long as 50% of the miners respect the rules of
the system. The system is economically incentivised. Any company that has gained 51% of the hash rate
quickly lost controlling share of the network. Time and again we see that the so-called experts in Bitcoin
have failed to understand the primary controls that govern the system. It is not cryptography, it is economic
incentives.

This is no different with the introduction of SegWit as a proposal. These experts again talk about how much
they know about technical protocols and yet fail to understand again the economics that govern the
system.

I recently read a post that was distributed throughout some of the forum postings where a few people
discussed a possible attack against SegWit if it activates. In this article I’m not going to discuss this as an
attack, I’m going to take a slightly different approach to the speculation that has been floating around, I’m
going to discuss this from the point of law and economics. The technical promoters of change seem to
overlook these areas so I will take it upon myself to explore some of the less savoury aspects of a SegWit
hard fork. I say hard fork, for the reality is the SegWit soft fork as they try and call it is far less reversible than
anything else in Bitcoin’s history. This makes it harder than a diamond in a comparison scale.

Contract Law

A recent proposal by Barry Silbert has put forth an agreement consisting of two parts:

Raising the block cap to 2 MB,

Implementing segregated witness.

Each of these are done at an 80% acceptance rate in the existing protocol proposal, the first interesting
point is that these are not linked. If miners signal to raise the block and failed to implement segregated
witness, then by the agreement, the cap needs to be increased. There are some interesting legal aspects to
all of this, the first is that this is a binding offer in many aspects of common law. Barry Silbert is a direct
participant and investor within Blockstream and this company funds many of the core developers. If we
take the decision of [1] Lord Reid in Tesco Supermarkets Limited v Nattrass, we see that the common law
has derived such that liability can account for associated action. This is something that transpires when
someone is “not acting as a servant, representative, agent or delegate” of the company, but as “an
embodiment of the company”. Ties to control under company law standards and the common law mean
that Mr Silbert’s agreement can be seen to be binding in a contractual sense. The offer has been made.

The unilateral nature of the offer removes this distance from an offer to treat, acceptance is provided
electronically. In these scenarios the facts of the case always come into consideration but if we look at the
electronic commerce directive, and couple this with every student of common law’s favourite case, [2] Carlill
v Carbolic Smoke Ball Company, it becomes clear that this would be seen as an offer with acceptance
coming from the transmission of electronic signal embedded in the creation of a Bitcoin coin base on a
block creation.

The next part of any contract is consideration which is perhaps the simplest aspect. Whether we see bitcoin
as money as I would or as some people argue, a commodity, it has value. As we approach USD$2,500 each
bitcoin, we can easily see that the creation of a block that is used to signal the acceptance or rejection of a
proposal incorporates consideration. In the miner’s case however, this can be a conditional acceptance
without any implied terms, I believe that will be important later in this discussion.
The implication states that SegWit would activate, the implied terms come from the system. It is defined
within the system [3] that a majority can set the protocol rules. This is never made to be simple, but that
does not change the fact of the matter: a majority can change the protocol and the majority can undo any
change.

This fact is extremely important when it comes to something such as SegWit. With a normal protocol
change in the form of a simple block size increase, the threat does not come from the theft of coins, miners
do not get to reallocate ownership. This cannot be legally enacted and a miner who was to do this within
the standard protocol would be liable for prosecution. In many countries this would be a criminal act. The
fact of the matter is that the standard protocol within Bitcoin limits attacks leads to double spend attempts
and censoring of the format would lead to the collapse of any pool.

SegWit alters this.

Segregated witness does not mildly alter the protocol, it radically changes it. From a legal perspective, the
splitting of a chain into a segregated witness chain and a large block chain increases the risk for anyone
deciding to use segregated witness without medium and unanimous support that can be maintained for all
time.

Anyone Can Spend

The nature of the protocol change is in some ways insidious, in dividing the scenario technical ‘experts’ have
again ignored economic incentives. They have used the technical format known as AnyoneCanSpend to
capture the existing protocol and redirect selected transactions into a new divided protocol.

They have assured us that this is right.

They have assured us how safe it is.

They have tried to tell us this is a soft fork and it can be reversed.

I will attempt to show you how all these statements are false, let us start by considering how an economic
interest could undermine the protocol.

There are methods of making short-term gains within Bitcoin, even miners are able to lease equipment for
a limited time periods and sell the Fiat as soon as they gain any profit. I will give you an extension of one
proposed methodology of economically benefiting from SegWit.

With the current proposal, it is only necessary for 80% of the network to signal support for SegWit. This does
not say that they have to continue support nor could they be forced to do so under the protocol or under
the law. There is also the problem of intent. There is no way to definitively show that a particular miner,
especially those made up of pool members who fluctuate intended to signal and then change shortly
afterwards moving a signal to reject SegWit from acceptance.

I won’t go into the full technical details in this post, rather, I will document a simplified version of the attack.
More complex versions have been discussed in technical forums. The most effective version of this requires
around 50% of the hash power this example will be discussed in a simplified version without all the
technical details.

Let us start with the first presumption. There is a group or pool or even an individual miner with control of
30% of the network. And the more secretive version of this action, a mining pool would require only 15%. We
will ignore the 15% “attack” as that could be individually deemed to be legally questionable.

The 30% action would breach no laws even though it could result in the appropriation of funds. Not double
spends, but the redirection of bitcoin wealth, if taken and distributed quickly this could be extremely
problematic.

The pool attempting to subvert the SegWit activation could simply stop signalling. If they stopped mining,
stopped making temporary losses through consuming electricity and slow down the operation, this would
result in the hash rate dropping to 70% of the former amount.

If 40% of the network had been signalling in opposition to the introduction of SegWit, and now we are left
with 20% of the signalling network against and the remaining original 60%, the network will see over 85%
support for SegWit.

Turning off network power would not be considered a violation of one’s legal rights to engage in a later vote
in the system, that vote could be self-funded. A speculative option could be taken on the primary chain,
Bitcoin in its native form or with a larger block size as a long option. Alternatively, the SegWit coin could be
shorted.

As one chain collapsed, it would fund the rise of the other.

Segregated witness, even with the block size increase, remains incredibly limited, a 2Mb block cap still only
allows 10 transactions a second. An individual with a raspberry Pi and the dial-up modem could flood the
network with small transactions making segregated witness less effective and aiding in the creation of
value from the short. More than this, the change in support would allow this block split and the scenario.

At 51% of total hash power, an anyone-can-pay segregated witness transaction can be grabbed by any
miner seeking to do so. With the re-signalling of our pool, network hash rate would go up to 40% opposing
segregated witness again. An external party could use a temporary cloud mining contract to add an extra
short term 15% hash rate to the network. Coupled with the combination of a long and short scenario which
can be done through multiple accounts on anonymous exchanges, 51% of the network would now oppose
segregated witness and incorporate larger blocks.

Our 15% pool would be able to gain just under one third of transactions on the split network. Remember
this is coupled with a degraded segregated witness chain that is unable to process the majority of
transactions through an extended rebroadcast of large numbers of complex segregated witness
transactions. The combination of a long and short drains funds from one source and adds them into
another. This is of course market manipulation, however location varies in bitcoin mining and this attack is
even legal in some jurisdictions.

What is insidious is that the 51% now allows for the theft of funds. This cannot happen in Bitcoin, it can
happen in segregated witness coin. In segregated witness coin, the 51% attacker does not just have the
ability to reverse a transaction or block transactions, they have the ability to redirect them to their own
payment address. This is part of the protocol. Contractually, it is paid to anyone’s address and the offer has
been accepted.

We like to think that technical solutions will help us with everything.

Anyone who has actually run a business will understand economic incentives mean far more than technical
toys. We have a protocol that can scale and we have proposals that come with risk, no actually great risk
and few benefits.

A party who decided to falsely signal could gain the support of those who seek larger blocks and yet also
oppose the introduction of SegWit. This false signalling could be done with as little as 15% of the network
hash power.

The offer has been made, consideration is inherent in the system. We wait to see whether someone will take
up this offer, move funds into segregated witness addresses and whether that is enough incentive for a
party to attack the network. Much has been made about the Litecoin network’s adoption of segregated
witness, however Litecoin has a lower transaction volume than Bitcoin and a higher effective cap which
makes them a very poor testbed. Arguments that money has been put into Litecoin addresses failed to take
the incentives structure into account. Buying hardware for Litecoin and trading Litecoin are far more
difficult than Bitcoin due to the limited exchange volumes and liquidity.

The incentives in Bitcoin are massive.

What is worse, this is an incentive for those wanting to destroy Bitcoin., attacking the existing network
would be difficult and expensive. Any government or large organisation seeking to attack Bitcoin could
actually profit with the introduction of segregated witness.

There are many governments and there are many organisations that would like to see the end of Bitcoin,
and with segregated witness we may just be handing them a gun, checking that it is loaded and holding it
to our own heads as we put the trigger in their hands.

As a standard disclaimer, I am neither your lawyer, nor am I suggesting that you engage in any criminal
activity. I am simply pointing out a highly likely scenario given the incentives involved.

References

[1] Lord Reid in Tesco Supermarkets Limited v Nattrass

“I must start by considering the nature of the personality which by a fiction the law attributes to a
corporation. A living person has a mind which can have knowledge or intention or be negligent and he has
hands to carry out his intentions. A corporation has none of these.”
page14 http://law.unimelb.edu.au/__data/assets/pdf_file/0006/1709583/29-201345.pdf

[2] Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Court of Appeal

https://www.australiancontractlaw.com/cases/carlill.html

[3] Nakamoto, Satoshi (2008) “Bitcoin: A Peer-to-Peer Electronic Cash System” https://bitcoin.org/bitcoin.pdf
Segregated witness or separated legality
By Craig Wright | 27 May 2017 | Bitcoin & Blockchain Tech
I have been reading a fair bit lately on forums such as Slack, these have me thinking.

My first concern started with possible patent infringements that people had been attributing to segregated
witness. That in itself is an issue, however, there are larger legal concerns. My biggest problem having
studied law is this ill-founded conception that has been promulgated by several of the most prominent
people within the bitcoin community. The message is simple:

Code is Law

This misguided attempt to believe that Bitcoin is above society will damage it all in the end. Code is
developed by people, mathematics is a construct created by humans it is not perfect, and even the
blockchain does not stop fraud. The level of ignorance that I see expressing the misconception that this can
be the case never ceases to astound me. I apologize in advance for this rant, but this idea is simplistic and
childish, and it is extremely adolescent. It is one of many memes that have propagated through people who
seek to deny reality. What’s worse is when Utopian ideals come to pass.

This is why I have been expending any energy on this topic in no more than a simple preliminary post, to
flesh out the consequences will take time and effort. I only truly started looking at this recently after
following several of the online discussions. I thank those people for pointing out this scenario.

In this moment, I’m not sure of the depth of the problem, however there is at least a medium level of
concern right now and this is before I have investigated in any depth.

The main concern I see is that the process of separating the signature data from the transaction record and
contract used within segregated witness could be a problem. There are two ways of looking at this, the first
comes down to the perceived savings. It’s been widely touted that segregated witness will save up to 60% of
the storage space associated with the blocks. As one who thinks deeply on legal problems, that immediately
started me thinking.
Signatures have a legal and probative value.

Segregated witness doesn’t necessarily make a transaction or any associated contract inherently invalid or
legally unenforceable, please do not misunderstand me at this point. As long as you maintain a complete
copy of the signature data, all the information that they tell you is able to be easily pruned, then you
shouldn’t have any real issue in the attribution of the signature to the contract. Of course, we are assuming
that most parties, not just a few selected archive nodes, will keep a complete copy of all witness data and
that it will be available on request and without fee.

Following that sentence, the first thing I think about is the cost of accessing information for legal cases.
Some people wonder how archive nodes will be funded, personally, having access to a Thomsons Reuters
account concerning legislative search gets me thinking that this could be quite a lucrative business. That of
course does not help the majority of people.

Proof Attacks

There would be a good argument that makes a transactional contract or associated record highly
vulnerable to proof attacks.

Let me explain a little on this concept.

The following excerpt does not express any level of stare decisis, that is the legal principle of determining
points in litigation according to precedent, rather it expresses well the point I seek to make in a simple
format that I believe people without a law degree can well comprehend:

When the party with the burden of proof attacks the legal sufficiency of the evidence to support an adverse
finding, the party “must demonstrate on appeal that the evidence establishes, as a matter of law, all vital
facts in support of the issue.” See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001) . In reviewing such
a challenge we, “must first examine the record for evidence that supports the finding, while ignoring all
evidence to the contrary.” Id. “If there is no evidence to support the finding, [we must] then examine the
entire record to determine if the contrary proposition is established as a matter of law.” Id. The legal
sufficiency challenge will only be sustained “if the contrary proposition is conclusively established.” Id.

In court, when a party with the burden of proof attacks the factual sufficiency of the evidence, it is necessary
to demonstrate that the adverse finding is against the great weight and preponderance of the evidence.
This requires a factual sufficiency review. When common tools such as SQL are being examined this is a well
determined matter, Bitcoin itself uses a standard transaction signature that is attached to the transaction. I
see no difficulty based on existing case law in arguing this point.

Being that the signature data is separated from the transaction record, multiple transaction steps are
required to recover the data. The process of linking each of the various Merkel trees, and the signatures, and
reporting the numerous steps in the chain of authenticating evidence, and the accuracy of the data, this is a
difficult enough process when a digital signature is directly attached to a document. There are numerous
steps in the chain of authenticating evidence which all lead to the accuracy of data and the ability to have
evidence accepted in a court.

Linking the exact signature data back to the corresponding transaction is of course feasible. The technical
knowledge associated with this process and the corresponding difficulty that would be associated with
these findings being converted into language that a judge could easily understand, let alone a jury, starts to
give me headaches.

I can foresee challenges in the proof of the transaction for legal purposes and disputes which would apply to
courts of both civil and criminal law matters, and I’m not sure even if this would apply correctly when
administrative law is taken into account. Laws governing corporations in the US incorporates several
inclusions to digital signature rights and processes that are legally accepted and require the direct
association of a signature with the document. The ability to re-attribute a document is in itself not a direct
attribution and it is certainly not attached.
SEC filings and audit requirements could also be a problem. Many in the code is law side of the Bitcoin
community do not understand that a pseudonymous system such as Bitcoin makes many types of fraud
simpler and not more difficult. The classical case of an organisation running two sets of books immediately
comes to mind. In this, the organisation can run a set of transactions in the blockchain as well as another
that are mirrored on separate hopped transactions also located on the bitcoin blockchain.

Classic stock fraud would also be trivially simple using the blockchain. The fraudster could create multiple
statements that could be validated to show how they knew the movements of a share in advance. This
could of course be applied to any equity or other speculative investment. After the event, the fraud would
involve simply pruning those that did not make money and demonstrating the set of documents that prove
your ability to predict after the event.

Those difficulties coupled with the added problem of re-incorporating signatures would make audit
requirements difficult to say the least.

Financial services

Financial services organisations would be my main concern. As a minimum requirement, I cannot see that
any of them would be legally allowed to prune any signature data. Some of the more restrictive document
retention laws could require that they maintain this data for a period of over 95 years. Given the age of the
Internet let alone bitcoin it is ridiculous to have any presumptive requirement of an ability to prune
signature data.

Financial service providers in the US at least have a utter jungle of laws that they are required to comply
with lest they fall into a regulatory quagmire. Not least of these laws is the requirement to keep records of
transactions, it would be insufficient to simply rely on a third-party document provider. Many in the industry
such as some of the early adopters like Charlie Shrem discovered how easy it is to violate these regulations
the hard way.

Consequently, I can see no way for either miners, wallets, exchanges or other bitcoin providers to ever allow
themselves to prune information associated with signatures. The idea of being able to do this and not
breach financial services legislation within the US is at best opportunistic and at worse criminal. The tortious
nature of claims against organisations failing to maintain this information can be easily foreseen.

I am yet to investigate all the intricacies that are associated with segregated witness, particularly those of a
deep technical depth. At this point I already have to express concerns, not with the technology but with the
claims, I really fail to see the ability to save space. I see that anyone running a node could potentially be in
breach of certain financial services legislation within the US that require the retention of documents. In the
coming weeks I will investigate this further, but for the moment, I simply note that this is something to
consider strongly.

I advise any organisation considering the adoption of the strategy to look deeply into the impact of
removing a digital signature from a transaction.

Please note, this is not legal advice and I am not your lawyer.
Nodes
| 13 Jun 2017 | Bitcoin & Blockchain Tech
By Craig Wright
It’s become quite clear to me that the terminology within bitcoin has been hijacked.

The paper is extremely clear about what a node happens to be:

A node in bitcoin is a miner. There are no exceptions. Anyone who is running anything that is not mining is only running a
wallet.

The thing people really don’t understand is that what matters in bitcoin comes from block consensus. The idea that you
need to check your own node to know that a transaction is going through is ludicrous and it doesn’t matter anyway,
your transaction goes through because it is incorporated into a block. The only way that you can get a transaction into a
block is for it to be received by a node. That is the system that is mining your transactions.

Sitting and watching your own system means nothing. If you are not creating blocks you are doing nothing for the
network, you are not helping it propagate. You are not helping it validate.

There is never been a single time in the history of bitcoin when any transaction or any block has been rejected other
than as a result of miners rejecting it.

The point is, if you’re not creating blocks, you’re only following the nodes. At this point I will emphasise once again that
a node is a system controlled by a mining server. It creates blocks. If you look at the early code it was documented very
clearly. [1]

And this is detailed in the code comments [2]:

Personally, the comment stating that nodes collect transactions into a block
et cetera is rather clear. If you are not mining you are not a node.

This should be intuitive. There are few hops between getting your transaction from your machine and into a mining
node. There are rarely ever two hops in the bitcoin network other than regarding systems that have nothing to do with
mining.

Let’s do a little thought exercise.

Imagine you have a computer that has nothing to do with mining, it’s running a wallet. You receive a transaction that
you consider invalid, what happens? Basically, you don’t forward this to any other system.

In effect, you do nothing.

What if you receive an invalid block? Again, you simply don’t propagate it, you do not tell other nodes that that is a bad
block, all you do is ignore it. Now, and this is the bit that people seem to have real difficulty in understanding, doing
nothing changes nothing. If you’re mining and you reject a block it means you don’t mine on top of it and you select an
alternate fork. If you’re not mining you don’t select an alternate fork. You don’t create blocks so you don’t propagate
anything other than what you been told about.

This is the simple flaw in this half-baked reasoning about the need to have people running raspberry pi’s, they do
nothing.

It doesn’t matter if you don’t accept the transaction unless you mine, you don’t have any say in the structure of the
Blockchain unless you mine. This idea of a validator, unless you’re mining does not exist. You can audit the Blockchain if
you so desire, but for that there is no reason to ever keep a copy. Once you have validated to a certain point, if you write
down the hash of the last block and prune from there, you are gaining no security at all through the process of keeping
all the old transactions and validating them over and over.

All that matters are machines that mine.

Now, the first thing we need to understand is that all encryption systems are probabilistic. Password systems and any
modern information security system works on probabilistic information. The so-called experts who talk about the
probabilistic system of bitcoin fail to comprehend that strong encryption is probabilistic.

To me, it seems very clear. You can download block headers invalidated transaction has been received without needing
to be a miner. The current terminology where block stream has been trying to tell us how we should run “ running a full
network node ”s runs directly in contradiction of what it says in Satoshi’s White Paper.

I think that it is about time we start looking at all these changes and what people are seeking in their attempts to hijack
the network.

[1] See the following:

https://github.com/trottier/original-bitcoin/blob/92ee8d9a994391d148733da77e2bbc2f4acc43cd/readme.txt#L34

And note that all the checks are within the “Miner” function for block validation:
https://github.com/trottier/original-bitcoin/blob/92ee8d9a994391d148733da77e2bbc2f4acc43cd/src/main.cpp#L2133

https://github.com/trottier/original-bitcoin/blob/92ee8d9a994391d148733da77e2bbc2f4acc43cd/src/main.cpp#L2333

[2] https://github.com/trottier/original-bitcoin/blob/92ee8d9a994391d148733da77e2bbc2f4acc43cd/src/main.h#L795

So… only miners are nodes

Life-cycle hypothesis
By Craig Wright | 19 Jun 2017 | Bitcoin & Blockchain Tech
The life-cycle hypothesis is a relatively simple model based on a micro-economic analysis of family spending
habits that was developed by Franco Modigliani and Richard Brumberg (1954) in the early 1950’s. It sure has
many similarities with Friedman’s (1957) model of income expenditure. The primary assumptions of each
model start with an assumption that consumers seek to maximise the utility they obtain through both their
current and future consumption habits. In each theory, it is assumed that the only effects that will influence
current assumption are associated with long-term income changes. In each model, temporary fluctuations
in income level would be saved or invested rather than being consumed.

This model contradicts the opinion expressed by Keynes (1937) that put forth an argument that “a greater
proportion of income being saved as real income increases”. In Friedman’s model, the consumer plans over
an infinite of time, this assumption is made through the inclusion of planning for one’s descendants.
Modigliani took the alternative approach of limiting a consumer’s expenditure in planning period to be
limited to their individual lifespans. This model incorporates a belief that a consumer saves to secure the
consumption across their retirement age. Many economists use the income hypothesis (Friedman, 1957)
and the life-cycle hypothesis (Modigliani & Brumberg, 1954) interchangeably.

The theoretical basis of the Life Cycle Hypothesis of consumption

Franco Modigliani and Richard Brumberg proposed a theory of spending (Modigliani and Brumberg, 1954)
that used the concept of a utility function from an individual consumer that is based on rational decisions
concerning the amount of expected income that the consumer will have and the amount that they can
spend at each age. The only limit on this spending model was the limit of the resources that are available at
each stage of the individual’s life. They extended this idea to incorporate the idea that the consumer
maximises utility at each period subject only to the level of current income, discounted future income and
current net worth (Ando and Modigliani, 1963).

This model was predicated on the assumption of rational expectation (Muth, 1961). Following the criticisms
of Keynes’ consumption function (Keynes, 1937), researchers including Kuznets (1952) and Goldsmith (1955)
conducted an econometric analysis of these early models. These early results appeared to refute Keynes’s
work and have led to the development of many of the mainstay theories surrounding the life-cycle model of
consumer spending. The life-cycle model does not require that there is any rigorous relationship between
consumption and income in any short run period. Consequently, as Modigliani’s theory incorporates the
individual’s expected lifespan as the planning unit for an individual’s consumption, the theory has come to
be known as “life-cycle hypothesis” (LCH).

Modigliani relies on two primary assumptions that are central to the hypothesis:

1 Each individual plans to consume the income added even right throughout the lifetime;

2 The individual utility function that is created by the consumer forms I proportion of the resources that that
individual plans to consume in any given period of their life. This consumption is determined only by the
consumer’s preferences and not by the resources managed at any point.

Development of the Life-Cycle Hypothesis

Consumption has been the cornerstone of macroeconomics throughout the last century. Researchers such
as Mitchell (1913) started using a theory of cyclic expansion to explain under-consumption within the United
States. It was with Keynes where this was developed into a systematic study relating to nations
macroeconomic performance to consumption. In “The General Theory of Employment, Interest and Money”
(Keynes, 1937, Page 90), Keynes uses a simple equation to demonstrate how expenditure on consumption
can be determined:
(1)

In Equation (1) represents consumption and models income. To define the form of this function, Keynes
argues, “men are disposed to increase their consumption when their income increases, but not by as much
as the increase in their income” (Keynes, 1937, Page 96). From this, the derivative forms a constant that is
referred to as the marginal propensity to consume. The predominant influencers to the propensity to
consume are categorised to the objective factors and the subjective factors. Here objective factors include
but are not restricted to:

· Movements in price level,

· Variations in the worth of capital, and

· Fluctuations around the interest rate.

Subjective factors cover the “animal spirits” as motives to consume and incorporate pleasure, generosity
and indulgence. In this model, apart from variations in the prices, all other factors normally don’t alter the
marginal propensity to consume (taken over short run periods). Hence, Keynes argues that once the price is
removed as a factor, the level of consumption is predominantly contingent on income level.

Later economists (Modigliani, 1944; Duesenberry, 1949) have introduced modifications to Keynes’s original
equation. In Equation (2) we see an early relationship between consumption and linear income where
represents the marginal propensity to consume and is the coefficient of Y.

(2)

In this model the relationship between consumption and income is linear. This is argued as consumers must
spend to consume on life’s necessities just to ensure subsistence and thus this model is said to work even if
individuals have no income.

A more recent and more complex version, known as the two-period consumption model is represented in
Equation (3).
(3)

In this, Keynes’ consumption function is extended to incorporate two variables:

· Labour Income:
· Property Income:

Ando and Modigliani (1963) made an argument that property income is a function of the high-income
consumers and that these individuals have a lower propensity to consume. The result is that (the coefficient
of) would correctly be smaller than (the coefficient of).

Modigliani and Brumberg further extended the two-factor consumption model to flatten consumption
patterns over an individual’s lifetime in a manner that is independent of current levels of income.

Then construct an equation that relates current consumption with its determining factors:
(4)

In Equation (4), current consumption is a linear, homogeneous function of current income, expected
average income and preliminary assets. The coefficients depend on the age of the consumer (Modigliani &
Brumberg, 1954). The variables and coefficients are defined as:

· represents an individual’s current consumption,

· and Y^e relate to existing and expected income,

· L represents the life span of an individual consumer,

· N represents that consumer’s length of time used in earning, and

· represents one’s assets at the beginning of the time-period.

Per Equation (4), current income effects current consumption only to a trivial degree. As the consumer over
their remaining life span must evenly distribute income, it remains that a minor portion of any change in
current income is all that will be allocated towards current consumption. Ando and Modigliani (1963)
developed this theory to incorporate an aggregate consumption function for the life-cycle hypothesis. The
result they obtained is substantially the same as Equation (4).

In the LCH, it is possible for a consumer’s expenditure to exceed income. This will occur through the making
of major investments (the purchase of a family home) and investments in human capital (university studies)
and is common early in an individuals’ life. AT this stage, the individual is said to be borrowing against their
future. In this model, middle life is generally associated with increases in income and savings/investment.
During this stage in life, the consumer repays loans and starts a savings fund for retirement. The last phase
is associated with retirement, and in this stage, the consumer reduces expenditure and dis-saves until
death.

It is argued that an individual will be more or less inclined to borrow against their future early in life
dependent on their expected levels of wealth later in life. This is a function of the individual’s anticipated
skills, talents, and initiative and is related directly to the degree to which an individual believes that they can
later repay those debts and to how much they discount later activity (time preferences). An individual who
does not believe in their future ability to earn would express higher rates of time preference which comes
with a greater discounting of future activity.

Is the LCH viable given econometric data?

The LCH sees consumers storing and expending assets across different periods of their life. The consumer
makes provision for retirement and modifies the consumption pattern throughout their life and at different
ages independent to the income received at each age. This is a simple theory that can be developed into
economy-wide predictions of consumer behaviour. The LCH leads to a further hypothesis that national
savings are dependent upon the growth rate of the national income and not its level at any point in time. It
further predicts that the aggregate wealth of the entire economy is related to the length of time that
consumers throughout the economy spend within retirement.

The predictions posited using the LCH were unable to be tested in the 1950’s but have received Later
empirical support (Modigliani,1966). More recent econometric methods allowed researchers to test these
theories more rigorously. Keynes’ consumption function (1937) was generally accepted early on. With the
increased ability to test the validity of economic theories started to become possible using time-series data,
evidence started to be uncovered that conflicted with the theory. In the General Theory, Keynes claims:
“The fundamental psychological law, upon which we are entitled to depend with great confidence both a
priori from our knowledge of human nature and from the detailed facts of experience, is that men are
disposed, as a rule and on the average, to increase their consumption as their income increases, but not by
as much as the increase in their income.” (Keynes, 1937, Page 96)

As such, with a rise in the level of income, the ratio between saving and income was predicted to increase
correspondingly. Kuznets (1952) analysed saving patterns using data from the United States over the period
1899 to 1949. This study reported no significant increase in the ratio of savings. This was noted even as the
levels of real income was demonstrated to increase significantly during this same period. Goldsmith (1955)
confirmed these results.

The United States

Studies connected to the life-cycle hypothesis have been conducted by many economists and are
becoming more commonplace as the creation of econometric tools as allowed for more robust testing
methods. Robert Hall (1978) claims that empirical research focusing on the consumption function fails to
address the endogenous distributions of income. Accordingly, the allocation of income into the
consumption function as an independent variable would distort the estimated function to a significant
degree. Hall (1978) offers a different method where he treats consumption as a random walk, this is
expressed in Equation (5):

(5)

Equation (5) resolves the problematic aspects of endogeneity, the problem is that this may offer little in
explanatory power. Equation (5) states that present consumer spending is disparate to all other economic
variables that are associated with any prior previous period. From this, the current consumption (and a
random error) is all that would be required to predict future consumption.

From Hall’s analysis, he presents the result that “the pure life cycle hypothesis… is rejected by the data”.

Doubts concerning the rationality of consumer behaviour have been further voiced following the 2008
financial crisis. Cynamon and Fazzari (2008) present a model of consumption and financial behaviour that
holds consistently both prior to and during the financial crisis. Their model offers an alternative description
of consumer behaviour to the LCH.

Cynamon and Fazzari’s (2008) theory of consumption and financial behaviours delivers a more logically
reliable account of behaviour when tested against the data using modern econometric methods and tools
than does the LCH.

Various works that are critical of basic concepts of the life-cycle model include Campbell and Mankiw (1989),
Palley (2002) and Setterfield (2010). The above-noted work of Cynamon and Fazzari theory (2008) that
extends Duesenberry’s (1949) model of relative consumption also demonstrates flaws in the LCH. In this
work, regression results indicate that some balance sheet variables are significant in the consumption
function, even though they are not expected to be so under the life-cycle framework. Modigliani’s Life Cycle
hypothesis fails to explain the data when exposed to econometric time-series models.

Japan
David Horlacher (2002) notes that:
“If the LCH is valid, then evidence should reveal an inverse relationship between the elderly dependency
ratio and the household saving rate. Studies by Horioka based both on cross-sectional and time series
evidence have confirmed that there is such an inverse relationship”.

He proceeds to present evidence that the elderly do dis-save. The problem here comes from findings () that
demonstrate the elderly don’t dis-save as quickly as the model predicts. As Dekle (1990) reports, “the
Japanese are keeping their wealth intact”, a result that does not accord with the LCH.

One rational purpose for this disparity is reported by Bernheim, Shleifer and Summers (1985). This is that
most families seek to leave a bequest and aid their children, a particularly strong motive in Japan even if
Horlacher (2002) dismisses it.

Conclusion and criticisms

Given that the life-cycle hypothesis describes the long run behaviour of consumers, a short run testing
model is insufficient. OLS can only be used in an analysis of the short-term models. The models of both
Friedman and Modigliani are based on long term effects and many earlier tests based on the use of OLS
alone may be inadequate. Many models based on the use of applying OLS to macroeconomic data may lead
to spurious results.

Palley (2002) reported that by the start of the 2000’s, the average debt-income ratio of households with
income under USD $50,000 [1] was 298%. This alone demonstrates errors in the assumption of rational
planning in the LCH. In the 2008 financial crisis, the long-term ability to maintain household debt growth
was further discredited with household liabilities starting to drop abruptly.

We conclude that these variances in consumer debt are not explained through the models developed by
Modigliani and Brumberg (1954). Consumer expenditure in the United States and Japan seem to be
explained more effectively using models such as Campbell & Manikiw’s (1989) “explanation of “Rule of
Thumb” consumers that long-term rational planners.

Many researchers (Fuhrer, 1992; Mayer, 1973; Mulligan, 2014) have empirically demonstrated that the
estimates suggest that, in the short run (at least), consumers will respond more vigorously to a temporary
policy change than the LCH would predict (Fuhrer, 1992).

The LCH obscures the relationship between current consumption and current income. Ando and Modigliani
(1963) propose that the analysis of the association of current consumption to the present value of the whole
future income for a consumer advocates that an alteration in current income not attended by an alteration
in the planned future income would lead to a relatively minor alteration in the existing spending behaviour
of a consumer. Individuals do not and could not be seen to have all the information that they require to
make a complex calculation of their upcoming income decades into the future. The assumptions of
spending patterns are likewise unrealistic.

No definite vision of life-time income, credit rates over one’s life, family structure, opportunities, etc. could be
viably imagined by any individual no matter how rational they are.

References

1. Asteriou, D and Hall, S. G. (2007). Applied Econometrics. Palgrave Macmillan: New York, N.Y.

2. Ando, A. and Modigliani, F. (1963). The “Life Cycle” Hypothesis of Saving: Aggregate implications and Tests.
American Economic Review, Vol. 53, №1, Part 1(Mar 1963), pp. 55–84.

3. Bernheim, D. B., Shleifer, A., Summers, L. (1985)The Strategic Bequest Motive, Journal of Political Economy

4. Campbell, J. Y. and Mankiw, G. (1989). Consumption, Income and Interest Rates: Reinterpreting the Time-
Series Evidence. NBER Macroeconomic Annual.

5. Cynamon, B. Z. and Fazzari, S. M. (2008). Household Debt in the Consumer Age: Source of Growth — Risk of
Collapse. Capitalism and Society, 3, 2, Article 3.
6. Dekle, R. (1990) Do the Japanese Elderly Reduce Their Total Wealth? A New Look with Different Data,
Journal of the Japanese and International Economies

7. Duesenberry, J. S. (1949). Income, Saving and the Theory of Consumer Behavior. Massachusetts: Harvard
University Press.

8. Friedman, M. (1957). A Theory of the Consumption Function. New Jersey: Princeton University Press.

9. Fuhrer, J. C., (1992), Do consumers behave as the life-cycle/permanent-income theory of consumption

predicts? Federal Reserve Bank of Boston New England Economic Review (Sept./Oct. 1992), pp. 3–14 USA

10. Goldsmith, R. W. (1955). A Study of Saving in the United States. New Jersey: Princeton University Press.

11. Hall, R. E. (1978). Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and
Evidence. Journal of Political Economy. 86:971–87. October 1978.

12. Horlacher,D. E., (2002) ‘Aging in Japan: Causes and Consequences’, Part II: ‘Economic Issues’

13. Keynes, J. M. (1937). The General Theory of Employment, Interest and Money. New York: Harcourt, Brace
and Company.

14. Kuznets, S. (1952). Proportion of Capital Formation to National Product. American Economic Review, Vol.
16, pp. 507–526.

15. Mayer, T.,(1973) Permanent income, wealth, and consumption: A critique of the permanent income
theory, the life cycle hypothesis, and related theories, (University of California Press, Berkeley)

16. Miles D., Scott A., Breedon F., (2012). Macroeconomics: Understanding the Global Economy, Publisher:
John Wiley & Sons Incorporated

17. Mitchell, W. C. (1913). Business Cycles. Berkeley, University of California Press

18. Modigliani, F. and Brumberg, R. (1954) Utility Analysis and the Consumption Function: An Interpretation
of Cross-Section Data. Post-Keynesian Economics.

19. Modigliani, F. (1944). Liquidity Preference and the Theory of Interest and Money. Econometrica. 1 (12): 45–
88.

20. Modigliani, F. (1966). The Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of
Capital. Social Research. 33 (2): 160–217.

21. Mulligan, R. F., (2014) The Central Fallacy of Keynesian Economics Quarterly Journal of Austrian
Economics (11/19/2014)

22. Muth, J. F., (1961) “Rational Expectations and the Theory of Price Movements, reprinted in The new
classical macroeconomics. Volume 1. (1992): 3–23 (International Library of Critical Writings in Economics, vol.
19. Aldershot, UK: Elgar.)

23. Palley, I. T. (2002). Economic contradictions coming home to roost? Does the U.S. economy face a long-
term aggregate demand generation problem? Journal of Post Keynesian Economics, Fall 2002, Vol. 25, №1 9.

24. Setterfield, M. (2010). Real Wages, Aggregate Demand and the Macroeconomic Travails of the U.S.
Economy: Diagnosis and Prognosis. Trinity College Department of Economics Working Paper, 10–05.

[1] At the time, this accounted for 66.2% of the total US population.
Bank lending decisions, Asymmetric information, Adverse
selection, and Moral hazard.
By Craig Wright | 24 Jun 2017 | Bitcoin & Blockchain Tech
Minsky (1975, 1982, 1986) supported the position that stability destabilises. In analysing the
development of the economy across the post-war period he proposed a basic theory that captured
Schumpeter’s (Schumpeter, 1986) dynamical change in the system that involves dynamical forces that
are so explosive that they require constraint. This constraint was proposed in the form of institutional
ceilings and floors that create a safety net for the economy. The problem with this approach is that the
success of the constraints in achieving stability altar the behaviour of the participants in a manner that
leads to “unsustainable speculative euphoria” in what Minsky (1986) called his financial instability
hypothesis. In this system, each boom will build in intensity leading to an inevitable crash that will test
the safety net. This system cycles across time with the crises becoming more unstable, more frequent
and more severe until a total collapse is possible.

Banks primarily exist for the purpose of allocating funds gathered in the form of short term deposits
and converting these into longer term loans. This process changes liquid funds into less liquid and
riskier forms of capital (Fama, 1980; 1985; Diamond & Rajan, 2001). In consolidating depositor funds and
providing credit, banks and related financial institutions reduce the amount of monitoring required in
the allocation of capital (Gorton and Winton, 2003). This process lowers the overall cost of
redistributing capital to its most effective use (Leland & Pyle, 1977; Diamond, 1984). The counter side to
this benefit is an increase in risk to the bank which is compensated through its profit margin. This risk
comes in the form of an imbalance in liquidity. Many banks have a greater liquidity of liabilities than of
their assets. In many instances, the assets held as capital by banks a long-term are prone to market
risk leaving the bank vulnerable to runs and market fluctuations. For this reason, banks can fail if they
are unable to retain ongoing lines of credit to account for depositor withdrawals as well as due to
large-scale repayment failures from their clients as happened in the 2007/2008 period. Instances
where depositors have made runs on the bank can be started because of unsound economic
conditions or even rumours. These scenarios can lead to even sound firms being left in a position that
is insolvent as they are forced to sell assets to cover the withdrawal of funds to their depositors at an
unfavourable rate(Diamond & Dybvig, 1983).

Minsky analysed the financial innovations created by profit-seeking firms, he noted that many of these
within the US were constructed in a manner that was designed to circumvent the constraints imposed
through the New Deal. The federal funds market for instance reduced the Fed’s power to curtail bank
lending. At the same time the introduction of deposit insurance and other protections allowed the
banks to believe that they were safe and that their risk was lowered. This consequently led to the
banks implementing poorer liquidity controls (Minsky, 1957), a further development was seen through
the development of securitisation. Banks could move interest rate risk away from the balance sheets
and simultaneously reduce capital requirements leading to a scenario that resulted in the 2007 global
financial crisis.

Regulatory intervention has impacted the banking industry throughout the globe and the differing
degrees a competition that have resulted can be compared across countries. Throughout the early half
of the 20th century and up until the mid-1960s it was common practice to limit competition within the
banking and finance industry, the argument in support of this practice was one of consumer
protection. Governments argued that excessive competition would lead to banking failures. The result
was an increase in regulations governing deposit rates, capital allocation, where banks could set up
branches and constraints on mergers between financial institutions. The reasons for this derived from
a widespread belief that there is a trade-off between competition and financial soundness. In this
thesis, intense competition increases the incentives to issue more risk and to engage in more risky
projects (Keeley, 1990). Capital controls are introduced to limit excessive risk-taking (Hellman, Murdock
& Stiglitz, 2000) in this model.
Others including Allen and Gale (2003) have suggested that regulation is one dimension of an all-
encompassing information asymmetry. In their model, a more chaotic and multidimensional
relationship exists between the stability of the financial system and competition within it. Information
needed to mitigate the moral hazard problem and adverse selection comes at a cost to acquire. This
cost acts as a strong endogenous barrier limiting market entry and in the model allows the entrenched
firms (Broecker, 1990) obtain a monopoly level profit achieved through rent seeking. This is
investigated in more depth by Dell’Ariccia (2001) following the work of Dell’Ariccia, Friedman and
Marquez (1999). In this work, it was argued that competitive equilibria cannot maintained due to the
failure to allow the introduction of new firms and the consequential stifling of new innovation. Shaffer
(1998) provided evidence that new firms have to compete through increased risk. The imposed barriers
to entry place before new firms by the incumbents requires the new firms to seek higher profit
through risk-taking in a manner that could lead to systemic market failures.

Sharpe (1990) put forth a hypothesis that information asymmetries can be exaggerated through the
banks repeated dealings with long-term customers or clients. This practice was known as
“relationship lending”. Rajan (1992) demonstrated that banks use this relationship to lock customers
into ongoing arrangements that allow the firm to maintain a monopolistic level of information on their
clients. Petersen and Rajan (1995) propose that this information asymmetry coupled with the cost of
obtaining information through the marketplace leads to a reduction in competition in the short-term.
They propose that deregulation of the financial services industry would provide for greater
competition between the banks opening up the scope for innovation within transactional lending. Not
all authors agree and others (Boot & Thakor, 2000) counter this argument stating that capital market
financing reduces bank competition. They propose that capital market financing leads to more limited
opportunities for relationship lending and a weaker financial sector.

The banking industry, particularly in the US has been changing markedly since the mid-1980s. The
combination of deregulation in consumer banking markets coupled with international competition on
interest rates led to what Minsky referred to as money manager capitalism. Wray (2009) went as far as
to call the second half of the 20th century the “Minsky half-century”based on the nature of these
changes.

Further changes to the regulatory structure of the financial institutions including increased
liberalisation in the structure of banks with the ability to start nationwide branches resulted in a
significant decrease in competition with many smaller banks forced to either merge into larger
conglomerates will go out of business. This was coupled to the introduction of the BASEL accords in
1998. These changes altered the capital requirements needed to be maintained by the financial
institution with the result that banks moved from highly regulated activities into increasingly risky off-
balance-sheet investments.

Changes within the European union including the introduction of the common currency, the euro
further created a series of changes with a widespread introduction of a wholesale banking market
throughout Europe (Berger, Kashyap & Scalise, 1995). The suspension of the Glass–Steagall Act of 1933
opened up new markets for banks. The repeal of this act led to the introduction of new financial
services that firms previously were blocked from offering. This not only opened up increased
competition between the banks and other investment firms and insurance companies but changed
the nature of relationship marketing within banks, allowing them to increase their monopoly on
information and gain further advantages and consolidate their existing positions. This information
asymmetry would introduce advantages based on size and a non-linear manner.

In the manner predicted above, the extensive wave of deregulation throughout the 80s within the US
led to a run of merger and acquisition activity in the following decade. This phase of M&A consolidated
the numerous smaller banking operations into a small number of large firms. The US was not alone in
this process and is severe reduction in the numbers of banks occurred within the majority of
industrialised countries. Those fearing the loss of regulation argued that the anticompetitive effects
would negatively impact the consumer. Berger and Hannan (1989) presented strong evidence that
consumers remain unharmed and that competition was not weakened in this progression. In their
paper, they offered a negative correlation between the concentration of local banking and the level of
deposit rates provided by consumers.

They argued that the evidence indicated a positive effect. It was postulated that larger financial
organisations gained a level of efficiency over their smaller former rivals. The gain in efficiency as been
argued by several other authors who support a similar position to provide a more than adequate offset
for any loss of competition (Berger, Kashyap & Scalise, 1995; Focarelli, Panetta & Salleo, 2002). Although
the overall position of deposits and loans remained favourable, the distribution was not symmetrically
redistributed. The newly merged banks increased overall lending but at the expense of a contraction
of credit to smaller clients in favour of large organisations banks (Berger et al., 1998).

In both the short and medium term, the consolidation of many of the smaller firms offered increased
efficiency in the merged bank. For the most part, the efficiency extended across the processes on offer
from the acquired bank. Overall, the clients of the banks as depositors benefited from this increase in
efficiency (Focarelli & Panetta, 2003).

Where to?

Predicting the future is precarious at best but there are aspects of the banking industry that can be
clearly seen to be causing change going forward. As the world globalises, international competition
has opened new markets and started to redefine the financial services industry. This has itself led to a
wide push for regulation, some local and more frequently across global boundaries. Most importantly,
innovative new technologies are redefining the marketplace. The introduction of digital currencies to
the international environment coupled with generalised information technology innovation are
redefining the marketplace. New competitors from distributed systems such as bitcoin to more
traditional innovative information technology players such as PayPal are starting to change the nature
of money and the underlying market structure.

Each of these conditions have been leading to increased competition within the financial industry,
especially banking. In many ways we could expect to see a wave of mergers and acquisitions along the
lines of consolidations that occurred in national markets as a global banking conglomerates form. This
would be expected to lead to a combination of larger and more efficient banks acting internationally
and the acquisition and assumption of less efficient organisations in underdeveloped areas by the
currently more efficient firms in the developed world (Focarelli & Pozzolo, 2005).

The primary consequence of technical innovations, especially in information technology is the ease of
storing and distributing information. At present, it remains uncertain how this wave of innovation will
impact problems such as adverse selection and the monopolistic retention of information stores. Many
specialist information providers have been filling niches that came from the information advantage
obtained in relationship lending. As these providers increase their scope, the informational advantage
of asymmetric information stores will diminish. From the perspective of a bank making a lending
decision, it is likely to become less profitable to other non-bank entities and to the lending market.
This is demonstrated through the rise of peer-to-peer lending and Internet lending providers. It is clear
that one of the results of this form of disruption will be the enlargement of local credit markets
reducing the role of small to medium banks. These firms are likely to lose out both to small specialised
co-op’s operating peer marketing as well as to large globalised firms.

Globally it would be expected that regulation will continue to allow more competition (Kim &
Santomero, 1988). As we enter an era of non-bank based finance, more importance is being attributed
to the market evaluation processes (Detter & Fölster, 2016).

References

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CambridgeJournal of Economics, 33(4), Pp 807–828.
Fearing companies
By Craig Wright | 28 Jun 2017 | Bitcoin & Blockchain Tech
The current bitcoin debate has nothing at all to do with centralisation. As I wrote in my piece on the
hijacking of the term ‘node’ we can easily see that any non-mining node is simply a wallet. It doesn’t help
the system propagate, and it doesn’t create blocks.

In a paper by Eli Afram, it is noted that:

“According to the Satoshi’s whitepaper, nodes were miners. The hijacking of the word seems to have placed
unneeded importance on these validating nodes. But what would Bitcoin look like without these ‘nodes’,
and how centralized would mining be, with the removal of the blocksize limit?”

Gregory Maxwell of Blockstream has in the past stated:

“With gigabyte blocks bitcoin would not be functionally decentralized in any meaningful way: only a small,
self-selecting group of some thousands of major banks would have the means and the motive to participate
in validation.”

Craig Wright debunks the centralization myth with a very simple analysis:

“There are around 15000 banks. Add financial organisations including savings and loans… We are up to
60,000. Then add in all the major merchants and operations that need to have transaction data by law, and
that’s around 17 million organisations. That is decentralised do you not think?”

In that simple conversation between Eli And Dr Wright we see the entire argument made by Blockstream
and Core debunked.

The argument is very simple. People ask why a company would need to run a node. This, mind you, can be
either a large exchange propagating many transactions, or a merchant seeking to get their transaction
included as quickly as possible. These nodes may mine or form partnerships with mining organisations
using anyone-can-spend transaction types to arrange payments with miners and to ensure that
transactions are included without being malleated. At times, it will not even matter that the transaction is
settled within a block. There are times when certain miners will include non-standard transactions and what
matters is that these are settled within a reasonable time-frame. Not everything will require 10 minutes and
the result is one that may be suited to specialised mining farms.

Satoshi clearly understood and planned for the integration of large companies. He stated succinctly:

“The current system where every user is a network node is not the intended configuration for large scale.
That would be like every Usenet user runs their own NNTP server. The design supports letting users just be
users. The more burden it is to run a node, the fewer nodes there will be. Those few nodes will be big server
farms. The rest will be client nodes that only do transactions and don’t generate [1]”

Pulling this apart, we clearly see the intention of big server farms that simply stated happens to be a system
managed by companies. What we need to create is a simple SPV wallet just like the White Paper
mentioned, then we can get back to having zero conf transactions as we always had been promised:

“See the snack machine thread, I outline how a payment processor could verify payments well enough,
actually really well (much lower fraud rate than credit cards), in something like 10 seconds or less. If you
don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.”

When Satoshi talked about generating, he simply meant mining. There is no option here, in all proof of
work-based systems the end whether based on ASICs or not is corporatisation. Dr Wright put this clearly in
a draft he posted for checking on Slack:

“In the instance of bitcoin mining, the firm is able to increase in size through the integration of multiple
specialist roles. Even given the assumption that any one process can run on but a single CPU, we come to
the scenario of high-end data centre servers. The Intel Xeon Phi 7290f implements 72 Atom CPU Cores. Each
core runs two threads. Even taking the control system into account, this leaves 142 processes able to run per
system. With four cards per RU this allows for data centre implementations of 5,964 mining processes to
run on a pure CPU-based proof of work implementation.

One person can manage a small number of mining server implementations within a home or small
business environment. In large data centre-based organisations such as Facebook, a single administrator
can run 20,000 servers. The effect of this would be one individual managing 2,840,000 individual CPU-
based mining processes. This alone is outside the scaling capabilities of any individual. This can be further
enhanced as cost savings through the creation of large data centres, management savings and integrating
multiple network and systems administrators is taken into account. As we start to add additional layers we
come to a maxima where it is no longer profitable to grow the firm in size. Right up until that point, the firm
will grow…

For all proof of work systems, economic efficiencies naturally lead towards larger competing firms. There is
no known system that allows for the fair distribution of resources in a distributed manner that does not lead
to competing corporations managing the primary system.”

In a paper that is about to be published, Dr Wright simply proves that all proof of work systems tend
towards corporate management and control.

It is clear that Satoshi always intended companies to manage bitcoin.

The companies that manage bitcoin, they require profit.

There exists an error in the thinking held by many of the anti-capitalist and socialist developers that are
strangling bitcoin and limiting its growth. These individuals are not seeking to grow bitcoin, they believe
they can take personal control and paternalistically manage the system for everyone else. They talk a big
game stating how they wish for everyone’s freedom as they oppress us.

This could take many forms.

In the figure above, we see recent statements from one of the core developers. They are not seeking free
competition but control. They don’t want a capitalist society. In a capital society, the people who can best
deliver a solution to the most people win. This is the last thing on their mind.

Socialists are not afraid of government, they are afraid that they are not government. It is not that they want
you to be free, it is they want you to be dominated by them.

These people in Core try to tell us that they are fighting for our freedom as they oppress it. They are not
seeking to grow the bitcoin Blockchain. They are seeking to inject sidechains to devalue it and make it
worth less. They’re not seeking our privacy, they seek to create centralised lightning networks that sit on top
of bitcoin and steal its ability to allow us to freely trade. and in doing so create centralised platforms they
can manage and monitor.

They try to tell us how this is good for our own interests. They say that everyone needs to run a node for if
we don’t run a node we will not be able to validate transactions. This lie, this outright blatant deception is
the biggest flaw within bitcoin as it is generally taught. At the heart of it we have the anti-capitalistic
mentality rearing its ugly head. It is a position of coercion and paternalistic contempt.

One big issue that seems to be overlooked is that it is the merchant that is going to care about payments,
and not the consumer.

When we go into a store, we do not care if the merchant validates our transaction. We care that we receive
the goods and that we have paid. It is the merchant and not the consumer that desires validation. Then, the
issue here once again comes to companies. They try to tell us of some post Utopian wonderland where no
companies exist and everyone freely trades settling individually. This ignorance of scarcity is one of the key
aspects of the oppression they push upon us.

The unwarranted attack is not against centralisation but against companies in general.
Mining is how you vote for rule changes. Greg’s comments on BU revealed he has no idea how Bitcoin
works. He thought “honest” meant “plays by Core rules.” [But] there is no “honesty” involved. There is only
the assumption that the majority of miners are INTELLIGENTLY PROFIT-SEEKING. — ForkiusMaximus

Miners are not “Honest”, they are rationally profit seeking!

Honesty is not required in the protocol. That is the beauty of Bitcoin, it takes the self-interest of each
individual and directs it to the creation of something better.

These people do not hate and attack centralisation. They hate and attack companies. They would rather
hand bitcoin to government than the state. That is the goal. Not freedom but control. And they use the
ignorance of people unversed in economics to create a framework of demagoguery that leads us straight to
1984.

Their error is not understanding that all Proof of Work systems are inherently capitalist!

1 https://bitcointalk.org/index.php?topic=532.msg6306#msg6306
Banks versus markets.
By Craig Wright | 29 Jun 2017 | Bitcoin & Blockchain Tech
We will attempt to show that banks and financial markets offer both complimentary and competing
services depending on a range of factors including the clients that they are serving on the type of finance
that they are seeking to provide. Both banks and financial markets exhibit a range of beneficial and
detrimental behaviours and outcomes.

Finance has been the centre of many economic concerns and in the 18th and 19th century. Business cycle
theory began with the study of credit cycles in the fluctuations in finance. The development of the general
equilibrium theory [Walras, 1954] marked the decline and the use of finance as an explanatory variable in
economic analysis. The reasons for this resulted from the difficulties in integrating finance into economic
theory. In classical economics, the problem arises with the view that monetary theory is less relevant than
other aspects of business. In fact, one of the main concerns in classical theory is that money simply acts as a
price level determinant and ignores the fact that there is a demand cycle for money itself.

Keynesian theory erred in assuming the aggregation of several financial instruments, including long-term
bonds and equities. In this framework, the method used in the financing of a firm had little relevance.
Further, the emphasis on money both within Keynesian schools and later with that of the monetarists
resulted in the exclusion in the study of the effects other financial instruments had on the firm and an
exclusive focus on money and monetary policy.

This simplification ignored the interaction between the various interconnected markets [Robinson, 1937].
And lead to the development of more formalised approaches to the general equilibrium model [Tobin, 1969]
with the special case of mean variance models and the differentiation between debt and equity markets.
Others such as Modigliani and Miller [1958] followed the general approach of Keynes and argued that
financial structuring was irrelevant to the development of companies within the economy.

These approaches came under attack starting with the works of Stiglitz [1696a, 1974d] who demonstrated
that bankruptcy and the risk there of impacted the interest rates associated with corporate bonds leaving
them to reflect higher interest rate than government debt for the same level of risk. Researchers such as
Majluf and Myers [1984] provided evidence as to the effects of moral hazard in adverse selection and how
that impacted the financial structure of corporate organisation. Factors such as credit rationing and equity
rationing were shown to impact the market value of shares and equity. It was also noted that differences in
the impact of obligations derived from debt and equity contracts resulted in agency effects. In these
instances, managerial incentives played a strong deciding role as to the allocation of funds.

Capital markets with imperfect information

A role for financial institutions can come about because of the distinctions between capital markets and
more general markets for products within the economy. A primary note here is the difference where capital
markets cannot be treated as an auction market. Banks do not maximise their expected returns through
the allocation of credit to the highest bidder. Just as there can be times of equity rationing [Stiglitz, 1985],
banks and other financial institutions engage in credit rationing. Some of this results from the changes in
credit availability and how they affect investment and the real interest rate but also lead to firms acting in a
risk adverse manner.

External forces can also act through finance to result in changes in risk where the changes in the firms that
worth and cash flows are shown to have a noticeable impact.

Consequently, capital is not allocated through an auction market. Banks and other financial institutions act
to monitor and control the use of capital that they apportion. It has been argued [Mayer, 1989] that credit
rationing results in part from the difficulty in determining the overall quality of the various players
competing for credit.

In recent years, especially in the United States, an increased reliance has been placed on the market for
raising funds. In particular, the securitisation of mortgages and other debt instruments has opened up
opportunities for brokers and other third parties reducing the impact and necessity of banks.

Banks and efficient markets

It is a widely held belief [Beck & Levine, 2002; Sharpe, 1990; Gertner & Sharfstein, 1994, Wurgler, 2000] that
markets are more efficient than banks in the allocation of capital. The primary reason for this comes from a
view that markets offer lower transaction costs. Transaction costs can be lowered where large well-
respected firms with international connections are able to raise capital through the market. Due to factors
of scale, banks may become an unnecessary cost when a firm becomes sufficiently large. The governance
and compliance factors delivered through the screening operations of banks can be achieved through
other sources by a firm when a sufficient scale has been achieved. Risk diversification can be provided
through the internal functions of the firm and it is possible to increase security and diversify risk in the
manner of an insured bank through the use of government backed securities.

In this way, banks as such can be a specialised intermediary who engage in the role of compliance and
governance for smaller firms as well as those firms that are well understood [Franklin, 1993, Hellwig, 1991]. In
aggregating funds, the bank can create a comparative advantage through the specialisation of risk control.
In their pure role as an examiner and allocator, banks act with an informational advantage judging the
quality of management in the supervising of allocated funds [Gehrig, 1998; Gorton & Mullineaux, 1987, Kon &
Storey, 2003].

One key advantage that banks have over direct market players comes from the informational advantage
attached to a long-term relationship with the client. These long-term relationships can offer advantages in
cases where less perfect information is available to the market. There are mutual advantages to both the
bank and the firm in this relationship. The bank is in a position where it can accumulate more quality
information than the market and the bank also gains through the ability to control and minimise agency
problems [Stiglitz & Weiss, 1983]. This comes as a consequence of the incentives placed on management
within the firm who act against the threat that their credit might be terminated if they fail to achieve set
corporate governance targets.

The aggregation of funds also allows banks to be more flexible. Standardisation of credit lines and contracts
offered through banking mechanisms provides the bank with a transactional advantage. A line of credit is
one such provision that would be difficult for markets to maintain. Small firms and firms that are not listed
lack the means to distribute information widely and accurately. This limits the ability for a market to offer
equivalent products to all entrants.

Firms can insure against risk but they cannot insure against the risk that their credit rating will be impacted
negatively. If an organisation was able to insure against the risk of their credit rating decreasing and offset
the increased interest rates that would result, the organisation would be able to act in an adverse manner.

There are also problems with borrowing more than is needed for the immediate needs of a firm. The
difference between lending rates and borrowing rates leave a spread that makes it economically infeasible
to maintain more in a line of credit than an organisation needs for its immediate use. Further, the market
may deem an organisation that retains a larger cash balance from loans that it needs immediately as a sign
of diminished confidence and may hold that the organisation is less likely to achieve its goals.

Whereas, bank finance is more flexible than market finance, banks are limited to an extent through the
actions of monetary regulation and authorities. These limits are a direct consequence of the requirements
for capital controls that limit the amount of money a bank may be able to loan. For large companies, there is
often little cost in moving from bank finance to commercial paper as a source of finance but this option
only comes with scale.

Bank finance is generally bundled with close supervision and monitoring. To the market, the choice of
raising funds through long-term debt can signal of a lack of credit worthiness. Conversely, a firm can also
argue that its financial strength is great enough that it does not need to rely on the additional flexibility
offered through banking institutions. Hence, multiple signal equilibria exist [Spence, 1974b]. In this, we see
that both the best and worst firms can be seen to resort to market finance over the flexibility of bank
finance.

Three factors to be considered when contrasting banks and financial markets include:

1. The transaction cost of using the market,

2. Credit crunch that may result through monetary policy, and

3. The impact of stabilisation policies that have been seen until recently to have limited the impact of
cycling fluctuations through credit cycles [Kocherlakota, 2000].

It can be also argued that both banks and markets are inefficient in the allocation of finance. Due to the
agency effect, companies do not act in the interest of shareholders and often do not disseminate
information such as risk to the market. Consequently, some of the differentiation between market and bank
financing can arise through the differences in their inefficiencies. Whereas banks can offer efficiencies in
certain markets such as well-known industries, and small firms markets can offer advantages for innovative
start-ups in the Schumpeterian sense, as well as large firms where the benefits of diversity and risk
allocation a less important. In this manner, the comparison of financial intermediaries and markets may be
more of an analysis of their inefficiencies then their effectiveness overall.

Banks provide the capability to closely monitor organisations. In particular, they offer governance to
managerially run firms. The consequence of this is that some managerially run firms may opt for market-
based finance have a bank based finance as it results in greater managerial discretion. Banks, like markets,
may also fail to monitor the clients effectively. Banks also offer specialist risk services that can be far more
effective and efficient in the assessing of risks then for lenders in markets generally.

The securitisation of finance has led to a more widespread reliance on market based systems. As banks
handoff the mortgages they issue into marketable packages, more opportunities for brokers who write the
mortgages arise. These brokers are incentivised differently than banks who maintain loans for extended
periods of time and often do not have reliance on a requirement to monitor those receiving finance.

As information becomes more widely available we have seen a shift away from banks towards an increase in
the use of market-based finance [Franklin & Gale, 1997]. A move away from the monitoring capacities of
banks into specialised lending activities is one of the many changes in capital markets that have
consequentlydeveloped. These changes are argued to have increased the level of moral hazard associated
with finance [Hoff & Stigliz, 1990]. A further consequence has been a decline in governance associated with
the allocation of funds and a limit to the level of specialisation that existed in the banking sector. Markets
allow for greater risk diversification than small local banks, but the actions of the borrower are less likely to
be controlled and monitored. The difficulty is that although markets do provide opportunities for
diversification, the level of knowledge and information required to achieve that is limited.

Information provision

The secondary market for securities has improved markedly. These markets provide a means such that
previously issued securities may be re-traded and allow for the later trading of finance products. This
process adds liquidity and helps to ensure that the true value of the security is reflected in the market.

Stock markets act as a simple benchmark in the understanding of capital markets. The assumption made
on this model is that share prices reflect the expected profitability of companies related to the equity on
offer.

The cost in raising new finance (at least in US markets) suffers extremely high transactional costs relative to
the level of the financial transactions [Summers & Summers, 1989]. This is a result of the inflated costs of
operating the markets when contrasted to the amounts raised.

The main factors that enhance the use of the market within the framework of the Allen and Gale model
of diversity of opinions and system of financing
We see from Allen and Gale [1993, 1997] that there is no reason to conclude that any one method of finance
could be optimal across all situations. The authors present several different parameters that result in the
optimisation of financial solutions. As a result, a single type of financing solution provided across the entire
economy is not likely to be efficient. In the example of Germany, a strong bias leans towards intermediated
finance. This is compared to other countries such as the United States. In this market, the market is
demonstrated to have a more dominant role.

Some of the differences might stem from restrictive regulations that stymie the development of markets or
the fixed cost that come with the development of markets. These differences lead to multiple equilibria.

The model presented can be further developed. In particular, financial markets and banking intermediaries
exist side-by-side to different degrees within all countries. The model could be validated or approved
through an analysis of the types of technologies and the extent of financing through each system in each
country. The primary aspects of the model rely on an assumption that firms financed within the market will
be predominately of a diverse opinion where there is a low assessment cost. Conversely, the model implies
that tanks will finance firms and well-known industries that utilise technologies that are expensive to
individually assess.

Financial intermediaries such as banks are shown to function poorly where there is limited information and
adversity of opinion. This divergence in views is systemic in the development of new industries. As
innovative technologies and processes disrupt the status quo, the traditional ways of assessing performance
themselves become obsolete. Simply, markets are superior at providing for the financing of highly risky
endeavours whilst banks provide more stability in times of calm.

Conclusion

We conclude from the work of Allen and Gale [1997] that market-based systems are more suited for the
financing of disruptive and innovative industries which contrasts directly the role of bank-based finance
which is more effective in the financing of more established industries where analytic models exist and can
be applied.

Banks and market actors substitutes for one another, but they are not complete substitutes. The primary
focus of the presented model is weighted towards a Schumpeterian [Schumpeter, 1911] system based on
dynamical change and disruptive technologies. Disruptive technologies can be shown to promote the
development of wealth via the creation of new products on the provides strong support for this role and
industry [McKinnon, 1973].

With the overlap, we can see that banks and financial markets are to some extent complimentary as well as
competing. No market is perfect, and consequently financial intermediaries can be seen to arise as a market
response that limits the effects of information asymmetry in respect to investment. One thing that we can
expect is to see the development of disruptive technologies and changes within the banking sector itself as
markets apply pressure to these industries. In this, we can expect to see change in both the means
deployed by markets and banking as disruptive technologies undermine existing models.

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The Asian currency crisis
By Craig Wright | 04 Jul 2017 | Economics
It has been argued that the currency crisis in Asia in the late 90’s differed in significant ways to many of the
previous crises (Cogman & Dobbs, 2008) and that the countries involved, Thailand, Malaysia and others
expressed solid fundamentals (Lacovone et. Al., 2009). For many years before the crisis, these economies
had been growing at impressive rates leading to these countries being defined as the Asian Tigers. This
quickly changed when taken on an economic timescale. Radelet and Sachs (1998) have designated a
definition of a financial crisis as the sudden shift between capital inflow and capital outflow in preceding
years.

Kaminsky &Reinhart (1996) introduced the terminology of a twin crisis to designate the simultaneous
calamities in banking and balance of payments that was occurring across the Asian countries.

The joint existence of both banking and currency crisis conditions (the Twin Crises) is only one of many
explanations. Other explanations have been proposed including herd behaviour [1] (Calvo &Mendoza, 1998
and Devenow & Welch, 1996), moral hazard in banking (Krugman, 1998) and even the right of deregulation
in the Asian sector. Some researchers (Rodrik, 1998) have criticised the IMF and argued that the capital
accounts in these countries should have been liberalised over a more extended period.

Whilst some authors (Krugman, 1998 & Corsetti, et al., 1998) promote the concept of moral hazard in
explaining the source of currency crises (especially the 1997 Asian crisis) as a reason for access and
speculation and market failure, the bailouts created by the IMF provide more case for moral hazard when
associated with government. Foreign investors provided capital for the belief that they would have
profitable returns, not that they would be bailed out. Researchers, Radelet and Sachs (1998), note that only
state-owned enterprises were bailed out in a currency crisis. They show how the spread on bonds did not
increase a

Investigating the use of capital controls

To explore the possible impacts of capital controls, we can focus on either a particular crisis or the
interaction between the joint crises. In focusing on an aspect of the crisis, whether related to the balance of
payments or banking problem. We can investigate the individual causes and qualitatively eliminate issues
related to government policies, in doing so we can begin to match differences between countries. This
could be extended further if we incorporated an analysis of other similar crises such as those in Latin
America, this research is outside the scope of this paper. One can further investigate the differences in
similarity between government policies with an aim to determining the effects that could diminish the
probability of a crisis occurring because of those policies. The problem with this approach is that many
distinct policies can lead to the same results.

It is noted that all the countries experienced similarities in the twin crises. Primarily, these can be expressed
as:

1. A policy of fixed exchange rates,

2. Large-scale capital flight and speculative attacks.

To address these dual problems, two responses have been proposed:

1. Abandon policy of using a fixed exchange rate,

2. The introduction of capital controls.

The introduction of capital controls involves the strict control of the inflow and the related outflow of
capitals coming into and out of the country. Krugman (1979) reasoned that any fixed exchange rate policy
could not withstand speculation once a minimal amount of reserve is held by the central bank.
Several economists (Krugman, 1979; Flood & Garber, 1984; Salant & Henderson, 1978) have reasoned that
excessive fiscal deficits from government have led to many of the currency crises. The inflationary pressure
that results in an increase in the money supply that comes about with liberal domestic credit being offered
by central banks is proposed as a possible cause. This is stated to lead to an inconsistency between deficit
financing and the use of the fixed exchange rate policy. In this model, the money supply has an extra genius
equilibrium with the money market. The result is as the central bank increases domestic credit, foreign
reserves correspondingly diminish. The key hypothesis to this theory is that as the volume of farm reserve
held by a central bank is finite, any fixed exchange rate regime must eventually fail.

The Mundell-Fleming models (Mundell, 1963; Flemming, 1962) consist of an extension of the IS-LM Model.
These models describe the short-run relationship amongst an economy’s designated exchange rate, the
interest rate, and yield, that is a significant feature of a minor but open economy that has incorporated a
fixed exchange rate and which experiences unhampered capital mobility. This contrasts with a closed-
economy IS-LM model.

Krugman’s argument was to state that a crisis needed to occur whenever the central bank’s foreign reserve
crosses a minimal threshold. Once the threshold has been crossed it would be necessary for the
government to either devalue the currency or to abandon a fixed exchange rate policy.
Speculation and the concept of a self-fulfilling crisis

Obstfeld (1994) had investigated earlier crises in European countries with a focus on the breakdown of the
exchange rate mechanism (ERM). Some of the suggested reasons for why a government would choose to
abandon a fixed rate included desire to inflate away debt burden nominated in domestic currency or to
implement an expansionary monetary policy to reduce unemployment or other domestic problems.
Conversely, the government might also desire to maintain a fixed exchange rate to better facilitate
international trade and investment, or even as a source of national pride and perceived political
competency. Multiple equilibria can result because of these conflicting goals. As individuals and investors
begin to speculate that the fixed peg could be abandoned, the cost of maintaining a fixed exchange rate
will rise. This anticipation of a devaluation event can come about as a trigger resulting from the expectation
of the people investing in a country both from within and externally. This expectation of devaluation leads to
pressure on the central bank as investors convert the domestic currency to foreign currency ahead of what
they see as a devaluation.

Once a threshold event occurs, the central bank could run low on foreign reserves which would necessitate
a currency devaluation. *In a manner like bank runs, this form of crisis is self-fulfilling.

Obstfeld (1996) proposes three separate scenarios.

1. The resources of the speculators are less than that of the reserve held by the central bank,

2. The resources of each of the speculators exceeds the reserve of the central bank, or

3. No individual speculator has reserves grade of more than the central bank, but combined pools of
speculators can exceed this reserve.

In these three cases, the evaluation will only occur in the second and third instances.

In the second case, the actions of anyone speculator will lead to a run on the currency resulting in
devaluation. Each speculator will compete to be the first to unload the positions. In the third case, where a
threshold of speculators hold the belief that devaluation is inevitable, this belief becomes a self-fulfilling
prophecy. Here, each of the speculators rushes to close positions causing the devaluation to occur. Without
this belief, the fixed rate exchange policy would have been able to survive.

A crisis that results, in this case, has multiple Nash equilibria that form based on the actions of speculators
and what is reflective of a herd mentality.

Twin Crises: Banking & Exchange Rate Crises

The notion of a twin crisis comes from newer models that emphasize the importance of both finance and
capital flow. By the time that the Asian currency crisis had occurred (1997/8), many other twin crisis events
had already been experienced. These include the Scandinavian countries (Early 1990’s), Turkey (1994),
Venezuela, Argentina and Mexico (1994) and Bulgaria (1996). Each of these has experienced a banking crisis
proceeding the currency crisis. The direct results have been through either an increased monetary supply or
through capital flight with the resulting decrease in monetary demand.

Stoker (1995) and Mishkin (1996) independently put forth the argument that the balance of payments crisis
leads to the banking crisis. Stoker’s argument is that an external impact to the economy that is coupled to a
fixed exchange rate leads to a diminishment of reserves.
Speculators seeing the loss of reserves follow up with an attack on the currency that can result in an
abnormally high-interest rate level. As the level of interest rates increments, credit becomes more difficult to
obtain at a level affordable by businesses. This, it is reasoned, leads to bankruptcies and financial crises.
Mishkin takes the position that the resulting devaluation weakens the national banks. This effect is
particularly exaggerated where a large share of their liabilities is denominated in foreign currency accounts
which contrasts the perspective held by other researchers (Calvo, 1995; Diaz-Alejandro, 1985; Miller, 1987 &
Velasco, 1987) who hold the position that the banking crisis occurs before the balance of payment crisis. It is
reasoned that the attempt to bail out failing banks by the nation’s central bank reduces the countries’
ability to maintain a fixed exchange rate.

Other researchers (Reinhart & Vegh, 1996) propose that the twin crisis comes from a common cause. Their
thesis comes of the slow convergence of prices to international exchange levels. International financing
leads to a glut of money, low-interest rates and an associated flourishing in economic activity. This boom is
coupled to increased imports and further international investment and borrowing. As this occurs, the
current account deficit expands causing the inevitable result of increased speculation as entrepreneurs
perceive the unsustainability of the fixed rate exchange mechanism leading to a speculative attack on the
peg. International credit helps to finance the growth of the economy as an increase in bank credit leads to
enhanced risk-taking and economic expansion. As the speculative attack on the peg occurs, capital flows
reverse and currency leaves the country resulting in an asset market crash. The crash of the asset market
undermines the strength of the banking sector leading to banking sector crash.

It has been argued (McKinnon & Pill, 1996) that financial liberalisation magnifies micro-economic distortions.
It is reasoned that this results in economic and banking cycles that are more pronounced than they would
be in a more regulated system, and that this leads to the collapse of the banking system.

An intensification effect caused by the intermediating nature of banks has been demonstrated (Goldfajn &
Valdes, 1997) to magnify the differentials across international interest rates and the level of capital inflow.
These oscillations can result in business cycles and bank runs that lead to a financial and currency crash.
Kaminsky & Reinhart (1996) demonstrated that:

1. Banking crises are decidedly linked to currency crises.

2. Capital inflows intensify progressively before the crisis and collapse amidst the crisis.

3. Intermediation by banks rises before failure.

Goldfajn & Valdes (1997) model the creation of liquidity through credit allocation by financial intermediaries
against capital flows and exchange rate breakdowns. This is conducted under a bi-variate time context.

In the model presented, the intermediaries create liquidity that is consumed by foreign capital. As investors
are incentivized for short-term financial investment [2] (including real estate and interest rate derivatives)
over the long-term capital creation projects, they aid in increasing capital inflows. When this is coupled with
an exogenous shock, international investors seek to withdraw their investments leading to capital flight. The
financial intermediaries will have invested in illiquid assets and long-term capital loans. This international
run on the bank can result in an enhanced risk of failure. Capital outflows lead to currency collapse. In this
model, fractional reserve banking amplifies the negative effects of economic productivity and interest rates.

Most importantly, this model demonstrates:

1. The likelihood of a bank run will be positive and non-decreasing on the international interest rate
differentials,

2. The proportion of capital outflow in period one will be greater than later periods,

3. There is a balance between the creation of larger capital inflows and increased risk of capital flight and a
run on the country’s banks,

4. Expectations of currency devaluations increase the likelihood of runs on the banks, and
5. Fractional Reserve banking leads to the magnification of minor shocks such that these cause large
effects.

Could Capital Controls have helped?

Vinals (1996) and Eichengreen et al. (1996) have both argued that capital controls are ineffective. These are
illustrated to demonstrate the correlated with increased rates of inflation and growing trade deficits. The
main use is argued to come in the form of helping governmental expansionary policies. This form policy is
associated with detrimental imbalances to the economy in the long term. This line of thinking allows us to
see that the long-term effect of capital controls is market disruption and excessive devaluations. “Self-
fulfilling” currency attacks through market speculation can be argued to be justified. The increase in capital
flows to developing countries has been criticised (Stiglitz, 1998) with the claim that this makes these
economies more vulnerable to economic crisis. Stiglitz holds the view that is developing countries express
less regulation, that they are more vulnerable to shocks. It is his view that markets do not fully incorporate
information due to the dominance of private capital flows.

transferring capital systems knowledge

Friedman (1998) emphatically counters this argument showing how it is a detriment to any emerging
economy in the long term. Any developing country needs external capital to grow. The importance of well-
managed capital systems is tied closely to the discipline that is imposed through long-term capital
allocation and the transfer of knowledge that is associated with this. Friedman suggests that two options
are the implementation of a currency board or floating rate system. In the ideal scenario, a currency board
would have the discipline to manage the system so that when a balance of payments deficit appears it is
tied to a decrease in high-powered money. The more effective system would be to implement a floating
rate system where the exchange rate absorbs pressures that would lead to a crisis through a pegged
currency. This later system also helps to preserve national monetary freedom.

Many modern economists such as Rodrik (1998) are proponents of capital controls due to a direct distrust of
markets. Others such as Friedman and Henderson (1998) hold reasonable views of markets where they see
that “foreign exchange markets are a continuing, minute-by-minute election in which everyone with wealth
at stake, including residents of the country, gets to vote, an election in which the winners are those
countries whose governments have the most pro-growth policies”.
all other things being equal

Conclusion

The use of a fully flexible exchange rate results in capital inflows causing an appreciation of the currency.
This appreciation is expected to result in the deflation of pricing for international imported goods shifting
consumption, and this tends to reduce inflationary pressure within the country. Ceteris paribus, when we
compare rigid and flexible exchange rates, we would expect that inflationary pressure would increase the
rigidity of the exchange rate system.

Capital controls allow governments to act in the interest of politicians. They increase the ability to cover up
the damage to the economy that excessive policies enable and to cover-up the long-term effects of the
business cycle that results from their actions. This ability to hide the damage that is being done naturally
results in even more damaging policies being selected. Politicians and government officials are incentivised
for this type of behaviour. It is outside the scope of this paper, but it is believed that the introduction of
effective laws over property and bankruptcy would do far more to alleviate problems in developing
economies than can be achieved through the introduction of capital controls.

References

1. Calvo, Guillermo, (1995). “Varieties of Capital Market Crises”, mimeo, University of Maryland.

2. Calvo, Guillermo, Leonardo Leiderman &Carmen Reinhart, (1994). “The Capital Inflows Problems: Concepts
and Issues”, Contemporary Economic Policy, Vol.12, Pp. 54–66.

3. Calvo, Guillermo & Enrique Mendoza, (1998). “Rational Herd Behavior and the Globalization of Securities
Markets”, mimeo, University of Maryland.

4. Cogman, David, and Richard Dobbs. “Financial crises, past and present.” McKinsey Quarterly (2008).
5. Corsetti, Giancarlo, Paolo Pesenti & Nouriel Roubini, (1998). “Paper Tigers? A model of the Asian crisis”,
mimeo, NYU.

6. Devenow, Andrea & Ivo Welch, (1996). “Rational herding in financial economics”, European Economic
Review, Vol. 40, Pp. 603–15.

7. Diaz-Alejandro, Carlos, (1985). “Good-bye Financial Repression, Hello Financial Crash”, Journal of
Development Economics, Vol. 19.

8. Dornbusch, Rudiger, (1986). “Special Exchange Rates for Capital Account Transactions”, World Bank
Economic Review, Vol. 1 , September, Pp. 3–33.

9. Eichengreen, Barry, Andrew Rose & Charles Wyplosz, (1996). “Is there a safe passage to EMU? Evidence on
Capital Controls and a Proposal” , in The Microstructure of Foreign Exchange Markets, edited by Jeffery A.
Frankel, Giampaolo Galli, and Alberto Giovannini.

10. Fleming, J. Marcus (1962). “Domestic financial policies under fixed and floating exchange rates” . IMF Staff
Papers. 9: Pp. 369–379. Reprinted in Cooper, Richard N., ed. (1969). “International Finance”. NY Penguin
Books.

11. Flood, Robert & Peter Garber, (1984). “Collapsing Exchange Rate Regimes: Some Linear Examples” ,
Journal of International Economics, Vol. 17, Pp. 1–17.

12. Flood, Robert & Nancy Marion, (1998). “Perspectives on the Recent Currency Crisis Literature” , IMF
Working Paper, WP/98/130.

13. Friedman, Milton, (1998). “Markets to the Rescue” , Wall Street Journal, 10/13/98.

14. Goldfajn, Ilan & Rodrigo Valdes, (1997). “Capital Flows and the Twin Crises: The Role of Liquidity” , IMF
Working Paper, WP/97/87.

15. Haque Nadeem Ul, Donald Mathieson & Sunil Sharma, (1997). “Causes of Capital Inflows ad Policy
Responses to them” , Finance and Development, IMF Publication, March 1997, Pp. 3–6.

16. Henderson, David R., (1998). “Let capital flow freely” , The Wall Street Journal, 09/10/1998.

17. Kaminsky, Graciela, Saul Lizondo & Carmen Reinhart, (1997). “Leading Indicators of Currency Crises” , IMF
Working Paper, WP/97/79.

18. Kaminsky, Graciela & Carmen Reinhart, (1996). “The Twin Crises: The Causes of Banking and Balance of
Payments Problems” , mimeo, Board of Governors of the Federal Reserve System, Washington, D.C.

19. Krugman, Paul, (1979). “A Model of Balance-of-Payments Crises”, Journal of Money, Credit and Banking,
Vol. 11, №3, August 1979, Pp. 311–325.

20. Krugman, Paul, (1998). “What happened to Asia?” , mimeo, MIT

21. Lacovone, Leonardo & Zavacka, Veronika, (2009) “Banking Crises and Exports: Lessons from the Past”
(August 1, 2009). World Bank Policy Research Working Paper Series, 2009.

22. McKinnon, Ronald & Huw Pill, (1996). “Credible Liberalization and International Capital Flows: the
Overborrowing Syndrome” , in Financial deregulation and integration in East Asia, Ed. Takatoshi Ito & Anne
Krueger, Chicago University Press: 7–42.

23. Miller, Victoria, (1995). “Central Bank Reaction to Banking Crises in Fixed Exchange Rate Regimes” ,
mimeo, Universite de Quebec a Montreal.

24. Mishkin, Frederic, (1996). “Understanding Financial Crises: A Developing Country Perspective” , in Annual
World Bank Conference on Development Economics, World Bank, Washington D.C., Pp. 29–62.

25. Mundell, Robert A. (1963). “Capital mobility and stabilization policy under fixed and flexible exchange
rates” . Canadian Journal of Economic and Political Science. Vol. 29 (4): Pp. 475–485.

26. Obstfeld, Maurice, (1986). “Rational and Self-Fulfilling Balance of Payments Crises” , American Economic
Review, 76 (1): 72–81.

27. Obstfeld, Maurice, (1994). “The Logic of Currency Crises” , Banque De France, Cahiers

28. Economiques et Monetaires, №43, pages 189–213.

29. Obstfeld, Maurice, (1996). “Models of currency crises with self-fulfilling features” , European Economic
Review, 40: 1037–47.

30. Radelet, Steven & Jeffery Sachs, (1998). “The East Asian Financial Crisis: Diagnosis, Remedies, Prospects” ,
mimeo, Harvard Institute for International Development.

31. Reinhart, Carmen M. & Carlos A. Vegh, (1996). “Do Exchange Rate-Based Inflation Stabilizations Sow the
Seeds of their Own Destruction?” , mimeo, International Monetary Fund.

32. Rodrik, Dani, (1998). “Who needs Capital Account Convertibility?” in Should the IMF Pursue Capital
Account Convertibility? Ed. Peter Kenen, Essays in International Finance, №207 (May), International Finance
Section, Department of Economics, Princeton University.

33. Salant, Stephen & Dale Henderson (1978), “Market Anticipation of Government Policy and the Price of
Gold” , Journal of Political Economy, 86: 627–48.

34. Stiglitz, Joseph, (1998). “Boats, Planes and Capital Flows” , Financial Times, 03/25/1998.

35. Stoker, James, (1995). “Intermediation and the Business Cycle under a Specie Standard: The Role of the
Gold Standard in English Financial Crises, 1790–1850” , mimeo, University of Chicago.

36. Tobin, James, (1978). “A Proposal for International Monetary Reforms” , Eastern Economic Journal, Vol. 4,
Pp. 153–59.

37. Velasco, Andres, (1987). “Financial and Balance of Payments Crises,” Journal of Development Economics,
27: 263–93.

38. Vinals, Jose, (1996). “A Comment: In response to Eichengreen, et al. (1996b),” in The Microstructure of
Foreign Exchange Markets, Ed. Jeffery A. Frankel, Giampaolo Galli & Alberto Giovannini.

Wong, Kar-yiu, (1998). ‘’Housing Market Bubbles and Currency Crisis: The Case of Thailand, ” mimeo,
University of Washington; available at http://weber.u.washington .

[1] For an alternative approach to Her Behavior, see Flood & Marion (1998) in the case of partial explanations
to the Asian crisis and Wong (1998) in respect to real estate speculation in Thailand.

[2] This includes real estate and interest rate derivatives.

1/5 Bitcoin and the connection to contracting
By Craig Wright | 11 Jul 2017 | Bitcoin & Blockchain Tech
An introduction to contractual formation

Technological developments and the advent of the Internet, and now electronic peer to peer cash have led to
new paradigms in international as well as local commercial activity. These developments have reduced the
certainty of contractual negotiations leaving a commonly held belief that the law of offer and acceptance
does not readily apply to such transactions when conducted online ( Rasch, 2006 ). Some in the Digital
currency world go as far as to exclaim, “crypto is law” or even “code is law” and forget [1] that the law does not
end at the border of an electronic contract [2] .

Dealings and transactions that formulate or initiate contractual negotiations are not restricted to the written
word. The law of offer and acceptance applies to new technology in the same way that it applied to
technological advances of the past. This series of posts explores the issues that have created uncertainty
around contractual dealings with the advent of Bitcoin. It is necessary both to consider the origins of
contractual law and to investigate cases that will apply too and formulate the conditions necessary to create
contractual certainty in commerce when answering this dilemma.

The increased use of international commercial transactions using the Internet has been enhanced using
technologies such as Bitcoin, but this also creates another concern. In the past, international commercial
transactions were generally restricted to negotiations between commercial entities. The Internet and digital
currency use has increased the scope of business to consumer dealings, and even consumer-to-consumer
transactions across jurisdictional borders. The result is that, the formation of contract using the Internet for
digital currency and electronic contracts segregates the law into two distinct categories. These categories
include both those negotiations that occur strictly within a single jurisdiction, and next, those negotiations
that involve multiple legal jurisdictions.

Further concerns extend the focus to the relationship of parties. Case law has grown to encompass Web
based transaction engines that act as third parties during the process of offer and acceptance. This
interaction can complicate the formation of contract. The integration of electronic contracts and digital cash
only extends this. The result ( Debenhams Retail Plc v Customs and Excise Commissioners [2004] ) is that it is
necessary to determine the legal standing of the third party when the court seeks to answer questions of
contract law. The third party could be a party to the contract, an agent or one of the two contracting parties,
or may just be an ancillary facilitator or medium, across which, and through whom the contractual
bargaining occurs ( McKendrick [1], 2005, Pp163–164 ).

Lord Steyn ( Butterworths; The Law of Contract, 1999, Forward ) reminds us “. . . it is wise for practitioners to
bear in mind that the higher you go in the legal system the more important it is to concentrate on the
footholds of the secure theoretical foundations.”

Without legislation detailing the legal position of electronic contracts, the process of offer, acceptance and
the terms of a contract created using the digital currency (as with Bitcoin incorporated smart contracts) will
establish itself by means of the general law of contract. This will happen for the most part in the same
manner as for the negotiation of terms of a contract in the physical world ( Lee, 2002, Pp 62–100 ). Thus,
establishing offer, acceptance and the terms of a contract remains the same whether the form is in writing,
orally, or implied though the conduct of the parties in the same manner as existed prior to the rise of
ecommerce over the Internet through Bitcoin.

The Electronic Communications Act 2000 [ECA] (Statutory Instrument 2000 №1798) had alleviated much of
the uncertainty in the formation of an electronic contract. We shall investigate both the definition of an
electronic contract and consider other supporting legislation in this series of posts looking at the foundations
of digital contract law. The ECA cannot ensure that there are no areas of uncertainty in the formation of an
electronic contract, this remains especially true when new technologies such as Bitcoin are involved. It will aid
our investigation to explore the effects of the ECA on contract formation within the UK, looking in particular
at its effect on contract formation and certainty.
In stating that the ECA has not removed all uncertainty from electronic contract formation when allied to
contracts formed using to Bitcoin, we need to explore two key arguments. Firstly, legislation such as the
Electronic Signatures Regulations 2002 [ESR] (Statutory Instrument 2002 №318) is well understood now
following its introduction. This legislation went a long way in assuaging the uncertainty surrounding
technologies such as digital signatures and as a consequence set the foundations for the legislative
acceptance of Bitcoin. Logically, it must follow that if additional legislation was needed to improve on the
ECA, that the law could buy itself not remove all uncertainty in electronic contract formation nor was it the “f
inal piece of the jigsaw in creating an enforceable electronic contract ”. An attached digital signature is hence
clearing defined within the law and the foundation of digital Bitcoin contracts that are based on the
exchange of value using digital signatures has been set.

The alternative argument reminds us that contractual formation is inherently uncertain in and of itself (
Gamage & Kedem, 2006 ). Being that electronic contracts form a logical subset of the contractual superset
and that there is uncertainty within contract formation in general; it must naturally follow that there are
areas of uncertainty, which will remain in the formation of electronic contracts, subsequent to the
introduction of the ECA and with the introduction of new technologies (such as Bitcoin). The ECA, though
having alleviated many difficulties facing the formation of electronic contracts, cannot remove contractual
uncertainty. The result is, we cannot see that “code is law”, but rather, code is evidence in the creation and
defense of an electronic contract.

[1] http://blog.cryptoiq.ca/?=534

[2] http://www.coindesk.com/code-is-law-not-quite-yet/
2/5 Bitcoin and the connection to Contracting
| 13 Jul 2017 | Bitcoin & Blockchain Tech
By Craig Wright
Issues with electronic contracting in relation to Bitcoin

The Internet is fundamentally a means of communication. Issues with law that have arisen because of
the Internet are thus a result of the differences between communication in the physical world and
communication using the Internet. Contractual negotiations are the result of a series of communications
that create a legally binding agreement. For this reason, there is little difference between contracts
made online than those formed through face-to-face communication. The facts surrounding the form of
the communication are the primary difficulty. This has not changed in any way following the
development of Peer to Peer electronic cash and contract systems including Bitcoin.

At the most fundamental level, the existence of an offer and an acceptance is one of the primary
requirements for the creation of a contract. The set of laws used to determine whether there has been a
valid offer and an acceptance created across the Internet or a mere invitation to treat have their lineage
in the case law concerning postal and telex communications.
What is important to remember is that the Internet is not a single communications channel. Bitcoin (and
other crypto currencies) are also, as a protocol overlayed on the Internet, subject to this position in law.
The Internet is a collection of separate protocols used to communicate over the same physical
connection.

The result of this collection of protocols is that different legal issues will apply to the individual
communication protocols. Protocols such as e-mail correspond to the process of sending a letter by
post. A result of this is that we can match the physical world laws to the corresponding situations
created by each of the individual Internet protocols. In this manner, we may see that the World Wide
Web could be analogous to a mail order catalogue based purchasing system. The same principles
govern the process of contractual creation whether the process is faster or not. Analogously, Bitcoin is
clearly a means to exchange value or consideration.

As an offeror may stipulate the method of acceptance ( Eliason v Henshaw [1819] & Manchester Diocesan
Council for Education v Commercial and General Investments [1970] ), it would be wise for parties to
agree to the form of acceptance prior to the conclusion of the contractual negotiations. The recipient
does not have to accept a form of payment unless in a form that is defined to be legal tender. As Bitcoin
is not considered to be legal tender, the parties engaged in exchange need to come to an agreement to
accept Bitcoin as consideration.

A further important issue that surrounds Bitcoin based contracting is the general rule of law that, for an
acceptance of an offer, it must be “communicated” to the offeror ( McKendrick [1], 2005; Pp43–44 ).
Under normal circumstances, the offeror must receive the acceptance before a contract will come into
existence.

Where a merchant has posted a Bitcoin address and the acceptance includes payment using Bitcoin to
the proffered address, we can start to easily apply contract law. In this instance, we have a clear record
of the contract where the digital signatures are not pruned. Even without the signature pruned, we need
to maintain further evidence. With the incorporation of tagging technologies in Bitcoin (such as
OP_Return), this can be simplified further.
3/5 Bitcoin and the connection to contracting
By Craig Wright | 15 Jul 2017 | Bitcoin & Blockchain Tech
What is an “Electronic Contract”?

When contrasting contractual principles, it is clear that unless a contract is required to be in writing (
Columbia Law Review, Apr., 1929 Pp. 497–504; Columbia Law Review, Jun., 1907, pp. 446–449; McKendrick, E,
2005, p 184 ), that little additional uncertainty could be created where the contract is completed
electronically. In fact, electronic evidence must hold greater weight than verbal evidence ( Lord Justice Auld,
Sept 2001, Cpt 11 ). What is not clear is the extent of the weight attached to the various forms of electronic
evidence. The strength of a digital signature algorithm and the security surrounding the mechanisms used
to sign an electronic document will respectively influence the weight associated with any piece of
electronic evidence. The nature and form of the signature will also influence the weight that the court
attaches to it. Attached signatures would clearly be simpler to attribute and hence hold a greater
evidentiary weight.

It has been argued that the digital contract may appear on the computer screen to consist of words in a
written form but merely consist of a virtual representation (Allison et al, 2003). The ECA has removed the
uncertainty and doubt surrounding the question as to the nature of electronic form used in the
construction of a contract. In this, the ECA specifies that the electronic form of a contract is to be accepted
as equivalent to a contract in writing. The result of this legislation and the subsequent case law is that
payment to a merchant who offers to accept consideration by the exchange of peer to peer electronic cash
(in the form of Bitcoin) remains clear in at least the basic uses of Bitcoin for a simple exchange.

An electronic contract has a twofold structure. When it is thought of electronically, the contract is a
sequence of numbers and code saved to some electronic or magnetic medium. In the case of Bitcoin, this is
documented widely on the Blockchain in a manner that cannot be redacted nor altered. The contract
becomes perceptible through a transformation of the numeric code when broadcast to a computer output
device such as the Bitcoin wallet ( Bainbridge, 2000; Reed, 2004; Brownsword, 2000 ). Prior to the passing of
the ECA, this dichotomy exasperated the uncertainty contiguous with whether an electronic contract can
be regarded as being a contract in writing.

The English legal doctrines of offer, acceptance and consideration when coupled with an intention to
create legally binding relations define the necessary conditions for the creation of a contract. There is no
necessity for the most part [ Excluding contracts such as for the transfer of real property, which are covered
by a variety of specific acts ] that any contract be concluded in writing.

The question as to whether contracts performed electronically are legalistically equivalent to writing comes
more to a question of evidential weight and the application of the parole evidence rule ( Durtschi, 2002; Lim,
2002 ). By stating that electronic contracts are equivalent to writing, the ECA has in effect, forbid the
introduction of extrinsic evidence which could change the terms of the electronic contract.

The question would remain as to a determination of whether the electronic communications contain the
final agreement between the parties. Where some, though not all, of the terms are agreed in the electronic
communication, a partial integration will result in the allowing of extrinsic evidence ( Treitel, 2003 ).

The ECA did little to suppress the disputes surrounding the evidential weight attached to an electronic
signature due to the receipt of several objections [ Eg., London Borough of Newham for the National Smart
Card Project (2003) ] prior to the passing off the bill. Accordingly, when the Act was passed on 25 May 2000
its provisions as to the weight of electronic signatures did not meet the objectives of the EC Directive on
Electronic Signatures and where less detailed. Section 7(1) provides:

‘In any legal proceedings-

(a) an electronic signature [176] incorporated into or logically associated with a particular electronic
communication or particular electronic data, and
(b) the certification [177] by any person of such a signature, shall each be admissible in evidence in relation
to any question as to the authenticity of the communication or data or as to the integrity of the
communication or data.’
OP Codes and the push to confuse.
By Craig Wright | 07 Jun 2018 | Bitcoin & Blockchain Tech
A certain group of BTC Core developers have their (one day but not in my lifetime) sidechains that will
enable OP_Codes that have been left broken in BTC (and which are working in BCH).

In this post I will pick on the lack of thought of some of these by demonstrating how you can create the
same outcome without a new OP_Code.

Dup from Alt Stack

This copies a value to the Main from Alt stack leaving the Alt stack as it was.

SWAP Stack
Swaps the Main and Alt Stack.

We have now swapped the stack locations.

Dup TO ALT Stack

This copies to the Alt Stack while leaving a copy on the main stack. We do this as:

SWAP CAT
The command works as:

We can do this as follows in reverse as:

Using the following:

Good developers do not reinvent the wheel and sell it as if that makes them smart.

Basically, all that these commands allow is already there… if you think.
Lightning is malleable… Steel is not
By Craig Wright | 19 Jun 2018 | Bitcoin & Blockchain Tech
A little-known fact is that even Bitcoin is a security. The mistake is thinking that this is the issue. Bitcoin is a
security that is outside of the S.E.C.’s bailiwick. Bitcoin falls within a few extremely narrow exclusions in the
law. These came about as the U.S. Congress “ did not intend to provide a broad federal remedy for all fraud ”
[1]. Although Bitcoin is a security, the S.E.C. is constrained as to what it can act against [2]. There are
securities, and there are securities that must be registered. Bitcoin, at least in the form of cash, is a currency
and whatever may be created within it and the scripts it allows leaves Bitcoin itself as fundamentally an
excluded security.

Items ruled to be securities

Too many armchair lawyers believe that they can understand law from a cursory review of Wikipedia. There
are many reasons that I do not like Wiki, and the way it leads people to false conclusions is just the tip of
this. That, however, is not the focus of this piece. There are many things under U.S. securities law that are
securities. Some of these cover all the requirements to incorporate both Lightning and Bitcoin Core as a
base instrument in the purview of the S.E.C.

Two commonly cited examples include cases involving commemorative medallions [3] and that of Gold
Bullion sales [4]. These are far from extensive, and as the 1975 decision in United Housing Foundation v.
Forman [6] demonstrates, there will generally be an expectation of profit.

The addition of a system that makes the underlying network redundant in the long term is a thought-
provoking development in Bitcoin Core. The addition of a second layer fee structure [7] alters the nature of
Bitcoin in fundamental ways, changing the requirements of the system and introducing an overlay network,
Lightning, as an exchange system of promissory notes.

The fee for Lightning payments is paid by the sender. It is a requirement that the sender creates a
transaction that contains adequate funds above the intended base transaction to pay fees to all lightning
nodes along the route. Each hub in a channel acts as a paid money forwarder. It is interesting to note that
Lightning is a form of security itself. The use of a promissory note has long been held to be a security, and a
long history of judicial review covers this topic.

In “ SEC v. Western Pac. Gold & Silver Exch. Corp .” [3], the SEC issued a No-Action Letter to protect investors.
While the SEC does not directly regulate the bullion trade, it does act to regulate trade built around that
using abstract instruments. The creation of a promissory note or futures instrument is undoubtedly an
instrument the SEC regulates. In this, we see the strong analogy between commodity notes and Lightning.
Lighting is a means to issue a promissory note over a commodity (Bitcoin Core). As a HTLC [8] is a
Promissory note .

A promissory note is an unconditional promise in writing made by one person to another signed by the
maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to,
or to the order of, a specified person or to bearer. This is well defined in the [13] UK Bills of Exchange Act
(1882). From this, we see the definition of a promissory note:

· The instrument must contain an unconditional order or promise (respectively)

· Must be in writing (Electronic communications are deemed to be in writing).

· Must be addressed by one person to another (this does not require the strict naming of a modern AML
system, but can be a code

· Must be signed by the drawer (the person making the order or promise, and this may be using a digital
signature)

· A promissory note is an unconditional promise in writing made by one person to another signed (digital
signatures are ok) by the maker, engaging to pay, on demand or at a fixed or determinable future time, a
sum certain in money, to, or to the order of, a specified person or to bearer.

In the UK for example, there are distinctions as to form with a “ note which is, or on the face of it purports to
be, both made and payable within the British Islands is an inland note. Any other note is a foreign note ”. In
this, the use of cross-border payment nodes would become more complicated.

Looking deeper into a system such as Lightning, we start to understand the creation of a promissory system
and set of electronic notes that start through the use of a commodity backing and can later move to
become a purely fiat based construction.

We see this in the traditional flow diagram below. This system has Lightning nodes act as the banks issuing
a commodity secured note. In this, the note is secured using Bitcoin. That stated, it is analogous to any
promissory note.

The securities case that is commonly cited as to what is not a security is erroneously used in the negative by
most lawyers. The Howey case [5] did not constrain the court, rather, this case set the precedent that the
courts will not be constrained into what they may interpret as what can constitute regulation as a “security”.
This case sets the baseline as to what forms a security, not the bounds. The power of the S.E.C. and the
courts is higher than this lower limit. From this case, the U.S. Supreme Court upheld the will of Congress to
leave the scope of the term open to judicial interpretation was upheld.

That stated promissory notes fall within the range of SEC and other provisions. They are defined under
AML/CTF laws as bearer instruments .

Longines Symphonette Soc’y [3] demonstrated how widely a security can be defined. In this scheme, the
promoters of the commemorative medallion stated they would repurchase the product from the buyer.
This guarantee of being able to move the collectable was itself a security.

Interestingly, Bitcoin is unbacked pure commodity currency. This places it under the exemptions of 15 U.S.C.
§ 77c(a) (2000) [2]. Not as “Digital Gold” but as cash. The system completes each exchange. Unlike Lightning,
where a forward instrument is used (with penalties), Bitcoin is the commodity with a direct payment in that
form.

An interesting case that can demonstrate this point is that of Sauve v. K.C., Inc. [10]. In this case, the US
Supreme court acknowledged that Washington did not follow the risk capital test. This judicial assessment
demarcates a security as “ requiring only that risk capital be supplied with a reasonable expectation of a
valuable benefit but without the right to control the enterprise .” [1] Lightning hubs are profit-seeking
enterprises or ventures. The distinction from mining is in the scope of the exclusions to these laws and that
used by the SEC.

It is also something that will require LN Hubs to comply under the various AML/CTF regulations. It is foolish
to think any cryptocurrency cannot be stopped. It can unless it is used widely enough to ensure that it is not
a political target. Right now, all the space is too small to be a real concern. It is not even 0.1% of the daily
monetary velocity. This lack of concern can change rapidly.

Ability to move across chains

Let us now consider one of the sale points around lightning; that of Cross Chain payments. The image below
from a site promoting Lightning details the effects of this system.

We see the aim clearly in the example. This is the exchange of multiple coins using the overlay system of
promissory notes (an analogous system to modern debt banking). What is not explained in this system, is
the requirement for extended life channels.

Parasitic
The last start of a system such as Lightning is the creation of a system that mirrors a Strangler fig. This is
portrayed in the image below. The Lightning system itself becomes the token, leaving Bitcoin, Litecoin and
all Blockchains as dead and hollow ghosts of their former state. The myth is that we need to have an
underlying system such as Bitcoin. I say myth here as the truth is we live in a world where legal tender is no
longer backed by sound monetary policy and is designed to support the goals of the state.

In time, if Lightning was to become a trusted medium of exchange, it leads to the perverse scenario where
it no longer requires a commodity base to make it work. This leads to a system of State currency that eats
cryptocurrency (such as Bitcoin) away leaving only the promise of what it was. Some will get rich from this,
but the system will not be Bitcoin, it will be a form of government exchanges and banks that swap account
balances.

You can be told how this will never occur, but there is no other end. Exchanges and Lightning hubs are
already systems that come within the control of the legal system. Once the controls and requirements to
alter balances are incorporated (and this path leads to a Proof of State system with a Ripple-like consensus),
the system is just the shell of what created it.

Lightning becomes the system that enslaves, not the system that frees the world.

Miners
One major issue is the funding of the miners. Bitcoin has a looming issue. It needs to scale or die. In two (2)
years, the Block Reward drops to only 6.25 Bitcoin every 10 minutes. In six (6) Years this drops again to only
3.125 Bitcoin and in ten (10) years, just 1.5625 Bitcoin reward each block.

In the same six and ten years respectively, the effects of Moore’s law on ASIC systems will increase the
amount of computational power required to maintain the same level of security by 16 and 100 times
respectively. If we add investment to this model, the requirement will be for a system to scale in power
4,000 and 1,000,000 times respectively. The reasons for these following values are to account for the
increase in use. If Bitcoin is to grow to a global system in a decade, we can expect that the investment will
allow the number of machines to increase as well as the level of computation power and efficiency.

The requirement is each block will need to earn more to be secure. With more machines available, the price
per machine decreases. Even to maintain the same level of security as we experience today, the network
will need to be at least 1,000 to 10,000 times more powerful in a decade.
This will require the mythical 100k to 1 million USD Bitcoin valuation. The problem is that this also requires
direct use of the system, that is, on-chain. The problem few like to address is the division of fees between
lightning hubs and miners, more, the ability to swap chains (as is only lightly alluded to in BTC to LTC swaps)
and the fees required to use a system such as Bitcoin. We could expect a level of more than 1,000 times the
number of systems in a decade. This is a world, where ASIC production starts to become extremely
competitive (it is not competitive now).

As stated above, Lightning would become a parasite that takes from all mined coins. The system competes
on fees, and the only equilibria that can come from this is a beggar thy neighbour strategy where the lowest
fee not between competing miners, but in competing systems. This sounds good until you start to
understand that the competition does not require long-term viability, it can be a simple system that fails in
a year but can be easily exchanged. The promise of Bitcoin is diminished from this. Contracts that require
long-term immutable storage end with the control of third parties and many use cases on Bitcoin vanish
altogether.

However, it is digital
There is a false claim that is made all too often. In the Matter of Consolidated Investment Services Inc. [12], an
Administrative Law Judge of the S.E.C. found that the securities dealer in question who offered non -existent
high yield certificates of deposit could be subjected to the Anti-fraud provisions of the Securities Act. This
finding started that the “ [n]on-existence of an instrument does not logically preclude it from being defined
as a security ” [2] . The consequence of this being that a security formed using electronic means, and hence
being more “real” than a fraudulently created offer can be a security.

The claims that systems such as Lightning are not or should not be recognised as a security thus fails to
hold water. The issue is not if a cryptocurrency or even overlay (Lightning) is a security, but if the system in
question falls outside the narrow range of exclusions that allow selected securities not to require
registration. Unfortunately, as we have shown, many systems (including the Lightning Network) do not fall
outside these provisions.

Malleability
It has been (deceptively) argued that for Bitcoin to use Payment channels, a malleability fix is required. This
was and never shall be the case. Payment channels have been a feature of Bitcoin since the initial release. It
was later that many of the features that helped make this simpler have been disabled and removed.

The truth is one of bitcoin being stronger as an alloy. SegWit (Segregated Witness) was incorporated into
bitcoin to remove a (disingenuously) created vulnerability that never existed. The argued reason was to
allow Bitcoin to utilise payment channels [11]. The truth is payment channels do not require non-malleable
transactions. The only requirement for removing Malleability is to allow Lightning to act as a promissory
note over Bitcoin and other blockchains. That is, to allow it to consume Bitcoin and to remove the economic
system that created bitcoin.

The Lighting System differs from anything that Bitcoin used. It is a system of punishment-based bi-
directional payment channels. It uses negative inducements rather than positive economic incentives as
would be the case in Bitcoin natively. Punishment based channels of the form implemented in Lightning
require a malleability fix. Payment channels and even atomic swaps can be completed without a
malleability fix. A non-issue.

A high-frequency system such as we see discussed above never required malleability to be removed.
Malleability is of no concern to this system.

The thing that matters far more than any of the technical uses of Malleability [3] is what malleability breaks.
It makes the creation of a parasitic overlay more difficult and economically less viable. Bitcoin is a system
that is resilient in many ways. The central aspect of this is that in its true form, it can capture other systems
while remaining challenging to capture itself. More than anything else, SegWit and related “fixes” remove
this resilience.

Without some level of transaction Malleability, the system can easily fragment into many coins, and these
can then be captured (and consumed) by a system that is a digital equivalent of the existing fiat system. If
you want to create a system that replaces fiat with a system controlled by the banks and government but
which is more insidious… then you should be supporting SegWit and Lightning.

A miner of Bitcoin Core (BTC) should be concerned. BTC Hodl’ers should be concerned. Lightning required
that malleability be removed as this allows the system to move to long-term channels that with cross chain
swaps can eventually remove the underlying commodity cryptocurrency. As noted above, this in all forms is
a security and is in the range of systems that require registering and management under the various
AML/CTF laws.

In any system where there are asymmetries, one side has an advantage. In Bitcoin, the network was
incentivised asymmetrically to allow for the growth of a small world and eventually a near complete graph.
In Lighting, this forms a loose mesh with a small number of centrally controlled choke points. The
economics of each system are designed with distinctly separate goals in mind.

Removing transaction malleability does not make Bitcoin more secure, it allows for a system of off chain
swaps. It makes the creation and integration of side-chains simpler and removes one of the critical aspects
of Bitcoin, scarcity. When Lightning (or another system in a similar form) can set the terms of the
settlement and, in time even alter settlement to remove the requirement to hold the currency, we end
where we are now. A system that has and will be debased.

At least Bitcoin Cash (BCH) managed to avoid this trap.

To conclude…
In the coming weeks, I am going to start to document and detail how many of the less well-known parts of
Bitcoin (and any long-term viable cryptocurrency) all fit together.

We will explain later in the coming months how we can do Group signatures (as Schnorr is touted as a
solution) using ECDSA. This is a method we have created that remains to many as impossible. For all of that,
it is a form of signature that can be used on any ECDSA based system allowing for greater privacy. This
system allows us to combine both keys and signatures privately without sharing keys. The added keys
become a single valid key and Bitcoin address. The signature as seen on the Transaction and blockchain is a
single signature. The process is additive with no sharing of the keys.

Oh, we do not require OP_Codes and protocol changes to make this work. Bitcoin supported the
development of complex payment channels from Jan 2009. The difference is that these are channels that
do not allow other systems to subvert and consume bitcoin.

A few of the other topics to be addressed include Partnership law, Securities law and more advanced
tokens, Key aggregation and new security techniques and more.

Many deliberate that as they are not forming or a member of a company, that there is nobody in the group
to go after, this cannot be further from the truth. As a development group, it is likely that the entity forms a
Full Liability Partnership. This means that all members of the groups are exposed to all liabilities that can
result from the actions of all other members. The truth is, incorporation protects the shareholders and
members of a group. It allows for the limitation of liability such that the actions of one member do not
always result in the reciprocal debt and liability of others.

Following this posting, I shall also start to delve into the positive uses of Malleability in scripts as well as
more issues and problems that come about through misplaced “fixes” such as SegWit.

This is just the introduction . The topics posted here will be discussed in depth. Technology, legal issues
and more going forward.
References
(1) Marine Bank v. Weaver, 455 U.S. 551 (1982).

(2) E.g. 15 U.S.C. § 77c(a) (2000) {Exempting from registration a narrow range of instruments that are
otherwise securities}

(3) Longines Symphonette Soc’y, SEC No-Action Letter [1972–1973 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶
79,151 (Nov. 10, 1972).

(4) SEC v. Western Pac. Gold & Silver Exch. Corp., [1974–1975 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 95,064
(D. Nev. Jan. 30, 1975)

(5) Howey, 328 U.S. at 294–96

(6) United Housing Foundation v. Forman, 421 U.S. 837 (1975).

(7) Lightning Fee Calculation: http://github.com/lightningnetwork/lightning-rfc/blob/master/03-

transactions.md#fees

(8) Hashed Timelock Contracts http://en.bitcoin.it/wiki/Hashed_Timelock_Contracts

(9) BILLS OF EXCHANGE ACT 1882. Part IV, 1882 c. 61 (Regnal. 45_and_46_Vict), Part IV:
http://www.legislation.gov.uk/ukpga/Vict/45-46/61/part/IV

(10) Sauve v. K.C., Inc., 91 Wash. 2d 698, 591 P.2d 1207 (1979)

(11) Working with micropayment channels http://bitcoinj.github.io/working-with-micropayments

(12) Consolidated Investment Services Inc., Admin. Proc. File №3–8312, Initial Decision №59, 1994 SEC LEXIS
4045 (Dec. 12, 1994)

(13) UK Bills of Exchange Act (1882)

Negotiable Instruments
By Craig Wright | 02 Jul 2018 | Bitcoin & Blockchain Tech

From Simmons v. London Joint Stock Bank [1]; the House of Lords overturned the lower court on appeal to
set the definition of a negotiable instrument. This form of security is one, the property in which is acquired by
any one who takes it “ bona fide ” and for value. This is perfected notwithstanding any defect of title in the
person from whom the receiver took the instrument.

From this, it follows that an instrument cannot be deemed negotiable otherwise. Further, it is necessary that
the true owner can transfer the contract or engagement encompassed by the simple delivery of the
instrument.

Bona Fide : Genuine, Real

Without intention to deceive

With good faith

For Value : This indicates that a transaction exists, and

that the drawer of the bill has received good or money from its drawee.

some consideration (money or other value) has been given in exchange (as per the contract terms)

Lord Mansfield in Miller v. Race [2] held that money “ cannot be recovered after it has passed in currency ”. Not
from the thief, but the Bona Fide taker for value from the thief.

What I shall explain here is that Bitcoin is a negotiable instrument. It is perfected when passed from one party
on-chain to another. Unfortunately, Bitcoin is not always a negotiable instrument and does not always have
the protections under law that such a form of security maintains.

One counter to negotiability, on the Bitcoin Core chain is Lightning. Here, a transfer is more like a cheque and
is only perfected later. Delivery would be deemed to occur only when the channel closes. And, until this point,
the payment remains at risk.

Gift
The use of a transfer “for value” is an important distinction. A gift is not held to be for value. This is important
as the status of a negotiable instrument imparts many benefits. For one, the state can force recovery.

Bitcoin and Keys

A flaw int the “ Code is Law ” fallacy is that cryptographic keys do not stop a court assigning an asset. You can
destroy a key, but this merely stops all access to the key, not the courts ability to enforce payment. A court
can also hold a party in Contempt for not delivering value (leading to an indefinite period of incarceration
without trial). More, intentional destruction of the keys could be deemed a crime.
More, a court can liquidate other assets. A Token tied to share equity can be re-assigned no matter the state
on a blockchain. If a court orders a payment, the fact that you refuse top pay leads to a few possible
conditions:

· You are held in contempt until you pay

· You have your assets seized against your will

· The court assigns the ownership of the property to another and the system is updated

· You go away and live as a fugitive

Bitcoin when transferred as a negotiable instrument cannot be recovered.

If, Alice has received stolen Bitcoin and the law located her, and they find she has sold the Bitcoin to Bob for a
holiday that cannot be recovered (Alice had a good time), then Bob is safe if he was unaware of the nature of
the Bitcoin being illegally obtained.

Lightning is not a negotiable instrument. If Bob has a balance, then the state can have these funds forcibly
recovered. Alice paying Bob on-chain is a perfected exchange. A lightning exchange is a promissory note. The
distinction is one of real world consequences.

Bob who has received Bitcoin for value now has good title. No matter what, his bitcoin are his. The state
cannot touch them or force a repayment.

If Bob had used Lightning, the defect in the scenario presented is that the delivery remains incomplete. The
state has a legal right to take your assets if you will not return the Bitcoin (or cannot for that matter). An
innocent merchant, who used the Bitcoin from Alice or other funds, but who has this as a Lightning
(Promissory note) debt can be required to return the amounts.

This is why the status of a negotiable instrument is so important.

In Lightning, if you will not hand your Bitcoin keys over, they could sell your car, your house, any asset they
(the state) can get a hold of. This is not the same as cash. As a merchant, what you have received as cash
remains yours (if for value and Bona Fide), what you have as a Visa payment, well that is yours eventually (and
maybe as it can be taken back).

Owning your keys alone does not make you safe, it does not mean you are outside the real world. If you want
to trade and keep what you earn, then using Bitcoin on-Chain is safe. Lightning comes with risk.

I shall continue on this topic later. As I said, Bitcoin is an economic system. It works as it is not some Code is
Law fairy’s tail.
Cases
[1] Simmons v. London Joint Stock Bank, House of Lords, L.R. (1891), 1 Ch. 270; App, Cases (1892), p201.

[2] 2 Green Bag 151 (1890) Miller v. Race (1 Smith’s Leading Cases, 9th ed. 491)
Money Must First Be Stable
| 14 Aug 2018 | Bitcoin & Blockchain Tech
By Craig Wright
I’m writing this in a more accessible format; that is a blog rather than an academic paper.

Many people often wonder why Bitcoin used a 10-minute interval. Bitcoin is configured to adjust to a 10-
minute block interval. However, you will notice that the average time for a block on the actual network
is around 560 seconds or 9.3 minutes. The reason for this difference from the stated 10 minutes is related
to the growth of the network. For the conceivable future we can expect Bitcoin to grow on a near
exponential path following the prediction rates in Moore’s law. As such, we see lower block times.

While discovery in Bitcoin is not actually a Poisson or exponential process it approximates these only
when it is set to exhibit longer block times. One of the primary reasons this holds and I can make this
statement is that Bitcoin is an SEIR process. When scientists model epidemics they use a combined
model relating to the following terms:

– susceptible

– exposed

– infectious

– recovered

In a system such as Bitcoin, or for that matter any decentralised node system, we can describe this as
follows, the susceptible state is one where the network has selected a block and is mining seeking a new
block solution. In this, block zero [B(0)] is known throughout the network and all miners for practical
purposes are mining on it. Next, we have the exposed state. In the exposed state, a miner has discovered
a new block solution. One or more miners hold the solution and are now mining on a new block. This
needs to be propagated from the miner that discovered the hash solution to all other miners. There is a
definite time between the marking of time on an exposed state and the receipt of that block to other
miners.

The next state can be modelled in the infectious state in epidemiology research. Here, the miner has
validated and accepted the received block as satisfying a solution to the block hash and starts
propagating this to other miners. Straight after the validation stage each miner starts seeking a solution
now for block number one following block zero [B(1)].

The expected time to elapse before all nodes know the transaction is:

See the model at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=3151940

The result is not a limit above, but rather an asymptotic equivalence. The fact that the expected time
increases with N is related to the fact that we don’t scale I0 with N. From this we see that when a small
number of poorly connected nodes hold a transaction, and when nearly all nodes have a copy of a block
or transaction, the node’s propagation to the remaining nodes in a Gossip network occurs very slowly.

We can now extend this model to account for censoring and the fact
that when a block is discovered, the block will reset and restart
the process.
Each block received by a node is validated and checked for veracity. When two blocks are mined at
nearly the same time, the first block to be received by a node is included and is verified. The next block
will be placed into the “orphan pool” and is validated after the initially received block. This orphan block
is only added to the main chain for the node, if a further block is added making this a longer chain.

Each node verifies a block before it propagates it to the connected peer nodes. In this way only valid
blocks are propagated, and any invalid blocks are quickly isolated. The Bitcoin Core client lists all the
validation requirements in the following functions:

CheckBlock

CheckBlockHeader

In validating a block, the node will ensure that:

The data structure of the block is formatted correctly.

The block header hash is less than or equal to the set target difficulty for the two-week period.

The timestamp on the block is less than 120 minutes into the future. This allows for some time
drift on mining nodes.

The block size is less than or equal to the value set in the MAX_BLOCK_SIZE parameter.

The initial transaction is a coinbase generation transaction. This is transaction zero for the
block, and pays the winning miner.

No other coinbase transaction is present in the block.

Each transaction in the block is valid. Each transaction, as well as its hash, must be individually
checked and validated.

Next, the block is validated to ensure that:

The transaction index validity is correct.

The transaction hashes are correct.

Spend txouts have been spent in the main chain.

All prevouts are marked as spent.

Spent txouts are spent by a valid transaction that consumes them.

As UTXO caching saves received transactions, the validation of each transaction should be fast if it has
been received, cached, and saved in the pool. The case where a transaction is not in the UTXO cache
slows the process. The node requests a copy of the transaction from the network, validates it, and adds
this to the hash checks.

When a block is received that has a transaction the miner is missing, the mining node needs to
download a copy of the missing transaction before it can complete validation of a received block. In the
distribution displayed below we see the block times as recorded on the Bitcoin network. Although this is
approximately exponential with a 10-minute block time, we can see that it forms a power law
distribution when we look at the sub one minute times.
The validation and propagation time is small compared to 10 minutes . The result is that we can
approximate a Poisson approach which is far simpler to calculating differential equations associated
with true SEIR models or simpler power law approximations.

Time matters.
Bitcoin needs to work within the financial world, not to have this idea that the financial world can be
modelled to work in Bitcoin. Monetary transactions do not follow an equal distribution. Back in 2006 and
2007 I was involved with modelling monetary transactions in the creation of automated fraud systems
for accounting and auditing purposes. I became very familiar with the time distributions of monetary
transactions in global systems.

Something that is commonly overlooked within the crypto community is the time distribution of
transactions. In any period of time we can see that this distribution is approximately exponential in
nature. The larger the block interval, the closer the distribution is to an exponential function. In large-
scale commercial systems, over a period of time exceeding five minutes but remaining less than an hour
we generally would expect transactions to fall within a 95% confidence bound along an exponential plot.

Alternatively, as we lowered the interval, the data appears to be more and more random and the impact
of noise to the system makes it harder to predict.
The impact of not being able to model time intervals is a wider distribution of block sizes. At one minute,
even at the lower 10% alpha, we expect many deviations from a standard predictable distribution. The
result is far larger standard deviation for block size.

Although the distributions of blocks are asymmetric, a larger block time allows an increased range of
small miners. As the time is decreased, fewer miners are able to compete. Part of the reasoning is the
asymmetric distribution of transactions. At one minute the orphan rate is around 2.5 to 3 times that
exhibited at a 10-minute block interval. The graph below plots this as orphan rate against time in 10th of
minute blocks.

I could’ve spent more time doing the indices and playing up the graphs, however, this entire process of
explaining why money should not be altered is the problem.
Changing settlement (block times) to less alters the distribution and ends up favouring larger miners
more than the small. It skews profitability.

That is why 10 mins.

More importantly however, 10 minutes is not optimal, nothing is. For Bitcoin to work correctly it needs to
be somewhere between five minutes and 20. The exact ideal optimal time is not calculable because it
varies by time of day, season, use, electricity price and many other factors that are not standard.

The argument that this helps merchants is spurious at best. Money works best when it is stable. This is
the entire purpose of Bitcoin. To make money that is stable, and yet this is the one thing everyone tries
to alter, that is to make Bitcoin a typical Silicon Valley screw with it and hope that it works experiment .
That’s the thing, Bitcoin will never work in this manner.

When scaled to incorporate larger block sizes, this is 1 GB for a 10-minute block or the corresponding 100
MB for a one-minute block interval.
Although superficially, the two power law distributions of blocks displayed above appear similar, they
differ radically because of block processing time and distribution times that are not evenly distributed.

Moreover, with smaller block times it becomes simpler to withhold some transactions that the miner
creates themselves further skewing the distributions. At a 10-minute interval, the first quartile is 30% of
the mean. In a one-minute block, the first quartile is 40.5% of the mean.

Given quickly discovered blocks that exist in the third quartile and above for size, not distribution time
we end up with a scenario where the one-minute block ends up containing enough transactions to slow
distribution. Unfortunately, the majority of so-called scaling tests use evenly distributed processes rather
than power-law block size. Our one-minute block in the third quartile of size ends up being propagated
slowly to all but the largest miners. In the current environment that would be mining pools and solo
miners with 15% or more hash rate. The small miners would receive this block slowly enough that they
would fail to validate the block 27% of the time before a new block was discovered.

The increase in hash rate predominantly impacts miners with under 10% of the total hash rate.

Benefit
The touted benefit to a one-minute block rate is improved merchant adoption. Even at a one-minute
block, approximately 20% of blocks are discovered in a period exceeding two minutes. To be useful to a
merchant in a commerce scenario, a block would need to be discovered and propagated without
orphaning in an interval of under three seconds. This occurs extremely rarely at the best of times. The
argument is a false argument against the benefits of 0-conf. The reality is there are no realisable gains in
changing block time.
There are many negatives.

The primary negative is that Bitcoin is a cash-based payment system. Merchants develop software and
applications and every time a change is made, they need to redeploy these. This is the worst weakness
Bitcoin has exhibited. When compared to fiat, Bitcoin changes minute by minute.

If we are to make Bitcoin a global currency, we need to replicate the features of cash. First and foremost,
this comes down to creating a stable platform. Every time the protocol is altered, merchant
opportunities are lost. The original Bitcoin protocol was resilient enough. There is never a state of
perfection.

The 10-minute time interval within Bitcoin was a guess. It’s a good enough one. Maybe five minutes
would’ve been better or maybe 15 but the reality is none of this matters because it could never be
anything less than two minutes and successfully scale. The most important aspect of what needs to be
done is to stabilise and lock down the protocol so that merchants can build and use coins globally.

Larger block times lead to less uncertainty

We see the distributions of blocks in the figure below. A small (1-minute blocktime) is only able to be
modelled using a power law or exponential distribution. A larger block time is close to a normal or
Gaussian distribution.

As with many things, block time in Bitcoin is a trade-off. There is no perfect time and as you lower or
increase the time, you alter the incentives and change the system.

That, above all is what Bitcoin cannot do. Bitcoin was designed to be stable and set in stone.

This is how good money works.

© Copyright 2019 – 2021
The myths of Bitcoin
By Craig Wright | 14 Aug 2018 | Bitcoin & Blockchain Tech
Bitcoin is Peer to Peer electronic cash.

This is it first and foremost. In this I am going to address a few of the myths around bitcoin. Before I do that,
let me first set some terms and descriptive explanations.

First, there is one Bitcoin, set in stone as at v0.1 and we endeavour to return Bitcoin cash to align as closely
as is possible to that original. Only Bitcoin cash can do this. Bitcoin Core with the additional changes
(including Segwit) cannot achieve this.

The first one is peer-to-peer. The disinformation around this has been strong. An exchange in bitcoin can be
made from one party to another directly with no intermediary. The aim of cash is not to have a system
where a central bank signs off on the monetary unit, issuing these to third parties such as consumer banks,
MasterCard and visa, rather, it is a hard stable currency system that allows individuals to exchange directly.
In the first version of bitcoin, there was a rather poorly constructed IP to IP protocol that allow users to
exchange keys. The version implemented at the time was not secure and allowed man in the middle
attacks. This is something that can be easily fixed and many protocols exist to solve this now.

In handing a transaction from one party to another the primary concern is that:

‘’Transactions that are computationally impractical to reverse would protect sellers from fraud’’ [1]

This is what peer-to-peer means. Miners are a settlement layer. In the banking system even when money
clears into your account it may not settled. Any payment received by a merchant over the credit card
system can take 90 days to clear. Banks allow you to access funds, however any reversal can be applied
retrospectively placing accounts into arrears and requiring the payment of interest and fines.

This is the difference that makes bitcoin peer to peer. Not that every person needs to be a miner, but that
individuals can exchange transactions directly with each other and quickly verify that mining nodes have
received the transaction.

Scalability
This is the biggest myth around bitcoin. The only problem with scalability is the subsidising of home user
hobby nodes. Bitcoin can scale to terabyte size blocks today. The only thing stopping this is a false idea that
nodes that do not mine bitcoin are required in the network. Miners are competitive organisations.
There is one simple reason people have problems with scaling blockchains. They were always designed to
be commercial in nature. They were designed to be competitive. And they were designed as a monetary
transfer unit. There is one and only one way for BitCoin, in fact any blockchain to function successfully, that
is as a single unit with a primary focus on cash.

Once this is accepted, the myriad of other uses all fall into place. Just as users do not run their own email
servers, their own Web servers or any other server farms, bitcoin uses corporate validation of data not as a
trusted third-party but it is a protocol specific system. It works because capitalism is a system of
competition. Bitcoin is purely competition driven. It does not matter whether you like this or not because
bitcoin is apolitical other than being purely capitalist.

The reason we can trust bitcoin and we can trust miners is the protocol governance mechanism. This works
as a monetary unit for the simple fact that there is no such unit as miners.

It is the same as saying the typical comment about suits. There is no one form of corporate executive. How
do we trust these corporate entities. Very simple, we trust them to be greedy. Moral sentiments are a layer
over and above corporate culture and this doesn’t come into the governance of bitcoin at all. It relies on
profit seeking. We know it works as we know that corporations will seek the greatest profit and they will do
whatever they can to get this. This is why bitcoin works. The most efficient organizations will seek an edge
over their competitors and in doing so will drive mining profitability to an eventual knife edge. At this point
there is no way for any corporate entity to gain any means of altering anything within bitcoin. To get to this
point we need to scale.

The cost of scaling bitcoin exceeds the cost of network and system architecture. There is no scaling limit.
There is no such thing as spam in bitcoin. Any party willing to pay for a transaction can have that transaction
stored. Miners competitively compete to grab as many transactions as they can as this is the way they gain
the profitability edge over other miners that is needed to stay competitive. In time, nearly every bit of a
miner’s profit will come from a transaction.

The truth of the blockchain when done correctly is that there is no scaling ceiling. The more use, the more
profit, the better it scales and the less expensive transactions become. Bitcoin is incentivised to become the
backbone system of the global Internet.

It can only do this as cash

Protocol governance
The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest
of its lifetime.

This is something people misunderstand. The nature of bitcoin’s competitive system is designed to make
stable money. This is the core of how bitcoin scales. There are aspects of bitcoin that need to be fixed, they
were in the first version but they did not include the protocol.

To be stable money bitcoin needs not to change. I say this again. Bitcoin needs to be set in stone to work
and to be valuable. Miners will alter and improve on the core software used for mining bitcoin. They won’t do
this as a group. They will do it to gain competitive advantages and they will do it without disclosing all of the
changes they make. This again is a good thing. More efficiency is always good. To be successful, to follow its
key mantra bitcoin needs to develop into a system that is fixed and not something that developers think
they can play with because they understand money very little.

It is important for any monetary system to exhibit stability. This is how and why people trust money. They
know that in 10 years or 20 years their money will remain the same. Right now, the developers in Core have
been altering the protocol drastically which is the antithesis of stability. It is for this reason that myself with
my company, nChain, have been working with others such as CoinGeek and yet unnamed miners to
stabilise the bitcoin Cash protocol.

It is for this reason that the BComm initiative was started and it is profitability that will drive miners to
stabilize and maintain the protocol creating the first form of digital stable money in human history, this is
bitcoin cash.

Slow confirmation times

The confirmation times within bitcoin are fast. People confuse confirmation and settlement. A transaction
that has not been settled within a block is secure enough. It does not need to be impermeable, it needs to
be good enough.

The result of this is a system that is thousands of times more secure at any scale than Visa or MasterCard
and can settle in under a second. As the network increases in size and scale the latency on detecting double
spends will decrease and the network becomes more secure. The interesting dichotomy with bitcoin is the
more use and the more scale, the more secure it becomes in the lower risk to merchants that is exhibited in
the system.

Confirmation time for a transaction within bitcoin can be completed faster than any currently deployed
electronic system. That is more than enough and as it scales it gets better.

Anonymity
Bitcoin is purposely pseudonymous. There is a fine line between privacy and anonymity and it is a line that
cannot be crossed. What few understand is that anonymity is not privacy. Anonymous transactions do not
help the average person, they help corrupt governments and criminals. Worse, anonymous systems will
never be legally enforceable. This undercuts their key use as monetary systems and as a method of
exchanging contract.

It has always been the sunshine principal that allows us to detect fraud and dishonest dealings. A system of
anonymous money allows those in organisations such as Enron to expand operations in a manner that
allows them never to be caught. Anonymous money allows governments to buy deals, votes, guns and
more with impunity. It is not anonymity that leads to free and open exchange but pseudonymous and
private communications.

Privacy is important but anonymity isn’t. Anyone who does not understand this should read Plato’s Ethics,
and in particular, the Ring of Gyes from Book II.
Anonymity leads to a system where justice is only in the interest of the strong .

Ease-of-use, the grandma test

The trouble here is that no one bothered to update the front-ends particular well until recently. There are a
number of good wallets that are starting to appear. Much of the problem has come from the myth of the
full node. Users should be running SPV. This is defined within the original white paper. There is no
requirement to validate every single transaction. This is the ease, simplicity and beauty of bitcoin. It is not
miners that you trust, but their competitive nature. The argument is that miners act in concert as one. They
do not. Miners are competitive businesses that are designed to end in datacentres [see image and quote
above].

The simple fact is that ease-of-use comes from developing applications on top of bitcoin and it is things like
the HandCash Wallet App, Keyport , POP and Centbee that deliver simplicity that matter.

Mining is wasteful
The value of bitcoin is not the electricity in the system, it is that value in exchange and people are willing to
pay for this using electricity in mining. There are no absolutes in the economic world and this holds true for
bitcoin.
The question to always ask is not whether something uses energy but rather does it deliver an outcome that
people want more efficiently. Bitcoin delivers the first form of stable money ever developed in human
history and it does this at a cost that is lower than the combined cost of monetary issue, electronic data
exchange and fiat money as they exist today. As an economic system bitcoin self adjusts in mining and fee
reward based on the overall utility of the system. Most importantly, as the system scales it becomes more
and more efficient.

At a global scale, the system can operate more effectively than the credit card system alone while delivering
far more.

Stability
The most important aspect of any monetary system is stability.

To this end, and to make bitcoin all that can be we endeavour to remove the block cap allowing any level of
scaling that people are willing to pay for. As an economic system based on market forces bitcoin can
become global cash.

Bitcoin will be locked as closely as it can be to the original protocol allowing merchants and developers to
build a complete ecosystem of global finance upon it.

Bitcoin cash is the global financial platform of the future

References
1. http://www.bitcoin.com/bitcoin.pdf
The cult of Decentralisation
By Craig Wright | 16 Aug 2018 | Bitcoin & Blockchain Tech
Bitcoin was first announced in 2008. After the software went live in early 2009 an announcement reinforcing
the statements of the white paper was issued on the P2P forum. This announcement heralded the first true
implementation of Peer to Peer currency.

The post on the Peer to Peer foundation stated the following:

The root problem with conventional currency is all the trust that’s required to make it work. The central
bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that
trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of
credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let
identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

The desire was to create and implement a stable currency that could not be debased or manipulated.
Perversely, a myth of decentralisation has appeared that re-purposes that goal. Bitcoin was created as a
decentralised system to enable stable electronic money for the first time. The foundation of this story has
been twisted to say that Bitcoin is there to create a decentralised system. Again, the system is decentralised
in order to create the first stable electronic money, not as digital gold, not as a settlement system, but as
digital cash.

The primary and central purpose of bitcoin is to deliver a stable monetary unit. By stability, we reference a
system similar to gold in scarcity yet that is easily transacted in. In particular, a system of low transaction
costs with no inherent value other than as money itself. The primary purpose of bitcoin is not
decentralisation, it is use as a monetary currency. This is, a low cost, high volume system of exchange.

http://p2pfoundation.ning.com/m/discussion?id=2003008%3ATopic%3A9402

The system delivered by Bitcoin is designed to be change resistant when it achieves scale. Stability is an
important aspect of money. Money is in effect a form of measurement instrument. In a manner similar to
how we measure distance, money is of greatest value when it is universally adopted and can be used as a
common system for measurement. We do not have many versions of a metre and nor should we have
many versions of currency. Just as the metre does not change in nature neither should money. This is the
reason for decentralisation in bitcoin. Not decentralisation for decentralisation sake, rather a monetary
system that achieves stability by being difficult to change. This is an aspect of bitcoin that comes with scale.

Those who have been attacking bitcoin target the centralisation of miners and pools. This comes to the
fallacy of black-and-white thinking. It is a false choice or false dichotomy. In this, it is falsely argued that only
one option or another can exist.

In the case of bitcoin, centralisation is argued to be an all or nothing scenario. The truth is far more subtle.
A false dichotomy is a dichotomy that is not jointly exhaustive (there are
other alternatives), or that is not mutually exclusive (the alternatives
overlap), or that is possibly neither. Note that the example given above
is not mutually exclusive, since the test and the program could both
be wrong.
Centralised

Decentralised

There are other options.

The argument is one that begs the question of why bitcoin exists. Bitcoin exists to be an electronic currency
system designed to allow micro-transactions whilst simultaneously offering negligible or low transaction
fees, even for high value and international treansactions. It is not digital gold nor would such a system work.
Many misunderstand the underlying reasons that fiat currencies are used exhaustively, even whilst these
are debased.
At the extreme, decentralised systems are fragmented. They are not strong and they are easy to subvert. As
with most things, the answer is a balance. Bitcoin is not a system designed to deliver equality, for the only
way to true equality is for all to be equally destitute.

Kyotaki and Wright (1989) formalised a model of money. In the system, money arises as a solution to a
search problem. Matching parties in mutual exchange lowers transactional friction in a Coasean manner.
Primarily, they explain the predominance of fiat currency. The two properties that make fiat systems widely
used derived directly from the dual properties of:

1. Lower storage costs than all other goods and commodities, and

2. Non-consumability.

Together, these two properties account for the lower transaction costs and increased trade opportunities. At
scale, and only at scale, bitcoin offers the ability to deliver lower transaction costs with high reliability for
both micro transactions as well as bank settlements. Importantly, it also does this without offering any other
consumer function directly distinct from the system itself. In bitcoin, the value of the system is derived from
the system itself no other commodity-based input. This mirrors fiat systems whilst creating stability and
limiting the ability for individual parties to debase the currency.

Bitcoin solves this problem through competition. Entities acting as commercial validators or miners
compete to prove the integrity of transactions through the creation of blocks. As long as no one individual
holds control of more than 50% of the network, the system can maintain stability and not be arbitrarily
altered. The requirement is three or more parties acting in competition. In any implementation with three
competing miners any of which hold no more than 50% of the network hash power at any time, the system
is decentralised.

The reality is more entities are better. Given a minimum of three competing parties and the nature of
capitalist systems where profit can lead to some organisations failing and going bankrupt, it is
recommended at all times that more than three or four organisations act in competition to ensure that no
single failures leads to a scenario where one party can destabilise the network.

In any system with five or more mining entities where none of the parties hold individual control of more
than 50% of the network, bitcoin is decentralised. As the system scales the cost of running up and attacking
these commercial entities increases significantly. Even with a small number of miners, bitcoin remains
decentralised as a distributed monetary system delivering the primary core deliverable, monetary stability.
More importantly, as bitcoin scales, the cost to attack the network increases significantly. As a global system,
no government could ever attack bitcoin.
It is also important to note that if any individual miner goes into bankruptcy, the profit for all other
remaining miners increases. This leads to a scenario where competition and profit dynamically maintain the
balance of the system. As one miner loses a competitive advantage, another takes the place of the former.
The equilibrium is structured in a manner that allows sufficient decentralisation to maintain stability whilst
delivering low-cost near instantaneous low-cost transactions.

What many developers and pundits fail to understand is that the only way a monetary system can act as a
medium of exchange is to have no other value or at least a use value that is far lower than any other
product being transacted. An aspect of gold that you consider is not only that it is scarce and stable but that
it has practically no other use in history. One of the earliest reasons for the implementation of gold as a
settlement system was its lack of durability and use in creating goods. The use of gold as jewellery came
later as it had monetary value. We see this in many cultures without wide access to a good monetary base
(such as India) where gold based jewellery is used as a means of carrying one’s wealth while simultaneously
acting as a Veblen good to signal position in a hierarchy.

The flawed thinking that crypto-currency must have alternative value is addressed through the search
efficiency of a currency unit (Arrow-Hahn, 1971). In this and the KW model, it was demonstrated that fiat
money is not unequivocally welfare enhancing. The production of additional fiat money was demonstrated
to lower consumption. The result is a demonstrable optimum amount of fiat money in circulation.

This can be modelled as a prisoner’s dilemma. Due to the non-consumability and favourable storage cost
fiat money has the capability to crowd out commodity monies in the traditional sense. Any efficient money,
fiat or crypto-currency that fails to maintain stability is inexorably driven towards a single Nash equilibrium
that drives out the use of the less efficient currency whilst also reducing overall welfare. It is for this reason
that bitcoin is set as a stabilised monetary system. It delivers a non-consumable system while
simultaneously creating lower transactional friction than any fiat currency can deliver at scale.

The aim of bitcoin is not to deliver a decentralised system. A decentralised system is used to ensure the
primary goal of bitcoin, a stable monetary unit.

References
Nobuhiro Kiyotaki and Randall Wright, (1993) “A Search-Theoretic Approach to Monetary Economics” The
American Economic Review Vol. 83, №1 (Mar., 1993), pp. 63–7

Arrow, Kenneth J.; Hahn, F.H. “ General Competitive Analysis ” Published by Holden-Day Inc, San Francisco
(1971)

Published by Holden-Day Inc, San Francisco (1971)

Limited change to bring stability
By Craig Wright | 19 Aug 2018 | Bitcoin & Blockchain Tech
Something people fail to understand about bitcoin is it is intentionally limited in what it can do and how it
can be changed. This is purposeful. Bitcoin is designed to be stable money and for that reason it is not
designed to have new opcodes added outside the need for a few security based replacements or to be
altered. The very limited number of reserved words within bitcoin are incredibly necessary. If these are
wasted, the future of bitcoin as a protocol is extremely limited. Some of these have already been wasted to
implement time-based functions that could have been and have been enabled using nLockTime more
efficiently.

These keywords within bitcoin are:

· OP_RESERVED, OP_RESERVED1 & OP_RESERVED2

· OP_NOP1-OP_NOP10

OP_NOP2 and OP_NOP3 have already been wastefully squandered to provide the following opcodes:

· OP_CHECKLOCKTIMEVERIFY

· OP_CHECKSEQUENCEVERIFY

Neither of these opcodes were necessary within the bitcoin system but were added solely to enable the
theft of network effect in an attempted migration to a separate system using lightning. There is no business
case that cannot be completed with CLTV that could not have used nLockTime based Bitcoin transactions.
The same or better result can be delivered using nLockTime as CLTV. So, there is no purpose for CLTV.

Contrary to the false Core narrative, new opcodes are not designed to be added using a soft fork. Soft forks
are not a part of bitcoin and destroy the competitive nature of the system.

In this blog post I will describe the reasoning behind these (spare) opcodes and why it is important that they
are not wasted on foolish experiments. Bitcoin was designed with a limited number of these codes in
advance to ensure a long-term monetary migration on a stable system.

OP_NOP(x) and OP_RESERVED(x)

The extended no_opcodes are needed to replace the hash variables within bitcoin. OP_SHA1 is already at the
end of life and is known to be compromised as SHA1 has been demonstrated to have known collisions.

OP_RIPEMD160 is not expected to last more than a decade due to weaknesses in the RipeMD160 algorithm
strength. OP_HASH160 is a joint process where the input to this function is hashed twice: first with SHA-256
and then with RIPEMD-160. When RipeMD160 needs to be replaced, the requirement is that two of the
OP_NOP(x) opcodes be redeployed and the OP_VER (and related) op codes are updated to mark the script
change at a certain height and for the transitional period.

SHA256 remains strong for the present, but all hash functions will have a lifespan. There are three (3)
opcodes in Bitcoin that are directly based on SHA256, these are:
· OP_SHA256 The input is hashed using SHA-256.

· OP_HASH160 The input is hashed twice: first with SHA-256 and then with RIPEMD-160.

· OP_HASH256 The input is hashed two times with SHA-256.

Further, there are a number of indirect opcodes that use SHA256 that would need to be replaced if any
weakness in the hash functions used by Bitcoin was discovered, these are:

· OP_CHECKSIG

· OP_CHECKSIGVERIFY

There are seven listed functions here and additionally, when, note not if but when problems happen as a
result of the currently deployed ECDSA-256 bit curve, ECDSA-512 or some other public private key algorithm
will need to be integrated requiring the replacement of:

• OP_CHECKSIG

• OP_CHECKSIGVERIFY

• OP_CHECKMULTISIG

• OP_CHECKMULTISIGVERIFY

All up, the current version of the bitcoin protocol has implemented 10 OP_NOP(x) opcodes, 2
OP_RESERVE(x) opcodes and OP_RESERVED for other miscellaneous problems.

That is, we have a complete total of 12 opcodes changes that need to be maintained for the future bitcoin.
There are 10 functions within bitcoin that will need to be changed in the future that are defined. As we have
two wasted spare opcodes, we actually have no room for error in future updates. As an absolute minimum
there needs to be two hash functions in the public private key algorithm.

The minimum for updating the hash functions will be four (4) opcodes. The absolute minimum on updating
the digital signature is also four (4) opcodes.

The consequences if we want bitcoin to remain and be a viable system that will last more than 20 years, we
are down to two spare opcodes already. Of the total of 10 that are needed for hash and digital signature
algorithms only eight remain.

Bitcoin was set in stone as of version 0.1.0

This is a part of what this means. The design of bitcoin is not to create an idealised socialist utopia, it is to
create stable global money. To do this, it is required that we have a system that does not change without
reason. We have already seen this being subverted by developers. The idea at present is to experiment first
play by adding bells and whistles and hope for the best. This may be the way that many applications work
within Silicon Valley, but it is not how money works and this is one of the key problems right now.
In bitcoin cash, we had the foolish attempt to mindlessly add additional opcodes and the reason was that
this would bring traffic. It is exactly the opposite of what is needed. Financial organisations and even the
idea of a listed ETF derived from stability. Right now, this is the one thing bitcoin fails to exhibit as people
constantly try to change it.

Bitcoin cash is bitcoin and we’re going to work to return it to the version 0.1.0 implementation and lock that
protocol. The reasons for reserved opcodes should be clear. They are necessary to create a script system that
is stable and can be used as a financial system. To do this, we need to be able to create contracts that can
last not one, or five, or even 10 years. There are financial instruments that last over 100 years. If bitcoin is
money, it must be able to handle these and that requires stability.

With the existing script code fully re-enabled, there is nothing that could be conceivably desired that cannot
be done within bitcoin. The lack of vision of one developer does not require that the entire system and
protocol is changed.

Right now, everything that developers are doing to alter bitcoin is an experiment that drives adoption away.

Bitcoin needs to be a stable system to be money. We have invested in hash power and intend to use that
for the sole goal of scaling and stabilising bitcoin.

Bitcoin is explicitly designed not to allow people to start arbitrarily altering the structure of script.

The primary deliverable in bitcoin is a stable system. When you are told that we need to develop to
integrate to grow, the reality is that this is about scaling the existing bitcoin protocol and developing on top
of that protocol. Bitcoin is an economic system it is not designed to be altered frequently.

Traditionally, banks used marble edifices to signal their stability. This was designed to say that they would
be there unchanging unflinching and available for the foreseeable future. It’s time that we started bringing
this to bitcoin and making bitcoin cash.

Stability
Unfortunately, there are many things in Bitcoin (including the OP_Codes added above like CLTV and CSV)
that have been added and must now remain. P2SH is one of these horrible kludges. These cannot ever be
removed. This is not the same as making a bad script and losing a little of your own funds. Any additions to
the protocol we have just noted are permanent. Bitcoin cannot ever be altered to reverse these changes.

The atomic structure of Gold is defined.

If you add or remove a proton, it is no longer gold. Some changes (P2SH) are analogous in Bitcoin to adding
a neutron to gold, it can be done, but the resulting system is less stable.

It is time to start moving away from the idea that Bitcoin is broken and to start scaling it and allowing it to
become what it was designed to be — Stable money.
Black Mirror
By Craig Wright | 01 Sep 2018 | Bitcoin & Blockchain Tech
There is an episode of Black Mirror called Nosedive that explains some of the reason for the creation of
bitcoin as a proof of work system. As bitcoin has been growing up, the value has not been high enough to
attract real corporate miners. The first of these has appeared. CoinGeek has become the first real corporate
miner in bitcoin. (By “corporate miner”, I am referring to a significant private business that mines on its own,
rather than individual miners or pools of smaller miners). Their investment into the infrastructure, not as a
means of gambling and speculation between coins but with the goal of delivering global money signals the
start of a new era and one that bitcoin was always destined to reach.

Other entities (such as SBI) will follow the leadership of CoinGeek. The importance of this cannot be
understated. Bitcoin is a system has always been designed to end in data centres and corporate
competition. The reason for this is to achieve stability. It is to achieve the creation of the first money that is
set in stone and invariant. It is this stability that is needed for the long-term creation of contracts and which
delivers the ability for bitcoin to achieve stable global money.

Bitcoin was designed to become corporate

In the Nosedive episode of Black Mirror, the primary character seeks acceptance in a world based on social
credit. Before the value of bitcoin increased long enough to become sufficient to attract corporate miners,
the first stage of its development demonstrated analogously what I had termed proof of social media
(PoSM).

The social aspects of politics is what makes Fiat unstable

We saw the beginnings of this with the pseudo-attack based on an old psychological deception. The use of
techniques such as the UASF have no technical merit but have acted through proof of social media. The
reason that this worked in the past with bitcoin comes from the distributed nature of the system. Before the
overall reward increased to become large enough to attract a corporate miner, the state of the system was
created through a distributed pool system. These pools are groups of many small miners with some
estimates of over 150,000 miners having an association with the various pools.

The small miners are easily swayed through social media. They do not have the resources to adequately
investigate many of the false claims made by developers and others who use social media platforms such as
Reddit and Twitter to promote fear uncertainty and doubt (FUD) throughout the industry. This is one of the
most critical reasons why the rise of corporate miners is so essential.

The mechanism used in attacking bitcoin in its early phases is similar to the oligarchical attack that is
associated with proof of stake (PoS).

The transaction cost associated with investigating false claims is outside the reach of many small mining
organisations. It is not outside the reach of the large groups and as these large groups start to compete we
will see a more professionalised and stable version of money start to appear. Rather than switching
between many coins, the large professional miner will start competing on long-term investment cycles.

It was for this reason that the US founding fathers created a representative democracy within the USA. They
foresaw how a demagogue could sway the popular opinion and allowed Democratic systems to be
subverted for short-term interests. This has already occurred within the US and the push to become more
and more demagogic has led to a system that is less democratic.

The proof of social media attack is about using false information to sway miners into short-term interests
designed to allow experimentation even when people know problems. We saw this with the introduction of
CLTV and CSV. Both of these opcodes were determined by core developers to be dangerous and
detrimental to bitcoin, yet those same developers renamed the proposal and implemented these opcodes
in order to subvert bitcoin when they sought to introduce lightning:

We can’t safely do OP_BLOCKNUMBER. In the event of a block chain reorg after a segmentation,
transactions need to be able to get into the chain in a later block. The OP_BLOCKNUMBER transaction and
all its dependants would become invalid. This would not be fair to later owners of the coins who weren’t
involved in the time limited transaction.

OP_BlockNumber is merely a form of OP_CLTV and was rejected by Satoshi with all Core developers
admitting that it would introduce vulnerabilities into bitcoin. After people had forgotten about the
vulnerabilities, these opcodes were introduced.

The Times
There is a mistaken understanding of the article referenced within the Genesis block. The reference for this
article relates not banks, but demagoguery. The problem of government in a democratic system is the ease
with which we have allowed politicians to enact changes to our monetary system based on political
concerns and fashion. In many ways, this is analogous to the bitcoin-based social media attack we have
seen in the early days. Fiat is subject to alteration on the whims of bureaucrats and politicians. This leads to
instability in a system of rolling failures. As politicians and bureaucrats seek to shore up their positions using
short-term alterations of money, all of which lead to long-term failures, we are left with the system that
grows far slower than it would if governments kept out of the economy.

It is not the banks, but the manipulation of money for politics that is the issue

In the article from The Times, we see how government sources planned “to keep the banks on the boil”
using injections of taxpayer’s cash.

Diogenes the Cynic demonstrated the fallacy associated with relying solely on social consensus and the
belief of the crowd. According to one story, Diogenes visited the oracle at Delphi who instructed him to
“deface the currency”. To achieve this, he sought a life based on challenging existing customs and values.
For the last few years, I have stridden a similar path in public. I have created a public persona designed to
challenge in a way that gets some to question and others to attack based on the mere perception of social
disagreement.

I have achieved this and as a result shall change yet again.

My nature in teaching has always been Socratic. I do not answer questions directly but rather seek other
people to question and query and test themselves in a manner that leads to understanding and more in-
depth knowledge. This alienates many, but it is not the many that matter but the few who can continue
along the path that leads to knowledge.

Diogenes the Cynic saw the folly in social convention

Money, when handed to government and bureaucrats under the control of fiat dictates become subject to
the popular vote and suffers to fashion. It becomes the simple measure of political power to debase money
to sacrifice long-term gains and growth to achieve short-term political outcomes.

The article listed in The Times as referenced in the Genesis block was never about the destruction of
banking or government. It was referencing the political and social manipulation of money. At scale, Bitcoin
is designed to be a system that cannot be easily debased. That is why it can be trusted. Money can be
trusted when after greater than 20 years it remains the same. It is set in stone as once the game has started
the rules cannot change. Bitcoin is designed to be stable money. It is a system that foresaw the dangers of
social consensus and the attacks that will come to society through social media; the problems of social
currency displayed in the episode Nosedive.

Modem
Following the path is taken by Diogenes, I have demonstrated the folly as best I can in social media, that of
perceived anonymity where people do not have skin in the game. If applied to money, it is a dangerous
system that leads to decay.

In a recent post, I made what some seem to be an error. It was intentional and designed to capture those
with a social agenda seeking to prove my errors. There were several such pronouncements from me in the
recent past.

A modem is a modulator/demodulator. This term is falsely attached to DSL devices and other systems that
are not, in fact, a modem. Conventional marketing has used the term incorrectly, which is an aspect of the
social flaw.

The misconception that many have is the nature of a modem. When I worked for the ISP, OzEmail in the
early 90s I headed up the corporate services engineering division. Those clients who were not large enough
to have 2Mb leased lines would commonly use a bonded modem service. This is not something that most
home users would ever consider, in this, corporate users would connect multiple phone lines into a single
virtual line.

A device containing 10 modem (for the correct plural of the term modem in this use is modem not
modems) would make a single connection allowing a higher speed connection than would be possible on a
single phone line. Multiple analogue modem attached to multiple dial-up links over POTS would be bonded
to form a single channel link. The aggregate throughput achieved using bonded connections comes close
to the aggregate bandwidth of the bonded links. It is a play on words as many now use the term modems
though not technically correct for these are a single modulation-demodulation system contained within a
bonded connection that this was the intention of my post. To gain social favour to show and demonstrate
the error of jumping to conclusions without fully considering the entire situation.

Asimov
In his series, Foundation, Asimov talked of future history. We already see many within the bitcoin
community and others within alt coins crying for the creation of off chain solutions. All of these lose the
benefits that come with the pseudonymous system that holds global data and network patterns for an
eternity.

Nietzsche talked of the difference between slave and master philosophies. Unfortunately, the nature of such
systems has been taken to a horrible misrepresentation by those interested in socialist control. Nietzsche
did not seek a system of the strong dominating the weak. He proposed the system where the tough act as
stewards or governors, as business leaders offering guidance through their action and work.

It is little-known outside a few that know me well that I was heavily involved with the Uniting Church in
Australia. I was a pastor for some time and was heavily involved with uniting financial services where I acted
for several years as a trustee to the banking operations of the church organisation.

Presbyterian churches are founded as most Protestant organisations on a work ethic. One of the main
reasons that many listen to the false idolatry of proof of social media is the deceptive cry, ‘Do less’. People
who have not finished university raised on (social media) platforms that make them believe achievement
doesn’t require work and effort.

The reason for this false and deceptive claim is a call for power. They seek others work less so that they can
achieve more and deliver more using the efforts of others without delivering just returns. Bitcoin is not proof
of stake and forms a system of enduring work. This is something many such as Bitmain seek to alter. In
proof of stake, once you have achieved, you do not need to keep trying, to struggle to be better. Bitcoin is a
Red Queen game. This allows new entrants and ensures that all parties focus on the development of
solutions designed scale and grow bitcoin. Perversely, proof of stake does the opposite; it allows those who
have power and money to maintain control without doing any more.

It is a stable capitalist system, sound money that can deliver the requirements outlined in detail in Adam
Smith’s Theory of Moral Sentiments (1759) to achieve an equitable capitalist system designed to deliver
growth and enable more people than ever before to escape poverty.

It was necessary for bitcoin to pass through this stage of its growth. As it matures, there will be other battles
following this one. This is but the first. In this initial struggle, we see it seek to throw the shackles of social
control from off its shoulders and as with Atlas to shrug .

It is only with effort that we grow and develop

We will see the next two years solidify the first stage of bitcoin. Following this, six and ten years will mark
radical changes within the market. In each of these, we will see the stronger growth and development of
corporatisation within bitcoin. Global competing groups will emerge each seeking to gain further control of
a smaller and smaller reward that increments only through transactional growth. The result, larger and
larger block sizes and hypercompetitive systems.

Bitcoin is stable global cash. It is through international competition, not of small home users and hobby
nodes but from large corporate entities that we will gain this stability and solidity of the world’s first stable
money.
Banking on Bitcoin
By Craig Wright | 02 Sep 2018 | Bitcoin & Blockchain Tech

Banking on Bitcoin
There is this myth around banking and bitcoin. Any quick search will show thousands of sites and
people promoting the idea of “ be your own bank ”. This seems to become one of the catchphrases
associated with bitcoin, however it is utterly false . Holding bitcoin as cash is not banking. In Japan
due to the low interest rates offered, many people still hide their money under their bed. Just holding
your money in bitcoin is just holding your money under your bed. This is not what banks do.

Banks allocate and distribute capital. They offer loans and allow people access to funds they would not
be able to gain based on the promise of the future repayment. Bailout people who cannot afford a
home to buy one and pay it off over time. They allow people who come from poor families to seek
education and pay this off later. Bitcoin does not offer this.

It is possible to have banking based on Bitcoin but it does not involve holding your money at home.

If you have a home loan, try and think what it would be like without access to banks. Imagine, as
people used to do having to share a small room as you save, maybe forever.

Safety
For most people, the home is not the safest place. This myth that holding your own keys makes you
secure is a fallacy.

There is a monetary cost to maintain a safety deposit box. Any large amount saved within a set of
bitcoin keys is at risk and needs to be protected. This works well if you are wealthy and can afford it,
but it is not the same for the average person. Most users are not well-versed in information security.
Having worked within information security since the early 90’s when most people hadn’t even heard of
the discipline I can tell you very well that the biggest security problem is users not understanding
security. Handing off security to users is a recipe for failure.

To be safe, you cannot trust a hardware wallet. All devices have a level of insecurity and risk. You need
to be able to have multiple layers of security and for any large amount of bitcoin this includes backups,
secure off-line service and multiple keys. For any large amount of bitcoin being stored there is a cost of
storage associated with maintaining security.

To teach people that bitcoin is secure by default is negligent.

In the future, I expect people touting this idea to be sued under tortious negligence laws for
promotion of false information leading to loss. Those who have trusted in the security of bitcoin and
then have machines hacked, lose information or have key stolen even through physical act should look
to some of these people promoting the lie that owning a set of keys makes you ultimately secure to
recover their funds.

The third world

One wonderful advantage that bitcoin provides is with simple applications such as Centbee and
Handcash low-end users can access bitcoin quickly. In environments where banking is not available
bitcoin partially provides leverage to get into the market. It doesn’t provide all that banking does, but
that does not stop us from building applications on top of bitcoin that allow for localised services.

More, bitcoin provides a means for these people without access to save their money to have some way
of doing it. It allows them to have multiple wallets and only carry the minimal amount on their phone.
They can have one phone at home with a special backup key and locked encryption and carry another
with a minimal amount that they need for the day.

This is the type of thing that should be taught. Yet this is not taught at all.

The so-called experts teach you about the false idea of being your own bank and tell you nothing
about how you need to secure nodes.

They do not teach store-owners that the central head office can have a different wallet that is paid to
with no private keys on site. They do not teach people being paid for work that they can have multiple
keys and multiple wallets storing these so that you carry one with a small amount and get paid to
another.

It is time to start teaching people the truth. Bitcoin does not replace banking. It is cash.

Bitcoin core (BTC) should not even be called bitcoin anymore. It is not cash.
The crypto-ring of Gyges
By Craig Wright | 02 Sep 2018 | Bitcoin & Blockchain Tech
Plato covered the problems of true anonymity in The Republic. In this story, he detailed a fictional character
called Gyges of Lydia who found a magic ring that enabled him to escape all review with the ability to go
completely invisible at will.

No man is moral without view

H. G. Wells revisited the story in “The Invisible Man” with a modern twist on the retelling.

In the Republic, Plato recalls Glaucon’s remembrance of the story of Gyges.

Glaucon posits:

Suppose now that there were two such magic rings, and the just put on one of them and the unjust the
other; no man can be imagined to be of such an iron nature that he would stand fast in justice. No man
would keep his hands off what was not his own when he could safely take what he liked out of the market,
or go into houses and lie with any one at his pleasure, or kill or release from prison whom he would, and in
all respects be like a god among men.

Then the actions of the just would be as the actions of the unjust; they would both come at last to the same
point. And this we may truly affirm to be a great proof that a man is just, not willingly or because he thinks
that justice is any good to him individually, but of necessity, for wherever any one thinks that he can safely
be unjust, there he is unjust.

For all men believe in their hearts that injustice is far more profitable to the individual than justice, and he
who argues as I have been supposing, will say that they are right. If you could imagine any one obtaining
this power of becoming invisible, and never doing any wrong or touching what was another’s, he would be
thought by the lookers-on to be a most wretched idiot, although they would praise him to one another’s
faces, and keep up appearances with one another from a fear that they too might suffer injustice.

— Plato, Republic, 360b–d ( Jowett trans.)

This is the reason why bitcoin is pseudonymous. Anonymity does not help people become more private for
privacy is not the absence of control.

Bitcoin is money, first and foremost, it is peer to peer electronic cash.

Privacy allows people to hide their transactions yet at the same time to offer proof when it is needed. This is
a big difference with so-called privacy coins that seek anonymity. Fungibility is not about an unknown but
rather a proof of valid ownership.

When you make a purchase at the store, you do not seek to have complete anonymity but rather a level of
privacy that allows you to make a purchase without being traced. Bitcoin can provide this. At the same time,
the ability to provide proof of payment is necessary. An exchange requires that you can show how you
made a purchase. If there is a problem and you need to go to court, you need to provide evidence of the
purchase.

All contractual exchange requires offer and acceptance with consideration. This requires proof of the
exchange is available and that cannot be done using a completely anonymous coin. It is in the customers
interest to be able to demonstrate that they made a payment to a merchant. Otherwise, that user can make
an overpayment and the merchant can simply say they received nothing. No proof remains and trade
becomes less likely.

All governments have source of wealth laws. With bitcoin you can prove the source of your income and yet
remain private to the greater world. With anonymous coins you can easily be stopped and filtered. The
myth of censorship resistance requires the ability to prove where a transaction originated from. We see this
in physical cash with serial numbers and receipts. On trading merchants provide a receipt of the exchange.

The truth of anonymity is that it is not privacy.

Anonymity only helps corrupt governments and criminals. It is these people in these groups who seek to
hide in the shadows. It is not privacy they seek, but the ability to defraud others and hide what they are
doing. Bitcoin allows a user of money to prove that they had a valid right to that money. They can show
receipt and ownership. Yet at the same time they can remain private.

The issue with bitcoin and privacy stems not from bitcoin itself, but as a result of poor implementations.
BIP32 for instance is a hierarchical system that allows the determination of every branch of keys. The
problem with bitcoin is not that it is pseudonymous but that the implementations in wallets are poorly
configured. Yet, rather than improve on these people have attacked the concept of pseudonymous
transactions saying that privacy must come through complete anonymity.

This is false.

With mere privacy and not anonymity governments become accountable. It is only when the source of
money cannot be traced that black operations can exist. It is only when money can be hidden easily without
a source that corrupt politicians can act against the interest of their voters and take money from corrupt
corporations and criminals.

It is a corrupt government who needs anonymity most — people need privacy — aka pseudonymity

It is a myth to think that bitcoin needs to be anonymous. It requires privacy and that comes from the
implementation of a wallet, not a change to the protocol.

Those who push for anonymous solutions are not pushing for cash but rather seek a means to allow corrupt
governments and corrupt officials to hide money that they do not have a right to.

If you believe that corruption needs to be stopped, that Democratic governments only work when people
cannot be paid off with slush funds and under the table payments from criminals and corrupt
organisations, then you will never believe that bitcoin needs to be anonymous.

Bitcoin is cash (BCH).

Death and taxes, it is time to kill off mythical beasts
By Craig Wright | 04 Sep 2018 | Bitcoin & Blockchain Tech
I have a hard lesson for many people within the bitcoin and crypto currency community and that is that tax
does not go away because you use crypto currency.

The reality is that bitcoin is extremely easy to tax. The simplest way is what occurs now. The two simplest
taxes associated with a modern economy are a consumption tax and income tax. Modern income tax is
paid directly to the government. As an employee, it is your responsibility to claim tax back. A consumption
tax such as Australia’s GST or European VAT can be collected on sale and exchange.

Death and taxes remain in a bitcoin world

In the period between 2006 and 2008 I was working for a chartered accounting firm, BDO, in Australia. One
of the areas I managed was computer aided audit (CAATs). The software I wrote was designed to automate
the analysis of corporate logs, accounts and tax returns. This is an essential process within organisations.
Without good records no company can operate and without good records fraud cannot be detected.

Any good Corporation works within the laws of their country. This includes paying tax and reporting. The
first myth we need to expose is that Bitcoin in any way stops or minimises the collection of tax by
government. In many ways, it simplifies corporate compliance and tax reporting allowing governments to
collect faster and with less interference. This is the important point, not avoiding tax but minimising the
interference that tax officials impose on individuals and companies allowing them to get on with business in
a fair and open playing field.

VAT or a consumption tax

The simplest form of taxation for a government in a completely digital economy is that of a consumption
tax. The value added tax or VAT and it’s equivalent a goods and services tax or GST is placed upon the sale of
goods and services at the time they’re sold.

Using accounting standards and records that are linked to a system such as bitcoin we can provide a level
of pseudonymous interaction maintaining the overall privacy of a corporate record in a way that minimises
fraud while simultaneously allowing an organisation to submit the correct amount of tax. At present, value-
added taxes are overly complex. There is a requirement to differentiate between input and output credits in
such a way that even large organisations find to be difficult.

Bitcoin and smart contracts simplifies compliance

The truth is, each layer of processing could be individually accounted with automated payments based on
existing tax laws lodged in software that report instantly and not only report but transact instantaneously
with government. Bitcoin does this. Not that it needs any changes, not that there are alterations. Bitcoin as
it existed in January 2009 allowed this to occur. In fact, there is no way to stop this.

At the consumer facing level, goods and services can be classified under a legislative framework and taxed
directly and automatically with any required alterations in the amount being taxed included with the
simple cryptographic code. For instance, if a government decides to tax food at a different rate (such as
bakery vs tinned goods), the transaction as a smart contract exchange between a consumer and a
merchant can be recorded and completed with the correct amount of tax instantly transferred to
government.

So, the truth of the matter is that bitcoin does not stop tax and rather makes it easier and faster for
government to collect tax. This is critical. At present, the burden of reporting taxation and responding to
audit and reporting is excessive. Lowering the cost of compliance is a major benefit of bitcoin.

The government can maintain a hierarchical set of wallets determined in advance allowing a registered
taxpayer to instantly transmit any value-added tax directly to the government from a point-of-sale
application or other accounting package.

For the consumer, an invoice can be attached to the transaction allowing instantaneous reporting and
simplified refunds. In this system there is no need to maintain messy paper records for many years. There is
simply an automated open and fair system where all parties are treated equally.

Even better, a consumption tax favours those who invest over those who consume.
The idle wealthy who do little more than spend what they have inherited are forced to either invest or to
pay down what they have in taxes. Those who build and re-invests also pay less. Those who save benefit and
those who consume more, pay more.

Income tax
Income tax does not go away because of bitcoin. Pay-as-you-go taxation is standard within most Western
countries. The employer as a corporation, or a partnership, has a choice. They pay the tax for their
employees or find that they do not obtain a deduction. It is not in the employer’s interest to pay an
employee under the table.

At present, bitcoin wallets are setup in a manner that does not offer much privacy. A lot of the blame for this
comes for the people creating poor systems with very little privacy who’ve done very little to move bitcoin
into the mainstream. The reality is that it is extremely simple to create a private system that allows
employees to maintain privacy and not have their income tracked even by other people within the
organisation and yet get paid directly in bitcoin.

Bitcoin is P2P Electronic Cash — from the start

As organisations return after-tax amount to an employee, it is the employee who was required to claim
money back. The government has already received the tax. Bitcoin can simplify record-keeping making it
easier and more automated in a manner that allows for faster returns. In a bitcoin world tax happens but at
the same time the employee has less compliance obligation and a faster return on their money.

Corporate tax
All companies maintain records for tax purposes but even without taxation maintain records for their own
purposes. No good company can operate at any scale without records. Financial records are the heart and
soul of most organizations. The result is that it is nearly impossible in a system such as bitcoin to hide tax.

As one organisation pays another and makes, and lodges claims the government will receive a complete
and up-to-date record of all of these transactions nearly instantaneously.
Efficiency aids growth

The result is a system that is simple to audit and does not require a lot of interaction. It is a system with low
compliance costs. Bitcoin does not remove government, that is something people in a democratic society
vote on. If you want lower taxes, vote for lower taxes. If that does not work for you move to a different
country.

Anti-Government is anti-reality
There is nothing within bitcoin that even remotely threatens banks, corporations or government. Bitcoin is
sound money that is not easy to debase. Bitcoin does nothing to circumvent the law. It takes no power away
from government. What it does do is important. It provides a level of translucence. This allows what Judge
Learned Hand called the sunshine principal to apply. That is, others can audit and review anything in
aggregate whilst still maintaining complete privacy over lower level details in an accounting system.

If you wish to alter a democratic government you have the right to protest, you have the right to stand for
office, you have the right to complain and you have the right to leave that country giving up your citizenship
and going to another.

This is the reality of the world we live in and like it or not bitcoin does nothing to change this. Bitcoin
provides something more important. It provides a means of tracking and tracing that allows us to have not
only sound money but a system that can be built upon it that is corruption resistant.

To end, fairness
It’s very simple, if you do not like tax, and not many of us do, move. You have the right to change country.
You have the right to vote in a democracy to lower tax.

The idea that privacy coins as they called will ever take traction is asinine. Government can control access to
payments and exchange and require that any transaction involving a media they do not like become
immediately void. Bitcoin walks a very fine line that allows it to operate as money. That is its strength and
that is why bitcoin is cash.

I favour small government, and, in many ways, Bitcoin helps. It helps as a translucent database allows easier
compliance, less interference and can reward those individuals and companies who save and invest.

Those who play by the rules, they are called by some sheep, yet it is these people and those organisations
who are the backbone of trade and exchange. It is not whether you like the rules of the game, it is that you
play fairly by them. Evading tax is not noble, it is simply cheating and fraud. You can justify this all you like,
but, it means those who cannot, who will not and who are honest are punished for your transgression.
The paradox of the Übermensch
By Craig Wright | 05 Sep 2018 | Bitcoin & Blockchain Tech
It is simple to be disappointed with the common person. I have written recently about the bandwagon
fallacy. When I wrote about this the other day, I pointed out a variation of it that we now see, proof of social
media. We can call this the Reddit effect, but it has infected much of society and not only crypto currency.

Truth is not a function of popular belief. Seeking social validation does not help you reach truth.

Proof of Social Media is proof of not thinking

This post today I seek to go through many commonly presented fallacies. I do this not in attempt to offer
any proof or disproof, but in my normal Socratic style I seek to have people start to think. This is a concept
that is strong in “Thus spoke Zarathustra” (1896), where Nietzsche presented us with the maligned concept
of the Übermensch. This has been commonly mistranslated into beyond man, Superman or over man. The
truth of what Nietzsche sought was more the worldly businessman of the format of a Carnegie. The
unwavering focused businessman developing and building come what may without care of social pressure.

The Übermensch related to a new form of aristocrat, not one who inherited a position but one who had to
earn it in a meritocracy. For Nietzsche one such as Cesare Borgia could fulfil this role as in a more modern
sense so could a Steve Jobs.

It is this mindless disgust for the unthought through social behaviour of the herds that I seek to expose. Two
years ago, I wrote a blog piece that remains cogent and has hardly been read correctly. In my past, I taught
the ability to use robot.txt files in a manner that would create varying information within sources such as
the wayback machine. The wayback machine is not a terribly good archive site for forensic purposes. One
skilled in the art can select files that appear and disappear over time. Two files can be simultaneously loaded
and based on a subsequent robot.txt file one can choose which one will appear at any time.

I selected to delete many of my old blog files, in time I will recover some of these but not yet.

A file that I did decide to leave and not manipulate the timestamps of was a post I authored two years ago
that very few still seem to have read in any detail skimming only to the predefined response the
bandwagon demands.

JEAN-PAUL SARTRE, SIGNING AND SIGNIFICANCE

One day people will read the article and decide to comprehend its intent. A critical difference to the
perceived significance of the article and to the difference that many assign is the intent. The most critical
part is that which is overlooked by most in the youth. It is not the first look nor even the second but the
deeper meaning. In 1964, Sartre rejected the Nobel prize for literature.

“If I sign myself Jean-Paul Sartre it is not the same thing as if I sign myself Jean-Paul Sartre, Nobel
Prizewinner” — Jean-Paul Sartre, 1964

He did not take this lightly and saw his position altered irrevocably through a path he did not seek yet
which others sought to thrust upon him.

Very few question the reason behind the choice of Sartre for this piece nor the significance. The moment of
the comments in the words lost to the “herd” clamouring to be accepted remains now as it was when I
authored a manifesto very different to the philosophy of Sartre days after the death of my best friend, David
Kleiman .

To be is to create

The irony in the creation of an idolatry for a creator seeks to askew veneration is lost on those who cannot
read between not only the lines but the text itself.

It is funny experts can be misled by their own idolatry. In many ways, love and hate are two sides of the
same coin. In my post on Sartre there is no point in which I make a promise to answer or to be. This shall not
change for bitcoin is pseudonymous and proof is more than signing.

It has already been said that should I sign that others would simply believe that I’d stolen keys or defrauded
others into gaining wrongfully the possession of those required keys. In this we see the problem. That you
seem to of read so little, and fewer seem to wish to comprehend. I know how, not viscerally better deep
technical level to sign using a digital signature formats such as ECDSA. I know how the mathematics of
such a system is designed. And in the piece on Sartre I demonstrated conclusively our knowledge of the
most convoluted way of finding to verify a signature without resorting to something as simple as dropping
it into a bitcoin wallet.

But verification and proof was never the key.

Security is always a risk function and not an absolute.

Now as then people foolishly assume what they already want to know. It was Frederic Bastiat, the French
economist and philosophe who instructed us to look beyond the first layer into something deeper. Many
already a lost cause. But in this I retain hope. Some will strive and struggle and compete and others will
think for themselves.

If you think I will give you the answer that you wish, I disappoint your vaguarity and inability to provide more
than the indefinite nebulousness of an unclear and undefined desire. You cannot call for a leader to lead you
into a leaderless society.

The hypocrisy and the contradiction of the paradox leads one into a state of denial cannot overcome.

In “ The seen and the unseen ”, Bastiat presented us with the concept of delving for meaning in the hidden
or later appearing consequences of any intervention in the economy, I will take this further and say that the
unseen consequences flow many systems. To understand is not to look eternally, but, to equate a depth
that is warranted for the outcome you require.
Pseudonomy allows choice and free action

“A Negative Railway” (Bastiat, 1845) shows us the extent policy contained within the current debates over
the bitcoin protocol. Just as with the absurdity of listing to every vested interest between all parties seeking
stops on the Bordeaux to Bayonne railway, seeking all changes from all users of money would lead to an
equally absurd outcome.

He Who Has a Right to Work Has a Right to Profit .

Meritocracy
Rule by philosopher-king gives way to timocracy (rule by property owners), which gives way to oligarchy,
followed by democracy and then tyranny. As democracy is preceded by rule of the rich, Plato believed that
under a democratic regime, there would be considerable resentment against the wealthy; the first step of
the democratic demagogue, he claimed, would be to attack these wealthy elites.

Bitcoin is pseudonymous. It is time for me to explain some of that to the herd.

First and foremost, bitcoin is based on proof of work.

In Plato’s Republic, Rule by philosopher-king gives way to timocracy . This is a rule by property owners. It is
in effect a form of aristocracy. It came from the system of wealth being seen and known. What Plato did not
see was the form of money that could be neither anonymous nor open. That is, a money that is translucent.
A money that is polarising and visible only when seen in certain ways. With such a money the aristocrat
need not have others know. In this, even family can be abstained out of knowledge from the extent of one’s
wealth.

In a proof of work system, unlike that of proof of stake, we create not an aristocracy, but maybe if it works
the first true meritocracy. Not a system as Plato saw in the Republic that gives way to oligarchy as we will
see with proof of stake, but one which embraces the most fundamental capitalist ideas. Not those of the
common businessman seeking mere wealth or short-term gain but those who want to create for creation
sake.
The ultimate philosopher king is one who is not known as being a king

The flaw of a meritocracy and the flaw coming from the wealthy who have achieved is envy and greed. Plato
saw the collapse of democracy through the resentment of the wealthy. We see this already in our society
where people attack those who achieve, on false claims of inequality. The demagogue, the social media
manipulator attacks the wealthy in this system. In the Republic, it was in the forum and through lawsuits. In
the modern world it starts and Reddit and twitter.

What is Bitcoin…

Bitcoin is a system for the pseudonymous exchange of wealth. It does not redistribute and it does not
create any socialist idea of equality. It is a form of money that allows one to prove when they choose to
prove and no more. It is important to note that in a pseudonymous system honesty is maintained only
through the exchange of information between individual parties and not public attestation.

The first rule of bitcoin that many need to start to understand is that you do not need to do anything
publicly and in fact entire concept of proof of social media, proof by demagoguery is one of the key aspects
of common societal collapse that bitcoin was designed to circumvent.

In contract law, there are three aspects of an exchange. Offer, acceptance, and consideration. When one
does not seek anything from another there is neither offer nor acceptance. I’m sorry to finally explain this to
you but I do not want your adoration and the only thing I will do is ensure none ever take up the mantle I do
not want. The funniest thing in all this has been that many expect something without consideration. If you
deal with me, you will know that this can never be the case. Moreover, I have no need of money — rather I
have all I will and shall ever need. So, it is likely you have little to offer.

References
1. “That Which is Seen, and That Which is Not Seen” Bastiat, F.
2. Bastiat, F. (1845) T.38 ES1 17 “Un chemin de fer négatif” (A Negative Railway) (c. 1845) in CW3, pp. 81–83.
A diatribe on Bitcoin, Trust and the economy of security
(redux)
By Craig Wright | 07 Sep 2018 | Alternative Coins & Systems
It was April 27th, 2013 when I first published an earlier version of this, and it is timely to start bringing this to
life again.

The most marketable goods are what become the media of exchange.

The statement above has held true for all time. When exploring the history of money and barter it was not
cows and chickens that were exchanged. The farmer with an excess of chickens would exchange first for
grain, butter or some other divisible good. Grain could be divided into small parcels. These parcels could be
used to trade for other objects. It is impractical to think that anything larger than a small village engaged in
social barter long-term. Even a small group, no larger than a few families starts to collate obligations. What
would’ve actually occurred is the use of improvised currency.

This started with divisible goods. Those common items that could be easily exchanged.

Are you earning a salt wage?

In Rome, salt was commonly used and forms the basis of our word today for earning. That is, salary.

Salt was ideal as a form of early currency. It was divisible into small amounts, did not degrade quickly and
started as something people could trust. It was easy to taste salt and it was simple for the average person to
determine the quality.

As the value of trade increased salt became insufficient as a medium of exchange. It was used for many
small purchases and remained a staple up until today, but, the volume of salt has increased against labour
leaving the amount of salt required to become excessive.

The quantity of salt was too large in the end for most trade. It was also too easy to lose. A rainstorm could
literally liquidate your holdings. Slowly over time other sources of wealth came to replace early currencies
such as salt. Gold is perhaps the best known of these. It is easily divisible and does not degrade over time. It
has a use in jewellery and has been highly valued through the entirety of written history.

Supply and demand however has increased the value of gold. Gold has uses in electronics and jewellery
even today but its true use is as a form of wealth measurement. This value has increased to many times its
consumption value as it is in demand as a form of saving. Although gold is mined it is also consumed. The
demand for gold is increasing for many reasons but one is fairly simple, you cannot print gold.

This is of course a powerful aspect of gold. The hidden tax of inflation cannot be hidden. The government
cannot decide to increase the monetary supply and devalue a nation’s wealth. Yes, the arguments abound
that the central banks control currency or not the government but remember in the US it was Pres. Obama
who took an additional $1 trillion for his own spending experiments. The result of this was a severe drop in
the US currency value. The US dollar which was worth far more than the Australian dollar was on par in 2012.
The reality of this is that the US government took the wealth of the entire country and taxed it away. The
international purchasing power of a US citizen has been drastically reduced. The result is every US citizen
has less money. Their houses are worth less, their investments are worth less, they are less wealthy.

Wealth is not money, it is what can be gained

The reality, government has taxed them outside of Congress or anything they decided to vote for. The reality
is a theft on a massive scale but one that has been hidden, overlooked and somehow blamed on commerce
and business. Commerce and business of course being the engine that funds and powers the country but
which is also denigrated.

So the question is what the hell does this have to do with bitcoins and trust?

If you asked this I will say is a good question. It is a fundamental aspect of what bitcoins are achieving. The
key to currency is trust. That’s it, nothing special no more. The US dollar is not a promise of anything of
value. Since the US dollar has been taken off the gold standard the US dollar is a promise of the US dollar.
What this means is that if you go up to the treasury and hand them one US dollar they will hand you back a
US dollar. This may be the same US dollar or it may be a different one. That is the extent of state-based
promises in regard to currency. Basically, there is nothing to trust.
Well, it happened before…

We’ve seen this again and again. States change leadership. Even when leaders are selected they do not do
what they are selected to do. In Australia we have a choice of two parties. One a Labour Party who will lead
us into a deficit that they have created. The other the conservative coalition who will promise to spend us
into a deficit. We have a choice. A choice of who waste our money better. But is that really a choice at all.
When given a choice of Mickey Mouse or Donald Duck as our leader I don’t see that we have a choice at all.

Bitcoins are like gold in many ways that I am not going to detail on this post. What matters is that
government cannot degrade the currency. They cannot print more. They cannot steal the wealth of the
nation for the half cocked ideas they tout without a clue of the effects.

Australia has an opportunity to be the breadbasket of Asia. Commercially speaking supporting the
commercialisation of agriculture make sense. This is not the idea of handouts to farmers, it is the idea of
allowing large-scale industry farming. Automated systems based on technology with highly educated
people managing farms. This is an idea based on cutting subsidies and spending less. It is one where we
don’t continue to pay car workers who are economically inefficient and who drain money from the entire
society to produce inferior quality products. It is one where the most competitive forces win.

Right now, we have the same scenario in Bitcoin with regards to mining. Some want to scale and allow the
world to have access to sound money. Others, want to be subsidised so they do not need to work and strive
as hard.

Bitcoins can be trusted for the simple fact that government cannot print more. It is not a central authority
that creates trust. It never has been. Money did not develop because of the benevolent government. Money
was created by merchants and commercial entities as a means of engaging in trade. It was not a
benevolent government who created money but rather a despotic government who monopolised and
continues to monopolised the means and supply of money following a hostile takeover. Yes a hostile
takeover. Quite simply put money existed well before government. Trust in the currency existed without
government. We have been fed a lie designed to make us believe that we need a benevolent central body
telling us what to do. We do not nor did we ever.

For this reason and for the reason that bitcoins cannot be created at will, we can trust virtual currency more
than that issued by governments.

This brings us back to the initial statement of this post. The most marketable goods will always become the
primary media of exchange. Right now Bitcoin is (and remains in) in the early phases of adoption. A limited
number of markets are available but they are growing. It is a currency that is infinitely divisible allowing for
small trades across borders. This is important. More so than many people realise.

We are entering an era of intellectual property.

There will be no traditional manufacturing in years to come. This is a big and even bold statement but it is
one based on fact. Automated systems are becoming cheaper, faster and better. In just a few years they will
exceed the best capabilities of the most skilled artisans and they will do this at a cost less than the lowest
unskilled wage. 3-D printing remains at the stage computers were in the 1970’s and 1980’s. Robotics remain
at a similar level. What people seem to forget is that all of these technologies gain in capability every year
exponentially. The skills of individuals, even artisans increase slowly if ever. The best development a human
can do is linear. Over time any exponential system exceeds a linear one. In my lifetime manufacturing and
automated systems will produce more at a better quality in the lower price than any human could ever
hope to achieve.

What people can offer is simply intellectual. We design and we create, it is our strength.

It is not the idea, but the implementation

The result will be a world of little but intellectual property. Technologies such as 3-D printing as well as
others I cannot even imagine and services will be the foundation of society. Manufacturing will not be. Even
agriculture will be a technology. The romanticised ideal of the farm family has had its day. The agricultural
corporation running automated devices will exceed the output in production of even the best farmer.

This is a world that needs a means of transacting engaging across borders. Intellectual property can be
distributed instantaneously across the Internet to any place as it is needed. Your production device at home,
the future intellectual child of today’s 3-D printing technology, will create a new cup as you need it. It will
replace your shoes, your swimsuit, your computer tablets, the thing that passes for your phone with its
visual display across your retina. All of these will be printable at home. To do this will require base materials
and intellectual property.

Just like we purchase intellectual property for movies and videos online now we will purchase and receive
instantly goods and manufacturing rights in the future.

This will be from any place on earth. We will purchase from Africa, Asia, Europe, the US and anywhere else
instantaneously. Your Nike shoes will not require sweatshop workers in China. They won’t require workers at
all. The result will be the download of an intellectual property right enabling you to print these things at
home. And they will be better quality than you have now. They will be bespoke set to your exact
measurement in a way that not even the rich know now.

The question to ask here is whether any existing currency can handle this world of the future. One that will
be here in my lifetime and I’m not young. The simple answer is that US currency, the failing Euro, or about
anything else you can select as a state currency will not be trusted internationally if at all inside their own
borders. The trust in the US dollar has eroded as the country is slowly become more and more
interventionist.

What bitcoins offer is a way to instantly distribute payments anywhere in the world quickly and cheaply.
They offer a means of distributing intellectual property and selling the rights instantly anywhere in the
world.
For those who argue about the need for trust based on the government I would add it is about time that
you look at the world we are in and where it is headed. Innovation will change this earth in a way that none
of us can comprehend but it is a way that will become based on intellectual property and intangible ideas.
All wealth will become intangible at its primary source and foundation. Bits will become the foundation of
all society as they already are starting to do, not just movies or music that hard physical goods will derive
from ones and zeros.

One day, all goods will be digital

Right now we can still transact using US dollars and other local currencies but in the future this will become
less and less viable. This is the beauty of Bitcoin in this is the uppercut that has remained unseen until now
when it is too late. The advances in intellectual property and its inevitable march to consume
manufacturing as we know it will require an international currency that can be universally trusted. This is
one without any government intervention. There is only one way to do this and no government can
centralise it.

Bitcoin is not the only solution but it is the leading one. It is Bitcoin that allows Peer to Peer Electronic cash
and it is BCH that remains true to this purpose.

Hold fast to your beliefs if you wish and I will place my bet is you did yours. For this is what it is. You may bet
on currency controlled by state player and I will bet on something that is decentralised and which cannot
be devalued at a whim. A currency that can be trusted by all.

Bet your way and there is a simple way of testing what will occur. It is time. I’ve placed my bet and it is
against all of those who believe that trust requires a central authority. My bet relies on the individual as a
collective whole. That we all have value in that society does not need to be ruled centrally through monetary
control. In the next couple decades we will see who is right and if I’m wrong my words will be here as a
marker and a lesson.

If I’m right…
The future is here
Repudiation
| 07 Sep 2018 | Bitcoin & Blockchain Tech
By Craig Wright
Non-repudiation is the process of ensuring that the parties to a transaction cannot deny (this is
repudiate) that a transaction occurred.

Repudiation is an assertion refuting a claim or the refusal to acknowledge an action or deed. Anticipatory
repudiation (or anticipatory breach) describes a declaration by the promising party (as associated with a
contract) that they intend to fail to meet their contractual obligations.

The issue is, non-repudiation does not exist. NO technical solution can exist, as a party can always say
they lost keys or were under duress or something else.

Bitcoin transactions are not fungible through technical measures to create non-repudiation, they are
fungible through law.

Fungibility comes when money is exchanged as consideration (and without knowledge of crime, etc.)
with another for valid consideration.

Even a gift is not fungible.

Worm-a-nomics
By Craig Wright | 07 Sep 2018 | Alternative Coins & Systems
Or the invasion of the coin snatchers….

For every 1 BCH deposited ( these are actually destroyed ), 100 WHC are created (issued from the pre-mine
PoS allocation — not created at all).

A Wormhole token is denominated as WHC.

Let us start with a few other aspects of this before we model the effects of WHC and allowing the changes
needed to make WHC work as more than the useless joke.

The process of burning to generate WHC has no deadline.

It works the same way [1] with Wormhole protocol. Each satoshi (BCH) burned will not be back. This
type of “burning to issuing” is like a one-way ticket to Mars.
WHC does not need Bitcoin Cash, it needs ANY PoW system (that it can act parasitically on)
There is no limit to how many WHC tokens are created to (sic) the Proof-of-Burn mechanism .
This “ burn to generate ” process is subject to risks of rollback of the BCH blockchain. Therefore, WHC
can only be generated when 1,000 confirmations are finished. 1 BCH can get 100 WHC.
Note [1] — this refers to a statement that WHC is like space travel from the issuer.

Basically, Wormhole is a Blackhole. What enters is destroyed.

The reason there is no deadline is the aim is to slowly take all value from BCH and move it into WHC.

What enters the Wormhole is destroyed as it is a Blackhole

Money is valued through use. This is, though velocity. As WHC reduces use of the base layer (just as the
Lightning Network does in BTC) it lowers the value of the system as a whole. This lowers the value to miners
and hence, decreases the overall security of Bitcoin.

A WHC is created when a BCH coin is destroyed, but the un-minting of a token on WHC returns the WHC.
This is a backed system. The distinction is that it is the WHC that is the backing asset for the tokens, not
BCH.
If the value of any token made on WHC ever goes below the value of the WHC used in minting the token,
the token is effectively dead. The reason is that it is more cost efficient to un-mint the token and collect the
WHC that backs that Wormhole minted token. This rights offer is basically an option. This is a form of
security where the issuer can choose take the “option” to redeem a security based on the strike price.

As a consequence, the number of WHC does not decrease and remains in circulation no matter how many
BCH are destroyed.

GAS

WHC “ smart contract s” provide nothing that Bitcoin did not have natively in 2009. Many do not under
stand the power of just a few OP_Codes . In an interview, Clemens Lay explains a token system that he is
releasing in Bitcoin script that does not require separate nodes .

The concept is that BCH and ETH are merged with Solidity as the language.

And, this is from BCH being consumed

The side effect of this is that WHC is used as GAS and BCH is burnt to make more WHC. This however does
not push the price of BCH up as BCH is not essential and WHC can move to BTC and consume it once BCH
is destroyed.

Now, the rub…

As one BCH token returns 100 WHC, if the value of a single WHC ever reaches more than 1% of a BCH, then,
it is in the BCH holders economic interest to exchange a BCH for 100 WHC.

Let us for example say that BCH is trading at $600 USD and a WHC is trading at $6.25 USD. You own 50 BCH.

If you sell your 50 BCH to gain the 5,000 WHC as any arbitrager will immediately do, you now have $6.25 x
5,000 value in WHC. That is, $31,250 or a $ 1,250 USD profit. The 50 BCH would see to USD for $30,000. But as
a swap, your 50 BCH become 5,000 (50x 100 WHC). 5,000 x $6.25 USD = $31,250 so, a $1,250 gain.

You could immediately trade this for BCH if you wanted BCH and have more and this will continue until the
price equalises. The issue is that BCH is being forced down in value in this exchange. As more and more BCH
is burnt, there is less on the market.

BCH has no value as a mere digital asset, it has value as cash, so, with the supply retarded, the value of BCH
decreases more and more until, all we have is WHC which then moves on to leech off BTC and other PoW
coins one by one.

Why would WHC go up?

The changes in progress add value to WHC and reduce the value of cash.

Money is not made more valuable as there is less of it. So, the HODL myth will not add value. If BCH is altered
to make WHC function, the aim is to destroy BCH. WHC is not cash, it is a doppelganger designed to take
the life from BCH and then move on to the next victim.

Watch out for the WHC coin snatchers

One thing to consider…

`the best way to burn bch is to send them to OP_RETURN output, it can be pruned and therefore does not
put unnecessary burden on nodes`

The way that Bitmain seeks to send BCH to a possible “Theft address” posing as a burn address also
increases the UTXO set. So, they are actively sending transactions that do nothing good and yet burden
nodes forcing them to increase the amount of memory required and at the same time are not scaling BCH.

The best way is not to burn — as you do not peg anything by destroying it.

Note
In the Yours article on Wormhole , we have a blatant lie:

Based on known cryptography theory and engineering practice and research, nobody owns the private keys
of the address bitcoincash:qqqqqqqqqqqqqqqqqqqqqqqqqqqqqu08dsyxz98whc. And no one used this
address in the history of Bitcoin Cash blockchain before we started working on the development of
Wormhole protocol.

The fact is, this is a valid Bitcoin address and hence, there are keys to it. Saying (in effect), trust me, I do not
have the keys is itself a reason to distrust Bitmain. The key is a vanity address and is not all ones. There is
not reason to believe this was not created with a valid key.

Saying you have an address and that others cannot find the private key is not the same as creating a public
key that looks interesting.

WHC could use all q’s for the address and ignore the checksum. To some, this may seem bad or wrong, but
remember, that this would stop anyone accidentally sending to a WHC address (and this has happened)
without having a WHC issued formally.

The Bitcoin Checksum is simply a part of the wallet and is not needed as a part of the burn address. This is a
UI function. Bitmain could have used a process where you send to an address on the WHC wallet as BCH
first, then, you move to the WHC and are minted. This would be no hindrance to the user as they must
follow this form of process now to have a WHC issued, but it would stop all accidental burning of BCH. As
such, we can also say this loss is a part of the aims of the Wormhole in consuming BCH — this way, Bitmain
gains as BCH are destroyed for nothing as well.
The Gamma Monstrosity & the Probability Deception
By Craig Wright | 08 Sep 2018 | Bitcoin & Blockchain Tech
For some time now, I have allowed people to continue with this foolish and unscientific notion of gamma in
the Selfish Mining fallacy. In this rather extended article I intend to finally detail the key issues that surround
this form of pseudo-mystic science. If we can call it science at all.

A colleague from nChain and myself published a proof of the Small World nature of bitcoin [1]. This is
important in demonstrating the propagation method used within bitcoin. The so-called Sybil attacks are
modelled falsely on the notion of being able to inject additional hops within the bitcoin network.
Unfortunately, the pseudo-academics behind this notion never bothered to test their limited hypothesis.

Gamma, the probability deception

What is Gamma?
The first problem people have is jumping on the bandwagon without understanding the terms that they
are seeking to address. This is a common Proof of Social Media ploy. So, to begin, we shall look at the
definitions of gamma propositioned within the selfish mining fallacy:

γ = 0, the honest miners always publish and propagate their block first, and the threshold is at 1/3. With γ =
1/2 the threshold is at 1/4. Figure 3 shows the threshold as a function of γ.

The first issue is the hypothesis falsely assumes a mesh-based network structure with many hops. It also
treats this as a probability calculation when it is in fact a likelihood model that can be negative. Negative
probability is the probability between zero and one that the opposite will occur. Negative probabilities do
exist, but they are generally discouraged because the real meaning of a negative probability is an error in
the model. Unfortunately, the authors of the erroneously deceptive selfish mining attack fail to understand
the basics of how bitcoin functions.
The authors have failed to account for a likelihood function concerning loss. This is, the selfish miner has an
economic and time cost processing transactions and blocks. If this succeeds the ability to push their own
block time, gamma, becomes negative in their model. A better way of putting this would be simply stating
that the model is flawed.

In the misconstrued version of how bitcoin works, the authors treat bitcoin as a loose mesh. In an earlier
version of this form of mathematical analysis of bitcoin [2], the authors acknowledged that bitcoin could be
vulnerable if the network distance was greater than d=3. The authors analysed bitcoin mathematically
reporting the assumptions and stating that bitcoin could be floored if the network was a loose mesh. The
inverse scenario from this leads to Bitcoin being secure if the distance of the network hops is under d=3.
This work [3] is scientific in nature. It provides a hypothesis and a means of testing with the assumptions
listed.

The selfish mining paper on the other hand ignores all these assumptions and treats bitcoin as a mesh
without any validation.

We see the form of Gossip model assumed in the selfish mining proposition in the figure below. The authors
of [3] investigated several propagation models in this research and if Bitcoin was remotely like this form of
network, then the concept of gamma could be argued to apply. This would occur as a discovery from one
node would impact others sequentially.
Flooding attacks in loose mesh networks differ to Bitcoin

In the group of Sybil’s proposed within the selfish mining hypothesis, the authors see the formation of a
giant node managed and constructed by the “dishonest” selfish miner. In this, any communication from an
honest node would likely propagate to the selfish miner who would be highly connected in the form that
bitcoin assumes.

The authors of the selfish mining hypothesis have in effect assumed that most bitcoin miners will act
independently and outside of their rational economic interests in ensuring that a system that is not highly
connected evolves. Simultaneously, they presume the assumption of a giant node formation created by the
dishonest miner. In this, the selfish miner forms a network of Sybil nodes. This network of Sybil nodes is
constructed in a small world topography. The reason for this is that the selfish mining pool will control
access to all of the nodes and be highly connected to all of these. The proposed consequence is that honest
nodes maintain a loose mesh structure and remain oblivious and in active and unresponsive as a giant node
or small world cluster of selfish mining Sybil machines infects the network and acts to become the primary
backbone.
The mesh that Bitcoin never was

Many pundits within the Bitcoin community seem to have a strong affinity to seeing Bitcoin as a mesh
network. In such a mesh with many hops, the majority of nodes could be Sybil’d if a group of densely
connected machines in a small world topography acted as a propagation backbone. This is in effect, the
scenario proposed in the small world hypothesis.

Unfortunately, no statement concerning an assumption of mesh-based network structure is ever made nor
did the authors investigate what might happen if the network is not a loose mesh. As we have already
demonstrated, Bitcoin forms a near-complete graph and as the system becomes commercially more and
more valuable it becomes closer to a complete graph.

At scale, Bitcoin is a densely connected system

Bitcoin forms into a complete graph as the miners are incentivised to do this. It is not enough for a miner to
find a block; a minor is rewarded in effect when all other miners build upon that miner’s block. This is
ensured in bitcoin using a waiting period. On finding a block, the miner then must wait for a long period of
time before the block is valid and can be spent. Consequently, miners not interested in mere block
discovery, they are interested primarily in blocks that other miners build on.

It is this requirement to have blocks that other miners accept that makes Bitcoin a system incentivised to
scale through densely connected graph structures. The misconception that non-mining nodes add any
importance to Bitcoin block propagation or security is a social media or attack and is irrelevant to the
structure of Bitcoin.

In a new complete system, no Sybil machine adds value. If we take a thought experiment about the optimal
selfish mining structure in bitcoin as a new complete graph we can see the following results:

1. An honest node discovers a block and propagates it to all connected neighbours,

2. In a single hop, all major mining nodes now have a copy of the honest block,

3. As the honest mining nodes start building on this block, the selfish mining Sybil system has propagated,
enacted a verification scheme and then reacts after all other nodes.

a. An important point to note here is that the Sybil network acts as a separate giant node structure. The
process is:

i. Accept a candidate block from the honest miner,

ii. Validate this block as any spy mining or other unvalidated release of a selfish block would invalidate the
mining strategy for the selfish mining pool,
iii. Propagate the competing block following a validation delay.

4. In all instances, there is a marked validation delay for the selfish miner.

The authors of the selfish mining hypothesis have clearly never investigated the integration costs associated
with managing a large botnet. Such systems are managed using command-and-control servers. The
management of such systems requires constant interaction to stop their discovery being made public. This
cost of course is ignored within the selfish mining hypothesis.

Even ignoring this cost in the economic constraints, it imposes, the introduction of a second giant network
structure as an overlay to bitcoin imposes delay.

In a complete graph, the introduction of Sybil nodes does not introduce any benefit to the attacker. Even
ignoring the cost of these nodes, what we see is the introduction of a delay or lag in the propagation of
selfish mining blocks.
This delay is a negative impact on the likelihood of a block being mined. Consequently, this is part of the
flawed nature of the selfish mining hypothesis that was never tested.

The Selfish miner lags the honest strategy

Models and Science

At this, I shall diverge to introduce the concept of science to a crowd that seems to not understand the
basic premise of science. That you test a hypothesis. There is a vast distinction between science and the so-
called mysticism that some people ascribe to the pseudo-science that has continued into this modern time.

“so-called ‘refutations’ are not the hallmark of empirical failure, as Popper has preached, since all
programmes grow in a permanent ocean of anomalies. What really counts are dramatic, unexpected,
stunning predictions: a few of them are enough to tilt the balance; where theory lags behind the facts, we
are dealing with miserable degenerating research programmes. ” [4]

To be science, it is necessary that a hypothesis predicts an event that can be tested. To have science, you do
not merely speculate, you set up a hypothesis to be tested and you gather evidence to support or refute it.
This leads to a theory. Before this system is created that may be empirically tested, there is not even a
theory. Science is never proven. What occurs is that we create better models of the Universe.

Newton was not “ wrong ”. Even now, his theory of gravity is used for many calculations over Relativity even
though we know that Relativity is a better and more accurate model.

Why?

The Newtonian calculations are simpler. Even though we can obtain more accurate results when using the
Relativistic Newtonian formula, the Newtonian formula suffices for many calculations. We only need to use
the more accurate (and more difficult) equations when it is warranted. For instance, in satellite deployment
the time drift from the velocity differential is enough to make vast errors in the GPS system. These need to
be calculated relativistically. That stated, all we use to place a man on the moon is Newtonian calculations.

More, we often choose to use the lower grade older model as it IS better. We know that Newton was
approximately correct, and that Einstein was closer to the truth, but we cannot always measure the
accuracy to enough level to warrant the changes. Sometimes, we cannot calculate all the variables in the
model we know to represent the best model of truth as we know it and the only option is to use the older
model.

Science is a process of modelling the “ truth ”. This is not who made the Universe. It is not is there something
“before” time [5]. It is reality as we perceive it. Kurt Gödel in 1931 with his incompleteness theorems
demonstrated mathematically that only the simplest of arithmetic calculations can be complete [6].

Science is a model of the world. We create better models over time, and we replace some models and keep
others with reminders of their inconsistencies even though know we know they are not “ true ”. The reason
comes when they offer a solution. Science is an incomplete model. We do not solve it and we cannot make
a hypothesis scientifically about things we cannot test.

What science does offer is a means to see through mysticism and pseudo-scientific quackery.

Formally, Gödel’s theorem states, “ To every ω-consistent recursive class κ of formulas , there correspond
recursive class-signs τ such that neither (ν Gen τ) nor Neg(ν Gen τ) belongs to Flg(κ), where ν is the free
variable of τ ” ( Gödel 1931 ).

Why do we do simple models at all?

We love to make simplified models. As I noted above, we still use Newtonian models and there is reason.
They work most of the time. Even this falls over and we cannot calculate a generalised three body problem
of gravitational attraction as put forth by Newton now. If we tried this using Relativistic equations, well we
do not have the computational power with all the computer systems on earth and a few lifespans to do
that. There is an economic cost to all calculation.

Back in 1887, mathematicians Ernst Bruns and Henri Poincaré demonstrated an elegant generalised system
that offered proof showing that there is no general analytical solution for the three-body problem when
defined using by algebraic expressions and integrals. This does not say that one could not exist, but that it
cannot be completed using the mathematics we have at our disposal.

In this, they demonstrated that the motion of three bodies is generally non-repeating, except in special
cases. Right now (and as last I know of) we have a total of 16 specific solutions to the three-body problem.
The last 13 of these only in the last years ( http://arxiv.org/abs/1303.0181 ).

These are great and have a wonderful purpose, but we need to remember the world is bigger and more
complex than we can understand.

Models are just that. When we lose sight of this, we start to lose sight of what we can achieve. But,
importantly, models need to be tested against the real system. When a paper comes out claiming a need to
change a system (such as Bitcoin) and offers a model, we should not react. Before we even start to consider
the model, we need to look for evidence that may support it.

Many models of reality are based on Euclidian space (geometry). The Friedmann–Lemaître–Robertson–
Walker metric is an exact solution of Einstein’s field equations of general relativity. From it and the general
relativistic formula, we find that space is only approximately flat. A good approximation for most purposes,
but flat it is not. To really model the world, we have to start with CAT(k) spaces, Hadamard spaces, and
constructs such as Hilbert spaces in the Quantum mechanical world.

For the most part, the error rate is small, and the calculation cost is such that we use a classical model. This
does start to fail in modern applications. For example, the time system on the GPS we need to us a
relativistic calculation as the time difference experienced is significantly affected by the differential velocity
of the Earth to the satellite. The result would be a large error that continued to grow with the use of a
classical model.

Science is all about models. We like to believe we can know it all, but this grasp of unbounded knowledge
something that will always lie outside our grasp. Gödel proved that.
So, where does this leave us?
We must always test a hypothesis. And, it is important to note that there are always unintended
consequences.

Whenever we start going down a path of implementing changes to a system, we need to think about the
consequences. This is both the seen and the unseen.

It is perhaps most importantly the unseen. We cannot say that an intervention has achieved the best
outcome and that is better than something when we have not actually compared it. This means when we
look at a risk reduction process in information technologies or implement new economic policy or for that
matter any other intervention we need to investigate it fully.

In business, good project managers and more importantly portfolio managers will investigate the various
results and compare these against what is in effect a null hypothesis. That is they will compare a sample
project against the status quo. When doing this we need to also contemplate all the alternatives. This is
where many people fail.

More importantly when we are doing correlational studies and investigations that do not allow for
experimentally controlled trials it is critical that we investigate causation in a rigorous process. Double blind
tests are the gold standard in science. These are not always feasible, and the costs and benefits should
always be considered, but in all instances, change should not be conducted for change sake and a
hypothesis is never more than mere speculation without testing.

Austin Bradford Hill (1897–1991), was a British medical statistician whose great contribution to science was to
leave us with a set of minimal conditions that are required to establish a causal relationship between two
events. Hill’s criteria has become the basis of modern epidemiological research. It is one of the mainstay
methodologies that I use in my research both in evaluating economic effects and when investigating
malicious software and other security controls. It is useful in evaluating the human aspects of information
security and risk. It is not just epidemiology but other fields such as economics that can benefit from this
approach.

Hill’s criteria is the basis of good scientific research where we are seeking to establish a causal relationship
amongst social phenomena and in particular ones where we cannot engage in controlled trials. In some
instances, it is in fact better than a controlled trial as the process of creating a controlled trial changes the
environment and creates a bias in many of the results. Although it is true that this controlled trial has
provided the best answer to a problem is not always true that we are investigating the same problem. One
example would be looking at studies of irrationality. The University controlled trials testing the reactions of
students generally biased the results. In selecting risk trials for instance, we take selective forms of risk that
bias the results towards male or female risk takers in the study. Later studies have now shown that these
original studies into irrationality have been the result of poor methodology with both women and men
exhibiting similar levels of risk. What was demonstrated is that the forms of risk taking differ between men
and women but overall the levels of risk a similar.

If we are to make a claim that population growth results in poverty or that capitalist governments cause
poverty in developing nations or even that Keynesian spending results in the long-term growth them to be
scientific in our approach we need to demonstrate causal relationship. Hill’s criteria provide one of the ways
in which we can do this.

For example, as an economic investigation we can formulate a strategy and hypothesis based on welfare-
based systems such as a guaranteed minimum wage.

It seems a good process and we have created a safety net. Again, an issue is that we are also not thinking of
the unseen events. This is what will occur if there was no welfare. In starting such a welfare system, the
differential incentive to work decreases. This is not hard to explain.

Basically, it is not poverty but a differential between income that people see as the greatest disparity. Even
in Western nations where there is no need to be poor and in fact where most of the poor are wealthier than
the middle-class 100 years ago what we see is a desire for more against those others in society.

So, the result of such a policy is to have more people enter welfare. The result, those earning need to pay
more for the increased welfare state. Less incentives for productive work. The differential decreases further
making welfare more attractive and incentive’s more onto state support. The result more welfare… A
degrading cycle of creating more and more welfare.

This takes us back to Hill’s criteria. Here we have nine criteria to measure any correlation effects against.
These are:

1. A temporal relationship where the cause always precedes the outcome. If there is some factor that is
believed to cause an event, and this must always necessarily precede the event. This first criteria is the most
critical and essential of all of Hill’s criteria. If this one is not true, then that we have a correlation alone and no
causal effect.

2. Next, we need to consider the strength of the relationship . This is a statistical measure of the strength
where the factors are highly related. We can look at the Pearson number for correlation as a means of
testing this value.

3. Next there is a effect response relationship . This is a measure of input. As we increase the amount of one
factor the other must also increase. For instance, if we put more time into training people in security
awareness then naturally for this to be causal in relationship we would have to have improved security. The
improvement is not required to be linear and we may find that each incremental expense returns less but it
must return something more than it would’ve if it wasn’t there.

4. The fourth relationship is consistency . The results need to be replicable and repeatable. They should apply
in different population groups and samples.

5. Next, we look at plausibility . The association that we are purporting to exist needs to be supported by a
valid theoretical basis. There needs to be some phenomena that can act in a manner that causes the result
or event.

6. The sixth criteria is that we consider alternative explanations . Many so-called scientists fail here. They just
assume a relationship matches with their understanding. It may be true that we can dismiss many
arguments out of hand as they have already been investigated and shown to be false, but this does not
mean that we do not consider alternative explanations. We must always consider multiple hypotheses prior
to making any conclusion a about a causal relationship between events we seek to explain and investigate.

7. Experimental evidence is also important. Even though we cannot expect to completely re-create an event
we should be able to implement an appropriate experimental regime that supports our causal argument.

8. Next there is a requirement that the causal effect is specific . This is one of the weaker criteria and we can
demonstrate causal effects without it. The absence of specificity does not negate a causal relationship but
the existence of specificity between associations does add additional support to the existence of a causal
relationship. Here is important to always examine specific causal relationships with in a larger systemic
environment.

9. Lastly, we have coherence . Ideally any association we are purporting to exist should fit within the body of
existing theory and knowledge. There are ways of course to introduce new theory and Thomas Kuhn
referred to these changes to the excepted theoretical basis of science as a “ paradigm shift ”. To reject the
existing theoretical basis of science we need to have a particularly good and strong proof and evidence
supporting our new claim of causality.

The third of Hill’s criteria, the effect response relationship is one that seems to be missing in much of the so-
called science we see. For instance, in carbon studies we should see a related increase in atmospheric CO2
leading to corresponding increase in global temperatures (all other things being equal). We should also see
a corresponding and commensurate decrease in global temperatures as atmospheric CO2 levels decline.
This has been rarely investigated in scientific literature, which still relegates much of the climate study to
pseudoscience.

In a couple of my publications for instance we looked at the effects of economic sanctions on criminal
groups involved cyber crime. Two of these papers are:

“Criminal Specialization as a Corollary of Rational Choice” (2012)

and

“ Territorial Behavior and the Economics of Botnets” (2012)

In demonstrating the economic effects of a policy designed to reduce cybercrime we need to investigate all
of Hill’s criteria. In this instance what we find is that cyber criminals are rational actors. Like most other
people in society when they’re acting individually they act in their own rational interest. When they are
offered opportunities that provide better returns for low risk they will take these over the antecedent of a
poor return or one with high risk.

Of course, the current answer to this and the mainstay of many Keynesian economists that propagate
government circles is to argue that what is rational for the individual may not be rational for society. They
argue that irrationality comes of collective rationality.

Of course, what they are saying is not that the collected actions of the many are in fact irrational, but that
people choose things that they did not desire. This is a typical political fallacy that is designed to appear
scientific. Many economists make very poor scientists.

This is of course rational and itself. For when we see government favouring Keynesian aligned big
government economics and rewarding those who support the idea of big government we also see
incentives given by government to those who promote big government. So, the individual behaviour of
these rational economists is to support in irrational policy itself. It is of course rational to support a biased
policy when you gain from it at the expense of others.

What could be termed irrational is a libertarian policy that exists with little support and certainly none from
government. As a libertarian one must fight harder and do more. But here it again comes to what is a
subjective value. When comparing rationality, we need to look at the values of the individual. In my case my
greatest value is freedom and that cannot be given through big government and subjugation. In this case
economic constraints and an acceptance of lower benefits comes at the cost of upholding one’s values.

One further part of this rant is that we need to start accepting that it is not irrational to hold one’s values. In
fact, the only rational choice is to uphold one’s values. In this we start to see where one’s values lie.

Proof of Social Media

Before we allow ourselves to be swayed by an unpublished paper on a topic without evidence, we should
always stop and think through the scenario proposed.

Who benefits, and why?

References:
[1] Marco Alberto Javarone, Craig Steven Wright (2018) “ From Bitcoin to Bitcoin Cash: a network analysis ”
CryBlock 18, June 15, 2018, Munich, Germany 5 pages, 3 figures, 1 table, ACM Proceeding CryBlock’18 1st
Workshop on Cryptocurrencies and Blockchains for Distributed Systems 2018

[2] Moshe Babaioff, Shahar Dobzinski, Sigal Oren, Aviv Zohar “On Bitcoin and Red Balloons” (2011)
http://arxiv.org/abs/1111.2626

[3] Shree Om, Mohammad (2011) “Using Merkle Tree to Mitigate Cooperative Blackhole Attack in Wireless
Mesh Networks” http://www.semanticscholar.org/paper/Using-Merkle-Tree-to-Mitigate-Cooperative-
Blackhole-Om-Talib/55f26a17d256ac510d61ac6676b714eddfd8092a
[4] http://www2.lse.ac.uk/philosophy/about/lakatos/scienceandpseudosciencetranscript.aspx

[5] By definition there can be no “before” to the start of the Universe as time is a function of the Universe. It
there is a prior to the universe and something that we have “derived” from — it is not a function of time per
se.

[6] http://www.amazon.com/Incompleteness-Proof-Paradox-Godel-Discoveries/dp/0393327604

For more on Hilbert Space see:

http://www.math.kun.nl/~landsman/HSQM2006.pdf
http://econ.la.psu.edu/~hbierens/HILBERT.PDF
Why Scaling on-Chain Works
By Craig Wright | 08 Sep 2018 | Bitcoin & Blockchain Tech
This is a very quick summary of why scaling on-chain works. In 2009, the effective limit in software was
32MB — although this was only due to the limits of the software. For a commercial server, this would not
have been an issue. I will address this in the field of a commercial server, and I am sorry, I do not care about
Raspberry Pi(e) or laptop nodes.

To begin, the reason many think Bitcoin cannot scale on-chain is that the data will grow exponentially. This
ignores the fact that the amount of available storage scales faster than Moore’s law and as a consequence.

Required Storage

Or in a more detailed view, we see the growth of storage below taken only to 2030. Here we see that to scale
Bitcoin aggressively we will need to have 500 TB as the blockchain storage by 2030.

Growth at scale to 2030

This is why some erroneously say that Bitcoin cannot scale.

To them I propose we aim for AT LEAST the following scaling path.

This is an aggressive block increase. We remove the cap and aim to allow all the data we can fit on the BCH
blockchain. This is a push to use and an exponential average block-use increase.

It will be the goal to have 5TB OR MORE sent in peak times by 2030. In a single block. Simply put: I want to
see Bitcoin Cash handling up to 1.25 TB blocks by the end of 2021.

It seems mad and huge, until you start to model it against the growth that happens in hardware already. If
we take the fact that storage per USD has been doubling every 15 months, we see that in 2009 terms we
should be at 8GB as an accepted block-size limit (if there was a limit, and that is something I think should
not exist).

My scaling plan would be to push for the size of the blockchain noted above, but when you look at this in
2009 terms, you see a different picture.

This is the fallacy that Bitcoin does not scale.

If we start now with more hard-drive storage than we require (and this is minimal), we scale in a manner
that converges to allow 50% spare storage at the same costs.

We take the following as our table of growth (where each period is the doubling time of 15 months):

The reality is that scaling on-chain is much simpler than anyone likes to admit. There is nothing special to
be done in order to achieve this, it is just allowing commercial systems to compete and to remove the false
idea that home use and hobby nodes need to be subsidised.

The spreadsheet:

Bitcoin scales.
Misconceptions surrounding copyright
By Craig Wright | 09 Sep 2018 | Bitcoin & Blockchain Tech
Many think that when you pay a company to create something for you that you naturally own the
copyright. This is not correct. Copyright requires an explicit transfer of rights.

Copyright does not transfer unless done explicitly.

When an author or contractor undertakes an assignment to write a report, that report does not become the
sole property of the organisation who commissioned it unless they have expressly stated a transfer of rights
in the contract.

When a work is created by an employee, that is a separate matter.

This is always a complex issue, but the general rule for written works is that the author owns the copyright.
Even where the author is a journalist under an employment arrangement for a blog, magazine or
newspaper, they do not lose their rights to use their creation. In fact, the journalist maintains the rights for
selected purposes. These include use in the creation of a book or for photocopying. Here the employer
maintains all other rights [s 35(4)].

nChain have developed intellectual property that can allow the employer to maintain a complete register of
all copyright, and, in time as more and more IP is saved (or recorded in hashed format)to the Blockchain, to
be able to instantly know if an employee is placing them at risk by sharing or accessing unlicensed material.

What this means is that even in cases where a person was employed to create a report, they can still
maintain the rights to include that material in a book that they publish. That is, they can (even as an
employee for a magazine say) take their own material and publish this as a part of a book deal. Here, the
original employer does maintain rights over the report, but the author has the rights to use the their
creation in a derivative work.

It is significant to note that the general rule and the exceptions can be altered through agreement and by
assignment [ss 35(3),97(3),98(3),179]. As a consequence, a company can commission a work where the
company requires the author of the report to sign an agreement that the company owns the copyright. It is
possible to assign Copyright ownership through written contract. As a result, it is unwise to make the
assumption that the owner of a copyright will be either the creator of the work in question, the company
who commissions a work or even the creator’s employer. Before jumping to conclusions, it is essential to
check ownership and this should be checked in each particular case.
Copyright law specifically recognises that both works and derivative works may be made by more than one
party.

This is referred to as a work of joint authorship. In this instance, the copyright in such a work is jointly owned
unless it is specifically contracted differently (that is the rights have been separately assigned). A work will
be deemed to be jointly owned in the event that the contributions any one author made are not
distinguishable.

This is different to instances where various authors contribute separate parts of a work such as in separate
chapters. Here, each author is not a joint author, but each author maintains and holds the copyright created
through their own input.

So, when a paper or report has been created jointly through the involvement of several individuals, they
authors in committee or through whatever process now each hold copyright in the material works they
have created. Each author can make derivative works using the whole or even republish a book using the
material.

This is where Bitcoin comes into play.

This is a use-case that can be developed in a smart contract within Bitcoin. Some of the technology that we
have created at nChain allows for the individual tracking and assignment of parts of a created work.

Bitcoin, as an immutable time stamping system also acts to allow a creator to save a hash of a work on the
blockchain indefinitely.

Further, Bitcoin will allow the creation of complex smart contracts that can be used to allocated and assign
rights within a defined and agreed set of terms that are indexed or attached in an OP_RETURN.

Rights holders can be protected, not only for the works but all component parts that can end in derivative
works.

In this, each party to a derivative work can be individually paid and contracted with the component sections
of the derived work able to be monitored. For example, if one author seeks to have an MIT license that
covers their component parts of the completed work, whereas another seeks to have a standard copyright
provision applied, then this is now possible. Automatically and with complete autonomy.
For rights holders, this allows not only the licensing of the work, but an ability to monitor and track use
globally over the internet, but on the rights to use the their creation in a derivative work or any violation of
this.

The ability to separate and store a complete proof of all components also allows for the “Fair Use” of works
to be maintained and even to be algorithmically agreed and maintained. Academics and researchers would
know when they are close to breaching fair use provisions and any excess use can be instantly licensed and
the rights assigned (for consideration).

Rights protected for the creator.

Stable by design
By Craig Wright | 10 Sep 2018 | Bitcoin & Blockchain Tech
We have a fundamental flaw within the developer led model of Bitcoin. This problem is the same in many
aspects of software development today. We like to argue that we need to change and alter a system with
the latest fashion and whims. The Silicon Valley mythology of App development has infiltrated into the idea
of sound money changing the primary concept of Bitcoin, that of stable money into the “Shit-Show” of
Ethereum. That is Pivot and change and pump and alter.

This idea of the frequent pivot to software cannot be further from the truth when it come s to electronic
cash.

As Sun Tzu stated, it is well suited to the field to know one’s self as well as one’s enemy, but this means we
need to start to understand each in their own way. This is flaws and all.

The design of a protocol is a function of the system and organisation it is designed to deliver and it is always
an economic function. Bitcoin, is first and foremost cash.

There are no absolutes and what is “cool” is rarely the main concern. As much as there are ICOs and “Cool”
ideas about Bitcoin and the fashion of the day, these are of far lower concern then the simple issues
constantly confronting us. This goal is simple. It is stability and the creation of a platform and protocol that
others can use to create Apps and high level languages and use-cases that need an immutable ledger.

Again and again we hear tails of decentralised Apps and more in the News. We as P2P Electronic Money
“professionals” help and aid in the propagation of this myth. The truth is that it is the boring mundane
things that really make the true difference.

Bitcoin is money, and the end goal is to make the protocol as boring as the global plumbing it reflects.

Patching, scaling and other simple and mostly overlooked controls are of far more use than the majority of
cool toys being pushed on us.

Yes, these are far sexier than patching and effective policy controls.
Yes, awareness can be boring.
Yes, educating people is an endless process.

That stated; these are things that really make a difference.

When “we” as an industry finally start to look at and address the real issues, then and only then will we start
to make headway. Only then will we manage to gain a foothold against a rising tide of scams and waste.
In information security, for all of the news of new attacks, of zero-days and more, it still remains the systems
that have not been patched, the applications that we have allowed off a white-list and poor practice that
cause most compromises and breaches.

When we think of critical infrastructure attacks, it is the simply wrong belief that these systems are OK as
they are and that these do not need to be patched that leaves them vulnerable. It is the failure to have basic
controls and updates, not the growth of new forms of attack that places these systems at risk. This is along
the lines of what we need for Bitcoin, to lock the base protocol and then patch and monitor it for any
needed change.

Why? As Bitcoin is money and that makes it a form of critical infrastructure.

I have been told that “old attacks” do not matter and that these could never be used to attack anything. This
is the problem with the information security industry and it is a problem in the development of Bitcoin. Old
attacks work. New attacks cost money. APT and zero-days are expensive to both create and deploy. They are
the proverbial nuclear weapons. Once they are used, they are depleted. They may be used, but the use is
extremely controlled and limited. For each of these, there are thousands of not millions of conventional
attacks. This is attacks using old vulnerabilities.

Bitcoin needs to be trusted. To ensure that this is the result, it needs to be seen as boring. Banks used to use
Greek and Roman frontages. This classical form of architecture was used to convey stability. That is what
Bitcoin lacks. We do not need “cool” projects. Developers want these as they help pad their CV. What the
world wants, what the market for money wants, this is just boring, stable and sound money. A platform that
does not change and can be used with expectations of 20 to 30 years of stability.

So, Bitcoin needs to be plumbing.

When we as Bitcoin professionals start to understand that security and development in business is
about business, we will start to make headway.
When we start to understand that there is no absolute level of security and no way to stop all risk, we
may start to win battles. That means, just allowing the base protocol to be stable and only change
when critical issue arise.
When we start to see all problems, issues and security as an economic calculation based on risk, some
of which are accepted and not all of which can be fixed, we will start to create secure and stable
systems.

If we leave the basics of developing Bitcoin as a stable platform that is designed as P2P electronic cash for
that which is “cool”, fun and trending, we have left the path to creating scalable and secure systems and left
ourselves open to attack and lost the focus of what Bitcoin is designed to deliver.

Bitcoin as a platform not about creating perfection, it is about creating a system that can deliver sound
money to the world and a platform that can be used to build on an immutable global ledger.
It is about creating resilient systems that can survive as a global monetary system, as cash. If you aim for
perfection, you aim to always lose.

To build a platform, you set the system in stone. Sound, stable and predictable. This may seem boring, but,
this is the ideal. Bitcoin works when most people see it as boring. When it is not cool. When, it is simply cash.
Trust and Risk
By Craig Wright | 11 Sep 2018
| Bitcoin & Blockchain Tech
Security matters, but not so we can eliminate all risk, but so we can have trust. Even if we could eliminate
nearly all risk (we cannot ever remove risk entirely) we would have to ask whether it was worth it to do so.

Risk IS quantifiable.

This is a statement like many others that is true, not always in the ways we assume, but it is true none the
less.

We can always measure risk. This does not make a difference what field you are referring to, risk is a
quantifiable metric.

The problem is not if we can measure risk, but how and with what results. These results come to:

reliability,
precision, and
accuracy.

These are not the same, but each has a bearing on how well we report on risk. The first of these, reliability
comes down to whether we can repeat the same results again when we do an experiment. It refers to an
ability to have either or both precision and/or accuracy stay within predictable bounds.

Precision is how true we are to the mark each time we make a risk measurement. This is, how close to the
real value we lie and in effect it comes to the level of variance we have. We can actually be imprecise with
the mean value right on the bulls-eye and results that have a large variance or spread. This would be
centered on the expected mean on average but with results that vary widely.
Accuracy is how close we are to the mean or other value we see as the measure of risk. We can say it is a
measure of how close we are to the bulls-eye.

To have a good measure of risk, we need to aim for both precision as well as accuracy. It is also important
that we can reliably have a measurement that we can have others examine and produce.

Qualitative measures of risk.

There are always people who will tell you that risk cannot be measured. What they are really saying in effect
is that risk cannot be measured using a scientific process and is an art.

There are reasons that people hold these views. Some have the idea that metrics are not possible and that
only skilled people can create a metric. The flaw in this argument is that this is a form of metric and it is one
that can be measured and tested. When we look at the results of how risk comes out over time, we see that
the art based approach does not work well.

In science, we make predictions and the ultimate test of these predictions is the result that the real world
delivers over time.

Risk can be measured. In doing so, we hold those making predictions to account. We can start to measure
the actual predictions made. Is a system secure, well time does tell and in checking the “predictions” of risk
and security people against time we can make measurements.

In making models, we also see how well we model a system and the feedback from inaccuracy and
imprecision allows us to improve over time.

Next time somebody states to you that risk cannot be measured, remember it is. Think instead what they
are telling you is that they do not want to have their ability tested in case they come up short.

Bitcoin and 0-Conf Transactions

So, when you hear that 0-conf transactions are not secure in Bitcoin, think about what this means. No
system is completely secure. So, the question is, whether it is secure enough. Is the risk of a 0-conf
transaction worth the cost. That is, should you allow this or do you wait for 1, 2 or even 6 confirmations.

If the cost of attacking a transaction is large compared to the value at risk, there is nothing to be concerned
about. For example, it is likely to cost over 10,000 USD in value to attempt to double-spend a transactions
where the standard fees have been applied. So, why would anyone do this to try and steal a $4.00 USD
coffee?

More importantly, if you are purchasing a car for example, and the cost of the vehicle is $40,000 USD, when
would you ever expect to have the transaction and paperwork completed in under 20 minutes from the
time you agree on the sale to the time the car is handed over to you (with a walk through)?

Bitcoin is first and foremost Cash!

The 1937 Crash
By Craig Wright | 13 Sep 2018 | Economics
Social security was the start of a crash every bit as large as the 1929 stock market correction. Yet, this event
seems to be overlooked and forgotten. This leaves us with a constant set of interventions and resulting
crashes as a seemingly infrequent event that come only rarely and not with the changes in government
policy that precede them.

Why do I state the interventions that preceded, well, like all other crashes, there is generally a policy of “ good
intention ” acting to make the “ world a better place ” at then unseen expense (and at the cost of other
people’s money).

In 1937, social security came into effect. Designed to “ help ”and to ensure people had a safety net in case they
lost their job, well the initial result was a large scale loss of jobs with a system that had nothing in it to actually
fund people for many years. This was followed by a scheme that constructed upon a pyramid built on the
notion that the population will always increase sufficiently to fund it into the future.

The start of social security in the US took a large sum out of the economy. The growth of government
spending crowed out private investment and the result was a widespread loss of jobs. In fact, it lead to nearly
19% of the US workforce being made unemployed. So much for a Roosevelt lead recovery from the great
depression.

The US recovery mirrors the Hindenberg

What followed next was worse, corporate profits slumped. Due to the downturn in the economy as people
could no longer fund their prior expenses and stopped consumption, corporate profits were directly affected
and were cut by as much as 80% of the lowered profits seen in the already limited years of the early 30’s.
Industrial output slumped by over 40%.

The result, long relief lines as those seeking aid rose. In fact, these people were coming out of the proverbial
woodwork. In the year following the introduction of social security, the number of people requiring help rose
by 400% in cities such as Detroit.

It was another four years before the US economy started to recover from this act of good will. Yet, we
continue to fail to see the cause of crashes as interventionist policy and maintain the cause as business cycles.
It was also the start of a symbiotic and generally wasteful cycle of what many call the military industrial
complex.

Maybe we would all be better off if we started to see business cycles as a consequence of uncertainty
generated through political “ good will ”.

This is one of the reasons we need a global money — Bitcoin. As a translucent and immutable ledger, it
provides the means to monitor and report on all government spending and hold those in charge
accountable. This is not only something that allows us to hold corrupt government accountable, but also to
ensure that no government can hide the waste it creates.

Democracy works best when the sun can show the festering aspects of those areas we try and hide, the
corruption, the waste and the bad policy. This is a part of what Bitcoin delivers.
Keynesian flaws.
By Craig Wright | 14 Sep 2018 | Economics
Now, it is generally taken [1] by rational economists without an agenda (and even most of the honest ones
with an agenda) that unlike any expenditure being beneficial, that is, it miraculously leads to an increase in
the source of “ aggregate demand ”; that rather than as Lord Keynes promoted in saying any expense is
good (in effect even war) that:

“Government spending should be set at the amounts of government goods and services that the public
would demand if the economy were at full employment; no make-work projects should be permitted.”

This is the flaw. The assumption is that government can choose better than the market. This is what this
entire assumption comes to. It states that a small group of bureaucratic public servants with little access to
a real business or market knowledge -limited knowledge — can out decide a market. Any market this is.

This is the flaw. If we are looking at Mr Krugman or any other neo-Keynesian, what they do not want you to
know is that they are basing the policy on an idea that central planning works better than a market. That a
small group of government employees can at all times beat the combined knowledge of all businesses in
the market and that the consumer is wrong when they choose differently.

When you see so called support for aggregate deficit spending by government that is designed to “
stimulate the economy ” remember that all they have done is spend the future to make things politically
better now.

Well, at least we have moved on from thinking that building pyramids and digging and filling holes is
productive, but not a long way.

Lord Keynes made a system that was designed to keep Keynes a Lord . Little more.

The answer as to why those such as Mr Krugman loathe Bitcoin is also here. This is as they seek a system
that allows them to control and manipulate society. In controlling the money supply, they have power over
all our lives. With Bitcoin, these un-elected bureaucrats lose much of this ill gained power.

Bitcoin Cash
This is also unfortunate as we now see this same thought process trying to subvert Bitcoin Cash, just as it
did with Bitcoin Core (AKA SegWit Coin). The key aspect many seek to ignore is that the market is a system
where those with “ skin in the game ” risk what they have to make more. These gains are usually through
efficiency improvements, better business processes and scale.

Yet, as with Core, ABC — developers with little to no economic interest in BCH think they know better that
the market. It is disappointing to see these Neo-Keyesians infest Bitcoin, but, this is not likely to be the last
time this will happen and it is not the first.
That stated, it is the first time that they will be opposed.

What will make Bitcoin a stable and sound money is for it to scale. Those of us invested, that is, “ with skin in
the game ” will not allow Bitcoin to be subverted again. No self professed “ Shit Lord ” will ever again be
allowed to use Bitcoin as a personal play thing and ground to recklessly experiment.

These central planners think that short term “stimulation”, the endless parade of bells and whistles, of
digging holes and burying bottles of money for others to locate is how you build demand. We are here to
show them they are wrong. Business need, no it craves stability. This is what we will give it. A sound
platform, a protocol that scales and a system that the world can use and build on. Not now, but for
generations to come.

The market is made of the people in it. In Bitcoin, it is the miners who decide. With respect to BCH, we
decide that BCH is Bitcoin and will remain on the path it was designed for. A path that was set in stone in
2009.

References .

[1] Wray, Government as Employer of Last Resort: Full Employment Without Inflation: Mosler, Full
Employment and Price Stability

Below, we see Amaury Séchet promoting the idea that markets should not be trusted, that a group of
developers know best. We will demonstrate just how wrong they are.

Those who seek power seek to subvert markets

See also Neo-Keynsianism and even Monetarism

Equality
By Craig Wright | 15 Sep 2018 | Economics
Some argue that capitalism fails as it does not lead to equality. That is a fallacy we need to avoid. The only
equality we can achieve is one of equal destitution and even that would be one beyond us. We are all
equally poor and suffering or we are unequal.

This is a reason that there is a division in Bitcoin. A few believe that Bitcoin needs to be maintained equally
and that we should hold back development to ensure this.

Why, how could this be you ask?

Easy, we are not equal. We are not born equal. We do not remain equal.

No two people have the same level of intelligence, the same aptitude and nor do we have the same
proclivities.

We’re not a Tabler Rosser.

People are not a blank slate.

Some of us are born communicators. Some are good in mathematics. Some of us like to code. Some enjoy
fitness and outdoor activity and others would rather sit in front of the computer and develop computer
programs.

Just as we cannot take a 5 foot one man and make him an NBA star, we can easily not change those people
who are NBA stars into things they are not.

We exist in a world of diversity. This is our strength as humanity. Where one person or one group earns
more than another it is because in an open market they have services that are desired more.

As far as employment goes there reasons for this. This is a lack in one field that is not being fulfilled by the
people within it. Wages are high in an open market as there is a scarcity. When there are high wages others
are attracted to this field. This is the natural equalizer.

We do not require government intervention to achieve this equilibrium. We just need a free-market
without intervention.

We need to stop thinking that those who have less cannot achieve themselves. We need to recognize that
people from both wealth and from poverty can achieve or fail. We need to allow people to fail for this is how
they learn and develop.

We are not equal, we cannot be equal, and it is a fool’s quest to seek equality. The only equality is an
equality of misery.

In making a richer world where all people have enough and can survive we create a world with divisions.
Until we accept this all we do is make more suffering.

You do not have a right to run a “full verification node” as this is not a part of Bitcoin as a system. You have
the right to pay the costs of running this system. You can choose to invest if this is of value to you.

It is time that we start to scale Bitcoin and to do this, it is time to stop thinking that we need to subsidise
those wanting to run a node.

Bitcoin is capitalism. Get used to it.

Sorry. Bitcoin scales and that alone is what delivers value. As money, as a system to deliver P2P electronic
cash to the world, Bitcoin is important. So, no, you do not have a right to limit the growth of Bitcoin, to stop
others from using Bitcoin just as you want to have a falsely romanticised idea of running a node at home.

It was Keynes who started the Moon myth. The myth of those seeking the thesis of infinite money. And, it is
the moon myth in Bitcoin that is Keynes.

Bitcoin is not socialist and it is time to see that it is money, not for green cheese and Lambo’s, but as global
cash.
Are the Poor Exploited?
By Craig Wright | 17 Sep 2018 | Economics
In 2012, the US trade with Sub-Saharan Africa (SSA) came to a total of $48 billion [1] as a combination of both
imports and export to the nations. This was mostly in the form of machinery and other capital equipment
that could (if increased) help the African people develop. The trade with Africa accounts for a little less than
1.4% of the overall US trade to the world.

We see this in the figure below.

Notice, for all of the resources in Africa, they are insignificant and if all trade to SSA stopped overnight (incl.
South Africa), the US would hardly notice it.

Overall, in 2012, the US GDP was $14.99 Trillion . Of this, only a small amount comes through trade with
“poor” countries. This is the issue, a lack of trade and not exploitation.

Overall, the GDP from Africa as a whole (incl. the oil nations and South Africa) is tiny when compared to the
USA. We see this below.

The entire African continent does less than the US. Not as we have seen through trade based exploitation,
there is not enough trade, but through a lack of markets.

Next time you hear that the poor are exploited, know that it is through their own leaders and failed political
systems and not through trade. It is trade that could help them no longer be poor.

GDP is not the best measure of trade and growth for a number of reasons I will not address here, but it is
sufficient.

This is why Bitcoin as digital cash is SO important to the African continent. Not as some Chauma local group
thing, but as a global money that can be earnt and exchanged over the internet and allow those in remote
villages to fine tasks and jobs they may do.

Amazon uses the services of low paid (in the west) workers to do a myriad of simple and repetitive tasks. For
many in Sub-Saharan Africa, this would be a great boon and income they never imagined. In a global world,
there are many opportunities that will open to those in the remotest of places and Bitcoin (BCH) will help
deliver this.

[1] http://www.agoa.gov/build/groups/public/@agoa_main/documents/webcontent/agoa_main_003964.pdf
Q&A/Written Interview — The answers — Part 2
By Craig Wright | 17 Sep 2018 | Alternative Coins & Systems
I shall continue answering in order.

The original questions are posted here .

And, you may see yesterday’s responses in part 1 .

Business

I answered question 17 in part 1.

18. As there is a big misunderstanding on patents and licences, could you share your thoughts on the
following:

I shall answer this question in-line.

A patent is a right to exploit the property you have created. It is not — as some try and falsely use — to
mislead others a mere idea. To patent, you need to have an implementation, a design.

In many cases, there are many ways to achieve the same end, and a patent is just one expression of that
end.

· Can you please clarify, confirm and provide a quick overview, on what will not/cannot be patented and
what actually has or going to been patented

Anything that has been released in the public cannot be patented. Next, you need to have a real name on a
patent application, there is no provision for pseudonyms. So, no Satoshi Nakamoto.

More importantly, there are excluded subjects, that is, there are things you cannot patent.

· For the BCH Patent/license” (e.g. for free us of patents, the CoinGeek token contest, etc.) in case of, if there
was a chain split? Which side of a fork is still allowed to use that technology?

If there is a chain split, then we will ensure that anything other than Bitcoin dies off. To remain and work and
survive as a split fork, the split coin will need to move from SHA256d to a separate hashing algorithm. There
is no scenario where we will allow a scenario that Jihan engineered to occur ever again.

I opposed dividing the chain in 2017, but, it turned out, others (Bitmain) wanted this to occur. They do not
care for cash, they want to have more coins to allow more speculation on their exchanges and have more
(now obsolete) mining rigs sold.

So, the scenario with BTC and BCH is a one-off that will not occur again.

If you alter Bitcoin, it is not Bitcoin. Bitcoin is a chain of digital signatures based on ECDSA (unless this is
compromised, and only will this change in the event of a compromise to ECDSA). If you change the block
time, the reward, add RBF etc, then, it is not Bitcoin.

So, BTC may have the ticker, but, a ticker is an exchange mechanism. This is a cancer in Bitcoin, that people
believe that it is something to use as a speculative asset; a HODL coin, a means to flip to and from other
coins in a zero sum game adding no value but allowing open gambling.

That is not Bitcoin. Bitcoin is first, foremost, and always P2P electronic CASH .

Can you confirm and clarify, how nChain intends to use its patents/licences:

· Option 1 — Start charging ridiculous absurd fees and target individuals and restricting almost all access (like
Martin Shkreli, as a Patent troll)
There is no such thing as a patent troll. Shkreli invested in a company that made Daraprim, a drug where
the patent had expired, but that had no generics. So, the fact is, this is not a patent troll. Rather, it was an
attempt at market manipulation.

So, you start with a lie and sell the idea that patents are wrong using misleading evidence…

Sorry, this is not how patents work, it is how bad reporting and those with a socialist agenda sell the
concept of patents.

· Option 2 — Normal Business practice and offer paid licences to all and/or in return for royalties for Bitcoin
Cash

The concept is simple, we have allowed many of the patents (and these are not only for Bitcoin) to be used
freely on the BCH (that is Bitcoin) blockchain.

We will develop some solutions ourselves, others we will licence in partnership. An example of such a
partnership is that with SBI where we are jointly developing a dealer-less threshold wallet system.

Here is a list of the “Global 2018 companies list blockchain patents” — As we can see and notice, how IBM and
Bank of America are there and leading ahead. (Please see references below for more details)

http://www.iprdaily.cn/news_19746.html

Answer:

This list is incredibly inaccurate. We (nChain) have multiple companies, and even then, a simple search will
return 157 that are published. We seek PCT which locks in the priority internationally for the patents. So, in a
way, the reporter has failed to understand that a PCT grant leads to a patent from the initial priority date.

http://patents.google.com/?assignee=nchain&oq=nchain

We have today hit 882 in the Whitepaper list that will end as PCT filings. We use the PCT filing process . This
allows us to maximise the ability to file in many places, and the process is harder than simply filing in the US.

By filing one international patent application under the PCT, applicants can simultaneously seek protection
for an invention in a very large number of countries . Read more about the PCT .

19. From the above patent list we can see how IBM and numerous other listed companies, have already
being developing and exploring blockchain technology.

What are your thoughts and views on private permissioned blockchains and their role, such as IBM’s
HyperLedger going forward?

Answer:

The same as a private permissioned Internet. A joke.

IBM also tried this in the ’90s. They failed to understand the Internet, and tried to capture closed networks
and systems. This led to large losses for IBM. Here again, they fail to understand the basics of Bitcoin, and
have made a joke of themselves long-term.

IBM are simply a buzz word company. There is nothing of value in anything they offer and from having seen
(and laughed at) the patents filed by IBM, I know that they are a dinosaur and a sick one at that.

20. Stability at protocol level. I agree and share your views that Bitcoin needs to be locked down and kept
stable, as most business will never adopt Bitcoin at this stage and rate. This may be going a while back to
your early accounting days, but in the early 1470s Luca Pacioli developed the “double entry system” in
accounting, almost after 500 years, that exact system and fundamental principles are still being used by
every single business every day and will be for the future. I also watched a talk, on how a project lead
commented, on how the actual barriers and challenges for companies to implement their blockchain,
proved to be more challenging than initially expected, due to different communication styles and ideas with
their team and expectations vs their clients ability to understand.

Yes, Bitcoin needs to be stable. The double entry book keeping system has been used for over half a
millennium, and it has changed very little in that time.

There is no blockchain, there is Bitcoin.

That is the challenge. And by Bitcoin, BCH. BTC stopped being Bitcoin a long time ago, and even now, we
need work to take BCH back to what it needs to be. Unless you start to see one chain, and second layer
solutions in script, then, there is nothing you will ever successfully create.

ETH is a dead end. It is a joke really. This idea that running all apps a billion times instead of one… just funny
that anyone would fall for a scam like that.

A distributed oracle requires a user and two systems that do not know of the existence of the other FOR
THAT CALCULATION. That is distributed. This socialist idea, one vote one person one coin each, it is a joke
that stopped being funny a long time ago.
Sorry. Bitcoin is a system that works as one chain. It works as one, or not at all. There is not a single private
blockchain idea that makes any sense nor which can be secure.

Given how in the personal section, I mentioned about your the ability to look at things from multiple views,

Do you feel this picture sums up the current situation and fragmentation in the space, and barrier for
business adoption and should there be more of a KISS in Crypto — an acronym frequently used
business and design, which stands for “Keep it simple, stupid”?

Answer:

Bitcoin was complete in version 0.1.

There were code errors and bugs, but, it was an Alpha. The people in Core call Bitcoin a failure as they never
wanted what Bitcoin is. It is a capitalist system and they seek to make it socialist.

Sorry, but it is socialist-resistant. There is no way to make a socialist chain that works. There is a single
protocol and competition.

To use BCH, you build in chain, that is, using script. There are no layers outside or off-chain. This is not how
any blockchain could work, and the reality is, Bitcoin (as at version 0.1 for the protocol) is about the only way
(excluding minor tweaks — and LTC is not a minor twerk) to make the system work correctly.

21. Can you clearly enunciate your views or philosophy on scaling that seems to be: Put it to the market, if
there’s pressure the market will find a way which seem to be opposite to others philosophy on scaling
which seems to be: no-child left behind.

Answer:

Bitcoin (BCH) used by nearly every person on Earth daily.

The market — we are the market. There is no GOD of market . The market is JUST the people in it. It is a
system, just like Bitcoin. The market is PoW. It is vote with “skin in the game”. The market is the players
willing to risk the most. The market is NOT one voice one vote, it is one dollar, one pound, etc one vote. Not
one dollar in the bank (PoS), but one dollar risked.

Compete or wither.

I do NOT subsidise. I came from poor, and I have lived worse than what those on welfare receive. In this
world, there are opportunities. Bitcoin brings those to places such as the African continent and South
America. In the west, there is NO individual who cannot work, fight, and strive to become far more than
what they started as.

22. What do you think is the biggest hurdle for you in the future and for Bitcoin?

Answer:

Staying healthy, spending enough time with my family.

For Bitcoin, thinking that it needs to be something else. Not accepting v0.1 was good, and thinking it needs
to be altered. Bitcoin should be frozen and then, allowed to be built on.

There is more than you can imagine in BCH now, and once we allow the full script capabilities, more than
any child thought of (such as the reasons for ETH) can be achieved.

23. How do see mass adoption occurring, and what is your strategy for this to occur.

· As better UI and Apps are now being developed (Handcash, Money Button etc) should there be more
marketing in the community for projects like Handcash and Pop? As a lot of people are unaware of about
the fact they implement double-spend alarm even when others claim it cannot be done.

Answer:

We will slowly alter the narrative and make Bitcoin business-friendly. Others will use the technology we are
developing, and in doing this, they will create business that adds value.

Over time, as more and more businesses start to create wealth, more will start to develop on BCH.

What we have coming will make ETH be seen as the shit show and joke it is. The process will take time, but,
the rust is more against the ability to earn in mining and is not a fear of competition. There is no BCH
competitor — and nothing even remotely close.

The simple answer is: cash first. This is the killer app. To deliver this, we need stability and a business-friendly
system. That was all Bitcoin was lacking. In Bitcoin Cash, this will not be an issue again. We are locking the
protocol to one as close as we can achieve to version 0.1 (there are some crap additions that are not easy to
remove as you cannot roll back changes in bitcoin script).

24. What kind of apps/services does you feel are lacking in the space, after better wallets and UI?

Answer:

Everything on the chain.

Use script, but make it simple. There are no accounting apps, payroll apps, no simple apps to enable the
vast range of contracts and financial scenarios that can be created.

There is more that can be created using BCH, on chain, than exists on the Internet now.

25. Would you agree or disagree, in terms of Bitcoin’s use and the targeting/marketing differently to
developing countries vs western countries.

I am not a marketer.

I n lower developing countries, there is a greater need and chance for people to use Bitcoin directly as
cash, due to no access to traditional banking services and as a better safety to store their currency,
without the risk of having it all stolen, or having to spend and store all their cash in property, and then
the risk of losing all of that that due to environmental damage. As well as if they are required to leave
their home, due to conflict or other issues, they can still easily transport their currency across borders,
not having to financially start from 0. The low fees help given the significant remittances costs to and
from overseas.

The goal is low-fee cash everywhere.

Whereas in the western countries, there is a need to bring more awareness of how bitcoin is immune
to inflation and cannot be debased, as this helps and favours people who have deferred gratification,
rather than instant gratification. Why should the former be penalised and continue to lose their
purchasing power over time, because of continuous monetary policies, which debase their local
currency, leading to a rise in inflation and their overall purchasing power ability to fall and leading to a
less desire to save?

In a world of low inflation and few of the younger generation who remember the inflation of the 70s, you
are not going to sell Bitcoin on inflation.

Bitcoin is cash. It is simple, it works globally, and it can be used to build much more. Contracts, financial
instruments, GST/VAT automation…

The killer app is cash, and now we need to have businesses see this and start to build using it.

I also feel the need that businesses in the western who export goods and services, especially digital
services, would have the most benefit, it would reduce business risks such as financial, credit defaults
 and fx changes of sellings goods and services across the border. As there will be a rise in demand for
services, in developing countries, of those who have gotten past the issues highlighted in the first
section. It will allow businesses to sell goods more easily, with reduced risks and cater for these
untapped markets and have a chance increase their market share, given how most western countries
markets have reached saturation point.

Yes, this requires a business to build and supply such a system.

The reason this has not occurred is that the protocol was changing — at times weekly. The project with SBI is
over years. Business invests in systems that they can be assured will not change before completion. Ones
they can know they will have the time to recover the investment from.

So, again, this is why we need to lock the protocol.

26. How and when do you think, ordinary people will be able to save in Bitcoin, such as a traditional savings
account, whereby one can lock an amount of BCH as a term deposit to save and earn interest e.g €1,000 on
your savings account for a year with a term deposit rate of 10% and after that year you get +100€ of interest,
having a total of €1,100. These traditional types of regular financial products, but Bitcoin backed?

Answer:

Right now, you do not earn close to 10%. In fact, you are lucky to get 1%. Some may be more (with terms),
but these also require that you pay tax on the entire interest income.

Yet, the inflation rate is

The reality in “savings” accounts is that you pay for the privilege of having the bank “protect” your money.
That is, they slowly eat away at what you save. If you are earning 1% interest and your marginal tax bracket is
30%, then for a £100,000 GBP saving and investment, you are earning £ 1,000 GBP before tax. This requires
that you pay £300 GBP in tax. So, you earn a real return of only £700 GBP.
When you now add inflation to this, the value of your £ 100,000 GBP investment has decreased in real
spending power to only £ 98,260.98 as the required value of what you have is now £ 102,500.

100,000/102,500 x 100,000 + 700 = 97,560.98 + 700 = 98,260.98

This gives you a nominal protection of £ 85,000 GBP savings that the bank will have covered in a loss by the
government.

You are not saving by placing money into a bank. You just have the convenience. If you want to save, then
you need to invest. A bank is a means to distribute capital (loans etc) but, the way that the government has
interfered has created a perverse system that does not deliver value in the form it should.

BCH is a deflationary system. You gain value long-term by saving, and a BCH bank would pay you to have
the use of the money you invest. This is how banking used to work. As a saver, you invested under a contract
for a term. This term could be long-term (2 years or more). A demand account would be one you pay to
have, as this provides you with security.

I shall again continue answering tomorrow.

Dynamic disequilibria and the creation of criminal opportunity
By Craig Wright | 18 Sep 2018 | Bitcoin & Blockchain Tech
The security industry and criminal activity feeds upon itself. Crime and entrepreneurship each create
opportunities for the other. In this, new innovations are created allowing both the growth of new forms of
criminal activity as well as the ensuing opportunities for alert security professionals.

Markets spawn their counter. That is, criminal markets spawn new forms of counter and in turn, each of these
are reactive as well as proactively introducing new opportunities. So, each security improvement creates a
new form of criminal activity and the growth of new criminal groups leads to a fresh set of entrepreneurial
risk and security firms that are better aligned to meet the changing challenges and problems posed by a
new form for criminal action arise to fill this newly created dislocation.

Where criminal “ innovation ” is lax, generally due to the failure of the criminal organisation to extract
sufficient profit for the level of risk they are exposed to, innovation may be driven down.

Hence, increases in the risk associated with crime or the generally deficient conditions in a black market and
the associated reduction in profitability lead to reduced incentives to create new forms of crime and the
incumbent players (criminal groups) will entrench and act to protect their existing market share.

Any time where a set of concurrent disequilibria has come from the result of innovation, opportunities
inevitably result. This is true for both the legitimate market as well as that of a black or criminal market.

In long term states of relatively low disequilibria, all societies stagnate. This is equally true of crime and in
these events the condition leads to a form of entrenchment and lethargy.

However, the introduction of disequilibria comes from many sources and the introduction of innovation into
markets creates a corresponding round of opportunities in associated markets including those we seek to
minimise such as criminal ones.

Basically, what is being said in this — risk matters. No system is ever perfect. No system can be made to be
perfect. What we need to do is no more than to ensure that a system is not economically viable to be
exploited. In a scenario such as Bitcoin, we do not need to find a “Fix” for 0-conf, it is already secure enough.
We only need to ensure that we understand the risk we face.
Bitcoin is a commercial system. It is money. When we start to understand that, we can start to see that risk
can be best mitigated not by altering the system, but in the creation of the best responses to risk. Some risk
will be mitigated, some shall be accepted. This is the nature of risk.
Q&A/Written Interview — The answers — Part 3
By Craig Wright | 18 Sep 2018 | Alternative Coins & Systems
The original questions are posted here .

And, you may see responses in part 1 .

And the last post for part 2 .

Business
27. Why are there or what do you think is the reason behind 21m coins? Does it reflect the image below,
and/or are there any other further meanings or reasons behind 21?

http://bitcoin.stackexchange.com/questions/8439/why-was-21-million-picked-as-the-number-of-bitcoins-to-
be-created

It is a good guess and a cycle that allows a 2 week difficulty adjustment, 144 block daily reward and more. It
fits in a 64bit integer and has enough range to be useful.

No real magic, it is a good enough guess.

The use of 10 mins is in the range that would work — this is 7 or 8 to 12 to 13 mins a block. Shorter is too small,
longer is too infrequent. A 4-year cycle works well in econometric systems as a medium-term figure. The
rest is a good guess. Starting at 50 and halving, well it could have been 60, or 48 but, this is a good guess.

28. Will a USD/FIAT bitcoin cash token be the gateway to encourage adoption?

I doubt it. It may occur, but the reality is, you then have a system where you need to hold USD. Tether is not
a pegged coin. It is money creation and in time, the US will stomp on it and stomp hard.

The only, and I mean only way that this works is that a trusted entity does this. This would be a major
Federal US bank or as a part of the US Treasury, or why bother?

29. What is the roadmap to reach 5 billion users of Bitcoin Cash?

Building. Others market. I am creating things that will only ever see BCH.

30. When do you think will be the inflection point of the global adoption?

I am hoping for this by around 2030 to 2034.

31. In which continent do you think have the first country with a national cryptocurrency, and given the
current Venezuela situation what would have been the most practical approach to deploy Bitcoin?

There will not be a national crypto unless it is a token pegged on BCH. There is no long term blockchain
other than Bitcoin.

Too many think that you can have lots of blockchains, well, sorry to rain on your parades, but this is not how
the system works. One survives, all others end worth nothing.

32. Do you think certain countries will switch and launch their own pure digital currencies, as there was a
article in the UK, whereby the Bank of England is considering a digital currency, if so when and will this be
on a permissioned private blockchain or can you see it occuring on Bitcoin Cash, via being tokenized?

It will be a Bitcoin token or it will be a joke.

Permissioned blockchains are just like personal internets

Utterly useless.

33. How will be the source code governance when Bitcoin Cash scales?

Different systems will compete.

Software houses will target miners and exchanges, and the best software will win. It will be a distributed
software system, this may or may not be microservices based, but each part will be separate.

34. Hashpower — Can you explain from a non-technical view, the role of hashpower and how would you
compare or what do you compare it to in order to visualise it?

Miners compete to include and validate blocks.

The role of a PoW system is to make the system stable, it is conservative. Miners choose to get as many
transactions into a block as possible, and the fees and other aspects are the result of an emergent process.

35. What are your views on the role and news in regards to ETFs? Do you feel this is a step in the right
direction going forward, or will this hinder growth and adoption?

ETFs are not going to do anything of any value to bitcoin. They are used in gold as this allows a difficult asset
to be held. Gold is difficult. It needs to be held in vaults and it is difficult to move. More, there are many
scams around gold. It is difficult to verify.

The entire concept that people are seeking to apply is worse than a joke.

Use matters. Forget the HODL crap. For everyone who has spent a Bitcoin, they are adding value. All these
who sit and speculate… I have no tears for you, if BTC or anything else hits zero (in the case of BTC — when).

Wealth is about creation of the means of production. It is not about a zero-sum game.

36. In a previous podcast you explained in quite in detail about India and Nehru and the economic state at
that time and briefly talked about Spain and their hoarding of gold.

Can you please expand on how Spain’s hoarding of gold doesn’t mean anything, when they don’t
trade, because trade is essentially the creation of wealth? Can explain the history of that, what really
happened? As well as some good resources for this piece of history?

Gold and silver turned Spain into one of the most powerful countries of the entire world in the 15th and 16th
centuries. The silver from the Americas aided the Spanish kingdom to finance the wars they used to assure
the hegemony of Catholicism in Europe.

The issue was that this expensive policy did nothing to grow the economy. It made no sense as it created no
industry nor growth in the economy. In site of the vast quantities of silver (primarily as well as gold) that
were delivered into Spain each year, King Philip was forced to declare national bankruptcy on three
occurrences within his reign alone. This occurred in 1557, 1575, and 1596.

Gold is not wealth. Goods, productive services and other aspects of consumption and production define
wealth. The Spanish kingdom imported vast amounts of goods and services paying for these (and causing
massive inflation) with the plundered silver, but this only led to other nations (such as the Dutch)
developing at Spain’s cost.

Adam Smith had said “ a man’s real wealth came from accumulating capital and investing it ”. This was not
the mercantilist version of wealth in bullion, but as a direct attack to that flawed idea.

Smith defined wealth as the “ annual output of the necessaries, conveniences, and amusements of l ife”.
Spain accumulated and possessed far larger quantities of both gold and silver than Britain (and for that
matter the rest of Europe combined), but it was always less wealthy than either Britain or France. It became
less wealthy than the Netherlands. We could say that its GDP (not that I like this more modern terminology)
was more limited than those of other European powers.

Smith also held that “ a man’s revenue came from accumulating capital and investing it ” and that came to
depend on whether this was applied in using one’s revenue to productive (frugal) or unproductive
(prodigal) employments. That is, did the use favour capital investment and growth or direct immediate
consumption. A person will grow richer or poorer based on the deployment of one’s money and capital.
Prodigality and consumption or even the mercantile idea of wealth as a box full of gold under the bed, was
not the route to wealth, it was illusory wealth.

Gold, printed fiat currency, and even BTC as a “store of value” are only a store of future claims on the actual
wealth of society, and this is in fact the output of economic resources and investments. When we have
fewer resources available from the economy, gold, silver, and BTC will increase in an inflationary spiral to the
prices of those remaining resources.

It does not matter whether a country acts to store the output as gold or silver or even BTC, for it always and
by nature consumes real resources. The use of energy, consumable products, commodities, food etc act as “
the necessaries, conveniences, and amusements of life ”. It is the availability of these, and not the amount of
gold or BTC that determines the wealth of society.

You also mentioned how countries should trade more, this is dependent on the ability for the country’s
agriculture, raw materials, weather that leads to tourism (Dubai) If hypothetically there was a country,
with poor infrastructure, no raw materials, poor education, terrible weather hence leading to no
tourism, what would be the best way to move forward?

Look at Singapore. Look at Japan in the 1970’s and 1980’s before the banking disaster they had.

As with the issues about gold (or now BTC) it is the other aspects of society that matter, the production of
goods and services. Singapore is wealthy — yet it is a small nation with little in the sense of raw materials.
Japan has few commodities and minerals and yet, they are richer now through trade than they were when
they tried to take by force.

37. Are you or are any of the nChain related companies working on or collaborating with anyone on a
compiler/utility to map higher level languages into script? (if there are specific NDA’s please skip)

Yes, we have patents and PCT applications pending. I cannot cover more outside of an NDA.

38. You mentioned how there were internal tests of 300+GB blocks already, could you provide further
updates and where and when may this test data, be released publically?

See:

Investigation of the Potential for Using the Bitcoin Blockchain as the World’s Primary…
Bitcoin has the potential to replace all existing payment systems to become the world’s primary
infrastructure for… papers.ssrn.com
In time, but what people need to understand is that we are not a public body, we are corporate. There is no
reason for us to share at all. What we do share is purely our decision. There are no obligations and no
requirements.

We are developing Terranode and will have this publicly available in time. The lesson that people need to
start to come to understand is that Bitcoin is not a socialist community. It is a capitalist system of
competition. It is designed to utterly destroy any semblance of group think and collectivism in time.

It is a red queen game, and it is designed to allow the best to gain and for those who do not try to no longer
be subsidised. At scale, Bitcoin allows the most productive to keep and reinvest what they have.

It allows tax, but mostly through the standard means with highly productive and efficient companies being
able to move and restructure themselves in a manner that allows investment to be excluded from the
government coffers.

The consumer is taxed and bears the costs. At the end, all production ends in consumption, so this drives
productivity and growth.

See also: http://arxiv.org/abs/1804.02350

That said, the only scaling that matters is miners in competition. The socialist group think around home
users needing to run nodes and be a part of a group mentality is utterly sickening.

39. Will nChain ever create a FIAT exchange, as i think there needs to be more Fiat on and exit points,
globally? Which exchanges are safe and would you recommend? — CoinBase, Kraken?

No.

It is not what we do.

We are a research and development house.

We work with others (e.g. SBI) to create solutions that are based on our technology. It is just as Microsoft has
tools for exchanges and banks, we create IP and software.
IoT and the coming Toaster-world
By Craig Wright | 19 Sep 2018 | Alternative Coins & Systems

Toaster from Red Dwarf

As a geek/techie/etc., I love the control of having my own systems, but the truth of the matter is, we Geeks are a minority and
we are losing the war. The truth is, technology is becoming commodity based. This is a good thing, but it means changes.

This is the issue with Bitcoin. Bitcoin cash (BCH) is seen by many in the industry as a system that Geeks run. This is a problem,
for it is money, P2P global Cash. Bitcoin is not simply a hobby node. Bitcoin is designed to be a commercial system, one that is
designed to deliver cash to the globe. And this is the most important part. It is not the commodity aspect of Bitcoin that was
ever important. It was not the mining — nor the commercialised competition that maintains the security of Bitcoin.

What matters is that you have the ability to have a sound, stable money. A money that is scarce and capped and a money that
allows direct peer exchange.

That is what Bitcoin delivers. That is how it is decentralised. Not as a made up idea of DAPPs that offer no value for an excessive
investment, but as a simple means to store an immutable ledger. A simple method to exchange value and to allow for parties,
in potentially remote locations to set up a means to trade safely and with confidence.

We are already starting to see people expect technology to be as simple to interact with and use as any of our appliances. This
is also what we need Bitcoin to be. We want to have connectivity. We want to have sharing. We expect it all to simply work.
We want to have others make this occur. We want an Internet of Toaster like simplicity and reliability and we are close to being
there in many ways, but we need to improve the interfaces that people use with Bitcoin. The MoneyButton and HandCash are
a step towards this path.

The NAS of the future will be an online store (as in storage system). People do not care about the tech, they want to have the
functionality. What is behind it matters little. The thing here is, Net-gen cares even less than my generation of techies did. They
may have the skills to use it, but the skills to control it are actually diminishing (think Assembly coding if you doubt this). Net-
gen knows how to mash up an app but fails to know what the base protocol really is in most cases.
In years to come, the Bitcoin ledger itself will be a means to interact with and store data.

Right now, we have slow (but increasingly fast) connections to the net and we are moving more and more to mobile and
wireless. Soon, wireless will be available anywhere and at 60 frames per second many times more than the bandwidth required
to stream HD (5G is coming). This means remote desktops will work faster from server farms and the rates we are used with
local systems will make PCs seem slow.

When all is available, backed up and secured, who will want or care for a
USB device?
In a few years, 100Gb/sec or even 10Gb/s wireless will be a utility function. At these speeds and when we no longer worry about
having the endless drops and black-spots, the net will be something like the electricity grid, we will expect it always to be there
(and lament it dropping with a gusto).

This is something to start to expect in just the next 5–10 years (some locations are nearly there).

We are already moving this way. We are already close. As the base infrastructure manages to surpass the level of allowing this
(and also adds a layer of redundancy to those connections) we will see the cloud become the everyday.

Soon, there will be little more than a nebulous net we are all connected into.
Prepare for change as it is the only constant.

In this world, it is a world not of home machines, but of cloud servers and virtualised containers. This is a world, not of hobby
Bitcoin nodes, but of commercial enterprise.
Q&A/Written Interview — The answers — Part 4
By Craig Wright | 19 Sep 2018 | Alternative Coins & Systems

I shall continue answering in order.

The original questions are posted here .

And, you may see responses in part 1 .

And post for part 2 .

And the last one, part 3.

Business
40. I read a few tweets, how you mentioned that the SEC and other regulatory bodies will slowly come
out and start to clamp down on ICOs and use their legal powers and various altcoins will also die. Could
you provide and add to that by a quick and brief summary on the following:

What will happen to future ICOs

Numerous altcoins
The overall Crypto market, in the short term e.g 1–2 years and the long term 5–10 years.
Decentralised exchanges

ICOs are a waste of electrons. They are not crowdfunding, they are not digital IPOs. Basically, they are a
means to add old frauds in new bottles.

Blockchain is a winner-takes-all system, and there is only one solution that works — that is Bitcoin as it was
originally designed. Alts are waste. They are a gamble to make money in a zero-sum game taking from
others before they take from you. They are negative value.

I do not do short term.

Long term, the market is simple. It is Bitcoin, and that is cash (BCH).

As for decentralised exchanges — these are just a way to have an exchange gain resilience. There are no
market makers, no large order books and low liquidity. Basically, this idea, making it decentralised for the
sake of it being decentralised, it is a joke.

This is a means to take a highly efficient system (and finance needs efficiency) and make it fail badly. Bitcoin
is not and never was about making decentralised apps, though it can help with a few issues in distributed
oracles (though this is a separate thing, and it is the problem of making these function that Bitcoin helps
with), rather, it is cash.

When people stop thinking that decentralised is the end in itself, then they may start to make progress.

41. Do you see Bitcoin playing a role in the future of IoT devices, with micropayments?

Yes, I have multiple patents filed on this.

I have over 100 papers on this field, and more are coming.

42. What are you views on future AI, as more and more news is comming out, recently OpenAI was
used to create and perfect Human dexterity hand movements, which traditionally was extremely
challenging and in time I think there will be more and more robots, with human like physical
attributes in the long term future. Are there any other new technological breakthroughs, you see in
next 25–50 years

Yes, but this is not my prime focus, and I am not the best to talk about this past payments and systems that
use payments to “evolve” economically.
43. Would you care to explain what the fine line between privacy and anonymity is? Would you say
there’s ever a legitimate need for anonymity, such as in exposing government (particularly tyrannical)
abuse where leakers’ and their loved ones’ lives may be at stake?

No, there is no reason for anonymity to ever exist. There is no place where anonymity is not corrupted.

Privacy and anonymity are chalk and cheese.

Banking privacy has become nearly non-existent. This is why we need cash, but, some think this needs to
become anonymity. They are sadly mistaken.

On top of this, c onfidentiality is different again, take data collected for a census, this is far from private, but it
is supposed to remain confidential.

Unfortunately, the words “privacy”, “confidentiality”, and “anonymity” are used loosely and interchangeably.
These however represent very distinct and different things. The different meaning of these words in law and
in contract are important for a start.

Each of these terms represents significantly different outcomes. These differences matter when it comes to
data ownership, rights, responsibilities, and protections.

In HIPAA , privacy is defined as “the right of an individual to keep his/her individual health information from
being disclosed,” see University of Miami . This applies in many aspects of life, and it is a right to not have
information disclosed.

Confidentiality is implied with privacy.

Data is anonymous when the individual described is not known and cannot be identified.

That is something that matters for money. Bitcoin is a contracting system. This means the exchange is
contractual. The signed transaction can be used as evidence in law. This is not the case with an anonymous
system. As much as some call for the abolishment of the state, that is not an outcome that will occur, and if
it was to be, then it would be a world without Bitcoin in any event.

In order to contract, you need to be able to maintain confidentiality, but also demonstrate the agreement,
and this cannot be done in any anonymous system.

44. Are there plans to further improve privacy?

Bitcoin is private. The issue is the implementation. BIP32 is a joke and terribly thought out. The issue is a
combination of user and wallet.

When people start to understand privacy is not close to anonymity, then we make headway.

45. Is anonymity a myth or can it be possible to have true anonymity?

Anonymity is not something that a currency can ever have nor is it desirable. Fools with an objective to think
of some glorious romanticised ideal and are utterly clueless will tell you otherwise.

They are wrong.

Do you think there is a future for pure anonymity coins such as Monero and will they continue to exist
and operate and can you have true anonymity?

Monero is a bad joke waiting for a punchline. It is not even close to being anonymous. If it was, it would have
been stopped weeks before it started.

Can you share your views on anonymity, add/comment on my views and add/comment on other users

Read the Republic and in particular, the Ring of Gyges.

 I think privacy is 100% needed and better and more privacy will need to be developed, but I do not
think anonymity can be done and I personally don’t think it is feasible and it may be due to my
limited knowledge in IT and media propaganda.

100%, no, some things yes. Some less. See Q43.

There is a vast distinction between the anonymous, the confidential and the private.

Given the amount amount of current data, location, tracking, access logs, websites visited,
biometrics, mac address recorded etc across all devices is already happening. This will continue
and increase going forward for the foreseeable future. If a government agency wishes to suspect
and investigate X person for tax evasion, they can and will.

If you are investigated for tax evasion, then, it is whether due process has been followed. This in itself is not a
requirement, it is valid. Tax is a fact of life, if you do not like it, move to a place where it (tax) does not exist.

If 2 parties want to transact and want to ensure, there is absolutely no public record or track, in
order to avoid taxes, how do they do this?

They don’t and they should not. Bitcoin is not designed to help tax avoidance. Nothing based on a
blockchain can be. No form of money that works in trade and commerce can be created that avoids tax.

Bitcoin is not anti-state. No blockchain (nor derivative technology) is designed for this. Bitcoin is designed to
maintain records.

No public record — that is different, the parties do not need to share public information.

If someone was to send a transaction from X to Y person on Monero, while it cannot appear live
publicly blockchain, surely if there was a person B was standing behind X when s/he was sending
the transaction, it would not be anonymous…- doesn’t the NSA/or a government have the ability
to deploy remote administration tools, which is essentially doing the same action of person B, but
remotely?

Monero is slightly less private than a fully naked flasher with a gun on Times Square at 8.30am on a Monday
morning following the announcement of a large IPO.

Lots of idiots think otherwise… and I am insulting idiots here.

Furthermore to move from county to country requires full ID passports, now starting to have
biometirect checks and one day this may be cross checked to location history, financial data etc
and in the future it seems to be inevitable all cash will be digital and all payments would be linked
biometrics and or there would be IoT direct transactions, in the long term distant future.

The world is not a Phillip Dik novella.

Whereas other users in summary commented on there should be a on and off option:

Anonymity is that, only the sender and receiver know that there was a transaction between them, and
that there is no record from the transaction, and we don’t need to know each other’s identity.

That is privacy and confidentiality. This is achievable in Bitcoin today.

Crypto customers, most of the time, use crypto, because of the improved anonymity. And when other
coins focus than more and more on the anonymity, BCH will be no option for people who like
anonymity.

No, they do not. If no anarchist who thinks anonymity used BCH — it would mean close to zero.

But sometimes, I like that there is a record from the transaction, or that we know each other’s identity.
In a perfect coin, I like to have the option to choose what I wish to do. You can either send a
transaction on the public blockchain or have no record on the blockchain at all

There is no system with no record. Full stop.

It is a pipe dream and is not even about being technically infeasible, it is not even in the realms of what
money is.

Something that BTC and the combination from Lightning Routing.

Lightning is a failure. It was before they started.

If I use my Lightning wallet:

For a record on the block chain, I use the standard bitcoin transaction.
For anonymity, I use LN routing.

Then you are a fool.

LN is not private.

They can use BTC in combination with Lightning Routing. Here they can choose, standard bitcoin
transaction, if they like a record on the blockchain, or complete anonymity when they use
Lightning routing.

Again, is this a joke?

Lightning is as private as the front page of the New York Times on the day of the US election. Why do you
even listen to these idiots who shill these lies?

What are the advantages of BCH compared to, in combination with BTC Lightning routing, or Monero,
or Dash? — (assuming hypothetically these actually work)?

BCH is Bitcoin, and the rest have no idea what this means.

There is no hypothetical. I do not play if unicorns exist. They do not, and these are myths and fables told to
the feeble-minded.

46. Finally what do you see and think will be next after global adoption?

My retirement.

I get to do the PhD I have always wanted to start — on the effects of Quantum Time on Singularities.

I have time to enjoy my money and maybe, by then to watch my grandchildren grow up — and our
youngest is 14 now). There are many parts of my family’s life I have missed on the path I started way back,
and one day, I would love to see the conclusion.

I do not think that this will be before 2035 and more likely 2045. So, one can hope and dream.

Technical
47. Can you provide some info on the new mining pool SVPool and how the plans to compete against
the existing more established pools?

Capitalism.

You seem to assume that there is not a lot of dead weight that has grown fat through a lack of competition
and this idiotic idea that we “all just get along”.

48. Can you explain and share more details on why the BMG node were the best in the scaling test?

BMG is nChain’s mining pool. It is a private pool and we run it professionally. We do not care about some
anarchist bullshit about home nodes and solidartity. We compete.
This is what Bitcoin is about.

In time, as we have lifted the game, others will also start to improve. This is why competition is good, it
makes us work harder.

49. Most people would like to know what will happen in November in regards to this uncertainty
fork/split and who will keep BCH ticker symbol. Can you provide a update for the following:

What do you want to happen in November?

What do you think will happen in November?
Why do you think and what are the reasons why other’s are opposing the changes?
Do you have any fear about the delay or possible decline/destroy of merchant adoption because
of the current drama and a possible chain split/ABC drama?

There is no split.

Bitmain may find themselves bankrupt and Jihan, well I expect charges.

There will be Bitcoin, and this is and always was cash.

Come November, we scale more, and more and more, and then when it has no cap, lock the protocol and
make it business friendly.

50. To what extent is BCH a field within which different groups compete and to what extent must we
focus on presenting a relatively unified front in our competition with other cryptos and payment
methods?

Where do you draws the line between healthy “competition” and “dirty tricks” like “proof of
social media” or DoS attacks. Related, is it not possible for too much “competition” within the
community working on a single coin if the result is loss of investor confidence?

Everything is competition.

There is no reason to care about PoSM — it is a failed joke and we will show how much waste it involves.

There is Bitcoin. There is NO united crypto.

IF all other cryptos do not fail leaving just one, Bitcoin (BCH), then everything fails. It is that simple. This is a
protocol, a platform, there cannot be multiples. The other coins, from BTC (and the deceptive means of
trying to say this is Bitcoin) to all the shit coins — these end.

There is no scenario where there is Bitcoin and something else. There is no possible means to have this. One
wins. That simple. More, if BCH does not win, then they all lose. This is a BCH-(Bitcoin)-is-successful-or-
nothing-wins battle.

51. Can you provide update and reassurance on:

Why you are reintroducing the opcodes and why the implementation computes a different
function than in the original Satoshi client?

We are returning Bitcoin to what it is and was always to be.

It doesn’t. Stop looking top the bull you are told and try seeing what the original was. It was simple, it
allowed a great deal, and it was not an over-complicated crap show full of complexity.

Bitcoin is designed to be a global cash system. The nodes that run it are miners.

These are capitalist and commercial — they are supposed to be in data centres.

It is not socialist. It does not have all people verifying everything and nor should it and nor was it designed
to.
52. Do you think there any any possible potential attack vectors on BCH? If so what do you think these
may be? and how vulnerable does you think all the other Bitcoin forks are to a 51% attack?

It is all about economics and money.

It always was.

53. Is the reorg, orphan, 51 %attack threats a marketing stunt or something he honestly want to do, if
the situation were to arise?

There is no split.

The lies and deception Jihan Wu used to commit a form of market manipulation and fraud are over. There
will not be another split as he engineered to divide BTC and BCH. In time, there will be global cash.

54. In regards to the Nakamoto Consensus, and if SV failed to get majority hash (Which I don’t
personally see happening) rate in November, would you then capitulate and join the longest POW
chain, or split off, as you mentioned there will be no split. Also what if a Proof of Social Media attack
were successful and the economic players in the system rejected Nakamoto Consensus, or they all
wore NoCraig hats and successfully were able to do a proof of troll (as Ryan X Charles calls it) takeover
of BCH. Would you consider Bitcoin broken if that scenario were able to succeed?

We fight. There is Bitcoin or there is nothing.

There is no PoSM. Time to learn this. Grow some balls.

55. You mentioned how mining will be more business focused with independent companies in the
long term, how many miners do you see in the short term and long term in?

I do not do the short term. I have never had plans of less than 20 years that I can remember other than as
components of long term plans.

Whatever the equilibrium leads to.

Distributed means 3 or more. That is it. The reality, with banks and others, likely 2,000 or so in a
confederated group of 20 main players.

56. What you have considered a year ago to engage in a hash battle that would have seizes BTC from
Blockstream and if so what prevented it?

I talked with Jihan about a plan to build hash power and a pool. He released ABC to stop that plan and
undermine scaling BTC. He wanted a hard fork version of SegWit and a maleability fix — the Core guys did
not do as he expected.

That is how we ended with a split. Not a fork, a split. The BTC/BCH split was engineered and I was not
expecting this from Jihan at the time. I talked to Jihan about a pool I was developing to block SegWit in
early 2017.

WHC is a 2-year-old project.

It turns out, this would have also stopped WHC and other things Bitmain wants to do. It is a shame that
there is no scenario where this works. We have a few patents that block them.

57. Do you think there is a specific group hidden in the background who control BTC??

No, just a bunch of idiots with no idea what Bitcoin is.

To be continued…
Data World
By Craig Wright | 20 Sep 2018 | Alternative Coins & Systems
It is truly amazing that people still stick to the aged concept that data can be completely controlled from all
angles. We have many people still remaining wary of using social media. Other who think anonymity is
either desirable or possible. Note, privacy and anonymity are separate. A private and confidential system is
not an anonymous system.

We have this idea that Google and others collecting data will create a system similar to an Orwellian
conspiracy. The truth is, it is little and not big brother that will change our lives the most. Big brother will use
this, but this data will also fundamentally change the nature of Big brother.

Right now, we are on the cusp of a change that few understand and fewer even acknowledge.

Data is becoming less and less expensive every day. Soon, cloud storage will replace the need to local
storage, it will become too cheap, too simple and too easy. We have already started on this path.

Right now, we store locally, but soon, most of our lives will be cloud based and we will have video of it all.

The thing to remember…

It is not just what you record and save, what you post, but
what others post.
With facial recognition and auto-tagging, we will soon have images that are based on what we see and hear
loaded directly to the web. Google Project glass was an early attempt. These technologies will change the
way we interact.

The future is one where all we do and say will be recorded somewhere.

Now, you may think all of this is too much, but there are real reasons for it:

It makes us safer. Any altercation, incident and attack will be loaded and recorded.
Car accidents will be known and recorded. If a person has an accident, family where they are and one
hopes, save them.
Government will have to be more honest as all they do and say is recoded and made available to the
world.
We will have to start trying harder to be nice as all those inhuman things we do and say will haunt us
for all time.

Now, the movie of our lives may seem a little boring. That stated, this is what MOST of our lives are — in fact,
we filter the boring parts. Now, we will start to save them for posterity. All we see, all we do. Like it or not,
that is coming. The issue is more about ownership, and that means controlling data.

The issue as stated is control. To maintain and control your data, you need to own it. This is something those
who falsely promote “anonymity” do not tell you. First, you will not have anonymity, and what that means is
that others will have data that you do not control.

All this data will be sent to the cloud. That means, there is no beating a person up and taking their phone, it
will be too late. You commit a crime, expect it to not only be recorded, but to also have your face tagged.

Some of the things we will expect to see in the next few years:

Monitoring units on each and every power pole

Cameras everywhere and with everyone
Cars with front and rear recording devices — so no more arguing whose fault it is, we will have it all
recorded
Cameras connected where ever we go.

About time you start looking at what you do and where you save things huh?

Like it or not, this is the world we are in and as much as you may not want this, as others start to record their
lives, yours is captured as well.
I shall continue answering in order.
By Craig Wright | 20 Sep 2018 | Bitcoin & Blockchain Tech
The original questions are posted here .

And, you may see responses in part 1 .

And post for part 2 .

And part 3 .

And part 4 .

Continued.

58. Apart from Bitcoin getting hijacked, what else do you regret what happened to the protocol in the last
10 years?

I regret little and waste no time on this.

Bitcoin is a long game. It is something I expect to keep me busy into my 70’s or 80’s.

I do not have the time to waste on regrets.

59. As we all know the 1mb block limit was a temporary measure against spam, and then the Blockstream
took over and the rest follows…as far as I am aware with generic software and real life manuals etc, in most
cases there is the FAQ page or section section. Hypothetically, if in the very early days you had the chance
and were to have created a Top 10 FAQ/Notes for the Bitcoin whitepaper. What would this look like? I guess
I can start it off by….

Top 10Â FAQ

1. Nodes are miners, these are commercial entities that compete.
2. The aim is to remove all limits to scale as soon as possible. Then, and only then, to lock the base
protocol and stop any arbitrary change.
3. SPV is safe and is all a user needs.
4. Layer 2 is IN SCRIPT.
5. Malleability is not a flaw.
6. All systems are based on risk. There is no form of absolute security, and miners must weigh costs as do
consumers.
7. Bitcoin is pure capitalism.
8. Distributed and decentralised means that there are 3 or more miners with no group holding more than
50% control.
9. Bitcoin is all about economic incentives.
10. The system works as it is designed to allow miners to compete profitably.
11. You do not need to try and fix Bitcoin, it works, and it does not need to be perfect, it is competition that
drives advancement.
12. Developers work for corporations to build software.
13. Privacy and confidentiality matter— these are distinct from anonymity (which is not a function of
cash).
14. LAW is law, code is at best a form of evidence.
15. Patents are a means to encourage development.
16. Companies help to protect rights and allow us freedom from government and tyranny.
17. Only one coin can exist at scale.
18.
How Bitcoin helps reduce Poverty
By Craig Wright | 21 Sep 2018 | Bitcoin & Blockchain Tech
Many love to say how fixing poverty is a simple matter of reallocation. It is not. It is better to make a richer
world than to redistribute, the socialist ideal, and make us all equally poor.

Teach a (wo)man to fish

The future is one of low-cost technology. Computational power increases 10,000 times each decade. This
means that in 20 years we will have systems more than 100 million times more powerful than we have now
(and hence be able to run Windows 10 without it crashing).

This also comes to cost.

The systems we have now will decrease in cost. There are already plans to create tablets (or augmented
systems) that will translate to any of 3,000 languages, act on voice (to aid those who are illiterate), and work
visually. In coming years, such a system will be cost-effective enough to distribute to all people on the
globe. This is not a far-off SciFi issue, but one that will become a reality within 10–20 years.

This is a platform for education too. What we need to do is to start developing courses and means to
educate LARGE numbers of people at once. Udemy is one of these. The Khan Academy is another.

Food

Many will argue that these people are starving, but the truth of the matter is to ask WHY these people are
starving. They cannot earn a living. They have repressive governments. That is why we have poor. What is
needed is not knowledge so that people know the issues with their own political situation, but a means to
earn from any location globally. This is not too far from us.

As for food, the earth has the ability to produce enough food to feed a population 10 times the size we have
now (and more potentially). Food itself is not the issue. Access to food is.

If people are free, and they have a means to earn, then they have food. This is the answer to poverty. Easy
said, but never easy to achieve.

The problem: too many people oppose it.

Too many people want this to fail.
Too many people who argue good create poverty through their words and actions.
Education will be opened not through redistribution, but capitalism.
Economic convergence
By Craig Wright | 22 Sep 2018
| Bitcoin & Blockchain Tech
The world of automation is already changing society.

Having a bent for maths and statistics, I decided to take a look at comparing a couple of the jobs with those
we could expect to see in 20 years time.

Service Workers
I started with the total costs with a prediction based on past increases for fast-food workers. The data is
sourced from the US Department of Labor, and the statistics are publicly available there.

The time range is from 1990 to 2025. The top of the green section provides a 5% confidence interval for the
high range of total employee costs (holidays, sick days, etc.) The lower range (above the blue section) is the
lower range 5% salary.
I have done the same based on calculations of robotic costs from a number of industrial robotic
corporations. These range from ones I have noted and include those such as iRobot.

We see in the graph below that the overlap has already occurred.

This is much clearer in the following display where we have only the mean costs for workers and robotic
devices compared.

From this, we can see that the cost of using people in the fast food industry was actually greater than
automation from 2009.

We can expect those new automated systems to start moving into the city ecosystem very quickly as new
markets open and the economics start to be seen.

This is of course one of the reasons some other parts of society have been changing. All of the following
organizations also fall into the economically non-viable category already and would actually make more
sense as an automate system:

video stores

music stores

book stores

supermarkets
 fast food

One reason we are not here at this point is the sunk costs that have already been invested. These existing
stores and franchises do make money (although at a greater overhead), and there are costs in moving from
an existing model to a new one.

That stated, I would not be looking to sink funds into a new food franchise right now. Not unless it is a little
novel and far more automated.

Skilled workers
On the other side, this study has taken airline pilots as a skilled-work base that could be automated. Based
on the automation of many systems and the use of software for US drones, we can see the ability to replace
pilots with automated systems.

We will look at the costs of employing a pilot against an automated system. There is a requirement for a co-
pilot as well, and this does increment the cost.

We again see a steady rise in the cost of these highly skilled individuals.

At the same time and with the same 5% confidence intervals, we see the costs of automated robotic
systems decreasing.

We see for this industry, the effects of better automated systems are having a far greater impact. The
economics are rapidly converging to a point where it makes an infeasible system possible.

We do however need to change the axis as the exponential decrease in costs is far more significant in this
environment.

Extending the axis, we see that for the highly skilled pilot the estimated time for convergence is someplace
between 2019 and 2022.
And a view of just the mean costs again has to be re-positioned so that we can see this better.
The future is radically different to today

Just looking at the mean costs again, we see that automated systems become more economically viable
somewhere in the 2020s.

The difficulty will not be the economics, but in the uptake of these systems. People will be hesitant at first,
but once one airline starts changing, the economics of this process will result in a rapid convergence
towards all airlines automating.
Where have all the unskilled jobs gone?
By Craig Wright | 23 Sep 2018 | Bitcoin & Blockchain Tech
Let us for today imagine it is 20 years from now.

Two decades have passed from today. Imagine we are now and not looking forward, the present. The
technology, just emerging at this point today will be old, superseded, and retro. Basically a quaint memory
we all love to laugh at.

What will the world of that time be. How is it already changing, and most importantly: where have all the
unskilled jobs gone ?

2012 has seen the introduction of the robotic pizza machine . Oovie and others started to replace the dated
video store, until Netflix finally gained enough bandwidth in enough places to have replaced these physical
stores in a box.

Just as the pizza stores started to be replaced by vending machines, so around 2021, the new autonomous
delivery vehicles started to collect pizzas and replace the the pizza boy. You call in an order, the machine
(somewhere in your city) creates the order and within 15 minutes you find it hot and perfectly cooked as you
like it (and it takes your feedback and improves each and every time you order) delivered wherever you
happen to be. So, there are no more delivery jobs either.
The autonomous systems work on machine time, not human time.

They work 24/7 and have little downtime (other than upgrades, and they are cheap and easy to replace).

Your local McDonald’s no longer hires the youth or elderly. The role of a McDonald’s worker is that of an
algorithm now with the requirement to place a patty on a grill, time it, flip it, time it, move it to a bun, and
serve it. A machine can and will do this better, faster, and more consistently. Mostly, the economics of this
exchange make it likely that the machine will do this for a fraction of the cost of an ideal worker, let alone a
lazy or sick one.
With no holidays, no sick days, no personal time, and never getting tired machines will be the low-cost
alternative to service workers. The world of the future is one without the existing range of low-end
occupations.

In this future world, we have seen 20 years of vending machines and robotized shops gradually replacing
the unskilled workers in the retail, food, and service industries.

Do we remember Johnny Cabs in the movie “ Total Recall” from 1990? Just imagine Johnny Pizza. An
autonomous robotic vehicle with a pizza oven (or ham-burger bar) that takes the order remotely, delivers it
to your door cooked as you like it in 15 minutes, or it is free?

There is no human manufacturing

In a world of 3D printers , of lights-out factories , and even 3D metal printing and manufacture there is no
place for an assembly worker. The car workers of the future are programmers and designers.

There is a coming divide between the skilled and the unskilled we need to address and to address now.
Education is cheap in the future, but this still does not empower many people to take on the roles in a
growingly competitive world. Math is the most valuable of skills.

Only humans can solve some problems. Not all problems can be solved through computation , and this is
our best remaining edge.

The Nike of the future will not hire people in Third World countries. There will be no low-cost Chinese sweat
shops. There will be no manufacturing in these places, as it will be less expensive to make a local lights-out
factory. Even shoes will be printed and many times right at home.

There will be no exploitation in Third World countries. We have won that battle and at the same time lost
the war as there are NO low-cost jobs at all in Third World countries. We have replaced these people and
made them obsolete. I hope those who have fought to stop the people being “ exploited ” are happy with
their Pyrrhic victory .

Farming in 2030 will be completed in containerised systems, not farms . We will grow anything locally .
There will be no “fare-price” coffee or cocoa as all foods are grown locally, delivered fresh daily and
completely automated.

It will be fresher, closer, and better. Hydroponic towers will fill deserts and areas that we see as unable to
support life, and there will be no reason to support cash-crop farmers. They will not exist other than for
charity.

Vision in a world of augmented reality

We look fondly back at the start of Google Glass remembering those geeky people with the silly goggles
and headsets the same way we in 2012 remember those with a brick of a mobile phone in the 80’s.

What we have now is a bionic system implanted to augment our seemingly inferior natural vision, hearing,
and other senses.

We will have the elderly climbing Everest in exoskeletons originally designed to replace wheelchairs . The
future of powered suits will also aid the general community become faster, climb higher, and do more
without training.

Good or bad, how would you choose to climb the Matterhorn, if you could do so without risk and for a
minimal exertion?

Our future reality is augmented in many ways.

Future education

We need to stop teaching endless lines of facts and start teaching students to t hink !

Why you ask? Well, we will have a personal assistant (see Watson below) that can instantly answer any
natural-grammar based question and recall any fact, make any simple calculation, and replace any
spreadsheet in under a decade.

And it will fit into a watch-sized device and talk to us using natural speech.

Remembering facts is not educating people, learning how to think and argue is what education needs to be
all about. Socrates taught people to question, not to memorize. We need to do the same.

The false arguments as to why we will not have this world

It is argued that automation, robotics and computerization will not effect the near future. This is an
argument that we require systems with vision, touch, and hearing just like humans do.

Well, these things are here in this world.

Watson, IBMs learning machine that won Jeopardy , has become an iPhone app in 2017 replacing the failing
Siri 3.x. This app, working through your augmented system that delivers a visual update (similar to the
visuals in the movie Terminator ), will be delivered at first using contact lenses with laser imaging and
cameras, and by 2020 will be implanted to offer true bionic vision. We will go to a “body shop” periodically to
get bioware updates as needed.

We also will see hologramatic images of people as real as you can imagine without them being there.

If that Johnny Pizza seems as if it was a real person, and the pizza is better, why would we order any other
way?

We will learn differently. When all the facts are there, the entire Library of Congress is online and available,
what will matter is the ability to access and analyse information.

In the world of the future, there are no more service jobs, no manufacturing, no low-cost roles to fill. It is a
world of data, design, and creativity. What we need to do is start to imagine ways to make this a world that
works in this future.

Rome

Rome of the empire was a place with massive unemployment. We created games to fool the masses into
acceptance of their lot in life. This was a decadent and corrupt society that was derived from a far more
virtuous (in relation to the later period) society than it ended.

Rome had many people unemployed and a slave-based economy.

We have a future robotic society with robots taking the place of the slaves in Rome with less chance of a
rebellion.

We will have masses of people who do not fit this future. Who do not learn to become the creators and long
for a past of manufacturing. A people who are driven by the Gladiatorial future sports and Springer’esk
entertainment of the lowest denominator.

Change starts now, or we are destined to make the same mistakes we made again.

Now personally… with qualifications in statistics, finance, and economics, do you wonder why I have chosen
to work in information security and big-data analysis? Why Bitcoin?

Other than this, law will be critical. The issue with law is that it cannot be handed to a machine.

In the future, all property will be, at its heart, intellectual property.
Hoarding and Bitcoin
By Craig Wright | 24 Sep 2018 | Alternative Coins & Systems
One of the fundamental arguments posed against Bitcoin is that it is deflationary in nature. The misinformed
argument made by many prominent government economists is that this will result in hoarding. That is,
individuals will irrationally stockpile large amounts of bitcoins as a cash balance.

This is a perfectly common but flawed understanding of money. The entire nature of hoarding as a concept is
flawed in itself.

One of the early issues becomes clear when you start to investigate why people hold any cash at all. There is
no money circulation as many people falsely suppose, all there is comes from a transfer of commodities.
Money in any form is a commodity subject to supply and demand like any other.

Where money itself differs as a commodity is in its use as an exchange medium.

Holding money is not in itself irrational. In a perfect risk-free world there would be no need to hold any cash
balance. If we could predict payments with perfect certainty there would be no need to hold any cash. The
argument on hoarding is one I will expand on in coming days. It is analogous to an argument that investing
in unused capital of any type is bad. If we take vacant land as an example and compare it to gold we can use
the same arguments that are falsely used to justify the concept of hoarding.

So, what exactly happens when an individual holds a wallet of bitcoins and decides not to spend. Once we
called the saving, but let us look at it from the eyes of those who see hoarding. Have we really stopped the
economy? For that matter, what is the economy? The simple answer here is that the economy is the sum of
human interactions. When we choose to spend money on conspicuous consumption goods now because
that aids the economy, we are in fact falling prey to a variation of the “broken window fallacy”. We are
consuming capital and not creating it.

Holding a quantity of bitcoins is no different to an investment in land. Yet we do not run around calling land
holders hoarders. In holding our money and saving in what we could call delayed gratification we are in fact
guiding society and what we call the economy into delivering goods that we want more. In choosing to wait
until a better option is available we have decided to tell the producers that create our economy that they are
not delivering the goods we require. That is the difference that these people who say we are hoarding fail to
comprehend. We vote with our purchases. We decide the structure of society when we spend our money. In
saving our money we have delayed expenditure. This is either due to a risk decision where we want to ensure
our future well-being and prosperity, or a decision to wait until there is a better option. Neither is hoarding.

If individuals do hold a quantity of bitcoins, what is the effect?

Simply put, the quantity of money in the system being used will determine the value of goods. Remember,
like all money bitcoins are simply a commodity. The value of a bitcoin is based on the demand for a bitcoin.
This equates to the purchasing power of each bitcoin. If an individual hoards their supply as some would term
this but people like myself would call saving, then the result is that the amount of expenditure will change.
Those with a desire for goods now will still purchase goods. The argument that deflation of the currency
means that people will hold currency is flawed outside of the notion of investment and savings. An individual
can choose to put their money into land in the hope that that land will increase in value over time. There is no
difference to maintaining a holding of bitcoins. If we save funds, we are putting aside money so that we can
consume at a later date or when a better option becomes available.

The argument that hoarding will result fails to take existing reality into account. Right now an individual with
excess capital has a choice of spending or investing. This investment can be done at a risk-free rate as it is
known in treasury bonds, and money is tied up for a period of time. Individuals are not interested in the
amount of money they have. That is a common flaw. They are interested in the purchasing power that they
maintain. The amount of Bitcoin in the market will determine the exchange value of those bitcoins and
hence the purchasing power.

Having the ability to print more bitcoins does not create wealth.

As we’ve seen, the government’s ability to print money also does not create wealth. The amount of money
may change but all this does is change the distribution of goods. Increasing a perception of risk in society
results in a different distribution of capital. The uncertainty associated with financial markets is the problem.
People should be saving, and people should engage in delayed gratification. The reason they do this should
be to create a greater capital base, not to consume for the sake of the arbitrary notion of “ economy ”.
Remember, the economy is nothing but people.

In choosing not to spend now we make a choice that shapes society. Some people say that in saving for
something better we are hoarding. I’ll give another analogy. In this I will ask: is it better to go out for a small
meal at McDonald’s every night, or to save and go out to a good restaurant a couple of times a month? In
both cases we can be spending just as much. What it comes down to is not a question of hoarding, it is one of
subjective choice. It is an argument not of hoarding of some individuals saying that others don’t live right. It is
an argument of paternalism and telling others how they should live their life.

When an individual saves money, be that bitcoins or dollars, the economy continues. The amount of wealth
available is a function of capital goods. If one individual saves them money, then all goods become less
expensive for all other individuals. Not only does the saver in delaying gratification hedge their own risk and
stop the need to rely on charity, but they also make life easier for those who are consuming at the moment.

When we say we need to have particular sectors protected such as the car industry in Australia, what we’re
saying is that the jobs of car workers are far more valuable than other jobs. What we’re saying is these small
community interest groups should be favoured over the rest of society. What we’re doing is in fact
diminishing the economy. If we stop misallocating funds protecting unwanted services, what we end up
doing is helping the market to align to the things people actually desire. Not those things selective individuals
tell us we want when we in fact don’t.

The argument of hoarding is one of subjective measures of judgement and risk. It is party A telling party B
that their choices are wrong. It comes down to one individual attempting to determine what another should
be doing. It is not using valid methods of persuasion but rather attempting to misinform and deceive other
individuals into believing that what they are doing is wrong, and what they are being told by another is right.
It is not informed persuasion but rather deception.

There is no such thing as hoarding. That is our differences in the risk appetite of individuals. Some of us want
to save and not have to rely on government or charitable handouts later in life. To do this we need savings.
Rather than conspicuous spending now we seek a delayed gratification where we don’t need to rely on
others for charity.

HODL
There is a fallacy in Bitcoin, that of the HODL. This is not mere saving but uninformed speculation.

The growth of value in Bitcoin is a Sigmoid S-Curve, it is not exponential.

The issue that is not recognised is that the value is not just in holding, but in use. Spend and replace is use
and also allows you to capture and save in Bitcoin (BCH) adding to the value of the system. Unfortunately, this
is the key aspect that so many miss. This derives from the use value and the overall velocity of Bitcoin
exchange.

The error in the BTC-HODL mentality is that they cannot have use. In Bitcoin, use is by nature on-chain. It is
not a gateway protocol (such as Lightning, Plasma, or WormHole) but on-chain use that adds to value.

The use as cash is what will drive value in Bitcoin. Not use in speculation nor “use” as a digital gold. Use as
cash. When people start to understand that they need to push for the common deployment of Bitcoin, to use
it anywhere they can, to move their savings into Bitcoin and even hold their surplus funds in Bitcoin, and
spend and replace and slowly save and use, then and only then does Bitcoin grow us and become saving and
not just a HODL fallacy.

Sorry to tell you, but this idea of telling people not to spend ever is wrong. Bitcoin, as the white paper says, is
“P2P electronic cash”, and this is opposite to the intent of the system.

We see this is the first line of the Bitcoin paper:

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one
party to another without going through a financial institution.

The point of Bitcoin is to be used. So, we can say, the point of trying to teach people to ignore the entire
premise of a system is a scam.

Bitcoin is Cash. That is, a tokenised P2P electronic cash with the standard ticker symbol BCH.
Simplicity in Bitcoin
By Craig Wright | 25 Sep 2018 | Alternative Coins & Systems
There is a small correlation between the effects of security and simplicity. This use of complexity for its own
sake (See ETH, Core etc) will not add and may remove security. Likewise, simplicity for its own sake will not
add security.

For the most part, the functions of simplicity and security are perpendicularly polar. This is, although there is
a feedback effect one aligns with a proverbial X and the other, a proverbial Y axis. The real issue also comes
to a definitional framework. I speak of simplicity in a Chaos/Complexity Theory framework.

Simplicity adds to security in human system interactions. Complex systems (in general) are more prone to
catastrophic failure. That is they are more brittle. To understand this, you need to think how a brittle
material fails. High-carbon steel structures can be remarkably strong, but if they exceed their threshold only
once, they shatter. Low-carbon steel will bend at a lower threshold, but can be reformed. If the strength of a
brittle material is sufficiently high, it does not matter that it can fail catastrophically, as the conditions will
never be met.

As in materials science and metallurgy, some of the most robust systems are hybrid composites. This is a
combination of elements and methods. This in itself is a form of complexity, but in the sense that simple and
complex systems are enmeshed.
The same applies to information systems. Brittle but strong systems can survive extremely well as long as
they are sufficiently resilient to have a capacity to withstand any attack.

The flaw here is in software. Although we pose an NP infeasibility issue, software validation can be of great
use. It also poses a cost. A verified system (such as in the old rainbow A tables) can be extremely resilient.
The cost of such a system is however extraordinarily high.

All software is complex by nature. So the issue is not of pure simplicity. Even in the face of open-source
code, software is not evaluated. It requires a level of complexity to account for the failings in software.
Malcode , bugs, vulnerabilities, etc all account for the major flaw in any system design. To account for this
correctly it requires the introduction of multiple systems. This reduces simplicity through introduced
complexity, yet adds to systematic security. An example is given through an introduction of dual layers of
firewall technologies with separate vendors such that neither ever suffers the same software flaw (and all
firewalls have had compromises). Another example is the use of multiple anti-virus engines (such as an
email gateway with one product and a separate engine on the email server and data store).

To contrast this, the increase in security from multiple systems is impacted through the addition of further
human factors. More systems and complexity make it more difficult for a single individual to run a security
system (e.g. firewalls or AV) as they require knowledge in multiple platforms and thus spend less time on
either platform. This can also lead to an introduction of more people. Two specialists can be used (1 for each
vendor). This allows the individual to specialise in a particular area again, but also takes interaction with the
other person (which was previously achieved by one individual).

The requirement to act in concert adds stress points to the security solution making it more brittle. This can
be tempered. Training and drilling staff leads to a team approach where the effect lies in an individual team
rather than a group mindset. This tempering adds to security. This may (and generally does, if you exclude
the cost of failure) increase costs (esp. as contingency costs are not attributed to project costs).
Training in itself is a source of complexity in its development. The paradox is that this addition of complexity
can create a simpler and more robust system.

We can see this (simplicity) in regards to Bitcoin (BCH) when compared to so-called valueless blockchain
offerings (ETH, EOS):

Bitcoin : global, fast, P2P electronic cash

Blockchain : decentralised digital ledgers and settlements systems that act as a public ledger system.
Incorporates the ability to have dApps when sharding is solved, and the P vs NP problem is shown to not be
an issue allowing the world to universally and immutably create censorship-resistant speculative and slow-
kitty apps that move from fad to fad in a generalised glut of waste and value destruction. Allows ICOs and
other illegal security offerings designed to ponzi your way to a lambo to get away in, before the government
comes for you and your highly permissioned “permission-less system”

“There is a delicate balance in making security work.”

There is a point solution that makes a balance. Security is a dynamical ( spelt correctly) system. Although
point equilibria exist, they do not exist in time.

Nodal minima do exist — sometimes for long periods of time, but these require tuning and updates.

“Black boxes are prone to be vulnerable.“

Not necessarily. There are many B2 and higher (on the old rainbow-table US-classification scheme) systems
that can operate as a black box. These can be fit-for-purpose designed systems. For instance, you can even
create a secure software-based system using vulnerability-prone software.

Many systems are black boxes — this is not the sole cause of security issues. In addition, open source also has
just as many flaws.
Working on useless optimisations seems like a valid goal to some, but, we should understand that “ finding
optimal network-aware sharding strategies is unfortunately an NP-complete problem. ”

NP-complete problems can be solved, but, if they can be solved efficiently, it means that P=NP, and this also
means that other NP-complete problems (discrete logarithm problem) would also be at risk. This would
make ECDSA easily reversed.

Luckily, it is incredibly unlikely that P=NP. Sorry ETH.

Why is Bitcoin Open Source?
By Craig Wright | 26 Sep 2018 | Bitcoin & Blockchain Tech
To an extent all software is a black box. As a consequence, the quote concerning Bitcoin needing to be open
source and a means to “free us from government” that is is commonly made is false and problematic. It may
be true that Bitcoin works best as an open-source system, and some say this allows us to see that Bitcoin is
secure (Popper will attest to the inability to determine anything absolutely), but this adds no value. That
said, Bitcoin is money. The most critical aspect of money is trust, and for this to hold true, people need to
understand that there is nothing hidden.

The analysis of software is an NP-infeasible problem. Turing and then Dijkstra demonstrated proofs that the
state of a system can never be fully known. You are making presumptions about the level of knowledge an
open system holds and about the level of testing.

That said, Bitcoin has had bugs from the early code, and even open code is far from perfect. The main
problem Bitcoin solved is double spending. The means that are used to achieve this aim are simple, it is a
competitive system. The system is capitalist, but, unlike most capitalist systems that allow the incumbent
leader (the dominant company) to seek to stop competition through regulatory capture, the global nature
of Bitcoin defines a competitive system.

No system is perfect

Crystal-box testing is a better option (I have published papers on this in the past) for security-critical
software, but the option is not always (nor truly) available. What is missing is the complexity/simplicity issue.
These issues are mixed with the issues of security. It is never possible (nor feasible) to absolutely know the
state of an open system. You just have a lower cost of testing and rectification.

This itself is critical.

It is not the protocol that needs to be tweaked, it is the software. The protocol is simple. Many do not like
this, but this is a part of the beauty of Bitcoin. If you want to do more, you can, in script. A script that is a
predicate and which can be seen to always end.

As for DoS (or a DDoS): There is always a way to DoS a system. The issue here is how much evidence you
create and why you do it. Hit any system with a sustained attack from 1,000,000,000 bots, and it goes down.
End of story.

This is not an argument about complexity impacting security.

What matters at the end is the best way to minimise long-term risk and the costs of securing a global
money or worse in not creating adoption.

There are a number of maxims for the creation of a secure system in information technology. These all apply
to Bitcoin. The paper “ The Protection of Information in Computer Systems ” by J. H. Saltzer and M. D.
Schroeder [Proc. IEEE 63, 9 (Sept. 1975), pp. 1278–1308] was the watershed paper on this topic and provided
the origins of the maxims that we take for granted today. It should be a guiding principle in coding Bitcoin,
and as such, the complexity needs to be left to systems on top of Bitcoin (in Script etc).

These maxims are the fundamentals of how Bitcoin has been designed. These are:

1. Economy of mechanism : keep the design as simple and small as possible.

2. Fail-safe defaults : base access decisions on permission rather than exclusion.
3. Complete mediation : every access to every object must be checked for authority.
4. Open design : the design should not be secret.
5. Separation of privilege : where feasible, a protection mechanism that requires two keys to unlock it is
more robust and flexible than one that allows access to the presenter of only a single key.
6. Least privilege : every program and every user of the system should operate using the least set of
privileges necessary to complete the job.
7. Least common mechanism : minimize the amount of mechanism common to more than one user
and depended on by all users.
8. Psychological acceptability : it is essential that the human interface be designed for ease of use, so
that users routinely and automatically apply the protection mechanisms correctly.

Point 8 is commonly overlooked. To make a security system work it needs to be accepted by the people
using it. If we make a system too complex, it will fail. If people perceive it is impeding on their ability to
undertake their job, they will find a way to bypass it. In Bitcoin Core, the developers never came to
understand user acceptance.

Note:
These Maxims are listed in the section of the paper by Saltzer and Schroeder under Design Principles. This
section begins by stating: “ Whatever the level of functionality provided, the usefulness of a set of protection
mechanisms depends upon the ability of a system to prevent security violations. In practice, producing a
system at any level of functionality (except level one) that actually does prevent all such unauthorized acts
has proved to be extremely difficult. Sophisticated users of most systems are aware of at least one way to
crash the system, denying other users authorized access to stored information. Penetration exercises
involving a large number of different general-purpose systems all have shown that users can construct
programs that can obtain unauthorized access to information stored within. Even in systems designed and
implemented with security as an important objective, design and implementation flaws provide paths that
circumvent the intended access constraints. Design and construction techniques that systematically
exclude flaws are the topic of much research activity, but no complete method applicable to the
construction of large general-purpose systems exists yet. This difficulty is related to the negative quality of
the requirement to prevent all unauthorized actions ”.

Risk is always relative

Absolute security does not exist, nor can it be achieved. Even ostensibly secure systems are vulnerable, as all
systems possess a level of insecurity — an attacker with sufficient resources can always bypass controls. The
goal is to ensure that the economic constraints placed upon the attacker exceed the perceived benefits to
the attacker in order to mitigate the risk. The difficulty, however, lies in quantifying these risks to
information systems.

Relative computer security can be measured using six factors ( Aycock, 2006 ):

1. What is the importance of the information or resource being protected?

2. What is the potential impact, if the security is breached?

3. Who is the attacker likely to be?

4. What are the skills and resources available to an attacker?

5. What constraints are imposed by legitimate usage?

6. What resources are available to implement security?

The result is that security is a relative risk measure related to organisational economics at the micro level
and the economics of national security at the macro level. This works to frame security in terms of one’s
neighbour. The question is not, “am I secure?” ( Wright & Zia, 2011 ), but rather, “am I more secure than my
neighbour?” In this thesis, it is shown that attackers are rational economic actors. As such, they will
maximise their gains and minimise the risk to themselves in seeking gains from the systems they attempt
to exploit.
Bitcoin is designed to be simple, open, and safe. In this, it can
be trusted. It is cash.
It is locking the original protocol (as closely as we can) and building that will allow Bitcoin to be cash and
scale.
The postal acceptance rule in Bitcoin
By Craig Wright | 27 Sep 2018 | Bitcoin & Blockchain Tech
The postal acceptance rule states that where an acceptance is to be sent by post, the contract associated
with that acceptance is considered as concluded at the moment of posting the letter, not when the letter is
received (or in fact if the letter is received). If the offeror does not wish to conclude the contract through
acceptance via the post, s/he may stipulate the form of acceptance. (The “postal acceptance rule” was
introduced to present assurance to the “new” British penny post. It dates back to Adams v. Lindsell, 1
Barnewall and Alderson 681, In the King’s Bench (1818); see also Household Fire Insurance Co v Grant [1879] 4
Ex D 216) .

Lim (2004) points out that there have been at least “twelve theories or explanations offered for the postal
acceptance rule”. He further notes that two of these theories apply particularly well to Internet-based
contractual transactions. The first theory hypothesises that the postal acceptance rule is applicable to
Internet transactions as the communication proceeds through a third party. Next, an argument exists for
the theory that the postal acceptance rule applies to e-mail, as it is a non-instantaneous means of
communicating. Bitcoin is non-instantaneous, but, the mining system that verifies transactions can be seen
to act as the third party when an exchange is not conducted directly or in person.

Contractual acceptance through e-mail has been settled by judicial review and decision. As such, the high
degree of uncertainty surrounding the issues of offer and acceptance related to the formation of contracts
through e-mail-based communication is long past. In the US, this issue has been determined through
statutory intervention ( Uniform Electronic Transactions Act, 1999; USA ). In the UK, the issue remains clear
following the ECA . For this post, I will assert that the exchange of a transaction and payment for settlement
and exchange using Bitcoin mirror that postal acceptance rule in e-mail.

Even when we start to look to exchanges using Bitcoin, cases concerning international transactions allow
the Sale of Goods (United Nations Convention) Act 1994 to be applied. This act overrides the concept of
“postal acceptance” and is an alternative that presents the approach that acceptance “will become effective
at the moment the indication of consent reaches the offeror”. In practice, the acceptance transpires at the
instant that the communication arrives at the offeror’s Bitcoin address, and this is when it is accepted into
the Blockchain. While no decided cases concerning Bitcoin are published as guidance, the courts have
traditionally been disinclined to extend the application of the postal acceptance rule. That said, we can
easily show how the exchange of Bitcoin and EDI are analogous.

Although telex, faxes, e-mail, and now Bitcoin are separate technologies, they share many features. In both
Entores v. Miles Far East Corp ([1955] 2 QB 327) and Brinkibon Ltd v Stahag Stahl (1983) the courts declined to
extend the application of the postal acceptance rules. The nature of contractual exchange in Bitcoin would
allow the same acceptance rules to be accepted by a court in the UK.

Lord Wilberforce ( Brinkibon Ltd v Stahag Stahl [1983]) stated at 42, “where the condition of simultaneity is
met, and where it appears to be within the mutual intention of the parties that contractual exchanges
should take place in this way, I think it a sound rule, but not necessarily a universal rule”. The issue of “read
receipts” for e-mail could be an important factor in a future decision. Lord Fraser of Tullybelton (at 43) differs
somewhat in his judgement from Lord Wilberforce, saying that:

A party (the acceptor) who tries to send a message by telex can generally tell if his message has not been
received on the other party’s (the offeror’s) machine, whereas the offeror, of course, will not know if an
unsuccessful attempt has been made to send an acceptance to him. It is therefore convenient that the
acceptor, being in the better position, should have the responsibility of ensuring that his message is
received.

From the above cases, we can see technological differences such as the inclusion of read and sent receipts.
In the last two decades, we have moved from the formerly arguable position of e-mail as to whether it is or
is not “instantaneous” and the associated level of uncertainty in contracting as “the question of the
applicability of the postal acceptance rule to e-mail acceptances has not been judicially settled” (Lim, 2002,
p66) to one of common practice. In extension, the issue to be considered is whether delivery to the
blockchain itself is an acceptance under the existing framework.

The postal acceptance rule as a general consideration does not apply to web-based communications. This is
because most web-based systems employ mechanisms such as check-sums to maintain constant
communication between the client and server systems. The constant verification of this communication
channel provides for the implication that communications take place through an immediate send process.
Thus, both parties receive communications (near) instantaneously.
Bitcoin differs from the web in that the sender and receiver of the transaction may act in different time
periods. The sender may send, and the recipient check at vastly different times, even though a transaction is
stored in the Bitcoin blockchain immutably. The issue to be decided is the moment of receipt. This should
not be when a recipient checks that a transaction has been sent to their address nor even that it is in a
block as this would be analogous to a recipient not accepting a letter until the letter box was opened.

As fast as it is, Bitcoin is not instant. As stated in the Bitcoin white paper, “messages are broadcast on a best
effort basis”. The result is that we can see Bitcoin as a form of transactional contracting that is analogous to
email and not the web.
The sender can see that the transaction is complete and even that it is included into a block, they cannot tell
when the recipient has accepted this, unless they see the transaction spent. So, it is clear that the onus of
acceptance here mirrors the postal acceptance rule in structure.

The UK government has adopted the Model Law (as contained in the Electronic Commerce (EC Directive)
Regulations 2002, SI 2002/2013 ), which has put to rest the postal rule argument concerning email. The
regulations unmistakably declare the point at which an order is legally supposed to be communicated.
Regulation 11(2)(a) states that in an exchange of a businesses contract, “the order and the acknowledgement
of receipt will be deemed to be received when the parties to whom they are addressed are able to access
them”. Where contracts complete by email are concerned, the instant of completion would be the time
when the email is presented to the person to whom it is addressed and not when the message is actually
received by their email server.

Likewise, it is the delivery and transfer of a Bitcoin transaction to a mining node and not the accessing of
that transaction in a wallet that marks the point of acceptance.

There are exceptions. In this post we looked at the exchange of terms and acceptance remotely. If parties
deal in person and hand a transaction to one another, the use of the postal acceptance rule would naturally
not apply.

Reference :

Lim, Yee Fen (2002) “Cyberspace Law, Commentaries and Materials”, Oxford University Press UK, ED 2004
Defining smart contracts
By Craig Wright | 28 Sep 2018 | Bitcoin & Blockchain Tech
When contrasting contractual principles, it is clear that where a contract is not required to be in writing (
Columbia Law Review, Apr., 1929 Pp. 497–504; Columbia Law Review, Jun., 1907, pp. 446–449; McKendrick, E,
2005, p 184 ), that little additional uncertainty could be created where the contract is completed
electronically. In fact, it is clear that electronic evidence must hold greater weight than verbal evidence (
Lord Justice Auld, Sept 2001, Cpt 11 ). What is not clear is the extent of the weight attached to the various
forms of electronic evidence. The strength of a digital signature algorithm and the security surrounding the
mechanisms used to sign an electronic document will respectively influence the weight associated with any
piece of electronic evidence.

It has been argued that the digital contract may appear on the computer screen to consist of words in a
written form but merely consist of a virtual representation ( Allison et al, 2003 ). The ECA has removed the
uncertainty and doubt surrounding the question as to the nature of electronic form used in the
construction of a contract. In this, the ECA specifies that the electronic form of a contract is to be accepted
as equivalent to a contract in writing.
An electronic contract has a twofold structure. Thought of electronically, the contract is a sequence of
numbers and code saved to some electronic or magnetic medium. Alternatively, the contract becomes
perceptible through a transformation of the numeric code when broadcast to a computer output device
such as a printer or screen (Bainbridge, 2000; Reed, 2004; Brownsword, 2000). Prior to the passing of the
ECA, this dichotomy exasperated the uncertainty contiguous with whether an electronic contract can be
regarded as being a contract in writing.

The English legal doctrines of offer, acceptance and consideration when coupled with an intention to
create legally binding relations define the necessary conditions for the creation of a contract. There is no
necessity for the most part [ Excluding contracts such as for the transfer of real property, which are covered
by a variety of specific acts ] that any contract be concluded in writing.

The question as to whether contracts performed electronically are legalistically equivalent to writing comes
more to a question of evidential weight and the application of the parole evidence rule (Durtschi, 2002; Lim,
2002). By stating that electronic contracts are equivalent to writing, the ECA has in effect, forbid the
introduction of extrinsic evidence which could change the terms of the electronic contract.

The question would remain as to a determination of whether the electronic communications contain the
final agreement between the parties. Where some, though not all, of the terms are agreed in the electronic
communication, a partial integration will result in the allowing of extrinsic evidence (Treitel, 2003).

The ECA did little to suppress the disputes surrounding the evidential weight attached to an electronic
signature due to the receipt of a number of objections [ Eg., London Borough of Newham for the National
Smart Card Project (2003) ] prior to the passing off the bill. Accordingly, when the Act was passed on 25 May
2000 its provisions as to the weight of electronic signatures did not meet the objectives of the EC Directive
on Electronic Signatures and where less detailed. Section 7(1) provides:

‘In any legal proceedings-

(a) an electronic signature [176] incorporated into or logically associated with a particular electronic
communication or particular electronic data, and

(b) the certification [177] by any person of such a signature, shall each be admissible in evidence in relation
to any question as to the authenticity of the communication or data or as to the integrity of the
communication or data .’

So, while code is not law and a court retains the ability to overturn or adjudicate any contract, even those
made digitally, system such as Bitcoin contracts can be easily show to have high evidentiary value and be
admissible into a UK court. The means of which Bitcoin used to incorporate digital signatures allows for
complex structured contracts to be negotiated and saved by business. Unfortunately, many of these
benefits have been lost in BTC leaving BCH as not only digital cash, but Bitcoin.

References
Electronic Communications Act 2000
An Act to make provision to facilitate the use of electronic communications and electronic data storage; to
make… www.legislation.gov.uk
http://www.legislation.gov.uk/ukpga/2000/7/section/7
Bitcoin and Contracts
By Craig Wright | 29 Sep 2018 | Bitcoin & Blockchain Tech
There are a number of contractual issues that used to be associated with e-mail that apply to Bitcoin today.
There were for example, numerous debates over the applicability of the postal rule for e-mail. When sending
an e-mail, there are several potential moments of acceptance. These are:

The first moment occurs when the e-mail departs the sender’s outbox controlled by the sender. In Internet-
based e-mail transactions, the e-mail cannot be recall once it has left the sender’s outbox. This is a situation
analogous to the postal rule.

It is also analogous to the structure of Bitcoin transactions and how these are sent.

The next is the instant of receipt of the e-mail into the recipient’s inbox. At this point, the e-mail is accessible
to the recipient.

Next, the receipt of the Transaction in the blockchain (like that of the e-mail in a server mailbox) can be
contrasted to that of it being downloaded to a user’s wallet.

The next possible instant that could potentially be the moment of acceptance is when the recipient collects
the e-mail from the mail server into the mail client’s inbox. At this point, the recipient has received the e-
mail.

Then, we could look at the argument of when a wallet accepts the transaction and allows the user to spend
it.

Finally, there is an argument for defining the moment of acceptance as the point when the recipient has
opened or read the e-mail.

The additional inclusion of features such as e-mail recall (in products such as Microsoft Outlook), read
receipts and send receipts (in most e-mail servers and client) further obfuscated the moment that could be
considered the time when acceptance was made. Likewise, the ability to have SPV and other nodes on the
network has confused many as to the nature of Bitcoin.
E-mail is the digital equivalent of a letter sent through the post. All normal functions of postal mail transpire
analogously through e-mail. This includes not only the ability to send advertisements or invitations to treat
(Partridge v Crittenden [1968]), but also equally offers and acceptances.

What many do not understand is that all of this relates to Bitcoin.

In the past, we needed to remember that the “ question of whether the mailbox rule applies to e-mail is one
that the courts have not yet answered. Its applicability seems to depend on whether e-mail is deemed to be
more like instantaneous communication than like traditional mail services. Unlike real time chat e-mail,
however, it is probably not instantaneous in the sense of this rule. ” (Cavazos & Morin, 1994). That is the
scenario many see us in with respect to Bitcoin.

Like E-mail, Bitcoin maybe fast, but it is not instantaneous. Bitcoin is analogous to email in this regard.
Failed delivery, rerouting, damage in delivery or simply delayed all arise with both E-mail and Bitcoin
Transactions. For this reason, like e-mail, Bitcoin may be argued to most closely mirror a postal letter
delivery.

This is fast and far easier to verify, but, the inclusion of transactions into a block is not instant and hence, we
can argue that the same laws apply to Bitcoin as we have seen adopted in email and even NNTP.
The most important thing to note is that Bitcoin is P2P electronic Cash.
Miners and rational expectations
By Craig Wright | 29 Sep 2018 | Bitcoin & Blockchain Tech

Some are treating the scenario of mining proceedings as a forward memory — remembering what HAS NOT
happened.
If you have the system as memoryless, the miners have to have an expectation that they will not find a block
in 2 or even 20 seconds.

As said, the miner expects the next block at 10 mins from now — ALWAYS.
As a 33% miner they expect the next block they find at 30 mins from now — always.

As a memoryless system, the miner ACTs on rational expectations.

They act seeing that a block is found by another miner, and then see that they will need MORE than 30
mins, as they now have to propagate to miners AFTER a block is found.

So the 33% miner does not see that they can game the system, they do not think, I mine selfishly I can win…
They see an expectation.
They cannot look at the scenario posited, the one when the chain of x blocks is found.
It means looking into an uncertain future and ignoring all the losses, until you get the rare win.

Such is a way technocrats run money.

It is why Bitcoin exists — to remove those technocrats.
The idea of emergence is a religion to Peter and Emin.
They do not see the whole and the system as more than the pieces.
Like many in their academic areas, they see the pieces.
They believe that they can cut all the parts out and see why life exists, why consciousness exists in parts.
Take a brain, cut it up into bits, and go… I found no centre of X.
Peter and Emin act on the measured data. They look at what has already happened, and say: this is irrational
. They say that miners could have made more money doing X and not Y.

They do not see that if the scenario was altered, Y would not exist.
They do not see that the miner who gets a block 1 second after another, stops mining on his, and moves to
the other is acting rationally.

They see:

A gets a block at t=0;

B gets a block at t=1.

B then mines on A’s block, and wins at T=500.

They say that B would have been better mining on B and then having 2 blocks.

They do not see that if B changed, B would not have the block at T=500.

So think what “pre-consensus” does to the system;

Miners now know what is expected.
They have no rational expectation of waiting. They know.
The uncertainty is removed.

And a certain and an uncertain system are NOT the same thing.

From random chance alone that is IN the system…

You have to account for the fact that miners do not need to monitor.

Remember, nodes stop mining AS SOON AS THEY SEE a block.

It IS how Bitcoin functions.
The application, scope and limits of Letters of Indemnity in
Bitcoin Contracts
By Craig Wright | 30 Sep 2018 | Alternative Coins & Systems
Introduction
The Bill of Lading is a document unique document as its negotiability fulfils several purposes. These
documents have led to a range of instruments and conventions within international trade. Arrangements
which owe their basis of the negotiability of the Bill of Lading are now common place. For these to function
as anticipated, the actual and original Bill of Lading must be present through the sale, purchase, letter of
credit processes at each stage as the goods on the voyage progress. The system fails when this does not
occur. This has led to the use and development of the Letter of Indemnity in international trade.

A Letter of Indemnity is a written duty of a shipper to indemnify a carrier for the liability that the carrier
could lay itself open to through the issue of a clean Bill of Lading when the cargo received was not in fact
that which was stated on the bill of lading. [1]

Although they are not the ideal solution, Letters of Indemnity are common throughout international
shipping. As commercial activity extends, these instruments are being increasingly utilised in the carriage of
goods by sea. They may also be identified as letters of guarantee and as counter-letters. Letters of indemnity
are employed as either Letters of Indemnity issued at shipment, or Letters of Indemnity issued at discharge.
The later are also identified as letters of guarantee.

One of the main issues with the application, scope and limits of any Letter of Indemnity is the extent to
which rights and obligations created through the use of letters of intent fail to match those provided by the
Bill of Lading.

The failure to produce a Bill of Lading

To understand the scope and application of a Letter of Indemnity it is also necessary to address Bills of
Lading. These documents are derived from antiquity in English Common law where they have attained
prominence by virtue of ancient mercantile custom [2] .

Letters of Indemnity are frequently employed in situations where passage has not concluded according to
the stipulations contained within the Bill of Lading. For instance, this could include an alteration to the
discharge seaport. Most Letters of Indemnity are issued to procure the release of a consignment when the
Bill of Lading is deficient or unavailable. In situations where the receiver or final purchaser is not capable of
tendering a Bill of Lading to the carrier in order to obtain the release of a consignment, a Letter of
Indemnity may be issued. Although common in most seaborne trade, fungible transactions such as the
crude oil trade that are reliant on quick voyages and utilise compound sale and purchase contracts deploy
these instruments most frequently.

Letters of Indemnity have been used to fulfil the three primary functions of a bill of lading [3] . These include:
· Use as a receipt;
· To provide evidence of a contract of carriage;
· To supply documentation demonstrating title in the goods.

Letters of Indemnity as a Receipt

Letters of Indemnity have been used in place of a Bill of Lading as receipts. By stating the particulars of the
consignment and the expected order and condition within which it was shipped, this instrument [4] is can
act as evidence of the condition of a consignment as against the shipper and may also act as evidence as
against third parties.

Evidence of a Contract
A Bill of Lading alone does not constitute a contract. It can be used as evidence of the contract. Generally
the Bill of Lading will either incorporate the Hague or Hague-Visby Rules [5] . A bill will include either the full
terms or incorporate the carriers’ standard terms. A Charter-party bill will explicitly incorporate the Charter-
party terms.

Under the Hague [6] /Hague-Visby Rules [7] , there is:

An obligation on the shipper to use due diligence to render the vessel seaworthy prior to and at the
commencement of the voyage [8] and a duty on the shipper to maintain the shipment [9] with care.
A package limitation [10] .
A time limit of one year in which the consignment’s owners can initiate a claim [11] .
Primarily, any contract formed using the Hague-Visby Rules stops the shipper from contracting out of
the rules. Although it is possible to increase obligations above those set out by the Hague-Visby Rules,
the shipper cannot decrease the obligations. A clause which contends this will be void [12] .

Demonstrating title in goods

A Bill of Lading is a receipt for goods, a “ control document ” [13] which acts as a contract to carry and is also “
the key to the floating warehouse ” [14] . “ A Bill of Lading is a commercial document of dignity [15] and
integrity based on good faith ” [16] . As such it ties several contracts; the sale contract, the shipping contract,
the letter of credit and the pledge and any additional security arrangements.
A Letter of Indemnity at shipment is, “a written undertaking by a shipper to indemnify a carrier for any
responsibility that the carrier may incur for having issued a clean Bill of Lading when, in actual fact, the
goods received were not as stated on the bill of lading ” [17] . The courts often exemplify this practice as
fraudulent and have had unsympathetic remarks regarding these practices:
“ Antedated and false bills of lading are a cancer in the international trade. A Bill of Lading is issued in
international trade with the purpose that it should be relied upon by those into whose hands it properly
comes — consignees, bankers, and endorsees. A bank that receives a Bill of Lading signed by or on behalf of
a shipowner (as one of the documents presented under a letter of credit) relies upon the veracity and
authenticity of the bill. Honest commerce requires that those who put the bills of lading into circulation do
so only where the bill of lading, as far as they know, represents the true facts ”. [18]

The problem of whether such letters are legitimate and enforceable with consideration to the issuer of the
letter remains as unsettled jurisprudence. A broad uncertainty in the law and between legal scholars
remains as to whether situations exists as to where it would be permissible for a carrier to agree to a letter
of indemnity.

Clean bills of lading issued in exchange for Letter of Indemnity, and antedated bills of lading that are issued
in exchange for Letter of Indemnity should be distinguished. A Bill of Lading is antedated when the date on
the bill is advanced forward of the date of shipment. “ Shippers often put pressure upon carriers, their
masters and ship’s agents to state on the Bill of Lading a date of shipment not corresponding to the true
loading or shipment date but instead to insert a date which coincides with a documentary letter of credit or
in order to bring the shipment within the period of a subsidy or quota ” [19] .

Antedated bills of lading normally do not include misleading descriptions of the goods, only an incorrect
date. A shipper that predates a Bill of Lading with forethought is engaging in fraudulent practices [20] . Both
fallaciously clean bills of lading and antedated bills of lading have been condemned by the courts. [21] While
the courts have responded comparably to each practice, distinctions do exist. Both the Hague/Visby Rules
[22] and the Hamburg Rules [23] include a provision on estoppel shielding a guiltless third party from a
falsely clean bill of lading. Antedated bills of lading have few legislative protections [24] .

There is little if any law that implies that the contract could be impacted when delivered to the right party.
The law relates to the circumstances where there has been an incorrect delivery. What little law there is
concerning this is primarily Australian and is only persuasive authority in the UK.

The Letter of Indemnity is an independent contract, but does not make an independent misrepresentation
[25] . A shipper is at liberty to rely on a Bill of Lading “ time bar ” even if goods are wrongly delivered under a
Letter of Indemnity [26] . In cases where the shipper has negligently delivered without the production of a
Bill of Lading can still place reliance on the package limitation. [27]

English law permits the party that takes delivery under a Letter of Indemnity at liberty to bring suit against
the shipper if the purchase contract entitling the eventual custody of the Bill of Lading was entered into
prior to delivery of the goods. [28]

Letter of Indemnity
Ideally the Bill of Lading should reach the destination at the discharge port at the same time as the ship. In
many cases this does not occur and release is taken as against a Letter of Indemnity. Under English law, a
Master is not required to grant delivery under a Letter of Indemnity [29] unless ordered by the Court [30] . It
is acceptable for the Master to necessitate that the original Bill of Lading be offered. Charter-party terms
may however require the Master to deliver against a Letter of Indemnity. In many cases where the receiver
is not creditworthy, it will be a requirement that the Letter of Indemnity is signed by a bank.

Where a Bank countersigns a Letter of Indemnity without qualification, it is likely that they are signing as an
indemnifier and not just a verifier of a customer’s signature. Carriers should make sure that any Letter of
Indemnity is issued with the Indemnifiers authority [31] .

The P&I Clubs [32] do not consider delivery of a shipment without a Bill of Lading as being a reciprocal risk. If
a shipper gives such a Letter of Indemnity, it effectively replaces any P&I cover.

Presenting a Letter of Indemnity (“an Indemnifier”) will leave the party collecting the goods liable to
indemnify the shipper both against an action from a Bill of Lading possessor and for expenditure sustained
by the vessel including direct costs such as the provision of security or discharge from arrest or economic
costs akin to loss of hire [33] . If damages are an insufficient remedy, the Court can order specific
performance [34] .
Several issues come about through the use of Letters of Indemnity. Some of these that are noted by Prof
Tetley [35] include:
1. The effect as against third parties and the rights that arise;

2. The rights and obligations between parties to the letter of indemnity;

3. Complications which arise when there is damage to the cargo during carriage;

4. Complications which arise when the carrier is both the charterer and the ship-owner taken together and
only one of those persons has issued the Letter of Indemnity.

Validity with Regard to Third Parties

A third party is an individual or organisation, not being the shipper or the carrier, who has become
innocently involved with the Bill of Lading contract without foreknowledge concerning the fallacy of the
assertions in the Bill of Lading or the letter of indemnity. As the third party was not involved with the Letter
of Indemnity contract, it ought to consequently have no consequence with regards to the third party.

In the common law, Letter of Indemnity between the shipper and the carrier have no effect on third parties
acting in good faith. [36] As discussed above, the common law, as well as statutory law, ensures through the
doctrine of estoppel that Letter of Indemnity cannot be used as evidence to show that the goods were
damaged prior to loading in defence against a third party’s claim. Letters of indemnity have been
considered illegal on several occasions, and thus unenforceable against anyone. [37]

Validity between the Carrier and the Shipper

A letter of indemnity is a prima facie binding contract. The carrier should be able to take action against the
shipper to recover any costs sustained through use of the clean bill of lading. Issues arise, as the carrier and
the shipper are jointly parties to the same deceit. Many jurisdictions have found Letters of Indemnity invalid
as against the shipper. [38] Some jurisdictions have sustained the carrier’s allegations against the shipper
supported by the letter of indemnity. [39]

P & I Clubs
P & I Clubs [40] are “mutual non profit making insurers which offer shipowners cover for their contractual
and third party liabilities: injury or death of crew or passengers, loss of cargo, collision damages to vessels,
damage to the environment, etc ”. [41] P & I Clubs do not charge premiums, and rely on “calls” on each vessel
for payment of a certain rate per ton. This is paid proportionally first at the commencement of the year then
with a remainder to be paid subsequent to the assessment of the costs covering the actual losses for that
period. [42] To acquire cover from a P & I Club a shipowner must join as a member of the club. This starts
their contractual relationship, governed by the membership rules of the particular club. There are fourteen
P & I Clubs currently in business. These are mostly positioned in England, Scandinavia, and the Caribbean
[43] .

P & I Clubs view the custom of antedating Bills of Lading in the same way as of falsely issuing clean bills of
lading. “All liabilities resulting from ante-dating or post-dating of a Bill of Lading are excluded from P & I
Club cover.” [44] The clubs deem members who consciously issue incorrectly dated Bills of Lading to be
acting fraudulently. The clubs will not indemnify them for liabilities that consequently arise. [45]
P & I Clubs specifically recognise and prohibit the custom of antedating Bills of Lading as one of the
exclusions to club cover with deference to cargo liabilities [46] . Contrasting issues concerning the state or
quantity of the cargo, indisputable uncertainty as to the date of sailing is unlikely. As such, P & I Clubs have
not proposed any suggested actions in such circumstances. [47]

A Change of destination and Letters of Guarantee

The standard form Letter of Indemnity for Change of destination is comparable in structure to the Letter of
Indemnity for non-production of the Bill of Lading or Letter of Indemnity for the non-presentation of Bills
under a letter of credit.

Letters of Indemnity, in the form of a letter of guarantee are offered at discharge by consignees unable to
make available the original bill of lading. The letter of indemnity “ …is designed to provide a remedy for a
ship-owner, where the master releases cargo at the request of a party, in respect of claims which may be
brought as a consequence of such release ” [48] . This custom has grown ever more widespread over the
years. Short-haul shipping particularly makes use of these instruments.
Letters of indemnity issued at discharge are designated by some authorities as letters of guarantee. [49] A
letter of guarantee is characterised as, “ a letter…given at discharge and delivery by a consignee who is
unable to surrender original bills of lading which have been issued but lost…[and is] a security or suretyship
agreement ” [50] . The courts frequently do not use specific terminology whilst referring to a letter of
indemnity given at discharge, and simply refer to Letter of Indemnity generally. [51]

The Banking System and Financing Requirements

The banking system generally finances international trade. [52] The securing of international disbursements
is most often completed using of documentary credits. [53] Transactions normally have the buyer request
their bank initiate a credit in the name of the seller. To draw on this credit, the seller must ship the cargo as
contracted and present the bank with the suitable documents. [54] The particulars of these instruments is
reliant on the precise contractual requirements. A usual C.I.F. contract (cost, insurance, freight) would
require the seller to submit:

i) The original Bill of Lading,

ii) A valid insurance policy for the goods whilst in transit, and

iii) The sales invoice as originally agreed. [55]

Documentary credits constrained in that the documents (including the Bill of Lading) are required to be
“clean” and “unadulterated”. [56] As a consequence carriers frequently come under severe pressure to issue
clean Bills of Lading in order that the seller or shipper is able to tender a Bill of Lading conforming to the
documentary credit requirements and thus be paid.

UCP 500/600 or “The Uniform Customs and Practice for Documentary Credits” [57] is the standard format
for documentary credit transactions used within international trade. Article 32 covers the requirement for a
clean Bill of Lading though “clean transport documents”. [58]

(a) A clean transport document is one which bears no clause or notation which expressly declares a
defective condition of the goods and/or the packaging.

(b) Banks will not accept transport documents bearing such clauses or notations unless the credit expressly
stipulates the clauses or notations which may be accepted.

The date on which the cargo was shipped is also a matter of principal significance. Documentary credits
regularly require that the merchandise be shipped prior to a specific date. Failure being that the bank will
not acknowledge the documents tendered. The date of shipment requirement has led shippers to
influence carriers to agree to accept a Letter of Indemnity as offset for antedating the Bills of Lading [59] .
This custom of antedating bills of lading is in effect fallaciously dating Bills of Lading to signify that the
consignment was shipped in advance of the actual time. This is a fraudulent act equivalent to the issue of a
clean Bill of Lading for spoilt goods. [60]

Fraud
English law tends to deal with complicity between a shipper and a carrier to construct an exchange of clean
bills of lading for a letter of indemnity which results in the consignee being held liable to the or endorsee
though the torts of deceit and negligence or fraudulent misrepresentation. [61] In a commentary on the
sway of continental Europe on the law of the UK, Ibbetson stated:
“ there was still a degree of disharmony between [England and] continental European systems, where the
requirements of good faith and fair dealing were far more deeply entrenched, but in 1994 these differences
were smoothed out, at least so far as consumer contracts were concerned, by providing that all such
contracts should be subject to a general requirement of ‘fairness’ ”. [62]

The International Chamber of Commerce lists four types of frauds in Letters of Indemnity [63] :
1. Falsified documents, the consignment being non-existent,
2. Goods are of inferior quality or quantity,
3. Same consignment is sold to two or more parties, and
4. Double bills of lading are issued for the same consignment.

The English common law habitually resists any universal obligation of good faith and the accompanying
obligations. In particular, the conception of a general duty to inform or the obligation to disclose has been
neglected by the common law. [64] Jenkins v. Livesey [65] (House of Lords) promoted the customary
perspective held by the common law.

It should be noted that “…academic writers continue(d) to press for some generalisation of the
circumstances in which such duty [to notify or of disclosure] arose, moving towards though not necessarily
reaching, the principles of good faith in negotiations widely recognised by continental legal systems”. [66]

The exchange of a Letter of Indemnity for a clean bill of lading at shipment is thus a deceitful exercise. It
undermines the reliability of bills of lading:
“ Honesty and integrity in relation to the signing of receipts for goods the subject of bills of lading is
essential if persons engaged in international trade are to have any confidence in documents which play
such a vital role in relation to the authorization of the payment of money. If receipts are signed dishonestly
or in bad faith, the confidence of the international trading community is undermined and a whole system
that was designed to work for the benefit and protection of both parties to a transaction such as this will be
called into question ”. [67]

Letters of Indemnity continue to be issued in exchange for clean Bills of Lading even though the courts
disapprove of the custom [68] and academics have written against it. [69]

Notwithstanding the danger that the carrier will be accountable to the shipper should the shipper sue,
carriers will frequently obeisance to the demands of the shipper who requires clean shipped bills of lading
in order to be remunerated. Even where a carrier receives a Letter of Indemnity in return, it may not be
reassuring as numerous jurisdictions decline to execute the letter of indemnity contract. [70]

It remains the case that a carrier could escape responsibility for a fraudulent action. It has been suggested
that a “particularly nefarious fraud has emerged” through the Letter of Indemnity. [71] A carrier could assert
an exception (e.g. as inadequate bindings) leaving the consignee and underwriters to remain unaware of a
Letter of Indemnity unless action is commenced. They may remain utterly unaware of its existence. [72]
Consignees are frequently naive to the possible existence of a Letter of Indemnity. Even when they discover
it, the difficulty of establishing an alleged fraud remains. [73]

The requirements of the tort of deceit are that:

“Fraud is proved when it is shown that a false re

presentation has been made,

i) Knowingly,
ii) Without belief in its truth, or
iii) Recklessly, careless whether it be true or false….” [74]
“If the false statement was made knowingly and that intention is proved then the basis for liability for the
tort of deceit is established”. [75]

Evans LJ in Standard Chartered Bank v Pakistan National Shipping Corporation of the English Court of
Appeal held in the circumstances where a carrier fabricates a false bill of lading:

“ It is clear, in my judgment, that the shipowner would have no defence to the bank’s claim if the master or
agent issued a false antedated Bill of Lading in the genuine though careless belief that it would facilitate the
particular transaction or maritime trade generally [he] believed he was justified in doing so or that no harm
would result ”. [76]

Conclusion
Letters of Indemnity are a commonly used instrument within international commerce that is unlikely to
vanish any time soon. However, using them in order to secure clean Bills of Lading is a practice that should
be discouraged. In spite of legal sanctions this custom remains in common use. Shippers whose wares fail
to satisfy the requirements of the documentary credit, the contract of sale, and other commercial
instruments ought to be required to come to an arrangement with the consignee or other party to the sale
agreement in situations where they cannot convey the merchandise using claused or foul Bills of Lading.

Engaging the carrier to aid in the commission of a deception on an innocent third party is deplorable. It
should not be endured by the courts or the shipping industry. The notion of acceptable situations in which
one can receive a Letter of Indemnity, or “proper Letter of Indemnity”, only to aggravates the dilemma,
resulting in the courts scrutinising the intrinsic worth of every case instead of merely condemning the
custom.

The inclination of writers and courts to use the terms Letter of Indemnity issued at shipment and Letters of
Guarantee issued at discharge should be distinguished (even though they are both indemnity contracts).
These are essentially dissimilar instruments and the transposing of the terminology has led to perplexity
and misunderstandings of the dissimilarity between these instruments. Letters of Indemnity and Letters of
Guarantee hold separate purposes which when scrutinized draw attention to separate inconveniences and
limitations of the law and within the transport trade in general.

As Prof. Tetley argues; “ Even when a Letter of Indemnity is issued in seemingly good faith, it can cause
confusion and hardship ” [77] .
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Cases
Alimport v. Soubert Shipping Co. Ltd. [2000] 2 Lloyd’s Rep. 448 (Q.B. Com. Ct.)
Amann Aviation Pty Ltd. v. Commonwealth of Australia (1991) 66 ALJR 123 (H.C. Aust.)
Barclay’s Bank Ltd. v. Customs and Excise [1963] 1 Lloyd’s Rep. 81 (Q.B. Com. Ct.)
Berisford Metals Corp. v. S/S Salvador 1986 AMC 874 (2 Cir. 1985)
Collern & Co. Ltd v. China Ocean Shipping Company [1993] P & I International 16 (Sup. Ct N.S.W.)
Compania Naviera Vascongada v. Churchill [1906] 1 K.B. 237 (K.B. Div.)
Demsey & Associates v. S.S. Sea Star, 1970 AMC 1088 (S.D.N.Y. 1970)
Derry v. Peek (1889) 14 A.C. 337 (H.L.)
Donahue v. Stevenson [1932] AC 562 (H.L.)
East West Corp. v. DKBS 1912 [2003] 2 All ER 700 (C.A.)
Encyclopedia Britannica v. SS Hong Kong Producer 1969 AMC 1741(2 Cir. 1969)
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] 1 Lloyd’s Rep. 485 (H.L.)
Hunter Grain v. Hyundai, (1993) 117 ALR 507 (Fed Ct, Aust.)
Jenkins v. Livesey [1985] AC 424 (H.L)
Kwel Tek Choa v. British Traders and Shippers Ltd [1954] 1 Lloyd’s Rep. 16 (Q.B. Com Ct.)
Leamthong v Artis [2004] EWHC 2226
Lickbarrow v Mason (1794) STR 683
Motis Exports Ltd. v. Dampkibsselskabet Af 1912 [1999] 1 Lloyd’s Rep 837 (Q.B. Com. Ct.)
Pacific Carriers Ltd. v. Banque Nationale de Paris, [2001] N.S.W.S.C. 900 (October 16 2001) (Unreported) (Sup.
Ct. N.S.W.)
Pacific Carriers v BNP Paribas (High Court of Australia 5th Aug 2004)
Peer Voss v. APL Co. Pte Limited [2002] 2 Lloyd’s Rep. 707 (Singapore C.A.)
Pickard v. Spears (1837) 112 E.R. 179 (H.L.)
Renard Constructions Pty v. Minister for Public Works (1992) 26 NSW LR 234 (NSW C.A.)
Sanders v Maclean (1883) 11 QB 304 at 341
Standard Chartered Bank v. Pakistan National Shipping Corporation and Others (№2) [1998] 1 Lloyd’s Rep.
684 (Q.B. Com. Ct.)
The Aegean Sea [1998] 2 Lloyd’s Rep 39 (Q.B. Com Ct.)
The Carso 1930 AMC 1740 at p. 1758 (S.D. N.Y. 1930).
The Ines [1995] 2 Lloyd’s Rep. 144 (Q.B. Com Ct.)
The Nea Tyhi [1982] 1 Lloyd’s Rep. 607 (Q.B. Com. Ct.)
The New York Star [1980] 2 Lloyd’s Rep. 217 (P.C)
The Rafaela S [2003] EWCA Civ 556,[2003] All E.R. (D) 289 (Apr.) (C.A.)
The Sagona [1984] 1 Lloyd’s Rep. 194 (Q.B. Com. Ct.)
The Saudi Crown [1986] 1 Lloyd’s Rep. 261 (Q.B. Adm. Ct.)
The Stettin (1889) 14 P.D. 142
The Sormovskiy 3068 [1994] 2 Lloyd’s Rep 266 (Q.B. Adm. Ct.)
The Stone Gemini [1999] 2 Lloyd’s Rep. 255 (Fed. Crt., Aust, NSW Adm.)
The Zhi Jiang Kou [1991] 1 Lloyd’s Rep. 493 (C.A. N.S.W.)
United Baltic Corp. v. Dundee Perth & London Shipping Co. (1928) 32 Ll. L. Rep. 272
United Philippine Lines, Inc v Metalsrussia Corp. Ltd. 1997 AMC 2131 (S.D. N.Y. 1997)
Statues and Regulations
Bills of Lading Act (1855) 18 & 19 Vict. c. 111. (U.K.)
Carriage of Goods by Sea Act 1992, U.K. c. 50
Limitation Act 1980, U.K
Misrepresentation Act 1967, U.K. c. 7
Pomerene Bills of Lading Act 1916, 49 U.S. Code 102
Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills
of Lading, Brussels, February 23, 1968
Rome Convention 1980 E.E.C. 80/934, signed at Rome, June 19, 1980
Swedish Maritime Code, 1994, 2nd Ed. Andrea Upplagan T.O.M. 30 June 2000, Stockholm
Unfair Terms in Consumer Contracts Regulations 1994, U.K
United Nations Convention on the Carriage of Goods by Sea, Hamburg, March 31,1978
United Nations Convention on Contracts for the International Sale of Goods, Vienna, April 11, 1980
U.S. Carriage of Goods by Sea Act (COGSA), April 16, 1936, ch. 229, Sec. 1, 49 Stat. 1207

Footnotes
[1] United Philippine Lines, Inc v Metalsrussia Corp. Ltd. 1997 AMC 2131 at p. 2133 (S.D. N.Y. 1997). In this case, a
letter of indemnity was issued for this purpose.
[2] Lickbarrow v Mason (1794) STR 683;
[3] Bowen LJ’s judgment in Sanders v Maclean (1883) 11 QB 304 at 341.
[4] The Hague-Visby Rules state that a Bill of Lading is an adequate receipt. An indemnity given by the
shipper to the carrier is illegal and ineffective when the carrier has made an intentional misrepresentation
about the state of the cargo. The Hague-Visby Rules do not contain detailed provisions regarding the
legality of the custom of issuing clean bills for defective merchandise against a letter of indemnity from the
shipper.
[5] Situations where the Bill of Lading may contain neither of the Hague, Hague-Visby Rules or even the
Hamburg Rules are atypical (the Hague-Visby rules are most commonly used).
[6] “The International Convention for the Unification of Certain Rules of Law relating to Bills of Lading” was
signed at Brussels on the 25th August 1925
[7] “The International Convention for the Unification of Certain Rules of Law relating to Bills of Lading” was
signed at Brussels on 25th August 1924 as amended by the Protocol signed at Brussels on 23rd February
1968 and by the Protocol that was signed at Brussels on 21st December 1972.
[8] Article III, Rule I
[9] Article III Rule II
[10] Article III Rule 6
[11] Article IV Rule 5(a)
[12] Article 3 Rule 8 and Article V, but see Article VI
[13] Goode R., Commercial Law (2nd Ed) p.902.
[14] Dromgoole S. & Baatz Y “Interest in Goods” (2nd Ed) Chapter 22
[15] The Carso 1930 AMC 1740 at p. 1758 (S.D. N.Y. 1930).
[16] Tetley, W. “Letters of Indemnity at Shipment and Letters of Guarantee at Discharge”
[17] Tetley,W. Marine Cargo Claims, 3rd Ed., Editions Yvon Blais, Montreal, 1988, at 821.
[18] Standard Chartered Bank v. Pakistan National Shipping Corporation and Others (№2) [1998] 1 Lloyd’s Rep.
684 at 688 (Q.B. Com Ct.). Lord Justice Evans, comments regarding Cresswell, J.’s statement in the Court of
Appeal decision, approved with the assertions and additionally remarked: “This requirement of honest
commerce is stringently enforced by the English Courts. If a false bill of lading is knowingly issued by the
master or agent of the shipowner, and if the claimant was intended to rely on it and did rely upon it and as a
result of doing so has suffered loss, then the shipowner is liable in damages for the tort of deceit”. (Standard
Chartered Bank v. Pakistan National Shipping Corporation and Others (№2) (C.A.), supra note 1, at 221). See
also Howard, T. & Davenport, B. “English Maritime Law Update 1994/95” (1996) 27 J. Mar. L. & Com. 427.
[19] Hazelwood, S.J. P & I Clubs: Law and Practice, 3rd Ed., LLP, London, 2000 at 179.
[20] Ibid.
[21] Standard Chartered Bank v Pakistan Nation Shipping Corporation and Others (№2) (C.A.); Hunter Grain v.
Hyundai (1993) 117 ALR 507 (Federal Court of Australia).
[22] Art. 3(4) of the Protocol to Amend the International Convention for the Unification of Certain Rules of
Law Relating to Bills of Lading, Brussels, 23rd February, 1968 [the Hague/Visby Rules].
[23] Art. 16(3)(b).
[24] Pomerene Bills of Lading Act (United States), 1916, 49 U.S. Code 102, addresses the practice of
antedating. Section 22, protects parties who have relied on the date in the bill of lading to their detriment. It
is uncommon for statute to include such protections.
[25] The Stone Gemini
[26] Pacific Carriers v BNP Paribas (High Court of Australia 5th Aug 2004)
[27] Collern & Co. v China Ocean Shipping Company [1993] P&I International 16
[28] Carriage of Goods by Sea Act 1992, Section 2.2(a)
[29] The Stettin (1889) 14 P.D. 142; The Sormorskiy 3068 [1994] 2 Lloyds Rep. 266 {deals where the bill is
mislaid}.
[30] Motis Exports v Dampskisselskabett AF 1912 [1999] 1 Lloyd’s Rep. Affirmed [2000] 1 Lloyd’s Rep. 211
[31] Pacific Carriers v BNP Paribas
[32] P&I Clubs (or Protection and Indemnity Clubs) are covered later in this paper in more detail.
[33] The Stone Gemini [1999] 2 Lloyd’s Rep. 255 (Federal Court of Australia)
[34] Leamthong v Artis [2004] EWHC 2226
[35] Tetley, W [2004] ETL 287–344
[36] See Hunter Grain v. Hyundai; Brown, Jenkinson & Co. v. Percy Dalton; Standard Chartered Bank v.
Pakistan National Shipping; St. Paul Fire and Marine Ins v. Typin Steel.
[37] Brown, Jenkinson & Co., v. Percy Dalton, the court held that a letter of indemnity contract was illegal
and unenforceable as the object of the contract was to commit a tort. See Hellenic Lines, Ltd. v. Chemoleum
Corp. 1971 AMC 2605 (N.Y. Supr. Ct. App. Div), the majority of the court held that indemnity agreements are
against to public policy and thus are not enforceable.
[38] See Brown, Jenkinson & Co. v. Percy Dalton, & Hellenic Lines, Ltd. v. Chemoleum Corp.
[39] See Shanghai Ocean-going Shipping Co. v. Xiamen Foreign Trade Co. recapitulated by Chen, at 92.
[40] Protection and Indemnity Clubs
[41] Gyselen, L. “P&I Insurance: The European Commission’s Decision Concerning the Agreement of the
International Group of P&I Clubs,” in Marine Insurance at the Turn of the Millennium. M. Huybrechts (Ed.)
Intersentia, Antwerpen, 1999, 181, at 181.
[42] Ibid., at 182.
[43] Tetley, W. International Maritime and Admiralty Law, Editions Yvon Blais, Montreal, 2002, at 591.
[44] Luddenke, at 36.
[45] Hazelwood, at 179.
[46] Ibid. The American Steamship Owners Mutual Protection and Indemnity Association Form Policy,
encompasses cargo liability in stipulation 7, but specifically excludes ante-dating in provision 7(g): “(7)
Liability for loss of or damage to or in connection with cargo or other property (except mail or parcels post),
including baggage and personal effects of passengers, to be carried, carried or which has been carried on
board the insured vessel. Provided, however, that no liability shall exist hereunder for: …(g) Loss, damage or
expense arising from the intentional issuance of bills of lading prior to receipt of the goods described
therein, or covering goods not received at all.”
[47] Hazelwood, at 179–180.
[48] The Stone Gemini [1999] 2 Lloyd’s Rep. 255, at 266 (Australian Federal Court. NSW).
[49] Tetley at 824.
[50] Ibid.
[51] Tetley, W [2004] ETL 287–344
[52] Hare, J. Shipping Law & Admiralty Jurisdiction in South Africa, Junta & Co., Cape Town, 1999, at 459.
[53] Ibid., In the United States, the documentary credit is generally refered to as a ‘letter of credit’.
[54] Wilson, J. Carriage of Goods by Sea, 4th Ed. Longman, England, 2001, at 140.
[55] Ibid., at 140–141.
[56] Hare, at 459.
[57] Uniform Customs and Practice for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication №500. A text of UCP 500 can be found at the site: http://www.iccwbo.org/ . In the US,
the Uniform Commercial Code, regulates documentary credits in a manner similar to that of the UCP 500.
[58] UCP 500, ibid., Art. 32.
[59] See Standard Chartered Bank v. Pakistan Nation Shipping Corporation and Others (№2) (C.A.).
[60] In Standard Chartered Bank v. Pakistan Nation Shipping Corporation and Others (№2) (C.A.), the carrier
was held liable in the tort of deceit for antedating bills of lading in exchange for a letter of indemnity. The
Court held that the carrier would have no defence to the bank’s claim, who was the holder of the bill of
lading, and that the carrier was held to the same standard of commercial honesty that was required form
the other parties to the letter of credit transaction.
[61] Parker, B. “Liability for Incorrectly Clausing Bills of Lading” [2003] LMCLQ 201, at 205. For example see
Brown Jenkinson v Percy Dalton, discussing fraudulent misrepresentation with regard to the issuance of
clean bills of lading in exchange for letters of indemnity. For cases dealing generally with the tort of
negligence and the tort of deceit, see The Saudi Crown [1986] 1 Lloyd’s Rep. 261 (Q.B. Adm. Ct), Standard
Chartered Bank v. Pakistan National Shipping Corporation and Others (№2) (C.A), and Hedley Byrne & Co.
Ltd. v. Heller & Partners Ltd. [1963] 1 Lloyd’s Rep. 485 (H.L.).
[62] Ibid., at 258. The 1994 regulations that required ‘fairness’ were the Unfair Terms in Consumer Contracts
Regulations 1994 (U.K).
[63] ICC International Maritime Bureau, “A Profile on Maritime Fraud”, August 1982.
[64] Ibid., at 252, citing Nicholas, B. “The Obligation to Disclose Information” in D.R. Harris and D. Tallon,
Contract Law Today, Oxford, 1989, 166. The obligation to inform, or the obligation to disclose, arises most
commonly in English law in the context of the question of “whether…a right to rescind [a contract] should
arise where a contracting party had failed to disclose information that would have affected the other party’s
decision to enter the contract.” There are, unique instances in English law where a duty to disclose does
arise; Beatson, Anson’s Law of Contract, Oxford, 1998, at 257–269.
[65] [1985] AC 424, at 439.
[66] Ibbetson, at 252, taking special note of Beatson, J. “Has the Common Law a Future”[1997] CLJ 291, at
303–307.
[67] Hunter Grain v. Hyundai, holding the carrier responsible for accepting a letter of indemnity in exchange
for a clean bill of lading.
[68] Ibid. See also Brown Jenkinson v. Percy Dalton, Standard Chartered Bank v. Pakistan Nation Shipping
Corporation and Others (№2) (C.A.) supra note 1; United Baltic Corp. v. Dundee Perth & London Shipping Co.
(1928) 32 Ll. L. Rep. 272, where the practice of issuing letters of indemnity was criticized by the court, with
Wright J. using particularly strong language at p. 272: “The practice of issuing clean bills of lading when
goods are damaged is very reprehensible. It leads to trouble, and the people who do it ought to suffer.”
[69] See Tetley, “Chapter 38: Letters of Indemnity and of Guarantee” at 821, who, at p. 823, states that “letters
of indemnity should not be condoned, by the courts, or by commerce, rather they should be discouraged.”
See also Hazelwood, at 178.
[70] See Brown Jenkinson v. Percy Dalton, supra note 1, where the Court of Appeal held that the indemnity
was unenforceable because it was an illegal contract, with the purpose of perpetrating fraud on the buyer.
See also the Hamburg Rules, which dictate in Article 17.3 that the carrier will have no right of indemnity
against the shipper if his intention in issuing the clean bill of lading was to defraud a third party, including a
consignee, who acts in reliance on the description of the goods in the bill of lading.
[71] UNCTAD 2003
[72] Tetley, at 824. See also Bokalli, at 118, framing the problem from the point of view of the insurance
companies, who, once the good have arrived damaged, pay out and then are subrogated into the rights of
the consignees. These firms are often left without recourse as the carrier claims that the damage falls into
one of the exculpatory provisions.
[73] In Xiamen Special Zone Jijian Trade Co. v. Tianjing Ocean Shipping Co. (reported by Xia Chen, “Chinese
Law on Carriage of Goods by Sea under Bills of Lading” (1999) 8 Currents Int’l Trade L. J. 89, at 93.) the
consignee suspected fraud in the form of antedated bills of lading, however the evidence was not sufficient
to unequivocally prove the fraud. The consignee then obtained a court order that mandated that the vessel
provide all information related to the loading, and the Court itself also undertook its own investigation.
Upon completion of the investigations, the Court held that there was in fact fraud and the carrier was liable.
In commentary on the above decision, it has been noted that it is “often not easy for a cargo consignee to
prove such fraud between the shipper and the carrier without having been present at the time of loading.
[In the above case] the petitioner obtained the court’s order to preserve evidence on board the vessel, in
addition to interviewing the vessel’s officials and other crew members and inspecting the cargo by
professionals. In the meantime the court also launched an investigation of its own in accordance with
Article 74 of the Law of Civil Procedure which provides that when there exists a danger that evidence may
disappear or when it is difficult to gather evidence, the parties involved may petition the court for an order
to preserve evidence and the court may also initiate its own efforts in preserving the evidence.” (Ibid., at 93).
[74] Derry v. Peek (1889) 14 A.C. 337 (H.L.) at 374.
[75] Standard Chartered Bank v. Pakistan National Shipping Corporation and Others (№2), at 224. See also
Gaskell, N. Bills of Lading: Law and Contracts, LLP, London, 2000 at 179: “…the act of knowingly issuing a
false bill of lading is an intentional deceit or fraud.”
[76] Standard Chartered Bank v Pakistan National Shipping Corporation and Others (№2), ibid., at 221 and
224.
[77] Tetley, W (2004) [2004] ETL 287–344
Bitcoin as a Notary
By Craig Wright | 01 Oct 2018 | Bitcoin & Blockchain Tech
I was forwarded one of the most ignorant concepts of what Bitcoin (and for that matter Blockchain) is about
earlier today. This would be a part of the problems that are associated with the false idea that Code is law or
that Code can ever be law.

Not understanding law is a part of the problem

I was forward the following statement from Vitalik Buterin to comment on:

“ The value of blockchain “notarization” is not proof of existence; it’s *proof of inexistence*. The ability to
prove that message M is the *one and only one* of a certain type that has been signed, or that a message of
some type *has not* been published yet” .

I am sorry to tell you that the only thing a notarisation does is to offer evidence of existence. Not proof,
evidence. As some may remember with MD5 and a tool named Stripwire , the integrity of a hash can also be
called into question.
What is missing is attributing jack and Jill to the keys

Vitalik goes on to state what he believes a Blockchain to be. He claims,

The ability to prove that message M is the *one and only one* of a certain type that has been signed, or that
a message of some type *has not* been published yet

We now have a logical condition that Mr Buterin states to be our predicate to be evaluated.

A OR B is true.

For A, we have the claim:

The ability to prove that message M is the *one and only one* of a certain type that has been signed

For B, we have the additional state in claim of:

that a message of some type *has not* been published yet

So, as this is a logical OR condition, to prove Mr Buterin wrong, we need show that each claim is
independently wrong.

Claim A
The ability to prove that message M is the *one and only one* of a
certain type that has been signed
Let us start with a message M. M is a certain type of message. Let us say, for simplicity, there are two
options. M signs a message saying X or M signs a message saying Y. M could be a contract offer.

We want to show definitively that The signed contract is not the only one available on a Blockchain. That is,
M~X and M~Y cannot both exist.

In fact, there are ways to have a version of M~X and M~Y co-exist.

The simplest means comes from the collusion of the parties to a contract. Party A signs both X and Y to B,
and now can choose the particular path they wish to prove “always existed”. In effect, we could have two
sets of books. A block chain does not stop this and it is the adducing of other extrinsic evidence in support
of the ledger and system used by the parties that leads to a court selecting from the two options.
Now, there are ways for parties to construct contracts that increase the amount of evidentiary weight
associated with the assertion that only X or Y was signed for M. But, this is not a proof of only X or Y. It is a
claim in law of evidence. Not proof.

We can have a version of M~X and M~Y signed on a single blockchain and, as H( M~X) does not allow you to
see H( M~Y) , you cannot tell that both are signed and available. Further, if we look at a case of accounting
fraud, such as that with Enron, the existence of these signed messages would not have allowed for the
detection of the fraud in Enron.

Enron used a series of false and/or complicit companies. The records were all technically correct. The books,
at a level of what the Blockchain sees and uses would have been completely correct and if Enron used a
Blockchain, the accounting records would not be any different.

This is a problem not of immutability, but one of fraud. The records used by Enron where not altered to
create the fraud, they where “cooked” and no Blockchain stops this. This remains a reason for vigilance and
a reason why companies need to be audited. No blockchain stops fake invoices, nor embezzlement not any
of the main accounting frauds we see in modern companies.

That was never the purpose of Bitcoin and no blockchain stops this. The use of CaaTs (computer aided audit
technologies) can make auditing simpler using the blockchain, but it does not remove the need for auditors
to check and detect fraud.

I could for example have constructed two sets of Books on a blockchain. One has the real sales or a part of
those and the fraudulent ones, and another has a separate set of transactions. A public key does not equal
identity. It is not a means to

Mostly, the foolishly small minded idea of non-repudiation that so many “coders” and “ cryptographers ” tout
is not something that is valid in law. I can always repudiate a transaction. The perfect code and
cryptographic system does not preclude me from simply stating I was under duress or the key was stolen.

More, in order to have any level of privacy, keys are not used for the entirety of a transaction path. In Bitcoin
and any derivative Blockchain, you send from one key to another and a wallet collects a large number of
public — private key pairs as addresses over time. So, signed with which address?

there is no way to prove ownership of all possible addresses a user has controlled. There is only the ability to
have a set of addresses that are attributed to a user and then to adduce evidence (from external sources)
that a particular user had control of a particular key.

So, again, it comes to external information. The only manner to allow proof of the keys and control is
registration of an address, something like PKI or a registration body. Here, the address to be used would be
registered to the party in advance of the signing of the evidence of the existence of the message M. Here, it
is not the Blockchain that is providing the evidence, but the PKI or registration body. Bitcoin is thus only a
more resilient and cheaper escrow and notary service and the existence of the blockchain is not what
provides “proof”. The evidence comes from the certification body.

Consequently, we see that claim A is false.

Permission-less as it is touted is a fallacy

A part of this is a false belief that any item in the “real” world can be “permission-less”. This is a misguided
and childlike belief. In the physical world, the ownership of a good or property is not the same as a right or
claim to a good or property. This applies to both real property, physical goods and chattels as well as
intellectual property and digital goods.
It is not keys, it is people

If you have a token stating a right to a chattel good (such as a car for example), then, this is a right and not
the actual ownership itself. You could sell the token and then have the chattel goods assigned by a court.
For instance. You buy a car. This car has a registration token. This token can even be recognised as an official
registration token (right now, all ownership is in effect a database token — just these are outside a
blockchain).

It does not matter that your “ ownership token ” states that you own the car, if the court states that a
separate party owns it, you do not.

The fallacy of decentralisation of everything is again a pseudo religious claim without merit.

There are many cases of goods being assigned by a court. In fact, this is one of the main aspects of what a
civil court does, they assign rights. So, if you have a token that does not allow this, the answer is for the court
to simply hold the party not willing to transfer the token in contempt, or worse, to hold that the token itself
is not valid.

Claim B
that a message of some type *has not* been published yet
You cannot prove this claim either. At its simplest,

At time t=(0), we create a hash X=(M || I). Here, I is a value that is not known publicly.
At a later time t=(T), we create a second hash Y=(M).

Both hashed messages are published on the blockchain.

You cannot prove M existed at t=0 from the message provided at time t=(T) alone. There is no way to know X
given Y. If (I) is a 4096 bit random value that is appended to the message M (we concatenate these), then
you cannot find X in any time given M.

More, even if we have M and (I), we still cannot find all variations of M and X. We cannot say that
Z=Hash(M_XOR_I) was not used. Or that we inverted M or…

So, claim B is also false. You cannot prove a message M has not been previously published nor even know
what has been published already.

A key is not identity.

One major error is that some people (those in the ETH camp) seem to confuse identity and the ability to
sign a transaction and think these are synonymous. There is not way to associate a key with a person other
than the long arduous process of PKI and once this is deployed, we have a means to associate all use and
lose privacy.

Bitcoin is not a technical panacea for all the world’s ills and it is not a social system. It was a means to deliver
sound money using the principles of competition. The creation of money that comes through the market’s
invisible hand.

The best technology wins

In Beta vs VHS we have the endless argument that Beta was superior to VHS.

The main determining factor between Betamax and VHS was the cost of the recorders and recording time.
Betamax is, in theory, a superior recording format over VHS due to resolution (250 lines vs. 240 lines), slightly
superior sound, and a more stable image; Betamax recorders were also of higher quality construction. But
these differences were negligible to consumers, and thus did not justify either the extra cost of a Betamax
VCR (which was often significantly more expensive than a VHS equivalent) or Betamax’s shorter recording
time.

The facts are simple, Beta was not as good a technology as VHS. The market decided on price. Beta has
shorter tapes that cost far more. Betamax’s original maximum recording time of one hour (as set by Sony)
was something the market did not want. You cannot have a movie in a one hour tape.

Beta was not better

Telling consumers what you think is technically superior is irrelevant. What people actually want matters
and that is what is technically superior. Consumers in the USA wanted a tape long enough not just for a
movie, but one that would allow the recording of an entire Grid Iron football game. So, telling people what
they want rarely works. Listening to the market matters.

The market does not want a system that allows anonymity and the complete removal of government. It
does not want a system of anarchy and non-identification. If it did, we would see political parties espousing
such ideas actually being taken seriously. They are not.

Bitcoin (and for that matter no Blockchain) does not deliver social consensus . There are efficient voting
protocols that can be constructed on top of Bitcoin, I know, I have patented more than 10 ways to do this.
However, this is nothing to do with a universal system of distribution. Blockchain is not about equality. It is
about property and it is capitalist. It has been designed in a manner that precludes socialist control. So,
sorry, if you want to bring down the system, bitcoin is not the answer.

Bitcoin can be used to aid in auditing, to make the registration of assets on a regulated system, easier and
less expensive. It does nothing to alleviate the need for a system of dispute management. It does not stop
the control of property by government. If you do not like this, well, too bad. You can cry to the sky all you
will, but the fact is, this is the world we are in.

Reducing costs and increasing efficiency leads to productivity gains. If you do not think that is sufficient,
well, too bad. Not everything is solved in having a Blockchain and more, the nature of any blockchain is as a
protocol. In the end, there can only be one.

Technology is not about what has a higher resolution and saying that is best. There are always methods to
increase simple things like resolution. VHS could have used a thicker tape, if this was the concern. The cost
of VHS would also have increased. Technology is about what can be delivered for a unit cost. If you cannot
deliver something that the market wants at a cost level, then, you have not delivered and you do not have a
superior technology. That simple.

More, if you do not have the aspects that are demanded by a market, then you do not have a solution the
market wants.

To be money, to be used as a contract system, Bitcoin is not simply a one stop method to stop and change
all that was and will be. It is an economic system that adds costs to security and allows evidence to be
adduced. It does not prove all things, it allows for evidence to be created.

That is, you can provide evidence to a court (or other adjudicator) demonstrating what you claim is the
earliest version of a message (M). If you do this, and you make the claim that this is the first (and/or you
created M), then you are restricted under the doctrine of estoppel from later claiming that an earlier version
existed. This would not stop another party (unrelated to you) from claiming that the version or copy of (M)
they have is earlier.

So, you do not prove a negative with Bitcoin (or any Blockchain) and you do not remove law.

I know Vitalik will argue that you can have a singled public transaction and that this chain prove it was
there, but again, there is nothing in the claim to show that this was the only possible key nor that this was
not a duplicated item (for example, you did not securitise the tokenised asset of message separately and to
another person).

What IS a notary and what is Notarisation?

A notary provides authentication helping to secure record allowing nearly any format of transaction,
document or event to be verified. The Blockchain can help with SOME of this, not all.

At the simplest, a notary does the following:

Many notaries provide a service for commercial firms engaged in international trade, and for private
individuals. The most common tasks include :

Preparing and authenticating powers of attorney for use overseas

Dealing with purchase or sale of land and property abroad
Authenticating foreign wills and providing documents to deal with the administration of the estates of
people who are abroad, or owning property abroad
Authenticating personal documents and information for immigration or emigration purposes, or to
apply to marry or to work abroad, such as education or professional qualifications or declarations of
 freedom to marry
Authenticating company and business documents and transactions or providing certificates as to the
status of a company or the identity of its directors

A notary verifies identity

A large part of what a notary does is covered by the term “ Authenticating ”. This is not just that they
published a hash of a document, but that they have verified the authenticity of the document at the time it
is notarised (and not prior). A hash of a document, a token or a transaction on a blockchain is evidence of its
existence at that time. No more, no less.

To be notarised on the blockchain, a document also needs to be authenticated. A notary could do this. They
could

Validate the digital document or scanned image of a document.

Check the hash that is created.
Validate the keys and associate these to the individuals or companies seeking to have a notarised
document.
Witness the signing of the document and attest that it has been verified as it was broadcast to the
Blockchain.
And, use an ECA (or UNCITRAL outside the UK) approved digital signature and PKI process.

Just loading the hash on the blockchain is evidence of it having existed at a point in time, it is not a
notarisation of that document. Signing a document with a unverified key is not proof. More, even if you
come back later and hold access to a private key, you have not demonstrated that you had access in any
prior time. You could make an attestation for this key and register it using an approved and regulated PKI
based CA (Certification Authority) to the level required to show that this is your key to a level required to
sign a deed, but then, it is no longer private. You now have a Bitcoin address that is associated to you unless
revoked formally.

So, this is the problem we see, to many think they understand what the law is and does and yet have little
idea what is covered.
Law is law. Code is only evidence

The same applies to banking and Bitcoin. Bitcoin does not allow people to be their own bank, banks issue
loans and arrange credit. Bitcoin is a means to hold cash. It is not a bank. More, having access to the private
keys does not mean you own a bitcoin address. You could be an agent. Thin k of a company wallet. You
could have a key, but be authorised to spend funds. These are not your Bitcoin, they are in your possession,
but the addresses are not yours and if you leave the organisation and use a copy, you have committed theft.
Merely having a key is not sufficient to say you own Bitcoin. You still require the legal right.

Unfortunately, the “promises” of these coins such as Ethereum cannot be achieved. The starting premise is
wrong and they have failed to understand what they need to deliver. If you do not know what a bank is or
for that matter even something as simple as a notary, you cannot build something to make it more efficient.

There is no free lunch

Sorry Vitalik and all other Ethereum-a-philes … Code is not law. Law is law and code is at best evidence.

Having worked in a Chartered Accounting firm and having written software to provide CaaT and other
audits of accounts, including in fraud detection teams, I can say that too many in this space know too little
about accounting and law and simply make claims that they cannot even start to understand.

So, there is nothing to the claim that Bitcoin is in itself a notary service. You can use a blockchain as a tool for
a notary service, but it is not sufficient in itself.

Lastly, Bitcoin is cash (BCH).

The error in Coase
By Craig Wright | 02 Oct 2018
| Alternative Coins & Systems
Ron Coase made several errors in his theory of transactional processes in economics. Most critically, he has
failed to note the value of property.

Property rights include the right to have and use. The value of property includes the right to use and
dispose. If this right is removed, then some of the value of the interest in property is also removed.

In Coase’s example of a rancher and farmer, the cattle straying into the farmer’s property is calculated as a
pure equilibrium on the transaction alone. This ignores the value of the property already vested in the right
to exclude. By removing the right for the farmer to exclude the cattle rancher’s steers, Coase has developed
a means of taking some of the total property value away from the farmer without compensation.

Basically, the diminution in capital value of the property is not considered. This means that property value is
not fixed. The individual cannot plan for a use of the property, and the capital value of that property cannot
be guaranteed as a neighbour with a more economically valuable idea can move next door and usurp one’s
rights.

For instance, if we assume that the rancher has moved next door to a person with a home in the bush, that
use has no economic value. Under Coase, the rancher’s steers would be able to roam onto the homeowner’s
property damaging it and destroying the homeowner’s rights. The owner may for instance want to have a
bush rejuvenation project. This may not appear to have value to the rancher, but it had value to the owner,
and also to other prospective purchasers of the property.
The rights of the rancher to have the cattle roam and destroy the neighbour’s land remove its use as a
rejuvenation project. This devalues the property. It means the capital value of the land is diminished
through the loss of the right to exclude. This result occurs as no other party with a desire to own a bush-
rejuvenation project will want the land. This reduces the pool of possible purchasers and hence lowers the
value of the property. The owner loses capital value without any means of addressing this loss.

In all instances, there is a more valuable use of property. The arbitrary assignment of rights devalues ALL
property. The end consequence is that all property is uncertain and no property can be seen to have value.

The conversion of a property right into a liability right does not account for the additional harm done to the
property owner.
Security in a world of IPv6 and Bitcoin
By Craig Wright | 03 Oct 2018 | Bitcoin & Blockchain Tech
We are starting to move to IPv6 and the cloud. Right now, the uptake is minimal at best with very few early
adopters for all of the hype. That said, the climate is changing. Soon, IP addresses will be on everything. More,
Bitcoin (BCH) will be the exchange system for everything.

Network systems work on an exponential growth curve. Things are exponentially less expensive each year
and incrementally more powerful. This will drive applications and uses that people have not even thought of.
The following are ideas that have serious money already behind them, and are just a few years from
deployment:

Disposable communication tablets. Basically these could be dropped in places such as Iran, and allow for
communications no matter what the incumbent government tries to filter. Think $1 devices.
Milk, Coke cans, and more in supermarkets with IP addresses and RFID. Why, well first, as they can
integrate this with smart appliances, but more importantly, with merchandising and stock control. Who
needs to do stock take when the store tells you what it contains.
Light bulbs with web and IP addressing. Well actually these are already available.

The thing is, there are many reasons why IP addressing will be used up quickly, and these are but a few. That
is one reason why we will move to IPv6. Mobility and security are others.

The catch-cry of the 21st century will be, Anytime, Anywhere .

Done correctly, IPv6 can make for extremely secure networks. Right now, using Group Policy and a number of
other tools, if you have Linux or Macs, it is already possible to make a secure mobile network. It is more
difficult under IPv4 due to the constraints on the protocol and the nature of DHCP (against DHCPv6)

As much as I like Linux, I will just talk on Windows for this post, as it becomes far too complicated to start
going into all the possibilities when Linux, Macs, Windows, and other devices are involved. Microsoft have
already published a number of good IPv6 implementation guides too. More, they have detailed processes for
implementing IPv6 through Group Policy . This can be done using Linux and other devices, but the economy
of time constrains us all.

Secure server

In the domain world, Windows allows for the simple deployment of secure-server and client-trust models.
This can also be achieved using Workgroups, but like with Linux, it is more complex.

Using Group Policy, you can set a client to only talk using encrypted sessions and only to trusted servers.
Why restrict clients this way?

In a large organisation, client peer-to-peer communications can be a means of malware dissemination. There
is rarely any real need that cannot be achieved on the server to have clients talking to clients over the
network directly. Rather, they should be controlled via a server.

What this can allow is that only authorised client hosts are allowed to communicate with servers.

In an organisation, even mobile users can be forced to communicate to company servers. This is where the
cloud becomes important. With disk encryption, IPv6 with IPSec enabled, and the right controls each and
every host is firewalled.

A mobile user (A) can be restricted to communications with only allowed systems (such as a home office (D),
and the corporate servers (B).

All attempts to connect to the system with an untrusted host will be dropped, as the host attempting this will
not (we are assuming that keys have not been compromised here) be allowed to communicate through
policy and host firewall rules. As said, this is simple using Group Policy.

Here, the client host can be restricted to connecting to the organisational proxy server and no more.

Using DaaS (Desktop as a Service) with a mobile tablet makes this even more secure if done correctly. The
desktop can be configured to be accessed only from selected tablets with a key, and at best the loss of a
tablet will provide only a key to the remote desktop which still needs to be authenticated to.

This restricts local access to the host as the “desktop” is stored in a data centre. The user cannot use local
escalation attacks based on physical access to the system, as they are never actually on the system.

More, if the user loses a tablet or other device, they are not actually connected to the system and files, and the
loss of the tablet will not lead to a loss of data (if configured correctly).

As the desktop is configured to only talk to the tablet and the organisational servers, and all communications
are encrypted, the location of the user does not actually matter, and they can be truly mobile (as IPv6 allows).
More, this allows the organisation to control access to the Internet through organisational proxy and email
servers. With flags in IPv6, we just happen to be able to integrate the payment of all this.

As strange as it may seem, a well defined and deployed cloud and IPv6 system can actually be far more
secure than the traditional crunchy shell-firewall model.

Now, with IPv6 jumbo blocks and BSV as a payment channel… We have a path to Internet of Value on
demand.
The Labour Fallacy of Bitcoin Value
By Craig Wright | 05 Oct 2018
| Bitcoin & Blockchain Tech
The error made in the argument that free movements of people will “take our jobs” is that of a fixed labour
pie. This is the same fallacy we see used to justify the price of Bitcoin.

There is an infinite amount of labour. There is always more to be done (and that is productive work and not
building pyramids and holes to be filled), and as many people as there are, there will always be more to do.

The secret is not to distribute labour, but to allow it to flourish competitively.

This is a further argument against government regulation (as opposed to emergent rules in markets).
Regulation imposes additional barriers to entry. It makes any business more capital intensive. The end
result being fewer but larger companies and corporations. It forces the small entrepreneur from the market.

This has a couple effects. First, those small entrepreneurial businesses are generally (more than the mean)
those who are the most innovative. It is a necessary condition to compete with the larger entrenched player.
You create a better mousetrap or a more cost-effective process.

Regulations also directly discourage entrepreneurship and innovation. They fix rules. Emergent market rules
are fluid and change over time (as does common law). Regulations are reactionary. They change after an
event. This is, they do not bend but stay rigid to the point where they break and are replaced (again
subsequent to the event).

The effect is to maintain the status quo and slow the process of creative destruction.

Many businessmen and capitalists support this as they are in the entrenched position. This is the state of the
US car industry and many of the banks. In place of having them provide what people want, they are allowed
to continue in loss-making practices that will result in more calls for bailouts down the track. This is rent-
seeking behaviour.

Newer and better comes in time.

The argument that the good is pushed aside is commonly made. Beta video, the alternatives to the qwerty
keyboard, and other fallacies are used to support this. Beta was only “better” than VHS for a small section of
the community. For most people, VHS actually had more advantages (such as in recording movies at home
from TV).

The touted superiority of the alternatives to the qwerty keyboard all failed to be demonstrated in
independent experiments. It was not a failure due to the distributed base, they just did not hold to the
claims.

I am heart and soul a free market proponent as over time I have not seen any intervention that provided a
net benefit in the long term. It is the analysis of the issue that drove me this way.

The fallacy of value through labour is used in the justification of Bitcoin too. Many say that Bitcoin is valuable
as it has a lot of energy used in the creation of a block, but this, as with all Marxian fallacies, is flawed in that
it is not the creation of a thing that adds value, but the subjective demand for it.

Just as you could spend a large amount of money hiring corporate CEOs to make wine using 14th-century
methods and paying them well for this, we can spend large amounts making a system that is not valuable
and will become a Ponzi. In the case of wine, we have expended a large amount for something few if any
would desire. In the case of Bitcoin Core (BTC), we have a speculative gambling asset, a Ponzi that is
designed to pump until, well, it doesn’t.

So, why does Bitcoin (Cash) have value? It has value through use.

Bitcoin (BCH) is a P2P cash system, and it — simply put — solved the problem of double spending. It does not
save the world, it is a system of money that is difficult to demure. That may not be enough for you, but, to
some of us, it is all there needs to be.
Creating a Smart Contract Registry
By Craig Wright | 06 Oct 2018 | Bitcoin & Blockchain Tech
This post is the first in a series to describe a number of important methods that are needed in creating
commercially viable contracts in Bitcoin (BCH).

We will cover:

How a contract, or structured control condition, can be published and certified on the Blockchain in
the form of a token;
How this token will be able to reference an external repository holding a complete representation of
the contract;
How a contract can be structured in a manner to support wholly or partly automated enforcement;
How interested parties can enquire as to the current state of the contract;
How to configure sub-contracts, or sub-conditions, to contracts that can be derived from the parent
contract.

In addition, this post series describes one option to provide the following:

Defining the lifetime for time-bound contracts

How the contract can be automatically closed or rolled over into a new contract;
How the contract to be manually closed or fulfilled;

The granted patent is available to read; REGISTRY AND AUTOMATED MANAGEMENT METHOD FOR
BLOCKCHAIN-ENFORCED SMART CONTRACTS .

Overview
One of the key problems with modern contract management is that it tends to be massively ad-hoc with
local stores and copies of contracts that are manually maintained and managed. In addition, contracts
written in natural language are open to interpretation which frequently relies on specialist lawyers to
unpick and explain.

This presents a mechanism to hold a secure, public record of contracts in a manner that allows their validity
to be determined and the details released to authorised entities.

Key Requirements
The key requirements include the ability to:

Formally define a contract in a manner that can be formally interpreted and implemented by a
machine, as well as converted into natural language;
Publish a contract to an audience where the details of the contract can be restricted to authorised
entities only, but the knowledge of the existence of the contract is publicly available information. In
 other words, it can be public knowledge that there is a contract between A and B that anyone can
verify, but anything other than its existence is restricted to authorised parties (normally A and B
only).i.e. encrypted data on the DHTs (e.g. contract definitions etc.)
Provide a mechanism that allows contracts to be time-bound (i.e. they expire after a certain time or on
a given date); condition bound (i.e. they expire once the deliverable specified within the contract has
been fulfilled) or open-ended (i.e. they continue to roll on with a notice period to terminate them).
Provide a mechanism to serve notice to terminate that contract in a public fashion. e.g. Using
nLockTime + CLTV in a spend transaction to ‘ enact ’ the expiration.
Provide a mechanism to structure a hierarchy of sub-contracts in a deterministic manner to allow
control over different aspects of the contract to be partitioned. For example, on a technology
programme, the requirements phase may have a different set of control triggers than the
development phase. i.e. chain of hash-linked DHTs .

Key Benefits
The process defined within this paper will drastically simplify the ability of contracting parties to manage
and maintain their contracts. More importantly, the ability to publicly specify control conditions and triggers
means that it is materially simpler — in the event of a dispute — to agree the state of the contract.

DHTs are used with Bitcoin to automate many aspects of the contract process

Technical Specification
A smart contract enables contract conditions to be either wholly or to a significant degree automatically
enforced. A smart contract built into the Blockchain can be enforced through logic built directly into the
bitcoin transaction (i.e. within the locking/unlocking scripts) and/or through external agents (‘oracles’ or
‘bots’). In addition, some contractual conditions can be enforced through other bitcoin transaction
elements such as the nLockTime field. For example, in this document we describe an embodiment where
the contract remains in effect for as long as there is a valid unspent transaction output representing the
contract. It will be appreciated that this condition can be enforced by other mechanism described herein,
based on the stipulations in the contract itself (e.g. via an oracle).

However, using this simple principle in addition to other features of white papers allows complex scenarios
and activities to occur. Effectively, the context around that unsigned transaction output, and the associated
metadata within the redeem script that allows it to be spent, allows it to act as a pointer or reference to an
off-chain repository of the formal details of the contract.
Using standard Bitcoin features such as CheckLockTimeVerify allows the contract to have a formal expiry at
a point in the future that is a matter of secure public record; the same construct plus the deterministic sub-
key model detailed in the granted patent “Determining a common secret for the secure exchange of
information and hierarchical, deterministic cryptographic keys” would allow the same CLTV model to
automatically roll-on the contract unless explicitly cancelled.

Again, using one of the many tokenisation mechanisms available for Bitcoin Cash that we shall cover in a
set of followup posts would allow this smart contract to reference the repository where the full details of the
contract are held. Using the deterministic sub-key model plus the tokenisation mechanism allows sub-
contracts or schedules against contracts to be created. Using a suite of external oracles, as we shall
demonstrate in after this and the tokenisation posts have been listed, allows contract conditionality to be
built in and modified by trusted third-parties.

Key Terms
This technical specification uses the following terms throughout to define key concepts and components.

Contract Model
Full details of the model are developed in an extensible model. The basic elements of the model are as
follows:

A codification scheme that allows a complete description of any type of contract. The scheme may be a
new construct or may use an existing facility such as XBRL, XML, JSON (etc.);
A DFA ( Deterministic Finite Automaton ) to implement the Contract that can be fully defined within
the codification scheme. This will be made up of:

o A set of parameters, and where to source those parameters;

o A set of state definitions

o A set of transitions between the states, including the trigger for the transition and the rules followed
during the transition.

o Rules definition table

Definitions of the specific parameters for this instance of the Contract;

Mechanisms to secure and protect the Contract;
A ‘browser’ to enable the contact to be made human-readable in formal legal language; and
A ‘ compiler ’ to convert the codification scheme into Oracle code and / or Bitcoin script.

Implementing the Contract

When the Contract is registered in a repository, the associated URI and hash can be used in accordance with
using metadata within a Blockchain transaction to associate the transaction on the chain with the
controlling contract itself.

There are a number of different methods as to how the DFA contained within the contract definition is
implemented:

As a Blockchain transaction (or sequence of transactions). There are a number of separate white
papers that cover how to implement various forms of DFA directly within the Bitcoin scripting
language;
As an Oracle process (or sequence of Oracle processes). We will cover the basic process for defining
and running an Oracle to monitor the Blockchain (and other external sources) in later posts.
As a set of instructions for a smart Wallet. In this content, a smart wallet is effectively simply a local
Oracle process which can handle certain contract conditions (such as assignment of transaction inputs
to a Blockchain transaction).

Note that a given contract definition can be implemented as a mixture of the above three mechanisms,
where each contract state transition is effectively a separate implementation.

There are a number of methods of creating the implementation from a contract definition, including hand-
crafting the relevant transactions / code.

It is possible to define a compiler process that will automatically generate the relevant code outputs from
the contract definition itself.

It is also important that a human-readable version of the contract can be rendered upon demand, and we
have completed research into developing a mechanism to auto-generate a readable document (in a format
such as PDF etc.) from the smart contract itself.

Publishing the Contract’s Existence

In order to publish the existence of a contract (or defined element within a contract) a transaction is
published to the Blockchain using a pay-to-script-hash address where the pay-to-script-hash can be readily
determined from:

The issuer of the contract; and

 The metadata of the contract.

Whilst this output remains within the UTXO list, this indicates the validity of the contract contained within
the metadata itself. As soon as this output is spent, then the contract is considered complete.

Sub-contracts / Conditions
A sub-contract is a contract that it directly related to an existing contract. A condition is a clause within an
existing contract that must be publicly fulfilled to meet the terms of that contract.

Both sub-contracts and conditions are implemented in the same manner as Contracts as an UTXO with a
deterministic redeem script address. In both cases, the entity is considered complete when the UTXO is
spent (in the case of the condition this indicates that the condition has been satisfied).

There are a number of mechanism’s to create the deterministic address for a condition or sub-contract:

Using the mechanism defined within the method, “Determining a common secret for the secure
exchange of information and hierarchical, deterministic cryptographic keys” to derive a new public key
using seed information;
Creating and publishing the sub-contract, with a reference to the master contract, within the
repository and using this as the metadata reference; and
Adding the condition / sub-contract reference to the metadata of the existing contract.

Securing the Contract

The formal representation of the Contract can be secured in multiple manners, depending on the formal
needs of that specific contract, although in all cases a public record of the existence of the contract will be
published on the Blockchain contained within the metadata record (there re multiple ways to develop the
specific metadata structure).

From this Blockchain record, authorised entities will be able to learn the location of the formal
representation, together with the hash to determine that the formal representation has not been modified
since the transaction was published.

However, it is possible to further secure the formal representation itself through a number of methods:

The document repository itself can present access control mechanisms; and
The Contract itself can be secured through standard encryption techniques limiting access to those
entities with access to the relevant decryption keys.

In many cases, the Contract itself will have partial protection on it. For example, some sections within the file
are protected but the overall content is public. For example, the details of how to implement a fixed rate
loan are published but the knowledge of who took out the loan, for how much and at what rate is known
only to the contracting parties.

This partial protection applies to both the encryption of the information within the contract as well as the
hash detecting changes to its content. For a number of contracts, the details of the contract can be
amended over its life and this should not require the re-issuance of the contract itself. This can be achieved
by determining the scope of the hash over a sub-set of the contract. An example where this might be useful
is on the implementation of a unit trust. The contract underpinning the unit trust may not change, but
beneficiary for the unit can be amended through on-sell of the contract.

Terminating the Contract

As the Blockchain provides a permanent, unalterable record of transactions, a contract cannot be
terminated by simply removing the associated Contract document. This means that the secure contract
repository must have the same storage and retention rules as the Blockchain itself which is supported
through a number of standard mechanisms.
This means that the solution must present a mechanism for detecting the expiry of a contract through the
Blockchain record directly.

This is handled through the spending of the UTXO that represents the contract.

For a number of contract types, the expiry of the contract can be published simultaneously with the
publication of the Contract itself. Effectively two transactions are created, one to publish the contract and
get the transaction output representing the contract and a second one to spend that output. This second
transaction has a CheckLockTimeVerify set on it to spend the output on a given future date (representing
the end of the contract).

This auto-spending can be extended to support the rolling-on of a contract (for example contracts that
automatically extend for a further twelve months if they aren’t cancelled). In this situation, the UTXO is
spent sending it to the ‘new’ rolled-on contract. However, it is possible to cancel the old one by spending
the output before the lock time and thus cancelling the whole contract.

Use Case Model

The following use case model demonstrates how straight-forward Bitcoin transactions can be used to
implement elements of the DFA directly within Bitcoin scripts. More complicated implementations of the
DFA or Oracle are covered separately and thorough related research at nChain.

Key Use Cases

Create the Contract
Description
As a Contract Issuer I wish to publish a contract onto the Blockchain for public visibility.

Primary Actor
Contract Issuer

Main Success Scenario

Extensions
There are two key extensions to this scenario, which are explicitly documented within the subsequent
section:

150 — Create a sub-contract from an existing contract,

175 — Rollover an existing contract into a new one

Create Sub-contract
Description
As a Contract Issuer I wish to create a sub-contract from an existing contract.

Primary Actor
Contract Issuer

Main Success Scenario

[1] This example is written assuming that this would be the Contract Issuer’s public key, but in practice there
is nothing to prevent this being the derived sub-key (i.e. a sub-contract of a sub-contract).

[2] Effectively this is a document that basically says that this sub-contract covers section <a>, <c> and <e> of
this other document rather than duplicating the original information.

Variations
There is a single extension to this Use Case where the sub-contract is independently monitored (for
example consider a sign-off from a surveyor in the case of a property build contract) and the contract states
‘subject to sign-off by <x>’. To implement this, step 150.60 is created and circulated to <x> to sign, and the
repay script is not time locked but created as a m of n multi-signature element where the required
signatory is <x>. (In practice this transaction here is likely to have two outputs; the fee to <x> plus the
payment of the UTXO generated in step 150.50).

[175] Rollover Existing Contract

Description
As a Contract Issuer I wish to rollover an existing contract into a new one.

Primary Actor
Contract Issuer

Main Success Scenario

[1] This example is written assuming that this would be the Contract Issuer’s public key, but in practice there
is nothing to prevent this being the derived sub-key (i.e. a sub-contract of a sub-contract).

[200] Check Contract

Description
As an Interested Party , I wish to confirm that there is a contract in existence to cover the activity that I am
enquiring about

Primary Actor
Interested party

Main Success Scenario

Variants
The main variable above assumes that the Interested Party is aware of the transaction that governs the
contract through some other route (in general that is that they are either the Contract Issuer or the Contract
Counter-party .

However, any entity that has access to the Contract Document and knowledge of the Contract Issuer will be
able to check by:

Deriving the redeem script for the UTXO transaction; and

Scanning the Blockchain to find a UTXO with that matching redeem script hash.

[300] Close Contract

Description
As a Contract Issuer or Contract Counterparty , I wish to close an existing contract.

Primary Actor
Contract Issuer / Contract Counterparty

Main Success Scenario

Variants
Contract Conditions
The same mechanism described above can be used to monitor conditions within a given contract such as
checkpoints.

For example, if a contract is determined to be worth 100 BCH, with 20 BCH to be paid at checkpoint 1
through 5, then the sub-contract model can derive a master contract, plus five sub-contracts. Each of these
sub-contracts can be marked as complete using the same, or different, signatories (such as notaries or
similar). In this manner, a public record that the conditions attached to the contract have been met can be
maintained.

Added with an Oracle process (this shall be described more fully in a later post), then this Oracle process can
trigger the 20 BCH payments once the contract has been marked as complete.

Control Contracts
Whilst the above process is modelled on a smart contract, the smart contract doesn’t have to be a contract
in the traditional sense of the word. The smart contract itself can simply be a control condition that is
publicly fulfilled.

This mechanism can then be used to turn any UTXO into a smart contract, such as for digital access. So,
assume that a consumer pays a merchant for access to a service for a period of time. If the merchant’s
payment address is a smart contract, then the access control mechanism for the service can check that the
money has been paid with an Oracle process sweeping the value at the end of the period to the merchant’s
primary account.

Scenario 1: Public Registry of an Asset

Scenario 2: Creation and Registry of an Asset

Scenario 3: Lease Contract

Scenario 4: Rolling Contract

Scenario 5 : Contract Conditionality

Hidden costs
By Craig Wright | 06 Oct 2018 | Bitcoin & Blockchain Tech
The flaw in stating that economic calculations cannot be conducted is the constant cry that not all costs can
be calculated. This is true to an extent, but like all good sophisms, only to a degree.

The reality of the matter is that all valuations are subjective. No person has the same view as another. This is
also one of the greatest flaws in calling human behaviour irrational. It is in assigning your subjective values as
having more worth than those of another person. If the goal of a person is simply to watch sport and drink
beer, this can be achieved simply. Not working hard and doing all one can to see sport is for that individual
rational. It is not a view I would support, but it is one I subjectively do not agree with and not one that is
irrational per se.

In economic calculations, the same applies. There are many possible ways to make the world a better place.
Each person has their own idea of a utopia. That of Moore (Utopia) was close to my idea of hell. Yet for him it
was the ideal society.

I support Education and Cancer research. If I could have tax payer money spent any way I like, it would be on
increasing the amount of University based research in Mathematics and Science and also Medical research
into cancer. The thing is, we all value different things and this is why there is no agreement and why we need
the pricing system.
Then others have different subjective values from mine.

Some would do all they could to move us to bio-fuels and to save large tracts of land in a manner that isolates
them for any use for all time. Each of these solutions to a perceived problem has costs. This is not the direct
cost, but the flow-on costs. For instance, locking large tracts of land not only has the initial real estate cost as a
component in it, but it also reduces the amount of available land for development and farming. This decrease
in available land leads directly to an increase in the price of real estate and indirectly to the cost of food. As
land prices increase, the amount of marginal land used for farming increases and the amount of land
available for farming declines. The effects of this change in supply for land lead to an increase in the cost of
food.

The same logic applies to bio-fuel. As arable land is used not for the production of food but is diverted into
making fuel, the supply of arable land for food decreases. Again, the cost increases and the consumer pays
more for each unit of food produced.

It also has the effect of making each additional section of land added to the non-use allocation more and
more expensive. So, as the process continues, more and more wealth needs to be allocated to this end.

Of course, western nations will feel the increase in food prices far less than developing countries. Here, food
inflation will lead to starvation at the extreme. But this is also a subjective value, unless you are one of those
who can no longer afford to buy food.

The flaw is that we do not all agree, this is the nature of a subjective evaluation. Some want to save the rain
forest, some stop cancer, but we cannot use the same funds and resources to fund the same outcomes. We
need to make choices. We need to choose between competing uses.

The argument behind regulation is that a select group of people know better than all others, that their
subjective valuations mean more than the average person. This means that they will attempt to increase the
funds they are allocated to make their values come to the fore. This occurs through government as taxation
and is a means of a few selecting what is best for the majority.

This is what we have also seen in Bitcoin, first in Bitcoin Core (BTC) and now, in ABC. Many want to try and
experiment and they want to do this at others expense.
The facts always remain, there is and never will be enough for all people to do all that they want. This is a
world of scarcity. Should it be different, there would be no place for economics.

When others talk of adding layers, saying ti will not cost anything, that we need to do this and there is no
time to wait… Remember, they can always do this. What they are asking to do right now in Bitcoin (ABC, Core
etc) is to use the network effect and run an experiment using other people’s money. Likely Yours. At least
Ethereum (for all the flaws) had the balls to split off and compete. Then again, if Core had not tried to hijack
Bitcoin, Eth would have been a Bitcoin project.

Unfortunately, there is just not enough wealth (or time) in the world to do everything.

Each time a change is made to the base protocol, there is uncertainty. Every time this occurs, there is a cost.
Some gain, those who want the change, the rest of us pay.
Scenario 1: Public Registry of an Asset
By Craig Wright | 06 Oct 2018 | Bitcoin & Blockchain Tech
In this scenario, Bob decides to publish his ownership of an asset (e.g. his home) onto the Blockchain.
Nothing else is done at this stage; it is simply an asset that may then get used in subsequent transactions
(such as described in the use of Non-debt Lending).

In this situation, there is no termination date for the contract.

This has a simple state machine model as shown in the diagram below:
Scenario 2: Creation and Registry of an Asset
| 06 Oct 2018 | Bitcoin & Blockchain Tech
By Craig Wright
This is a slightly enhanced version of scenario 1 where Bob wants to publish the asset onto the
Blockchain, but doesn’t want to directly reveal his ownership.

In this situation, Bob first creates a deterministic sub-key from his public key (see “ A method and
system for verifying ownership of a digital asset using a distributed hash table and a peer-to-peer
distributed ledger ” for details of this process) to represent the asset. This asset then publishes details
about itself onto the Blockchain.

Once again, in this situation, there is no termination date for the asset.

The state machine for this scenario is the same as that for scenario 1.
Scenario 3: Lease Contract
| 06 Oct 2018 | Bitcoin & Blockchain Tech
By Craig Wright
In this situation, Bob takes out a lease contract with Eve for a fixed term of three years. The terms of the
contract will specify a number of payments (which are detailed within later posts) and are not covered
here.

However, the contract has a fixed term with no break clauses.

This has a simple state machine model as shown in the diagram below:
Scenario 4: Rolling Contract
By Craig Wright | 06 Oct 2018 | Bitcoin & Blockchain Tech
In this situation, Bob decides to lease a laptop from Eve on a rolling annual basis, where he needs to provide
two months’ notice to cancel the lease at the renewal date otherwise it will automatically roll-on.

This has a simple state machine model as shown in the diagram below:
Scenario 5: Contract Conditionality
By Craig Wright | 06 Oct 2018 | Bitcoin & Blockchain Tech
In this situation, Bob enters into a contract with a pool of builders to deliver a new property, and specifies a
number of conditions within the contract that require independent sign-off (the first being the approval of
the plans from the local planning authority).

This has a simple state machine model as shown in the diagram below:
Trust in Smart Contracts
By Craig Wright | 07 Oct 2018 | Alternative Coins & Systems
Both electronic and paper documents are subject to tampering. The discovery of collisions has demonstrated
that the process of signing a hash signature is not without its own vulnerabilities. In fact, the collision allows
two versions of the document to be created with the same hash and thus same electronic signature. For
now, SHA256 is considered secure, but, not all hash functions are.

It was said in a response to an earlier post that “Electronic contracts do not have to be re-read when they are
returned because there’s generally no mechanism (unless it’s built into the electronic process) to alter the
contract terms, scratch out a line, insert text, etc. What you send is what is being signed.”

Unfortunately this is not true.

An attacker could generate two documents. One says:

Sell at $500,000.00 (Order 1)

The second document says:

Sell at $1,000,000.00 (Order 2)

Our attacker wants to have the second document as the one that is signed. By doing this they have increased
the sale contract by $500,000.

Confoo is a tool that has been used to demonstrate two web pages that look different, but have the same
MD5 hash (and there are also issues with other hash algorithms too).

Digital signatures typically work using public key crypto. The document is signed using the private key of the
signer. The public key is used for verification of the signature. The issue is that public key crypto is slow. So
rather then signing the entire document, a hash of the document is signed. As long as the hash is trusted,
the document is trusted. The concern is that collisions exist.

So back to the issue. Our attacker takes order 1 and order 2, and uses the Confoo techniques (also have a look
at Stripwire).

The client is sent a document that reads as “Order 1”, and they agree to buy a product for $500,000. As such,
they sign the order using an MD5 hash that is encrypted with the buyer’s private key. Our attacker (using
Confoo style techniques) has set up a document with a collision. Order 1 and Order 2 both have the same
hash.

Our attacker can substitute the orders, and the signed document (that is a verified hash) will still verify as
being signed.

The ability of Microsoft Word to run macros and code makes it a relatively simple attack to create a collision in
this manner.

So, electronic documents do need to be re-read — but it is simpler in that there are tools to verify these.
Ensure that the hash used is trusted, and even use multiple hashes together.

For most use cases in P2SH in Bitcoin today, there are no issues. But, always look at the time frames of
contracts. For small or low-value transactions, P2SH poses low risk for the foreseeable future, but the nature
and design of P2SH allow for a number of attacks that become easier every year.

Consider risk when thinking about security and value, and remember, long term contracts work best when
completed natively in script. The most secure use of a Bitcoin transaction is to create a script and to send this.
The reality is that anything that can be run in P2SH can be run without P2SH — more securely. The imposition
of non-standard scripts has been used to (falsely) block many use cases from Bitcoin (as others seek to have
side chains, altcoins, etc.)

SHA256(SHA256) vs RIPEMD160(SHA256)

If P2SH had used a 256 bit hash, it would have still been a bad addition for all the wrong reasons, but it would
have many more years before it could be attacked. P2SH likely has a decade of security, but, seeing that some
contracts need to last several, it is time to ask why it is used or needed.

The fact is, P2SH was never necessary, and though it is a part of Bitcoin now, it is one I recommend people to
avoid. Native scripting is better than P2SH, and it is time to end the fallacy that it helps with scaling. Bitcoin
scales now.

This is why SV Pool and CoinGeek (and Bitcoin SV) plan to start processing non-standard scripts. To us, your
long-term security matters. Non-standard scripts are processed in P2SH. The myth was that this is bad for
nodes, but, this is again the myth of the Raspberry Pi. Miners are competitive. They fight to be paid. They are
paid more for larger scripts, so this is not an attack, it is the market at work.

The market is not the speculators and the traders flipping coins, it is the producers and consumers. This false
myth that the market is the speculators is the myth that adds to the socialist idea of “dog-eat-dog”
competition. In market-based capitalism, the company that delivers that best productivity gains wins. That
company without the ability to keep up, it loses. These balancing forces are the market.

The market forces less productive members out. Those who cannot handle the level of increasing demand
and competition are left behind. As they are, the level of profit increases, attracting others who can compete
more effectively and with improved efficiencies. Rather than adding foolish changes, we should be allowing
businesses to compete.

This is why locking the protocol matters.

Further Reading:
http://www.doxpara.com/slides/Black%20Ops%20of%20TCP2005_Japan.ppt

Tech aside .
This attack works due to the nature of hashing algorithms (in this case, a flaw in the now depreciated
algorithm MD5). If you have 2 documents, x and y, that have the same hash (i.e. a collision), then appending
an additional block of information q to the documents will also result in a collision. This is (x+q) will have the
same hash as (y+q).
Security
By Craig Wright | 08 Oct 2018 | Alternative Coins & Systems
Honestly I find it difficult to understand why people do not get the idea of why errors and low-quality
software occur. All software development is an economic function. Every addition, a change comes with
consequences, and thus, costs.

When we consider security, we need to think about all of the changes that go into a software product. In
this, we must ask:

Why isn’t quality assumed?

Why isn’t security assumed?
Why are these concepts thought of as add-ons to applications and services?Why do they need to be
specified, when they should be taken for granted?
Input validation
Boundary conditions
Encrypt data as necessary
Principle of least privilege
White lists are better than Black lists

It is simple economic theory. We are talking high-school level. If you

think about it for a moment, you will come to understand.

First, think of a few things in life outside IT. I will pose a few
questions and see if you can answer them:

Are all cars of the same quality? Why do you pay more for a Lexus over a Hyundai?
Do you have to take insurance on a trip?

Now some that are a little closer to home:

Are all door locks of the same quality?

Do all houses come with deadbolts and alarm systems?
Do all cars have a LoJack installed?
Do all windows on all houses have quality locks?
Are all windows made of Lucite (which is childproof)?
The simple answer is that quality varies with cost. If you want more,
you pay more. This is honestly a simple exercise. Quality software
does exist. If you like, you can go to the old US Redbook standards and
have an “A”-class software verification. Except that that copy of
Windows 10 will now cost $10,000+.

In the past, I was contracted by gaming companies to complete code reviews and to test software for
security. I would both verify the findings from static-analysis software used to test code, and review the code
manually to gain a higher level of assurance. Even then, this is not perfect as modelling complex
interactions is more time consuming and error prone.

I would do around 190 to 220 lines of code an hour on a good day for a
language such as C. Less for Assembly. My rates were charged hourly. An
analysis of Windows would take over 50,000 man hours at this level. This
excludes the fixes. This excludes the add-ons.

How many million lines of code are in Bitcoin, how many are added and changed?

When we think of all the planned changes, the updates, the additions. The things that Core added to make
BTC no longer Bitcoin (like SegWit), we start to see more and more room for error as developers
“experiment” trying to make Bitcoin into something it is not nor can be.

Each change, each experiment to alter Bitcoin is a disaster waiting to happen. What is needed is simple; to
lock the protocol and allow business to start to use Bitcoin for any purpose they are willing to pay miners for.

Bitcoin is not a system for social equality, it is cash.

You get what you pay for.
Personal Security Device
By Craig Wright | 09 Oct 2018 | Bitcoin & Blockchain Tech
The last week, another of the patent applications related to my papers received a grant . This research
proposes a methodology to encrypt the content of a device (for instance, a laptop) without storing any keys
on the device itself. The keys, or rather a piece of information (the message) needed to compute keys, are
stored in another device (the smartphone). A new message is generated every time the content of the
laptop is encrypted, so that every set of keys is used only once.

The patented invention describes a new method to securely encrypt data on any personal electronic device
including (but not limited to) PCs, laptop computers, and tablets. The method employs the technique for
sharing a secret value between two nodes as described in our patent entitled ‘ Determining a common
secret for two nodes ’.

The concept is that we can allow a trusted device (or even a set of devices) that are trusted and
authenticated (such as a mobile phone with biometrics) to act as an authentication and a key-management
system. This can be directly integrated into a Bitcoin wallet, and the same keys can be used as a secure
method both to authenticate to servers and devices, and as a means to incentivise security in the habits of
people generally.
Terms used in this post

Data encryption on personal devices such as laptops or PCs is intended to protect the hard-disk data in the
event that the device is lost or stolen. Existing methods suffer from a variety of drawbacks. For example, to
decrypt the hard disk the user might need to enter a secret such as a PIN or passphrase. However, short
codes such as the typically 4–8-character PINs can easily be broken by a hacker who has physical possession
of the device and plenty of time to try common combinations.

Passphrases are much more secure, but these depend on the user memorising a lengthy set of code words
or a long sentence.

A much more secure process involves the use of a cryptographic key, for instance by plugging in a USB
drive. Even this method, however, has security vulnerabilities. Despite the direct physical connection
between the USB drive and the device, the transmitted secret can still be intercepted due to the
electromagnetic signals generated during transmission (e.g. via power analysis) [Ref. 1].
The present method overcomes this problem by enabling the personal device to calculate the secret based
on transmission of only non-secret information by an authenticated user.

The key elements of the invention are as follows:

1. The encryption/decryption key is a full-strength cryptographic key (e.g. AES256) that is never passed
between user and device. Instead, the key is recalculated when needed after authenticating the user’s key
ring. The encryption key is used for only one encryption/decryption cycle. A new key is calculated for each
cycle.

2. The method uses the secret-key-sharing protocol described in our paper ‘ Determining a common secret
for two nodes ’ (henceforth abbreviated to DCS — Determining a Common Secret).

Exclusions
1. The actual encryption/decryption process employs existing standards and is not described in this post.
2. Protocols for handling interruptions to the communications (e.g. disconnected cable) are not
described in this post.

Technical Description
In the following description reference is made to the DCS. For consistency, the same terminology is used
here as in the DCS, as follows:

PED (‘Server’) Master Private key = VMS (kept secret by the PED)
PED (‘Server’) Master Public key = PMS (non-secret)
Key-ring (‘Client’) Master Private key = VMC (kept secret by the Key-ring)
Key-ring (‘Client’) Master Public key = PMC (non-secret)
The description is by way of an example assuming that the PED is a laptop running the software, and the
Key-ring is a smartphone running the app.

Initialisation (refer to DCS ‘registration’ for more details)

The initialisation phase begins with a fully unencrypted laptop onto which the software has been
downloaded and installed (into a partition that will remain unencrypted). The compatible smartphone-app
version of the software has been installed on the smartphone; by ‘compatible’ we mean the same ECC
standard (for example secp256k1) with a common set of parameters including the generator G is used on
both devices, and the software on each device uses a common protocol as described herein. The ECC
parameters are permanently stored on each device (these need not to be kept secure).

1. The laptop and smartphone are connected. This is done either by a cable or by a wireless protocol such as
Bluetooth. The laptop software (= the Software) establishes contact with the smartphone app (= the App)
and verifies by exchange of appropriate signals that the software versions are compatible and in sync.

— Note: All existing security measures are assumed to be in effect. I.e., the smartphone has been unlocked
by the user’s security code and the user has logged in to the laptop with password in the usual way.

2. The laptop software and the smartphone app both independently generate their own public/private key
pairs based on G. This initial generation of keys are the master keys. The private keys (VMS and VMC) are
each kept secure on the relevant owning device. The public keys (PMS and PMC) are each transmitted to
the other device. Each device permanently saves the three master keys (their own private/public keys +
other device’s public key).

3. The laptop creates a new message ‘Mn’ (n = new) and uses a standard algorithm to create a hash of the
message resulting in a 256-bit integer:

Message = Mn (Hash160 of a randomly generated number) [A.1]

Message Hash = SHA-256(Mn)

Initialisation continues through to the end of the first encryption phase. From then on each session is
composed of a decryption phase at the beginning and an encryption phase at the end.

[A.1] The choice of message is arbitrary for the purposes of generating the encryption key but needs to be
new for each cycle. The message is reduced to 160 bits by hashing in order to keep the message length
short.

Encryption
4. The laptop software uses Mn to recalculate its own next generation private/public key pair and the
smartphone’s new public key:

Laptop’s new Private key = VnS = VMS + SHA-256(Mn)

Laptop’s new Public key = PnS = PMS + SHA-256(Mn) X G
Smartphone’s new Public key = PnC = PMC + SHA-256(Mn) X G

5. The Software can now calculate a (new) secret Sn:

Software calculates Sn = VnS X PnC

( Note : the App could also calculate this secret, as in DCS. However, in the present invention only the
Software is required to derive this value).
6. In the present example, the secret Sn is not used as the encryption key, although in some variations it
could be (see variation 1). In the present example, the laptop’s serial number is encoded within the
encryption key to ensure that it is specific only to this laptop. The encryption key E is calculated as follows:

E = SHA256(SHA256(salt + Sn) + serial-number)

Where

Salt = Mn (for explanation of cryptographic salt see [Ref. 2])

7. As part of the log-off and shut-down processes, the Software encrypts the disk. The encryption key E is
not stored anywhere, and message Mn is not stored on the laptop. The message Mn is securely stored on the
smartphone for use in the next session to decrypt the hard drive.

Decryption
8. The laptop and smartphone are connected. This is done either by a cable or by a wireless protocol such as
Bluetooth. The laptop software establishes contact with the smartphone app and verifies by exchange of
appropriate signals that the software versions are compatible and in sync.

( Note: this step is identical to step 1 in the initialisation phase.)

9. For app authentication the laptop creates a new message ‘Mn’. Mn will be used for authentication in the
current decryption phase and will also be used for encryption in the subsequent encryption phase. This
value is newly created and different to the previously created message that was stored on the smartphone
at the end of the encryption phase. To distinguish the two, the previously stored message will be referred to
as Mo (o = ‘old’). The laptop sends Mn to the smartphone and uses a standard algorithm to create a hash of
the message resulting in a 256-bit integer:
 Message = Mn (Hash160 of a randomly generated number)
Message Hash = SHA-256(Mn)

10. The smartphone app first calculates a new generation of private/public key pair based on the value of Mn
(refer to DCS for details):

Smartphone’s new Private key = VnC = VMC + SHA-256(Mn)

Smartphone’s new Public key = PnC = PMC + SHA-256(Mn) X G

11. The App then signs Mn with its new private key and sends back to the laptop software:

Signed message = Sig-VnC <Mn>

12. As in DCS, the Software authenticates the App by verifying the signed message. It does this by
independently calculating the App’s new public key (PnC) using the formula in (10) and then performing a
standard ECDSA check between Sig-VnC <Mn> and PnC.

13. Having established the App’s credentials, the Software now sends a request to the App for the ‘old’
message Mo that was securely stored exclusively on the smartphone during the previous encryption phase.
For added security, the App signs Mo with its new generation of private key and sends the signed message
back to the Software: Sig-VnC <Mo>. The Software can verify the signature and retrieve Mo in the usual way.

14. The message Mo is associated with the laptop’s and smartphone’s previous generation of public/private
key pairs — i.e. the keys that were generated in the previous encryption cycle. The laptop is able to now
recalculate those keys and hence also recalculate the secret S and the Encryption key.

15. The recalculated encryption key is used to decrypt the disk and the user may now operate the laptop as
usual. The newly created message Mn is retained in memory for the duration of the session, which will end
with an encryption phase when the user logs off, restarts, or shuts down (etc.).

Variation 1: Encryption Key = Secret Key S

In some scenarios it may not be necessary or feasible to embed the serial number into the encryption key —
for example, where the PED is a device type that does not have an accessible serial number. In such cases
the secret Sn itself can be used as the encryption key.

Variation 2: Folder/File encryption

A variation is the encryption of individual files or folders. The PED and Key-ring applications can be designed
to prompt the user for which files/folders to encrypt. For each individual file/folder a new salt (message Mn)
will be generated from which a file/folder-specific encryption key will be derived. In this case, the Key-ring
application will securely store a table linking the unique file/folder ID to the associated message. As for disk
encryption, the encryption key is valid for only one cycle, so a new encryption key is calculated for every new
cycle (i.e. the relevant stored message Mn is replaced on the table after each session in which the file/folder
has been accessed).

References
[Ref. 1] http://theintercept.com/document/2015/03/10/tpm-vulnerabilities-power-analysis-exposed-exploit-
bitlocker/

[Ref. 2] http://en.wikipedia.org/wiki/Salt_(cryptography)
A Proof of Turing completeness in Bitcoin Script
By Craig Wright | 12 Oct 2018 | Bitcoin & Blockchain Tech
Continuing on an early set of drafts that I will publish fully in time,

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=3265157

The concept of a Turing machine has been well defined {[17], [20]}. It would be sufficient to show that Bitcoin
uses a dual stack architecture that acts as a dual counter machine. Such systems have already been
demonstrated as being Turing complete [17].

We demonstrate that Bitcoin script is a minimal family of which
and R are members. Further using the
compositional product rule and the iteration rule we demonstrate that Bitcoin scripting is Turing complete
with the limitations imposed on any realworld computer. This limitation is that there cannot be an infinite
tape. Iterations can be simulated using an “unrolled” loop function with allocation to the “Alt” stack.

As the product rule states that if A, B are machines, then A.B is also a machine [17]. The iteration rule shows
that if A is a machine then (A) is also a machine. Further the minimum power of A under which the
observed square of the final configuration is blank. The consequence of these rules is that for every partial
recursive function of in variables we can show that it can be evaluated by machine of the proposed family
{[7], [21]}.

The concept of a Turing machine has been well defined {[17], [20]}. It would be sufficient to show that Bitcoin
uses a dual stack architecture that acts as a dual counter machine. Such systems have already been
demonstrated as being Turing complete [17].

The full paper can be viewed online from SSRN:

A Proof of Turing completeness in Bitcoin Script by Craig S Wright :: SSRN

The concept of a Turing machine has been well defined {[17], [20]}. It would be sufficient to show that Bitcoin
uses a… papers.ssrn.com
Bitcoin: A Total Turing Machine
By Craig Wright | 12 Oct 2018 | Bitcoin & Blockchain Tech

Today I have released a draft of a paper I started in 2014, “ Bitcoin: A Total Turing Machine”. It is available on
SSRN. This is an intro. Download it if you want to read more.

Bitcoin: A Total Turing Machine by Craig S Wright :: SSRN

We demonstrate that the Bitcoin Script language allows not only for primitive recursion, but in the
deployment of an… papers.ssrn.com
We demonstrate that the Bitcoin Script language allows not only for primitive recursion, but in the
deployment of an Ackerman function and hence the ability to simply recurse in Bitcoin script, we show that
the script system is Turing complete. From this, we introduce a new class of Turing Machine, the PTTM or
probabilistic Total Turing machine and note that Bitcoin acts as a decider or Total Turing Machine which
allows us to find a NIZKPoK that can act as a TM based verifier to a Non-Interactive Proof that is run on an
external and non-associated TM as a proof system. Bitcoin can extend to securely offer contracts such as
best fit solutions to common logistic systems and optimisation problems including the Travelling Salesman
class of problems and to the optimisation of systems. This can be offered as an open or time bound contract
that guarantees payment and can be solved which allowing Pseudonymity of the bidder.

I. Introduction
In this paper, we demonstrate how Bitcoin’s scripting system forms the basis for a special class of Turing
Machines called a decider (Sipser, 1996) or alternatively a total Turing machine (Kozen, 1997). This is a class of
Turing Machine that halts for every input.

Any program that is Turing complete is by necessity Finite. Although you cannot decide IF a program will
halt, any program that is Turing Complete will halt by definition. Any program that does Halt, must by
nature have an end less than the infinite as the largest possible program that halts is always (by nature)
smaller than the largest set of all programs possible. We can simply deduce from this that all UTMs [A1]
(universal Turing Machines) run in finite time (although this time remains unbounded) and we cannot tell in
advance if a program is in-fact decidable.

In (Wright, 2016) we demonstrate that the Script system deployed in Bitcoin is formed using the primitive
recursive functions (Meyer and Ritchie, 1967). In (Wright, 2017) we extend this [A2] theory to create a toy
programming language that is analogous to PL-{GOTO} of Brainerd and Landweber (1974) and hence
demonstrate that the script construct is Turing Complete (ignoring the real-world constraints of script limits
and size constraints). The simplest use of such a script would be the development of simple decision tree
functions. We demonstrate that these can be incorporated using a stochastic component to randomise and
fairly distribute the possible outcomes.

The power (and advantages) of such a system [A3] can be greatly extended in the development of extended
compilers that take a high-level recursive construct (such as OP_ForLoop [1] ) and “unrolling” these. The class
of languages expressed in this system mirrors the set of recursive languages. It is known that all primitive
recursive functions are total and computable, in this paper we also demonstrate using the Ackermann
function that the Bitcoin script constructs include the ability to extend to total computable functions that
are not primitive recursive. This demonstrates that Bitcoin can incorporate total computable functions that
are simply “ recursive ” as well as primitive recursive.

The consequence of these results is that the Bitcoin system is not constrained by the original deliberately
imposed limitations on the scripting language. From its original conception, the scripting language was
intended to enable highly sophisticated functionality beyond simple transfer of value. The omission of a
looping construct was designed to prevent DOS (denial of service) attacks infinite loops. Unfortunately, this
omission has led to many observers suggesting that bitcoin is ‘not Turing Complete’ and therefore the
functions it would be incapable of executing would make it unsuitable as a general-purpose programming
system. This assertion is incorrect. The present paper extends an earlier paper (Wright, 2017) that proved
bitcoin is for all practical purposes Turing Complete (indeed, as some other observers note, “Turing
completeness is theoretical, nothing is Turing complete in practice” [2] ). Accordingly, there are no real-life
restrictions on its ability to perform sophisticated functionality such as the execution of smart contracts and
implementation of DACs (Distributed Autonomous Corporations). In this paper, we examine how bitcoin
also meets the requirements for the implementation of related concepts such as Total Turing Machine
(TTM) and Probabilistic Total Turing machine (PTTM).

II.Total Turing Machine [A4]

Many misconceptions exist as to the nature of a Turing machine and the capability of such a system. A
Turing machine can solve a class of “ effectively calculable ” functions known as λ-definable functions.
First, we define any Turing complete program to be a program that halts. Whilst it is true that we cannot
determine in advance if any particular program will halt for any set of input data, we do know that a
program must halt on a system that is Turing complete if it is indeed decidable and that only decidable
programs are known to run to completion on a Turing complete system. As such, we know that there is
necessarily a point where the decidable program halts.

The result is that all decidable programs must halt within some time bounded finite period. We can also say
that no Decidable program will run infinitely on a Turing complete system or that when loaded on a Turing
complete system that all decidable programs are finite.

From this, we can deduce that all Turing Complete programs and functions form a subset of the set of all
possible programs. The set of all possible programs includes both those that halt on a Turing machine (that
are decidable) as well as those that would run infinitely looping without end. We can show that the set of
infinite and undecidable programs is not an empty set. It is a simple exercise to construct a program that
will run indefinitely on an infinite tape. Such a program, given an infinite time to run will never halt. It is left
to the reader to imagine a simple program that will infinitely recurse (i.e. never halts). From this, we now
know that the set of all Programs, P(N) must be larger than and contain the set of decidable programs (N).

Any program that is decidable must halt. Consequently, it is bounded in time. We can hence state that for
any program P(T) that is decidable and is run on a Turing Complete system that it is required to halt at some
point in time. As such, the set of all programs of the form P(T) in the Set (N) that halt for some input must
halt in finite time.

It is noted that although we cannot determine if every program is decidable with certainty, we can develop
a Total Turing Machine that requires that all programs are “unrolled” and hence are determinable.

J. B. Rosser (1939) wrote extensively concerning “ effective computability ” as with the perspective that:

“Clearly the existence of CC and RC (Church’s and Rosser’s proofs) presupposes a precise definition of
‘effective’. ‘Effective method’ is here used in the rather special sense of a method each step of which is
precisely predetermined and which is certain to produce the answer in a finite number of steps ”.

The result is an “effective” method will create a result in the order of an output that is “decided, decisive, or
desired effect”, and the system or machine must by nature be “capable of producing a result”.

Turing (1939) defined this state:

“We shall use the expression ‘computable function’ to mean a function calculable by a machine, and let
‘effectively calculable’ refer to the intuitive idea without particular identification with any one of these
definitions.”

As we have alluded to above, Turing (1939) based his thesis on the premise that for any effectively calculable
function there must exist a computable function. Turing stated this as:

“It was stated … that ‘a function is effectively calculable if its values can be found by some purely mechanical
process.’ We may take this literally, understanding that by a purely mechanical process one which could be
carried out by a machine. The development … leads to … an identification of computability with effective
calculability .”

The result of this is that although all programs need not be finite, all programs that are decidable will halt
on a Turing machine. More, we can say that a Turing machine will run all decidable programs and only the
set of all decidable programs. The set of programs that run on a Turing machine and halt that are not
decidable is a NULL set.

The Bitcoin scripting language [3] is a stack-based language similar to Forth. There are two stacks known as
the main stack and the alt stack. Script commands, knowns as ‘OP_CODEs’ operate on the values in the
main stack, while the alt stack is used as an additional store of data. The language was deliberately designed
to exclude looping constructs to avoid the possibility of DOS attacks, however the language has many
features including commands to access and manage values within the main stack (for example, OP_PICK
and OP_ROLL). The original list of OP_CODEs was more extensive than is currently available (several
commands were disabled by the Core developers), nevertheless bitcoin script remains a simple yet
powerful language.

Wolfram’s conjecture that a 2-state 3-symbol Turing Machine is a UTM (Wolfram, 2002, p709) was proven in
2007 [4] by Smith (2007). Using the logic in Wright (2017), we can show that the predicate logic system
deployed in Bitcoin as a scripting language is equivalent to Wolfram’s (2,3) Turing Machine. With this
insight, we see that Bitcoin is functionally a system that is known as a Total Turing Machine [A5] [CSW6] . As
is demonstrated by Wright (2017) Bitcoin’s Scripting language can recurse. The language in Bitcoin
described in Wright (2017) is more extensible than in Smith (2007). We can thus map directly the
conjectures of Smith (2007) onto a system designed using the recursion system (Wright, 2017) within
Bitcoin.

The problem is not whether a computer can be built that can run any conceivable decidable program (i.e.
that halts). It becomes the problem of determining the most effective means to minimise the size of the
decidable program for when a recursive loop structure is “unrolled”. The unrolled program can grow
exponentially in size. [A7] For the set of all programs, it is not possible to determine if a program is decidable
and will halt or even if a system can run it to completion within the time/space constraints available when
run on a standard Turing Machine.

A Total Turing Machine however only accepts input that is defined within a bounded space/time parameter
that is constructed and set in advance.

In the same manner, an infinite number of computations can be described by a finite recursive program,
even if this program contains no explicit repetitions” (Wirth, 1976).

[1] For details see Patent filing XXX. Other loop constructs include OP_WhileLoop, OP_Case, …

[2] http://www.quora.com/Why-is-Bitcoin-not-Turing-complete

[3] http://en.bitcoin.it/wiki/Script

[4] http://www.nature.com/news/2007/071024/full/news.2007.190.html

[A1] Should this be UTM?

[A2] Extend this theory or this demonstration?

[A3] Are you referring to the advantages of this system?

[A4] This section presents a good theoretical overview on the definition of a Total Turing Machine. In my
opinion the references used in this section are relevant.

[A5] In my opinion, this phrase is very difficult to follow. It needs to be reformulated. Also, I suggest adding a
reference or a paragraph to introduce Bitcoin Scripting language.

[CSW6] [CSW6] I will get Stef / Antonetta to add a paragraph here

[A7] The problem statement is not clear. Please try to use shorter phrases and to formulate the problem that
should be solved clearly.
The collectivist insanity
By Craig Wright | 12 Oct 2018 | Bitcoin & Blockchain Tech
The syllogism goes –

1. Socialism has been a failure everywhere it has been tried;

2. This fact is known and everyone acknowledges this (including the socialists); and
3. We need to try more socialism.

So… where does it end. When do we finally admit that no matter how often we try to make the socialist idea
work we will never succeed?

Socialism; I guess it is the definition for insanity now.

What is Bitcoin….
By Craig Wright | 12 Oct 2018 | Bitcoin & Blockchain Tech
Bitcoin is a “crypto-currency”, a form of digital or virtual currency using cryptography to control its
creation and operation.

Bitcoin was first launched in 2009, when the Bitcoin algorithm was released online.

The creation and transfer of Bitcoin is based on an open-source cryptographic protocol (essentially, a
software program that is free to download, with users having access to the source code and ability to
modify it), and utilises a peer-to-peer computer network made up of its users’ machines ( Bitcoin
network ) to validate transactions by solving complex mathematical equations. [1]

This validation process is known as “mining”. Essentially, the mining process involves the Bitcoin
network updating and archiving transactions in a shared public ledger or log on the Bitcoin network
(known as the “block chain”) to reflect the Bitcoin balances of its users. In addition, new Bitcoin are
created with each update to the ledger. [2]

In this way, each Bitcoin represents an allocation of value which is recorded in the public ledger and
exist as a chain of digitally signed transactions.

The algorithm that allows Bitcoin to be “mined” also controls the rate at which new Bitcoin are
created. The number of new Bitcoin created in each update to the ledger is halved every few years,
such that Bitcoin become more difficult to “mine” over time. By the Bitcoin algorithm’s design, the
maximum number of Bitcoin that can be mined is 21 million. [3] To date, over 17 million Bitcoin are
estimated to be in circulation.

However, a Bitcoin can be “divided” into smaller units (currently up to 8 decimal points — a unit
known as a “satoshi”) and those smaller units can be transferred between users.

Notes:
[1] United States Government Accountability Office, “Virtual Economies and Currencies: Additional IRS
Guidance Could Reduce Tax Compliance Risks” (GAO-13–516), May 2013 (
http://www.gao.gov/assets/660/654620.pdf , accessed 12 January 2014)

[2] “The Economist explains — How does Bitcoin work?”, The Economist (11 April 2013) (
http://www.economist.com/blogs/economist-explains/2013/04/economist-explains-how-does-bitcoin-
work , accessed 12 January 2014).

[3] Ibid.
The tax implications of bitcoin as money
By Craig Wright | 14 Oct 2018 | Bitcoin & Blockchain Tech
As Bitcoin does not need to be held or processed by a financial institution [1] , many people have concluded
that they can bypass tax obligations [2] with bitcoin and other cryptocurrencies.

There are various areas of taxation law that need to be addressed [3] . This includes incorporation of bitcoin
into Income tax, Capital gains tax and under foreign exchange rules. The treatment bitcoin will depend in
part on its use.

Some of the areas that need to be investigated include:

Mining bitcoin,
Holding Bitcoin,
Using bitcoin,

— as currency for the purchase of goods or services,

— as a token representing the sale of other assets,

— as a smart contract, [4]

Buying, selling and otherwise exchanging bitcoin.

Notes:
[1] See Vartanian et al., supra, n. 8, and Reuben Grinberg, “Bitcoin: An Innovative Digital Currency,” 5 Hastings

Science & Technology Law Journal 159 (2012).

[2] For further information, see Marian, Omri, “Are Cryptocurrencies Super Tax Havens?,” 112 Michigan Law
Review First Impressions 38 (2013).

[3] In its (USGAO) May 2013 report to U.S. Senate Committee on Finance (“Virtual Economies and Currencies:
Additional IRS Guidance Could Reduce Tax Compliance Risks”), the United States Government
Accountability Office ( GAO ) stated that:

“According to bitcoin’s peer-to-peer-network-generated statistics, as of May 1, 2013, approximately 11 million

bitcoin were in circulation. Bitcoin exchange rates against the U.S. dollar historically have been volatile.
From May 2012 through February 2013, prices ranged between $5 and $20 for 1 bitcoin. Prices increased
through March 2013, and then from April 1, 2013, to May 1, 2013, ranged between $79 and over $237 for 1
bitcoin. In the same time period, the number of bitcoin transactions per day ranged from approximately
8,000 to 70,000 transactions per day.” [3]

United States Government Accountability Office, “Virtual Economies and Currencies: Additional IRS
Guidance Could Reduce Tax Compliance Risks” (GAO-13–516), May 2013
(http://www.gao.gov/assets/660/654620.pdf, accessed 12 January 2014)

[4] There is the alternative argument that contractual formation is inherently uncertain in and of itself
(Gamage & Kedem, 2006). Being that electronic contracts form a logical subset of the contractual superset
and that there is uncertainty within contract formation in general; it must naturally follow that there are
areas of uncertainty, which will remain in the formation of electronic contracts, subsequent to the
introduction of the ECA. The ECA, though having alleviated many difficulties facing the formation of
electronic contracts, cannot in itself remove contractual uncertainty.
Symmetric Fair Exchange Protocol
By Craig Wright | 15 Oct 2018 | Alternative Coins & Systems

Background
In a fair exchange protocol two parties either both honour an exchange (such as a contract), or neither of
them do. It is known that deterministic fair exchange is impossible without a trusted third party (Even and
Yacobi 1980). However, under the Bitcoin protocol, a validated blockchain acts as a trusted third party.

Current State of the Art

The Bitcoin Wiki (2014) includes a page on ‘Atomic cross-chain trading’ which describes a protocol where two
parties own coins in different cryptocurrencies, and want to exchange them without having to trust a third
party or centralised exchange. There also exists a BIP (Bitcoin Improvement Proposal) entitled ‘Atomic Cross
Chain Transfers’ (Tiernan 2014), that describes the method. Maxwell (2012) hints that by combining secrets a
more symmetric solution is possible.

Problem Statement
The objective is to implement a fair exchange protocol under the Bitcoin protocol.

Benefits
The proposed protocol offers all of the benefits of the ‘Atomic cross-chain trading’ protocol, i.e. it enables two
parties to conduct a fair exchange using separate transactions and no third party, and is both atomic and
secure. Furthermore, the proposed protocol is perfectly symmetric.

Key Elements
The proposed invention describes the first known implementation of a symmetric fair exchange protocol on
the Bitcoin blockchain.

Proposal
The locking and unlocking scripts are described below in pseudocode. It is inherent that the scripting
language supports the described algorithm.

Alice and Bob wish to trade entities of value, such as bitcoins, other currencies, contracts, goods or services.
They have agreed that Alice shall give Bob e 1, and Bob shall give Alice e 2. Let H( x ) be the OP_HASH160
Bitcoin script hash of x . Note also that in the Bitcoin script, as used here, a non-zero locktime indicates the
earliest time that the transaction may be added to the block chain and in practice is expressed in Unix time
(the number of seconds that have elapsed since 00:00:00 UTC 1 January 1970), whilst a zero locktime is
interpreted as no locktime (for immediate broadcast). The protocol is described in Table 1, and the
transactions are given in full in the appendix.

Table 1: Symmetric fair exchange protocol

Appendix
References
Bitcoin Wiki (2014), Atomic cross-chain trading, http://en.bitcoin.it/wiki/Atomic_cross-chain_trading .

Even, S. and Yacobi, Y. (1980), Relations among public key signature systems, Technical Report CS0175,
Technion, Haifa.

Maxwell, G. (2012), Re: P2PTradeX: P2P Trading between cryptocurrencies, Bitcoin Forum,
http://fanbitcoin.com/index.php?topic=91843.msg1011956#msg1011956 .

Tiernan, N. (2014), Atomic Cross Chain Transfers, GitHub, http://github.com/TierNolan/bips/blob/bip4x/bip-

atom.mediawiki .
The Game of Chicken
| 15 Oct 2018 | Bitcoin & Blockchain Tech
By Craig Wright
There is only one way to play chicken. And, it is best, if others know what game you are playing.

First, you build up capital. That is, enough high explosive (or the equivalent in business terms) to level a
city, and not a small one, say New York.

Next, you fill your tank with this. You make certain the tank has no steering, no brakes, and one
accelerator setting; that is, it stops when the fuel runs out. Not a moment before. You set a path, and you
make it work.

You allow people to have a choice. There is a strategy called M.A.D. This is something that has no
sidelines. Mostly, you make certain it is asymmetrical.

When you care about something, there is all in and nothing.

There are things in the world worth risking everything for. What you find is, there is generally not two
sides to such an argument.

Some things, well some are worth any risk.

© Copyright 2019 – 2021
A codification scheme for state machines
By Craig Wright | 16 Oct 2018 | Alternative Coins & Systems
We define a codification scheme for the states of deterministic finite automaton (DFA) [1]. Contrary to usual
practice, the codification itself is machine-readable, i.e., there is an algorithm associated with it that can
dynamically determine the state of the machine. Such a codification is well suited for a distributed
implementation of a finite state machine, for example the blockchain implementation described in [2, 3]. A
coupon bond will be used as an example of the use of the technology through the paper.

Background
A DFA [1] is a mathematical model of computation conceived as an abstract machine that can be in one of a
finite set of states, and can change from one state to another (transition) when a triggering event or condition
occurs. Its computational capabilities are more than those of combinational logic but less than those of a
stack machine. In addition, although not essential to the structure itself, it can carry out a given set of actions
while transiting from one state to the next.

In the conventional way of regarding such a machine, states are defined statically (a priori) and represent
some particular configuration of the system or have some particular meaning, for example they can be given
a set or names, be associated with a set of tags, or with a set of unspent transaction outputs (UTXO) as
proposed in [3] for a blockchain-based DFA. This is enough for the system to work, since the (output of)
computation itself is determined by how the system moves between states while it accepts the chain of
inputs.

In this sense, a DFA (i.e. the sets of states, transitions, etc.) is not unique, and two DFA can be equivalent, i.e.
produce the same output for each given chain of inputs, even though it is possible that the interpretation a
priori conceived for the states is very different (say they are deployed in different physical machines, or
conceived for solving different problems). This also leads naturally to the concept of DFA minimisation [4].

Although the static determination (tagging) of states is enough for the abstract functioning of the state
machine itself, and enough for many problems in which only the output of the calculation is relevant, there
are cases in which the meaning of the states themselves is of practical importance and cannot be inferred
from the tags of the states, for example because it is purposely hidden for privacy or confidentiality reasons.
An example of this is the system described in [2], in which the computation is distributed and carried out by
agents which (purposely) do not have complete information on the system. In this cases a dynamical
determination of the state of the system is necessary.

The main invention in this paper is a codification scheme which allows the dynamical (on-the-fly)
determination of the state of a DFA, for example (but not exclusively) those associated with the (distributed)
execution of a contract as described in [2]. For the description and illustration of the codification scheme we
will use as examples a coupon bond and a perpetuity , although the invention is by no means limited to these
examples.

A coupon bond is a debt obligation with periodic interest payment (coupons) that the holder receives from
the issuance of the contract until its maturity, when in addition to the last coupon the principal of the bond is
paid as well. In the last part of the paper we will also consider a perpetuity, which is a stream of payments with
no end, i.e. the coupon payments continue (in principle) forever. In practice, due to the effect of (positive)
interest rate compounding, at some point the amount of the coupons is of no practical significance, so that
the (discounted) value of the contract is finite.

Straightforward specification
A DFA consists of the finite sets {S, I, t, s0, F} , representing respectively the possible states (S) , inputs (I) ,
transitions (t) , initial state (s0) , and final states (F) , also called accepting states. In addition, a set of actions (a)
can be defined , these represent side effects of the execution and do not determine the output of the
computation.

For the description and illustration of our codification scheme we will consider a 3-period coupon bond. The
elements (and notation) of the DFA that we will consider for such a contract can be (statically) defined as
given in Tables 1 to 3. Note that the initial state is designed by S in our notation, and the accepting states are
F0 and F1.

Table 1: List of contract states for the coupon bond.

Once these elements have been defined, the functioning of the system can be completely specified [5] by the
so-called state transition table , in which the current (initial/from-) state of the system (rows) together with
the appropriate input (columns) determine, according to the table, the next (final/to-) state of the system as
well as the actions to be carried out in parallel to the transition; for our example it is given in Table 4. Note
that the execution is understood to start in the initial state (S), and the only possible final (accepting) states
are F0 and F1. Since these states mark the finalization of execution, i.e. there is no transition associated with
them, they can be omitted from the rows of the table. An alternative format for the transition table is given in
table

Table 2: List of contract inputs (event alphabet) for the coupon bond.

Table 3: List of contract actions for the coupon bond.

Table 4: State transition table of the coupon bond. When the system is in a particular state (row) and a
particular input (column) occur, it transitions to the indicated state and carry out the indicated actions (state /
actions); a hyphen indicates that the input is irrelevant for the given state, i.e. it does not apply to the state.

Another (equivalent) way of specifying the functioning of the state machine is the so-called state diagram [6],
in which the states of the system are represented by blobs, the input and actions are given by the attached
labels, and the transitions are represented by the connecting arrows; for our example it is given in Figure 1.
Note that the final (accepting) states F0 and F1 are, by convention, indicated with a double line for the blob.
For simplicity, since they are not relevant for the execution of the system, the actions have been omitted from
this diagram. The meaning of the dashed box (recurrent states) will be clarified below.

Figure 1: State diagram for the bond showing the states (blobs) and the transitions (connecting lines)
associated with the indicated inputs.

As stated in the background section, although not strictly necessary for the functioning of an abstract DFA, a
dynamical determination of the state of the system which is both human and computer readable can be a
practical necessity and constitutes the main invention described in this paper. Each state is characterized by
a unique set of conditions that either do or do not ensue, or are irrelevant for the particular state. Each
condition must be something explicit and testable, i.e., there is a definite (computational) way to tell if the
condition ensues or not.

In our example this can be achieved by the set of conditions presented in Table 5, in which the states to be
tested are given in rows and the conditions we have defined are given in columns. Each t condition indicates
whether a particular date has come (for example the condition denoted t0 means t > t0), and each ci (or p)
condition whether the corresponding payment has been made. Note that the payment of coupons (or
principal) which are not yet due are irrelevant for states occurring before the corresponding maturities have
been reached.

Of course, whether this or an equivalent set of conditions is used is irrelevant as long as they uniquely
determine all possible states, i.e. the chain of True, False or irrelevant values for each state is unique. Note as
well that although in this example we have considered only binary (True or False) or irrelevant conditions,
these could in principle take multiple values. In addition, besides atomic conditions as considered here, each
condition could in turn represent a composed condition, made out of several (sub)conditions in turn. All
these variations are trivial in nature and should also be considered as cover by the present invention.

A last point to address is the meaning of the dashed box in Figure 1. Although as it stands the diagram is
perfectly valid and should describe correctly the dynamics of the coupon bond, note that there is an
intriguing similarity among states Ti and states Ci; i.e. they are very similar in meaning, differing only in the
number of the time period or coupon to which they refer (i). Therefore, they could also be represented by a
common repeating or recurrent state, plus additional information indicating to which coupon/period they
refer. This can be naturally extended to states with repeat themselves indefinitely, thus opening the
possibility for the codification of a perpetuity. The definition of a codification scheme with such recurrent
states will be addressed in the next section below.
Table 5: State definition table. Each condition can be true (T), false (F), or irrelevant (−) for a particular state,
which is thus defined by this set of dynamically testable values.

Specification with recurrent states

As mentioned earlier, some subsets of the states of the coupon bond DFA from last section or the coupon-
bond (the Ti and Di states) correspond to very similar interpretations of the status of the state machine,
differing only in the number of the time period or coupon to which they refer (i); i.e., in a certain sense they
can be regarded as a state that repeat itself a number of times (say from i=1 to a given imax, with imax=3 in
our case). Given this, it makes sense to simplify the representation of DFA by including all those states in a
recurrent state (R) to be treated separately. With this simplification we present below the list of contract
states (Table 6), the state transition table (Table 7), the equivalent state diagram (Figure 2), and the state
definition table (Table 8) of the DFA for our example coupon bond; note that the other elements of the DFA
(inputs and actions) do not change with respect to the previous section.

Table 6: List of contract states for the coupon bond with a recurrent state.
Table 7: State transition table of the coupon bond with a recurrent state.

Figure 2: State diagram of the coupon bond with a recurrent state.

Of course all this merely hides the complexities of the bond dynamics inside of the recurrent state, which has
to be specified separately. This simplification can be important, however, in the case of complex state
machines. An obvious analogy is that of the introduction of loops in programming languages. The recurrent
state itself is also defined as a state machine, note however that initial and accepting states are replaced in
this context by entry and exit points , since the execution of the abstract computation is not meant to start or
finish inside the recurrent state. We present below the list of contract states (Table 8), the state transition
table (Table 9), and the state diagram (Figure 3) for the recurrent state.

Table 8: List of contract sub-states for the recurrent state.

Table 9: Internal state transition table of the recurrent state.

Table 10: State definition table. Each condition can be true (T), false (F), or irrelevant (-) for a particular state,
which is thus defined by this set of values, one for each condition (not that, in turn, a condition can have
multiple components).

A novelty of this approach is the introduction of an index (i), which keeps track of how many times the states
have been occupied. The increase of this index, and analogous quantities (for example the total amount of
money paid), can be either calculated externally (as below for the codification scheme), or achieved by
additional DFA actions , as indicated in Table 9 for the state C. Note as well that the inputs (alphabet) for the
internal states of this recurrent state can potentially depend on the internal index (i) and/or similar quantities.
As explained before, the would-be accepting states of the system have been replaced by exit points. The
corresponding equivalent state diagram is presented in Figure 3.

Figure 3: Internal state diagram of the recurrent state.

The codification scheme for such a recurrent state would look, when expanded, very similar to the relevant
parts of Table 5. However, since the spirit of this approach is not to expand and treat each internal (sub-) state
separately, it seems more natural no to present it explicitly in a table. Instead, we present in Figure 4 the
pseudocode for an algorithm which would assign the correct vales (True or False) to the variables associated
with the conditions of the state machine codification. Variables associated with irrelevant conditions do not
need to be assigned any value, of course. In Figure 4, as in Table 5 above, each ti condition indicates whether
a particular date has come (that is, ti = T means t ≥ ti), and each ci condition whether the corresponding (i-th)
coupon has been paid.
Figure 4: Pseudocode of an algorithm which assign appropriate values to the variables associated with the
conditions of the codification scheme for the internal states of the recurrent state.

A last point to be addressed is the need for a termination point, represented by the index imax. Although
usual coupon bonds do have a finite maturity, a perpetuity is similar instruments that (in principle) run for
ever. With our codification of the recurrent state this can be achieved by a simple modification of the
pseudocode as presented in Figure 5. Note that in this case the while loop will end when it encounters the
first period which maturity has not been reached, of course these variables are irrelevant and at that point all
the states are uniquely defined by the codification scheme, i.e. there is a combination of true and false values
unique to each state.

Figure 5: As in Figure 5 but for a perpetuity.

Specification with recurrent states

Table 10: Alternative format for the state transition table of the coupon bond in Table 4.

The fun thing, we started patenting these ideas before people thought that this was possible on Bitcoin. So, a
lot of existing projects, banks etc are going to be on BCH. This is the fun of IP, you do not get to just do as you
will without paying the inventors.

References
[1] http://en.wikipedia.org/wiki/Deterministic_finite_automaton.

[2] nCrypt, Realizing state machines , WP0307 (2016).

[3] nCrypt, Blockchain-based deterministic finite automata , WP0032 (2016).

[4] http://en.wikipedia.org/wiki/DFA_minimization

[5] http://en.wikipedia.org/wiki/State_transition_table

[6] http://en.wikipedia.org/wiki/State_diagram
Digital signature rules and their relationship to bitcoin
By Craig Wright | 16 Oct 2018 | Bitcoin & Blockchain Tech
UNCITRAL Model Law on Electronic Signatures with Guide to Enactment (2001) has been widely adopted.
The Electronic Signature Law of the People’s Republic of China recognises electronic signatures is legal and
enforceable under Article 14 while Article 7 and 8 provide for their admissibility. It has been noted that despite
the clear legal support for electronic signatures within China, some judges have been reticent in their
recognition and acceptance.

In 1999 the European Union passed the electronic signature directive (1999/93/EC) that was used as the
foundation for country specific laws, including those implemented within the UK. On 23 July 2014, a
replacement regulation, the Electronic Identification and Trust Services Regulation (910/2014/EC) was
enacted. This regulation is commonly referred to by the name eIDAS.

In the United States, the Electronic Signatures in Global and National Commerce Act (ESIGN) and the
Uniform Electronic Transactions Act (UETA) provided that a signature will not be denied legal effect or
enforceability due to its form. The implementation by the US states does vary and in some instances, it would
be necessary to obtain the prior consent of all parties to conduct business electronically. The joint use of
bitcoin should imply consent, but there are certain exclusions surrounding consumer notices and real
property transfers that could likely complicate this matter.

As the primary transfer mechanism within bitcoin is through the use of a digital signature within the
transaction [1] , it is important that the digital signature rules within each jurisdiction are investigated and
researched fully.

Notes:
[1] The inclusion of electronic agents makes the traditional requirement for a “meeting of minds” more
difficult to prove. With many smaller vendors, maintaining a full Bitcoin node their own e-commerce enabled
site requires the interaction of a third party. Often, this involves the use of an external service provider, which
offloads the Internet shopping trolley function.

In such cases, it may be necessary to investigate whether a contractual arrangement has resulted between
the client browsing a web site and the transaction agent or if indeed the transaction facilitator is a
contractual agent for the Web store vendor (Lim, 2002). Agency has become a specialised area of contract
law in itself. It is an area that does require due consideration and may influence the process of offer and
acceptance.
A distribution protocol for dealer-less secret distribution
By Craig Wright | 17 Oct 2018 | Bitcoin & Blockchain Tech
In this post I again preview a paper written a couple of years ago, but not yet published. The first draft of this
paper dates to July 2016 and is available from:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=3265164

As the value of bitcoin increases, more incidents such as those involving Mt Gox and Bitfinex will occur in
standard centralised systems. The addition of group-based threshold cryptography with the ability to be
deployed without a dealer and which supports the non-interactive signing of messages provides for the
division of private keys into shares that can be distributed to individuals and groups to provide additional
security. This scheme creates a distributed-key-generation system for bitcoin that removes the necessity for
any centralised control list minimising any threat of fraud or attack. In the application of threshold-based
solutions for DSA to ECDSA, we have created an entirely distributive signature system for Bitcoin that
mitigates against any single point of failure. When coupled with retrieval schemes involving CLTV and
multisig wallets, our solution provides infinitely extensible and secure means of deploying Bitcoin. Using
Group and ring-based systems we can implement blind signatures against issued transactions.
Blockchain-Based Decentralised Autonomous Corporations: An
Overview
By Craig Wright | 17 Oct 2018 | Bitcoin & Blockchain Tech
This document is intended to provide an overview on Decentralised Autonomous Corporations (DAC) based on the
blockchain technology. Note, Bitcoin is covered by the ticker BCH. BTC is not Bitcoin following the addition of
SegWit.

In this post, we provide definitions of:

(i) DAC,

(ii) Secure Multiparty Computation — a secure multiparty protocol for authorising transactions,

(iii) Autonomous Agents — a set of computer programs that carry out some set of operations on behalf of users.

I will conclude the post by an application to financial portfolio management.

The best part, nothing of this or anything like it will be on anything other than Bitcoin (BCH). Not ETH, not BTC, not
some sham coin. No DOA, no PoS… legally valid entities.

Decentralised Autonomous Corporation

A Decentralised Autonomous Corporation (DAC) is a visualised corporation without the need for any central point
of control, with a certain agenda, business plan, and protocol. It can be a corporation, a trust, or a company. The
decisions can be made in advance and for many simple tasks no human interaction is needed.

Note: all entities are owned by people, and this means that the capital and decisions are associated with a human
party.

DACs can run with only minimal human involvement, and are defined by code and software. They aim to be
autonomous in the sense that they implement mechanisms for self-regulation. It is possible that a system can be
created that operates, once it is fully operating, such that it no longer needs further input from its creators.

DACs are distributed. There is no failure point that can be attacked, and DACs cannot be shut down, or even
modified to make them send all of their money to an attacker’s account.

DACs necessitate a network of Autonomous Agents (AAs) which perform functions within an environment to
achieve goals, without being directed to do so. One example of an AA is a computer virus; the virus survives by
replicating itself from machine to machine without deliberate human action.

DACs generate Bitcoin addresses. DACs construct and sign transactions. Thus, a system of signing transactions
that can be computed in a decentralised way is needed.

The first solution is multi-signature addresses; given a set of AAs, for example 1000, we generate a 501-of-1000
multi-signature address between them. The problem is the transaction would be too large. The maximum size of a
standard transaction is 10,000 bytes [1]. Each signature is about 70 bytes [2], so 501 of 1,000 signatures would make
a 35,000 bytes transaction. The second solution is secure multiparty computation.

Secure Multiparty Computation — Key Sharing

Secure Multiparty Computation (SMC) protocols allow a group of mutually distrusting parties to compute a joint
function on their private inputs. SMC is a technique for protecting confidential data. The secret is divided into parts
— shares. These shares will then be distributed among the parties. In order to reconstruct the secret, a certain
predefined set of shares — the threshold k — must be combined. Gaining access to less that the threshold of
distinct shares shall give no information about the secret.

Let s be a secret value and n share s(i) . We have a k -out-of- n secret sharing scheme, if the following conditions
hold

Correctness ; knowledge of any k or more shares of s makes the secret easily computable,
Privacy ; knowledge of any k — 1 or fewer shares of s leaves the secret completely undetermined (in the sense
 that all its possible values are equally likely)

We consider the case where a large number of AAs wish to securely perform some complex distributed
computation on their inputs, i.e. signing Bitcoin transactions. In this case, we use Shamir’s secret sharing scheme
(SSSS) [3, and references therein], which uses the idea that k points are needed to uniquely define a polynomial of
degree k — 1.

Shares in SSSS have two values — an index and the evaluation of the randomly generated polynomial on that index
— ( i , f ( i )). The indices have to be unique to each party and we cannot use zero as that would reveal the secret f (0)=
s . To create the shares, we choose n random points on the polynomial ( x , f ( x )). These points are then distributed
to the parties. The coefficients will be chosen randomly and the free member is equal to the secret. Figure 1
illustrates Shamir’s scheme using a random 1-degree polynomial.

Figure 1: Classifying a secret value with Shamir’s secret sharing scheme. The green and red lines are failed attempt
to reconstruct S knowing k-1 shares. If we know only one point for a 1-degree polynomial, we can draw all the
possible values (S, S’, S”, …) and there is no way of knowing which one is the correct one. However, if we know at
least 2 shares, it is possible to reconstruct the polynomial f(X) using Lagrange interpolation.

A nice property of elliptic curves is that if a (k,n) threshold scheme with polynomial interpolation is set with the
public key, the private key can be recovered from k of the n pieces exactly in the same way as the public key.

Autonomous Agents (AAs)

An Autonomous Agent is a computer system that is situated in some environment (e.g. the Internet), and that is
capable of autonomous action (e.g. buying, selling) in this environment in order to meet its design objectives.

AAs are purely software. They receive and execute instructions written in a Practical Agent ProgrAmming
Language (PAPAL). PAPAL is the agent programming language.

AAs do not have the capabilities to manufacture a product, write code, and develop hardware. They require actors
in the physical world for this purpose, called contractors.

Herein we define different classes of autonomous agents: voting-AAs and task-AAs.

Autonomous Interface Agents (AIA)

Autonomous interface agents can make real-time suggestions to users based on a simple keyword-frequency
information retrieval measure.

For example, an autonomous interface agent may observe that a user is interested in or hold shares in the bank
sector, and it may suggest to him that he invests in the metal sectors (assuming that both sectors are
independent). The AIA enquires another AA to look for an asset that is not highly correlated to the bank sector,
then a pop-up window appears showing the correlation and other indicators between the gold price and HSBC
share price.

Voting Autonomous Agents

Voting-AAs are agents who are empowered to vote.

At the deployment phase, the DAC issues N tokens to raise money (via Dominant Assurance Contract?). The tokens
represent the company shares. The tokens grant its holder ownership and voting rights.

The DAC issues N shares to raise money — if goal not reached then repayment (Dominant Assurance Contract)

(i) Tokens are used to represent company shares and necessitate a smart contract for revenue sharing [Should the
revenue be automatically shared as it is earned in realtime? Should the share/token hold a piece of DAC
private/public keypair, i.e. (x, f(x)) -> if someone holds k pieces, it is equivalent to a 51% attack]

(ii) The share price can be time dependent, like easy-jet tickets

The coloured coin transaction contains a pair or multiple pairs of ( x , f ( x )). Tokens can be exchanged, and new
share owners request new pairs ( xnew , f ( xnew )). Previous ( xold f ( xnld )) should be removed from the DAC
database, and ( xold f ( xnld )) cannot be accepted as a valid share.

Task Autonomous Agents

Task-AAs search for vacant tasks guided by its own preference orders over available tasks. It selects a contractor
and submits the contractor’s proposal for voting either to the voting-AAs or to the DAC members. DAC members
can review the contractor’s proposal and send their share ( x , f ( x )) to the task-AA [Prior to deployment, the entity
distributes the shares between the AAs]. If the task-AA collects k shares, it submits a smart contract on the
blockchain representing the proposed project. There is a set time frame to vote on any given proposal. After this
time, the proposal is closed.

Voting for Proposals

Shareholders of a DAC cast votes weighted by the amount of tokens they control. Within the contracts, the
individual actions of members cannot be directly determined. There is a set time tp to debate and vote on any
given proposal. The time frame is set by the function-AA. After tp has passed, any token holder can verify that the
threshold value k has been reached, i.e k shares have been collected. If this is not the case, the proposal is closed. A
minimum number of shareholders can also be required for the vote to be valid.

In order to ensure transparency and before a vote can take place, a contractor profile should be presented to the
voting-AAs and to the shareholders. Table 1 shows an example of a contractor/company profile.

Table 1: Example of a contractor profile.

Shareholders can vote using the (hypothetical) platform MyVote or they can delegate their voting power to the
voting-AAs. In the latter case, shareholders provide information to voting-AAs using the platform BlockID. to
provide information that will be latter used by the voting-AA.

We propose two voting methods:

using a voting platform

relying on the voting-AAs
A Blockchain Based Voting Platform
Allowing a Vote DAC creates a platform which utilises blockchain technology to allow voters to vote at home and
in their own time. By casting votes as transactions, one can create a blockchain which keeps track of the tallies of
the votes. This way, shareholders can agree on the final count because they can count the votes themselves, and
because of the blockchain audit trail, they can verify that no votes were changed or removed, and no illegitimate
votes were added.

BlockID — A Blockchain Based Platform for Digital Identity

BlockID is a concept for a blockchain based identity service that allows shareholders signing up for an account and
the DAC submitting questionnaires, see Table 2.

A digital identity is comprised of characteristics, or data attributes, such as the following:

Date of birth
Social security number
Medical history

Identity theft is rampant on the Web digital identity authentication and validation measures are critical to
ensuring Web and network infrastructure security in the public and private sectors.

BlockID can be used as a driver licence, passport, credit card, apartment keys etc…

Table 2: A Questionnaire example received by a shareholder

Decision Making and voting-AAs

If shareholders decide to not be involved in the decision making, they can rely on their voting-AA. For voting-AAs
to achieve their function, they require access to the questionnaire completed by the shareholder, and the decision
of the voting-AA is handled by one or more classification algorithms. In the following, we propose a simple solution
using a decision tree algorithm. But, any suitable machine learning algorithm, e.g. neural network or SVM, can also
be used.

Option Decision Tree are similar to regular decision trees, except that they can contain option nodes in addition to
regular decision nodes and leaf nodes. Option nodes allow multiple branching instead of a single branching per
node.

Figure 2 depicts part of an actual Option Decision Tree.

Figure 2: A simple example of an option-decision tree

Application: Digital Asset Management (DAM)

DAM is an application of a multi autonomous agent architecture to the problem of financial portfolio
management. The multi autonomous agent system approach (i) requires the coordination of several component
tasks (gathering information, interpretation, prediction, etc). The system should be reliable; if one or more agents
fail, the system will continue to function. AAs are designed with redundant capabilities and/or appropriate
coordination mechanisms. Thus an unresponsive agent is not a problem.

The DAM system deploys a number of different task-AAs:

Breaking news-AAs gather information from breaking news articles from the web. These agents track and
filter news stories and decide if they are so important that the user through the interface-AA and/or other AAs
need to know about them immediately.
Stock tracker-AAs gather stock prices in real time. Their activities are initiated, either by a user or an AA,
through queries or through monitoring information sources for the occurrence of a particular pattern; e.g. a
particular stock price has exceeded a predefined threshold.
Model-AAs build mathematical models using standard approaches (e.g. ARIMA), data mining techniques (e.g.
neural network), and complex stochastic models to try to predict the near future in the stock market.
Risk-AAs evaluate portfolios for financial risk using a stock market risk measure.
Interface-AAs interact with the user receiving user specifications and delivering results. They utilise user
specifications to guide system coordination. Interface-AAs display a comprehensive summary of the user’s
portfolio.
Trader-AAs vote based on their trading strategies.
Etc…

A simplified representation of the DAM architecture is shown in Figure 3.

Figure 3: The DAM architecture

DAM has three primary purposes. First and foremost is the making of trading decisions, secondly is the submission
of those orders to market exchanges, and thirdly is the management of those orders post submissions [Portfolio
management is not the core of DAM, and it can be outsourced to another system that integrates DAM] .

Purpose #1 — Make trading decisions

Trading decisions are made according to a particular strategy. Trading strategies are generally based on one or
more of the following techniques:

Quantitative analysis — constructed using fundamental indicators and mathematical basis of price
movements and historical/current data.
Event based — based on analysis of historic and current events often profiles from textual news data
Sentiment based — constructed using indicators that capture market sentiment.

Such strategies can be derived using machine learning algorithms.

Figure 4: Make trading decisions: use case scoping

Purpose #2 — Submit orders

Trade orders are requests to buy or sell securities. The purpose of DAM is to submit appropriate trading orders that
are accurate, timely, and transparent. A non-exhaustive list of types of trading includes:

Long orders
Short orders
Etc…

Purpose #3 — Manage orders after submissions

The 3rd purpose of DAM is to manage the orders after they are submitted. This includes:

Recording all profits and losses made

Logging all transactions
Monitoring the unfulfilled orders.

In the following we will focus on the interaction between agents and the decision-making process.

We consider a set of autonomous trading agents:

Moving Average AA (MA-AA) uses moving average strategies to predicate on the relationship between a
security’s price and its moving average trend-line.
Stochastic Oscillation AA (Sto-AA) implements a stochastic oscillation trading strategy to follow security price
momentum.
Risk AA (Rk-AA) assesses the risk that is inherent to all trading strategies.
Voting AA (vAA).
Trading AA (tAA).

Figure 5 shows the sequence of steps in decision making.

Figure 5: Flowchart for decision making

Decision Making Using Human Profiles

In this section, an evaluation protocol is described in which the user, here a human trader, reviews historical data
set and answers questions related to trading strategies. The financial time series and the trader’s answers are
stored on a database (DHT+blockchain) and are later used for decision making. The experiment aims at assessing
the similarity between past and actual observations, and to take future decisions based on past experiences. For
the sake of reproducibility, a large sample should be used.

Table 3 shows a small sample of questions to assess trading strategies.

MyProfile is a hypothetical dedicated interface that uses the blockchain to store historical time series and their
quantitative indicators (Moving Average, Stochastic Oscillator, etc…), and the answers provided by the human
traders.

The questionnaire phase occurs after the deployment phase and before the running phase. During the running
phase, the DAC will apply feature extraction (MA, Stoch.) and similarity search for time series data.

Finding the degree to which a given time series resembles another one has been an active area of research for a
number of years, and a great variety of techniques currently exist for measuring the similarity between time series
data-sets.

Our objective is not to present an exhaustive review of the several dissimilarity measures that have been proposed.
Classical metric parameters include:

Euclidean distance,
Dynamic Time Warping (DTW). DTW works by optimally aligning the time series in the temporal dimensions
so that the accumulated cost of this alignment is minimal,
Etc…

Each of these metric parameters will give an insight into the degree of similarity between the time series. Those
indicators/statements can sometimes be contradictory, e.g. Euclidean distance may indicate that the signal
resembles template 1, while DTW indicates that correlation is higher with template 3.

The size of the phase space — the set of the metric parameters — may contain a large number of dimensions, thus a
clustering algorithm, such as k-means, may be better suited to assign a cluster to the data point. In addition, if the
distance of the data to the centroid exceeds a threshold value, the DAC can take the decision to not cast the AA
vote and to request human votes.

Due to of the size of the phase space, that is the number of metric parameters, a clustering algorithm, such as k-
mean, may be use to assign a cluster to the data point. If the distance of the data to the centroid exceeds a
threshold value, the DAC can request human traders to vote.

Figure 6 displays what a k-Means clustering algorithm would yield using three clusters.
Table 3: A Questionnaire example received by a human trader.

Decision Making With Neural Networks

In this section, an innovative approach is presented to decision making using a deep learning algorithm.

Instead of using deduction or a collection of rules, neural networks (NNs) rely on the ability to recognise patterns
through experience. Although NNs are considered essentially adaptive pattern recognition, several researchers
have applied NNs to business decision making situations in the past.

The available settings on NN architectures enable the user (human or artificial) to design sophisticated structures
having incredibly rich and intelligent behaviours. For example, the user can:

Standardise the input variables or the target variables,

Specify the error function, the type of transfer, the activation functions,
Add hidden layers,
Etc…

Our objective is not to present an exhaustive review on NN architecture but to show, based on simple NN model,
that neural network approaches can be used for voting making problems.

For the present problem, the input data vector that feeds the NN may consist of

Boolean variables (True/False) corresponding to MA signals (Sell/Buy)

 Numeric values (momentum or price velocity)
Stochastic oscillator indicators (Overbought/Oversold)
Etc…

The architecture of the network proposed here is very simple. It consists of a single layer of input nodes and one
output node (see Figure 7)

Figure 7: A simple neural network architecture. The input layer nodes are passive doing nothing but relaying the
values. In comparison, the output layer is active, modifying the signals in accordance with Figure 8. The action of
this neural network is determined by the weights applied in the output node.

Figure 8: Neural network active node. Each input is multiplied by a weight (the wn values), and then summed. This
produces a single value that is passed through an ‘s’ shaped nonlinear function called a sigmoid.

The first phase will consist on training the DAC. A trend-oriented training in parallel to a forecast-oriented training
should be developed to enhance the predictions of stock market trends. Predefined trend targets based on
moving average, stochastic oscillator, etc. are used for machine learning, and metric indicators such as Bias, MACD,
etc… and their combinations are chosen as input signals to the system. The potential output may be the categories
{buy, hold, sell}. This trend-oriented training gives the system reliable learning targets to capture dynamic price
trends.

Working with Contract — Pay for Performance

Example: Someone submits a proposal to build Martian space stations. We are going to need a range of
technology, skills, and services to implement that proposal:

Web designers and web development specialists to get creative crowd-funding website
Project managers, architects and developers to design and implement the project
Either acquire existing Martian space stations from an existing provider or build our own
Use cryptocurrency for payments to services and goods
Etc…

Appendix 1

Table 4: Checklist for assessing subcontractor quality. The responses to these questions are rated and the score is

References
[1]
http://github.com/bitcoin/bitcoin/blob/fcf646c9b08e7f846d6c99314f937ace50809d7a/src/script/interpreter.cpp#L256

[2] http://bitcoin.stackexchange.com/questions/2376/ecdsa-r-s-encoding-as-a-signature

[3] http://github.com/czielinski/secmultipartycomp/blob/master/slides/sec_multi_party_comp.pdf

Notes
[1] Online ratings sites can be used to provide trustworthy information.

[2] Table 4 shows as an example a checklist for assessing subcontractor quality. The score reflects the commitment
of the contractor to established quality principles.

Blockchain Decentralised Autonomous Corporation

Monetary transfer and transmission rules
By Craig Wright | 18 Oct 2018 | Bitcoin & Blockchain Tech
The exchange of bitcoin for other currencies clearly comes under existing AML [1] regulations, and where an
exchange [2] has been used as a part of this process, KYC [3] requirements will still apply. The various
requirements attributable to bitcoin across each of the jurisdictions with respect to the requirements that
are associated with both AML and KYC [4] will differ, but, the laws of money and exchange remain valid.

Notes:
[1] Anti-Money laundering

[2] 2 31 CFR § 1010.100(ff)

[3] Know Your Customer

[4] Bank Secrecy Act Regulations — Definitions and Other Regulations Relating to Money Services
Businesses, 76 FR 43585 (July 21, 2011).
DFA compilation and execution
By Craig Wright | 19 Oct 2018 | Alternative Coins & Systems
We present an analysis of the establishment and execution of contractual agreements embodied as
deterministic finite automata (DFA). The contract for a European call option is used as an example for the
high-level description of the technology.

Background
In a series of papers, see [1] and references therein, we are presenting a novel technology for the
establishment and execution of contractual agreements based on the realisation of the commitments of the
different parties (and other clauses and provisions) as a computational structure modelled as a state
machine.

The present paper deals with one component of that system, namely the establishment and execution of
such a contract, i.e. the flow of information between the different (computer) agents which will effectively
implement the contract. Although the detailed specification of such a computer system is of obvious
practical relevance as well, it is not the topic of this paper; an example of such a system has been presented
elsewhere, see [2] and references therein. Very generally, we will refer to this system as a Botman (agent),
often without specifying which agent actually carry out the actions described, this could be one of the lower-
level bots, a bot manager or any other appropriate entity as, for example, those specified in [2].

As mentioned, we will use the contract for a European call option as an example to illustrate our technology
through the paper. A European call option is an agreement that gives an investor the right, but not the
obligation, to buy a stock, bond, commodity or other asset at a specified price ( strike price ) on a specified
date ( exercise date ). The writer (seller) of the option commits himself to sell the asset to the holder (buyer) on
that date, at that price, if the buyer decides to exercise it, which (rationally) happens if the price of the asset
on that date is higher than the strike. Given this, we assume that the contract can alternatively be settled by
the payment to the holder of an amount equal to the market price of the asset on the exercise date minus
the strike, no payment is needed otherwise and the option expires unexercised.

Functional Specification
The standard way of establishing and executing a (financial) contract is to sign a legal document and have its
provisions interpreted and executed (and sometimes contested) by humans. These contracts can be
regarded as composed of text, defining the terms, and a set of values for the parameters particular to the
contract at hand (exercise date, writer, public keys, etc.). These distinct elements have been separated in our
system, where the essence of the contractual text is captured as an abstract machine, a DFA, and the set of
values for the parameters of the particular instance of a contract is provided independently, see [1] and
references therein. We will start by describing the information on different elements of the state machine,
and turn to the actual generation and execution of the contract in the next section.

The DFA computational system consists of the finite sets {S, I, t, s0, F} , representing respectively the possible
states (S) , inputs (I) , transitions (t) , initial state (s0) , and final states (F) , also called accept states. In addition,
and not essential to the DFA structure in [1], we consider here a set of actions (a) which the agents are
required to carry out in parallel to submitting the transactions. In the following, as is conventional, the current
time (date) will be noted by t , the maturity date by T , the price of the asset at maturity by ST , and the strike
price by K.

The main proposal/invention in this paper is the establishment of computer agents (scripts) associated with
the states of the DFA machine. These are able to change the state, implement a transition, and in parallel
spin-off other (sets of) scripts associated with the subsequent state. The dynamic (run time) identification of a
DFA state with a computer script with the appropriate capabilities is the main inventive element in the paper.
For our streamlined example, the possible states of the contract and sufficient conditions for their definition
are given in Table 1, where also (XML) labels for the states and a natural (human) language description of the
states is given.
Note that not all imaginable states have been considered in the contract (e.g. what would happen in the
event of bankruptcies, death of the holder, shutdown of Internet, etc.), however, since the main purpose of
this paper is the analysis of the compilation and execution of the contract, and not of the complexities of the
abstract DFA itself, our example is appropriate (as simple as possible but not more); the reader interested in
more complex examples is referred to [1], and the references therein.

Table 1: State definition table. Each condition can be true (T), false (F), or irrelevant (-) for a particular state,
which is thus defined by this set of values, one for each condition (not that, in turn, a condition can have
multiple components).

Continuing with the description of the different elements of the abstract DFA we turn now to the list of
inputs (also called the event alphabet ). This is a list of the events that can happen in relation to the contract
(maturity reached, payment received, etc.). These inputs, together with the set of current states of the DFA,
determine the transaction to be submitted to the blockchain, as well as the parallel actions to be carried out
by the agents; note, however, that although technically the transition function is a S × I → S mapping, not all
inputs are relevant for all states. In our streamlined example these, together with a (XML) label and a natural
language description of the event, are given in Table 2.

Table 2: List of contract inputs (event alphabet).

Computationally, the events can also be regarded as a change in the conditions defining the state, although,
as mentioned, some events are irrelevant for some (or all) states and do not cause a state transition. In the
same spirit, a list of possible actions, not all relevant for all states, can be specified as in Table 3.

Table 3: List of contract actions.

All these elements converge in the so-called state transition table [3], in which the current (initial) state of the
system (rows) together with the appropriate input (columns) determine, according to the table, the next
(final) state of the system as well as the actions to be carried out in parallel to the transition. Note that in our
DFA, besides transition transactions, we also contemplate completion transactions, which instead of placing
the system in a subsequent state place it in an accepting state (f), which is a virtual (e.g. not incarnated on the
blockchain and not associated with any script) state that represents the termination of the execution of the
contract. An example for our European call option is given in Table 4, in which initial states are associated
with rows, inputs with columns, and each cell contains subsequent state/action fields.

Table 4: State transition table of the contract.

In addition, it is common to represent the abstract DFA by a state diagram, shown in Figure 1 for our
example. Note that there is a correspondence between this diagram and the (computationally useful) state
transition table, so no additional information is included in the diagram itself.

Figure 1: State diagram for a European call option showing the states (blobs) and the blockchain transactions
(triangles) to be submitted: origination (o), transitions (t) and completions ©.

Technical Specification
The DFA compilation mechanism consists of different elements and files which will be discussed in turn. The
computational structure embedded in these files, how the scripts associated with different states spin-off not
only the blockchain transactions, but also subsequent scripts which in turn completely execute the contract,
is the main invention proposed in the paper. To start with, the system uses two source files; in our example:

· DFA European call option — parameters.xml

· DFA European call option — script.py

Here we are assuming, for concreteness, that the main language to be used for the generation of subsequent
files and execution of the contract is Python 3.5 [4], and that the parameters are provided in an XML 1.0 [5]
document. Of course these details are not essential to the invention and using other standards would be
equally acceptable.

The XML document contains a list of parameter fields (specified by the XML tags) and values for the particular
contract at hand, one particular European call option. In our example it has been written by hand, but it
could also be created automatically, i.e. by agents (computers), or by a human entering the appropriate
values via a graphical user interface (GUI), which can also be easily created in Python.

The main file for the technical specification of the system is the (Python) main script. This file contains (or
inserts upon execution) a hard-coded version of the abstract state transition table (possible states, inputs and
actions) and hard-coded functions specifying the DFA inputs and actions to be considered (e.g. how to check
the stock price, clock, etc.). If relevant, i.e. for blockchain-based DFA implementations, it may contain hard-
coded templates of the (Bitcoin) transactions to be submitted by the scripts to the network.

As explained in [1] and references therein, the state transition table completely determines the DFA at an
abstract level, and is the only element needed for its functioning. Note, however, that there is a
correspondence between the legal text and the DFA state transition table. In addition to these necessary
elements, optionally, the script can also contain/generate different human-readable documentation , e.g. the
state diagram, the alphabet, etc.

In order to compile and execute a blockchain-based DFA contract the user (human or computer) needs to fill
the values of the parameters and run the main script. Using this hard-coded information on the script and
the values for the parameters, upon execution, the script will establish the contract (e.g. place it on the
blockchain), and spin-off a (set of) computer programs (other scripts) which will continuously be run by the
system of (computer) agents executing the contract [2]. A possible sequence of instructions that accomplish
this is as follows:

1. Read parameter values (or input the values directly from a GUI). This loads the parameter values in memory,
e.g. in a hash table (HT) [6] structure (which in Python is called a dictionary ) or in a distributed hash table
(DHT) [7], e.g. the bitTorrent network [8], if this offers some advantages.

2. Use the parameters and the hard-coded contract template to produce the legal contract as detailed in [ref].
This document needs to be (digitally) signed by the writer of the option.

3. (Optionally) create the human-readable documentation for the contract.

4. Use the parameters and the hard-coded input and action functions to generate instances of these
functions, with the appropriate parameter values.

5. Load in memory (HT, or DHT) the state transition table.

6. If relevant, create the origination transaction as specified and submit it to the (Bitcoin) network. This can be
done by using the Pybitcointools library [9]. This creates a UTXO in the blockchain associated with a specific
state of the contract on the Bitcoin blockchain [1].

7. Create a Python script associated with the origination state ( s0 ) and run it (on the same or other
computers). This agent (or set of agents) will receive/produce the appropriate inputs, execute the appropriate
actions, the ones compatible with the state, and eventually either complete the execution of the contract or
produce a transition transaction to another state, as well as spin-off subsequent scripts controlling those
states.

8. Terminate the compilation (main script).

Upon termination of the compiling phase the system will thus be up and running (e.g. there will be a UTXO
on the blockchain associated with the initial state of the contract), and one or several agents (Python scripts
running on Botman agents [2]), which will be monitoring for inputs , ready to take actions , and to produce
the appropriate transitions, which would either change the state of the DFA to another state or terminate it.

The sequence of instructions for a transition is:

1. Monitor or produce DFA inputs (function calls like check the clock, receive messages, etc.)

2. Once the input is determined read the transition table for the current state, this determines the next state
and possibly an action to be taken.

3. Take the action if anything (possibly to a function call, depending on the complexity).

4. When relevant, create a transition transaction according to and submit it to the blockchain.

5. Create and run a Python script associated with the next state
6. Terminate the current script

The sequence of instructions for the completion of the contract is:

1. Monitor or produce DFA inputs (function calls like check the clock, receive messages, etc.)

2. Once the input is determined read the transition table for the current state, this determines that the
contract is to be completed and possibly an action taken.

3. Take the action if anything (possibly to a function call, depending on the complexity).

4. If relevant, create a completion transaction according and submit it to the blockchain (this will spend the
last UTXO associated with the contract).

5. Terminate the current (and last) script

The DFA is therefore executed by a set of independent agents (scripts), which receive enough information in
turn from previous agents, thus going back to the initial main script and parameter files. This constitutes the
second invention proposed in the paper.

To summarize, we proposed in this paper to have the contracts executed by a set of agents (scripts)
generated dynamically as the system moves from state to state. These agents need to have access to the
current state of the system (e.g. as incarnated by a UTXO on the blockchain), receive or generate the proper
inputs according to the events happening in the real world, take the proper actions, and carry out the
adequate transactions. All of this can be easily achieved within Python scripts using the appropriately defined
functions and existing libraries.

For example, in our European call option case, it should have access to a clock, to check whether the maturity
of the contract has been reached, and to the current price of the asset. Given this information it can decide
which is the appropriate input to consider according to the parameters. Given this, and the actions specified
in the transition matrix, the agent can decide which transaction to produce, thereby placing the system in
the next state (in our case there is only one) or complete the execution of the contract appropriately.

References
[1] nCrypt, Realizing state machines , WP0307 (2016).

[2] nCrypt, Botman: Umbrella document , WP0238 (2016).

[3] http://en.wikipedia.org/wiki/State_transition_table

[4] http://www.python.org

[5] http://www.w3.org/XML

[6] http://en.wikipedia.org/wiki/Hash_table

[7] http://en.wikipedia.org/wiki/Distributed_hash_table

[8] http://en.wikipedia.org/wiki/BitTorrent

[9] http://github.com/vbuterin/pybitcointools
Rights as property
By Craig Wright | 19 Oct 2018 | Bitcoin & Blockchain Tech
In its simplest form, a bitcoin transaction involves the creation of an entry in a ledger. The value on the ledger
is updated such that the original holder of a cryptographic private key is assigned to a new cryptographic key
pair. This cryptographic key pair is associated with a Bitcoin address. This direct assignment of value across a
ledger is not difficult to represent against existing money transfer and currency rules. It becomes more
difficult when some of the more exotic use cases start to be deployed.

Some of the areas investigated within this research include:

transactions to and from multi-signature and multi-party addresses [1] ,

conditional smart contracts,
linking and embedding information into the bitcoin blockchain and the tokenisation of real property
and chattel goods, [2]
theft and fraudulent procurement, and
international and cross-jurisdictional assignments [3] .

Notes:
[1] A number of offer and acceptance issues that had not been completely resolved remain. The question of
online software downloads generates its own difficulties. For instance, does the transmission of a Bitcoin
transaction constitute acceptance, inclusion into 6 blocks, etc? In many software vendor licenses for instance,
there exists a condition stating that the “loading of the software onto a computer indicates your acceptance
of the following terms…” The terms of the agreement are likely to be enforceable if the software company is
able to demonstrate that the user had an opportunity to view the terms prior to installing the software. This
does not exist within Bitcoin.

[2] Application of the Definition of Money Transmitter to Brokers and Dealers in Currency and other

Commodities, FIN-2008-G008, Sept. 10, 2008. The guidance also notes that the definition of money
transmitter excludes any person, such as a futures commission merchant, that is “registered with, and
regulated or examined by…the Commodity Futures Trading Commission.”

[3] Complications may occur if parties reside in a different state from where they hold their Bitcoin wallet (
Hyde v Wrench 1840 ) or other form of account ( Treitel, 2003 )[3]. In cases such as this, the location the Bitcoin
wallet is accessed becomes an issue and the time at which the acceptance is made are both critical points.
The place where the user accesses their wallet may affect the acceptance. In many jurisdictions, the time and
place of receipt of a message derives from when it is available to the recipient ( Art.1335 Italian Civil Code; US:
Restatement 2d of Contracts, S 56; Germany: case RGZ 144, 292 ). In the case of a Bitcoin Transaction, the time
it is available to the recipient is when it arrives on the client’s wallet or if it is accepted in the blockchain at an
agreed depth. In this way, the timing and even validity of an offer and acceptance to a contract may come
into dispute and may even come into effect in two or more places ( Apple Corps Limited v Apple Computer,
Inc . [2004]).
Phases of the Bitcoin system
By Craig Wright | 20 Oct 2018 | Bitcoin & Blockchain Tech
The Bitcoin system may be broken down into the following “phases”:

Mining;
Holding Bitcoin; and
Transferring Bitcoin.

Each of these phases are discussed in turn below.

(a) Mining
In its May 2013 report to the United States Senate Committee on Finance, the United States Government
Accountability Office described the mining process in the following terms:

“Bitcoin are created and entered into circulation through a process, called mining, that members of the
bitcoin network perform. To perform the work of mining, bitcoin miners download free bitcoin software that
they use to solve complex equations. These equations serve to verify the validity of bitcoin transactions by
grouping several transactions into a block and mathematically proving that the transactions occurred and do
not represent double spending of a bitcoin. When a miner’s computer solves an equation, the bitcoin
network accepts the block of transactions as valid and creates 25 new bitcoin and awards them to the
successful miner.” [1]

As noted, the mining process involves the Bitcoin network updating a shared public ledger or log on the
Bitcoin network:

“The entire network is used to monitor and verify both the creation of new Bitcoin through mining, and the
transfer of Bitcoin between users. A log is collectively maintained of all transactions, with every new
transaction broadcast across the Bitcoin network. Participating machines communicate to create and agree
on updates to the official log. This process, which is computationally intensive, is in fact the process used to
mine Bitcoin…” [2]

(b) Holding Bitcoin

Each Bitcoin user has a digital wallet known as a “Bitcoin wallet” which incorporates a public/private key pair.

Bitcoin are recorded in the shared public ledger on the Bitcoin network as being under the control of a
selected individual Bitcoin wallet and key pair. The wallet and key pair are the only way of accessing the
Bitcoin. [3]

As such, Bitcoin are “owned” and “held” by the user who has control of the relevant Bitcoin wallet.

(c) Transferring Bitcoin

A Bitcoin wallet is also how Bitcoin are transferred between users. Specifically, Bitcoin are sent or received
from one or more “Bitcoin addresses” associated with a Bitcoin wallet. A Bitcoin address is an alphanumeric
string derived from the public key incorporated in a Bitcoin wallet.

The process of transferring a Bitcoin may be summarised as follows: [4]

the recipient provides their Bitcoin address to the sender;

the sender adds the recipient’s Bitcoin address and the quantity of Bitcoin to be transferred to a
“transaction” message;
the sender’s message is digitally signed by the sender’s private key incorporated in the sender’s Bitcoin
wallet. The sender’s public key is also announced to enable verification of the message;
the “transaction” message is broadcast over the Bitcoin network and verified, and the Bitcoin transferred
from the sender’s address to the recipient’s address.
Only the first two steps involve action by the sender and recipient. The latter two steps are automatically
executed by the Bitcoin software and the Bitcoin network. [5]

Importantly, Bitcoin are transferred directly from the sender to the recipient. Bitcoin “miners” validate and
update the transaction in the public ledger, but are not payment intermediaries.

A basic Bitcoin transaction may be shown in diagrammatic form as follows:

Notes:
[1] It should be noted that the rate of creation of 12.5 new Bitcoin is current rate at the time of this paper, and it
should be understood that the Bitcoin algorithm is designed to reduce that rate over time (halving
approximately every 4 years).

[2] See prior posts.

[3] Bollen, Rhys, “The Legal Status of Online Currencies: Are Bitcoin the Future?” , (2013) 24 JBFLP 272 at 275.

[4] http://en.bitcoin.it/wiki/Introduction accessed 13 January 2014;

http://www.forbes.com/sites/investopedia/2013/08/01/how-bitcoin-works/ , Forbes (1 August 2013), (accessed 13
January 2014).

[5] Ibid.
Effective Enforcement in the Vastly Distributed Wild Wild
Web
By Craig Wright | 21 Oct 2018 | Bitcoin & Blockchain Tech
Some time ago Hilary E Pearson (1996) noted that , “ in many cases, liability will depend upon how a court
faced with a case of first impression analogizes a particular Internet service provider to more conventional
categories of information providers. For example, should the service provider be viewed as the equivalent of
the telephone company, purely a conduit for information? This might be the right analogy for the
telecommunications link provider, but clearly does not fit the publisher. On the other hand, if the provider is
viewed as analogous to a publisher of a printed publication, there is a much greater exposure to liability ” [1]
.

Further, it was noted that the provider of a host computer for third party web pages could be compared to a
printer or perhaps a distributor of printed publications. It could also be argued that a Usenet group or
bulletin board is analogous to a library, so that the provider should be treated as the librarian .

The foremost dilemma with the study of electronic law is the complexity and difficulty in confining its study
within simple parameters. Internet and e-commerce do not define a distinct area of law as with contract [2]
and tort law. Electronic law crosses many legal disciplines, each of which can be studied individually.
Examples of a range of areas of law that electronic, e-commerce, and Internet law touch upon can be seen
in the following pages.

2 Remedy in Tort and Civil Suits

The availability of the Internet Intermediary as co-targets for actions makes them susceptible to the actions
of both their clients and also uninterested third parties for passing off and misleading and deceptive
conduct. An action for intentional interference with business by unlawful means may also be possible. The
tort of intentional interference with business by unlawful means may be available where the use of the
trade mark is unlawful.

The courts generally seem willing to apply conventional fault-based tort principles to weigh up the
behaviour of intermediaries. The instances in which comparatively egregious conduct has ended in the
liability of the intermediary are few, [3] and the majority of cases conclude with the absolution of the
intermediaries from blame. [4] Those circumstances that have resulted in a decision by the court that in
effect declare that the intermediaries hold considerable accountability for the behaviour of any primary
malfeasors have mutually in the EU and the US Congress resulted in the respective parliaments acting to
overrule the decision through the legislative conceding of expansive exemptions from liability to the
intermediaries. [5] “ The paths share not only the reflexive and unreflective fear that recognition of liability
for intermediaries might be catastrophic to internet commerce; they also share a myopic focus on the idea
that the inherent passivity of internet intermediaries makes it normatively inappropriate to impose
responsibility on them for conduct of primary malfeasors. That idea is flawed both in its generalization about
the passivity of intermediaries and in its failure to consider the possibility that the intermediaries might be
the most effective sources of regulatory enforcement, without regard to their blameworthiness ” [6] .

In the US, Congress has endorsed legislative protections for intermediaries from liability through
defamation with the introduction of the Communications Decency Act [7] . In 47 U.S.C. §230, it is
unambiguously positioned as regarding internet regulation [8] that the act introduced a series of “Good
Samaritan provisions” as a part of the Telecommunications Act of 1996. This was tested in DiMeo v Max
(2007), [9] in which the court found the defendant not liable for comments left by third parties on a blog.
The plaintiff alleged that the defendant was a publisher of the comments hosted on the website but did not
allege that the defendant authored the comments on the website or that the defendant was an information
content provider. Under 47 U.S.C. § 230 (f)(3), the court determined “ the website posts alleged in the
complaint must constitute information furnished by third party information content providers ” and as a
consequence immunity applied to the forum board operator. The Court upheld the dismissal of the suit.

The act, first passed in 1996 [10] and subsequently amended in 1998, [11] has the apparent rationale of
minimising Internet regulations in order to promote the development of the Internet and safeguard the
market for Internet service. The internet has consequently become so essential to daily life that it is
improbable that the addition of extra legislation would intimidate service providers away from the provision
of services at a competitive rate. [12]

In the US, 47 U.S.C. § 230(c)(1) provides a defence for ISPs stating that, “ No provider or user of an interactive
computer service shall be treated as the publisher or speaker of any information provided by another
information content provider .” This statute would seem [13] to afford absolute immunity from any
responsibility. Contrasting the DMCA, the ISP or ICP could chose not to do away with material in the event
that the ISP or ICP has tangible awareness of the defamatory nature of material it is in fact hosting. [14]
Notwithstanding the focal point of this legislation having been towards liability for defamation, it has
pertained to seemingly unrelated auction intermediaries, including eBay. [15]

Inside the European Union, judgments obtained in the courts of one state are enforceable in any other state
included within the Brussels Convention. If not, a judgment in one state will be enforceable in another only
where there is a bilateral treaty creating the provision for such reciprocal enforcement between them.
Frequently, these treaties add formalities surrounding the enforcement process that offer the courts of the
jurisdiction in which the defendant is situated prudence both as to a decision to enforce, or to what degree.
It is consequently vital when deciding on a jurisdiction to bring suit to decide if any judgment obtained is
enforceable against a defendant who may in effect be judgement proof.

2. Cyber Negligence
Not acting to correct a vulnerability in a computer system may give rise to an action in negligence if another
party suffers loss or damage as the result of a cyber-attack or employee fraud. Given proximity [16] , a
conception first established in Caparo Industries Plc. v. Dickman , [1990] [17] and reasonable foreseeability as
established in Anns v. Merton London Borough Council , [1978] [18] A.C. 728, the question of whether there
exists a positive duty on a party to act so as to prevent criminals causing harm or economic loss to others
will be likely found to exist in the cyber world. The test of reasonable foreseeability has however been
rendered to a preliminary factual enquiry not to be incorporated into the legal test.

The Australian High Court regarded a parallel scenario, whether a party has a duty to take reasonable steps
to prevent criminals causing injury to others in Triangle Shopping Centre Pty Ltd v Anzil [19] . The judgment
restated the principle established by Brennan CJ in Sutherland Shire Council v Heyman [20] . The capacity of
a plaintiff to recover hinges on the plaintiff’s ability to demonstrate a satisfactory nexus (e.g. a dependence
or assumption of responsibility) between the plaintiff and the defendant such that it gives rise to a duty on
the defendant to take reasonable steps to prevent third parties causing loss to the plaintiff [21] .
Consequently, if a plaintiff in a case involving a breach of computer security could both demonstrate that
the defendant did not in fact take reasonable measures to ensure the security of their computer systems (as
against both internal and external assault), and they show the act of the third person (e.g. an
attacker/hacker or even a fraudulent employee) occurred as a direct consequence of the defendant’s own
fault or breach of duty, then an action in negligence is likely to succeed [22] .

Many organisations state that current standards of corporate governance for IT systems pose a problem due
to the large number of competing standards. However, it needs to be taken into account that all of these
standards maintain a minimum set of analogous requirements that few companies presently meet. Most of
these standards, such as the PCI-DSS [23] and COBIT [24] , set a requirement to monitor systems. COBIT
control ME2 (Monitor and Evaluate Internal Controls) is measured through recording the “ number of major
internal control breaches ”. PCI-DSS at 10.5.5 states a minimum requirement to “ use file integrity monitoring
and change detection software on logs to ensure that existing log data cannot be changed without
generating alerts (although new data being added should not cause an alert)”. As a general minimum, it
may be seen that an organisation needs to maintain a sufficiently rigorous monitoring regime to meet
these standards.

Installation guidelines provided by the Centre for Internet Security (CIS) [25] openly provide system
benchmarks and scoring tools that contain the “ consensus minimum due care security configuration
recommendations ” for the most widely deployed operating systems and applications in use. The baseline
templates will not themselves stop a determined attacker, but could be used to demonstrate minimum
due care and diligence.

It is interesting to contrast this general proposition with a peculiar case where the plaintiff went to great
lengths in an attempt to recover loss caused by its own negligence, namely loss suffered due to computer
fraud perpetrated by its own employee in its own system.

In Mercedes Benz (NSW) v ANZ and National Mutual Royal Savings Bank Ltd [26] (unreported), the Supreme
Court of New South Wales considered if a duty to avert fraud would occur in cases where there is an
anticipated prospect of loss. The Mercedes Benz employee responsible for the payroll system fraudulently
misappropriated nearly $1.5 million by circumventing controls in the payroll software. Mercedes Benz
alleged that the defendants, ANZ and NMRB, were negligent in paying on cheques that where fraudulently
procured by the employee and in following her direction. The plaintiff’s claim was dismissed by the court. It
was held that employers who are careless in their controls to prevent fraud using only very simple systems
for the analysis of employee activities will be responsible for the losses that result as a consequence of
deceitful acts committed by the organisations’ employees. It takes little deliberation to extend this finding
to payment intermediaries.

The decision was founded on the judgment of Holt CJ in Hern v Nichols (1701) [27] that stated in “ seeing
somebody must be a loser by this deceit, it is more reason that he that employs and puts a trust and
confidence in the deceiver should be a loser than a stranger ” [28] . The question remains open as to the
position that may result from unsound practices operated not by the plaintiff but by an organisation in
supplying services under an outsourcing agreement. In either event, the requirement for an organisation to
provide controls to ensure a minimum level of system security is clear.

The situation is further compounded in instances of cyber-attack that lead to a loss. An innocent third party
that suffers an attack that originates from an inadequately secured system would be able to easily
demonstrate a lack of reasonable care if the minimum consensus standards mentioned above are not
achieved. Coupled with facts demonstrating that the attack originated from the defendant’s insecure
system, the evidence would provide the requisite substantiation of both proximity and reasonable
foreseeability.
3. Prevention is the key
The vast majority of illicit activity and fraud committed across the Internet could be averted at least
curtailed if destination ISP and payment intermediaries implemented effective processes for monitoring
and controlling access to, and use of, their networks. Denning (1999) expresses that, “ even if an offensive
operation is not prevented, monitoring might detect it while it is in progress, allowing the possibility of
aborting it before any serious damage is done and enabling a timely response ” [29] .

As is being noted above, there are a wide variety of commonly accepted practices, standards and means of
ensuring that systems are secured. Many of the current economic arguments used by Internet
intermediaries are short-sighted to say the best. The growing awareness of remedies that may be attained
through litigation coupled with greater calls for corporate responsibility [30] have placed an ever growing
burden on organisations that fail to implement a culture of strong corporate governance. In the short term
the economic effects of implementing sound monitoring and security controls may seem high, but when
compared to the increasing volume of litigation that is starting to incorporate Internet intermediaries, the
option of not securing a system and implement in monitoring begins to pale.

The Internet remains the wild, wild, web not because of a lack of laws, but rather the difficulty surrounding
enforcement. The Internet’s role is growing on a daily basis and has reached a point where it has become
ubiquitous and an essential feature of daily life both from a personal perspective and due to its role in the
international economy. If an ISP is to be held liable for authorisation as an intermediary, it must have
knowledge, or otherwise deduce that infringements are proceeding. [31] Although, intermediaries
commonly monitor their systems and have the means to suspect when infringements are occurring,
Internet intermediaries also require the authority to prevent infringement if they are to be held liable for
authorisation, a condition that entails an aspect of control. [32]

References
1. Barker, J. Cam, (2004) “Grossly Excessive Penalties in the Battle Against Illegal File-Sharing: The Troubling
Effects of Aggregating Minimum Statutory Damages for Copyright Infringement”, 83 Texas L. Rev. 525

2. Bick, Jonathan D., (1998) “Why Should the Internet Be Any Different?” 19 Pace L. Rev. 41, 63

3. Bowne, A (1997) “Trade Marks and Copyright on the Internet” 2 Media and Arts Law Review 135

4. Collins M, (2000) “Liability of internet intermediaries in Australian defamation law” Media & Arts Law
Review 209

5. Cooney, K (1997) “Liability for On-line Images: How an Ancient Right Protects the Latest in Net Functions”
16 Communications Law Bulletin 5

6. Demott, Deborah A. (2003) “When is a Principal Charged with an Agent’s Knowledge?” 13 Duke Journal of
Comparative & International Law. 291

7. Denning, Dorothy E. “Information Warfare and Security”, ACM Press, New York, 1999

8. Eisenberg J, (2000) “Safely out of site: the impact of the new online content legislation on defamation
law” UNSW Law Journal

9. Gilchrist, Simon (1998) “Telstra v Apra –Implications for the Internet” [1998] CTLR 16.

10. Hare, Christopher (2004) “Identity Mistakes: A Missed Opportunity?” The Modern Law Review, Volume 67
Page 993 — November 2004 Volume 67 Issue 6

11. Harmon, Amy (2003) “Subpoenas Sent to File Sharers Prompt Anger and Remorse”, N.Y. Times, July 28,
2003, at C1.

12. Hazen, Thomas L. (1977) “Transfers of Corporate Control and Duties of Controlling Shareholders. Common
Law, Tender Offers, Investment Companies. And a Proposal for Reform” University of Pennsylvania Law
Review, Vol. 125, №5 (May, 1977), pp. 1023–1067

13. Kao, A. (2005) “RIAA v. Verizon: Applying the Subpoena Provision of the DMCA”, 19 Berkeley Tech. L.J. 405,
408.

14. Kraakman, Reinier H. (1984) “857 CORPORATE LIABILITY STRATEGIES AND THE COSTS OF LEGAL
CONTROLS”, Yale Law Journal April, 1984 (93 Yale L.J. 857)

15. Landes, William & Lichtman, Douglas, (2003) “Indirect Liability for Copyright Infringement: An Economic
Perspective”, 16 HARV. J.L. & TECH. 395.

16. Lemley Mark A. & Reese, R. A., (2004) “Reducing Digital Copyright Infringement without Restricting
Innovation”, 56 STAN. L. REV. 1345.

17. Leroux, Olivier (2004) “Legal admissibility of electronic evidence 1”, International Review of Law,
Computers & Technology; Volume 18, Number 2 / July 2004; Pp 193–220

18. Lichtman, Douglas Gary & Posner, Eric A., (July 2004). “Holding Internet Service Providers Accountable”. U
Chicago Law & Economics, Olin Working Paper №217. Available at SSRN: http://ssrn.com/abstract=573502 or
DOI: 10.2139/ssrn.573502 (viewed 15 Jan 2008)

19. Lim, YF, (1997) “Internet Service Providers and Liability for Copyright Infringement through Authorisation”
8 Australian Intellectual Property Law Journal 192.

20. Loughnan, S., (1997) “Service Provider Liability for User Copyright Infringement on the Internet” 8
Australian Intellectual Property Law Journal 18

21. MacMillian, Blakeney “The Internet and Communications Carriers’ Copyright Liability” [1998] EIPR 52

22. Mann, Ronald J., (2004) “Regulating Internet Payment Intermediaries”, 82 Texas L. Rev. 681, 681

23. Mann, R. & Belzley, S (2005) “The Promise of the Internet Intermediary Liability” 47 William and Mary Law
Review 1 <http://ssrn.com/abstract=696601> at 27 July 2007]

24. Olovsson, Tomas, (1992) “A Structured Approach to Computer Security”, Department of Computer
Engineering Chalmers University of Technology, Gothenburg SWEDEN, Technical Report No 122, 1992

25. Paynter, H & Foreman, R (1998) “Liability of Internet Service Providers for Copyright Infringement”,
University of NSW Law Journal, [1998] UNSWLJ 61

26. Quimbo, Rodolfo Noel S (2003) “Legal Regulatory Issues in the Information Economy”, e-ASEAN Task
Force, UNDP-APDIP (MAY 2003)

27. Reidenberg, J (2004) “States and Internet Enforcement”, 1 UNIV. OTTAWA L. & TECH. J. 1

28. Scandariato, R.; Knight, J.C. (2004) “The design and evaluation of a defense system for Internet worms”
Proceedings of the 23rd IEEE International Symposium on Reliable Distributed Systems, 2004. Volume,
Issue, 18–20 Oct. 2004 Pp 164–173

29. 28Shapiro, Andrew L., (1998) “Digital Middlemen and the Architecture of Electronic Commerce”, 24 OHIO
N.U. L. REV. 795

30. Slawotsky, Joel (2005) “Doing Business around the World: Corporate Liability under the Alien Tort Claims
Act” 2005 MICH. ST. L. REV. 1065

31. 30Smith, Russell. (2000) “Confronting fraud in the digital age”, Presented at Fraud prevention and control
conference, Gold Coast Australia 24–25 August 2000

32. Tickle, K. (1995) “The Vicarious Liability of Electronic Bulletin Board Operators for the Copyright
Infringement Occurring on Their Bulletin Boards”, 80 Iowa Law Review 391 at 397
33. Williams, K. S. (2003) “Child Pornography and Regulation on the Internet in the United Kingdom: The
Impact on Fundamental Rights and International Relations”, Child Abuse Review, Volume 14, Issue 6 , Pages
415–429 (Special Issue: New Technologies . Issue Edited by Bernard Gallagher). Published Online: 20 Dec
2005, John Wiley & Sons, Ltd.

34. Wu, Tim, (2003) “When Code Isn’t Law”, 89 Va. L. Rev. 679

35. Zittrain, Jonathan (2003) “Internet Points of Control”, 44 B.C. L. REV. 65

[1] The distributed nature of the Internet means that a publisher can reach far more people. A company with
a web site in the UK for instance has direct access to the US, Canada, Australia and many other countries
with the primary limitations being language.

[2] It has been argued that the digital contract may appear on the computer screen to consist of words in a
written form but merely consist of a virtual representation . The Electronic Communications Act 2000 [ECA]
has removed the uncertainty and doubt surrounding the question as to the nature of electronic form used
in the construction of a contract. In this, the ECA specifies that the electronic form of a contract is to be
accepted as equivalent to a contract in writing

[3] .See A & M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896 (N.D. Cal. 2000).

[4] .For criticism of this perspective, see Landes & Lichtman.

[5] .The most obvious example of this action can be found in the history of the Communications Decency
Act. Congress directly responded to the ISP liability found in Stratton Oakmont, Inc. v. Prodigy Services , 23
Media L. Rep. (BNA) 1794 (N.Y. Sup. Ct. 1995), 1995 WL 323710, by including immunity for ISPs in the CDA, 47
U.S.C. § 230(c)(1) (2004) (exempting ISPs for liability as the “publisher or speaker of any information provided
by another information content provider”), which was pending at the time of the case. Similarly, Title II of the
Digital Millennium Copyright Act, codified at 17 U.S.C. § 512, settled tension over ISP liability for copyright
infringement committed by their subscribers that had been created by the opposite approaches to the
issue by courts. Compare Playboy Enters., Inc. v. Frena, 839 F. Supp. 1552, 1556 (M.D. Fla. 1993) (finding
liability), with Religious Tech. Ctr. v. Netcom, Inc., 907 F. Supp. 1361, 1372 (N.D. Cal. 1995) (refusing to find
liability).

[6] Mann, R. & Belzley, S (2005) “The Promise of the Internet Intermediary Liability” 47 William and Mary Law
Review 1 <http://ssrn.com/abstract=696601> at 27 July 2007]

[7] The Communications Decency Act of 1996 (CDA)

[8] .47 U.S.C. § 230(b) (2004) (emphasis added)

“ It is the policy of the United States —

(1) to promote the continued development of the Internet and other interactive computer services and
other interactive media;

(2) to preserve the vibrant and competitive free market that presently exists for the Internet and other
interactive computer services, unfettered by Federal or State regulation;

(3) to encourage the development of technologies which maximize user control over what information is
received by individuals, families, and schools who use the Internet and other interactive computer services;

(4) to remove disincentives for the development and utilization of blocking and filtering technologies that
empower parents to restrict their children’s access to objectionable or inappropriate online material; and

(5) to ensure vigorous enforcement of Federal criminal laws to deter and punish trafficking in obscenity,
stalking, and harassment by means of computer ”.

[9] WL 2717865 (3rd Cir. Sept. 19, 2007); See also Fair Housing Council of San Fernando Valley v.
Roommates.com, LLC , CV-03–09386-PA (9th Cir. May 15, 2007); and Universal Communication Systems, Inc.
v. Lycos, Inc . , 2007 WL 549111 (1st Cir. Feb. 23, 2007)

[10] . 1996, Pub. L. 104–104, Title I, § 509 .

[11] . 1998, Pub. L. 105–277, Div. C, Title XIV, § 1404(a) .

[12] .There remains, however, the fear that additional regulation will stifle innovation in the industry. Would,
for instance, eBay enter the market as a new company today if it were liable for trademark infringement it
facilitated? Such liability adds new start-up and ongoing costs that may make some new ventures
unprofitable (or even more unprofitable). For an article addressing regulation in this way, see Lemley &
Reese.

[13] .There is at least the possibility that the statute would permit a State to require intermediaries to act. See
Doe v. GTE Corp. 347 F.3d 655 (7th Cir. 2003) (per Easterbrook, J.) (suggesting that Section 230(e)(3) “would
not pre-empt state laws or common-law doctrines that induce or require ISPs to protect the interests of
third parties”).

[14] .Thus minimising the likelihood of a decision such as Godfrey in the United States. See supra note 102.

[15] .Gentry v. eBay, Inc., 121 Cal. Rptr. 2d 703 (Ct. App. 2002)

[16] Proximity, a notion first established in Caparo Industries Plc. v. Dickman , [1990] 2 A.C. 605, is the initial
phase of the assessment. The subsequent phase enquires as to whether there are policy considerations
which would reduce or counteract the duty created under the initial stage. Mutually, the phases are to be
met with reference to the facts of cases previously determined. The dearth of such cases would not
however avert the courts from finding a duty of care.

[17] [1990] 2 A.C. 605

[18] [1978] A.C. 728

[19] Modbury Triangle Shopping Centre Pty Ltd v Anzil [2000] HCA 61.

[20] (1985) 157 CLR 424.

[21] Dixon J elucidated how a “special relationship” of this variety may occur in Smith v Leurs (1945) 70 CLR
256. This case was derived from an indication of occurrences that entail a special danger and the control or
of actions or conduct of the third person; See also [2000] HCA 61, para 140.

[22] See: Clerk and Lindsell on Torts, 19th Edition (2006), Chapter 28, paragraph 28–05

[23] PCI-DSS (version 1.1) is the Payment Card Industry Data Security Standard and is contractually required
to be adhered to by all merchants that process VISA, Mastercard and other payment card products. This
requirement and standard is maintained by the PCI Standards Council at
http://www.pcisecuritystandards.org/

[24] COBIT v 4.1 is the computer control objectives and standard maintained by ISACA at
http://www.cobitonline.info

[25] CIS benchmark and scoring tools are available from http://www.cisecurity.org/

[26] №50549 of 1990.

[27] (1701) 1 Salk 289

[28] Id., at 358.

[29] Dorothy E. Denning, Information Warfare and Security, ACM Press, New York, 1999

[30] See for instance Hazen (1977); Gagnon, Macklin & Simons (2003) and Slawotsky (2005)

[31] Ibid, Gibbs J at 12–13; cf Jacobs J at 21–2. See also Microsoft Corporation v Marks (1995) 33 IPR 15.
[32] Ibid, University of New South Wales v Moorhouse, supra, per Gibbs J at 12; WEA International Inc v
Hanimex Corp Limited (1987) 10 IPR 349 at 362; Australasian Performing Right Association v Jain (1990) 18
IPR 663. See also Lim YF, 199–201; S Loughnan, See also BF Fitzgerald, “Internet Service Provider Liability” in
Fitzgerald, A., Fitzgerald, B., Cook, P. & Cifuentes, C. (Eds.), Going Digital: Legal Issues for Electronic
Commerce, Multimedia and the Internet, Prospect (1998) 153.
Managing Blockchain Automata
By Craig Wright | 21 Oct 2018 | Alternative Coins & Systems
This umbrella document describes a distributed platform open to public participation for managing the
automation of tasks that interfaces with a Blockchain protocol. Although it is to be understood that the
invention is applicable to any cryptocurrency Blockchain, throughout we will refer to the bitcoin Blockchain
as the primary example. A peer-to-peer network of incentivised nodes (hosts) working in parallel to the
Bitcoin network, a botnet, shall execute cellular agents that to perform a variety of duties that contribute
towards the goal of completing a function.

Background
What is the technical problem that is being solved?

The overall technical problem is to design a set of protocols and processes for a Blockchain-enabled system
of Autonomous Agents that can perform a variety of functions. The reason for integrating the system with
the Blockchain is to benefit from its many advantages over traditional technologies. These include the
potential for lower transaction fees; independence from central authority; privacy; high security; robustness
against attack or natural disaster, and so on.

What is novel and inventive in respect of the solution (in terms of both the overall, “big picture”)?

The concept of a network of autonomous agents has some degree of prior art. However, there are many
different ways to implement this. Many of these ways also may already have been discussed in the public
domain. Nevertheless, our solution is based on using the existing bitcoin Blockchain in novel ways as a key
mechanism within the design, for example, in the way cellular agents are managed and controlled; how
hosts (and/or bots themselves) are paid; the way Bots are authenticated; the way bots are distributed; how
bots inter-operate; the way bots are updated to latest versions (and so on).

What is the motivation for the project?

Automata-Management is essential for many of the projects and stand-alone inventions planned to be
implemented — that is, the projects when in operation will be automated by deployment of Bots running on
host machines distributed across the internet. The projects include P2P Exchange; DFA (any type of
contract including Trusts); DAC/DASO; IoT Control.
How is Automata-Management different from relevant prior art?

There are of course competing entities that are using similar concepts and/or technologies and some of
these have a head start (such as Ethereum, Zennet). Our solution is primarily designed for the bitcoin
Blockchain, which confers certain advantages over rival technologies. Bitcoin is by far the largest
cryptocurrency with the widest adoption. Bitcoin has a trusted development community yet remains under
no central control. Bitcoin has the highest value and market capitalisation. Furthermore there are intangible
factors such as the perception of its superiority in being the original crypto-currency and its current stability.

Rival entities are not yet fully accepted in the market and utilise new and less developed cryptocurrencies.
The DAO was built on Etheruem but was hacked. Zennet never got off the ground and was replaced by Tau-
chain. By contrast bitcoin is much more firmly established and thus provides a more stable and trusted
platform for the upcoming Blockchain-based technologies.

Overview
A bot is shorthand for External Autonomous Agent . For our purposes, a bot has the following
characteristics:

External . The bot is a chunk of code that performs a specific task and usually interacts with the
Blockchain, but runs externally to the Blockchain. This means the code is not contained within a
cryptocurrency transaction (i.e. is not written in bitcoin Script to be executed when the transaction is
spent — that technique is the subject of an alternative suite of white papers)
Autonomous . The bot is self-controlled. That is, the host machine on which the bot runs does not
control the bot but only provides computer resources for the bot to execute. The bot may be stand-
alone but will usually be part of a network of interacting agents.
Agent . The bot is expected to be executed on host machines that are part of a network of participating
hosts. Therefore the bot will usually be executing logic on behalf of a client that is not the host on
which it is running.

A botnet or ‘host-net’ consists of a number of Internet-connected computers that may be operating

individually or in concert with other internet connected computers. The Bitcoin protocol runs on a peer-to-
peer network, and a botnet hosting bots can run on another peer-to-peer network in parallel. In practice
these networks will have substantial overlap, as many bots are expected to interact directly with the
Blockchain and hence their executing hosts must be part of the bitcoin network. Such a botnet lends itself
particularly (though not exclusively) to a distributed computing project involving public participation.

The idea of a platform for distributed computing projects involving public participation is not new, for
example BOINC (Berkeley Open Infrastructure for Network Computing) includes successful projects such as
[email protected] and [email protected] Whilst Gridcoin is a cryptocurrency that rewards participants for
participating in BOINC. Although rather than science, our focus is likely to be business and finance, for
example automated contract management. Furthermore, rather than voluntary, the participants in the
proposed system most likely will be remunerated. Botnets have been used since 2001 for denial-of-service
attacks, spyware, email spam, click fraud and mining bitcoins. Although the term is usually associated with
malicious tasks, our proposed implementation of a botnet shall not be used for malicious purposes and will
engender controls to ensure this. Relevant prior art includes Ethereum and Zennet ( http://zennet.sc/ ), a
public decentralised and free supercomputer that allows the general public to profit from their hardware,
which has evolved into Tau-Chain and Agoras.

Specification
This proposed scheme consists of a suite of high-level technical specifications for processes and protocols to
enable participating entities to seamlessly enlist and leave at will. The following model will be used as a
framework for the umbrella description:

Figure 1: Framework for Automata-Management

In Figure 1 the entities are as follows:

Client . The Client is any entity that wishes to utilise the resources available on the botnet to perform a
useful function, for which the Client may pay fees. For example, the Client may be a research organisation
that requires massive parallel processing, or the Client may be an individual with a well-defined business
idea that it wishes to automate.

Service Provider . The Service Provider is an entity such as a private company that conforms to the
Automata-Management protocols and provides enabling services for clients to engage the botnet. The
types of services provided would include (for example):

Creating Bots to satisfy a Client’s requirements

Distributing Bots to participating Hosts
Arranging automated financial transactions (i.e. collecting payments from Clients and making
payments to Hosts)
Other administration activities (such as monitoring bot performance, security, legal/regulatory
requirements, etc)
H ost . The Host is an entity such as an individual or a company willing to commit resources (mostly
CPU and data storage) to the botnet, which also conforms to the Automata-Management protocols.

A Service Provider wishing to provide Bot management services will need to implement a system that
conforms to all the protocols described within the Automata-Management suite of white papers. An
example of a system that might be implemented by an SP is schematically depicted in Figure 2. In this
diagram several potential patents have been identified (highlighted in red) and have been allocated white
paper numbers.

In the following sections, each major process and/or protocol will be described at a high level. Where
potential patents have been identified for these, full technical specification will be described in separate
white papers. Where no patent potential has been identified the description will remain only at a high level
(i.e. within this document), with an expectation that the technical specifications for these designs will be
primarily an engineering problem to be addressed during a subsequent development stage.

Figure 2: Schematic representation of a Automata-Management system

Automaton Business Administration

Client and Host interfaces

Registration and KYC . An entity (such as a private company) that wishes to become a Automata-
Management SP will need to establish interfaces for interacting with their clients and with the hosts on the
hostnet. This will involve common practices such as maintaining KYC (Know Your Client) databases
including login and password protocols. For a Automata-Management implementation these databases
should record information important for the operation of the system. For example, the SP might wish to
keep a record of the hosts’ available computer resources (i.e. their computer specifications and data storage
capacity, etc.) in order to ensure that any bots to be executed by the host are able to run effectively. In
addition, the hosts’ preferences may be recorded to ensure that only ‘suitable’ bots are executed by them.
As part of the SP’s registration process for both clients and hosts, the SP may wish (or be required by
regulation) to vet them based on (for example) reputation; credit rating, or other criterion.

Distribution (WP0303) . SPs will need a way to advertise to prospective hosts that they have bots on offer to
be executed. A standard protocol for this will enable any SP to make their bot offers visible to any
prospective host. We will design a common protocol that allows any service provider to get into the market.
This will involve designing suitable data formats and utilise decentralised techniques such as a Distributed
Hash Table (DHT). Once a host has elected to execute an offered bot and has registered with the SP, a
protocol is required for the secure download of the bot onto the host machine. This will most likely use a
version of the secret sharing scheme to enable encrypted files to be sent and automatically decrypted. The
protocol will also specify other considerations such as indemnity issues, post execution ‘clean-up’ (no
residue on the host machine), etc.

Characteristics (WP0301) . A standardised set of parameters will be designed that specify a bot’s
characteristics, including: operating characteristics (resource requirements, execution time, operating
constraints (e.g. time of day), etc); function type (e.g. business/scientific; industry sector; external data
sources; etc); certifications (government or industry body); and so on. The purpose is not only for matching
bots to hosts for technical suitability, but also a common protocol for the sake of client and host
safety/reliability. For example, a prospective host may wish to avoid bots that work in certain industries such
as tobacco or gambling.

Payment Facilities
Alternative Payment methods (WP0290) . The SP will need to collect fees from the client and arrange
payment (where applicable) to the host. Traditional methods of payment should not be discounted,
however, the main innovations will be in using payments on the Blockchain in bitcoins. Alternative fee
structures will be standardised. For example, fee amounts could be based on any number of factors relating
to the bot execution, such as:

Pay rate based on CPU usage

Pay rate based on storage space usage
Pay rate based on number of bot executions
Pay rate base don length of time the bot is executing
Payment based on a pre-determined ‘success criterion’
Payments made if the bot triggers a particular event (for example, a BUY order is generated)

In addition, there will be several alternative payment mechanisms, including:

‘Normal’ bitcoin transactions

Tokenised bitcoin transactions
Payment channels

In some cases, payments may be directly integrated into bitcoin transactions being utilised for other
purposes (such as for bot control; record-keeping; messaging; etc).

Tendering

SPs may wish to set up a facility to allow competitive tenders for both clients and hosts. For example, hosts
may be able to ‘bid’ for the right to execute certain bots by offering to execute them at a lower rate than
rival hosts. This process need not employ any innovative Blockchain related methods.

Automata Technical Administration

Security

There are several aspects to the issue of bot security. At the very least, bots should be encrypted during
transmission — i.e. when a host is downloading a bot from the SP. Existing mechanisms could be used for
this (i.e. TLS). Alternatively, we could enable this via our own secret sharing technique based on bitcoin keys.
Further security is required in regard to uniquely identifying/certifying bots and (in some use cases) to
maintaining bot function privacy (i.e. in which the specific function of the bot is kept secret even from the
host that executes it).

Cryptographic Key Management (WP0296) . Our protocol includes a unique identifier for each bot, which
will consist of a BCH address. Bots will be able to securely create ECDSA cryptographic key pairs and
generate their BCH address from their ‘primary’ (master) key pair. Several different levels of security
strength may be employed by the bot depending on the particular security requirements. For example,
knowledge of the Bot’s private key might be restricted to the SP or may be restricted to the host machine
or may be unobtainable except with explicit permission from several parties (such as any number of: client,
SP, host, regulatory authority; escrow service; trustee, etc.). This will be enabled using a protocol based on
the key splitting technique. Protocols will be designed that enable the level of security required, by using
secret sharing and key splitting techniques combined and (where appropriate) storage of key parts in
different locations (e.g. one part on the SP’s server and/or another part on the host’s machine, etc).

In some cases, the bot’s BCH address may also need to be kept secure. This can be achieved by allocating
the hash of the bot’s BCH-address as its unique identifier.

Function Secrecy (WP0302) . Usually, the function of a bot will be publicly known. In some cases it may be
desirable to keep the function of a bot secret. That is, the function is not open to public view, not even the
host that executes it. This might be the case for example, if the client is executing a secret algorithm in the
bot. In such cases, it will be necessary to enable hosts to execute secret bots without risk of liability or
illegality or danger of harm to themselves or their resources. A protocol will be designed that (1) enable bots
to be securely created, downloaded, and executed without the code ever being known; and (2) enables
prospective hosts to ensure that any secret bots they execute are ‘safe’ to do so. This will be closely linked to
WP0301 in that categorisation/certification of bots will be part of the solution for (2). For (1), techniques will
include secret sharing, key splitting and encryption/decryption.

Internal Databases (Rules)

Any function executed by a bot will be codified to ensure re-usability. This will be particularly important for
standardised wrapper modules (see below for explanation) as these form the basis for standardising the
administrative functions of bots in our protocol. The intention is to design tables, parameterised functions
and variables in a replicable manner that enables any atomic bot operation to be systematised. The values
for the variables and parameters will be derived from higher level rules — for example, business rules or
contract terms/conditions. This technique allows several options for execution of the codified function given
the variable and parameter values:

1. Manual coding. A programmer can interpret the information in order to write the bot code for the
function.

2. Compiled code. A Bot Compiler can be written that automatically generates the bot code based on the
supplied values.

3. External Server. An Interpreter can be implemented on a trusted external server that takes the
variable/parameter values as input and executes the associated logic.

For example, the way bots communicate with other entities will be codified in this way, such that the
communications module of the bot can be easily derived from supplied input variables and parameters (see
the section ‘ Bot Communications (WP0297) ’ below).

Bot Instantiation
Protocols for creating or ‘instantiating’ bots will be designed such that bots will be standardised and inter-
operable. The basic model for instantiation is shown in Figure 3. The central column in Figure 3 represents a
schematic of a bot: there is a core function which performs the requirements for the client and this is
wrapped by several optional standard routines. Examples of the standard ‘wrapper’ routines are shown to
the left of the central column; each routine is itself broken down into one or more subroutines and sub-
subroutines. These routines are designed to be ‘plug-and-play’ and any of them can be plugged into the bot
depending on requirements. For example, if a bot is expected to interact with the Blockchain then it will
need to have the ‘Transaction Manager’ module plugged in.

Figure 3: instantiation
The right side of Figure 3 depicts the input for the client function part of the bot. This is made up of library
functions (i.e. reusable functions that other clients have requested in the past) as well as any bespoke
functions that need to be created from scratch. Functions that are not already in the library will need to be
created (in a flexible, parameterised fashion) and if reusable will be added to the library. The function may
be manually coded by a programmer, or potentially it may be compiled directly from a set of business rules
via the DFA project.

Wrapper Modules

Some wrapper modules will not require innovative techniques. For example, the ‘stats tracker’ (which will
collect data such as CPU usage; data storage usage; etc., which for example might be used in the
calculation of the host payment) could use existing off-the-shelf technology. Similarly, the purely admin
modules such as the termination routine may not utilise any innovations. However, there are several
potential innovations in other modules such as the communications protocol (which might utilise the
Blockchain as a medium for messaging) and transaction manager.

Communications (WP0297) . A protocol will be designed that flexibly enables any type of communication
with bots. For example, between bot and another bot, bot and SP; bot and Host; etc. There are several
different ways communications can be achieved with different advantages/disadvantages according to the
specific communications requirement, and these options will all be included. Many of these methods will
utilise innovations such as the Blockchain or DHTs. The protocols will be codified such that the
implementation of a bot’s communications logic can be generated from the supplied variables and
parameters. Each time a new type of communications becomes necessary (i.e. one that has not already
been codified and logged into the internal database) then it will be immediately codified and logged to
enable reuse. Table 1 is a sketch of the variable structure that will be used for the Bot Communications
wrapper module.

Table 1: Control variables for bot communication

For each code there will be a separate code table that lists out the available codes and their
meanings/usage along with any required parameters. For example, the MSG-Protocol code table would
include a code for ‘send message as bitcoin transaction’ which itself would include a list of required
parameters specific to this code, such as INPUT-TX-ID (the source transaction to be ‘spent’); BCH-AMT
(amount of BCH to spend); etc.

Transaction Manager (WP0305) . Bots may have to interact directly with the Blockchain by
creating/storing/validating/broadcasting bitcoin transactions. There are several purposes for this. For
example, the bot may need to make payments (to the host on behalf of the Client or SP; to the Client as a
result of some success criterion; to itself as a way to fund its own operations; etc.); or, the transaction is part
of a non-payment protocol (such as a communications method; a recording of an event on the permanent
ledger; an execution of a contract embedded in a transaction script; a DFA state transition; etc.). A protocol
will be devised to enable any kind of transaction-related operation by a bot. The various operations will be
codified and consideration (such as security, source transactions, etc) will be accounted for in the design.

Library Functions

Library functions may or may not involve innovations and this depends on the function itself. These will be
designed and patents applied on a case-by-case basis. For example, it is evident that most bots will need to
monitor external events of one type or another. Thus the library will contain a module (itself made up of
potentially several sub-modules) for monitoring events (such as stock-price movements or weather
conditions, etc.).

Configuration (WP0312)
In regard to their deployment within the hostnet there are several different potential configurations for
autonomous agents. Some will utilise a ‘botnet’ strategy, some will simply use standalone bots, others may
use a combination — all depending on the requirements. Some may be tightly integrated with the
Blockchain (for example, when both bot control and BCH payments are deliberately synchronised) or they
might be loosely integrated (e.g. where the Blockchain is used only for verifying contracts or permanently
recording events, etc). It is likely that designing the protocols for these configurations will involve — in at
least some cases — innovative techniques.

Some alternative bot configurations (not exhaustive):

1. A network of bots.

a. Working independently on a parallel processing task. Classic examples are [email protected] and the
protein-folding initiatives. Some characteristics are:

i. Each bot has the same goal

ii. Bots are all the same

iii. A large number of bots are deployed — but not a fixed number

iv. Bots do not intercommunicate or interoperate. They only communicate their results back to a central
server at the SP or direct to the client site.

b. Working independently and competing to be the first to complete a function. For example, proof-of-work
algorithms or other ‘brute force’ tasks such as breaking a code. Some characteristics are:

i. Each bot has the same goal

ii. Bots may be different — e.g. different methods used to achieve the same ends.

iii. A large number of bots are deployed — but not a fixed number

iv. Bots do not intercommunicate or interoperate. They only communicate their results back to a central
server.

· Or, they claim the ‘prize’ by unlocking a bitcoin transaction with the solution they found.

c. Working cooperatively and coordinating on a task. For example, a swarm of drones tasked with
monitoring an area of bushland for outbreaks of fire. Note that in this example bots might reside on the
drones themselves, or they might be on host machines and get signals from the drones relayed to them.
Some characteristics are:

i. Each bot has the same goal

ii. Bots are the same

iii. A large number of bots are deployed — perhaps a fixed number

iv. Bots communicate with each other (e.g. their location and collected data)

2. A hierarchy of Agents and Automata.

a. Managed by a control bot , perhaps including ‘middle-manager’ bots. For example, a simple DASO
(Distributed Autonomous Smart Organisation) in which all the business rules have been codified into
machine-readable data structures and multiple bots created to execute each business function. Some
characteristics are:

i. Each bot has a different goal

ii. Bots are different — they perform different functions

iii. A fixed number of bots are deployed (only as many as needed for all functions)

iv. Bots communicate with each other (or at least with their immediate control bot)

3. Standalone Agent— A single monolithic ‘bot’ running a set of algorithms to execute the entire
requirement

a. Runs on a single machine on the client’s laptop . For example, a user downloads a program (or writes it
herself) that monitors bitcoin prices at several different exchanges at which she has set up accounts. When
an arbitrage opportunity is detected the ‘bot’ (i.e. a program) automatically executes the trades to lock in
the profit. Some characteristics are:

i. Only one bot. (Of course it could be broken down into multiple bots)

ii. Run on a single machine. i.e. not distributed — accepts the risks/disadvantages of centralisation

b. Runs on a single machine on the Service Provider’s server . For example, a client contracts with a Service
Provider to create and execute a function to monitor the inventory in a stock room (via RFIDs) and
automatically places orders for stock replacement when numbers drop below a threshold. Some
characteristics are:

i. Only one bot

ii. Run in a single data-center. i.e. not distributed — accepts the risks/disadvantages of centralisation

iii. Accepts the need for trust in the Service Provider

Example Scenario
The following scenario models configuration ‘2. A hierarchy of bots’ as described above in the Bot
Configurations Section.

Client Alice believes that she has discovered a correlation between share prices for a set of NYSE stocks and
certain extreme weather patterns in the central US. She wants to set up an automated function to buy and
sell stocks according to certain triggers based on these factors. Alice contacts a Service Provider (SP)
specialising in bots for stocks and shares and contracts with them to set up an automated service using her
scheme. Via their website, the service provider requires Alice to register and meet certain requirements.
Alice must have her own Bitcoin private/public key pair and must use this as a master key pair for this SP,
and she must also install their plug-in for managing the keys (which employs the secret sharing and key-
splitting schemes).

Alice registers on the service provider’s website. If Alice had been an experienced programmer, she could
have elected to provide the functional bot code herself, and therefore keep her strategy secret from the SP
(in which case the SP would require certain conditions to be met as per their terms and conditions to
ensure that the bot code is not malicious, is legal, etc.) In this example, Alice is satisfied with the privacy and
confidentiality provisions in the SP’s contract so she allows the SP to create the bot code based on her
requirements (i.e. Alice provides the business rules). In effect, Alice is setting up a DASO.
Alice’s strategy requires the following information:

the price/earnings ratios of 17 stocks listed on the NYSE

the current NYSE stock index
the existence of a particular weather alert for the Wisconsin region.

Alice has asked for the condition checks to be executed every hour at seven minutes past the hour (she is
superstitious). The SP creates several bots to satisfy Alice’s request as follows.

1. A bot is designed to check the current price of the stock exchange index. The SP already has a codified
share-price checker template bot so all that was needed was to instantiate the bot based on this template
using the relevant parameters (i.e. the stock exchange website; the symbol for the index). Along with this
functional logic, the instantiation of the bot includes plugging in certain standard ‘wrapper’ modules. For
example, Initiation/termination routine; Cryptographic key maintenance routine; Communications
Manager; (etc.)

2. A bot is instantiated to retrieve the latest company earnings. The service provider did not have an existing
template bot for this purpose so they codified one from scratch. The resulting template bot created takes
the following parameters:

Company-ID;
Source-Priority (a prioritised list of Data-Source-Codes; blank indicates ‘use default’);
Data-Source (a DHT keyed by Date-Source-Code containing a list of websites and their associated
screen scrape rules, the order of the websites is the default priority).

The bot works by reading the Data-Source file according to the supplied Source-Priority to get the highest
priority website for the Company-ID, along with the rule for how to screen-scrape for the data. The bot then
attempts to retrieve the required information by accessing the named website. If this does not work (for
example, the website is down or the rule fails) then it tries again using the next priority source.

Note: for this example assume a separate bot is instantiated for each of the companies being tracked,
making 17 such bots in all. An alternative approach would be to have all 17 companies tracked by the same
bot. In practice, several factors may be taken into consideration when deciding on whether to separate out
the bots or consolidate into a single bot. For example, a single bot benefits by reducing overall overhead,
but multiple bots benefit from the robustness of separating and distributing the bots across different hosts.

3. A bot is instantiated to check the weather in Wisconsin. The service provider does not have a template
bot for this type of function. They considered creating one from scratch, but since it was not part of their
core expertise they decided instead to subcontract to a third party service provider (SP2) that specialises in
weather forecasting and that use the same bot protocols. They perform the required steps to register as a
client of SP2 and request the bot, providing the requirements. The requirement was to continually monitor
the weather in Wisconsin and provide a ‘true’ signal if and only if there is a category EF5 tornado warning
within a 57-mile radius of Stevens Point.

The first service provider was unaware of how SP2 set up the bot (i.e. they were unaware of how the
information was retrieved or if multiple bots were used, etc.). They only needed to agree a few critical bits of
information, such as the inter-bot communications and payments protocols, etc.

4. A bot is created to execute a ‘buy’ order. The bot has secure access to create and broadcast a bitcoin
transaction when triggered by a signal from a manager bot. The transaction takes the form of an invitation
using the P2P Exchange Model protocol (WP0153). That is, the transaction is broadcast and gets picked up
by P2P Exchange service providers for matching with a counter party. In this case the invitation is to buy a
quantity of a company’s shares in exchange for a certain amount of bitcoins, according to the rules set by
Alice’s requirements. The transaction may be created with multiple outputs. In this example one of the
other outputs is a ‘bonus payment’ to the service provider.

5. A manager bot is created to manage the other bots. Like the other bots, a manager bot is also
instantiated from codified rules and a template. The manager bot’s instruction set directs it to
communicate with the other bots to collect information and process it. Using the data securely transmitted
by the first bot and the second bot set, the manager bot calculates the price/earnings ratios of the
companies in question. It also collects the information from SP2’s bot to keep track of the weather signal.
The information is used to determine if the condition for a ‘buy’ order has been met (according to the rules
supplied by the client, Alice). If so, the manager bot sends a signal to the fourth bot to execute its function.

In addition to the bots created to execute Alice’s service, there may be additional bots set up to manage
other functions, for example administrative functions such as collecting payments. These could all be
standardised administrative template bots.

There were many different options for the service provider to charge Alice for this service, and this may have
been done using a combination of options. Some of the options are:

Membership fee. For example:

o Once-off joining fee (with individual services still paid for separately)

o Annual/monthly subscription, enabling services based on a schedule of prices (e.g. X bitcoins/month for
up to 50 ‘level 5’ services; Y bitcoins/month for up 100 ‘level 1–4’ services — where the levels are described in
the Terms and Conditions of SP1).

Pay rate based on CPU usage

Pay rate based on storage space usage
Pay rate based on number of Bots instantiated
Payments made if the service triggers a particular event (for example, a BUY order is generated as in
the current example)
Payment channel

In this particular case the service provider set up Alice with a payment channel in which Alice reserves a
certain amount of bitcoin to automatically make monthly payments for a set period of time (12 months)
after which the service contract would need to be renewed. The payment channel (using techniques such
as a ‘payback’ transaction with a locktime, etc.) allows Alice to discontinue payment at any time, which
would automatically terminate the service. In addition, the system was arranged to automatically make a
‘bonus payment’ if a ‘buy’ trade is triggered.

Once the bots have been set up, the first service provider (and separately SP2) ‘advertise’ them using the
standard protocol (see WP0303). The advertisements provide all the relevant details related to the bots,
including options, as per WP0301. There are several ways bots might be connected up with a host. A first
example is on a first-come, first-served basis. The first host that clicks on the advertised bot ‘wins the
contract’ — provided that it meets all the requirements for executing the bot. A second example is on a
competitive basis. The bot may be advertised as a ‘tender’ in which rival nodes may bid for it on a range of
criteria that might include price, processing speed, etc. A third example is by certain eligibility criteria. For
example, reputation points (i.e. points earned for previous successful service, or linked to another Bitcoin
reputation system).

Once hosts have selected bots and applied to the service provider, another registration process ensues
between the host and the service provider concerned (unless of course the host has previously registered).
Then a formal contract is established. This could be a new contract that is very specific to the situation. In
most cases there will be contract templates that cover most of the usual terms and conditions relevant. The
contract will be stored on a DHT as per previous white papers, and the associated transactions created. The
payment options from the service provider to the host will be based on similar factors as used for Alice’s
payment.
Non-Repudiation — Does this exist?
By Craig Wright | 22 Oct 2018 | Bitcoin & Blockchain Tech
There is a definitional distinction between the legal use of the term “ non-repudiation ” and the common
use that has taken hold within IT. In legal terminology an alleged signatory to a document is at all times able
to repudiate a signature that has been attributed to him or her. The basis for a repudiation of a traditional
signature may include:

The signature is a forgery;

The signature is not a forgery, but was obtained via:
Unconscionable conduct by a party to a transaction;
Fraud instigated by a third party;
Undue influence exerted by a third party.

The universal rule of evidence is that if an individual denies a signature (or the creation of a transaction),
then it falls upon the party that is relying on the signature to prove that the signature is truly that of the
person who has denied it. In legal terminology, the terms “deny” and “repudiate” are synonymous.

The common-law trust mechanism developed to prevail over a false claim of non-repudiation is known as
witnessing. Witnessing occurs at the time the signature is being affixed. An independent witness to the
signing of a document reduces the ability of the signatory to successfully deny the signature as a forgery at
a later date through the provision of contradictory evidence.

From an organisational perspective the aim is not to remove the ability for an individual to deny a
transaction, but rather to ensure that sufficient evidence exists to enable the organisation to successfully
prove that the transaction or signature was created by the party who were supposed to have created. In
order to support non-repudiation, an organisation needs to consider the following technical controls:

Digital signatures
Secure timestamps
Secure audit logs
OpSec and the Bitcoin business
By Craig Wright | 23 Oct 2018 | Bitcoin & Blockchain Tech

There are a number of specialist topics in organisational OPSEC and concepts that need to be defined
before going into detail. These include:

Trusted Computer Base (TCB). The totality of protection mechanisms within a computer system
including hardware, firmware, and software. The combination is responsible for enforcing a security
policy.
Malware Management . Malware management is more than an anti-virus system. Any system that
gives administrative control to a user allowing the loading or execution of any software has an
increased vulnerability to malware (such as worms, viruses, and Trojans) and risk from unexpected
software interactions. This can lead to the subversion of security controls.
Principle of Least Privilege . Never grant users more than the least level of access to a system that is
needed for them to be able to complete their roles or jobs. That is, if a user needs read-only access to a
file, set their permissions to only allow read access blocking write permissions such that they cannot
modify the data.
 Privileged operations . This type of operation includes the use of:

1. operations system control commands,

2. the ability to configure interfaces,
3. rights to access audit logs,
4. the ability to manage user accounts,
5. the ability to configure security mechanisms and controls,
6. the privileges to back up and restore data, etc.

Privacy. The privacy of data involves the protection of personal information from disclosure to an
unauthorised party (either being an individual or organisation). This involves the maintenance of
confidentiality.
Legal requirements. Adherence to the law and regulatory controls is the foundation or baseline upon
which a security infrastructure can be built. At a minimum, it is necessary to adhere to the
requirements imposed by law on the organisation.
Illegal activities. This involves being able to identify both the criminal and tortuous (see the
“Information Systems Legislation” chapter) An organisation needs to be able to facilitate attribution.
Attribution is the discovery of who is responsible and proving it through the use of evidence. The
organisation should also be able to support non-repudiation of transactions.
Record retention. The o organisation’s policy needs to define what information is collected, maintained
and how long it is to be kept. This aspect of OPSEC is commonly driven by regulatory and legal
requirements such as consent to monitoring, and financial controls (eg SEC filing or Tax rules).
Marking. Marking is the process of setting a classification on the data stored on media.
Handling. The transportation of media from one point or place to another securely is the realm of
handling. This involves media control from purchase through to storage and lastly destruction.
Storage. Data needs to be stored in secured facilities. These should maintain the temperature and
humidity within a controlled range.
MFFT. All media has a MTTF (mean time to failure). This is dictated by the number of times it can be re-
used or a time based life.
Destruction. Any media that has reached or exceeded its MFFT needs to be replaced. When destroying
the old media, it should first be purged before being destroyed. This process is commonly referred to
as sanitation. This involves any number of processes that prepares the media for destruction. This could
include wiping hard drives and other magnetic media or degaussing. The idea is to either return the
media to its original pristine, unused state or render it permanently unusable and unrecoverable.
· PII. Personally Identifying Information (PII) is any information that may be used to identify an
individual. This includes information such as a Social Security number (USA), TFN or Tax File Number
(Australia), Credit Card and Banking details and other forms of ID.

In addition, there are a number of legal terms associated with operations security. Good corporate
governance (and as an offshoot, good IT governance) require that due care and due diligence

Due Care. This involved the use of a reasonable level of care in order to guard the interests of the
organisation from risk and consequently damage.
Due diligence. This is the practice of activities that are designed to maintain due care within the
organisation.

Together due care and due diligence make the foundations of governance. Effective governance is often
the only way to disprove negligence if an incident ends up as an action in a court of law.
Hearsay in the Blockchain world
By Craig Wright | 24 Oct 2018 | Bitcoin & Blockchain Tech
In law, when presenting evidence to a court, there exists a rule on the exclusion of hearsay as evidence.

Before admitting evidence, a court will generally ensure that it is both the relevant to the case and also
evaluate it to ensure that it satisfactorily fulfils what it is claimed to provide. A court needs to determine
whether the evidence is hearsay and otherwise determine its admissibility.

“ Evidence is hearsay where a statement in court repeats a statement made out of court in order to prove the
truth of the content of the out-of-court statement .” [1] An example of hearsay evidence would apply where a
suspect has sent an e-mail purporting to have committed a crime. Law enforcement officials would still need
other evidence (such as a confession) to prove this fact.

The rules of Scientific Evidence apply to digital forensics. In the US, Daubert v. Merrell Dow Pharmaceuticals,
[509 U.S. 579 (1993)] set the standard for evaluating scientific evidence. The test developed in this case consists
of:

1. A determination whether the theory or technique is capable of or has been tested;

2. The existence and maintenance of standards controlling techniques of operation and whether these are
likely to result in a high known or potential error rate;

3. As to whether the theory or technique has been rigorously subjected to peer review and publication; and

4. If the theory or technique is subject to “general acceptance” within the relevant scientific community.

For the most part (and even though error rates have not been established the most digital forensic tools)
electronic evidence has been accepted by the courts scientific evidence. Currently, the most effective
approach to validating the methodologies and approach used by an investigator remains peer review. For
this reason, it remains good practice to have another investigator double check any findings using multiple
tools or techniques to ensure the reliability and repeatability of the process.

But what is this for the future and why will we no longer have Hearsay?

We already have an Internet of things more than people. The number of automated devices and servers has
exceeded the number of users on the Internet for a couple years now and with IP addressing issued to light
bulbs and FMCGs in coming years, we could see 100 billion nodes online at any time.

These are devices that all interact and can be correlated. Recently, it has been shown that Skype can be used
to correlate IP addressing from this service with Bo torrent P2P traffi c.The future will be one where purchases
are matched and items can be used to trace movements and more.

Think of it, you have purchased a can of Coke with an IP address based on an RFID tag. You pay using a Visa
Smart wave chip card. The smart checkout links the IP of the can with the card ID. Later, the can is located at
a bin outside a premises you stated you did not go to. All of this adds together to form an evidence trail.

The future of the courts is one of digital evidence.

An email were you stated that you did something may not be admissible, but the business and automated
processes surrounding devices are admissible. These are not hearsay.

In an Internet of things, we have a world of automated processes — all of which are admissible. They remove
the requirements for hearsay as they capture and record automatically.

In coming years, more and more of what we say and do will be recorded. There will hardly be a street corner
without a camera, hardly a playground without a microphone. This will happening, it is already and the tide
has swept in so far that there is no stopping it or even now time to build a barrier to gain time.

What we now do matters, for we can make this a world where these changes will work for the betterment of
society or we can allow little brother to take the place of big.

[1] Hoey, 1996

Neural Network Threshold Oracles
By Craig Wright | 26 Oct 2018 | Bitcoin & Blockchain Tech
The main advantage to a system’s engineering approach is the ease with which it can be automated.
Various inputs and formula can become inputs into a neural network algorithm (Fig. 1). Equations for
insurance, risk, TSPs (Travelling Salesman problems), and more could be modelled in three layers (Fig 2).

A node can act as a perceptron. The vote or firing sequence is based on the use of a threshold and address.
These can be extended to PSO (Particle Swarm Optimised) code and genetic algorithms, when the node is
also funded using Bitcoin (or another currency). The inputs use the patent-№479 threshold system and send
signed transactions to the next layer based on external input or other events. This can be:

On block
CPFP (Child Pays for Parent) chained transactions.

Here, an input layer with one neuron for each input (system or application) could be used to map for IP
options, malware, and buffer overflow conditions, selected attacks, etc. The system of perceptrons would be
processed using a hidden neuron layer in which each neuron represents combinations of inputs and
calculates a response based on current data coupled with expected future data, a prior data, and external
systems data. Data processed at this level would feed into an output layer. The result of the neural network
would supply the output as an economic risk function.

This could also form the basis of any number of External AI or Expert Systems.

In this way, a risk function or Derivative Free Optimised Formula can be created that not only calculates
data based on existing and known variables, but also updates automatically using external sources and
trends. Many external sources have become available in recent years that provide external trending and
correlation points. Unfortunately, most of these services have clipped data as the determination of an attack
is generally unclear and takes time to diagnose where much otherwise useful data is lost. When monitoring
the operation of a system or the actions of uses, thresholds are characteristically defined above or below
which alerting, alarms, and exceptions are not reported. This range of activity is regarded as baseline or
routine activity.

Fig 1 A depiction of a multi-layer topology neural network

Multi-Layer layer topology neural networks can be used to accept data from risk models and automatically
update the risk profile of an organisation. In modelling risk, each application and system can be modelled
using a perceptron.

These can also be used as control point for IoT devices and any other agent-based system. The blockchain
allows for auditing of the system and the ability to validate the inputs and ensure the integrity of the
system.
Fig 2 Inputs being fed into a perceptron.

The perceptron is the computational workhorse in this system. In this it is reasonable to model the selected
risk factors for the system and calculate a base risk that is trained and updated over time. The data from
multiple organisations can be fed into a decentralised system that can be distributed to all users. This could
be integrated and sold as a product enhancement by existing vendors or independent third parties could
maintain external data-sets.

A large vendor such as Microsoft could create an implementation model.

The training of the network would require the determination of the correct weights for each neuron. This is
possible in selected systems, but a far larger effort would be required to enable this process for more
generalised deployment. The data needed for such an effort already.
The Bitcoin Future
By Craig Wright | 26 Oct 2018 | Bitcoin & Blockchain Tech
Right now, disk storage doubles each year in capacity. CPU power doubles each 18 months. Fibre speeds and
capacity double each 9 months.

This is exponential growth in a wide scale. This is the type of technological change that economists call
disruptive change. There is not a visionary on Earth who can forecast what this will truly mean in 20 years.
Even 10 years is astounding. Just take some of the figures that this leads to by 2020:

Hard disk drives (likely memory based and at phenomenal speeds and with low power sleep states that
provide an instant start capacity). Two (2) Petabytes of storage in a personal device.
CPU speeds of 100 times those we have now.
Wireless network bandwidth of 100 Gigabytes/Sec or mere.

This means that we can expect low power Internet tablets for less than a $1. These will be able to make free
VoIP calls. Anywhere to Anywhere.

This is a world where in just 9 years, nearly everything will go online. I have already noted how FMCGs will
have IP addresses and that even light globes are going online. The future is one where a simple embedded
Linux controller will cost less than a cent for a 100 devices.

The digital divide is changing. Right now, only the rich nations have the necessary levels of access to the
Internet and ecommerce. The future is one where even the poorest of countries will have complete access.

Think what this means for forensics. For privacy (or the end of).

MORE!

Start to think what this means for politics. In 10 years we will have low cost tablets. These will be disposable
thin and easy to hide with access to the Internet. This is anywhere anytime. This will even mean access in
places such as North Korea where Internet access is extremely restricted.

You may say that this will still pose an issue.

After all, the levels of literacy in many developing nations is low. Here is the rub, applications that talk to you
are already available. SIRI is not new. I have been using Dragon Voice type for a decade now, but it is a CPU
hog. Well, that is changing and these systems are improving. Further, I have “RealVoices” that offer a truly
human sounding voice from the PC.

In 2020, we will have a future when any person anyplace on Earth can talk to any other person. This is instant
translation of over 100 languages to any other. Of seeing text displayed on screen in any language from any
language.

These are not idle claims, they are existing technologies that right now take large systems, but which in time
(only a few years) will run on a device smaller than a watch.

Even in a nation as isolated and as poor as North Korea will see radical changes. Ask yourself what these
device costs lead to. Think of the pamphlet drops we have seen in the past. In the future, it will cost less than
it does to drop a piece of paper to drop a set of digital devices on a village.

Tablets that seem as if magic to the people who have been isolated from technology so long. Devices that
will open the world, politics and learning to the poorest peoples on Earth.

Just imagine for a moment

Let your mind wander. For even with all I am saying, there is nothing I can state that will cover the changes,
the fundamental differences that will develop from this by 2030. We are entering a new Era, a new world.
There is no way to change this fact now, we have already past the point of no return.

Imagine for a moment in the coming years that you are that poor villager or peasant in North Korea. You
have been isolated for your entire life. You have seen and heard little with only the doubts and false
knowledge provided by your “ leader ”.

Now, suddenly a device is dropped in a crate from an airborne mission. Far too many at once for even a
totalitarian regime to stop.

This device talks to you in your own language. It answer questions. It provides knowledge freely. It shows
pictures and videos. Anything you ask. You can see news, you can listen to speeches from the UN or movie
stars in your own language (instantly translated).

You can access a wealth of classic books and if you cannot read these will be translated and read to you in
your native dialect.

On Education

Think for a moment what this will be in regards to education. The existing school and University systems will
be exposed to increasing competition. Not local competition any longer, but International. The best teachers
will be able to teach from anywhere. I already have students in multiple countries.

In time, we will choose not from a small list of subjects offered in a local high school, but from a global
collection and wealth of knowledge that is beyond my ability to contemplate fully. It is beyond any individuals
power to truly grasp.

Add holographic technology.

Right now, personal projection technology is expensive, power hungry and available only to the rich. There
are already companies creating virtual board rooms where the members are projected into a room they do
not inhabit at the time. This is a 2.5 dimensional effect right now. A decade will change this. It will also make it
simple and inexpensive. In the coming decade, projection devices will be a simple feature in phones. There
are some already in development with this technology.

This is just a taste. I will write more on this topic. We have to start thinking and planning now for the future is
coming. What we make of it will depend on how we act now. A decade is a very short time.
Myths of permission-less
By Craig Wright | 28 Oct 2018 | Alternative Coins & Systems
In the world of Bitcoin there are many false narratives and myths. This started with the myth of
decentralisation. In this, the false idea that all users are required to run a node was promoted to mislead
users and people interested in Bitcoin.

The truth; users do not need to, and should not have to validate anything. That is the entire point. This
concept is itself flawed. In running software, you on your own system cannot be assured of anything. Not
the integrity of the software nor the state of the network. Bitcoin is a competitive system, and it was never
about decentralisation — it is sound money that is not easy to debase.

The myth attacking Bitcoin as a socialist cancer has moved to a new collectivist lie: the myth of “permission-
less.”

This is most insidious, as the people promoting this slyly propound to be libertarian, and yet, in this myth of
“permission-less”, promote the removal of property rights. Yes, I said that correctly, they seek to destroy
property. For, with property, there cannot be “permission-less.” This is a concept alien to Bitcoin and one
that must be stopped in society.

You cannot do, as some say, anything you desire. You have the right to do as you please (within reason and
as long as it does not impact others).

In developing for Bitcoin, you do not have a right to alter the code. You can propose all you like, but it is
miners who choose. This is important as it is miners who have the investment, not developers.

You do not even have the right to develop a “permission-less” security in Bitcoin, let alone any blockchain-
based system.

The error here is that, the SEC, FCA, and other government agencies have not taken action… Yet.

ICOs and tokens

The myth and lie here is that “Bitcoin is decentralised, so this makes it different.” That is utter bull. There is
nothing decentralised in any security offering. Every ICO is like any ICO in the past.

A group seeks to raise capital,

they issue a security offer to investors,
and the investor sends funds to the group raising capital.

There is nothing decentralised nor new in this. An ICO simply uses a token as a marker for the security. This
is falsely sold to lawyers and politicians as something new, but EDIFACT and many other token systems date
back decades, and have been used (and are in use) for securities and exchange now.

The truth is, Bitcoin is a peer-to-peer system that is settled by miners. The difference is in the settlement,
not the exchange.
Just as a company selling in ICOs, the middleman is the site promoting the security, the website, or the
exchange, and the range of shills that are misleading the public and promoting fraud.

Luckily, Bitcoin does not forget. The beauty of Bitcoin is that the ledger is permanent. You frauds do not
vanish, and the regulators can come after you with evidence years after the fact.

The fact is, the Internet is not permission-less. It is that, as long as you follow the protocol, you may have
permission. The same applies to Bitcoin. If you follow the rules of the network and do not see to alter them,
you have permission to build. Note; if you follow the rules.

Taking this into the realm of ICOs

We will extend this analysis into ICOs and tokens. The reason is that most of the false promotion for
protocols such as Wormhole comes from the lie and misrepresentation and fraud of “permission-less”
development of security tokens. It is the false promotion of an idea that you can act outside the law and
raise capital, that is, use fraud to take money from others using a token, and that this is OK.

Promotion
In the ICO world, we see a rise in investment newsletters and websites telling you of the ALT-coin or token
of the month. The general operation of this is to have exchanges and sites managed by those who buy the
tokens early, and then use social media and hype-based generation to drive the prices up — this is a practice
known as securities scalping . Few seem to understand that even having a small obscure “conflict-of-
interest disclosure” hidden on the site is insufficient.

To see more on this form of crime, I would recommend reading the SEC action against Thom Calandra
(MarketWatch) from 2004 .

There is nothing here that requires any alteration of the law. The form of settlement is not even noted in the
case. As such, the fact that a blockchain is used is irrelevant. If you “ scalp ”, you face action. In the same way,
if you raise capital, you face action. If not today, it could be 4 of 5 years down the track.

Bitcoin has a long memory.

The lie of the “utility token”

The truth is, intention matters in law. When you create a token that is stated to be a “utility token”, but is
clearly a capital-raising tool, then it is a SHAM . In law, a sham is something it is not purporting to be: a
spurious imitation, a fraud, or a hoax.

Tokens are issued as either a direct sale offer for a good or service that exists (such as a movie ticket) where
we are not seeing an ICO form of sale, or a means of capital raising.

A digital token that is designed to be traded in an ICO may constitute a:

Share — This confers or represents an ownership interest in a company, trust, or partnership, and is
generally linked to the limited liability of the token holder in the corporation.
A debenture that evidences the indebtedness of the issuers.
A unit, such as a unit in a unit trust, or a right to acquire such an interest.

In any determination as to whether a security has been created, the courts will investigate more than the
form of the transaction. The court will investigate the substance of the transaction. The language is not
disregarded but is also not conclusive of the nature of a transaction.

The basic test is whether you have a token that is used to mark a sale, or if it can be used as a tradeable
item. If you can speculation of the token, it is not a utility token. To say it is comes directly in the law of sham.
It is clearly designed to be an investment instrument.

An example of a utility token would include a bus ticket. This is a ticket sold and not traded and
exchangeable for a service. As the company issuing this can do so directly, the point of a “token exchange” is
moot. There is no secondary market of middlemen, no investors speculating on the value of the ticket. You
have a good or service, and it is used.

That is the purpose of Bitcoin, a utility token without the middlemen. And, this is what others seek to
bypass. In Ethereum, Wormhole, and associated scams we see the promotion of the myth of utility tokens
that are not subject to law.

That is just a lie. Bitcoin does not avoid law, it is not outside the exchange considerations, and it by no
means needs to have anything added. A security is a security, and to say otherwise is to engage in
misleading and/or fraudulent conduct.

Securitisation and ICOs

The securitisation of a firm’s receivables is generally associated with the sale of the existing asset pool. An
alternative approach involving the sale of “future flow” transactions has also been implemented in recent
years, and more closely mirrors the approach utilised by the majority of ICOs or Initial Coin Offerings.

The use of “future flow” securitisation is one where the sale is “backed” by the income to be derived in the
future by the operating company, the originator of the ICO.

This can be taken to be the position used in the majority of (the misleadingly named) “utility-token” ICOs
where a firm uses an Initial Coin Offering to raise capital under the pretence of selling a future product
offer. The clear risk is that the operating firm may become insolvent. To date 98% of all utility-token ICOs
have failed. Alternatively, the firm may “pivot” or otherwise fail in the delivery of the goods sold as a utility-
token offer. This failure in performance will result in a scenario where the firm has received payment for the
delivery of a good or service which it could be agreed the principles of the firm never had a clear intention
to provide. We also note that unlike the standard securitisation process, the firms in an ICO rarely if ever
utilise a separate SPV (special purpose vehicle) to separate the debt obligations.

In this paper, we shall examine the nature of future receivables in both a context of an ICO as an SPV and as
a direct debt instrument offered from a firm in the context of future receivables, and the relevant insolvency
law as compared to the law of existing receivables, and model the nature of an ICO from English-law
perspective.

We note that issues may arise under the laws of multiple jurisdictions with ICOs acting as an international
securitisation transaction, but without the avail of an SPV or institutional investors. The direct consequence
of this is that for ICOs involving investors from the UK, English law would apply under the CCA (Consumer
Credit Act, see footnote 1) and not just that of the originator (even if the law is set in contract and the terms
expressly state jurisdiction).

The common approach to securitisation is for amounts which have not yet fallen due, but which are owed
under an identifiable contract to be offered to an SPV-based securitisation where invoices that require
payment after delivery are sold into the securitisation Special Purpose Vehicle (SPV).

These invoices involve a payment obligation to a customer.

Receivables are characterised as future receivables when a seller contracts on the securitisation closing
date in order to sell to an SPV at some future time and as it may arise.
This can lead to a firm having “future receivables” that are frequently not paid until invoices actually
arise.

What we thus see in the ICO market is a means to use a bond or debenture as a method to bypass existing
regulations.

English law of existing receivables

Assignments under English law may be legal or equitable. Legal assignments would not be a valid and
available path and could not be used in an ICO as, amongst other requirements, they require that notice be
provided to the debtor in order for the assignment to be effective (footnote 2).
Equitable assignments may or may not be affected with or without notice:

“All that is necessary is that the creditor shall manifest a clear intention to make an irrevocable transfer of
the receivable.” (Footnote 3)

As an equitable assignment, even without notice, the sale and distribution of a utility token could be
effective against the assignor and its unsecured creditors. This would be subject to any qualifications on
priority or related matters that would be accepted in the existing opinions regarding the London
securitisation market (footnote 4).

We note further that an equitable assignment of an equitable is a receivable, and not the assignment of a
receivable itself (footnote 5) need be in writing to be enforceable (footnote 6).

We further note that the only advantage resulting from a legal assignment against a notified equitable
assignment is that the assignee may, as a procedural matter, bring suit against the debtor without joining
the assignor as a party to the proceedings.

As a result, we would use a transfer under an equitable assignment in our analysis of a tradeable-utility-
token-ICO assignment of debt under English law.

Future receivables and an ICO

In a general analysis of an ICO offer and the assignment of a future receivable, we can argue that, speaking
plainly, the assignment cannot be perfected as no future receivable exists at the time of a purported
assignment. We can see that as a purported assignment of a future receivable when supported by
consideration it may and should be treated as an agreement to assign the receivable.

If and when an ICO was to form a valid company (if it had not originally), and perfect the receivable bringing
it into full existence, we would treat the said receivable as equity as being assigned, and the resulting
equitable assignment shall be held good as against the assignor or its unsecured creditors, as if it had been
created at the time the agreement to assign the receivable was entered into (footnote 7). This will in due
course be subject to any and all qualifications coming from priorities or other matters (footnote 8).

In this sense, we can see the creation of an ICO token as a securitised (but unregulated) debt instrument
over a future sale — the parties to a transaction being the ICO as the creator of a saleable debt instrument
and the token holder as the purchaser of the debt device.

In this manner we can see the transfer of the token issued by the ICO promoter as an equitable debt,
securitised in a manner that is easily transferred electronically.

The result is the creation of a consumer debt obligation that would under English law give a right to parties
under the CCA (footnote 1).

Further, a token sale, if at a loss, would give the new purchaser a right to see to redeem the original
investment and not the depreciated market value of the debt.

Note, this is similar to a purchase of a “distressed bond” or security on a market. The holder has the right to
sue for the face value and not merely the purchase value of the instrument.

Footnotes
1. Consumer Credit Act 1974 — legislation.gov.uk. The use of a sham instrument does not override the
protections accorded to the consumer under UK law.
2. Section 136 of the Law of Property Act 1925 stipulates that an assignment,

a. must be absolute,

b. is in writing under the hand of the assignor,

c. is of any debt or other legal thing in action (which allows any and all “choses” in action which are capable
of legal or equitable assignment),

d. does not purport to be by way of charge only,

e. must be notified in writing to the debtor or trustee, and an acknowledgment of any and all such notice
shall be obtained,

f. is subject to equities even if all Section 136 requirements are satisfied; see Law of Property Act, 15 Geo. 5, C.
20 § 136 (1925) (England).

3. Goode, R.M. “Legal Problems of Credit and Security” (1988) 2nd Ed.

4. As an equitable assignment in the fact that no goods or services yet exist to be assigned, we can act in the
absence of notice. When this is the case, several factors must be considered.

a. Incremental rights of set-off will continue to arise.

— See Gout of NfId V. Nfld. Ry Co., 13 App. Cas 199, 200 (P.C. 1888).

b. The assignor may give good discharge to the debtor for any amounts received by the assignor.

— See Brice V. Bannister 3. Q.B.D. 569, 569 (1878).

c. The debtor and assignor may amend the assigned contract.

d. A party taking a subsequent assignment without notice of the prior assignment may, by giving notice in
advance of the first assignee, take priority.

— See: Dearle V. Hall, 3 Russ. I, I, 38 Eng. Rep. 475, 475 (ch. 1823).

5. As this receivable arguably does not exist at all.

6. Law of Property Act, 15 Geo. 5, c. 20, § 53 (i) © (1925) (Eng.).

7. See: Taiby V: Official Receiver, 13 App. Cas. 523, 523 (H.L: 1888).

8. See: In Re Dallas, 2 Ch. 385, 385 (1904). Apart from any other qualifications notice in order to protect the
priority of an assignment of a future debt against competing assignments may only be given at the point
when the debt comes into existence.
Taxing Bitcoin — Introduction.
By Craig Wright | 28 Oct 2018 | Alternative Coins & Systems
Bitcoin is money, but it is also a ledger, a commodity and a token. It is all these things and more. The issue is
not which one of these we need to define Bitcoin, but, which one defines Bitcoin in a particular use.

In this, I will present a series of posts that will form a paper to be released later. Bitcoin is money, but, like
bullion based monetary systems (e.g. Gold and silver coins), there are different ways to account for its use,
based on the form of use.

As an example, in a Gold based system, there are many ways to account for gold. There are different tax
treatments based on:

Bullion
Minted Bullion grade coins
Minted non-bullion grade coin
Collectable coins
Jewellery
Use in Electronics and as a commodity
unrefined gold

The same applies to Bitcoin, it has many uses and each will be treated separately in tax law. Some are:

a commodity as a means to store data on a ledger

Money (coinage)
Currency
A token based marker (e.g. a movie ticket)
A Contract, such as a bond
A contract linking to an equity (share) of a company

Bitcoin as money
In its May 2013 report to U.S. Senate Committee on Finance (“Virtual Economies and Currencies: Additional
IRS Guidance Could Reduce Tax Compliance Risks”), the United States Government Accountability Office (
GAO ) stated that:

“According to bitcoin’s peer-to-peer-network-generated statistics, as of May 1, 2013, approximately 11 million

bitcoins were in circulation. Bitcoin exchange rates against the U.S. dollar historically have been volatile.
From May 2012 through February 2013, prices ranged between $5 and $20 for 1 bitcoin. Prices increased
through March 2013, and then from April 1, 2013, to May 1, 2013, ranged between $79 and over $237 for 1
bitcoin. In the same time period, the number of bitcoin transactions per day ranged from approximately
8,000 to 70,000 transactions per day.” [1]

Compare this to 2015’s statistics of 14 million bitcoins in circulation [2] , with an average price of $354.28 [3]
USD throughout the year and approximately 159,331 transactions per day [4] .

Further, as discussed below, major businesses are now accepting or testing Bitcoin as a means of payment.

Governments are also taking the growing Bitcoin economy and the use of Bitcoin as money by the
community seriously:

in Germany, the German Finance Ministry has recognised Bitcoin as a “unit of account” (i.e. recognition
as a unit of currency); [5]
in Switzerland, the Swiss tax authority issued a statement that bitcoin is to be treated just like any
other payment option — trading bitcoin for Swiss francs is seen as similar to trading euros for Swiss
francs. Furthermore, the transaction fees charged by bitcoin exchanges are VAT-free; [6] and
in the UK, HMRC has given the green light for bitcoin in the form of scrapping previous plans to
enforce a VAT, as well as treating it as a private currency [7] .

(a) Bitcoin as payment for goods and services

Bitcoin is used and accepted as payment in real world transactions for goods and services (e.g. online
services, retail goods). Although such transactions are primarily conducted online, Bitcoin is increasingly
being accepted as payment by “bricks and mortar” shops.

Notable online businesses accepting Bitcoin (now or in the past) as payment include:

Microsoft ( www.microsoft.com/ ) — global computing giant;

Dell ( www.dell.com ) — multinational computer technology vendor;
Starbucks ( www.starbucks.com ) — coffee company and coffeehouse chain;
WordPress ( www.WordPress.com ) — one of the world’s most popular blogging systems;
Reddit ( www.reddit.com ) — a popular social news and entertainment website;
Gyft ( www.gyft.com ) — a seller of gift cards for large stores and brands (e.g. Target (US)); and
Overstock.com ( www.overstock.com ) — a major NASDAQ-listed online retailer of surplus and new
merchandise with international operations. In its first day of accepting Bitcoin, Overstock reportedly
accepted 800 orders in Bitcoin worth approximately USD 126,000; [8]
Expedia ( www.expedia.com ) — a major travel website to purchase flights, hotels and travel
accommodations;
PayPal ( www.paypal.com ) — a worldwide online payments system; and
Zynga, the NASDAQ listed online game developer.

“Bricks and mortar” businesses accepting Bitcoin as payment include cafes, restaurants, real estate agents,
and even law firms. [9]

Online directories such as useBitcoins.info ( http://usebitcoins.info/ ) and SpendBitcoins (

http://spendbitcoins.com/ ) contain extensive lists and maps of businesses accepting Bitcoin.

It should also be noted that these online directories rely on input from their users, and as such may
understate the number of businesses actually accepting Bitcoin as payment.

Bitcoin Exchanges
Bitcoin can be purchased or sold online via “Bitcoin Exchanges”, with prices set against the value of real
world currencies.

Broadly speaking there are two types of Bitcoin Exchanges: [10]

 “market based” exchanges — which operate markets matching buyers and sellers of Bitcoins; and
“fixed rate” exchanges — the exchange provides a price for Bitcoin, and Bitcoin is bought or sold directly
with the operator of the exchange.

The majority of media attention has been on “market based” exchanges. However, there are similarities in
that both types of Bitcoin Exchanges take deposits of real world currency to facilitate Bitcoin trades.

The popularity of Bitcoin Exchanges has in fact lead to leading online foreign exchange services providers
XE ( www.xe.com ) and Oanda ( www.oanda.com ) quote exchange rates for Bitcoin (using the currency
codes XBT and BTC , respectively in the pre-split days and now BCH).

Exchanging Bitcoins locally

Users can also exchange Bitcoins other local users for cash. For example, users may trade Bitcoin at
meetings for Bitcoin enthusiasts.

Websites such as LocalBitcoins.com ( http://localbitcoins.com/ ) also act as marketplaces where users can
locate other local users.

Bitcoin services providers

Moreover, the growing acceptance of Bitcoin as payment by businesses is also fostering the growth of
Bitcoin services providers such as BitPay ( http://bitpay.com ), the leading global Bitcoin payment services
provider.

On its website BitPay currently advertises that it has over 60,000 businesses using its Bitcoin payment
processing platform, and Bitpay reportedly processed more than USD 100 million in Bitcoin transactions in
2013, roughly a quarter million Bitcoin transactions per day. [11] By 2014, BitPay was processing USD $1
million in Bitcoin transactions per day. [12]

Differences to other virtual currencies

Virtual currency has been described by the European Central Bank as “a type of unregulated, digital money,
which is issued and usually controlled by its developers, and used and accepted among the members of a
specific virtual community.” [13]

Other well-known virtual currencies include Linden Dollars (used in the Second Life virtual community) and
World of Warcraft ( WoW ) Gold (issued and used in the WoW online role-playing game).

However, unlike other virtual currencies, Bitcoin:

is not controlled by a central organisation or authority as it utilises a decentralised public computer

network (i.e. the Bitcoin network);
is not a packet of data stored on a computer that is transferred to a new owner as payment. Rather
payment involves a reallocation of Bitcoin balances / value in the public ledger [14] ; and
is used solely as a means of payment by businesses and consumers for real world transactions.

Differences to barter schemes

A barter scheme (also known as a barter exchange or trade exchange) is an arrangement facilitating the
barter of goods and services between members of the scheme. The operator of the barter scheme provides
a service to the members of the scheme and is compensated by payment of membership fees.

Members of barter schemes agree in writing to accept credits (or units, trade dollars or barter dollars) to
their membership accounts in exchange for the goods and services they provide to other members, and
those credits in turn can be used to obtain goods and services provided by other members of the scheme.

Bitcoin should be distinguished from such barter schemes. In particular:

unlike barter schemes, Bitcoin does not rely on users being parties to an underlying legal
 arrangement;
as noted, Bitcoin is not controlled by a central organisation or authority;

users of Bitcoin do not need to “earn” Bitcoin by providing goods and services — Bitcoin can be acquired by
purchasing Bitcoin (e.g. on a Bitcoin Exchange); and credits in barter schemes cannot be directly converted
or exchanged for real world currency, and have no value to persons outside the barter scheme.

Notes:
[1] United States Government Accountability Office, “Virtual Economies and Currencies: Additional IRS
Guidance Could Reduce Tax Compliance Risks” (GAO-13–516), May 2013 (
http://www.gao.gov/assets/660/654620.pdf , accessed 12 January 2014), page 8.

[2] http://www.bitcoinwatch.com/ , accessed 12 November 2015.

[3] http://www.investing.com/currencies/btc-usd-historical-data , accessed November 2015.

[4] http://www.bitcoinwatch.com/ , accessed 12 November 2015.

[5] Schmeller, Johanna, “Germany lends real value to bitcoin virtual money”, Deutsche Welle (22 August
2013) ( http://www.dw.de/germany-lends-real-value-to-bitcoin-virtual-money/a-17038675 , accessed 14
January 2014).

[6] Giulio Prisco, “Swiss Tax Authorities Confirm that Bitcoin is VAT-free in Switzerland”, Bitcoin Magazine (13
June 2015), ( http://bitcoinmagazine.com/articles/swiss-tax-authorities-confirm-bitcoin-vat-free-switzerland-
1434140401 , accessed 12 November 2015).

[7] Caleb Chen, “HMCR clarifies tax treatment of activities involving bitcoin and other similar
cryptocurrencies”, Cyptocoin News (4 March 2014) ( http://www.cryptocoinsnews.com/hmrc-clarifies-tax-
treatment-of-activities-involving-bitcoin/ , accessed 12 November 2015).

[8] Metz, Cade, “In First Day with Bitcoin, Overstock Does $126,000 in Sales), Wired (10 January 2014) (
http://www.wired.com/business/2014/01/overstock-bitcoin-sales/ , accessed 14 January 2014).

[9] See e.g Solomon, Dave, “Dollars gone digital: Bitcoin is gaining acceptance as currency in the Granite
State”, The Union Leader (11 January 2014) ( http://www.unionleader.com/article/20140112/NEWS02/140119886
, accessed 14 January 2014); Neil, Martha, “My Clients Can Pay me in Bitcoins, Criminal Defense Lawyer Says”,
ABA Journal (1 May 2013) (
http://www.abajournal.com/news/article/criminal_defense_lawyer_says_clients_can_pay_him_in_bitcoins/ ,
accesed 14 January 2014); Thistleton, Rebecca, “Bitcoin arrives on the property scene”, Australian Financial
Review (13 May 2013) (
http://www.afr.com/p/business/property/bitcoin_arrives_on_the_property_9VlRmNY9FqDJZUjZcJ97ZL ,
accessed 14 January 2014)

[10] http://en.bitcoin.it/wiki/Buying_bitcoins#Fixed_Rate_Exchanges_.26_Others , accessed 14 January 2014

[11] “Bitpay Exceeds $100,000,000 in Bitcoin Transactions Processed”, BusinessWire (11 December 2013) (
http://www.businesswire.com/news/home/20131211005909/en/BitPay-Exceeds-100000000-Bitcoin-
Transactions-Processed#.Utd13NIW2QA , accessed 16 January 2014).

[12] “BitPay Now Processing $1 Million in Bitcoin Payments Every Day”, CoinDesk (28 May 2015). (
http://www.coindesk.com/bitpay-now-processing-1-million-bitcoin-payments-every-day/ , access 12
November 2015).

[13] European Central Bank, Virtual Currency Schemes , October 2012 (

http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf , accessed 12 January 2014)

[14] Bollen, Rhys, “The Legal Status of Online Currencies: Are Bitcoins the Future?” , (2013) 24 JBFLP 272 at
275., at 276.
Taxing Bitcoin — GST implications of Bitcoin as money
By Craig Wright | 29 Oct 2018 | Bitcoin & Blockchain Tech

1.1 Overview of the Australian GST system

GST is a broad-based consumption tax, and is imposed on taxable supplies and taxable importations.

It is generally the entity making the taxable supply or taxable importation that will be liable for GST. Under
section 9–5 of the GST Act, an entity will be regarded as making a taxable supply where:

(a) it makes a supply for consideration (being either monetary and/or non-monetary consideration);

(b) the supply is made in the course or furtherance of an enterprise that it carries on;

(c) the supply is connected with Australia; and

(d) it is registered, or required to be registered for GST purposes.

But, the supply will not be a taxable supply to the extent that it is GST-free or input taxed.

In some circumstances the GST included in the price paid for an acquisition of a taxable supply may also be
recoverable by an entity as input tax credit.

The GST implications associated with mining and using Bitcoin are discussed further below. GST rules
applicable to specific entity types are not discussed. For the purposes of this discussion, and unless
specified otherwise, it is also assumed that the relevant entities are in Australia.

1.2 Mining Bitcoin

As previously said, Bitcoins are created and entered into circulation through a process called “mining” that
certain users of the Bitcoin network perform (i.e. miners). The process of mining involves miners using the
Bitcoin software to solve complex equations. In short, the equations in the mining process serve to verify the
validity of Bitcoin transactions. In addition, currently 12.5 new bitcoins are created and awarded to the
successful miner who solves the relevant equations.
(a) Carrying on an enterprise
In determining the GST implications associated with mining, it is necessary to firstly consider whether the
activities related to mining Bitcoin constitute the carrying on of an enterprise by the miner.

In this context, the term “enterprise” is relevantly defined in section 9–20 of the GST Act as:

an activity, or a series of activities done:

(a) in the form of a *business; or

(b) in the form of an adventure or concern in the nature of trade; […]

It is clear from this definition that “enterprise” includes a business, and the use of the phrase “in the form of”
indicates a wider meaning than the word “business” on its own. The term “business” is defined in section
195–1 of the GST Act as including:

any profession, trade, employment, vocation or calling, but does not include occupation as an
employee.

While this definition simply states what activities may be included in a business, it does not provide any
guidance for determining what the nature, extent, and manner of undertaking those activities amount to
for the carrying on of a business. It is therefore necessary to turn to case law.

The indicators that have been held by the courts as relevant are set out in paragraph 13 of TR 97/11 and
reproduced below:

whether the activity has a significant commercial purpose or character;

whether the taxpayer has more than one intention to engage in business;
whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;
whether there is a repetition and regularity of the activity;
whether the activity is of the same kind, and carried on in a similar manner to that of the ordinary trade
in that line of business;
whether the activity is planned, organised, and carried on in a business-like manner such that it is
directed at making a profit;
the size, scale, and permanency of the activity; and
whether the activity is better described as a hobby, a form of recreation, or a sporting activity.

While each case turns on its own particular facts, the determination of the question is generally the result of
a process of weighing all the relevant indicators. No one indicator is decisive. [1] That is, the indicators must
be considered in combination and as a whole. Whether a business is being carried on depends on the “large
or general impression gained” [2] from looking at all of the indicators, and whether these factors provide the
operations with a “commercial flavour”. [3] But, the weighting to be given to each indicator may vary from
case to case.

It is conceivable that the activities related to mining Bitcoins may be undertaken in the form of a business.
For example, the miner may have invested a significant amount of money in computer hardware and
advanced scientific computing software to enhance their mining capabilities — this is more likely than not to
be the case, given that solving the equations require intensive computing power. Furthermore, the mining
activities may be of considerable size and scale, and conducted routinely and systematically, and with a
high degree of sophistication. Further, it is likely that the intention of the miner may be to sell the bitcoins
generated from the mining process at a profit. In such a case it is likely that the activities undertaken by the
miner constitute the carrying on of an enterprise for GST purposes.

Where a miner is carrying on an enterprise, the next issue to consider is whether it is required to be
registered for GST purposes. Generally, an entity will be required to be registered for GST purposes, if its
annual turnover for the previous 12-month period or projected annual turnover for the next 12-month period
in relation to supplies that are connected with Australia exceeds AUD $75,000 [4] .
Even if a miner is not required to be registered for GST purposes, it may elect to register for GST purposes [5]
(e.g. so that the miner can claim any available input tax credits for creditable acquisitions that it makes).

(b) Making a supply for GST purposes

To fall within the ambit of the GST system, there must be a supply (or importation). The importance of
supply was highlighted by the Full Federal Court in Sterling Guardian Pty Ltd v Commissioner of Taxation [6]
, i.e.:

In economic terms it may be correct to call the GST a consumption tax, because the effective burden falls
on the ultimate consumer. But as a matter of legal analysis what is taxed, that is to say what generates the
tax liability (and the obligations of recording and reporting), is not consumption by a particular form of
transaction, namely supply; see generally HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR
553 at [10]-[15].

The term “supply” is broadly defined in section 9–10(1) of the GST Act as “ any form of supply whatsoever ” .
While section 9–10(2) goes on to list the things that are included as supplies (such as the supply of goods
and services), it is not intended to be an exhaustive list, or limit the scope of the definition of “supply” in
section 9–10(1).

Given the broad definition of “supply”, it may be argued that the miners are making a supply of services by
undertaking complex equations on their computers in an attempt to validate transactions. Furthermore,
where a miner solves an equation, and thus validates the relevant transaction, the 12.5 new bitcoins
awarded to the miner may arguably be treated for GST purposes as consideration for the supply of those
services.

But, the Commissioner of Taxation ( Commissioner ) provides as one of his propositions in GSTR 2006/9
that, for every supply, there must generally be a recipient and an acquisition (Proposition 2 in GSTR 2006/9).
Relevantly at paragraphs 53 to 55 of GSTR 2006/9, the Commissioner states that:

The meaning of ‘acquisition’ in section 11–10 is the corollary of the meaning of supply in section 9–10 […].

To make an acquisition you have to be the ‘recipient’ of the supply of the thing you are acquiring […]

The supplier and the recipient have to be different entities because an entity cannot make a supply to itself.
Also, the recipient has to be identified, as you cannot make a supply to the world at large […].

As with the definition of “supply”, the term “acquisition” is broadly defined in section 11–10(1) of the GST Act
as “ any form of acquisition whatsoever ” . Section 11–10(2) refers to the thing acquired, such as goods,
services, or a right, and the means by which the thing is acquired, such as its receipt or acceptance.

To make an acquisition, you have to be the recipient of the supply of the thing you are acquiring. In terms of
a supply, the “recipient” is defined in section 195–1 of the GST Act as “the entity to which the supply was
made.” This definition suggests that there must be a supplier and a recipient, and that something is to pass
from the supplier to the recipient. While there are exceptions to this proposition, as set out in paragraphs 60
and 61 of GSTR 2006/9, they are not relevant to this analysis.

In terms of mining, it appears that there is an en

Taxing Bitcoin — Ordinary and tax concepts of “Money”
By Craig Wright | 29 Oct 2018 | Bitcoin & Blockchain Tech
Continuing the look into the use of Bitcoin (BCH) as money we look at the legal definition of “money”. In
particular in this piece, I will look at money under the Australian law, and later take this to incorporate UK
and common law definitions in subsequent posts.

Ordinary meaning — “money”

In Travelex Limited v Commissioner of Taxation [2008] FCA 1961 ( Travelex ), Emmett J made observations
regarding the “money” (including the subsets of “currency” and “legal tender” — refer to discussion below).

With respect to the term “money”, Emmett J stated that (at paragraph 25):

Money is any generally accepted medium of exchange for goods and services and for the payment of debts
(see Butterworth’s Australian Legal Dictionary at 759). Currency and legal tender are examples of money.
However, a thing can be money and can operate as a generally accepted medium and means of exchange,
without being legal tender. Thus, bank notes have historically been treated as money, notwithstanding that
they were not legal tender. It is common consent and conduct that gives a thing the character of money
(see Miller v Race (1758) 1 Burrow 452 at 457). Money is that which passes freely from hand to hand
throughout the community in final discharge of debts and full payment for commodities, being accepted
equally without reference to the character or credit of the person who offers it and without the intention of
the person who receives it to consume it or apply it to any other use than in turn to tender it to others in
discharge of debts or payment for commodities (see Moss v Hancock [1899] 2 QB 111 at 116).

Emmett J’s views in Travelex regarding “money” were not overturned on appeal to the Full Federal Court
and the High Court.

The Macquarie dictionary contains a similar definition of “money”:

1. gold, silver, or other metal in pieces of convenient form stamped by public authority and issued as a
medium of exchange and measure of value.

2. current coin.

3. coin or certificate (as banknotes, etc.) generally accepted in payment of debts and current transactions.

4. any article or substance similarly used.

5. a particular form or denomination of currency.

6. a money of account.

7. property considered with reference to its pecuniary value.

8. an amount or sum of money.

9. wealth reckoned in terms of money.

10. (plural) Law pecuniary sums.

11. pecuniary profit…

Thus, from the above, it can be ascertained that “money” within the ordinary meaning:

is any generally accepted medium and means of exchange for goods and services and payment of
debts (i.e. an accepted proxy to facilitate exchange of goods and services);
may be distinct from “currency” and “legal tender”, and does not have to be either to have the
character of “money”; and
is given its character by common consent and conduct (i.e. by general acceptance, as a medium of
exchange and measure of value).

It is also clear that there is no need for “money” within the ordinary meaning to be tangible property (e.g.
coins and notes). Rather, “money” is an abstract concept determined by reference to its use as a medium of
exchange, and common consent and conduct. For example, funds held to the credit of a person in a bank
account and which is transferred to another person would clearly be considered to be a transfer of “money”.

Another feature of “money” to be noted is the “negotiability” (i.e. ability to transfer ownership or property in
money by delivery) of “money” — see discussion below.

“Currency”
In Travelex , Emmett J observed the following regarding the term “currency” (at para 24):

In that regard, the term “currency” may have different usages in relation to money. In the sense in which I
have just used it, the term is a synonym for the medium of exchange itself, namely, coins and bank notes
circulating in a particular polity. In another possible usage, the term refers to a characteristic feature of the
proprietary regime that applies to money. That is to say, the full force of the general rule on derivate
transfers of title does not apply to title to money, in that title to money is exempt from the maxim nemo dat
quod non habet. In that regard, currency refers to the negotiability of money, such that, as a general rule,
the right to money is inseparable from the possession of it. Where coins or bank notes are delivered in
payment of a debt or for the provision of goods or services, it is not incumbent upon the recipient of the
coins or bank notes to enquire into the title of the payer. Not only possession of, but also property in, coins
and bank notes passes by mere delivery, irrespective of the title of the payer (see Miller v Race (1758) 1
Burrow 452 and David Fox, Property Rights in Money (Oxford University Press: Oxford, 2008) at 265–6 and
the authorities there cited).

In the Macquarie Dictionary, “currency” is defined as:

1. that which is current as a medium of exchange; the money in actual use.

2. the fact or quality of being passed on, as from person to person.

3. general acceptance; prevalence; vogue.

4. the fact or state of passing in time.

5. circulation, as of coin…

Thus, in a narrow sense, the meaning of “currency” refers to coins and paper articles used as “money” in a
country by a government. But, in a broader sense, “currency” may be synonymous with “money” in that it
also refers to the negotiability of “money”.

In this regard, it should also be noted that some currencies are used and accepted outside the country or
region of issue (e.g. US dollars, Chinese Renmenbi in Hong Kong).

“Legal tender”
In Travelex , Emmett J observed (at para 27) that:

Legal tender is concerned with the prescription of that which is, at any particular time, to be a lawful mode
of payment within a polity (Watson v Lee(1979) 144 CLR 374 at 398). Legal tender is such money, in the legal
sense, as the polity defines in legislation that organises the monetary system. Accordingly, those tangible
objects, which might otherwise be goods, that are legal tender necessarily have the quality of money,
although not all money is necessarily legal tender (Charles Proctor, Mann on the Legal Aspect of Money,
Sixth Edition (Oxford University Press: Oxford, 2005) at 66).

The Macquarie Dictionary provides a similar definition of “legal tender” as:

currency which may be lawfully tendered or offered in payment of money debts and which may not be
refused by creditors.

“Money” within the meaning of the Australian GST law

Section 195–1 of the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act ) contains a definition of
“money”:

money includes:

(a) currency (whether of Australia or of any other country); and

(b) promissory notes and bills of exchange; and

(c) any negotiable instrument used or circulated, or intended for use or circulation, as currency (whether of
Australia or of any other country); and

(d) postal notes and money orders; and

(e) whatever is supplied as payment by way of:

(i) credit card or debit card; or

(ii) crediting or debiting an account; or

(iii) creation or transfer of a debt.

However, it does not include:

(f) a collector’s piece; or

(g) an investment article; or

(h) an item of numismatic interest; or

(i) currency the market value of which exceeds its stated value as legal tender in the country of issue.

It is noted that the definition of “money” in the Australian GST Act uses the word “includes”. In Pearce &
Geddes, Statutory Interpretation in Australia , 7th Edition (LexisNexis Butterworths, 2011) at 6.61 it is observed
that:

Use of expressions ‘means’ and ‘includes’

It is usual to find one or other of these expressions where a word or phrase is being defined in legislation.
The orthodox and, it is submitted, the correct approach to the understanding of the effect of these
expressions is that ‘means’ is used if the definition is intended to be exhaustive while ‘includes’ is used if it
is intended to enlarge the ordinary meaning of the word …
(Emphasis added)

Thus, it is clear that “money” for the purposes of the GST Act (and the GST law) expands upon the ordinary
meaning of “money”, and is not intended to be exhaustive. For example, the GST-Act definition includes
“payment by way of credit card”, which may not under a strict interpretation be considered to involve a
transfer of “money” from the debtor to the creditor (rather “payment” by credit card involves a novation of
the debt to the credit card issuer, and a right for the creditor to receive payment from the credit-card issuer
at a later date).

The GST Act definition also makes it clear that “money” (at least for GST purposes) need not be tangible
property.

The terms “currency” and “legal tender”, although used in the A New Tax System (Goods and Services Tax)
Regulations 1999 ( GST Regulations ), are not defined in the GST Act or the GST Regulations, and as such
would take their ordinary meaning for GST purposes.

“Money” within the meaning of the income-tax law

The term “money” is not defined in the Australian Income Tax Assessment Act 1997 ( ITAA 1997 ) or Income
Tax Assessment Act 1936 ( ITAA 1936 ) (together, the Tax Acts ), and as such should take its ordinary
meaning.

Further, in Commissioner of Taxation v Resource Capital Fund IV LP [2013] FCAFC 118, a case concerning the
meaning of “money” for the purposes of s255 of the ITAA 1936, it was accepted by Gordon J (Allsop CJ and
Jagot J agreeing) that:

“money” in the ITAA 1936 is capable of including “foreign currency”; and

“money” in s255 is not limited to legal tender.

Section 995–1 of the ITAA 1997 contains the following definition of “foreign currency”:

foreign currency means a currency other than Australian currency

Otherwise, “currency” and “legal tender” are not defined in the Tax Acts, and as such would take their
ordinary meaning for income-tax purposes.

Bitcoin as “money”
Based on Emmett J’s observations in Travelex and the definition in the Macquarie Dictionary, it would seem
that Bitcoin falls within the ordinary meaning of “money”. That is, and as evident from the discussion at
section 2.3 above:

Bitcoins are used as a generally accepted medium of exchange in real-world transactions, and are being
increasingly accepted by businesses;

Bitcoin does not need to be “currency” issued by a country nor “legal tender” to be “money”;

Bitcoin has the character of money by common consent and conduct by businesses and consumers.

Bitcoin also has the quality of negotiability of “money” and, in a broader sense, “currency”, in that
“ownership” of bitcoin value is transferred through a transfer of bitcoins from one Bitcoin wallet to another
in a transaction. It is also clear that ownership of bitcoin value is valuable in real-world currency terms.

The quality of negotiability possessed by Bitcoin also makes it clear that bitcoin is a form of intangible
personal property. As observed by Dr Rhys Bollen, Bitcoin…

…involves the circulation of valuable rights but not rights to cash as such. The valuable rights are a form of
intangible property, transferred irrevocably and immediately (albeit with delayed confirmation) by
electronic order. [1]
Further, the developments in Germany, Switzerland, and the UK as discussed at 2.3(a) above indicate that
inevitably Bitcoin will be formally accepted as “currency” (i.e. foreign currency) by governments around the
world, if indeed it is not already considered to be so.

There is also United States jurisprudence indicating that Bitcoin falls within the ordinary meaning of
“money” and perhaps “currency” in Securities and Exchange Commission v Trendon T. Shavers and Bitcoin
Savings and Trust , Case №4:13-CV-416 (E.D. Tex) [2] ( SEC v Shavers ). SEC v Shavers concerned charges made
by the U.S. Securities and Exchange Commission ( SEC ) against Mr. Trendon Shavers, accusing Mr. Shavers
of using Bitcoin to run a Ponzi scheme. Mr Shavers sought to dismiss the charges on the basis that the
bitcoin investments offered by his business were not securities within the meaning of U.S.-federal securities
law as Bitcoin was not money.

In his decision finding in favour of the SEC, Magistrate Judge Amos Mazzant stated:

The term “security” is defined as “any note, stock, treasury stock, security future, security-based swap, bond…
[or] investment contract…” 15 U.S.C. § 77b. An investment contract is any contract, transaction, or scheme
involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be
derived from the efforts of the promoter or a third party. SEC v. W.J. Howey & Co., 328 U.S. 293, 298–99 (1946);
Long v. Shultz Cattle Co, 881 F.2d 129, 132 (1989). First, the Court must determine whether the BTCST
investments constitute an investment of money. It is clear that Bitcoin can be used as money. It can be
used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The
only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can
also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore,
Bitcoin is a currency or form of money , and investors wishing to invest in BTCST provided an investment of
money.

(Emphasis added)

Accordingly, it is submitted that Bitcoin is “ money ” within the ordinary meaning.

The sections below will deal with the GST and income-tax implications of Bitcoin as “money”, including
exploring the concepts of “money” within the GST and income-tax law. The same analysis applies to VAT in
the UK, but we shall leave this for a later post.

Notes:
[1] Bollen, Rhys, “The Legal Status of Online Currencies: Are Bitcoins the Future?”, (2013) 24 JBFLP 272 at 275.,
above at 283.

[2] Available at
http://ia800904.us.archive.org/35/items/gov.uscourts.txed.146063/gov.uscourts.txed.146063.23.0.pdf ,
accessed 14 January 2014.
A Bitcoin Smart Risk Contract
By Craig Wright | 30 Oct 2018
| Bitcoin & Blockchain Tech
In economic terms, we want to assign liability such that the optimal damage-mitigation strategy occurs.
The victim of a breach will mitigate their damages where no damages for breach apply in respect of the
optimal strategy and payoffs. The rule that creates the best incentives for both parties is the doctrine of
avoidable consequences (marginal costs liability).

Mitigation of damages is concerned with both the post-breach behaviours of the victim and the actions of
the party to minimise the impact of a breach. In a software parlays’, this would incur costs to the user of the
software in order to adequately secure their systems. This again is a trade-off. Before the breach (through
software failures and vulnerabilities that can lead to a violation of a system’s security) the user has an
obligation to install and maintain the system in a secure state.

The user is likely to have the software products of several vendors installed on a single system. As a
consequence of this, the interactions of the software selected and installed by the user span the range of
multiple sources, and no single software vendor can account for all possible combinations and interactions.
As such, any pre-breach behaviour of the vendor and user of software needs to incorporate the capability of
the vendors to not only minimise their own products but the interactions of other products installed on a
system.

There are several options that can be deployed in order to minimise the effects of a breach due to a
software problem prior to the discovery of a vulnerability. These include:

1. The software vendor can implement protective controls (such as firewalls)

2. The user can install protective controls
3. The vendor can provide accounting and tracking functions

In addition, in order to minimise the effects of a software vulnerability the following may be done in addition
to the previous steps:

1. The vendor can employ more people to test software for vulnerabilities
2. The software vendor can add additional controls

Where more time is expended on the provision of software security by the vendor (hiring more testers, more
time writing code, etc.), the cost of the software needs to reflect this additional effort, that is the cost to the
consumer increases. This cost can be divided more in the case of a widely deployed operating system (such
as Microsoft Windows), where the incremental costs can be distributed across more users. Smaller vendors
(such as small tailored vendors for the Hotel accounting market) do not have this luxury, and the additional
controls could result in an substantial increase in the cost of the program.

This is not to say that no liability does or should apply to the software vendor. The vendor in particular faces
a reputational cost (discussed later) if they fail to maintain a satisfactory level of controls, do not respond to
security vulnerabilities quickly enough, or suffer too many problems.

The accumulation of a large number of software vulnerabilities by a vendor has both a reputational cost to
the vendor and a direct cost to the user (time to install, and the associated downtime and lost productivity).
As a consequence, the accumulation of software vulnerabilities and the associated difficulty of patching or
otherwise mitigating these is a cost to the use that can be investigated prior to a purchase (and is hence a
cost that is assigned to new vendors even if they experience exceptionally low rates of
patching/vulnerabilities). As users are rational in their purchasing actions [1] , they will incorporate the costs
of patching their systems into the purchase price [2] .

The probability of a vulnerability occurring in a software product will never approach zero. Gödel, Turning,
and Distraka [3] demonstrated that it is not possible to prove that a software product is bug free. As a
consequence, the testing process by the vendor can be displayed as a hazard model [4] . In this, it is optimal
for the vendor to maximise their returns such that the costs of software testing is balanced against their
reputation [5] .

The cost of finding vulnerabilities can also be expressed as an optimal function through the provisions of a
market for vulnerabilities. In this way, the software vendor maximises their testing through a market
process. This will result in the vendor extending their own testing to the point where they cannot efficiently
discover more bugs. Those bugs that are sold on market are costed, and the vendor has to pay to either
purchase these from the vulnerability researcher (who has a specialisation in uncovering bugs) or increase
their own testing. The vendor will continue to increase the amount of testing that they conduct, until the
cost of their testing exceeds the cost of purchasing the vulnerability.

This market also acts as an efficient transaction process for the assignment of negligence costs. The user still
has to maintain the optimal level of controls that are under their influence (installation, patching frequency,
etc.), whilst the vendor is persuaded to pay the optimal level of costs for testing and mitigation.

The vendor should not be liable for avoidable consequences [6] . Where the user has failed to patch, and to
install and configure controls, and to otherwise mitigate the possible damages that they can suffer, the
vendor has no responsibility. This cost of mitigation is a part of the total costs of ownership for the software.

In creating risk-based contracts, we allow the market to determine the optimal price for risks in software.
This allows software hazards to be both modelled and also expensed, and the consumer can then make an
informed decision based on a trade-off between features and security.

[1] For further information on this topic see behavioural economics and rational behaviour.
[2] It may be demonstrated that sub-optimal behaviour does exist where users limit maintenance
(patching) in certain conditions.
[3] http://c2.com/cgi/wiki?BugFreeSoftware
[4] This can be demonstrated to fit to a Poisson distributed function.
[5] It has been demonstrated that reputation has value to a vendor. This has real world accounting
applications in the notion of “good will” in business and capital transactions.
[6] The breaching party is never liable for the damage that could have been mitigated under the legal
doctrine of avoidable consequences.
The scams in Crypto
By Craig Wright | 30 Oct 2018 | Alternative Coins & Systems
I will discuss the current state of play in ICOs. In my posts, I will demonstrate categorically that no token sale
is new, and that this myth and lie of “decentralisation” is completely unrelated to an ICO. The reason is that an
ICO is just a means to engage in a securities offering that bypasses the law and regulations ILLEGALLY and
fraudulently.

A promoter or issuer sells to a purchaser. That is all that matters — not the settlement method; and in this, the
sale is no more than any securities sale and issue throughout history.

ICOs as they are currently promoted or, more correctly, “scalped” are old frauds and shams in new bottles. The
use of a computer token to represent a security goes back to the 60’s. What the people selling you the ICO
frauds want to tell you is that a blockchain makes this anything new; that the sham of a misleadingly named
security token, a “ utility token ”, is anything other than a sham. To be a utility token means that it is not going
to be traded on an exchange. A bus ticket is a case of something that can be a “ utility token ”. A movie ticket
is a “ utility token ”.

A “ utility token ” is not something that you trade on exchanges seeking a profit. I will cover this more later as I
wish to discuss the concept of scalping .

Scalping

A claim for scalping is generally one involving promoters of securities. In the US, this would be prosecuted
under the Advisers Act .
The case, SEC v. Capital Gains Research Bureau Inc. , involved the U.S. Supreme Court in considering the
defendant’s failure to disclose scalping. This was considered in light of whether this act was one that fell
under the fraud or deceit requirement of Section 206 of the act.

Mr. Justice Goldberg delivered the opinion of the Court.

We are called upon in this case to decide whether under the Investment Advisers Act of 1940( 1) the Securities
and Exchange Commission may obtain an injunction compelling a registered investment adviser to disclose
to his clients a practice of purchasing shares of a security for his own account shortly before recommending
that security for long-term investment and then immediately selling the shares at a profit upon the rise in
the market price following the recommendation. The answer to this question turns on whether the practice
— known in the trade as “scalping” — “operates as a fraud or deceit upon any client or prospective client”
within the meaning of the Act.( 2) We hold that it does and that the Commission may “enforce compliance”
with the Act by obtaining an injunction requiring the adviser to make full disclosure of the practice to his
clients.( 3)

(See footnotes.)

The Court interpreted the meaning of the Act very widely. It considered the remedial purposes of the
Advisers Act — fostering full disclosure and raising the level of business ethics in the securities industry — as
well as the legislative history’s characterisation of investment as one of trust and confidence requiring strict
limitations on the rights of advisers to engage in securities transactions that could conflict with their clients’
interests.

The decision of the Court leaves us with the position that even inadequate disclosure of scalping establishes
fraud. This was held to be true where no material misstatements had been issued by the promoter.

What is scalping?
So, what is scalping? It is firstly a form of fraud that the U.S. SEC seeks to “ wipe out ” . In its widest sense,
scalping incorporates the practice of purchasing a security (this includes tokens, alt-coins, and any ICO
offerings) prior to recommending that security for long-term investment.

In the Bitcoin world, this is known as promoting to HODL . This would have an “adviser” buy “the dip” and
then tell others to buy after they have already invested with the aim to sell at a profit (note: this is an aim to
sell at a profit, and not actually making a profit that matters).
The image above is an example of scalping. This is fraud under the law. Many love to try and tell you what
fraud is, that others who point these things out are scammers — the difference: I am not trying to get any of
you money.

This is not new: in the 90’s, Internet-based fraud proliferated. Now, you are told it is an ICO, it’s
“DECENTRALISED”; well, the truth is, fraud is fraud, and no ICO is decentralised.

Bitcoin is an exchange from one party to another. The settlement method, the blockchain, is distributed. An
exchange is not decentralised, it is one peer exchanging with another. That is not any different from a share
being sold from a promoter to a purchaser in the 18th century.

Courts do not care about how you exchange, they do not care what method is used for settlement. When
party A sells to Party B, that is a sale and that is not decentralised. It is those wishing to gain a small window,
to complete the frauds they are running that will try and say blockchain makes it different.

The reality, ICO scalping, promotion, and shams are OLD frauds in new bottles.

Digital security tokens can be created. They are bonds, equities, and other securities, and they do not deceive
the purchaser into selling the security as anything other than a security.

Footnotes
Point — 1 – 54 Stat. 847, as amended, 15 U. S. C. § 80b-1 et seq.

Point — 2 — 54 Stat. 852, as amended, 15 U. S. C. (Supp. IV) § 80b-6, provides in relevant part that: “It shall be
unlawful for any investment adviser, by use of the mails or any means or instrumentality of interstate
commerce, directly or indirectly — “(1) to employ any device, scheme, or artifice to defraud any client or
prospective client; “(2) to engage in any transaction, practice, or course of business which operates as a fraud
or deceit upon any client or prospective client; “(3) acting as principal for his own account, knowingly to sell
any security to or purchase any security from a client, or acting as broker for a person other than such client,
knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to
such client in writing before the completion of such transaction the capacity in which he is acting and
obtaining the consent of the client to such transaction. The prohibitions of this paragraph shall not apply to
any transaction with a customer of a broker or dealer if such broker or dealer is not acting as an investment
adviser in relation to such transaction […].”

Point — 3 54 Stat. 853, as amended, 15 U. S. C. (Supp. IV) § 80b-9, provides in relevant part that: “(e) Whenever it
shall appear to the Commission that any person has engaged, is engaged, or is about to engage in any act or
practice constituting a violation of any provision of this subchapter, or of any rule, regulation, or order
hereunder, or that any person has aided, abetted, counseled, commanded, induced, or procured, is aiding,
abetting, counseling, commanding, inducing, or procuring, or is about to aid, abet, counsel, command,
induce, or procure such a violation, it may in its discretion bring an action in the proper district court of the
United States, or the proper United States court of any Territory or other place subject to the jurisdiction of
the United States, to enjoin such acts or practices and to enforce compliance with this subchapter of any rule,
regulation, or order hereunder. Upon a showing that such person has engaged, is engaged, or is about to
engage in any such act or practice, or in aiding, abetting, counseling, commanding, inducing, or procuring
any such act or practice, a permanent or temporary injunction or decree or restraining order shall be granted
without bond.”

As a side note:

Bitcoin is not based on encryption; it uses ECDSA, a digital-signature algorithm that sends data as plain text
— this is unencrypted. Now, this does not matter for what I am writing about.
Property Law in the Age of Bitcoin
By Craig Wright | 31 Oct 2018 | Bitcoin & Blockchain Tech
Property (as defined in legal terms) as is associated with servers, routers, and information systems in general
is known in the law as consisting of “chattels”. Servers are chattels. The data are intellectual property.

There are a standard bundle of rights associated with property:

1. The right to control use of the property,

2. the right to receive benefit from the property,
3. the right to assign, transfer, or sell the property,
4. and the right to exclude others from the property.

In the case of port scans we are looking at point 4, the right to exclude, and point 1, the right to control.
Rights as defined and used in this article are based on the Anglo-Saxon idea of exclusive right. This right is
equivalent to the civil law (Roman) idea of Dominus (see Dominus enim dicit for those who like Latin). The
Dominus is more restrictive than common-law property rights, and civil-law (or codified law) rights of
property are absolute rather than distributable as in the English common law.

For this reason I shall confine this to the common-law view of rights as much as possible. This view is one
that is more commonly held in the “West”, and civil codified laws are more restrictive and more likely to
enforce the rights of a property holder.

The rights we need to look at as was noted are the right of control and the right of exclusion.

A common Internet scenario of property to extend to Bitcoin

The “right of control” is the right to determine how the property is used. “Uses” were originally the equitable
or beneficial interests in the property. The right of control allows the system owner to determine how the
system is to operate according to law. The system owner has the right to state that they do not allow ping
(or any ICMP, for example). To enforce this they could filter any ICMP traffic.

If in this example the system owner had determined that they would stop all ICMP traffic to/from the server,
they could state this, and then any access via ICMP would be a violation of the property rights. If the system
owner had not taken steps to notify the public through some means (e.g. a terms notice on the primary
web site), then the rights still exist but are not enforceable in law. This means that the act of trying to ping
this server is illegal, but there is no way to enforce this right.

To enforce the right, the system owner has to do something to bring the right of control to the notice of the
person who seeks to violate this right. An example here is a banner on a telnet login. The action is still illegal
as stated, but there is not an action to enforce the right without the notification. The notification does not
need to be ongoing. It just needs to occur. It does not even need to be particularly verbose or even
grammatically correct. The notification does not even need to be sent using the same protocol. Sending an
email off to the attacker would satisfy the requirement.

A simple manner of transmitting intent is to have ICMP responses allowed, by allowing this traffic and using
ingress and egress filters, and sending ICMP type 3 replies. In particular type 3/13 replies could be sent
(Communication Administratively Prohibited). Upon receiving this response, the person scanning has
effectively received notification (e.g. like a banner). There is no legal requirement that they take notice of the
packet, just that it is delivered.

Other ICMP types that would effect this include:

3/9 — The destination network is administratively prohibited

3/10 — The destination host is administratively prohibited.
3/11 — The network is unreachable for Type Of Service.
3/12 — The host is unreachable for Type Of Service.

Sending ICMP 3/9 is the most effective solution. (This is easy to configure on Cisco routers, other routers may
or may not be able to achieve this). On receipt of the first packet, the person scanning is effectively notified.
If they then “scan” or “test” any port on the network, they are effectively breaching the conditions as they
have been notified to (similar to trespassing on real property when you have asked the trespasser to leave
and you have rights to the land).

If the person ports scans the site and ingress filters are configured to send ICMP 3/9 replies as soon as a
packet is received to any port on any server other than the validly allowed ports, there is a breach. In this
case, continued scanning becomes a breach of rights with an attached enforceable action. In this case you
have the ability to litigate the person scanning the site civilly for a port scan and nothing more (i.e. no real
damage).

Why do some people wait till you see a banner and log to that point? When you see the banner this
becomes a course of action. If you keep scanning after seeing the banner, then you have an action in
criminal terms, and you do not need to have damage to be able to seek action.

The right of exclusion is the right to dictate what others can do. This means that the property owner has the
right to exercise control and to dictate what level of access (if any) another has to the property. In respect to
the Internet, access from your gateway to another server is completed under an effect of easement. There
are both public and private easements. A public easement is one that grants the right to a large group of
individuals or to the public in general. This, in the terms of the Internet, is analogous to the backbone
routers.

A DOS or DDoS attack against DNS or the backbone routers is in effect the same as blocking access to
someone who has an easement. It is a trespass upon the right of easement and creates a cause of action for
civil suit. In most jurisdictions this is also not codified as or in statute a criminal offence. It is still illegal as a
civil breach when not directly excluded.

Exclusion allows the property owner (in our case the system owner) to designate what actions are
acceptable. They only need to state that an action is against the policy of the site for this to become an
enforceable action; further, where the system is a state-owned system (take US Federal government, for
example), all access is considered to be expressly controls unless access is expressly allowed.

What does this mean? A mere port scan, if the system owner does not welcome them, is a violation of the
property rights of the system owner. They breach the rights of exclusivity. Whether we see the system and
its data as a “choses in possession” or a “choses in action” — the act has to be one that is acceptable to the
system owner. If we look to civil law, we have an analogous system with respect to movable property or
movables.

Breach of an owner’s or possessor’s rights is a transgression in the nature of property law. There are actions
for recovery or tort, but these require that there generally has been damage. Nonetheless, a transgression of
either the right to control or the right to exclude is still a violation of the fundamental rights of the owner of
the property. A property law violation is not (generally) a criminal act without damage. This does not stop it
from being illegal.

It is illegal in that it also can act to void a contract. If for example party A contracts party B to scan the
systems of party C using a port scanner, party A could, after receiving the report, decide not to pay B for the
services, as the action is considered illegal, and an illegal contract is not enforceable. There would be no
punitive effect from this, but this does not change the action into a legal act.

So, with this in mind, we can start thinking about Bitcoin transactions as property. This is not in dispute;
courts around the world have upheld the property rights associated with Bitcoin.

Nodes (miners) are paid to process, forward, and validate transactions. Users send transactions from one
person to another. This is what P2P (peer-to-peer) means. P2P is not the node state, it is the act of one user
exchanging a transaction with another — like cash. The users each have a right to property, the right to
exchange the value held on the ledger (the blockchain).

A miner who intentionally seeks to damage a transaction would be acting in breach of the law, and would
be liable for the tort of conversion or other torts against property. A miner who chooses not to forward a
transaction is acting within their rights. Miners are contracted by users to forward transactions. There is no
obligation for a miner to accept the contract. They can decline by not including a transaction in a block.

A miner who helps a user complete a “double spend” is engaged in an act of larceny. This is a criminal
offence similar to theft, but involving gains through fraud.

Clear as mud? Well I hope that this has created a little more understanding of the law, rights, and why they
apply. To complicate this we could also look at equitable rights, but this would only lose more readers.

Damage the property, or actually get access to the system, and then we get into a whole new area. This is
where the criminal offences come to play.
Tax and Bitcoin — Income tax implications of Bitcoin as money
By Craig Wright | 31 Oct 2018 | Bitcoin & Blockchain Tech

1.1 Overview of the income-tax system

From an Australian income-tax perspective, a taxpayer’s country of residence and the source of income are
important. This is because an Australian resident may be subject to tax in Australia on all income whatever
its source (Australia or overseas), whereas a foreign resident can only be taxed in Australia on income that
has an Australian source.

A taxpayer’s liability to income tax for an income year is based on their assessable income for that year.
Taxable income is assessable income less allowable deductions. Assessable income consists of ordinary
income and statutory income.[1] Ordinary income is income according to ordinary concepts[2], and statutory
income is income that is assessable by virtue of a specific provision in the income-tax legislation[3], namely
the Tax Acts (e.g. net capital gains under Division 102 of the ITAA 1997).

Income according to ordinary concepts can essentially be divided into 3 categories, namely:

income from rendering personal services, including employment income;

income from carrying on a business; and
income from property such as rent, interest, and dividends.

Income-tax rules applicable to specific entity types are not discussed. For the purposes of the discussion
below, only the tax treatment of Bitcoin for Australian resident taxpayers is considered.

1.2 Mining bitcoin

Before considering the income-tax consequences of mining bitcoin, it is necessary to firstly consider
whether the activities related to mining bitcoins constitute the carrying on of a business by the miner. This
analysis is similar to that undertaken in 4.2(a)for GST, albeit it deals with whether such activities constitute
the carrying on an enterprise for GST purposes.

Even though the meaning of “enterprise” in the context of GST is broader than the meaning of “business”
for income-tax purposes, it is still possible that the activities related to mining bitcoin constitute the carrying
on of a business for income-tax purposes. Whether in fact a miner is carrying on a business is a question of
fact to be determined according to the circumstances of each particular case. As indicated in 4.2(a), it very
much depends upon the nature, extent, and manner of the activities undertaken by the miner, e.g. the level
of investment in the activities, whether or not there is an intention to make a profit from the activities, the
size and scale of the operations, etc. But, it is likely that a miner that carries on an enterprise for GST
purposes would also be carrying on a business for income-tax purposes.

(a) Carrying on a hobby

Where the mining activities are not carried on as a business but rather as a hobby, any bitcoins that are
awarded to the miner as a result of its mining activities will not be income under ordinary concepts and
thus, not assessable income. [4]

(b) Carrying on a business and trading stock

Where a miner is carrying on a business, it is likely that the scope of the business would encompass both
the mining and trading of bitcoins. In such a case, the bitcoins generated from mining and acquired from
trading will be treated as trading stock of the business.

“Trading stock” is broadly defined in section 70–10(1) of the ITAA 1997 to include:

( a) anything produced, manufactured or acquired that is held for the purposes of manufacture, sale or
exchange in the ordinary course of a *business; and

(b) *livestock.

The term “anything” is not defined in the ITAA 1936 or ITAA 1997, and therefore takes its ordinary meaning
taking into account the legislative context in which the term is used. According to the Macquarie Dictionary,
the term “anything” is defined as:

a pronoun 1; anything whatever; something, no matter what.

a noun 2; a thing of any kind.

an adverb 3; in any degree; to any extent. […]

Notwithstanding the above, it is understood that the Commissioner may be of the view that the ordinary
meaning of the term “anything” when considered in its legislative context has a narrower meaning that the
dictionary definition of the term. That is, throughout Division 70, trading stock is referred to as something
that a taxpayer “holds” or has “on hand”. From this, the Commissioner considers that the legislative context
is one which is referring to a thing that is capable of ownership, being some form of property. In this case,
Bitcoin is money (in the form of intangible property) and thus capable of ownership (refer discussion at 1.4).

Bitcoins that are mined and traded are held for the purpose of sale or exchange in the ordinary course of
the miner’s business. On the basis that none of the exclusions in section 70–10(2) apply to bitcoins, there
does not appear to be any reason why bitcoins cannot fall within the scope of “trading stock” as defined in
section 70–10(1).

The implications of treating bitcoins as trading stock for income-tax purposes are as follows:

the cost of mining and acquiring bitcoins is deductible under section 8–1 of the ITAA 1997;
the value of all bitcoins on hand at the beginning of the income year, and all bitcoins on hand at the
end of the income year must be taken into account in ascertaining the taxable income of the taxpayer
if any business is carried on by the taxpayer. The tax effect of taking bitcoins on hand into account is as
follows:

(i) If the value of all Bitcoins on hand at the end of the income year exceeds the value of all Bitcoins on hand
at the beginning of that year, the assessable income of the taxpayer includes the amount of the excess; [5]

(ii) if the value of all Bitcoins on hand at the beginning of the income year exceeds the value of all bitcoins
on hand at the end of that year, the amount of the excess is deductible; [6] and

(iii) the value of bitcoins on hand at the end of the income year becomes the value of Bitcoins on hand at
the beginning of the next income year. [7] If an item’s closing value in the previous year was not taken into
account at all, the item’s opening value is nil. [8]
At the end of an income year, a taxpayer will be required under section 70–45(1) of the ITAA 1997 to value
each bitcoin on hand at either cost value, market selling value, or replacement value.

If a bitcoin is purchased in a foreign currency, that amount must be translated into Australian dollars in
accordance with the rules in Division 960 of the ITAA 1997. If a bitcoin on hand at the end of an income year
is valued at cost, the value is translated at the exchange rate prevailing at the time when the bitcoin
became stock on hand. [9] If a Bitcoin is valued at market selling value or replacement value, the value is
translated at the exchange rate prevailing at the end of the income year. [10]

Furthermore, any expenditure incurred in relation to mining activities (that is not of a capital nature) may
be an allowable deduction under section 8–1 of the ITAA 1997. If such expenditure is of a capital nature, then
the capital allowance provisions in Division 40 of the ITAA 1997 may apply.

1.3 Holding bitcoin

The income tax implications of holding Bitcoin are considered in the context of the activities and specific
tax provisions discussed.

1.4 Using bitcoin

(a) Using bitcoin for payment of goods and services
Where bitcoins are used for the payment of goods and services, an amount on account of the bitcoins
received would be included in assessable income of the party receiving payment.

Conversely, a general deduction may be allowable for the party providing the bitcoins as consideration
under section 8–1 of the ITAA 1997. More specifically, section 8–1 provides that a taxpayer can deduct from
assessable income any loss and outgoing to the extent that:

it is incurred in gaining or producing assessable income; or

it is necessarily incurred in carrying on a business for the purposes of gaining or producing assessable
income.

However, a taxpayer cannot deduct a loss or outgoing under section 8–1 to the extent that:

it is a loss or outgoing of capital or of a capital nature;

it is a loss or outgoing of a private or domestic nature;
it is incurred in relation to gaining or producing exempt income or non-assessable non-exempt
income; or
a provision of the ITAA97 prevents it from being deductible.

Whether or not a taxpayer is entitled to claim a deduction for the bitcoins used in the acquisition of goods
and/or services will therefore depend upon the nature of the goods and/or services acquired and whether
they have a sufficient nexus to the production of assessable income.

As the use of bitcoins to acquire goods and/or services involves the disposal of a CGT asset, there may be
CGT consequences. These are discussed in further detail below.

(b) Buying and selling bitcoin

The income tax and CGT implications associated with trading bitcoins depend upon whether the activities
of buying and selling Bitcoin undertaken by the taxpayer constitute a business, and the nature of the
business.

Where the buying and selling of bitcoins is carried on as a business of a bitcoin trader:

the bitcoins generated from mining and acquired from trading will be treated as trading stock of the
business. The income tax consequences of treating bitcoin as trading stock were previously addressed
in 5.2(b);
any gains made in trading would be included as ordinary income of the business. Further, any losses
 made in trading would be generally be allowable as a deduction.

However, where of bitcoins are acquired as a capital investment (e.g. as a speculative investment), outside
the course of a business (e.g. as a hobby) or as part of an isolated transaction, the disposal of the Bitcoins
may also give to a CGT event, in particular CGT event A1.

Pursuant to section 104–10(1) of the ITAA 1997, CGT event A1 occurs if a taxpayer “disposes” of a CGT asset.

The term “CGT asset” is widely defined in section 108–5(1) of the ITAA 1997 to mean:

(a) any kind of property; or

(b) a legal or equitable right that is not property.

The term “property” takes its ordinary meaning, but the essential legal characteristic of property is
something that can be owned or possessed, or of which an interest can be held. Accordingly, the ownership
of “property” can be transferred, assigned, or alienated. The term can include real and personal property, as
well as intangible property in the form of choses in action. Being money, Bitcoin is intangible property that
is capable of being owned. As Bitcoin does not fall within any of the exclusion in section 108–5(2) of the ITAA
1997, it qualifies as a CGT asset, as defined in section 108–5(1).

For the purposes of CGT event A1, a disposal occurs if there is a change of ownership from the taxpayer to
another entity, whether the change of ownership occurs because of the happening of a specific act or
event, or by operation of law.[11] The event is taken to occur when any contract for the disposal is entered
into or, if there is no contract, when the change of ownership occurs.[12]

A capital gain arises of the capital proceeds from the disposal are more than the asset’s cost base. [13] A
capital loss arises if the capital proceeds from the disposal are less than the asset’s reduced cost base. [14]

Thus, to the extent that a net capital gain or loss arises from buying and selling Bitcoin, such gain or loss
would need to be taken into account in the taxpayer’s assessable income.

Furthermore, section 118–20 generally provides that capital gains will be reduced or eliminated to the extent
to which other taxing provisions also include an amount in the taxpayer’s assessable income (e.g. sections
6–5 or 15–15 of the ITAA 1997) or exempt income as a result of a CGT event occurring.

1.5 Foreign exchange issues

(a) Conversion / translation of bitcoin amounts
Section 960–50 of the ITAA 1997 states that an amount in “foreign currency” is to be translated into
Australian currency.

As discussed, “foreign currency” is simply defined as “a currency other than Australian currency ”, and
Bitcoin arguably already meets that definition (being arguably a “currency” other than the Australian dollar).

In any case, an amount expressed in bitcoin would not meet the requirement in section 960–50 as it is not
expressed in Australian dollars, and in order to calculate any Australian income tax liability (e.g. arising from
the transactions considered above) in respect of bitcoin it is necessary to undertake translation.

As such, in order to satisfy this requirement and be consistent with the position proposed on the issue from
a GST perspective, it is proposed that an amount expressed in bitcoin may be converted into Australian
currency based upon the rules in Subdivision 960-C of the ITAA 1997.

There is no reason why the rates quoted by Bitcoin Exchanges or foreign exchange service providers such
as XE and Oanda cannot be used to convert Bitcoin to Australian currency for this purpose (whether as a
commercial exchange rate or a rate agreed between the transacting parties). Further, as discussed, it is
likely that a transaction in bitcoin will already reflect a pre-determined rate against the Australian currency.

(b) “Foreign currency” gains and losses

Division 775 of the ITAA 1997 provides that a taxpayer’s assessable income includes “forex realisation gains”
and “forex realisation losses” arising from “forex realisation events”. Forex realisation events include CGT
event A1 in the context of “foreign currency” (forex realisation event 1) and cessation of rights and obligations
to pay or receive “foreign currency” (forex realisation events 2 to 5).

The relevant forex realisation gain or forex realisation loss is described in the applicable forex realisation
event. But such gain or loss is only made to the extent that it is attributable to a “currency exchange rate
effect.” [15] Further, Division 775 does not provide for double taxation or double deductions. [16]

If bitcoin is “foreign currency”, then “realised” gains and losses would need to be included in assessable
income of the taxpayer under Division 775 (or perhaps Division 230 of the ITAA 1997 — refer discussion
below).

Prima facie, the forex realisation events in Division 775 would seem to have general application to all
taxpayers using bitcoin or accepting bitcoin as payment — irrespective of whether or not they trade bitcoin
on a bitcoin exchange. However, the mere holding of bitcoin in isolation of any transaction would not fall
within a forex realisation event.

Given the volatility of bitcoin rates against the Australian dollar (as a real world currency), there is potential
for significant forex realisation gains or losses arising in respect of transactions undertaken using bitcoin.

1.6 Taxation of Financial Arrangements (TOFA)

The TOFA rules in Division 230 of the ITAA 1997 provide for the tax treatment of gains and losses arising from
“financial arrangements” in priority to other provisions of the Tax Acts (e.g. the trading stock provisions in
Division 70 of the ITAA 1997). In summary, the TOFA rules have the effect of bringing gains or losses
(including unrealised gains or losses) from a financial arrangement to revenue account.

As a general proposition, the TOFA rules only have mandatory application to large taxpayers (e.g. taxpayers
with “aggregated turnover” exceeding $100 m) and not to individuals.[17] But, a taxpayer can elect that the
TOFA rules apply to all its financial arrangements.

In and of itself, bitcoin would not be a financial arrangement within the general meaning in TOFA rules[18],
as it is not an “arrangement” — although the underlying transactions in respect of which bitcoin is utilised
may involve a financial arrangement. It is beyond the scope of this paper to consider any such underlying
transactions from a TOFA perspective.

However, section 230–530 of the ITAA 1997 provides that the TOFA rules also apply to “foreign currency” as if
the currency “were a right that constituted a financial arrangement.”

This means that if Bitcoin falls within the meaning of “foreign currency” in section 995–1 of the ITAA 1997,
bitcoin will be deemed to be a “financial arrangement” and potentially subject to the TOFA rules, depending
upon the circumstances of the taxpayer.

Where applicable to a taxpayer, gains or losses from Bitcoin (i.e. as “foreign currency”) would need to be
calculated and included in assessable income in accordance with the TOFA rules (rather than the rules in
Division 775 of the ITAA 1997) — this would be the case irrespective of whether or not the taxpayer is trading
bitcoin on a bitcoin exchange, and would include any unrealised gains or losses from holding bitcoin.

Notes:
[1] section 6–1(1) of the ITAA 1997.

[2] section 6–5 of the ITAA 1997.

[3] section 6–10 of the ITAA 1997.

[4] Evans v FC of T (1989) 20 ATR 922, which held that the taxpayer was not a professional punter as his
gambling lacked the essential element of system or organisation.
[5] section 70–35(2) of the ITAA 1997.

[6] section 70–35(3) of the ITAA 1997.

[7] section 70–40(1) of the ITAA 1997.

[8] section 70–40(2) of the ITAA 1997.

[9] item 3, section 960–50(6) of the ITAA 1997.

[10] item 4, section 960–50(6) of the ITAA 1997.

[11] section 104–10(2) of the ITAA 1997.

[12] section 104–10(3) of the ITAA 1997.

[13] section 104–10(4) of the ITAA 1997.

[14] section 104–10(4) of the ITAA 1997.

[15] As defined in section 775–105 of the ITAA 1997 — in short, being exchange rate fluctuations or differences
between agreed or applicable exchange rates.

[16] Sections 775–15(4) and 775–30(4) of the ITAA 1997.

[17] Section 230–5 of the ITAA 1997.

[18] Section 230–45 of the ITAA 1997.

True Sale and Insolvency Challenges in ICO Token Sales
By Craig Wright | 31 Oct 2018 | Alternative Coins & Systems
In the English law, “true sale” incorporates the securitisation structures around existing receivables in two
forms. We first have to address the risk that the purported sale would be re-characterised as a loan secured
by a mortgage of the receivables. Here the resulting “security” is void for want of registration. Next, we need
to consider the risk that a court would set aside any ICO sale under one of the numerous grounds of
challenging antecedent transactions under the Insolvency Act[1].

A party to a transaction made in the ICO could raise a challenge to a sale of a token, the grounds of the
challenge being that a transaction as an English-law securitisation forms a transaction at an undervalue[2].

We would look to Re. George Inglefeld, Ltd . as an example of re-characterisation risk. This case was
considered and applied by the Court of Appeal in Welsh Development Agency V. Export Finance Co., Ltd.
(the Ex Finco case ). The court found that a transfer constituted a sale rather than the incurring of a debt
and the grant of a mortgage or another associated security interest[3].

In Re George Inglefield, Ltd , Romer LJ prescribed three indicia that may be used to distinguish a sale
transaction from a mortgage or charge:

First, in a sale transaction, the vendor is not entitled to get back the subject matter of the sale by returning
to the purchaser the money that has passed between them. In the case of a mortgage or charge, the
mortgagor is entitled (until he has been foreclosed) to get back the subject matter of the mortgage or
charge by returning to the mortgagee the money that has passed between them.

Second, if a mortgagee realises the mortgaged property for a sum that is insufficient to repay him, the
mortgagee is entitled to recover from the mortgagor any balance, whereas in a sale and purchase contract
the purchaser has to bear any loss suffered on a subsequent sale of the asset by him.

Third, if a mortgagee realises the subject matter of the mortgage for a sum more than sufficient to repay
(together with interest and costs), the money that has passed between him and the mortgagor, he has to
account to the mortgagor for any surplus. Whereas, in a sale and purchase contract, any profit realised by
the purchaser is for the purchaser’s account.

(Re George Inglefield, Ltd., supra note 11, at 539)

The Exfinco case is authority with regards to the proposition that a transaction structured by the parties as
a sale will be upheld as such for the purposes of the registration of company charges provisions of the UK
Companies Act unless:

1. The transaction is in a substance of a mortgage arrangement and not a sale.

2. The transaction is a “sham” [4]

With respect to condition (1), where one or more provisions of the documentation associated with a token is
inconsistent with a sale of goods or services (as purported as the function of a utility token), the court will
refer to the provisions of the contract and whitepaper and attached conditions of the ICO token as a whole
in order to determine the substance of any sale.

No part of the indicia of a mortgage that was identified by Romer LJ in Re George Inglefield Ltd. is by
necessity inconsistent with the nature of a sale agreement. A transaction that is structured as a sale may be
upheld as such notwithstanding its bearing all three of these indicia.

The material risk of such a re-characterisation of a purported sale as a security arrangement remains within
the purview of the court.

This is of particular note and concern where the recourse to the seller is not any particular cause for
concern.

More importantly, where an ICO offer is concerned, the court will find the transaction to be a sham where
the documents (including the ICO whitepaper and website, and the capital raising and offer material) do
not represent both the intentions of the parties as a sale of goods or services and where the stated purpose
of the ICO token creation is to raise funds rather than to provide a path to the delivery of the sale.

It is clear, where an organisation or firm in an ICO has pivoted or altered the course of the firm, that the
intention was not for the provisions of the sale. Further, the promotions of a token for use in exchange leads
strongly to reject the assertion that the token has been developed for the purpose of a sale.

The risk is also that a court may see the ICO transaction as a secured-funding arrangement and import a
charge.

As a capital-raising exercise the token exists as an unregistered security that ought to have been registered
under the Companies Act.[5]

The other challenges of a true-sale context (such as undervalue or other grounds) are generally not
considered to be problematic in the context of an English-law securitisation structure. That said, the use of
an ICO as a capital-raising vehicle opens many of these challenges and paths to the court.

A sale of a token that subsequently drops on market could be used as a justification for undervalue. This
aspect is generally taken in the context of the transaction as a whole with reference to not only the sale
document but also websites, promotional material, and the whitepaper, as well as any social media touting
and the market performance.

This opens an opportunity to allow the court to refer to any deferred consideration and related profit
extraction devices that the ICO firm has employed. Such a device would generally have the parties to the
transaction or a number of a related group receiving consideration where the value of the token sale is
wildly fluctuating from a purported value to market on the promoted sale.

There are other provisions for an undervalue challenge.

1. The seller was not insolvent at the time as a consequence of the sale.
2. The seller of the arrangement entered into the transaction in good faith and for the purpose of
conducting business.
3. There is a reasonable ground for asserting a belief that the transaction would benefit the seller of the
token.
Other grounds

A transaction that defrauds the creditors, that is the token purchaser would bring their own challenges.[6]

Footnotes
[1] Insolvency Act, 1986, c.45 § 238 (Eng); see: “Adjustment of prior transaction”.

[2] Id. § 238.

[3] Re. George Inglefield, ltd., 48 T.L. R. 536, 539 (C.A 1932).

See also: Welsh Dev. Agency Export Fin. Co., 1992 BCLC 148, 1992 BCC 270 (C.A. 1991) (Lexis, Engen Library,
Cases File).

[4] Companies Act, 1985, c, 6, § 295 (Eng.).

[5] Id.

[6] Insolvency Act, 1986, c. 45 § 423 (Eng.).

Bitcoin as the Base layer
By Craig Wright | 01 Nov 2018 | Bitcoin & Blockchain Tech
Many people have seen IPv6 as a simple addressing extension to the existing Internet and see few changes
to the way we secure systems. These people cannot be further from the truth. IPv6 will change the way we
think about security. We need to start planning now or we will be left in the dust.
This is another topic I will be addressing in the coming weeks and months (so many security topics, so little
time).

IPv6 substantially changes how IP interacts with the link layer, in particular Ethernet. ARP will go away and
be replaced by NDP, which is ICMPv6 based, and we also need to look to protocols such as SEND to secure
NDP, or we will fall prey to the same class of attacks we faced in IPv4 over hub shared networks (and for
that matter now in the world of wireless).

I will explain what SEND and NDP are in the next couple of posts this week. For now, I ask you to trust me
when I say they are important.

First, I will discuss a couple of issues that we really need to start planning for. IPv6 has been around for a
long time (15 plus years is a long time in IT), but it is only just starting to be widely deployed. The issues we
will face need to be addressed now, or we will discover holes in our networks and systems, and these will be
exploited before we even note that they are a concern.

Many of the issues in security and risk are really about managing problems before they grow to large. IPv6 is
just this, a potential issue and a potential benefit. How we manage it determines the outcome.

IPv6 Improvements
There are many improvements to IPv6 when considered against IPv4. Some of the commonly noted ones
include:

Expanded address space.

Extended routing (more levels of addressing hierarchy, simple auto-configuration of addresses).
Improved scalability of multicast routing.
Simplified header (lesser header fields compared to IPv4 to lower processing costs, dropped header
fields are now available as optional extension headers).
Support for optional extension headers (allows for faster processing because extension headers are not
 examined by routers, allows for arbitrary length of IPv6 header).
Support for authentication and privacy through encryption.
Support for source routes (Source Demand Routing Protocol (SDRP)).
Quality of service capabilities.

There are also some less commonly discussed security enhancements that we will cover in the forthcoming
posts:

New privacy-extended IPv6-addresses generated CGA (cryptographically generated addresses)

1. maintain privacy
2. where accountability is possible by link administrators

New: host ID can be used as a token to access to a network.

For today, we will discuss a couple of topics that many people have overlooked.

IPv6 and scanning

The new addressing scheme being implemented with IPv6 implies that the number of available and
allocated addresses is REALLY big. So big that the existing methods of brute force / random scanning make
no sense [RFC5157].

There are ways to discover hosts… but they are not based on random scanning any more.
The typical IP/v6 network is issued with a (/64) CIDR. This is why scanning is in practice much less feasible.
Also automated attacks, e.g. network worms that pick random host addresses to propagate to, are going to
be hampered. When there are 1.84467+19 (this is 1.8 with 19 zeros) host addresses, finding a host in an IPv6
network is 10 billion times more difficult than scanning the entire deployed IPv4 Internet!

Worse, even if we could, it would either end as a DDoS or detection very quickly. From this, we can see that
random scanning network worms will not be feasible. They have been disappearing in any event, but IPv6
spells the end of the random scanning worm.

In IPv6, every subnet size is much larger. As noted, default subnets in IPv6 have 2⁶⁴ addresses. Exhaustive
scan on every address on a subnet is no longer reasonable (1,000,000 address per second mean > 500,000
years to scan), and even NMAP support for IPv6 network scanning is limited.
Worse, the new privacy extended CGA IPv6 addresses are regenerated faster than they can be scanned. We
will cover this in coming posts.

IPv6 scanning methods HAVE to change.

Public servers will still need to be DNS reachable giving some attacker hosts to attack. As such, DNS will
become even more of a target than it ever has been. Not only is DNS an attack vector, it is one of the few
means to recon hosts. DNSSec is critical now.

Zone transfer and interception attacks will be more and more common when IPv6 starts to be widely
deployed. It is one of the simplest methods of discovering hosts. It is about time we start to deny DNS zone
transfers! DNS splitting is more important than ever with IPv6.

The next issue is human as always. Administrators may adopt easy-to-remember addresses (::1,::2,::53, or
simply IPv4 last octet) to simplify management as they did with IPv4. This is a bad approach. In IPv6 we
need to start using the multicast registration controls, and learn to manage systems by their multicast
groups.

Other unthought-of scanning methodologies will come, as EUI-64 address has “fixed part” and the Ethernet
card vendors address (the MAC) can be guessed. The 48 bits in a MAC are not random, and the pool of
numbers in this are far smaller than the implied 2⁴⁸ bits.

This also means we will find new techniques to harvest addresses being developed by attackers. Addresses
can be harvested from logs and DNS zones, and these will become the target of attacks in their own right.
Further, in compromising routers at key transit points in a network, an attacker can learn new addresses to
scan. The difficult part of scanning in IPv6 is finding the host. Once the host is discovered, it can be attacked
as normal (with some exceptions based on mobility controls).

The multicast groups also great a target. A new attack vector is created in order to discover routers; then we
look at multicast groups such as “All node/router …. addresses”. IPv6 supports new multicast addresses that
can enable an attacker to identify key resources on a network and attack them. For example,

all nodes (FF02::1),

all routers (FF05::2), and
all DHCP servers (FF05::5).

If multicasts are not secured, the attacker can recon a network and bypass the need to discover hosts the
hard way. As a result, it is really important that these addresses are filtered at the border in order to make
them unreachable from the outside. This should be set as a default if no IPv6 multicasting is enabled. The
difficulty here is that IPv6 creates diffused networks.

Firewalls will also change in radical ways.

The death of SSL

Next, there is one area I have seen very little (if anything) on so far. This is how IPv6 will destroy the notion of
application-based security.

I will address this in more depth tomorrow, but the thing to think about is that IPv6 has mandatory support
for IPv6 and a cryptographically based host-identification and authorisation scheme.

This makes SSL, TLS, and other protocol redundant.

More, application-layer encryption is based on the encryption stack in the application. Each time we re-
deploy the same crypto requirements over and over, we add more avenues for mistakes. Crypto is hard. If
we can do it once in the O/S and not at each layer, we all win.

The conclusion…. for today

Basically, IPv6 can make us more secure, but only if we do it right. Web attacks will not go away, and NULL
(or 0-bit encryption cyphers) can still be deployed by unobservant administrators, but there is a way forward
if we start planning now.
Tax and Bitcoin — Investment in Bitcoin
By Craig Wright | 01 Nov 2018 | Bitcoin & Blockchain Tech
Investment in Bitcoin should be treated as any other investment in an emolument, “ which could be
converted into money might reasonably be regarded as money ”, and taxed under the same provisions.

1.1 Mining Bitcoin

Bitcoin mining is a competitive business. Mining only makes sense when done very efficiently and for a
profit. Mining contracts are sold, and are used in securing the network.

In Steele v DFC of T (1999) 41 ATR 139 it was held that the expenses were to be treated as allowable
deductions, if the taxpayer could satisfy the element that he had the objective of deriving income in the
future (i.e. in this instance it would be from the mining of Bitcoin). If a “miner” seeks to engage in a business
of mining Bitcoin for profit, the expenses directly related to that enterprise should be deductible as a
business deduction.

In FCT v Finn (1961) 106 CLR 60 Dixon CJ stated:

When the forgoing elements are considered in conjunction, they do seem to form a firm foundation for the
conclusion that the expenditure was in gaining or producing assessable income.

It is our submission that the same rule applies to Bitcoin-based transactions.

1.2 Trading in Bitcoin

The trading in Bitcoin is analogous to foreign exchange trading, and should be taxed under the same
provisions. This includes capital gains and provisions such as ITAA97 s 775–30 and the issues decided in TC of
T v Munro (1926) 38 CLR 153 .

1.3 ITAA97 Section 26BB: Gains on Disposal of Traditional

Securities
Where a taxpayer carries on a business that involves dealing in securities, gains made on the realisation of
the securities are of an income nature, assessable under ITAA97 s 6–5 . Similarly, in the case of financial
intermediaries, commercial houses, or insurance companies gains made in the reorganisation of
investments or even the shifting of investment activity to a subsidiary are likely to be income in nature. In
the hands of dealers in securities and shares, the items are trading stock.

Section 26BB applies to ‘traditional securities’ being bonds, debentures, etc, but not securities to which Div
16E applies, and not shares or trading stock. In effect, a traditional security is any instrument that is not a
qualifying security. It follows that s 26BB applies to gains made on the disposal of securities that do not have
an ‘eligible return’, or if the return is less than the 1.5% benchmark. Its effect is to assess any gain realised
upon redemption.
IPv6 with CGA and Bitcoin
By Craig Wright | 02 Nov 2018 | Bitcoin & Blockchain Tech
A CGA [ RFC3972 ] is an IPv6 address, which is bound with the public key of the host where the protection can
work via either certificate or local configuration. Manual keying is difficult and not recommended though.

Using CGA we can ensure that the sender of an NDP (Neighbour Discovery Protocol) message is the owner of
the claimed address. Before claiming an address, each node generates a public/private key pair, and the CGA
option verifies this key. This can be used in reducing the success of several NDP attacks that exist.

SEND (Secure Neighbour Discovery) protocol provisions also allow us to defend against many NDP attacks,
but as yet SEND is not widely deployed.

In the most common configuration of CGA, 62 bits are used to store the cryptographic hash of a public key.
Here, the host ID = HASH62(public_key). We can see the inputs to the hash in the diagram below.

The capability to embed a security parameter “ sec ” in the two rightmost bits of an 128-bit Ipv6 address
allows the the hash length to be increased in order to improve the security of the mechanism.

In this case, the CGA will have the 64 + 20 x sec rightmost bits of the hash value equal the concatenation of 20
x sec zero bits and the interface identifier of the address. While comparing, the two rightmost bits and the
universal and group bits are ignored.
Tax and Bitcoin — Transacting and accounting for Bitcoin
By Craig Wright | 02 Nov 2018 | Bitcoin & Blockchain Tech
Just as with all income and capital taxation issues, Bitcoin-based transactions require that suitable record-
keeping practices are adhered to.

Bitcoin transactions are public, and a permanent copy of the transaction is reported in the blockchain and
can be viewed publically. The addresses associated with these transactions should be recorded; this would
be in a format that could include:

• Payer Bitcoin address

• Payer TFN, ABN, or other identifying information

• Payee Bitcoin address

• Payee TFN, ABN, or other identifying information

• Bitcoin transaction ID

An example transaction is linked below:

http://blockchain.info/tx/a508436f5cdf9904ca3f14daef6a83721500782d1ff50fbcba2fa2bf2e11c10e

The transaction ID is:

a508436f5cdf9904ca3f14daef6a83721500782d1ff50fbcba2fa2bf2e11c10e

This is a unique number that records the particular transaction into the journal (the blockchain).

In this example, the Bitcoin address

1ASWXajvWGgpDbHTWqtJ1kYR8tChvVpXwy

has transacted in 29.9999 bitcoins at a market rate of $2,049.00 at the time the transaction was completed.
These bitcoins have been transferred to the following address:

1CmdM12H1AHyzgwhGM2RQFVWYoKRCX6y47

(at $ 2,049.00).

We propose that a business records the address it is sending and receiving from/to and also records the
transaction ID. This could be used as a record of the transaction. Coupled with the market rate for bitcoin in
$AUD, the business could submit a tax invoice based on the transaction.

This is an example of a real Bitcoin transaction. In this case, the transaction is public, but the payer and
payee are not disclosed publically. In this example, the recording of the sender and payer addresses would
allow tracking of the transactions against a tax invoice.

1.1 Trading
The records kept might include the same information that appears on a stock or forex brokerage statement:
“date of trade, description of trade, qty & price, and fees.”

1.2 Mining
Depending on how the revenue is to be treated, you may need to know when the bitcoin proceeds were
attained. The information of all expenses associated with mining needs to be recorded. This would be in
concord with normal business accounting practices and record keeping.

1.3 Commerce
Regardless of how revenue is recognized for goods and services whose payment is made using bitcoins, the
record-keeping requirements are likely to be the same:

Reference to sales (e.g. cust # / invoice #),

amount received (in bitcoins), and
date.

If GST is payable, then for that purpose documentation might include a calculated on a weighted average
based exchange rate that existed at the time of sale.

1.4 Payroll
Employers sending bitcoins as compensation could record all calculations in the functional currency (e.g.,
AUDs), and then after all withholding amounts are subtracted the net amount of the check is paid out in
bitcoins based on the market exchange rate at the time. The exchange rate value could be recorded with
the transaction ID and proof of payment.

2. Conclusion
It is submitted that bitcoin is “money” within the ordinary meaning, and should be treated as money for tax
purposes. This paper presents the factual and legal support for this treatment.

Treating bitcoin as money for tax purposes will provide not only certainty to taxpayers, but also simpler and
clearer application of tax laws. Such treatment would also result in consistent tax treatment of real-world
transactions irrespective of the form of money or currency used, and hence consistent treatment across
taxpayers.

The resolution of governments’ tax treatment of Bitcoin is vital to the growth of the Bitcoin industry in their
borders, and the opportunity it presents to their economy.
The Legacy of Keynesian Money
By Craig Wright | 02 Nov 2018 | Economics
Central governments are and remain a net supplier of macroeconomic instability. This is a direct result of
the institutions and policy tools created to conform to a Keynesian vision. These are now a fundamental
portion of our economic and political environs.

For Keynesians, the complete commercial sector is questioned in the position of only two classes of goods:

1. consumption goods and

2. investment goods.

It is simple of course to ignore the distributions of prices within these two classes. Having studied Bayesian
statistics and having my masters in statistics with respect to the problem of homogeneity of variance
measurements, I can state that this is a huge flaw. Comparing two means with similar values but hugely
different variances is a mathematical and logical flaw — one Keynes decided to overlook when it was noted
by Hayek.

The shoddier logic than this from Keynes comes from price equilibria; here one relative price that is
engaged in this formulation. This involves the relative value of consumer goods with respect to investment
goods as articulated by the interest rate. This calculation is based on an assumption where it can either not
function and fail or function aberrantly — an assumption not based on quantitative data available even at
the time.

Of course, the notion of scarcity is missing from Keyne’s philosophy. The trade-off between generating
consumption goods and constructing investment goods is an often overlooked foundation of reality. We
have limits. We can only do one thing, at the expense of another.
In all cases, the manufacture of a greater amount of plant and equipment — capital ALWAYS has to be
facilitated through an increase in net savings. These savings are obtained through a decrease in current
consumption. The US has lived on the savings of other nations for many years through a Fed policy of
unnaturally low interest rates. There is always a need to pay the piper eventually.

Keynesian aggregates serve to conceal these very mechanisms. Keynes simply swept away the impression
of any trade-off between consumption and investment. The problem is, though, his formulation was
elegant, it had little correlation to reality. We live in a universe of limits. Like it or not, all things are made at
the expense of an alternative. Liberal views that ALL PEOPLE SHOULD HAVE EVERYTHING MEAN LITTLE;
THERE ARE LIMITS AND NO AMOUNT OF POLITICAL HOT AIR CAN ALTER THIS FACT. Welcome to the real
world.

William H. Hutt, when calling the theory a “theory of idle resources”, and F. A. Hayek, in stating the
underlying foundation of Keynesian-ism to be an “economics of abundance”, hit the nail on the head. The
problem is not a world of abundance, but one of scarcity. This is the foundation of economics.
The set of reciprocally supporting but mutually unsupportable proposals concerning the relationship of how
selected macroeconomic aggregates are related to one another is unsupported in reality for all the
elegance of the theory. Keynesian policy is this set of self-justifying policy prescriptions.
Exporting Wealth
By Craig Wright | 03 Nov 2018 | Economics
Let us investigate a centralised push to “export agriculture and industrial products, reverting to tangible
goods production”, as is suggested from time to time.

Most of the growth in the last 25 plus years has been focussed on the knowledge sectors — far from being
“tangible”. The simple answer is to look at what people want. This, of course, is far more complex, and
dynamical response systems and chaotic feedback make models from a static equilibrium fail (in all cases).

What do we central-push — as this is the only answer to this model, a centralised non-market distribution.
Markets drive agriculture. If this is centralised (more than it is), decisions are driven from the place of most
knowledge to that of the least (the central planner).

Let us look at this in a simple model. Govt moves the economy towards a tangible agricultural focus on
wheat production. Let us say that the aim and goal is to double US national production.

This will require subsidisation and taxation. The international response as a negative feedback is opposing
trade tariffs (everyone loses here already).

Achieving this goal of doubling food production in the short term will require moving people from more
productive sectors of the economy to agriculture — a less productive sector. If this was more productive, it
would not require central intervention to make people move towards it (in place of moving out of this
sector as is the case).

There are a few ways to double the amount of wheat; some of these are:

1. Double the area of productive area in land needed to double the output using existing technologies
2. Increase monocultural GM-based cropping on all existing land, and also expand the productive area
3. Replace land used to produce other crops (i.e. soy, sorghum, etc.) with wheat

First #2. This is problematic as it does cause decreased sales in the EU and many other areas. People who
object to GM foods have to be forced to eat GM wheat — like it or not.

Next #3. Again, we have to move people from a choice of what they actually wanted to have as a food
source to what we have decided they will have. This will also reduce demand, and hence the results will not
be achieved without importing other foods — ones which where once grown less expensively within one’s
own borders.

Then #1. Doubling productive output is not the same as simply doubling land. All productive land that has
the ability to produce at the given price is already being used. An additional unit of output of wheat
requires a greater amount of input than all existing inputs.

That is, doubling output in wheat can only be achieved using FAR more than double the land required to
make the marginal returns on the initial parcel, and requiring far more input of other sources. This includes
increased labour (less productive land is more labour-intensive). The use of oil resources (fertiliser,
equipment fueling, etc.) all increase significantly over each marginally productive point that could produce
efficiently before.

This still requires a market for our now more expensive wheat.

With a doubling of US wheat supply, the international price of wheat diminishes (wheat is fungible as are
most agricultural and industrial products). International markets cannot be forced to accept US wheat at
exaggerated (or even pre-incremental marginal demand) prices. Hence, the supply increase leads to a
significant decrease in prices.

To sell at this reduced rate government can either buy up the surplus (that is all additional grain or the
entire excess), or can create subsidies for the farmers (which have an additional negative feedback from
international political sources leading to increased instability and increased risk of war or other conflict).

Subsidies come from tax and debt. Govt has to increase both to maintain the subsidies needed to increase
investment in a formerly unwanted sector (more wheat). These taxes come from the more innovative
sections of the economy. This drives down investment in these sectors as rent seekers move to agriculture.

The overall net effect is an increase in tax rates with a diminished national productivity when measured
across all sectors.

As this continues, the level of taxation increases over time in order to maintain the existing subsidies. This
leads to a larger collection function. That is, Federal government departments increase in size to maintain
the enforcement activities. As a higher tax rate is extracted from the diminishing base, more enforcement
activities are required as more people and companies pass a threshold risk level where it becomes more
profitable to attempt to avoid tax (evasion). This is a negative feedback effect with more evasion leading to
increased requirements for tax and government-sector growth. This in turn leads to an increased propensity
to evade…

As the requirements to subsidize are maintained, the impact of the increased taxation moves into
progressively less innovative areas and cause these to become unprofitable. Investment moves from these
towards those which still maintain some level of marginal productivity. As investment flows away from
these industries, they close. This continues to diminish the tax intake requiring additional tax increases to be
enforced to maintain the subsidies.

This process continues as the economy withers and the tax base decreases, and we have ultimately
exaggerated the problem that we sought to fix.

Hence the problem with central planning. Knowledge is not simply expertise. It is the sum total of all people
invoiced within the economy, and to think that any central plan can match this is insane. Socialism does not
work, and central planning is the foundation of such.

The economy is self-repairing when others do not expect to help it by poking here and cutting there to see
what may occur.

“Moreover, stimulus packages, if they are big enough, will also stave off recession inasmuch as […] the
money withdrawn from the economy through the deleveraging process is replaced by government.”

All stimulus increases central planning. It takes from all to provide for a few. The track record here for any
government is dismal. I still do not know of a single case of a stimulus resulting in creating anything more
than rent seeking.

They reduce productivity in the pursuit of building pyramids. As for replacing money, this only occurs in
selective sectors, others actually decline. The overall result in all instances is a lower overall level of
productive returns. This idea, though, is one that Keynes promoted and Samuelson took up to promote
heavily. Both ignored or forgot Frédéric Bastiat’s parable of the broken window (1850).

This is the fallacy with the attack on savings. (This is espoused heavily by Paul Krugman in his neo-
Keynesian view that tax cuts only result in more savings by the rich, and hence result in no additional
benefit to the economy, forgetting that savings are NOT placed under the bed but are re-invested into the
economy…)

Government stimulus crowds out investment. It replaces a stream of net investment with a level of
productivity (taking all sectors of the economy — those losing money and those gaining) with one that is not
productive.

It creates uncertainty as short-term political policy (and there will never be a long-term policy in a
democratic country as this seems to the voter as doing nothing) fluctuates and moves from one policy of
the moment to another. The result: lower investment and less productivity.

Savings are not simply put under the bed. They are the investment base that drives the economy. The
fallacy in the US view of savings is to ignore the input from international sources. US savings have been able
to remain low in the past due to an inflow of international investment into the US.

This is, the US was living off the savings of Japan, China, …

Savings are a good input into any valid economic model. More savings is more capital, and more capital
investment increases productivity. More productivity increases wealth. The size of the pie increases, and
even the poorest members of society and the economy live as if they are rich (when compared to prior
generations).

The Keynesian and neo-Keynesian consumption fallacy needs to be put to rest. The productivity of an
economy is not measured by how many useless plastic goods we distribute in the holidays, but the level of
productivity and capital investment. Both productivity and capital investment are boosted through
increased savings.

Productivity and capital investment lead to increasing wealth, employment, and growth. Savings are a
boon, not an evil to be driven out of society.
The Secure (Bitcoin) Internet
By Craig Wright | 03 Nov 2018 | Bitcoin & Blockchain Tech
We see many sites moving more and more to application-level encryption such that they can protect
the transport of sensitive data.

IPv6 is THE killer application for SSL. Not that SSL needs help, it is flawed .

IPv6 provides support for encryption within the protocol. This is a key differentiator, when we compare
it to IPv4, where encryption was provided by the application. IPSec can be used with IPv4. That said,
IPSec is tacked onto IPv4, whereas it is fundamental to IPv6. The standards require mandatory IPSec
(with all the associated crypto code), it is not just an add-on. IPv6 requires crypto.

On top of that, endpoint authentication is also provided in IPv6, something that was overlooked in
IPv4.

IPv6 does not come even close to solving all the world’s security woes, and nor could a simple protocol
ever attempt to do such. That said, all it needs to do to kill off SSL is to:

1. be as effective as SSL or better,

2. have a wide deployment.

IPv6 will provide the latter point. When IPv6 finally becomes the norm, IPSec will become ubiquitous.
It will be deployed far wider than SSL ever was. Next, it simplifies things for developers. Crypto is
difficult. Developers make mistakes again and again in implementing crypto. The centralised control
and deployment of “network crypto” is a good thing.

As for being as good or better than SSL, well SSL is flawed — it was from the start, and it remains
flawed. This point is moot as it would be difficult to make the protocol worse.

IPSec allows the application to call for authentication separate from encryption for use in situations
where encryption is prohibited or prohibitively expensive. This is, AH headers can provide integrity and
end-point authentication without the overhead of encryption.

For most machines, Intel’s decision to incorporate AES processing into the CPU will greatly alleviate
the costs of encryption. This will of course not completely remove the CPU costs from large e-
commerce websites, but it will make it simpler for the user of such a site.

Now, SSL will have a particularly difficult time with many of the extensions that IPv6 is introducing.
The new privacy extended IPv6-addresses generated CGA (cryptographically generated addresses)
will:
 maintain privacy
add accountability for link administrators

IPv6 will even add a Host ID that can be used as a token to access to a network. The big issue is that
we will expect multiple addresses per node, so “who needs spoofing?”

The combination of multiple IP addresses and CGA makes a difficult time for existing implementations
of SSL. We could determine to try and fix SSL, but the issue here is simply why?

IPv6 has encryption built in. The IPv6 security protocols include:

Authentication Header (AH) [RFC4302] and

Encapsulating Security Payload (ESP) [RFC4303].

These work through Security Associations. What a SA is, and how they work, how they are managed,
associated processing are all defined in [RFC4301].

The death knell for SSL really comes as the algorithms for authentication and encryption in IPv6 are
defined as being mandatory. These algorithms are defined for use with AH and ESP in [RFC4835], and
for IKEv2 in [RFC4307]. Basically, IPv6 already has a tunnelling and transport encryption protocol
incorporated that has to be deployed. Why have SSL embedded within IPSec?
AH provides:

integrity.
data-origin authentication.
optional (at the discretion of the receiver) anti-replay features.

IPSec implementations MUST support ESP and MAY support AH.

ESP provides:

integrity.
data-origin authentication.
optional (at the discretion of the receiver) anti-replay features.
confidentiality (NOT recommended without integrity).

On top of this, for each IPSec implementation there is a nominal Security Association Database. The SA
contains much more than I have included below, but this covers some of what is necessary for this
post:

Each entry defines the parameters associated with one SA.

Each SA has an entry in the SAD.
The SPD has pointers to SAD entries, when IPSec have to be used (PROTECT).
Anti-Replay Window: a 64-bit counter and a bit map (or equivalent) used to determine whether an
inbound AH or ESP packet is a replay.
AH Information : authentication algorithms, keys lifetimes, etc.

Now, when you consider as well that [RFC4941] describes an extension to IPv6 stateless address auto
configuration that makes nodes generate global-scope addresses that change over time. We have
multiple addresses per host that move, update change. We see that this standard allows:

The IPv6 addresses on a given interface generated via stateless auto configuration contain the
same interface ID,
occurs regardless of where within the Internet the device connects, and
this facilitates the tracking of individual devices.

Again, why would we bother with SSL?

Once a business starts to see that they have encryption and authentication services at the end-point
and over the layer three level to and from the host and server, they will not bother with the notion of
application-layer security. As such, SSL will become redundant.

Why would a business have both a secure and an open website? Why would they implement separate
controls for email, the web, file sharing, and all other applications they run.

No, simply put, SSL is flawed, but at least we can see a slow death as the uptake of IPv6 replaces the
existing IP stacks host by host.
Coin burning for dummies
By Craig Wright | 04 Nov 2018 | Bitcoin & Blockchain Tech
There is a lot of misunderstanding on how money works. Many in the Bitcoin space think that scarcity of
Bitcoin alone determines the scarcity and price of Bitcoin. This is utterly misguided and wrong.

The total money supply is not only Bitcoin, but all money. If there is a substitute, then this is a part of the
money supply. The scarcity of Bitcoin to price is a function of use.

In economics, this was the issue that Ricardo and Marx never grasped, that is, the diamond/water paradox.
The fact that something is scarce is not enough to make it valuable. There are small vineyards who produce
under 1% of the amount of wine made by Moet and yet, some of these earn under 0.75 Euro a bottle. Clearly,
being scarce does not help increase the price of something that has little use.

This is the issue few understand with money. It is not the fact that a token is scarce, it is the fact that it is in
demand at the margin. For this, it needs use.

Losing bitcoin
The value of money in not as a type of money, but in its use when compared to alternatives. For Bitcoin, this
is fiat, other coins, and more. In this post, I shall limit this, ceteris paribus to a market of only two options.
We will have Bitcoin and WormHole Coin, and start with just Bitcoin.

We have a limit of just under 21 million Bitcoin. The price is determined in the use at market. Where this is
first an issue is that the market is “ Main Street ” and is not “Wall Street”. Speculation adds to the volatility,
and is necessary in any system, but like all things, it is not the entirety and the real value of a system, the
long-term value and liquidity of a system come in use and circulation.

In this, if we have 11 million coins saved, the value to the market comes from the 10 million in active use.
Money measures the demand for goods and services as are available at the time. If the total money supply is
21 million and only 10 million are active, the 11 million have some effect in the fact that these will come into
circulation when the demand changes the rate of exchange such that the savers enter the market and
exchange the money they saved to receive goods and services.

So, taking the 10 million bitcoins in circulation, if 10 million bitcoins buys 10 million ounces of gold (and we
have the 11 million BCH locked up to simplify this explanation in a time-locked savings), we have a set rate
for exchange, all things equal.

Now, let us consider two scenarios.

Senario 1.

We have 1 million bitcoins lost suddenly from the 10 million in active use. This leaves only 9 million bitcoins
that are chasing 10 million ounces of gold.

Originally, we start with a ratio of 1 BCH to 1 ounce XAU (*).

Now, after the loss, we have 9 BCH to 10 ounces XAU. The loss has resulted in the exchange value of Bitcoin
(BCH) increasing, and those who have access to readily exchanged bitcoins have an increase of 11.1% in the
exchange value of bitcoin to gold. The loss of bitcoin from some parties has increased the value of bitcoin
owned.

Senario 2.

We now consider the entire amounts. If the bitcoins in circulation is only as a result of the market, and not
as they are locked and can be moved, then, the increase of value will result in some bitcoin moving from
savings to use.

Let us assume that the holders of 1 million of the 11 million in saved bitcoin now see gold as more valuable.
We now have a value at the margin that will equilbriate to allow a gain of somewhere between >1.00 and
<1.111 times the original example.

The reason for this is that some bitcoin will now seek to realise the gains.

Overall, the loss has a positive impact on the price of bitcoin compared to gold.

Burning bitcoin to another system

In an alternate scenario, we will contrast losing bitcoin with “burning” (*) bitcoin. In this instance, we have
the same amounts of gold and bitcoin with the same ratios. The distinction is that in place of “losing” the
keys and bitcoin, we have a (perceived) “backing” of WHC in an exchange. That is, for every BCH you
exchange, one hundred WHC is provided in a ONE-WAY transaction.

Now, let us reconsider the two scenarios.

1. We have 1 million bitcoins burnt in exchange for 100 million WHC (*) suddenly from the 10 million bitcoins
in active use. This leaves only 9 million bitcoins. However, we also have 100 million WHC used as “money”. As
such, we have 9 million BCH PLUS 100 million WHC that are chasing 10 million ounces of gold. Let us
simplyfy this by calling 100 WHC as 1 WHC*.

Originally, we start with a ration of 1 BCH to 1 ounce XAU(*).

Now, after the “burn”, we have 9 BCH PLUS 1 WHC* to 10 ounces XAU.

The burn has resulted in the exchange value of Bitcoin (BCH) AND WHC* remaining nominally the same.
The entire supply of bitcoin is reduced, BUT the supply of money has not changed, it has simply been
altered to now include a mix of BCH and WHC.

We have 10 units (9 BCH units plus 1 WHC* unit) for each XAU.

The difference is that as we lose BCH, the ability to trade in BCH decreases as the ability to trade in WHC
increases.

2. We now consider the total, and see that as no value has changed, the saved BCH do not matter in the
calculation. Those who hold BCH have gained nothing as WHC slowly (and insidiously) replaces bitcoin with
a PoS (*).

Burning bitcoin in exchange for another token cannot be compared to losing access to keys.

The scam
The scam is that the WHC address is not a true burn address, which itself is bad enough. The WHC address is
a real BCH address that will be able to be “found”, if the initial fraud does not work. This of course could also
be used as an “oh, Bitcoin is not secure, move to WHC sham.”

The primary difference here is that we are assuming a set ratio in the market of WHC. The truth is far
different. Once the quantity of BCH is expended, WHC as a PoS system controlled by Bitmain can simply
issue more WHC. There is no way to stop this, it is not a set and limited system such as Bitcoin is designed to
be.

WHC is in effect digital fiat. Once you have been drawn into the sham, the majority holders (Jihan and crew)
can just add more and more WHC. Users are forced to use WHC in the issue of other tokens and this returns
to… You guessed it, Bitmain.

It is not miner fees now, but a tax to Jihan.

Welcome to the money that Jihan made.

Roger and Jihan are NOT seeking sound hard money, they seek power and control.

Overall scarcity
The scarcity of the system is only one aspect of value. The real determination of value is in use. That is not
HODL and exchange scams, but use as cash, use in a ledger unit, and any other use that people pay for.

Notes:
(*) XAU is the symbol on exchanges for gold.

(*) Note, Bitmain are not really burning Bitcoin, they are misleading clients into the use of a sham burn
address in pursuit of a fraudulent and illegal securities scam.

(*) WHC is WormHole Coin, a sham security offered under misleading pretences by Bitmain.
(*) PoS is proof-of-stake (otherwise known as Proof of Semen Sao or jizz)
Markets and imperfections
| 04 Nov 2018 | Economics
By Craig Wright
George Akerlof did us a great disservice with his unscientific rhetoric. A market for lemons and other
market failures seem plausible, but how about testing the hypothesis?

Testing using empirical data is the heart of science. Then so few economists are these days. We use
econometric models that are terrible and that shame many of my colleagues in mathematics.

Akerlof’s paper was rejected for “triviality” by both the American Economic Review and The Review of
Economic Studies, and yet it is seen as something special and drove a movement against markets. The
Journal of Political Economy rejected the paper as incorrect and flawed. The argument was that if this
paper was correct, then no goods could be traded. The empirical studies have ALL supported this. The
hypothesis was flawed. All it was: a hypothesis and a flawed one at that.

When are we going to actually start acting scientifically — a hypothesis is not truth.

As stated, the effect WAS actually empirically tested. The most cited results come from:

Hoffer, George E.; Pratt, Michael D. (1987). “Used vehicles, lemons markets, and Used Car Rules: Some
empirical evidence”. Journal of Consumer Policy 10 (4): 409–414. doi:10.1007/BF00411482.

“When market participants have the incentive to exchange, they also have the incentive to create
institutional mechanisms to facilitate that exchange. The failure to recognize and appreciate these
private mechanisms for overcoming asymmetric information — not the failure of actual markets — is
often what leads to mistaken calls for government regulation.”

J. Hall (2007) “Uneven Information Causes Market Failure? It Just Ain’t So!” FEE

Market failure, sorry, government failure!

Bitcoin is all about incentives
By Craig Wright | 06 Nov 2018 | Bitcoin & Blockchain Tech
There are people who try and tell you that Bitcoin is not about incentives or economics. The structure of
Bitcoin is one that allows competition to determine a stable monetary system. Miners (nodes) have skin in
the game unlike developers, and thus, are in competition for the block reward and transaction fees. The
result is they will seek to maintain the protocol and not to debase and alter the currency.

Bitcoin is pseudonymous as it is about honest money. Private has to be traceable. It is not drug money, it is
not money for bucket shops and it is not money for crime.

The root problem with conventional currency is all the trust that’s required to make it work. The central
bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of
that trust . Banks must be trusted to hold our money and transfer it electronically, but they lend it out in
waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them
not to let identity thieves drain our accounts. Their massive overhead costs make micropayments
impossible.

These people who tell you Bitcoin is not built on incentives are wrong. Worse, most of these people seek to
intentionally deceive others. Just as the central bank must be trusted not to debase the currency, we
need a system that does not allow developers to become technocrats thinking they are smarter than
the market. Just as the history of fiat currencies is full of breaches of that trust, so is the history of
promises from technocrats .

Understand that in this system, it is not only miners, but a user who has a choice. There are choices in all
aspects of life. In Bitcoin, the system is one based on incentives. Both miners and users have incentives, and
even if a dishonest miner seeks to radically alter the protocol and reduce its monetary stability, the
incentives are able to make this fail. A user has a choice as they would need to decide to risk a transaction
with an invalid (on one chain) OP_CODE.
Bitcoin is first and foremost an incentive system

The incentive can also be funded with transaction fees.

This aspect is important — as I will demonstrate in this post.

OP_CODES are not supposed to be arbitrarily added on a developer whim. We will explain how miners can
profit from ensuring this does not occur.

Bitcoin is an economic system, an incentive system. This is what many are still slow to learn.

The incentive may help encourage nodes to stay honest.

If greedy attackers such as Bitmain and Bitcoin.com who seek to drastically alter the protocol are able to
assemble more CPU power than all the honest nodes, they would have to choose between using it to
defraud people by stealing back their payments, or using it to generate new coins. The
system is secure as long as honest nodes collectively control more CPU power than any cooperating group
of attacker nodes.

In this instance, if the miner seeks to split the chain, a temporary fork that they want to try and make
permanent, such as through the use of DSV (OP_CHECKDATASIG and OP_CHECKDATASIGVERIFY), the
honest miners can treat the invalid OP_Codes as a fee. This remains within the bounds of what Bitcoin was
designed to be. It is sound money that uses incentives which all ensure that the honest miners are aligned
with maintaining the stability of the system.

price(BCH) = price(ABC) + price(SV)

So, any amount sent to deliberately attack the chain moves from ABC to SV. That is, the amount transacted
on ABC nodes using invalid transactions will be a miner subsidy to incentivise good behaviour.

Note: This is a single example from the multiple changes made in ABC to radically alter the nature of
Bitcoin.

In this example, if a dishonest miner seeks to add an OP_CODE to intentionally split the chain, they are now
creating a fee structure for the honest chain.

One answer is to incentivise good code and a stable protocol. Bitcoin has been around for 10 years. In the
early days, we could expect errors and mistakes, and handling errors would be the same as any other issue
where you fail as simply as possible. This in Bitcoin was to effectively ignore the script for some time.

A better way is to add the incentives fully. Most are in place, but, some developers have found ways to
bypass these controls and try to alter the base protocol radically. To ensure that dishonest miners and
developers do not seek to alter the codebase, we add an incentive structure to test and align the
development towards a stable protocol. In order to do this, we use the structure that was derived in Bitcoin
0.1. We allow the bad transactions to be used as an incentive. That is, rather than rejecting these, we allow
them to be used as a miner incentive, a fee.

If developers add an unauthorised OP_CODE, it is to be treated as a miner fee. The honest miners are paid to
take the value in the chain that does not alter the structure of Bitcoin, making the system more stable and
resilient.

No OP_CODES that have been defined in the original version of Bitcoin would be altered. It would stop the
reckless experimentation with what is designed to be sound money.

Let us investigate a split.

We will say that Chain A is (SV) and Chain B is (ABC) — where ABC seeks to help dishonest miners in altering
the protocol and adding subsidies to make sidechains and other additions cheaper, allowing the theft of
miner fees and a loss of control by miners.

In each of these chains, we would see no replay protection. A standard transaction would be valid on both.
But, the dishonest miners could seek to divide the chain with an invalid OP_CODE (such as DSV).

The BCH(SV) chain would then see all valid BCH(SV) and BCH(ABC) standard transactions whilst not seeing
those on BCH(ABC) that have intentionally injected DSV into a transaction. The BCH(ABC) chain would have
included DSV allowing them to send a double spend keeping their money in a DSV transaction but moving
the same address later on the BCH(SV) chain allowing them to have their money and spend it, too. A fraud.
There is no other way to say it.

Well, this is easily countered using the original incentives.

The BCH(SV) chain can send any transaction that includes a DSV illegal OP_CODE (this is with DSV) in the
transaction to the first miner to discover a block as a miner fee. In this, if and when the dishonest miners on
the BCH(ABC) chain seek to send an invalid OP_CODE to split the chain, they are really giving away any
money they have on the BCH(SV) chain to the miners that are mining on the BCH(SV) chain. That is, the
dishonest miners/attackers would need to subsidise the honest miners seeking to maintain the original
Bitcoin protocol.

This incentivises miners to mine on the BCH(SV) chain. In fact, it can make mining the SV chain 100s of
times more profitable if you are an honest miner.

When we have developers actively seeking to subvert the Bitcoin protocol, this is something we need to
stop in its tracks. Bitcoin is not an experiment, it is about stable money.

Using DSV when users do not choose.

Some wallets such as Bitcoin.com have signalled that they will use DSV in all their transactions. This is a
signal that Bitcoin.com seeks to actively defraud their users leaving them liable (Bitcoin.com) for any losses
those users experience. This remains problematic as we do not know if those users will be able to recover
funds that Bitcoin.com plans to burn without user permission.

In the BCH(SV) chain, as per our example, have not altered or added this new rule and illegitimate
OP_CODE. To send a transaction to a new address with DSV embedded in a transaction is not a simple act.
It is not like sending a standard transaction. Where the user has not agreed to the use of this dishonest
OP_CODE addition, the user would have the right to recover against the exchange or wallet doing this in
law.

You see, Bitcoin works within the law. The aim of some players (such as Bitmain and Bitcoin.com), to make
Bitcoin into a system that acts outside of the legal system, changes it from what Bitcoin was designed to be:
a stable money and contractual system based on P2P electronic cash.

If a user sends money, and sells it on the BCH(ABC) chain, without adding a dishonest OP_CODE change,
they will lose nothing. The transaction will be valid and accepted on both chains. The same applies to the
BCH(SV) chain. The only loss is if the user sells on the BCH(ABC) chain, and here, the change needs to be
good enough and desired enough by miners to ensure that a split does not occur (such a change would
include a vulnerability with a hash function or a signature algorithm that threatened stability to the chain if
not updated).
Change can occur, but, it is expensive and difficult. This means, the money supply is stable, it is sound.

Of course, this is and was the goal of Bitcoin. Bitcoin is not about “social consensus” or some other
collectivist dream, it is capitalist money designed to follow the vision of Mises and Hayek. That is, sound
money that cannot be debased.

The worst thing would be to replace the central banks and government with developer technocrats. In this,
we take a few monetary economists with no idea, and replace them with far more clueless code monkeys —
sorry, that is exactly what Bitcoin was designed to stop.

In Bitcoin, we have an incentive structure such that miners (nodes) are rewarded to allow stable money to
be maintained.

Developers in this model are rewarded to create better code — by miners. Developers are able to gain
funding in this capitalist system by developing code that allows individual miners to compete more
effectively — code that forces more and more competition in the Red Queen Game that is Bitcoin.

This is the division in Bitcoin. Not a race to play (experiment as a developer without idea or clues) more and
more. A system that is stable. Gold was able to be manipulated, as the way to trust gold was to have it
minted. If it was minted; you needed to trust the mint and they could debase it. Bitcoin, when controlled in
competition by miners, cannot be easily manipulated, and as it scales, it will be more and more difficult to
alter, to debase.

In a few decades when the reward gets too small, the transaction fee will become the main compensation
for nodes.

The goal was never to find ways to make a system that seeks more and more strange boondoggles to pivot
into, it is P2P electronic cash. As Bitcoin grows and as the mining reward diminishes, the miners need to
receive more fees. If others want to pay for fees in alternate methods to allow the original version of Bitcoin
to survive, we have a method to allow for this.

We should always allow at least some free transactions, and what better way is there right now than to
have the dishonest miners and developers start to fund it first.

Users can choose

Users on Bitcoin.com can choose to have a transaction sent using DSV. If this is not forced, the user will
select that they want to give up any value on the BCH(SV) chain, and select the BCH(ABC) chain. If the user
does not want to have anything to do with SV, they are free to choose to give up all value in that chain. They
can sell out, and use fiat or any other altcoin. That is the nature of fair competition.

In doing so freely and paying that value to miners on the BCH(SV) chain they are signalling they do not
want to be a part of the original vision for Bitcoin.

If they FREELY choose to do this, that is their decision.

The cost of a DSV transaction will be extremely risky

If people are FORCED by wallets such as Bitcoin.com to do this, then they have a valid claim against
Bitcoin.com for the losses. In effect, in any contentious fork, the value of the chain is split against the risk of
either chain losing. Without replay protection, only one chain wins, the other will in time end. So, if the value
is split 50/50, the loss in forcing a client to a particular branch will be 50% of the funds.

Consequently, no matter what we have as an outcome, or what chain prevails (secret, it is SV), the wallet will
have taken from the owner of the address an amount equal to the risk premium or more.

In the case of a company doing this (such as Bitmain), the shareholders would have an action against the
directors.

The incentive can also be funded with transaction fees.

As a protocol change such as DSV seeks to find holes in the original code, we can allow them to choose to
lose money if they dishonestly seek to split the network. If a standard transaction is sent, any miner will
accept it. On the other hand, if a dishonest miner seeks to try and split the network, we can use incentives to
have them see the folly of their way and hopefully work on the main Bitcoin chain. If they do not, the
incentive structure is one that drains all value from their fork allowing it to wither.

Miners would have a lottery in a split game. As soon as a malicious and dishonest miner seeks to run code
that is designed to split the network, the miners have a lotto ticket for money on the honest chain.
The incentive can also be funded with transaction fees. If the output value of a transaction is less than its
input value, the difference is a transaction fee that is added to the incentive value of the block containing
the transaction. Once a predetermined number of coins have entered circulation, the incentive can
transition entirely to transaction fees and be completely inflation free.

Well, as the OP_CODE is not a valid means to redeem, this basically means that we have an output that they
want to send to miners. A fee.

The incentive may help encourage nodes to stay honest . If a greedy attacker is able to assemble more
CPU proof-of-worker than all the honest nodes, he would have to choose between using it to defraud
people by stealing back his payments, or using it to generate new coins.

The miners will need to choose: do they risk all they have in a split sending to DSV where the miners can
choose to have this as a fee? Or, will they remain honest and build a stable platform?

This adds an incentive for nodes to support the network.

If you’re having trouble with the inflation issue, it’s easy to tweak it for transaction fees instead. It’s as
simple as this: let the output value from any transaction be 1 cent less than the input value. Either the client
software automatically writes transactions for 1 cent more than the intended payment value, or it could
come out of the payee’s side. The incentive value when a node finds a proof-of-work for a block could be
the total of the fees in the block.

And, there is no reason to have users send DSV in a transaction, it is not a part of the protocol. As such, it is a
choice the user makes. If they send it, they make the decision to fund miners on the honest chain with the
value in the transaction.

There will be transaction fees, so nodes will have an incentive to receive and include all the
transactions they can. Nodes will eventually be compensated by transaction fees alone when the total
coins created hits the pre-determined ceiling.

As the whitepaper states, a miner and developer, even a dishonest one ought to find it more profitable to
play by the rules, such rules that favour him with more new coins than everyone else combined, than to
undermine the system and the validity of his own wealth.

Bitcoin is purely incentive based.

If SHA-256 became completely broken, I think we could come to some agreement about what the honest
block chain was before the trouble started, lock that in and continue from there with a new hash function.

Users

As long as Bitcoin is controlled by honest miners, those not seeking to change the protocol for personal
reason, we recommend strongly that you avoid using any new OP_CODES during the hash battle. nChain
are dedicated to ensuring that the original Bitcoin remains as close to version 0.1 as is possible. This is the
economic incentive structure to ensure that Bitcoin is sound money.

If you are using a standard cash transaction in this time, one with no new changes, then you should be fine
on most wallets. The Money Button has a great write-up here . If you follow this advice, you should be fine
for most things.
This is my personal post. Details will follow. Take care.

We will not give up. The real Bitcoin is worth fighting for. If a miner seeks to attack by injecting protocol
changes designed to alter the nature of Bitcoin, the miners will be incentivised to mine SV as they are
rewarded on this chain.

Please note further that DSV transactions can be sent to the BCH(SV) chain using P2SH. In this, a
transaction will be included in the SV chain as it is now, but the funds will become unspendable. That is,
they are burnt and lost forever. We see the use of these funds to provide enticement for miners to protect
the protocol. Either way, the user has lost them, but, earmarking these for miners can allow them to stay in
circulation and provide value.
Drugs, Fraud, and Murder
By Craig Wright | 06 Nov 2018 | Bitcoin & Blockchain Tech
Bitcoin is money that is designed for Main St . It was not designed to be the Wall-St casino some want, and
it certainly was never designed to be the dark alley between them.

Bitcoin is pseudonymous by design. This allows for privacy and excludes anonymity. Privacy is important; it
is required to have a working legal system, and Bitcoin, in fact the entire concept of “blockchains” is a
system built on law. In contracts, you have an exchange, and that requires the ability to prove consideration
and the ability to record and recover the contract across time and space.

Bitcoin is the red queen

Roger Ver’s Bitcoin.com representative recently posted a blog post detailing one of the many illegal and
criminal use cases they plan to build into Bitcoin:

http://www.yours.org/content/taking-op_checkdatasig-out-for-a-test-drive-68687aa8e3b9#comment-
3a5b4831305c

The concept that a few (fools) seem to think adds value to Bitcoin is to alter the protocol and add the ability
to create “permission-less” exchanges. What this means in simple terms is:

Silk Road version 2.0

 Bucket shops

Assassination markets

Money laundering, for things like people smuggling and sex slavery

The problem comes from Ethereum (ETH) envy. This ends like a group of misguided anarchistic socialists
who refuse to work within the bounds of the law wanting to cry at the world and say, we do not want law,
we want to say what the world is like . It is unfortunate that many grown men still act this way.

The push to add an illegal betting use into Bitcoin

The existing script in Bitcoin allows bitcoin to be used as cash. It can be used for legal and illegal use cases,
but, it has a ledger that can act as evidence in court. In the existing format, without ideas such as Pay To
Identity , it operates within the legal definition of money and currency.

With the proposed alterations to incorporate OP_CHECKDATASIG it is no longer cash. So, the simple
response is that this is an attack on what Bitcoin is. Bitcoin is not about circumventing law. It was never
close to being good for this purpose. It is P2P electronic cash, and it works best when used honestly.

I am sorry to say, illegal drug markets and betting shops are not legal.

I am sorry to tell you all, Bitcoin is not, was not, and shall never be “permission-less”. In fact, nothing you ever
create will be.
ABC and Bitcoin.com leading us to the future…

The criminally negligent and tortuous post by Roger Ver’s Bitcoin.com officer seeks to actively promote and
advance the use of a bucket-shop contract. I will define this as an invalid and illegal OP_CODE added to a
system that acts within the law to create a “permission-less” or outlaw variant.

The US Supreme Court (in 1906) defined the category of illegal betting operations known as a bucket shop
as follows:

An establishment, nominally for the transaction of a stock exchange business, or business of similar
character, but really for the registration of bets, or wagers, usually for small amounts, on the rise or fall of the
prices of stocks, grain, oil, etc., there being no transfer or delivery of the stock or commodities nominally
dealt in.

Gatewood v. North Carolina, 203 U.S. 531 , 536, 27 S. Ct. 167, 168, 51 L. Ed. 305, 307 (1906).

We also have the decision of the Chicago Board of Trade where a bucket shop is defined as “a place where
bets [are] placed on the commodity prices. The bets are not executed as contracts on any legitimate
exchange, but rather, a bet is placed on the bucket shop’s books.”

U.S. v. Sanders, 696 F. Supp. 327 , 330 (N.D. Ill. 1988).

And, we have the generally accepted definition of a bucket shop from Senator Pope in 80 Cong.Rec. 8,088
(May 27, 1936) :

[The] method of doing business wherein orders of customers for the purchase or sale of commodities for
future delivery, instead of being executed by bonafide purchases and sales with other traders, are simply
matched and offset in the soliciting firm’s own office and the firm itself takes the opposite side of customers’
orders.

In the U.S., this form of “smart contract” forms what is known as “bucketing,” and it is expressly forbidden
in commodity transactions, 17 C.F.R. § 30.02(d) (1986) .

These are defined in criminal law, not just in the U.S. but in most common-law jurisdictions. In effect, the
contract is defined to exchange a derivative interest in a security or commodity future. There is no
transaction made on any exchange, though.

The New York Times (1958) reported that a bucket shop is simply “an office with facilities for making bets in
the form of orders or options based on current exchange prices of securities or commodities, but without
any actual buying or selling of the property.”

“Peter J. M’Coy, 70, Former U.S. Aide”. The New York Times . July 19, 1958.
OP_DATASIGVERIFY should be OP_BUCKETSHOP
The good thing is that BCH will reject these dishonest changes.

You think you have the right to do anything you like. Well, stiff bikkies, little girl, cry in a corner, as this is the
real world.

Law is law, code is just evidence in law.

While I won’t comment on the business model of any specific company, I can say generally that offering or
facilitating a product or activity by way of releasing code onto a blockchain does not absolve any
entity or individual from complying with pertinent laws or CFTC regulations.

Erica Elliott Richardson, a CFTC spokeswoman, said in an emailed reply to questions.

The key word above is facilitating .

I am actually looking forward to DSV going live on the ABC(rap) chain. The verification and coding of DSV
allows for — in fact facilitates — bucket shops. It is right there from Bitcoin.com’s tech minion, and it is stated
clearly as a goal: the ability to offer illegal wagers and derivatives.

This means, ANY miner validating a block with a DSV OP_CODE can be held criminally liable. The use of a
DSV smart contract is not even remotely analogous to script. You CAN build illegal things using script, but,
there is no easy manner for a miner to determine the nature of a transaction in the existing script.

The miner is in effect a common carrier and thus not liable.

Once you change the system to specifically add a purpose-designed OP_CODE that is created to facilitate
criminal activity, it is a different matter. In this case, the law is very clear, the miners are individually
responsible for any and all blocks and can and would be held directly responsible.

(Note: I have the transcripts, logs, and more that determine beyond doubt that the purpose was to enable
betting on-chain without a licence…)

I am working on a prosecutors handbook for all this; right now, the amount of misinformation from
scammers in the “decentralised” community has led to a large amount of misleading information. We will
be ensuring that this is corrected.

Oh, this means, for any blocks that a miner of the BCH(ABC) chain knowingly builds on with DSV, it will
result in their liability. DSV is not like cash. A transaction signed with a valid gaming licence could be
constructed and, if used in a PKI hierarchy of certificates, associated with licensing regulators, but, if this
was the case, there is actually no need nor benefit for doing this in Bitcoin.

A miner can of course accept a P2SH-based transaction with a DSV OP_CODE as they cannot be aware of
the content. The issue comes if they allow it to be redeemed using DSV. In this, they are now aware.

A base contract with DSV would be instantly flagged by any miner not seeking to explain the facilitation of
illegal activities. You see, a contract designed specifically for a purpose is not even remotely close to the
exchange of cash or other transactions within Bitcoin today. There are only a few pools, and it is the pool job
to verify the data as miners seek a hash. So, the individual miners are not liable, the pools are. Solo miners
would also be in breach, if they accepted a DSV transaction.

In China, fraudulent and deceptive business practices may constitute criminal offences under the Criminal
Law (1997, last amended 2015), as well as administrative offences under the Anti-Unfair Competition Law
(AUCL) (1993), the Advertisement Law (amended in 2015), the Tendering and Bidding Law (2000), the
Securities Law (2006, amended in 2013), the Regulation on Futures Trading, (2007, last amended in 2016),
and other measures.

The Chinese Public Security Agency (PSA) (A.K.A. Public Security Bureau (PSB)) and by the public prosecutor
agency, the procuratorate are of course the easiest to sell this to. The procuratorate makes charging
decisions, and tries cases before the court, which issues verdicts and imposes sentences (including
incarceration or criminal fines).

Confiscation of mining equipment is the easy part, but, I am certain they will recover funds. One way or
another.

I am in no rush.
The statute of limitations on this crime is long and the blockchain never forgets. There is actually a part of
me that would like to sit and watch the carnage, but, there will always be dishonest parties who will add
illegal contracts into Bitcoin. So, it will be interesting to watch justice come to town.

There are laws in the US, UK, and even China and Japan to recover funds that are mined in Bitcoin for
knowingly facilitated crime. DSV is not case, so it is not fungible.

The Proceeds of Crime Act 2002 (c.29) (POCA) is an Act of the Parliament of the United Kingdom which
provides for the confiscation or civil recovery of the proceeds from crime and contains the principal money
laundering legislation in the UK.

It can be recovered.

I am certain the Chinese government will have a good time with all this…

Did I forget to say, I used to teach law to police and Feds in Australia? Oh well, I did. So, you can ignore me
all you like when I say, I have already put the charge sheets together as a template for the US, UK, and
Chinese authorities. It is time to bring Bitcoin from the Wild Wild West to the staid suburbia.
On the Minimum Wage
By Craig Wright | 06 Nov 2018 | Economics
A minimum-wage scheme is a tariff and price fixing method against people’s labour and ability to sell
themselves freely.

The major fallacy in this discussion is one that has occurred not just now, but since the 18th century with
philosophers such as M. de Saint-Cricq stating fallacies such as “Labour constitutes the wealth of the people.”
These fallacies led to the refutation by Claude F. Bastiat of the “ broken window fallacy ”, but still managed to
persist.

The error is that we see the imposition of a minimum wage whilst still maintaining the status quo,
equilibrium if you will.

This is a fallacy that must be countered.

An employer does not seek to exploit in the Marxist vein, rather to maximise one’s profit. This is best achieved
through enhanced productivity, not through lowered wages. Where an employer can bring into play the
services of another, that employer will purchase them if and only when s/he expects to be able to do so at a
profit, for to do so at a loss is to create a diminished capital base, and reduce the basis for further investment.

The imposition of a minimum wage does nothing to raise wages; rather, it imposes an arbitrary floor under
which any individual willing to work for an amount under that arbitrarily imposed rate cannot work.

It means that a person who could earn a minimal wage can no longer earn any wage legally.

Those who had been employed under the preceding conditions were employed as they could provide
services to the capital enterprise productively for the skills and ability that they have. A minimum wage does
nothing to increase this low level of productivity, and hence that person is unemployed as a result of the
imposition of the wage minima.

This does nothing to stop poverty; in fact, the increase of those now unable to work for any allowed wage
means an increase in poverty.

The means of making more people valuable at a higher wage is to increase their productivity.

The comment that you could “evenly distribute production throughout the globe” completely ignores the
issue of productivity. Production would be more centralised. If all countries had the same minimum wage,
then those with the best capital equipment and hence productivity would draw all work into them, as they
would have an imposed near monopoly on production at a suitable price.

The state goals, to “elevate underdeveloped nations” and “greater distribution of wealth globally”, would also
fail dismally.

The migration of capital away from those nations with lower levels of capital investment and hence
productivity would create a greater divide and concentration of wealth.
A fallacy here is that the poor nations are being exploited such as with the mercantilist system of centuries
back. This is quantitatively false. Wealth is created, the natural state is destitution, it is enhanced productivity
that has allowed us to escape scarcity and not the exploitation of developing nations.

A minimum wage is simply the imposition of a price floor. A wage floor hits workers with limited skills,
primarily young people in developed nations and correspondingly those in developing nations.

The political demand for the minimum wage does not come from low-wage workers. It comes from those
who seek to impose controls on them to “better their lives” without looking to the consequences of their
actions.

Good intentions, bad results, and the road to hell for those who can no longer find employment.

Henry Hazlitt put it best in his laconic quote:

You cannot make a man worth a given amount by making it illegal for anyone to offer him less. You merely
deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while
you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low
wage you substitute unemployment. You do harm all around, with no comparable compensation.[1]

There is a net loss to society in any such price floor. These include:
(1) the loss of employment to the individual effected from the imposed restrictions,
(2) the dwindling of the economic pie by the loss of productive contribution from those no longer to work
productively due to an imposed price floor,
(3) the financial loss to society in supporting those now unable to sell their labour at any legal rate, and the
imposed idleness this results in (unemployment, welfare, etc.),
(4) the monetary loss in funding inadequate job training programs and other government efforts to make
these people more productive and hence employable at a higher rate, and
(5) the net loss to society that is a consequence of higher consumer prices that naturally come as a
consequence of increased labour costs associated with the wage floor.

In this, a loss of market share to foreign competition is likely to occur, most likely in those countries, once
again, with lower capital investment, that is those countries who can afford this the least.

There are distinctions between being underpaid as being underproductive.

Racism

Mandated minimum wages are one of the best methods available to price one’s competition out of the
market. Historically, minimum-wage laws have been used as one of the most devastating tools in the racist’s
toolbox. This is not to suggest that this is the intention of any person on this list, but the objectives that have
led to the adoption of a policy often had no relevance and relation to the effects of that policy.

Walter E. Williams states this simply :

One of the more insidious effects of minimum wages is that it lowers the cost of racial discrimination; in fact,
minimum wage laws are one of the most effective tools in the arsenals of racists everywhere, as
demonstrated by just a couple of examples. During South Africa’s apartheid era, its racist unions were the
major supporters of minimum wages for blacks. South Africa’s Wage Board said, “The method would be to fix
a minimum rate for an occupation or craft so high that no Native would likely be employed.” In the U.S., in the
aftermath of a strike by the Brotherhood of Locomotive Firemen, when the arbitration board decreed that
blacks and whites were to be paid equal wages, the white unionists expressed their delight saying, “If this
course of action is followed by the company and the incentive for employing the Negro thus removed, the
strike will not have been in vain.

In the US, for instance, it is the minority groups that suffer most from wage controls. Those with the least
education and opportunity are the ones who suffer most from these prescriptions.

[1] Heny Hazlitt, Economics in One Lesson (New York: Arlington House Publishers, 1979), p. 135.
Buy now, Pay later
By Craig Wright | 07 Nov 2018 | Economics
Murry Rothbard on harmful policy..

1. Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.

2. Inflate further. Further inflation blocks the necessary fall in prices, thus delaying adjustment and
prolonging depression. Further credit expansion creates more malinvestments, which, in their turn, will
have to be liquidated in some later depression. A government “easy money” policy prevents the market’s
return to the necessary higher interest rates.

3. Keep wage rates up. Artificial maintenance of wage rates in a depression insures permanent mass
unemployment. Furthermore, in a deflation, when prices are falling, keeping the same rate of money wages
means that real wage rates have been pushed higher. In the face of falling business demand, this greatly
aggravates the unemployment problem.

4. Keep prices up. Keeping prices above their free-market levels will create unsalable surpluses, and prevent
a return to prosperity.

5. Stimulate consumption and discourage saving. We have seen that more saving and less consumption
would speed recovery; more consumption and less saving aggravate the shortage of saved-capital even
further. Government can encourage consumption by “food stamp plans” and relief payments. It can
discourage savings and investment by higher taxes, particularly on the wealthy and on corporations and
estates. As a matter of fact, any increase of taxes and government spending will discourage saving and
investment and stimulate consumption, since government spending is all consumption. Some of the
private funds would have been saved and invested; all of the government funds are consumed.[15] Any
increase in the relative size of government in the economy, therefore, shifts the societal consumption-
investment ratio in favor of consumption, and prolongs the depression.

6. Subsidize unemployment. Any subsidization of unemployment (via unemployment “insurance,” relief,

etc.) will prolong unemployment indefinitely, and delay the shift of workers to the fields where jobs are
available.

The we can also add how the US government regulation forced on banks that meant that they could not
turn away minorities with a high risk from getting home loans. So even when a bank expected a default,
they still gave a loan.

The CRA led to sub primes being issued to those with little prospect of paying and a high default rate.
Worse, as a sub-prime loan costs more in the loan run, the poorest had to pay more. Low interest to get into
the market, then variable that increases.

But… The Fed will maintain low interest won’t it…

So more interference.Play with interest rates. Print money. Go into more and more debt. After all, the
current presidency will not be there in the long run.

Unfortunately for all those Keynesian’s, the long run is built into home loans but it is not built into political
systems.

Sometime there is always a need to pay for the short term implications of short run thinking. We are in the
long run now and it is just getting worse.

Then, Keynes told us that saving is bad. Why teach the poorer parts of society to learn to better themselves?

This would mean that they create wealth through saving and investment. It is far easier politically to pass a
law saying that people cannot be turned away from loans they cannot expect to repay.
There are short term political gains and we all know that Keynes taught us the long term is not important!

After all, why demonstrate that you can save and hence have a chance of repaying the loan (and have lower
monthly payments as well) by actually having a large deposit?

It was much simpler to regulate people into homes than to educate them into saving. Why save a deposit
when you can get a 105% home loan. Buy that $200,000 home now and also get $10,000 for consumption
spending to maintain the economy.

Then of course, the variable rate kicks in, but this is the long term.
The politics of rent seeking
By Craig Wright | 07 Nov 2018 | Bitcoin & Blockchain Tech
Any government implementing a Keynesian policy simply “Keynesianizes” the economy. The effect is an
economy that behaves precisely in the pertinacious routine dictated through the Keynesian assumptions.
And yes, I am simply asserting the tautology of Lord Keynes in the manner he would espouse.

As a rational economist, there is value in promoting and executing Keynesian policy. This is of course rent-
seeking at its worst, but it is rational.

Keynesian policy is the most indisputable technique to election and re-election for any politician. All the
advantages achieved through printing and the outlay of money are instantaneous. They are extremely
perceptible. They allow a politician to pork-barrel. That is they can focus on politically powerful voting blocs
(whether they have any relationship to the majority or not). With the overheads from such a policy being
incurred at a later date (the long term), the link between policy and long-run consequences is difficult for
the voting public to perceive. Better, these perverse incentives and the effects can be spread thinly
transversely over the total populace, creating a policy which is unlikely to result in short-term complaints.
That is the poor voter is unlikely to notice the damage and costs she or he is facing.

As the number of Keynesian demand managers continues to decline, the effects of supply and demand
make the perverse rent-seeking behaviour more focused and stronger. This dwindling assemblage of
economists is sought by government officials who pursue advice and understanding. The occasions to
address with the seats of power over the simpler halls of learning incentivise many economists to find the
good in a theory unsupported by reality.

So, we let the printing press roll, and allow government to spend our money in pursuit of short-run
stimulation with the cost being against long-run stability.

Of course, when we spend credit (e.g. through credit cards) on short-term consumptive goods (such as
alcohol), and rack up debt in place of saving and investing, we are all becoming good Keynesians and
helping the economy…

Well, at least the GDP numbers and other meaningless reporting tools that are used to make us feel OK.

Then, we could look to sound money. That was the reason Bitcoin was created.
An invitation to treat
By Craig Wright | 08 Nov 2018 | Bitcoin & Blockchain Tech
An invitation to treat is distinct from an offer in that it is an indication of one party’s willingness to negotiate a
contract but not the acceptance thereof.

Two examples of an invitation to treat are:

1. A tender requesting proposals to be lodged.

2. Goods being offered for sale in a store window.

In point 2, the store is not obliged to sell the goods to anyone who is willing to pay for them, and may refuse
custom.
Fixing OP_False
By Craig Wright | 08 Nov 2018 | Bitcoin & Blockchain Tech
One of the flaws in the mangled version of Bitcoin we have today comes from the ability to “burn” and
destroy coins. Bitcoin was designed as stable money. This is a fixed-token money system where the cap is
maintained in time and fees are used to reward miners.

Total circulation will be 21,000,000 coins . It’ll be distributed to network nodes when they make blocks, with
the amount cut in half every 4 years. […]

When that runs out, the system can support transaction fees if needed. It’s based on open market
competition, and there will probably always be nodes willing to process transactions for free.

To be stable, the money supply needs to allow long-term investment, but also not allow intentional attacks by
destruction.

In having an end capacity of just under 21 million bitcoin (BCH), some bitcoin will be “ lost ”, but this is
analogous to bullion money being lost. In time, it can be found, and returned into circulation. I cover some of
the differences in a prior article . When a private key is lost, it is merely out of circulation. It may be many
years, but all old addresses eventually become mine-able and can be recovered.

Returning “lost” money into circulation is a future means of miner revenue and analogous to salvage firms
who seek lost bullion on ships that have sunk in the sea.
To allow for this vision and end, the SV implementation of Bitcoin will be removing the flawed code that
allows “burning” of coins permanently. This is not an instantaneous process, and it will take time, but all of this
lost money will be returned into circulation. The full details will come before the changes.

OP_FALSE
OP_FALSE is an original OP_CODE that was designed to fail script paths in a predicate. It is used and needed,
and has a range of uses , and in fact, it cannot (and should not) be disabled or removed.

Multi-sig TXs

The issue comes when a script is constructed as a means to just destroy Bitcoin. The aim in this is to remove
value from Bitcoin, and send it into an alternate system — it is a form of attack .

In Bitcoin, miners are the replacement for the various member banks in the U.S. Federal Reserve. The
distinction is that the banks in the US Fed are incentivised to create more money. They act in collusion, that is
social consensus.

Bitcoin alters this by making the miners, the equivalent of the member banks that set monetary policy, act in
capitalist competition. This allows them to neither increase the money supply nor seek to subvert it. The
miners ensure that the money supply is stable.

They do this by allowing the system to recover funds that are taken out of circulation.

Some parties have used OP_FALSE as a means to issue a “proof-of-burn.” This is what miners are aligned and
incentivised to stop. Burning money by making it permanently un-spendable is an attack on Bitcoin by those
with a vested interest in creating something other than Bitcoin.

The aim was never to allow the creation of scripts that are designed to diminish the long-term viability of
Bitcoin, and to this end miners will be able to recover this form of funds as if they were salvaging “sunken
treasure”. This returns the coins into circulation.

OP_RETURN
The OP_RETURN code is also used to create a lost-value transaction. The purpose of OP_RETURN is to make a
marker, not to destroy Bitcoin. This will also be recoverable.

We will be publishing a strategy where OP_RETURNS are published on a time basis. The amount invested
into the OP_RETURN will set the length of time before these are removed and pruned.

The result will be a message that remains for a set amount of time and then is prunable, returning the funds
to miners through salvage and, after that, into circulation.

The exact details will be published later, but the concept would be to have OP_RETURN remain valid for a set
length of time that is determined by the number of satoshis expended by the size of the data to be saved
against the time in Unix time (that is, in seconds from when it is published).

This allows for both the use of OP_RETURN and a means to pay miners and archive nodes for delivering a
service. This is not the final version, but for example:

(V) number of satoshis (sent to miners in OP_RETURN) /

(S) size of TX in KB =
(T) time in 100 seconds, before the value is recoverable

T=V/S

So, if a 100-KB file is to be stored for 1 year, miners’

V = T*S = 31,536,000*100/100 = 0.315 BCH

The exact figures would be left to market forces to determine. When the time has expired, a sunk fee can
then be recovered by miners.

Invalid OP_CODES (DSV, etc.)

If a transaction is intentionally sent to a invalid OP_Code such that it is burnt and removed from circulation,
this again is just an attack against the total number of bitcoins that can circulate, and it will be available for
miners to recover.

Miners recover these coins as salvage — lost treasure, you might say.
Bitcoin is capitalist

The end result of this is that those wanting to attack Bitcoin through a vain attempt to remove money from
circulation and to extract it into a separate system (Tether, Omni, CounterParty, WHC, etc.) will find their
attacks fail.

Bitcoin is resilient.
Sun-setting P2SH
By Craig Wright | 08 Nov 2018 | Bitcoin & Blockchain Tech
Steve, Daniel, and the team are working around the clock to make Bitcoin SV as close to the original Bitcoin
protocol as they can. In this end, we will be planning to deprecate P2SH. This is not a simple task, and it will
need to occur in stages. We will need to have non-standard scripts accepted by miners, and we will need to
accept old P2SH transactions as we stop any new ones being added.

So, this is a multi-stage plan.

Bitcoin SV is Bitcoin Cash (BCH), and this is Bitcoin

The two worst ideas (cancers) to have infected Bitcoin are the joint diseases of:

soft forks and

P2SH

The first is no longer something we will see in BCH. With the introduction of Bitcoin SV, the only path
forward is that detailed in the original Bitcoin white paper. The concept of a soft fork is the most insidious
attack on Bitcoin to have been spawned. But; it is no longer valid. All consensus rules in Bitcoin will be
handled using the only way that works: PoW and hard forks.

SV — back to the original vision

P2SH — Pay-to-Script Hash

Unfortunately, we cannot simply remove P2SH altogether. That would be wrong as it is used in many
applications. It is also saved money.

We can announce a plan to sunset it and to allow only scripts to be run.

We will set the dates soon, but from that point we will not allow the differentiation of standard and non-
standard scripts to be a reason to see alternatives such as P2SH.
We are not interested in the arguments from Core ; P2SH was a bad idea, and it will be removed. To do this,
we will allow scripts and stop the flawed concept of not including non-standard scripts.

One reason for P2SH is to have sliding consensus rules. It helps align a strategy (as we saw in Core ) of soft
forks and have hidden transaction rules.

This is not what the original vision of Bitcoin was about. There is no anonymity in Bitcoin, there is
pseudonymity, and that refers to privacy. To be private, a transaction must also be available and traceable.

It has been argued that P2SH is more secure . But as a responder to that claim says,

Basically, P2SH itself is not inherently more secure because the redeem script can be anything. But what
it does is enable coin-receivers to easily communicate how coin-senders should send them coins, while
letting the coin-receivers dictate the conditions of how/when those coins can be spent.

The truth is that what they are saying is that P2SH allows for non-standard scripts to be used. Once the
distinction of standard and non-standard scripts is removed, this no longer holds.

The claim of obscurity is false, it is purely one of security by obscurity, and that is not a valid means to secure
a system:

Which is just 23 bytes in total. The nice thing is that it provides a layer of abstraction. The person who is
sending me coins doesn’t need to know how I am keeping my coins secure. All they see is a hash of a
redeemScript , but they don’t know what conditions that redeemScript actually puts on redeeming the coins.

P2SH — will be sunset

Some developers love to say how change for the sake of change and experimentation are good. If they
were, we would try changing the shape of the wheel. It has remained stuck as a circle for millennia, and by
the same logic used in defending change for the sake of change, we could see them try a square wheel. The
truth is; to change a financial system, such as Bitcoin, it is up to the proposer to demonstrate just how
much better the proposed addition would be. The converse has occurred. All of these changes have taken
away from Bitcoin, and we will return it to the original state.

ABC building a better wheel

So, it is time to start planning to use script. It is the only layer 2 in Bitcoin. In network protocols, layers
encapsulate data. This is, one inside the other, not in external systems.

Bitcoin in this is analogous to HTTP as layer 4 in the OSI model.

In the OSI model of the Internet, HTTP is a higher layer as it is encapsulated, and that is contained.
Something like a side-chain, Plasma, or the Lightning Network is a separate system; it cannot be layer 2 as it
is not encapsulated in script.

OSI — layers like an Onion

In the Bitcoin model, we have the following layer structure:

0 = physical layer,
 1 = data link (the network, such as IP and the Internet or other),
2 = network — the P2P network and the exchange of transactions between users and nodes,
3 = Bitcoin transactions,
4 = script.
More has not been created yet — it is wide open for development.

In any system, there is no concept of permission-less. This idea that you are allowed to create anything you
like — including Silk Road version 2.0 and child-porn exchanges — is antithetical to what Bitcoin was
designed to be: sound money. It ends here and now. What we see on the Internet is not development
within a permission-less framework, it is the ability to develop within law and within the rules of the system.

Just as you cannot choose the format of an HTTP packet and a datagram, you do not get to add and change
OP_CODEs in Bitcoin. You can work in the system, or find something else to try and break.

Welcome to Bitcoin SV — the way that Bitcoin will be cash, and the path that BCH will follow going forward.

Business friendly.

Sound money.
Bitcoin is not Anti State — it is Pro Honest government
By Craig Wright | 09 Nov 2018 | Bitcoin & Blockchain Tech
Bitcoin is an open immutable ledger. It is not anonymous, it is private. There is a huge difference, and it only
works when it is not anonymous. Privacy requires traceability, in a way that allows you to have a way to
access and validate a transaction. To be fungible, money needs to be linked to records — even cash is; we
have invoices and audit trails.

Good government is open and transparent.

Bitcoin makes this simpler. It makes the world more transparent and open.

It allows privacy as users move from address to address, but they do this in a means that allows their activity
to be followed and analysed — but only at a cost. With Bitcoin, any individual can be investigated, but only at
a cost and, to do it correctly, with an audit trail of the transactions; not only users of money in the
“community” but government and the corporations.

It is private but traceable money that is open and can be reviewed, audited, and held to account that makes
us free.

The press
Bitcoin creates a free press. We can have data written (such as we see on Memo ). To have freedom, we
need to have the right to say what we want to say, but, this is the right not to be an anonymous troll, as that
is a means to censor others, to attack and drown them out.
The press must be free

We need to have privacy, but it does not give us the right to slander and lie without being held accountable.
Many on Reddit think that they have a right to make up false claims, to defame others; this is wrong. They
have the right to express an opinion, and when they are defaming, it is using force, it is an attack, and for
that, for censoring others with what they say, the lie, the slander, they must be held accountable.

A free press is accountable.

To be accountable, the free press CANNOT be anonymous. It must be private, but actions must also be
traceable. Without accountability we cannot have a free society.

T ax
Bitcoin allows government to tax more easily. It does not stop tax at all, it makes it fair. A VAT/GST
imposition is applied equally. As you spend on consumption goods you pay tax. If you invest, by capital, and
create something to grow the economy, you keep your money.

Bitcoin allows a merchant to instantly remit tax to the government, with no forms, no need to have intrusive
audits, and the government receiving money instantly and without the need to have a large bureaucracy to
seek and punish offenders; there would be none.
Bitcoin is an open transparent ledger — one that makes a fair tax easier, that allows consumption to be
taxed rather than income, that allows for simple reporting, and reduces the intrusiveness of government
whilst allowing them to provide any necessary services.

What few tell you is that anonymous systems only favour the rich, the powerful, and government. Bitcoin
brings transparency into the world. It allows honest governments to compete fairly on open playing fields,
and stops corruption and fraud.

Bitcoin is not anarchist; it is about freedom.

P2P and returning IP and Domain based transfers
By Craig Wright | 09 Nov 2018 | Bitcoin & Blockchain Tech
Bitcoin was designed to be used as peer-to-peer cash. When the original paper and node software were
released , the system was created with two ways to send money.

There are two ways to send money. If the recipient is online, you
can enter their IP address and it will connect, get a new public
key and send the transaction with comments. If the recipient is
not online, it is possible to send to their Bitcoin address, which
is a hash of their public key that they give you. They'll receive
the transaction the next time they connect and get the block it's
in. This method has the disadvantage that no comment information
is sent, and a bit of privacy may be lost if the address is used
multiple times, but it is a useful alternative if both users can't
be online at the same time or the recipient can't receive incoming
connections.

We see the later now as the only real option. This forms an expectation that you need to send to the
network, that has come about through the myth of nodes not being miners; I demonstrated this was wrong
a while back .

A transaction is exchanged P2P and settled by the miners

The original code needed a lot of work. The following method of connecting to and exchanging details
without users was frankly horrible, but the concept was good if the execution was off:

Enter the recipient’s IP address (e.g. 123.45.6.7) for online transfer with comments and confirmation, or
bitcoin address (e.g. 1NS17iag9jJgTHD1VXjvLCEnZuQ3rJED9L) if recipient is not online.

The original version of IP-to-IP sending was rather insecure. The messaging was completed in clear text, and
the clients did nothing to validate each other. It was open to MiTM (Man in the Middle) attacks and
snooping. Unfortunately, with the erroneous blind siding and blinker of thinking that Bitcoin was about all
the people globally having to run a node, Core removed the feature, and worse, could not even
comprehend a use for it.

Unfortunately, the inability of a few people, with an idea of what Bitcoin should be that was not what it is,
led to the removal of an important part of the system and the lack of development of SPV wallets.

There are ways to have constructed this correctly. One is to have used a secure domain identifier and
DNSSec. With secured domains, the use of certificates would allow a merchant and client to communicate
and exchange data. It was never finished, and it seems nobody wanted to work on it, but I never gave up
hope on this, and nChain has been busy. This was always supposed to be fixed.
One aspect of IP-2-IP included sending messages out-of-band.

This allowed users and merchants to connect when needed and exchange information, invoices, and more.

We intend to see this re-introduced into Bitcoin in a secure manner.

In the Bitcoin SV node software, we plan to start allowing the reintroduction of the various aspects of
Bitcoin that have been removed due to others not understanding these. We seek to push for more SPV
wallets and to allow these to communicate and send between each other.
“Laissez-nous faire”
By Craig Wright | 09 Nov 2018 | Economics
Interventionist politics have played a growing role in all our economic lives. Each bailout is a step that is
seldom regained, and as the government steps in, we do less. We expect to be able to fail and be saved. This
only makes more failures. There is a single economic principle that has resulted in the phenomenal growth
that we have experienced in the last 200 years: the free market.

Laissez faire, telle devrait être la devise de toute puissance publique, depuis que le monde est civilisé.

In contradiction to common mis-comprehensions, market cycles are induced by a lag effect from
intervention and not a market principle (as is generally taught).

The often overlooked truth is that business cycles are a function of intervention and not free markets. The
common counter example to this is the Great Depression. The fallacy is that this was neither an expression
of free markets nor of a failure due to capitalism. Rather, the depression is a response to restricted trade and
monetary policy. The US both introduced restrictive trade tariffs resulting in the collapse of international
markets and restricted the money supply.

The introduction of regulations restricting and controlling the banking industry resulted in a tightened fiscal
policy and fewer loans being available. This was heightened with the crowding out effect as the US Federal
Reserve used funds for the New Deal policy, creating an environment where no money was available to
business. With the increased enforcement of anti-trust legislation, business withered. The consequence: a
larger federal government in the US and the spread of socialist policies that drove the burgeoning free
markets into the grave.

Why should we treat businessmen and women differently. We allow sports people to earn exorbitant sums.
We have rock stars earn as much as they can. We need to come into a world where a process of rewards
attracts the best people to business. This means treating the business people as the rock stars. This means
not interfering, and rewarding those at the top.

When will people wake up and see that the inefficiencies of the world are associated with groupthink and
governments? It is about time that people decided to become free and think for themselves!
Corporate Activism
By Craig Wright | 10 Nov 2018 | Bitcoin & Blockchain Tech
Over the past 2 decades, Anonymous and the related splinter groups that this has spawned have been
attacking business and more. This moral crusade seems laudable to some, but the reality is that this was
detrimental in many ways. No group or individual has the right to say how a company should act other than
to not use that company or to compete with it as long as the company is acting within the law.

Miners are the shareholders

Mere possession of child-pornographic materials is a criminal offence. The protection granted to freedom in
hosting as a mere publisher vanishes as soon as they receive notification. If they receive a warning and do
nothing, they lose all protection. A site that has been taken offline and then proceeds to make the illegal
data accessible again is guilty of a crime.

Terror groups including FARC/FARC-V have been funding their operations through drugs and kidnapping.
The latter being a risky process that commonly results in tragedy and loss. The new paradigm is becoming
even more tragic. In kidnapping both locals and tourists, raping and murdering these people (including
children), and selling the videos in locations such as the #darknet the risk is significantly decreased, and the
profitability increases. A clear win for the terror groups and one that will only lead to increased violence.

There are many reasons I opposed the actions of Anonymous in the past and now oppose those who seek to
alter Bitcoin to make it more “ criminal friendly ”. This is why I oppose the use of changes to Bitcoin that are
specifically designed ( DSV for example ) to allow Bitcoin to be used anonymously and for criminal uses.

Money is neutral — it is not designed to support anonymous trade and violence

It will always amaze me that individuals will offer their credit cards and personal details to these criminal
actors. What better proof can they offer of complicity? Now, others want to add this into Bitcoin Cash and
thus make miners liable, exchanges liable, and, in-fact, anyone who EVER has a transaction with DSV in the
path liable.

You see, money is fungible not through technology but as a result of law. To throw out the legal protections
is to give away the freedoms we have. The push to add constructs into Bitcoin that are designed solely for
this is not just bad, it is immoral.

Bitcoin remains fungible as it is legal and acts as a neutral form of money. When you have a DSV transaction
, you have knowingly received a transaction used in an illegal transaction. That makes the recipient the
receiver of illegal property, and thus anything in the chain of transactions is itself subject to the same loss of
fungiblity.

Well, we are willing to take a stand. ABC is not going to do this in Bitcoin. We will use hash, and then we will
use law. We oppose anarchy and violence.

Others may want to make Bitcoin “better” for criminals, terrorists and to help in it promoting child porn and
violence. We will not allow this.

Bitcoin is NOT permission-less. You have NO rights to violence.

The measure of Justice
By Craig Wright | 10 Nov 2018 | Economics
Justice is simply the absence of injustice, injustice being the tangible force. Many seek to define justice on its
own, and fail miserably. There is a simple reason; it exists in no more than an abstract.

Darkness is not a tangible and material part of reality, rather it is the absence of light. In this way we can
define darkness only through the absence of a particle. In a similar manner we can only define justice
through the absence of injustice. Just as there are infinite possibilities for light both in a pure form and in
complex combinations of light frequencies, injustice is derived in multiple forms. This simplifies the definition
of justice. Just as dark is to the absence of light, justice is the absence of injustice.

Light comes in many forms. These are all related yet perceived differently. Many frequencies of light exist
outside the bounds of what is perceived. These particles, either too energetic or lacking in energy required to
stimulate our senses, exist nonetheless. The reality is that far more types of light exist than could be imagined
through human consciousness. We know of these, and would use them, but perceive them only through
external means.

The same principle applies toward justice. Injustice can occur myriad of ways. For each known injustice, an
infinite variety of injustice can exist and does. Some of these are seen and recorded. Others exist but pass
from the memory of men. This in no way detracts from their reality. These injustices continue to exist
recorded or not in both their effect and potential. Treating justice as a tangible goal is the fallacy of many
political systems. The only achievable and measurable system is the creation of the system that minimizes
injustice. For as dark is defined by the absence of light, justice only exists through the absence of its opposite,
injustice.

The effect is that no effort to create justice in itself can succeed. Individual efforts can be made to remove
selected injustices, but nothing can ever create justice itself. Each effort to create a more just society through
an attack on injustice in itself requires input. Each expense and expenditure takes away from other
possibilities in the limited world that we exist in. This is not to say that we should ignore injustice, rather we
need to measure the effects of countering it.

The cost of injustice can be measured. The cost and consequences of acting against any particular injustice
can be measured— usually after the fact, but within bounds of certainty. No effort to create justice can ever be
quantified. In quantifying the cost of removing an injustice it is essential to consider multiple costs and
effects. This includes both the cost of the injustice itself if it was left to exist and the cost of alternatives. Each
injustice is a particle. It is intangible and metaphysical, but it affects the real life and existence of people.

Other considerations in the pursuit of countering injustice include the negative. For each injustice pursued,
multiple other injustices will be left unaddressed. Worse, the fight against injustice requires input. This is the
taxation or funding of projects designed to create a more just society. In doing this, the property reallocation
can itself be an injustice. Hence, any fight against injustice can have a negative consequence of making a
more unjust society.

Any system seeking to make society fairer or more just needs to consider the consequences of its actions. It is
essential to weigh both the cost of taking the action designed to minimise injustice and the lost opportunity
costs that result from not acting on other injustices.

The absence cannot be achieved. Just as no part of our universe is truly dark, no part of our world can be truly
just. The answer is to minimise the level of injustice when weighed against the cost.
Payment intermediaries
By Craig Wright | 11 Nov 2018 | Bitcoin & Blockchain Tech

What does Bitcoin do?

To understand Bitcoin, it is necessary to understand what Bitcoin is designed to do, to be. Bitcoin is not a
means to remove banks, offer credit, or undermine government, it is a means to replace the ineffective
payment systems (such as Visa and MasterCard) and the problems these create.

What is a payment intermediary or middleman?

The difficulties in transferring cash payments over large distances and between people who may have never
met and may never meet created the need for payment intermediaries in Internet transactions. Payment
intermediaries provide both trust and some realistic means for a purchaser to transfer consideration to the
seller reliably. For instance, if a buyer on an online auction site comes up with the highest bid incurring a
debt, a payment intermediary would be involved in order to arrange a transfer of funds either from the
purchaser’s banking account or via some payment-card system cons making the transaction. One of the first
was PayPal.

As an example, if party A located in Singapore was to sign up for an account with a licensed online casino
such as Lasseter’s Online in Australia, party A would require some means of transferring funds from their
banking account to a trust account managed and maintained by Lasseter’s Online. When party A has
subsequently been successful at their gambling pursuit playing online poker, the party would require some
means of ensuring the return of their winnings. If on the other hand party A had accumulated gambling
debts, Lasseter’s Online would require some means of ensuring that funds in the trust account are used to
pay those debts.

In the case of less significant amounts, this may be as simple as holding party A’s credit-card details in a
database. In situations where the transactions are large, Lasseters may wish to use party A’s bank to transfer
money in advance or otherwise to secure some assurance that A’s potential gambling losses will be covered.
The payment-card company or bank in practice is an essential actor for the conduct in which party A desires
to enact.
Removing the middleman…
It was originally believed [1] that digital cash or electronic money would be created or minted allowing for
some type of universal credit and would facilitate Internet transactions. Although a number of schemes did
emerge, the vast majority of transactions that occur across the Internet are made by way of traditional means
such as credit cards. [2] Rather than digital cash being minted, a new type of payment intermediary
developed. Peer-to-peer (P2P) payment systems, [3] such as PayPal, emerged allowing individuals to receive
transactions directly [4] , bypassing merchants, and also act as a means of consolidating payment methods
by providing a mechanism to interact with various banks and payment-card institutions directly.

Peer-to-peer processing networks have aided the growth of auction intermediaries such as eBay. [5]
Payment-card providers, P2P systems, and other entities that act as a mechanism to facilitate commercial
transactions [6] also have the capability to stop illicit transactions and act as regulatory enforcement points. A
commercial site distributing child pornography from Nigeria cannot be run profitably without an economical
method of receiving consideration. If the site operators cannot reliably receive payment, they will quickly shut
down. As the financial gatekeepers, payment intermediaries can be used to prevent illicit activity over the
Internet — either through proactive actions or upon the receipt of court orders; and an Internet payment
intermediary could be used as an aid to curtail undesirable activities occurring across the Internet.
With Bitcoin, the need for a middle man was removed. It enabled the ability to have true P2P electronic cash.

Notes:
[1] Anderson et al. in their Dec 1997 presentation “ Exploring Digital Cash ” argued that digital cash would “
likely continue to evolve remarkably quickly ”.

[2] In 2002, roughly ninety percent of Internet transactions used credit cards. Ronald J. Mann, Regulating
Internet Payment Intermediaries , 82 Texas L. Rev. 681, 681 (2004).

[3] In this context, P2P stands for “person-to-person.” The term is to be distinguished from the more common
use of the same acronym to describe the peer-to-peer file sharing discussed in the context of piracy.

[4] See Mann, at 683.

[5] Id.

[6] Because of the fluidity of payment mechanisms on the internet, there are a wide variety of service
providers of various kinds (such as organisations like Checkfree, Cybernet, & Authorize.net) that might or
might not be regarded as intermediaries, depending on the circumstances. For purposes of this essay,
though, we focus on the dominant intermediaries like Visa, MasterCard, and PayPal.
Bitcoin and the Long term
By Craig Wright | 12 Nov 2018 | Bitcoin & Blockchain Tech
Government “stimulation” basically slows change. This takes funds from more productive sectors, and
redirects it into less productive ones. It maintains the status quo at the expense of slowed growth and
future debt.

The last 100 years have been a period of rapid change. ALL decades experienced innovative development
and creative destruction. The government response has been to promote the existing corporations that
once were great and no longer have the innovative culture that caused them to exist in the first place.

This of course is politics responding over economics. Politicians like large government. They can pork-barrel
existing (and politically supportive) firms over newer ones which are likely to change existing economic and
cultural dynamics. The problem is that this always fails in the long term, but with the result that we have
lower net wealth and productivity in the short term.

Keynes did decry the long term, for in politics, everything is the short term economically.
Building Data
By Craig Wright | 13 Nov 2018 | Bitcoin & Blockchain Tech
In the beginning, Bitcoin allowed data.

In Bitcoin, a world of data was open. The following OP_Codes and the limits could allow data to be pushed
into the blockchain and exchanged. These (still enabled but castrated through block size) script commands
worked by sending the next byte that contained the number of bytes to be pushed onto the stack.

OP_PUSHDATA1 76 255 max data - The next byte contains the number of bytes to be pushed onto the stack.
OP_PUSHDATA2 77 65K max data - The next two bytes contain the number of bytes to be pushed onto the stack.
OP_PUSHDATA4 78 4.3G max data - The next four bytes contain the number of bytes to be pushed onto the stack

Right now, due to the 520-byte limit (520=0x208), we only need at most two bytes to represent the number
520. So, with OP_PUSHDATA4 the smallest number using four bytes is 0x10000000=268435456; well, this is
an enabled but dead OP_CODE.

The truth is, data is the ideal business to add, and in late November you will see how this relates to
malleability. No, there is no need for a mal fax, and in fact, a mal fix kills the protocol. Dead… well, it is still
walking… for a time.
Sorry, but the entire Internet is about to change.

Everything is.

Data is easy and inexpensive for miners to hold and process. If miners try to withhold data, they will find that
they have a block orphaned. So, the reality is: data is a good source of revenue for miners.

OP_PUSHDATA4 sets the next 4 bytes to be interpreted as an integer which indicates the size of the next
piece of data that will be pushed onto the stack. This allowed up to 4.3 GB of data to be included in a
SINGLE push.

At the CoinGeek Week Conference we will demonstrate why this all matters.

In 2019, we move to remove the limits, the shackles on Bitcoin and set it free.
Bitcoin is cash, and it is more than you could have imagined.

No limits.
Problems and key questions around Bitcoin
By Craig Wright | 13 Nov 2018 | Bitcoin & Blockchain Tech
The first problem to be addressed concerns the nature of lawful money. In the United States, the Stamp
Payments Act of 1862 [1] was enacted to stop the circulation of private tokens that were in competition with
federal postage stamps. It has been argued that the language of the statute may apply to electronic
transactions [2] extending the derivation of “ note, check, memorandum, token ” as money. Even the notion
of Bitcoin as an obligation comes into question as we need to define the concept of a third-party issuer. The
peer-to-peer nature of the currency means that obligations are derived in a manner unlike that of other
monetary sources [3] .

Bitcoin is a form of currency [4] . The statement in itself is heavily contested [5] . A key part of the problems
surrounding this classification comes from the polymorphic nature of the system. It is not that Bitcoin is
currency, a security or a token, it is that the multifariousness of the system allows it to be used as any of
these at any time. As commodity monies such as gold could be utilised in exchange or alternative uses
including electronics and jewellery have many use cases, we can also apply this to bitcoin [6] . The difficulty
is not in determining whether bitcoin has value but rather implementing a framework that captures the
particular transaction and allows this to be successfully classified.

In this series of posts, questions of the security regulation challenges posed by bitcoin will be investigated.
This will extend to investigating the consumer and investor protections that are associated with traditional
financial exchanges [7] and researching their effectiveness when applied to virtual currencies.

A particular concern within the thesis presented will be the focus of cross-jurisdictional challenges [8] . The
use of bitcoin over the Internet increases opportunities for money-laundering and many fraudulent
activities [9] . Contrary to widely held beliefs, bitcoin and other cryptocurrencies [10] do not mitigate
opportunities for fraud, but transform many old frauds opening up global prospects that are associated with
traditional financial scams and Ponzi’s.

Notes:
[1] 18 U.S.C. Section 336

[2] For an exposition of the genesis, legislative history, and analysis of the Stamp Payments Act see Thomas
P. Vartanian, Robert H. Ledig, and Yolanda Demianczuk, Echoes of the Past with Implications for the Future:
The Stamp Payments Act of 1862 and Electronic Commerce, 67 BNA’s Banking Report (September 23, 1996).
[3] http://arxiv.org/ftp/arxiv/papers/1411/1411.4633.pdf

[4] Griswold v. Hepburn, 2 Duv. (Ky.) 33; Leonard v. State, 115 Ala. SO, 22 South. 504; Insurance Co. v. Keirou, 27
111. 505; Insurance Co. v. Ivupfer, 2S 111. 332, 81 Am. Dec. 284; Lackey v. Miller, 01 N. O. 20

[5] http://www.forbes.com/sites/jeffreydorfman/2017/05/17/bitcoin-is-an-asset-not-a-
currency/#226ca6b82e5b

[6] Bollen, Rhys, “The Legal Status of Online Currencies: Are Bitcoin the Future?”, (2013) 24 JBFLP 272 at 275.

[7] Application of the Definition of Money Transmitter to Brokers and Dealers in Currency and other
Commodities, FIN-2008-G008, Sept. 10, 2008. The guidance also notes that the definition of money
transmitter excludes any person, such as a futures commission merchant, that is “registered with, and
regulated or examined by…the Commodity Futures Trading Commission.”

[8] European Central Bank, Virtual Currency Schemes, October 2012

(http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf, accessed 12 January 2014)

[9] Dr Russell Smith of the Australian Institute of Criminology stated in 2000 that:

“The perpetrators of many on-line scams … are often not large corporations. They are able to close-down
their operations quickly and easily, move assets to secure locations and use digital technologies to conceal
their identities and disguise evidence. In such cases there is little likelihood of success whether civil or
criminal proceedings are taken.”

Dr Smith noted that fraud may be committed both electronically and in paper based payment systems by
individuals opening accounts with false identification details. These individuals may then exceed credit
balances or alter instruments or messages used to authorise transactions. On the Internet, traditional
methods of fraud and criminal activity have been updated such that they use this new technology capably.
However, there are dilemmas other then fraud on the Internet. It is necessary to understand the relationship
between the various parties on the Internet and how they interact if we are to gain an understanding of the
issues facing Internet intermediaries.

Smith, 2000 “Confronting Fraud in the Digital Age”

[10] The term “cryptocurrency” refers to a digital currency that relies on the principles of cryptography to
process and validate transfers
Sustaining Hash
By Craig Wright | 13 Nov 2018 | Bitcoin & Blockchain Tech
Many out there such as the developers in ABC want you to believe that a burst of hash matters. It is
promoted that ABC have a burst planned with Bitmain’s support, that this will make them the longest chain
and win.

ABC showing us the power of CTOR

This is NOT how Bitcoin works. What matters is sustained hash. Not over a day or even a week, but months.

Say you rent hash; you take a short-term investment, and spend tens of millions on rented hash. This gives
you a burst. Then, as fast as it happened, it is over and the chain is back to normal. The only way to keep
gains in Bitcoin is the long term. If you seek to change Bitcoin, we will be there waiting to defend it. You
should have purchased machines and invested in the network, for all you do will be in vain.

In a hash competition, it matters that you run a marathon, not a sprint.

The image above is what we have — long term. These are sustained machines, and they are not all we have.
This is already a slice of mining that is not profitable to maintain at this level; yet, we will for the long-term
gains. We are not Keynesian, we are here for Bitcoin Cash and ONLY BCH. The amount of hash on the side
of SV is larger, as we have allies, and they stay as they know, long term we will win. Not as we will fight a day,
but we will not end.

So, if you burst, you get ahead, and as soon as you stop, we are there. As soon as you stop, we have 51%, and
we do not agree with any chain in BCH that is NOT the original white paper’s version of Bitcoin.

This means, you cannot ever stop. If you burst, we will just sit on BTC and sell back for fiat money. Then, as
soon as you stop, we take all you tried to hold and tear your dishonest chain down.

If you lose 51%, then you lose all you have dishonestly taken. Every false block, every stolen transaction and
illicit exchange, it all goes to zero. You cannot take a payment, as with time it takes for miners to have funds
settled you will find the chain reversed.

We will defend the real, the original Bitcoin. We will ensure that Bitcoin remains cash.

So, if you are not willing to expend money on attacking Bitcoin Cash for years, not months, not days, but
YEARS…

We will wear you down and tear anything of your dishonest chain down. We are here to defend the original
version of Bitcoin. When you get tired, we will be there. If you ever do not maintain 51%, no matter how
much you are losing — we will be there.

We do not forgive.

We do not forget.
nSequence and P2P exchange
By Craig Wright | 13 Nov 2018 | Bitcoin & Blockchain Tech
In the beginning, Bitcoin allowed two parties to engage in a peer-to-peer trade and exchange that was P2P
and then to be sent to the blockchain (the miners) for settlement. Welcome to what Bitcoin was and will be
again.

The original version of Bitcoin used sequence numbers. These cannot be seen on Bitcoin block explorers as
they are now no longer used in Bitcoin and default to the final FFFF’FF time. Any non-default sequence
numbers end up displayed only in raw transactions.

Sequence numbers were designed to be used for transaction replacement before a transaction was
finalised. This feature has been disabled, but in Bitcoin SV we will have this in action again, allowing users
the following:

Alice sends a transaction where the nLockTime value is set to a date in the future. We can start with
anything, but by default we would start at a sequence number of 0.
The miners will not recognise this transaction to be valid, and thus, it is not “final”. The network of
miners will not include it in a block before it is final, and that will only occur when the nLockTime value
has been reached.
As the transaction cannot be included in a block until the time specified in the nLockTime is reached,
there is a final state that both parties have agreed to and also the ability to send updated transactions.
If there is a 2-of-3 address, the parties can use an escrow (such as a licenced shared registry) to ensure
that a transaction that has been agreed is final. If not, we can also have the parties negotiate and allow
a means to “pull out” of the negotiation at any time before the nLockTime deadline.
Using this method, and prior to when the set nLockTime is reached, the users can replace the
 transaction with a higher-version transaction. A higher sequence number is a newer version that
replaces the ones before. That is, the network will accept the highest sequence number for
transactions once the nLockTime has been reached, rejecting all others with a lower value.
The negotiations can also be finalised. If a party sets the sequence number to UINT_MAX, the
transaction is considered as being finalised by the miners. No replacement can occur. When the
sequence equals UINT_MAX, miners will no longer accept a replacement transaction even where the
nLockTime value remains in the future.
If you ever want to lock the transaction permanently, you can set the sequence number to UINT_MAX.
Then the transaction is considered to be final, even if the time represented in nLockTime remains in
the future.

We can use this feature in the original version of Bitcoin to allow two (or more) negotiating parties to create
and sign a prepared transaction.

These prepared transactions can be negotiated, agreed, and signed by the the parties allowing them
to move money between each other. This can allow for a base agreement and payment stream. This is
conducted securely and without fees — the fees paid are to the miners for the settled transaction, not
the exchange.
Extended this would allow for a range of services to be created that involve users withdrawing and
depositing funds into a service without waiting for confirmations.
If the user breaches the contract, the final transaction could be signed with an escrow to ensure
compliance and that the merchant is not “cheated”.

As this was disabled in Bitcoin Core (BTC), all Bitcoin Core transactions use an nLockTime = 0 with a
Sequence = UINT_MAX.

As was explained to Mike Hearn in the following post :

An unrecorded open transaction can keep being replaced until nLockTime. It may contain payments by multiple pa

There are other options in SignatureHash such as SIGHASH_SINGLE which means "I agree, as long as this one outpu

The parties could create a pre-agreed default option by creating a higher nSequenceNumber tx using OP_CHECKMULT

One use of nLockTime is high frequency trades between a set of parties.

They can keep updating a tx by unanimous agreement. The party giving money would be the first to sign the next

The end, is that we can create payment channels and more. This includes high-frequency trades and
transactions including auctions.
So much has been lost in those wanting to change Bitcoin rather than in understanding it.

This design is secure. Those who say that a miner can collude, specifically “ one party could collude with a
miner to commit a non-final version of the transaction ”, never understood Bitcoin nor the capability of
script. Bitcoin is an economic system that uses technology.

That all changes. Bitcoin will remain cash, and it returns to the first version: 0.1.0 as was set in stone.

Notes:
See the following pages:

http://en.bitcoin.it/wiki/Contracts
http://lists.linuxfoundation.org/pipermail/bitcoin-dev/2013-April/002417.html
http://en.bitcoin.it/wiki/NLockTime
http://en.bitcoin.it/wiki/Protocol_documentation#tx
http://en.bitcoin.it/wiki/Contract#Example_7:_Rapidly-adjusted_.28micro.29payments_to_a_pre-
determined_party
Miners and Property rights
By Craig Wright | 14 Nov 2018 | Bitcoin & Blockchain Tech
In this post I will offer a little advice for the legally clueless. A few ABC developers are arguing that empty
blocks are legally an easement (so much for permission-less).

Let us start by exploring this claim by an ABC developer:

“Mining empty blocks” is an attack because it is “blocking an implied easement to my property.”

I am sorry to burst your bubble, but you have NO property in a block. A miner is paid to validate a block with
the transactions that the self same miner agrees with. This is what miners do. They are not obliged, they can
choose what they do and do not accept.

Mining an empty chain (such as on ABC) is a part of the protocol. In fact, you are breaking the rules expecting
a miner to mine your TX. Any validation is a contract. A miner can set the fees to any amount they desire, and
reject all other transactions. This is defined in the original Bitcoin white paper.

Right now, mining empty blocks allows a miner more choice. The block rewards are still large enough to
allow a miner to do this and remain profitable, but, this is not how the system evolves. As the reward halves,
the value of the fees to a miner increases. In a short amount of time the fees will be all Bitcoin has, and then
any forced changes will be truly expensive to the miner.

Miners do not even need to be considerate or reasonable. They can set any policy they like. For example, a
miner can set a fee of 1,000 BCH as the fee to send a single TX. In this, they may just accept a 10,000 DVS
(OP_DataSigVerify miner fee) transaction and leave the rest of the block empty.
Miners can choose to accept no single CTOR block. They can mine and set a rule that the block deserves only
to include a transaction where it is unlikely that one will ever meet their high standards (as ABC is of no use as
money). Basically, the point is; as a user, no , you have NO rights. Miners do. Users make an offer to a miner.
Users make a unilateral offer of a fee to any miner who validates their transactions (and thus includes them in
a block). The miners can choose to accept this or leave it for one of the competing miners, who in many cases
will take it.

Users have the right to PAY for their transaction. Miners out of the good will and incentives can agree to send
the transaction. If there is no fork, this is the general scenario. In a fork, miners can do as they please with a
chain they do not agree with. The aim of Bitcoin is to be a single chain, a ledger that acts as sound money.
Allowing other chains is a means to deviate from this path.

Any miner or group of miners with more than 51% of the hashing algorithm under their control (as a group)
can even LEGALLY kill off a dishonest chain. And, a dishonest chain is one seeking to alter the protocol (that is,
to change the rules of the game and subsidise others).

That is the miner’s right. This is what Bitcoin is. It is ALL, and I mean all incentives.

Hence, if you use invalid rules (such as those proposed by ABC), you can expect to lose your transaction.
Please do not come crying when you are bankrupt. This is what Bitcoin is designed to become.
They vote with their CPU power, expressing their acceptance of valid blocks by working on extending them
and rejecting invalid blocks by refusing to work on them. Any needed rules and incentives can be enforced
with this consensus mechanism.

Bitcoin is a means to create stable money, a single protocol that is set and does not change at the whims of
others. Honest miners defend this idea.

Miners provide an invitation to treat to users.

A user sends a transaction that is an offer. The fee is the payment offered to the miner in response to the
invitation to treat.
If the offer is not to the miners liking — for any reason, the miner does not have a duty to accept the
transaction.

In an attempt to deal with the complexities that have appeared from the development of online consumer
transactions, the ECC e-commerce law requires the supplier to issue a receipt for the order[1]. This receipt is
issued by the inclusion into a block by the miner who can take the fee from the user for its efforts.

The simple fact is that miners are not under a duty to take a transaction, they can and do come and go as
they please, and this is how Bitcoin was designed from the start.

Notes
[1] See Article 52 of the e-commerce law — the Electronic Commerce (EC Directive) Regulations 2002;
commonly called the Electronic Commerce Regulations.
Proof of State, or, the new Fed
By Craig Wright | 14 Nov 2018 | Economics
The thing that few see is that we already have proof-of-stake (PoS) .

The US Federal Reserve is a prime example of an existing proof-of-stake system with the control of the USD.
In the US Fed, a small group of Governors , in other words, plutocrats with little direct skin in the game set
policy, and control the system for the “good” of all. In a system such as EOS and one Ethereum seeks to be,
we have the same model being propagated.

Proof of Stake in action

Unlike proof-of-work (PoW), the small group can act to enrich themselves and their organisations and
manipulate the system to “protect the economy” — in effect, to ensure a small group of people in control
remains in control. Proof-of-stake is a system designed to maintain the status quo, to ensure that those in
power remain in power. It is not about a stable economy, it is about a stable set of power players that are
rarely if ever removed.

This is proof-of-stake; once you have power, you maintain power. I have explained this before . The biggest
problem is that PoS is not even an efficient version of the US Fed. An oracle database allows for “atomic”
encrypted transactions. It does this now. In fact, it can do this across systems more securely, with 1,000x the
speed of a system such as Ripple (XRP), and with a far greater lever of security. So, the gains from a “
permissioned ” blockchain or a proof-of-stake system are negative.
Proof-of-work is about removing the need for the US Fed; in fact, it removes the necessity of the fiat-issuing
controls of any central bank. It creates a means to open a trust-free global money, P2P electronic cash for
the world. It does not remove the central banks, but it allows for a system that is analogous to the Euro in
continental Europe, that is a single money. Sound money. Each nation can maintain a central bank, but they
are constrained in the limits of what they can do, as the amount of reserves will flow out of the country, if
the local central bank tries to “cheat” and issue more loans and money than they can support.

Proof-of-stake is not new. The addition of a “blockchain” to proof-of-stake, proof-of-authority, or whatever

boondoggle scheme a group of scammers think up to milk the “noobs” is not a technical advance at all. It is
a sham used to hide a poorly designed permissioned and badly distributed database.

The only thing that secures proof-of-work is competition. It is the need to constantly work to maintain a
lead. Even if a single miner manages to achieve more than 51% control of mining power for the short term,
they find more profit in maintaining the system.

This is different to PoS where a small group can take from the majority. When the US Reserve bank
manipulates the USD money supply, the banks that are a part of the US Reserve receive the majority of the
benefits. It is not a system of fair competition, but entrenched power.
The addition of a “blockchain” to a system such as XRP, ETH, or EOS is a mere sham. The blockchain adds
nothing. It is a cover that slows the system under a pretence of adding trust-less immutability. The truth is
that blockchains can be reversed, they can be unwound.

The only thing that stops this in Bitcoin is the fact that miners compete. Even where a large miner arises,
they know that the value of the system is dependent on them maintaining the rule-set, that is not changing
the system.

So, if you think that you can create a new version of the US Fed, remember, “blockchain” is a far slower
version of an oracle database when used in this manner. Bitcoin uses the blockchain not as a mere
database but as a distributed competitive system, an engine of capitalism.

There is no monetary system that allows for one-vote-one-person without sharing full identity. This (PoS) is a
system where those without or with little “skin in the game” get to punish others without cause. It is a
system where the short-term political winds blow the economy into cycles and bubbles.

Bitcoin is a system designed, at scale, to bring sound money to the world.

Set in Stone
By Craig Wright | 15 Nov 2018 | Bitcoin & Blockchain Tech
Bitcoin was designed from the start to be a form of stable money, that is: it has a set amount, not that you
can buy a set quantity of anything with it.

If you alter money, you always change the “ rules of the game .” You cannot change Bitcoin without
subsidising one party and taking from another. Any change is less than a zero-sum game. The party seeking
change (may) win, but only and always at the overall expense of the system and the majority of the people
using it. This is the key problem with fiat as we have it now. This is what Bitcoin was designed to stop.

The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest
of its lifetime . Because of that, I wanted to design it to support every possible transaction type I could think
of. The problem was, each thing required special support code and data fields whether it was used or not,
and only covered one special case at a time. It would have been an explosion of special cases. The solution
was script, which generalizes the problem so transacting parties can describe their transaction as a
predicate that the node network evaluates. The nodes only need to understand the transaction to the
extent of evaluating whether the sender’s conditions are met.

The purpose of Bitcoin was always to create sound money. It is not anonymous, and it is not designed to
facilitate anarchy and destroy the state, it is simply and most critically a means to have a P2P electronic cash
system that cannot be debased.
I don’t believe a second, compatible implementation of Bitcoin will ever be a good idea . So much of the
design depends on all nodes getting exactly identical results in lockstep that a second implementation
would be a menace to the network.

The system is controlled by CPU (hash) power, and it is not a democracy. The original version of Bitcoin was
designed with all that was needed, and:

This is a design where the majority version wins if there’s any disagreement, and that can be pretty ugly for
the minority version and I’d rather not go into it, and I don’t have to as long as there’s only one version.

Bitcoin SV will return Bitcoin to what it was supposed to be, from the start and at 0.1.

Then, we scale to the world.

The hardware wallet in a phone
By Craig Wright | 15 Nov 2018 | Bitcoin & Blockchain Tech
There is a rather simple means to have a secure hardware wallet, and it works far better than Ledger or
Trezor and those sorts of wallets. In this post I will discuss this using an Android Samsung, as this is what I
use, but similar processes are available on most phones.

An old phone is a good wallet. It can be a new phone, but an older model can also work.

On a Samsung phone, there is a “work mode” where the section is encrypted. This allows for apps with a
biometric and second-layer encryption.

Using a wallet such as Centbee, where you hold your keys, you can move your Bitcoin onto the phone and
leave it off when not in use.

If you do not use the phone for browsing and email etc., the attack surface is extremely small. Most attacks
are going to be client-side. You do not even require the phone to have a SIM, as it can connect to wireless
only (making it even more secure).

Personally, when compared to the existing “hardware wallets” and the security they offer…

I would recommend the SIM-less phone.

Present Liability Schemes and Sanctions
By Craig Wright | 16 Nov 2018
| Bitcoin & Blockchain Tech
The actor with the best capability to thwart most forms of internet-related misconduct is the primary
malfeasor. The release of malware such as a “worm” is without doubt best prevented from causing harm by
the person that created and released it against the Internet. For pornography sites to succeed there is a
requirement for both a viewer and commercial website. If either party is absent, the commercial viewing of
pornography and obscenity will not take place. This is even truer in the case of an interactive service such as
gambling and online casinos. As such, direct control of either of these actors will thwart much of the social
harm caused by this type of activity. This straightforward approach is the one most commonly utilised by
the law.

Regulations attempting to avert misconduct through a process of protecting the primary malfeasors from
their own actions are becoming less effective in the distributed world of the Internet. Both when the actors
are judgement-proof and in cases where prosecution is unproductive due to a high degree of dealings or
due to the low worth of each transaction, this legislative approach has proved ineffective. Consequently, the
direct regulation of individuals (such as in cases involving an infringement of copyrighted material) who use
the Internet remains ineffective in diminishing undesired conduct. [1] The result is that Internet
intermediaries are commonly seen as both the target of opportunity and the answer to judgement-proof
actors.

When it comes to a DEX or a “smart-contract-based exchange”, it is again the people in the system; code
does not create itself and launch. The result is, no ICO can be “decentralised” as many try and (falsely) claim.

The primary malfeasance is from those who create the ICO. They remain liable. The exchange remains
between people, and it is settled on a blockchain. The process of settlement has no impact on the legality of
a security, and consequently, an ICO is just a security under law as all securities have been through history —
from Pink sheets to web IPOs; ICOs are not even remotely novel.

Notes:
[1] A number of innovative approaches to solving the issue are provided by Lemley & Reese; William W.
Fisher III, Promises to Keep (2004).
Taking care of Business.
By Craig Wright | 18 Nov 2018 | Bitcoin & Blockchain Tech
Going forward we will start to open up and allow business use of the Bitcoin blockchain. Bitcoin scales, and
we will be demonstrating this in the coming days as we first start running 128-MB blocks and we will move
to remove the block cap altogether. In the coming years, we plan to support an unbounded blocksize and
as many transactions as people are willing to send us.

Business use

In a couple of weeks at the CoinGeek conference , we will let you in on some of what we have been working
on at nChain. It is not a method to create anonymous systems to help promote and create anarchy. Rather,
we have been developing technologies to increase business efficiency, to open markets, and to allow trade.

The error in how many have come to see Bitcoin stems from the HODL fallacy and the concept of getting
rich off the work of others. That is to buy and wait as others work to create value and no more. We will start
to demonstrate how this does not matter and, in time, how we will stabilise the volatility of the system
making a path for use as cash and far more.

To many in the “crypto” space the entire use of Bitcoin and alternative chains has been as a speculative
asset. We are going to start to show a long-term path for miners, not exchanges and speculators, but those
seeking to build the next-generation Internet of value.

The Bitcoin blockchain is a commodity ledger. It is a method to exchange value without the issue of double
spending that has plagued all other attempts to create a digital currency. The fallacy is seeing Bitcoin as a
road to short-term riches. The long-term road is pathed using commercial transactions.
Here, it is not the value of the coin that matters; in fact, if the value of Bitcoin is volatile, it does nothing to
the use of Bitcoin as a commodity ledger. At scale, we expect the cost to a merchant for sending a simple
marker and record transaction securely encoded to remain under $0.001 USD. Over time, this will be lower.

A more complex contract could be encoded for $0.05 USD.

The fact of all this is that it does not matter whether the merchant seeks to pay in USD, GBP, or Yuan. They
are not seeking use as a purely speculation-based system, so the market of the transaction is sold as a
commodity in their local currency.

We have already documented several 100s of inventions that have real-world value today. These are
concepts and seeds of businesses that we will provide to developers seeking to extend the Bitcoin protocol
on SV — not as a means to take down the state or anything along those lines, but simple and boring uses
such as technological data plumbing. This will be tax invoices and contract-exchange platform — systems
that allow a user to purchase an item in the local store, and have it recorded and available later for use as a
tax record. It could even be automated to load into an accounting system.

The concepts for inventions in our portfolios and the associated inventions will be available to open the use
of the Bitcoin blockchain globally.

These records would be stored in the public blockchain in a completely private manner and without loss. A
miner will be paid for processing the transactions, and the merchant and user now have a system that is
able to minimise fraud, loss, and alteration.

The reality is that an exchange would be able to occur for a cost lower than existing paper-based invoice
and receipt systems.

Most importantly, as the cost is paid as it is used, the system is not subject to volatility. Merchants would pay
in their local currency and not care if the transaction was more or less expensive in bitcoin to USD terms.
The number of bitcoins required will fluctuate, but the costs to the merchant would be able to be stable.

So, what do we see as our market? The crypto community?

No, we see our market as the world. Any merchant in any country. We plan to open development of systems
that will have billions of people using Bitcoin in the coming years, without even knowing that they are using
Bitcoin. Basically, we seek to create a system that proves the ends which reflect how any good system
should be — not one based on ideology and religious drive, but simple efficiency and value.

Interestingly, even with a dispute as we see today between ABC and SV no loss of transactions would have
occurred on the SV chain. Our solutions and businesses deploying these would not even have to concern
themselves with the ongoing “hash war”.

The system is that resilient.

Commodity and security
| 19 Nov 2018 | Bitcoin & Blockchain Tech
By Craig Wright
Bitcoin is a commodity based on the exchange of a tokenised security issued as a payment to the
“miners” or nodes in the system for a right to have an “immutable” entry saved to the ledger. The miners
or nodes are paid in multiples of the base unit of Bitcoin that is known as a “satoshi”. This unit is a small
indivisible value that is worth a small fraction of a cent on today’s markets.

The commodity used by Bitcoin is based on the right to have an entry written into the ledger for an
amount of exchanged tokens that are mutually swapped from the user to the miner. The miners run the
nodes that validate these entries and ensure that these are valid and cannot be replayed or “double-
spent”. Hence, the miners who run nodes accept fees in exchange for the provision of a service.

This is in effect an arrangement under contract. The users of the system make an offer to all miners. The
miners accept this offer by including the transaction into a block. Mining is a competitive industry. Any
miner can choose to accept or reject a transaction knowing that another miner could take the payment
in a transaction. As more transactions are included, the cost of processing a block increases. This leads
to a natural block-size equilibrium based on the utility and external use value in the blockchain.

The exchange of trade in “writing” an entry into the Bitcoin ledger is based on the payment of a mining
reward that is formed using an integer value of tokens. There is only a whole number exchange in
tokens. There are no fractional satoshi. 100,000,000 or 10⁸ satoshi are represented using the nominal
designation of 1 bitcoin. The system does not allow the exchange of 0.1 satoshi for instance.

Mining as a contract
Contractual negotiations are the result of a series of communications that create a legally binding
agreement [1] . Miners can risk creating larger and more complex blocks than a “consensus” of miners
will agree to process, but suffer the risk of being orphaned. When this occurs, some transactions will be
included by all miners, and some may be left to expire as the miners do not see value in the transaction
fee when compared to the size or complexity of the transaction.

Orphaning occurs when the majority of miners build on a separate fork. In this scenario, two miners
solve a block at around the same time, or one miner or group does not agree with the format selected by
another. If the transaction is included by one miner in a block and excluded in another, it will have
further opportunities to be included into a later block or to expire if no miner is willing to incorporate the
transaction into a block for the attached fee.

A Bitcoin transaction never truly expires. If a transaction is processed by miners and is not accepted into
a block (such as for the reason that the block reward is too low), it can be sent over and over, until it is
accepted or the transaction is replaced with one that is accepted. Most miners will drop a transaction
from memory after 72 hours. This does not stop the user from re-sending the transaction and seeking to
try and have it accepted again. This could lead to a scenario where low-fee and less important
transactions are included into blocks in “off” periods, when the volume of transactions are low, and the
exclusion in peak or high-use times.

As long as a transaction has not been included into a block, it remains feasible for a user of the system to
create two transactions that are mutually exclusive. If this is done in order to defraud a merchant, the
act will be a form of larceny. Generally, what will happen is that a transaction that incorporates the
minimum fee required by the consensus of miners will be accepted and processed into the next block. If
a conflicting transaction is seen in this time it will be rejected. As such, a transaction will only be
replaceable when it expires. This can occur, if most nodes (miners) do not accept the transaction (the
fees are too low), or it is not considered valid for some other reason by the consensus of miner nodes.

Where a merchant processes a transaction that has a miner fee under the minimum “safe” level, they
are effectively assuming a risk of a double spend. When a set of miners have agreed on a consensus
minimum transaction fee, the inaction of miners to orphan an intentional double spend, isolating the
“dishonest” miner that has aided in the commission of a larceny or other fraud and theft, should result in
actions in negligence.

In the use of a double spend to defraud a merchant where the standard minimum fee has been included
in a transaction, inaction from miners is risky. The most effective enforcement framework involves
enforcement from the least-cost provider as proposed by Mann & Belzley [2] . There are various kinds of
services connected with Bitcoin mining, and the liability of the miner as a service provider may depend
on what form of transaction verification is being provided. At one extreme, a simple validation of a
transaction would mirror the liability framework of long-distance telecommunications providers, at the
other there are Internet publishers when it comes to the proposed incorporation of OP_Codes that are
specifically designed to facilitate illegal activity .

In many cases, liability will depend upon how a court faced with a case of first impression analogises a
particular miner when applied against more conventional categories of information providers. For
example, should the miner as a service provider be viewed as the equivalent of the telephone company,
purely a conduit for information? This might be the right analogy for the telecommunications-link
provider, but clearly does not fit the publisher. On the other hand, if the miner is viewed as analogous to
a publisher of a printed publication, there is a much greater exposure to liability [3] .

The consensus agreement deployed is such that miners could be deemed to comprise a common-law
partnership. The failure of one miner to intercept and reject the actions of another miner would in this
model be analogous to the partners of a firm failing to take action to restrain the negligent or illegal acts
of a rogue partner.

In some scenarios, the provider of a host computer for the validation of transactions could be compared
to a printer or perhaps a distributor of printed publications. It could also be argued that a Usenet group
or bulletin board is analogous to a library, so that the provider should be treated as the librarian. Where
it is clear that a transaction is specified for a known illegal purpose or where the transaction is clearly
being used for a fraudulent double spend, the miners are open to liability for not taking action.

When a transaction has been sent, and a later one that replaces the output comes from a limited set of
miners, the ability to determine a fraudulent double spend is simple. The miner who accepts and
processes such a transaction would be aiding the commission of a means to defraud others. Miners
would need to be vigilant against the actions of such miners or they could be held liable to the loss of
the merchant or another recipient.
The miner could choose to act in a multitude of ways to mitigate this liability. The simplest would be to
orphan blocks that contain the double-spent transaction. Alternatively, the miner could refund the
losses sustained by the merchant as a recompense for their negligence. Either path is a viable method,
but the recompense of other miners for a fraudulent transaction would lower trust in the system and
allow for more invalid transactions to occur.

There are in effect three primary classifications and ways of distinguishing Bitcoin businesses and
validators. It is likely that any bitcoin-based transaction will follow through a path of user wallet,
backbone providers such as miners, and propagation networks , and arrive at a merchant wallet or PoS
(point of Sale) system where both the user wallet and merchant wallets are effectively endpoints .
Backbone providers include the class of telecommunication carriers who deal solely with the
transmission and routing of transactions across the Bitcoin provider networks and the miners who
validate and aggregate transactions into a block. For purposes of liability in the original Bitcoin protocol,
backbone providers offer little more than a conduit for contractual loss from other providers that they
deal with. Backbone providers are unlikely to have the capabilities or capacity that will allow them to
distinguish between data, traffic, or protocol content making the ability to filter illicit activity next to
impossible at this level [4] . Source and destination wallet providers are in effect similar in many ways. In
particular, any endpoint merchant wallets will at some stage act as either and both source or destination
transaction providers.

The alteration of the Bitcoin protocol to incorporate additional code designed with the predominant
purpose of simplifying the provisioning of illegal activities would create a direct liability to the miners as
validators. The common-law partnership of mining entities opens liability for the actions of any one
miner in allowing such a transaction to apply equally to all. As a common-law partnership, a negligence
suit for example could be conducted against any miner who continues to mine a fork of a blockchain
that incorporates a transaction using a system that is designed to facilitate an illegal activity. In the case
of OP_DATASIGVERIFY, the use is clearly designated for the provision of bucket shops and a Silk-Road-
version-2.0 drug market.

This easily determined use case differs from a more generalised exchange of money or contracts. In the
validation of an exchange on a ledger, the miner cannot determine the use and thus cannot be expected
to “rule” on the validity of a transaction. In a manner analogous to a common carrier, the miner of a
simple transaction using the original Bitcoin scripting language simply processes the sale of ledger
space with no liability for the use of the ledger. The alternative incorporation of easily determinable use
that is illegal in nearly every country would open the miner to liability. Not through their own actions,
but in aiding and facilitating as a common-law partner in the overall mining system.

Contractual liability
Any end-user transaction exchange in Bitcoin can be served by a destination wallet directly using a P2P
exchange where a template is swapped and signed or sent to a known (even offline) address by sending
directly to a node. A source wallet is the system that supplies access to the keys and systems where the
initiation of an exchange (both lawful and illicit) is presented or created [5] . There are two significant
differences involving the source wallet and the destination wallet when viewed under a regulatory
framework. Firstly, the destination wallet serving ordinary end users is most unlikely to have any direct
association with or precise information concerning the primary malfeasor, unless the wallet is involved
with illegal activity (such as the Silk Road wallets), in which case it provides law enforcement with a
source of all illegal transactions that can be traced. Any logs or materials that may be maintained are
unlikely to hold the level of detail necessary to prove malfeasance from a merchant wallet that has
recieved bitcoin that may have come from a “tainted” source. A source wallet conversely is likely to
maintain logs and track access to the content that it maintains. It is necessary to weigh any process of
assessing how “fair” it would be to “hold responsible” the merchant wallet for the misconduct of its
clients or other parties and also in determining how successfully a wallet-service provider could serve as
a regulator in controlling misconduct against a variety of factors. In many cases, the merchant wallet
may be located in a jurisdiction without reciprocal regulations, thus preventing prosecution. Next, the
merchant wallet may itself be a victim of illicit activity.
In the instance that a merchant wallet supplies both the host that contains content and also the access
to that material, it is likely to be able to more effectively monitor and control the activity of its users than
a provider would that provides only access to the material. A user wallet cannot readily remove itself
from the authority of the regulatory regime in whose jurisdiction the users are situated. To do so would
result in also removing its ability to serve those end-users. A merchant wallet and the content it hosts, if
desiring to make possible prohibited conduct, can move itself to an alternate jurisdiction that does not
disallow the illicit conduct. For instance, a merchant wallet that wishes to implement access to Internet
gambling can locate itself in a jurisdiction where these activities [6] are legal and thus legitimised. This in
effect places these organisations beyond the jurisdiction and capability of the majority international
legal edicts and the related enforcement capabilities [7] . The user wallet and system, though, are not
beyond this reach. A user wallet that is accessed and/or located in London with local clients that allows
its clients to connect after exchanging payment to a child pornography site in Nigeria links to the user in
London and can be used to trace this activity. The miner is unable to determine this level of transaction
use, whereas a wallet provider and others could limit such access, as can intermediary ISPs who provide
the conduit.

A wallet supplies an end user with the data that they have requested from the blockchain. As the
administrators of systems that link disparate networks and the Bitcoin backbone, and encapsulate
application data into an arrangement that may be broadcast along the backbone, miners are capable of
averting selected attacks through the blocking of attempts to censor sites, hosts, or even selected data
available on standard Bitcoin transaction templates. Miners can also aid in mitigating the incorporation
of known scripts designed to facilitate crime.

Merchant and retail wallets need to integrate to present the end user with details of the contract terms
(including minimum mining fees) and the related services [8] that the merchant provides. It is possible
to consider their functions to be either integrated or disintegrated based on the circumstances.

Where legislation is focused on stopping selected uses of transactions within Bitcoin, it is fitting to
concentrate on those wallet systems dealing directly with those affected by the legislation. Legislation
mandating Bitcoin-address filtering (such as to block access to selected script templates) is better
directed to wallet services and merchants, as they can process the details of the exchange [9] . Ideally, it
is beneficial to consider a single entity mining partnership formulated from a collaborating consensus
miner group — those who act within the basic script constructs being equal to a common carrier and
those seeking to add methods to bypass the legislative limits being more akin to a publisher and
incorporating the liability frameworks for such a change.

Subsidising mining
The present mining market subsidises transaction validation using the allocation of additional tokens to
the operators of the validation nodes (miners). The mining reward is constructed to issue 50 bitcoin each
block, halving approximately every four years.

The reward schedule for Bitcoin

At present, the mining reward returns 12.5 Bitcoin every block with a small additional component from
the fees. In under two years this will be 6.25 Bitcoin a block. This will be followed in 2024 by a reward of
only 3.125 Bitcoin, and the fees at this point will be critical to the continued existence of the system. As
such, we can see that the transaction validation is incentivised early to enable the creation of a
diversified infrastructure designed to allow for a constantly incremented transaction limit.

Liability and securities fraud

Dr Russell Smith of the Australian Institute of Criminology [A] stated in 2000 that:

“ The perpetrators of many on-line scams … are often not large corporations. They are able to close-down
their operations quickly and easily, move assets to secure locations and use digital technologies to
conceal their identities and disguise evidence. In such cases there is little likelihood of success whether
civil or criminal proceedings are taken. ”

Dr Smith noted that fraud may be committed both electronically and in paper-based payment systems
by individuals opening accounts with false identification details. These individuals may then exceed
credit balances, or alter instruments or messages used to authorise transactions. On the Internet,
traditional methods of fraud and criminal activity have been updated such that they use this new
technology capably. But, there are dilemmas other than fraud for Bitcoin miners and services. It is
necessary to understand the relationship between the various parties in the Bitcoin ecosystem, and how
they interact if we are to gain an understanding of the issues facing these various entities.

Notes:
[1] An electronic contract has a twofold structure. Thought of electronically, the contract is a sequence of
numbers and code saved to some electronic or magnetic medium. Alternatively, the contract becomes
perceptible through a transformation of the numeric code when broadcast to a computer output device
such as a printer or screen . Prior to the passing of the ECA, this dichotomy exasperated the uncertainty
contiguous with whether an electronic contract can be regarded as being a contract in writing.

[2] Mann, R. & Belzley, S (2005) “The Promise of the Internet Intermediary Liability” 47 William and Mary
Law Review 1 <http://ssrn.com/abstract=696601> at 27 July 2007].
[3] The distributed nature of Bitcoin mining means that a publisher of a block can reach far more people.
A company with a website in the UK, for instance, has direct access to the US, Canada, Australia, and
many other countries with the primary limitations being language. As money, these limitations on
language do not even apply.

[4] . Many commentators on the nature of digital currency hold the view that the difficulty of
understanding a blockchain network stems from an artefact of the distributed protocol, under which the
transactions that travel over those networks are in the form of a distributed and competitive system
that is composed of disintegrated ordered peer-to-peer exchanges of particular tokens. It seems that
regulation at the backbone (or mining) level is likely in most cases to involve costs to all traffic that
would outweigh the benefits reasonably attributed to the regulation. The error in the view many
promote is seeing the system as disintermediated and not as an exchange by two (or more)
contractually associated parties who use the blockchain as a validation and settlement system.

[5] .This point is best made by Zittrain, (2003). Internet Points of Control , 44 B.C. L. Rev. 653.

[6] .In such a structure, there is and has been an international race to the bottom to attract business to
certain countries by decreasing the legal obstacles to their establishment. In the context of Internet
gambling, the winner of this race has arguably been the small island of Antigua in the British West
Indies. See Don Yaeger, Bucking the Odds , Sports Illustrated, Jan. 8, 2001, at 26 (“Some 850 Web
gambling sites are based [in Antigua] and an estimated 80% of all gaming URLs on the Web can be
traced back to servers on the 108-square-mile island.”); United States General Accounting Office, Report
GAO-03–89, Internet Gambling: An Overview of the Issues 52 (2002), available at
http://www.gao.gov/new.items/d0389.pdf [hereinafter GAO Report] (listing 35 of 88 Internet gambling
websites as registered in either Antigua or Barbuda, but failing to report the percent of Internet
gambling taking place at these sites).

[7] Indeed the United States even brought a case against the country of Antigua and Barbuda before the
WTO in an effort to curtail the proliferation of Internet gambling operations on that tiny island nation.
The United States lost that suit. See Naomi Rovnick, Herbies Helps Antigua in WTO Outsourcing Victory ,
Lawyer, April 5, 2004, at 10.

[8] Many ISPs were set up by the same kind of people who tend the carry out computer hacking, phone
phreaking, or similar activities. This group of people tends to believe that any kind of property rights in
information are basically wrong, particularly if that information is owned by the government or a big
business, and take great pride in discovering and making available such confidential information. It is,
therefore, not surprising that there have been a number of cases in the United States which involve the
publication of stolen proprietary information.

[9] Many Retail ISPs maintain little or no technological capability to filter internet traffic.

[A] Smith, 2000 “Confronting Fraud in the Digital Age”

Valuing systems — the margin of substitute goods.
By Craig Wright | 25 Nov 2018
| Economics
In order to value a cryptocurrency, we need to start with what it really is and what a substitute good will be.
This is important as all things, including money, have alternatives.

BTC — 1 MB (simple transactions)

BCH — 8 MB (16-MB burst)
BSV — 64 MB (today, and 512 MB within 6 months, 2 GB in a year)

No, the value of the transactions as they are, as a potential, are in the order of $0.005 USD a transaction as
they stand. Other uses (such as EDI) would be more, but only BSV is set for these.

Let us look at this in terms of processing capacity:

BTC — 4,000 simple transactions — $20 a block

BCH — 32,000–35,000 transactions — $160 a block
BSV — 200,000–300,000 transactions a block now, and getting close to 1 million in the next 6 months —
$1,500–$8,000 a block

These are the miner rewards for use.

All of these systems have a reward subsidy of 12.5 bitcoin (in the various respective forms) a block, and all will
halve in 2020 to a lower subsidy of 6.25. So, a base idea of value will come from use. At worst, you could
expect (excluding the impact of the better system wiping out the worst ones altogether) the minimum coin
value at market to be the block earnings divided by the utility as capacity.

In the next year, nChain intends to ensure that we are packing blocks with paid data (and no, we will not
call it spam).

The simple answer is: Bitcoin as SV will have miners earning over $8,000 a block based on use alone. That
equates to $640 a bitcoin on exchanges, and we have not factored in the gambling price of bitcoin, just
what miners will earn as a service.

This is the issue. Some think that you cannot value cryptocurrency, and to an extent this is correct. In the
past, you could not value bitcoin as it was a mere speculative guess as to the future. The reality is that you
can always value a product based on the closest alternative goods and services and the substitutes on
market. For Bitcoin, this is as a commodity ledger.
Not the hype. Not the global-money argument. These ONLY come when bitcoin is a commodity money, and
the ledger is the commodity.

With the Teranode project nChain will be scaling Bitcoin SV to handle over 1.0 TB within the next 3 years
(aiming for 2) and growing sizes from there. At that level, miners will earn over $600,000 for each Terabyte
block, and this is every 10 minutes on average.

In 2 to 3 years we expect to be at a capacity of 2 to 4 billion (with a b) transactions a block, that is 6.5 million
transactions a second. This is also Visa, MasterCard, banking in SWIFT, and ALL global currencies (not just
crypto) in under 15% of a block. And this is the start.

The simple answer is: we can do secure, permanent transactions and ledger entries that are set privately for
each party at a global scale, and as we scale, the cost for each transaction will only get less.

I expect that you will see Visa using Bitcoin (SV) as its backbone and plumbing within the next 4 years, as we
can provide them with a means to transact that is both more secure and faster… and more, it will cost less.
Why I troll
By Craig Wright | 26 Nov 2018 | Bitcoin & Blockchain Tech
I should not troll on Twitter, but I do enjoy it. There is, more importantly, a reason why I troll. The reason is
also very simple.

There are many so-called experts in Bitcoin who have no idea what Bitcoin is, and worse, have agendas.
Peter Rizen is one of these. These are people who basically loathe Bitcoin and PoW as a concept, and yet
seek to gain a following in this arena.

I place a few tweets as trolls from time to time with limited explanations, as these manage (always) to get
the drooling trolls salivating. I have such a troll tweet below with the response from the fish on the hook. My
tweet is correct, but designed to catch certain people.

Peter has taken a very simple equation, the Poisson probability of two independent systems, and calculated
the chance of two events occurring one after the other independently.

This is of course Peter’s biggest failing and where most of his ignorance around Bitcoin stems from. He uses
an I.I.D condition , that is independent, identically distributed events, and falsely assumes this when there
are conditional probabilities and dependent events.

Independent means that the sample items are all independent events. In other words, they aren’t
connected to each other in any way.
Identically distributed means that there are no overall trends–the distribution doesn’t fluctuate, and all
items in the sample are taken from the same probability distribution. ( Ref )

This is the problem in all of his analysis. These are not independent events.

Let us take the toy model of two miners discovering blocks in a blockchain as a scenario. Miner A and Miner
B each find a block within a small period of time. Peter in his analysis would be correct, IF these miners
mined independently of one another. But in Bitcoin they do not mine independently .

Miners find a block, and then send this to all other miners. When that occurs, the miners start over and
mine off the new block. So, to have this, we will have block 0 as the start that all miners have agreed to and
block 1 as the next block discovered by the miners.

In the scenario posited, Alice (A) has found a block at a nominal time (T=0), and Bob discovers a block at a
time very close to this but no more than 20 seconds from when Alice discovered a block at height 1 (that is
0s < T ≤ 20s).

To understand the process, we need to consider what is happening across the system as a whole, and not
the actions of the miners independently. When Alice finds a block, she announces this to all of the other
miners she is connected to as quickly as she can. The “ first-seen rule ” in Bitcoin means that the block
discovered by Alice benefits only if it is seen by other miners. The timestamp on her block does not count,
unless it is too far out, so we ignore this.

If Alice and Bob discover a valid block at exactly the same time, but Alice can propagate her block to other
miners faster than Bob, then Alice still wins, as she will be seen as the first one. To take this further, if we
have Alice effectively being able to send a block nearly instantly (say 0.01s), and Bob takes 2 seconds to send
his block, Alice gains a small advantage. In this example, if Alice was to have discovered her block at T=1.0s
and Bob discovered a block at the same height at T =0s, then the other miners will have received Alice’s
block at T=1.01s, and they will see Bob’s block at T=2.0s. So even though Bob nominally discovered the block
first, Alice wins as she propagated the block to the miners first. This, of course, is one of the MANY serious
flaws in the foolish fallacy of selfish mining.

Dependence.
So to go back to our example, what we have in Bitcoin is in fact not the probability that 2 nodes have a
block; rather, it is the probability that two nodes find a block in the 20s AND convince the majority of nodes
that they have a block before the other node.

The result is that the nodes in the network do not stop mining, until the new block has been seen — that
means, at least a block header has been sent. This varies with some nodes spy-mining headers and others
fully validating. That is a risk-reward trade-off based on profit-maximisation strategies.

So, the problem is that Peter is treating systems in isolation — he is not accounting for the system as a whole.
This is the common issue with many who are so-called experts in Bitcoin.

The real system

Now, the probability calculation — truly the probability of a second block being found in 20 seconds — is not
independent; it is a dependent-probability calculation. To calculate the probability, we need to calculate the
conditional probability that Alice finds a block and sends it — but that Bob has NOT received it, continues to
mine, and finds a block without being notified by Alice in the twenty (20) seconds, as, if Bob was notified, he
would know that other miners are going to now be already building on Alice’s block and that his is no
longer worth continuing with.

The network is such that nearly all (99.98%) miners will know of the block that Alice found in under 2
seconds. So, we have to now assume that Bob is one of the 0.02% of miners who have not seen the block
from Alice in 2 seconds.
So, let us look at the timeline:
T=0

Alice discovers a block and sends it to the network of miners.

The majority of miners in a small world have the block in under 2 seconds.

T≤ 20
Bob discovers a block; but he still has NOT received a block from Alice. So, we are taking a conditional
problem, not of independent miners finding a block one after the other, but of a dependent and system-
based solution where Bob stops mining as soon as Alice sends a block.

The reason is, if Alice has mined a block and Bob sees that she has sent this to the network, he cannot know
that he will find a competing block in the next twenty (20) seconds or less. His expected time is an
independent process, so if Bob has control of 33.3% of the network and thus mines a block on average every
30 minutes independently (say if all other miners stopped mining), he would expect to not find a block in 20
seconds, but need to wait another 30 minutes. Bob does not know that a block is destined to be found. He
only knows that he can expect to wait 30 minutes for a block at ANY point in time.

So, Bob will stop mining and seeking a block, as soon as he sees a block from Alice. He will think as one
should, that he will not find a block for another 30 mins (with 1/3 hash power). There is no way that Bob
would mine after seeing a block from Alice. He knows that the other miners will mine off her block and that,
when at the expected 30-minute mark, he will be on block 1, but that the other miners with 2/3 of the hash
will discover a block every 15 mins average and thus be on block 3 when Bob expects to have block 1. Bob
sees this as a losing strategy, and thus moves to mining on Alice’s block as soon as he sees it.

This is important, and the flaw that all those non-system thinkers fail to understand. Bob does not know that
he would find a block in under 20 seconds — he expects to have another 30 minutes. As a consequence, he
does not keep mining for block 1 after he has seen block 1 from Alice, and if he does, he ends up on a losing
forked chain eventually.

Think this through…

Bob sees a block (block 1) from Alice. He knows that at the point in time (T=0) with 33.3% mining power, he
expects to wait 30 minutes before finding a block (the time for Bob is always 30 minutes). So, Bob does not
know that in this time line he would have a block at the same height (block 1) at a time T≤20 at all, and he
also knows that even if he does, 66.6% of miners are already building on Alice’s block 1. Hence, when Bob
expects a block, he would expect to be several blocks behind Alice.

In fact, Bob at this hash rate expects that Alice’s chain will reach block 3 as he finds block 1, as he has NO
expectation that he will find block 1 in under T=20 seconds before that occurs.

That is the flaw. Bob does not act on what could have been, he acts on what he expects. He expects to have
Alice gain a large lead if he does not follow. So, as soon as Bob sees Alice’s block, Bob will stop mining on
block 0 and start mining on Alice’s block 1. The probability calculation is dependent. This is, as has always
been the case, the flaw in the thinking of those who believe in a non-systematic approach to Bitcoin as a set
of independent miners who act with no interactions.

This is not a simple Poisson problem; the calculations are NOT independent.

Sorry, Peter — I got you again, and you still do not even see it.

In all of these scenarios, it is not as Peter and the so-called and self-proclaimed experts believe, that is that
Alice and Bob are independently mining and on different chains…

It is the dependent probability:

Prob (A followed by B given no network transmission from A to B)

PS… I see the “ u ”… troll in a troll to inception level.

Maths
To demonstrate this scenario, you need to calculate the Probability of Bob finding a block without having
seen a block by Alice in up to 20 seconds.

So, this is the probability that Bob gets a block in 20 seconds from the time Alice discovers a block AND the
probability Alice has not sent a block to Bob in that time. These are two conditions.

The chances of Bob OR any other miner finding a block in 20 seconds after Alice is under 3.3% (As that is any
block found in any order, and we want a miner who will not receive a block from Alice exclusively.).
Remember, once a miner receives a block, they stop mining on the former block and move to mining the
new one if they seek to maximise profit.

The probability that Bob has not seen a block that Alice finds and he continues to mine is less than (1.00–
0.9998) or <0.0002. That is <0.0002 x 0.033.

No, it is not close to 0.01% — it is far less… Sorry, Peter.

Reference:
From Bitcoin to Bitcoin Cash: a network analysis.

http://arxiv.org/abs/1804.02350
This is me catching Peter… again
Instant transactions
By Craig Wright | 09 Dec 2018 | Bitcoin & Blockchain Tech
The “FUD” around Bitcoin is deep, but we shall start to clear it up.

The truth is, most things in Bitcoin are simple. This is why many in the industry try to tell you otherwise. They
seek to gain a falsely earnt place as the “High Priests of crypto”. They also seek to manipulate markets with
false claims of vulnerabilities that do not exist—a form of fraud.

We had the lie and scam claim of Selfish Mining for years. That was the lie of the land for a long time. It was
claimed that Bitcoin needed to be fixed by these disingenuous scammers, who really wanted nothing more
than to ensure Bitcoin would not scale. Now, the false narrative, the lie, is the “0-conf-is-not-safe” mantra.

The latest is the fraudulent and unscientific claim of being able to double spend Bitcoin, that they could get
away with a fraud and steal from a merchant that has taken an unconfirmed transaction and walk out with
the ill-gotten goods. As always, they do a test in a lab with no relation to reality, but that is not even the start
of it.

What is “0-conf” or an instant transaction?

To start to define any so-called attack, we need to start by defining what a 0-conf or an instant transaction
is. The so-called attack is only of concern in a scenario where a merchant and client seek to complete and
exchange in moments. This is, the client seeks to pay and then to “bounce” a transaction in seconds by
fraudulently replacing it with another transaction that spends the same input transaction to a separate
output.

The claim is that this can defraud the merchant, and thus a double spend means that the merchant is not
safe.

The truth is this is an equivocation, made by those seeking to falsely manipulate markets; it is a form of
fraud. The fraud is the claim of a double spend. The truth is, these do not exist. This is why anonymous
accounts are always used in making these claims. This is basically a form of fraud . The key point is to appear
valid and scientific to those without the skills to see the truth, and really, to deliver a message:

including false or deceptive messages, and

leaving out important information.
The reality is that all transactions have risk, but to minimise risk, you need to act in a certain way.

For a merchant, this means not assuming that you can send a transaction without a suitable mining fee.
Note that, again, the merchant sends. This is the first and most critical part of all this. Bitcoin is a peer-to-
peer system. It is the exchange of messages (transactions) that forms the peer component of the system,
not mining. Mining is there to ensure the creation of a competitive system to stop double spending.

Users exchange peer-to-peer with the ability to have messages sent to another party (through the
miners) to be collected later when they log into their wallet.
Miners are paid to not only verify transactions, but to find errors in the efforts of other miners, and to
invalidate these.

So for a merchant, a vending machine even, to take a risk and accept a transaction from a client, they need
to do this in a manner that makes the risk worthwhile. This is just a fact of life. It is nothing to be concerned
with, like all other aspects of life; it means doing things correctly.

The following process is how a merchant process should be handled; this is what a 0-conf attack will need
to overcome to be a real attack and not a marketing fraud.

Step 1. The client makes an offer to the merchant. This can be a request for a coffee in a café or selecting a
product in a vending machine, whatever.

Step 2. The merchant sets the value and exchange rate, and hands a template to the client. This is a Bitcoin-
transaction template with an output address, any conditions and the required scripts, and payment terms.
An example of this is displayed in the image below.

The base template

Step 3. The reality is that the merchant sets the invoice up, and exchanges this with the client. We are also
not talking about complex redemption systems .

Rather, we are allowing the merchant and client to exchange a transaction template using an SPV wallet
(we will explain how this works in the coming weeks, and there is no SPV wallet — none has yet existed.
More, they are simple).

The part that few seem to have understood is that keys should not be reused.

If we take the linked process (see URL) we can start with a known or determinable public key (even one on
a CA on a PKI system) that is never used. From this, there are methods to create a series of output addresses
that are designed to be used once and only once.

In the case of the merchant, we can have a system that allows all output addresses to be linked from a
privacy-based scenario and yet to also be verifiably demonstrable from an audit and business scenario. That
is, shareholders and even tax officials could determine that the invoice was not split or padded and that the
correct amounts had been allocated to the correct addresses.

So, you can prove a private ledger created as a sub-set of the Bitcoin blockchain and still remain private.

This seems to be a difficult concept for some people. In the real world , a merchant or vendor gives you an
invoice to pay. This does not change in the Bitcoin world. You send what is requested. The crypto-anarchist
set seems to have this idea of what Bitcoin is, where a user can dictate how a merchant does business.
Sorry, this is reality.
The merchant creates a template that is handed to the user.

Step 4. With the merchant’s template, the user can now decide on what input coins they want to use and
where their outputs (if any) will go.

User payment

The user accepts the template, adds the input coins and sets the change address. Output 3 is not a “real”
output as it is a miner fee. It is the MINIMUM amount that the user needs to send such that the total fees are
paid to the miner and that there is a sufficient additional amount (not specified in output) that is now set as
a fee for miners.

Signed Template to the merchant

We can see a signed example above. It can even be compressed into a human-displayable format (one of
the many aspects of what we have as Metanet) that is signed. To make this more private (in certain legal
industries), a merchant could add inputs, and the client could add outputs to themselves (to make tracing
more private).

The signed transaction is handed to the merchant. In this example, the merchant has set a requirement for
0.50 units in mining fees. If the client hands the merchant a transaction using less than this, they will reject
it. It is the merchant and not the user who sets the terms used here, and the merchant can simply not allow
the sale, if it is under the offer price.

In this example of a template, the merchant has a minimum output of 12.5 units with an optional field for
tips. The merchant could automate the fees used in the template so that the client pays more as they add
more input transactions, if this was desired. With SV, we do not see input transactions as a concern. These
inputs lower the UTXO size, so miners should be willing to accept large input sets and charge based on the
outputs (which was in the initial template exchange). It is one thing we want to push in SV.

The fees cover mining and VAT, and leave enough to pay the mining fee. If the client sends a lower value
transaction to the miner, then the merchant will not have to accept it. Even if the user was a particularly
stupid one, and thought they can do something to fool the merchant, such as sending the signed template,
rather than returning it to the merchant, well, then they have legally made a donation to the merchant and
not engaged in a legal contractual supply.
The merchant can (at their leisure) return funds to the client (with a handling fee), or have the client sit in a
corner and wait until the fee has cleared (one confirm or multiple confirmations), or require that the client
pay again and state that they (the merchant) will return funds (minus a mining fee and any handling
charge) to the client AFTER the transaction has cleared with 6 confirmations AND the initial invoice is paid.

It is how the real world works. Bitcoin is not about allowing users to tell businesses how to operate. If you
have such an idea, you are deluded.

Step 5 . With the signed transaction returned from the client, the merchant now starts by sending a request
to the mempool of the miners (or their own, if they are large enough to warrant having one; and for a
franchise or group, this could be a company system) to check the inputs.

1. The merchant checks the input TXs (transactions), and makes certain that these have not been spent.
They do this by randomly polling miners (remember, ONLY miners are nodes in Bitcoin).
2. The merchant ensures that the transaction from the user matches the template and that it includes
sufficient fees and the total is at least the minimum (if the user wants to donate more to miners, who
are we to stop them…).
3. The merchant sends the transaction to multiple mining nodes, and relays simultaneously (I will detail
how SPV should work in Jan 2019, and it is rather simple).
4. The merchant rechecks the transaction inputs with miners, after sending their signed payment.

If the merchant detects a double spend, it is a fraud. The merchant has the legal right to detain the client in
many countries and have the authorities take them off, just as is the case with shop lifters right now. This is
before the client even received the goods. They can at this point be legally arrested for a larceny, and it is
the same as when a person has attempted to pass a bad cheque.

The definition and use of cheques are covered by The Bills of Exchange Act 1882, and the Cheques Acts of
1957 and 1992. The most recent amendment to the Bills of Exchange Act occurred via the Small Business,
Enterprise and Employment Act, which gained Royal Assent in 2015, eliminating the need for cheques to be
physically transported around the country (and this definition incorporates a Bitcoin transaction that has
not been confirmed).

In the U.S., there are state laws for this — these vary, but are generally similar to this one . For the UK, you will
find page 214 of the attached offers some details of the offence (This is a clearer explanation of the UK laws,
even if US based.).

Step 6. The merchant now provides the goods to the client. They have checked twice, made certain that the
inputs had not been spent, and then they are safe in the assumption that the miners have received the
transaction and no fraud has been attempted.

That is all there is. It is not some technical system of fraud proofs and the anarchist utopia that no state will
exist. Bitcoin works inside and with the law.

If the merchant sets the template, pays the mining fees, and sends the transaction, there is no measurable
risk of a double spend. Just as merchants will not allow customers to set payment terms and require a
cheque from a strange country to just be used in consideration, they will not allow payment under strange
terms.

The reality is that in 2 seconds (or less) the merchant has checked the transaction, and the reality is that you
do not get to send a double spend. A double-spend attack is not about replacing your own transaction, it is
about defrauding a merchant who allows small-value instant transactions. If the merchant sends, the
chance of sending to all miners and getting a system that has a probabilistic chance of a free coffee are
small. If the miners are polled after the send, the reality is that you will be caught double spending and get
away with this fraud less than once in 100 billion times. In checking more miners, the merchant can be even
more well assured.
The truth of double spends

The truth is, if you try and double spend, you will see a set of flashing lights and not even have the chance to
smell the coffee.

0-conf and the online merchant

If you are Amazon, even this is not needed. The online merchant simply stops delivery as soon as they find
the fraud attempt. Say you send an order with Amazon; then, the store starts to process the order. It is likely
going to be hours before the invoice is touched, and if the transaction was “double-spent”, you have signed
evidence of fraud and simply do not pack the goods.

Not reusing keys is important

One problem that I see all around is the re-use of keys. Bitcoin keys and addresses should be changed on
every use. You should not receive funds to the same address twice, and you should not need to keep keys.

The biggest privacy failure in Bitcoin is the re-use of addresses. If users simply did not use the same address
more than once (ever), the idea of tracking “spam” payments would not exist at all.

The truth is, if configured correctly, you should never ever have a re-use of Bitcoin addresses ever.

The false claims

There is a reason these people use anonymous accounts. They are frauds seeking to manipulate markets
using false information.

My answer…
I will cover any loss that occurs on a REAL double-spend fraud. Oh… I do not expect to even have to spend a
cent. I will also help ensure that the person who does it ends spending a long time in a small cell.
The Fury
By Craig Wright | 10 Dec 2018 | Bitcoin & Blockchain Tech
I have spent a lot of my life being angry. The drive and passion in me that drive the creative spark have
many sides. It is not just Bitcoin. I have been saying that risk and security are economic quantities for a long
time (1), and it has coloured my reactions.

My beginning was not humble; to have had a humble start, I would have needed more. It was at a point
where I would envy the welfare families. My mother was a working single mother. She is an amazing
woman.

In my early 20s, I was treated for a late-stage cancer. It was not pleasant, and it left me failing in my first
degree. At the same time, I was far too proud to ask for help. The university would have given it, but I always
needed to do things my own way. I did continue studies when I recovered, but at a far less prestigious
institution than that of the Sandstone buildings I had left.

Facing death multiple times in youth changes a person. Some are broken, others have to prove something.
For myself, it was always the latter. With the hard work and effort of my team, my ideas are coming to
fruition. There is so much more to do, and I honestly see it taking decades still, but I also see a way to make
it a reality now.

I have a team I would never have imagined years ago now. My company and those I rarely mention in it are
all and more than I would have desired. I am proud of the team we have all created and the effort they do to
make sure we create the dream they have come to see.

I work with my team in a manner that allows us all to survive and create. It cannot be said otherwise, I am
not easy to work with. Everything needs to be done a month ago. Though I am not as bad as I was.

When Dave died in 2013, I grieved for years refusing to face it. Dave and I had worked together for years. He
edited a lot of my papers, and helped with some of my businesses. I had been involved with a number of
gaming operations following my work setting up Lasseter’s Online in the 90s, and we (Dave and I) had
worked jointly after the US government restricted payment operations in 2005.

It was for that reason that we started using Liberty Reserve. Dave and I had a number of companies in
Panama and Costa Rica that serviced the gaming industry (only licensed ones), and we did not repatriate
the money. I figured that if the NAB and Westpac (two of the top 4 banks in Australia) had ties to Liberty
Reserve, then we would be OK. Then, in these matters, the US flouts a large number of international laws,
and extends past its own boundaries. This is a part of what Bitcoin is about; there are legal industries that
are controlled and pressured.

In March 2013, the US seized Liberty Reserve, and it was closed completely in May 2013. I had restructured to
start repatriating the funds we held from Costa Rica (which would have resulted in taxes payable to the
Australian and US government). In early April 2013, I had a fight with Dave. Money was tight for both of us.
Bitcoin was not easy to sell at that point, not in any quantity that mattered. That fight was the last time I
ever spoke to Dave.

Later in April 2013, Dave died.

Later in 2013, Hotwire PE took off, and was going well until the 2014 Bitcoin crash. Even though I could have
allowed HWPE to just go into liquidation, we paid the debts. 100 cents in the dollar. Some wanted more
than that, but sorry… 100% is all I am willing to return.

I have more papers, more patents, and I will work on them and make Bitcoin all it was supposed to be. It is
not a system to allow drugs, but one to allow people to take control of their own lives. It is a system based
on honesty, of work and effort. It is not a system of privilege, but of striving.

Bitcoin allows us to have a system of truth; where those seeking to break the law can be tracked and
brought to face justice; where those who seek to benefit from the suffering of others can be traced and
caught. It helps honest businesses. It allows for fair taxation, and protects those who are in countries that do
not have the institutions we have in the West yet.

It has been a long and difficult road, but my family who you will not hear of publicly have been my strength,
and have allowed me to get this far.

I do not name my team nor my family — not as I want to have the limelight, but for them. When I am
attacked, they are not. I am not strong now as I wanted to be; I simply wanted to be left alone before and to
work. I am strong now as I need to be, for them.

I thank my team and my family.

It has been a long road, and it has taken years to come to this point. That said, we have the anarchist and
criminal element out of SV, and they will not be back. We build for honest business, for commerce, and for
hard working families. It is a long road ahead, but finally, for the first time…

The road is clear.

Now, we build.

Notes:
1. The funny thing is that when you use your mobile phone to access your bank account as a 2-FA, it is in
part due to systems I helped create. Some of the systems that allow the common banking apps used
now derive from the more complex systems that I posted (and not the ones listed as a display in blogs
designed to attack me).
Why Silk Road was an abyss
By Craig Wright | 10 Dec 2018 | Bitcoin & Blockchain Tech
Very simply, Silk Road was the worst thing to happen on Bitcoin. Freedom is not absolute. We live and act in
a society, and selling drugs was one thing, but the reality was it also allowed things that were far worse.

I will not share all of the work I used to do. Much of it was not nice. I have enclosed a report below that is
suitably anonymised — one that Dr Pang and myself completed for the SA Police. It was 12 years ago now,
and we used network-analysis tools to trace chats in a child-predation and child-porn case.

The party involved was sentenced to prison for grooming girls aged between 11 and 15 for sex and also for
the sale of photographs of these girls (he sold these for money). The report, “Three-dimensional visualization
of social interactions networks”, was used in the creation of a system that the state and federal police used
in tracking and prosecuting many sex crimes.

It is a part of my life that still haunts me.

At one part of my life, I would come home from a case and cry in a corner. My trips to South America and
Sub-Saharan Africa in this period involved government-forensic work. I was contracted on anti people-
smuggling and anti sex-trafficking engagements. My role was in tracing communications and the money
trail.

Bitcoin is not designed to be anarchist. That would be a system that allows all I despise.

I was a pastor and a trustee of a church bank once. Something that is a lifetime ago now. I talked to a lot of
people who were victims of drugs then. I have seen what bath salts and ice do to people. It broke me.

It shattered a part of me, and then I would come back and make the cracks wider. Over and over.

This is the reason I took the moniker “Prof. Faustus.” I sold my soul for knowledge, the knowledge that could
allow me to make life better for a few others, and it was at the cost of my own self. It is why I walked away
and stopped being a pastor, and it is why I cannot ever see a foolish idea such as anarchy with anything
other than disdain. There is no other way to say it, doing what I did is corrosive. Seeing what others did and
being involved in it remove the humanity from you. A little at a time, but it leaves you less human each time
you see it.

Some live in isolation, see the tip of an iceberg that they see to be evil, and do not ever come to find what is
below and what is suppressed as a result of this. Government, like all other things, is just people. Some are
good and some evil, and we can only ensure that the world is free and that others do not suffer through our
eternal vigilance.

My wife knows and understands, but even my children do not know what I used to do. So, yes, I used to
work for government. I was a cyber-forensic analyst for a long time. I worked on tracing money flows and
more. And this is why we have Bitcoin and not Zcash, and why Zcash will never be legal (even if it was not
flawed, and no, I am not saying what the flaw is here).

I watched people I cared for degrade and fall apart under the influence of hard drugs. I watched myself
change when I was working in forensics to stop sex crimes and people smuggling. I saw the layers of
humanity planed off painfully. One part of what made me more human after another. And, I became angrier
with a few friends outside my family and, years ago, Dave.

It made studying and gaining more knowledge and skills easier. I became a semi-recluse outside of work
and family, and even then, I had been absent. There is no other way I would have completed nearly all the
SANS certifications that were available, and no way I would have been doing double digits in post-grad
degrees otherwise. Knowledge comes with costs.

The only reason some want to turn Bitcoin, Zcash, or Monero into an anonymous system is to try and stop
the forms of analysis that you can do on Bitcoin. At scale, Bitcoin is private, not anonymous. That is, you can
be secure in the knowledge that you cannot be traced short of a massive and costly effort. That said, when
you do find something of the form I was analysing in the report below, then you have a means to stop it.

Many want to make a better version of Silk Road. This will never be on Bitcoin. Silk Road was not merely
about drugs and guns as many try to say. It was not a victim-less crime. The take-down of Silk Road resulted
in more than 17 convictions for sex crimes. Richard Huckle (here in the UK) was served 22 life sentences for 71
child sex offences for sites on the dark web that linked to SR.

It is time we started to talk about the dark places.

Bitcoin is a system designed to act as honest money.

Three-dimensional visualization of social interactions

networks
Abstract:

This paper presents a study of data visualisation as used in the investigation of a child grooming case. In
this, we demonstrate how a series of Data mining and network visualization technologies can be used in
order to map and report on the relationships between individuals in a social network and to uncover
seemingly hidden relationships between the individuals. Due to the nature of the investigation and data
reported, the names of the people involved in the chatrooms have been modified.

Keywords

Security, Forensics, Social Networks, Visualisation

1 Introduction
This study involves the case of an adult who was engaged in an inappropriate online chat with an underage
girl on the internet for the purposes of soliciting sex (child grooming). Data mining and network
visualization were used in order to discover the evidence both for and against the investigation of the
accused. The benefits that derived from this form of three-dimensional visualisation arise from the
simplification of complex datasets (such as social networks, chats and logs) into an easily comprehensible 3-
D map that a user can rotate, zoom and otherwise interact with. This is where the strengths of visualisation
technologies come to the fore. These technologies allow the forensic investigator to uncover previously
hidden relationships that exist within the data. More importantly, the visualisation techniques that are
available today make reporting to a lay jury simpler, and allow the jurists to see the evidence in a manner
more cogent with human thought processes.

In the visualization, tightly connected groups can be seen to be packed tightly together, and the outsiders’
to the conversations end up displayed further apart on the edges of the network display. Although not
originally designed for this purpose, the GEOMI program has allowed for the display of social relationships
between chat users in social networks. This program has further been used to model changes and
alterations to logs and to detect tampering with digital evidence. This paper concludes with the argument
that through the use of simple tools, an investigator can be empowered to formulate better hypothesis
concerning the activities and intentions of suspected individuals in a manner that allows for the discovery of
further evidence.

2 Methods
The inspiration for this project was taken from the biological interactions of complex systems. In this,
networked relationships such as the complex interactions of bees and ants in a hive environment were
noted to conclude in cogent behaviour from seemingly unrelated and chaotic interactions.

2.1 Network visualisation and statistical analysis tools

The GEOMI software (Ahmed et al., 2005; Ho et al., 2008) was used to visualize the network, GEOMI was
downloaded from www.systemsbiology.org.au . The friendship network data was stored in a PostgreSQL
database version 8.3 and accessed by GEOMI using JDBC database connection. Statistical analysis was
performed using GEOMI, the Jung Java package [1]

Can visualize the network in 3-D

User can zoom, rotate and interact with the map

Can be adapted for analysing many different types of networks

The network is arranged so that tightly connected groups are shown closer together, and loosely
connected nodes are placed further apart in the visualized network

2.2 Attributes of the social interactions dataset

The social interaction dataset was taken from an online internet web chat room. The data was obtained as a
result into the investigation of a suspected child grooming incident. The dataset, a capture of messages and
communications including private messaging and broadcasts to the users wall were supplied to the SA
Police by the operators of the social network.

This study analyse the social interaction networks built from person-to-person conversations. Note that the
direction in which the message is sent is important for the purpose of this study. However, the number of
times a message is sent is not important. Messages which are broadcast to all other users have been
removed from the analyses as these do not directly allow for the correlation of directed communications.
The dataset contained the content of the conversation, the IP address of each username, date and time of
online events such as log-in, log-out, broadcast, and conversation. Whilst the analysis utilised the authentic
username, the date and time of the communication with the complete content of the conversations, and
original source IP addresses, the authors have altered the user names and IP addresses for the purposes of
reporting this study. As such, this data has been altered and those accounts that are reported in this report
have been kept isolated to protect the privacy of the people concerned. To protect the identity of the users,
the actual username is replaced with an anonymous alias using the following methods.

Figure 1. Alice’s friends and their connections. A) Original network. B) Resolving multiple identities. C) Using
only two-way connections. D) Resolving multiple identities + only using two-way connections. For the above
networks, only the principal connected component of the network is shown, except for c), as Bob is not in
the principal connected component of this network. The node for Bob’s network is larger than other nodes
and is highlighted in yellow.
· Random words were chosen from the OpenOffice spellcheck dictionary (
http://wiki.services.openoffice.org/wiki/Dictionaries ) and this was used to replace the actual username.

· Any non-printable characters are removed using the ‘sed’ Linux command line filter.

The data was parsed into tab separated format using customised Perl scripts and was then stored using a
PostgreSQL relational database. This was selected as it could be directly accessed by GEOMI using JDBC
connection to generate visualization for the social interactions network.

3 Analysis on the friendship network between Alice and Bob

This study focuses on the analysis of the social interactions between Alice and Bob (their anonymous alias is
used here to protect their real identity). In this study, the social interaction network was built for an
individual referred to as Alice. This is in effect a social network of everyone whom the selected person talks
to. To simplify the visual representation and the statistical analysis, Alice was then removed from the
network (Figure 1). Next, a social network consisting of Bob’s friends and other connections was created
using the same process and method described above (Figure 2). The anonymous aliases for those friends
that are shared by Alice and Bob have been maintained in each analysis.

Figure 2. Bob’s friends and their connections. A) Original network. B) Resolving multiple identities. C) Using
only two-way connections. D) Resolving multiple identities + only using two-way connections. For the above
networks, only the principal connected component of the network is shown. The nodes for Alice’s network
are larger than other nodes and are highlighted in yellow.

3.1 Using IP addresses to find users with multiple online identities, and
to find geographical proximity of users
The IP address recorded from log-in and log-out records was used to locate and correlate users with
multiple usernames. The first three layers of the IP address is used to determine whether the same user
utilised more than one username. Similarly, using the first two layers of the IP address, a network of each
person linking to each first two layer of the IP address was formed. The resulting network provides a rough
idea of the geographical proximity of each user to other user (Figure 1).

3.2 Using two-way conversations to find more reliable social interactions

To improve the reliability of the social interaction networks, interactions which only occur in one direction
were removed from the network. These included unanswered requests. In order to find the two-way
conversations in Alice’s social network, the first step is finding all of Alice’s friends whom she has two-way
interactions with. This is followed by finding all the two-way interactions between Alice’s friends. The above
steps are performed to uncover all the two-way interactions for Bob’s social network. These two-way
conversation networks are compared to the original interaction networks.

Figure 3. Friends in common between Alice and Bob and their connections. The network is built after
resolving multiple identities and using two-way connections only.

3.3 Combining the search for multiple online identities with the use of
reciprocal conversations to improve interaction networks data
Two separate approaches to improve the reliability of social interaction networks were described above. To
create a high confidence interaction network, both methods are used to build the social interaction
networks for Alice and the social interaction networks for Bob. The search for multiple online identities
using IP address is applied before the use of reciprocal conversations to build high confidence network.
These high confidence friendship networks are compared to the original interaction networks in terms of
their network properties. The degree of overlap between the high-confidence social interaction networks of
Alice and Bob are measured. This displayed how many friends they shared and will provide insights as to
whether they both part of a larger community, a small close knit network of friends, or friends met online
(Figure 4).

Figure 4. Visualisation of the first two layers of IP addresses amongst chat-room users. Chat-room users are
represented as blue nodes, and the first two layers of the IP address are represented as blue nodes. There
are no connections between two IP addresses, and similarly there is no connection between two chat-room
users.

From the above analysis, nine (9) networks were created via the processes detailed in this paper and
returned. Their network properties were summarised and compared providing insight into whether each of
the step for improving the reliability of the network was useful or not. Their scale-free distribution and the
distribution of the clustering co-efficient was then compared and analysed.
3.4 Using the high-confidence interaction network to provide insight to
the relationship between Alice and Bob
The aim of this study was to understand the relationship between Alice and Bob. It is important to analyse
whether Alice was central to the social network of Bob and vice versa. This also provided insight as to
whether Bob and Alice are close friends who share many mutual friends or are they are likely to have met
each other online and not related to each other otherwise. This analysis is also useful for similar types of
study.

4 Results
The results of the analysis have been reported in the sections below.

4.1 Simple test of the online chatroom

The registration procedure to participate in a chat in this website involves the user logging in with an
individualised username and a password. Multiple log-in simultaneously using the same IP address but
different username is possible. If another person attempts to log-in with the same username as another
user that has already logged-in, the user whom is in the chat room first automatically gets kicked out of the
chatroom.

4.2 The nature of the interaction dataset

This study analyse the social interaction networks built from person-to-person conversations. This dataset
contains data on pairwise interactions, for example, person A sent a message to person B. Note that the
direction in which the message is sent is important for the purpose of this study, but the number of times a
message is sent from person A to person B is unimportant. Although a user may broadcast a message to all
other users, these messages are removed from the rest of the analyses due to their unspecific nature. The
dataset also contains the content of the conversation, the IP address of each username, date and time of
online events such as log-in, log-out, broadcast, and conversation.

4.3 Replacing actual username with anonymous alias

Using words randomly selected from the dictionary, each anonymous alias can be easily referred to during
the analysis, with the advantage that it is easier to remember than an identity code. A table which converts
each username to an anonymous alias was created and maintained, but this table is not provided to protect
the identity of the subjects. Anonymous alias for friends shared by Alice and Bob are kept consistent.

4.4 Analysis on the friendship network between Alice and Bob

This study focuses on the analysis of the social interactions between Alice and Bob, their anonymous alias is
used here to protect their real identity. The aim is to analyse the interactions between Alice and Bob in the
context of their social interaction networks and friendship networks. We introduce the concept of a social
interaction network for an individual person, which is social network of everyone whom the selected person
talks to. For example, the social interaction network for Alice will include everyone she talks to online. Since
Alice interacts with everyone in her social network, therefore the number of edges she contributes to the
network is equal the number of friends she has. A reasonable simplification, therefore, is to omit Alice from
the network to make network visualization clearer. She is also omitted from the statistical network analysis
to make the statistical results consistent with the visualization. We have also created a social network for
Bob using the method described above. From visual inspection of the network and the interactions data,
we realise that there could be multiple usernames which are similar, and these may represent multiple
identities used by same person. Also, users with many friends tend send messages to many people without
receiving a reply. This motivates us to improve the original network by consolidating multiple user names,
and to remove interactions which only occur in one direction.

4.5 Disambiguating multiple online identities using IP addresses

changes network properties
In the online chatroom, a user can utilize one or more usernames, and the number of usernames they use is
not restricted. It is easy and common for online chatroom users to employ more than one online username,
and this may affect the quality of the network and poses problems for network analysis. It was desirable to
be able to measure the number of people in the network that use multiple identities. It was also desirable to
know if merging multiple usernames affected the result of network analysis in comparison to the original
network. The first three layers of the IP address is used to determine whether the same user utilises more
than one username. For example, if user ‘magnification’ has IP address 59.94.96.XXX, where XXX are
numbers, and username ‘hallway’ has IP address 59.94.96.YYY, where YYY are numbers, they are defined as
the same user.

The first table of anonymous aliases was used to create a second updated table. In this updated table, the
updated the list of anonymous aliases was updated with the online identities replaced using a unique
anonymous alias. Continuing with the example, both username ‘magnification’ and username ‘hallway’ now
has the anonymous alias ‘cake’ (Table 1). A total of 13 users that use multiple identities were noted in the
dataset. This would have been identified as different 33 users without use of this approach.

Table 1. Multiple identities which represent the same person detected by IP address.

The next stage was to compare the social interaction networks after the users with multiple online
identities had been identified are to the original network in terms of their network properties. For Alice’s
network, the number of nodes for the largest connected component decreases from 53 to 48, and the
number of edges increases from 89 to 92. The average clustering co-efficient (average CC) for the biggest
connected component increases from 0.38 to 0.48. The diameter of the network decreases from 8 to 6. For
Bob’s network, the number of nodes for the biggest connected component decreases from 96 to 89, and
the number of edges increases from 319 to 321. The average CC for the biggest connected component
increases from 0.33 to 0.39, but the diameter remains unchanged. Therefore, this method decreases the
number of nodes in the network, slightly increases the number of connections, the combination of which
leads to a higher value for the average CC.

4.6 Visualising similarity in IP addresses amongst chat-room users

Using the first two layers of the IP address, a network of each person linking to each first two layer of the IP
address was created. The resulting network provides a rough idea of the geographical proximity of each
user to other user. The reader should observe that some usernames are commonly used and could
represent more than one person, for example the user ‘cake’, which is related to 24 different IP address
nodes. This is highlighted by the many geographical localisation and IP address that user name is linked to.
In other areas, it is possible to observe how each user relates to each other in terms of IP address. It is
possible to use a dictionary of IP address to find the geographical area of each person and use this
information as evidence in court and to assist in criminal investigations.

4.7 Using reciprocal conversations affects network properties

The directionality of the message being sent is important for the analysis of social interaction network.
Social relationships in which communications are reciprocated are more reliable than those where message
is sent in only one direction, also called one-way communication. Users commonly establish new social
interactions by sending a message to many people, and only receive replies for a small proportion of these,
and this result in many one-way interactions. These one-way interactions may increase both network
connectivity and network size, but they are not so important for this study where two-way communications
are more reliable evidence of a relationship. They pose a problem for network analysis and could affect the
quality of the network analysis results. These two-way conversation networks were compared to the original
interaction networks where all interactions, including one-way interactions are included.

For Alice’s network, the number of nodes for the biggest connected component decreases from 53 to 34,
and the number of edges decreased by a half from 89 to 36. The average clustering co-efficient (average CC)
for the biggest connected component increases from 0.38 to 0.39. The diameter of the network increases
from 8 to 13. For Bob’s network, the number of nodes for the biggest connected component decreases from
96 to 56, and the number of edges decreases from 319 to 110. The average CC for the biggest connected
component decreases from 0.33 to 0.31, and the network diameter increases from 6 to 7. In both Alice’s and
Bob’s network, this method almost halves the number of nodes in the network. Therefore, this method
decreases the number of nodes and the number of edges in the BCC of social interactions, however, the
effect of this method on the average CC is different for each network.

4.8 Determination of multiple online identities and use of reciprocal

conversations to improve the reliability of social interaction networks
Two separate approaches to improve the reliability of social interaction networks have already been
presented leading to the analysis of their effects on network properties. These two approaches were then
combined leading to the disambiguation of multiple online identities and the removal of one-way
interactions to improve the quality of the social interaction networks for both Alice and Bob. The aim was to
understand whether both methods work synergistically in changing network properties.

In comparison to the original network for Alice, the number of nodes for the largest connected component
decreases from 53 to 36, and the number of edges decreased by a half from 89 to 49. The average clustering
co-efficient (average CC) for the biggest connected component increases from 0.38 to 0.50. The diameter of
the network increases from 8 to 10. For Bob’s network, the number of nodes for the biggest connected
component decreases from 96 to 55, and the number of edges decreases from 319 to 116. The average CC for
the biggest connected component decreases from 0.33 to 0.29, and the network diameter remains at 6. In
both Alice’s and Bob’s network, this method almost halves the number of nodes in the network. Therefore,
this method decreases the number of nodes and the number of edges in the BCC of social interactions,
however, the effect of this method on the average CC is different for each network.

Table 2. Network statistics of biggest connected component

4.9 Alice and Bob only share a small number common friends
The end result (Figure 3) was a low number of social interactions between Bob and Alice and their mutual
“friends”.

5 Discussion: The effect of multiple identities

The presence of multiple identities causes the network to be less connected and creates the illusion that
there are more users in the network. Consolidating multiple identities help recovers missing connections in
the network and therefore could increase the clustering co-efficient.

Through the use of these techniques, it is correlate multiple identities even when a Proxy server is used and
several individuals are located on the same IP address.
6 Conclusion
This analysis could also be applied to other social networks and in the detection of fraud in connected
datasets. These processes show the interconnectivity between social networks and provided evidence that
an individual was engaged in communications with a number of minors even though the individual had
attempted to cover his tracks using a number of identities.

From the results, the reader can see that a study of data using advanced visualisation can aid in the
determination of subjects in social network investigations as wide as child grooming cases. The use of this
form of Data mining and network visualization technologies can create a map of the detailed relationships
between individuals in a social network allowing an investigator to uncover seemingly hidden relationships
between the individuals.

References
1. Ahmed A, Dwyer T, Forster M, Fu X, Ho J, Hong S-H, Koschutzki D, Murray C, Nikolov N S, Taib R, Tarassov A,
Xu K (2005) In GEOMI: GEOmetry for Maximum Insight, Proceeding of 13th International Symposium on
Graph Drawing, Limerick, Ireland, September 2005; Limerick, Ireland; pp 468–479.

2. Ho E, Webber R, Wilkins MR (2008). Interactive three-dimensional visualization and contextual analysis of

protein interaction networks. Journal of Proteome Research, 7: 104–12.

3. Ridge E., Kudenko D., Kazakov D. and Curry E., (2005) “Moving Nature-Inspired Algorithms to Parallel,
Asynchronous and Decentralised Environments,” in Self-Organization and Autonomic Informatics (I), vol. 135,
pp. 35–49.

[1] (http://jung.sourceforge.net/download.html), the R statistical analysis software (2005), version 2.7.0, and
the igraph library version 0.5.1, (http://cneurocvs.rmki.kfki.hu/igraph).
Bitcoin’s privacy model
By Craig Wright | 11 Dec 2018 | Bitcoin & Blockchain Tech
Bitcoin has a remarkably simple yet robust privacy model at scale.

Section 10 of the white paper details the privacy model in what I thought was a remarkably simple manner.
That said, most people seem to not understand it. As a consequence, I will expand it out and provide more
detail to explain the section fully. To this end, I have separated the image from the white paper in a manner
that allows it to be more easily viewed.

Bitcoin’s privacy model

On the left of the image, we have the parts of the system that are private. On the right, those that are open
and can be seen. This is where most fail to understand Bitcoin. The Core team started with the concept of
Bitcoin being analogous to banking, and started to remove most of what makes Bitcoin a peer-to-peer
private system.

The traditional model

In the traditional privacy model, a user will need to complete an AML/KYC process with a third party such as
a bank. The third party now sits in the middle of all transactions, and has information on the entire
movement of funds in and out of the account. No information is made available to the public, and any
breach is catastrophic — requiring a system to remain secure over long periods.

The result is a system that is fragile by design.

Banks are a long way from being immune to illicit disclosure. More importantly, PII (Personally Identifiable
Information) allows the breach of trust to be made wider. A disclosure of information in this model not only
leaks the actions of the parties involved directly, but allows an attacker (criminals) to use this information in
crimes such as identity theft.

Bitcoin solves this in creating a true peer environment. P2P is not about nodes nor mining. P2P is person to
person. Your peer is the other party to the exchange. Ideally, the use of IP-2-IP would allow this or even a
direct exchange from the client to the merchant . The only time a miner is involved is when the negotiations
are complete and the receiving party sends the transaction to the blockchain.

The person sending the transaction never even needs to be online. They do not require a node, nor even an
IP address. Using NFC, they can log in, download the headers, and update their change address at a later
time (or even have this key on a completely separate system).

In the traditional model, the trusted third party knows everything you do. The bank or credit agency
maintains a record of all withdrawals, the locations, and the details of the transactions — who you deal with
and how. They do not want this to change as such data is actually valuable information.

In this model, the bank (or other TTP) has a record of every move you make, every transaction, and can
model all your spending behaviours. From the perspective of Visa and MasterCard, this information allows
them to know where they need to push to make consumers go into more debt. It allows TTPs to hold
enough information to allow them to control markets. It allows them to be able to manipulate consumers.

Such data has value , and is information. As information, it allows them to direct advertising and sell this
information at a premium. This is the outcome of the old, insecure, and manipulative former privacy model.
It is the model that is replicated in Bitcoin Core and others with Lightning and Plasma. Your information is
the most valuable thing a bank has right now, and this is why they oppose Bitcoin. They do not want to lose
it. This is why we have seen Bitcoin hijacked and why teams of people try and tell you that it is not secure,
that it is not private, and all the other lies you hear. These people want to keep your data, and it is valuable.

The traditional banking model based privacy through the limitation of access to information to those
parties involved AND the trusted third party. This is what you have with Bitpay, Coinbase, and most Bitcoin
corporate systems today.
It is not what Bitcoin was designed to be.

Bitcoin’s new model

The new privacy model is incredibly simple. The transactions are all public, as they are not connected to
your identity, and they are also not associated with any particular merchant. Importantly, merchants will
also want to remain private. The ability for the competition to analyse companies leads to merchants
setting up multiple addresses, just as users do.

So, if a merchant does not want to advertise how many sales they make and the amount of each sale, they
need to ensure that they do not re-use addresses and that these are not linked in a manner that the public
or the competition can determine.

The key idea is that we do not re-use keys.

Coin splitting
There are always debates about child transactions and the change. Like most things in Bitcoin, people try
and make things far more complex than they should be. In order to have a large set of coins that can be
spent at will and quickly, we can take these and split and combine them as we need. There are cases where
a shopper may need to go to many places in a small amount of time. They can do this safely in dividing their
coins.

If they do this ahead of time, the mining fee will be fractions of a cent.
Splitting level-0 TX into many smaller coins at level 1
The reason for groups such as Core opposing the structure listed as Section 9 of the Bitcoin whitepaper is
that they oppose scaling Bitcoin. With more transactions, the system is larger and also more private. We can
use the fact that Bitcoin allows many large in-and-out transactions to be created and split and joined again
to allow the system to be used without large unconfirmed chains of transactions, allowing SPV to function
well.

In this case, we have taken a single 2.0 BSV coin and split it as we are travelling to the shops. The coins will
be available as settled into a block in an expected period of 5 to 20 minutes in general. From the one UTXO
coin, we now have multiple coins that can all be spent in a single block. If we are worried about privacy in
any of the transactions we are about to do, we now have created a further level of obscurity. The merchant
cannot determine if we have been paid at TX level 1 or if the transactions at level 0 are ours.
Shopping in a single block

In a single block, we now have many split transactions. Each of these coins is linked to that at TX level 0, but
there is only a path. A merchant cannot tell when this has been split to another merchant nor if it is just
dividing your own coins.

You can make this much more private, if you split the values somewhat randomly. In this, you could use
multiple input and outputs, and if the change is not joined again, there is no simple way to link the various
spends.

When this method is used, the coin being spent at any time is in the UTXO set as a confirmed transaction
within a block. There is no requirement here to have to instantly spend change.

When we start to see that Bitcoin is designed to be a commercial system and not simply a bunk of
Raspberry Pi machines, we start to understand how powerful and simple it can be.

Merchant addresses
A major flaw that has been introduced into Bitcoin is the concept of having address re-use. People publish
addresses on static pages. The reality of how Bitcoin was designed is that users and merchants should use
keys only once.

This acts as a security and privacy firewall, and stops transactions from being linked to a common owner.
There is in fact no reason to keep key pairs. Once a key has been signed and used, it can be removed and
discarded. The common practice of sending small “spam” amounts of one or two satoshi is a direct
consequence of not removing old keys.

If users did not keep keys in the hope of getting money to a used address, there would not be an incentive
to send small amounts of bitcoin to these old addresses; it would be the same as sending to a random
public-private key pair that has never been seen before. That is of no value to anyone.

A merchant who creates a new address for each and every transaction improves their own privacy.
Corporate intelligence gathering is simple if a single common wallet and address structure is used. In
changing addresses, the merchant does not leave anything to analyse. It is more private for themselves and
their clients.

If I go to Walmart or Tesco, and I was to make a purchase and receive change, the coins are now split. The
values of a set of transactions from a Walmart coin would not be determinable. There are over 15 million
transactions made each day by Walmart alone. This is around 400 transaction a second plus during
operating hours.

Interestingly, there is not a single HPC (Supercomputer) in existence that could analyse the Bitcoin
blockchain to match coins from unknown sources, and at the same time, the system is completely traceable
(for example in a tax audit) with a minimum search time.

The key to making Bitcoin work well is not to add complexity, but to use it as it was originally designed.

Randomised more private splitting

All things in Bitcoin are based on economic incentives. If we want, we can send between wallets and split
coins in a manner that makes our wallet far more secure and private by simulating use. Right now, no wallet
does this, and a user would need to have the entire process completed manually. It is something that is
simple to achieve in code, but has not been deployed, as the concepts haunting Bitcoin remain biased
towards a misuse.

In the example below, we end with coins on a couple of devices (level 2 vs level 3) and in many coins. If the
coins remain separate, and we keep colour groups separate, we can now see how an analysis of the sources
becomes increasingly difficult.
As we keep this split, the chances of discovering the user’s linked habits decrease exponentially.

Identity
The ability exists to have a registered identity and still create related keys securely.

Here, a root public-private key pair is associated to an individual who can create linked sub keys for each use
. This could even be linked into a PKI-based system, whilst maintaining a high level of privacy. The root key
can be attested and associated with an individual or a company, and the sub keys would then link to
individual uses and spending.
Bitcoin is a commodity
By Craig Wright | 12 Dec 2018 | Bitcoin & Blockchain Tech
Ledger space in a sound, immutable ledger is a commodity. It has value. The trouble is that many think
they can create something new, that Bitcoin is a new form of money. It is not.

Money exists as two things and two things only.

1. Commodity money based on specie or some other valued exchange item.

2. Fiat, that is legal tender — that which is decreed by the state.

Bitcoin is not legal tender. It is not decreed to be a means of payment that must be accepted within a
territory, and nor shall it be. The result is that Bitcoin is either commodity money or a pure Ponzi.

The commodity that defines Bitcoin is the transaction ledger space and computation.

We do not care about the exchanges and day traders, as we will have use; that is, businesses wanting
to save data and contracts in a manner that allows them to be covered under many of the US SOX
provisions and many of the global laws of document retention.

Teranode
Our answer is simple: With SV, we are scaling Bitcoin to handle over 4 million transactions a second in
the period between now and 2021. At a cost of $0.0025 a transaction on average, miners will earn over
$10,000 a block as we scale to such a level, and there are businesses wanting this already. For us,
Bitcoin is business friendly. There is no spam on the blockchain that is paid for.
A service bureau is a company that provides business services for a fee. The term has been extensively used
to describe technology-based services to financial services companies, particularly banks.

It is something that Silk Road stopped. E-Cash was used by Deutsche Bank. In 2013, we had
relationships with the Commonwealth Bank in Australia. We had partnerships with Teminos and
others. The publicity from Silk Road stopped all of this, and created the false belief that Bitcoin is for
dark-web uses.

If it was not for Silk Road, Bitcoin would be mainstream today. It would be used by major banks today.
If not for Silk Road, Bitcoin would be 100,000 times larger, today.

We plan to go back to what Bitcoin is. It is money. It is a ledger, and it is commodity money based on
use.

“Money”
In Travelex Limited v Commissioner of Taxation [2008] FCA 1961 ( Travelex ), Emmett J made observations
regarding “money” (including the subsets “currency” and “legal tender” — refer to discussion below).

With respect to the term “money”, Emmett J wrote that (at paragraph 25):

Money is any generally accepted medium of exchange for goods and services and for the payment of
debts (see Butterworth’s Australian Legal Dictionary at 759). Currency and legal tender are examples of
money. However, a thing can be money and can operate as a generally accepted medium and means
of exchange, without being legal tender. Thus, bank notes have historically been treated as money,
notwithstanding that they were not legal tender. It is common consent and conduct that gives a thing
the character of money (see Miller v Race (1758) 1 Burrow 452 at 457). Money is that which passes freely
from hand to hand throughout the community in final discharge of debts and full payment for
commodities, being accepted equally without reference to the character or credit of the person who
offers it and without the intention of the person who receives it to consume it or apply it to any other
use than in turn to tender it to others in discharge of debts or payment for commodities (see Moss v
Hancock [1899] 2 QB 111 at 116).

Emmett J’s views in Travelex regarding “money” were not overturned on appeal to the Full Federal
Court and the High Court.

The Macquarie dictionary contains a similar definition of “money”:

1. gold, silver, or other metal in pieces of convenient form stamped by public authority and issued as a
medium of exchange and measure of value.

2. current coin.

3. coin or certificate (as banknotes, etc.) generally accepted in payment of debts and current
transactions.

4. any article or substance similarly used.

5. a particular form or denomination of currency.

6. a money of account.

7. property considered with reference to its pecuniary value.

8. an amount or sum of money.

9. wealth reckoned in terms of money.

10. (plural) Law pecuniary sums.

11. pecuniary profit…

Thus, from the above, it can be ascertained that “money” within the ordinary meaning:

is any generally accepted medium and means of exchange for goods and services, and payment
of debts (i.e. an accepted proxy to facilitate the exchange of goods and services);
may be distinct from “currency” and “legal tender”, and does not have to be either to have the
character of “money”; and
is given its character by common consent and conduct (i.e. by general acceptance, as a medium
of exchange and measure of value).

It is also clear that there is no need for “money” within the ordinary meaning to be tangible property
(e.g. coins and notes). Rather, “money” is an abstract concept determined by reference to its use as a
medium of exchange, and common consent and conduct. For example, funds — held to the credit of a
person in a bank account — being transferred to another person would clearly be considered to be a
transfer of “money”.

Another feature of “money” to be noted is the “negotiability” (i.e. the ability to transfer ownership or
property in money by delivery) of “money.”

Bitcoin as “money”
Based on Emmett J’s observations in Travelex and the definition in the Macquarie Dictionary, it would
seem that Bitcoin falls within the ordinary meaning of “money”. That is, and as evident from the
discussion at section 2.3 above:

bitcoins are used as a generally accepted medium of exchange in real-world transactions, and are
being increasingly accepted by businesses;
Bitcoin does not need to be “currency” issued by a country nor “legal tender” to be “money”;
Bitcoin has the character of money by common consent and conduct of businesses and
consumers.

Bitcoin also has the quality of negotiability of “money”, and in a broader sense, “currency”, in that
“ownership” in Bitcoin value is transferred through a transfer of bitcoin from one Bitcoin wallet to
another in a transaction. It is also clear that ownership of Bitcoin value is valuable in real-world
currency terms.

The quality of negotiability possessed by Bitcoin also makes it clear that Bitcoin is a form of intangible
personal property. As observed by Dr Rhys Bollen, Bitcoin:

…involves the circulation of valuable rights but not rights to cash as such. The valuable rights are a
form of intangible property, transferred irrevocably and immediately (albeit with delayed confirmation)
by electronic order. [1]

Further, the developments in Germany, Switzerland, and the UK as discussed at 2.3(a) above indicate
that Bitcoin — it seems inevitable — will be formally accepted as “currency” (i.e. foreign currency) by
governments around the world, if indeed it is not already considered to be so.

There is also United States jurisprudence indicating that Bitcoin falls within the ordinary meaning of
“money” and perhaps “currency” in Securities and Exchange Commission v Trendon T. Shavers and
Bitcoin Savings and Trust , case №4:13-CV-416 (E.D. Tex) [2] ( SEC v Shavers ). SEC v Shavers concerned
charges made by the U.S. Securities and Exchange Commission ( SEC ) against Mr. Trendon Shavers,
accusing Mr. Shavers of using Bitcoin to run a Ponzi scheme. Mr Shavers sought to dismiss the charges
on the basis that the Bitcoin investments offered by his business were not securities within the
meaning of U.S. federal securities law as Bitcoin was not money.

In his decision finding in favour of the SEC, Magistrate Judge Amos Mazzant explained:

The term “security” is defined as “any note, stock, treasury stock, security future, security-based swap,
bond…[or] investment contract…” 15 U.S.C. § 77b. An investment contract is any contract, transaction,
or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation
that profits will be derived from the efforts of the promoter or a third party. SEC v. W.J. Howey & Co.,
328 U.S. 293, 298–99 (1946); Long v. Shultz Cattle Co, 881 F.2d 129, 132 (1989). First, the Court must
determine whether the BTCST investments constitute an investment of money. It is clear that Bitcoin
can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to
pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that
accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S.
dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money , and investors wishing to
invest in BTCST provided an investment of money.

(emphasis added)

Accordingly, it is submitted that Bitcoin is “money” within the ordinary meaning.

[1] Note 6, above at 283

[2] Available at
http://ia800904.us.archive.org/35/items/gov.uscourts.txed.146063/gov.uscourts.txed.146063.23.0.pdf ,
accessed 14 January 2014.
The lie of anarchy
By Craig Wright | 13 Dec 2018 | Bitcoin & Blockchain Tech
Many have thought that Bitcoin was in some manner designed to promote anarchy and a stateless society;
that concept cannot be further from the truth. Bitcoin was designed to promote the rule of law. It helps
create a system where all are equal under the law and sunlight is shone on the corruption that festers in the
dark and hidden regions to make it fade into obscurity.

Anarchism ≠ Libertarianism.

Anarchy is incompatible with liberty, and Bitcoin cannot be anarchist. Anarchists often claim to be
“libertarian”, but this is just a part of their charade designed to help indoctrinate those who have not really
studied liberty into the Philosophy of Collectivism .

The ideology of anarchy is rooted in a concept which (falsely) mandates a path to liberty that is initiated
with the dismantling of ALL government. This corrosive philosophy instils the lie of a free society only being
able to exist when there is NO government whatsoever.

Bitcoin was designed to allow corporations and people to engage with sound government — not to remove
government.

Destroying documents — bad for business or illegal

Two significant provisions of Sarbanes-Oxley are defined in §§ 802 and 1102 and codified, respectively, at 18
U.S.C. 1519 and 18 U.S.C . 1512(c) set the basis for why an immutable blockchain is needed.

These provisions impose substantial criminal penalties on any individual or entity — public or private — for
destruction of evidence or obstruction of justice regarding any actual or “contemplated” federal investigation,
matter, or official proceeding. In the case that led to the creation of the Sarbanes-Oxley Act, Enron and others
engaged in a massive effort to destroy documents.

If the accounts of Enron had been implemented on a blockchain-based ledger, there would have been no
way for these to be destroyed.

More, the Real-Time Disclosure (§ 409) reporting provisions of Sarbanes-Oxley also require the disclosure of
legal risks. With a blockchain, with Bitcoin at scale, such disclosure will be simple. In this, we see a partnership
of business and government acting transparently.

If an incident goes to court, it is necessary to list not merely documents in one’s possession, custody, or power,
but also those that once existed and have been destroyed. It is an incredibly difficult task in the best of times.

The integration of Machine Learning Techniques and Bitcoin allows corporations to engage efficiently in—

1. classifying all documents that are scanned or electronically created using systems of automated
controls and allocations,
2. using digital analysis techniques and data mining to search through system storage and data
warehouses for keywords and classifications,
 3. configuring key fields in databases and making rules to create isolated copies of required documents,
4. formal policies and procedures, and
5. network scanning for defined classifications.

In fact, some of the IP we have been creating at nChain is all about aiding businesses to use digital analysis
techniques and data mining to search through system storage and data warehouses for keywords and
classifications and to map these using the blockchain.

Examples of Data Retention Requirements

The purpose of information security is to preserve:

confidentiality — data is only accessed by those with the right to view the data,
integrity — data can be relied upon to be accurate and processed correctly,
availability — data can be accessed when needed.

All three of these points are preserved in Bitcoin. Many new security requirements have impacted
organisations over the last years and decades. Some, such as PCI-DSS, are well known if still misunderstood,
others with more serious impact remain unknown by most. CLERP9 is as onerous as, if not more onerous
than SOX; some states have introduced criminal penalties for poor document retention, and there are
criminal penalties for organisations that do not secure Tax File Numbers, SSNs, etc.

Bitcoin allows corporations to solve many such issues. Most critically, it is important that you ask how you
prove that your organisation has taken the necessary steps to ensure security through good corporate
governance to a level that satisfies due diligence.

This is where metrics are important. If you cannot prove it using evidence, then there is a presumption that
you have not done anything. Bitcoin provides a ledger that helps organisations meet their security needs and
also prove that they have done so.

Primary objective of auditing

Audit is about managing risk. The function of the auditor is to be the eyes and ears of management acting as
a means of management to measure and report on risk. The follow-on benefit is that it also decreases risk
through a level of increased awareness.

The primary objective of an auditor is to measure and report on risk.

An audit is the means in which management can find the answers to the difficult questions concerning the
organisation. It allows them to appreciate the means and processes that are implemented to achieve the
organisational missions and objectives.

Measurement leads to reports of risks, and allows management to act.

One of the greatest side benefits of an audit is an enhanced awareness of the issues facing the organisation.
To understand risk, we will first look at the threats that may impact us.
Such is the real purpose of Bitcoin; it is not anarchist money, it is sound reporting, a system that is resistant to
corruption and a means to allow corporations to be more efficient.

Bitcoin works as it is cash and has value.

BLOCKCHAIN Based Accounting:
By Craig Wright | 14 Dec 2018 | Bitcoin & Blockchain Tech
For more details see the following link :

CRYPTOGRAPHIC METHOD AND SYSTEM FOR SECURE EXTRACTION OF DATA FROM A BLOCKCHAIN

Executive Summary
This white paper defines a blockchain-based service for extracting, classifying, and posting transactions that
have been posted to the blockchain into an accounting-ready format using information from the
transaction inputs/outputs to determine the appropriate posting formula and calculations.

The method defined within this paper ensures that the posting to the general ledger (GL) can be publicly
demonstrated to be a true and accurate reflection of the activities of the entity in regards to the blockchain.
The method allows automated posting into a modern accounting system for both Bitcoin and tokenised
transactions, whilst not placing any restrictions upon how the entity chooses to allocate their keys. GL states
(i.e. reports at any point in time) can be stored as a permanent unchangeable record by storing a ‘hash’ of
the state onto the blockchain.

A general ledger typically uses the double-entry bookkeeping method — where each financial transaction is
posted twice, as both a debit and a credit, and where each account has two columns. The general ledger is
generally comprised of a series of sub-ledgers which are rolled up to produce the overall general ledger.

Modern best practice for general ledgers keeps them ‘thin’, where each entry is an aggregated set of
individual transactions, rather than recording the lowest level of accounting information into them —
although each record can drill-down to bring back the lowest level of information from the relevant sub-
system. The best practice for Bitcoin (for example, frequently changing the key used for a transaction)
makes the posting of information to an entity’s general ledger complex.

Background
The general ledger is the master set of accounts that summarise all the transactions occurring within an
entity. The structure of this set of accounts is up to the individual entity itself, but would include the
accounts reported on a business financial statement (cash, accounts payable, expense accounts, and
purchases and loans). Each ledger in the general ledger maintains a separate balance or a running balance
of the financial position based on a monetary exchange for each account which the business needs to track.

To keep the number of transactions within the general ledger manageable, frequently the general ledger
account features a single transaction line of the balance from a sub-ledger, where the sub-ledger contains
the breakdown of the individual transactions themselves (and this process can be nested further if
necessary).

The accounting setup for entities can get massively complex with hundreds or thousands of separate
reporting points (e.g. business units, departments, products, etc.). In complex organisations, parallel books
are required (e.g. an accounting treatment for legal purposes, and one by product line and one by
department).

Large enterprises implement complex financial systems based on large database structures in order to
track these large entries. These complex financial systems act as a master repository for the overall general
ledger of the organisation; this leads to the creation of a complex financial system where various accounts
are added, viewed, or edited in such a way that they manage to effectively keep the chart of accounts valid
for the enterprise and allow it to be reported on. Enterprises also employ other information technology
systems to add additional specialised or specific task functions to the organisation; some of these that
reference the master data stored in an enterprise general ledger include a variety of means of mapping the
chart of accounts to produce valid accounting entries that will enable reports to be extracted from the
general ledger system. These reports and the tracking data can be created such that a combination of
account, department, project, or other specific report formats can be extracted.

The more complex enterprise-GL systems allow for rule-based engines that provide combinations of
accounts or data to be verified against a series of rules. In these systems, account combinations do not need
to be maintained explicitly, but can be extracted dynamically. Such complexity has led many businesses to
externalise the chart of accounts with general-ledger clerks performing multiple tasks, including the setup
of a chart of accounts and maintaining selected individual combinations of functions within their individual
set of accounts that they manage. It can lead to problems between account synchronisation, with master
data being required to be synchronised between multiple systems. In many large accounting systems
including Oracle, it is proven to be extremely complex, and the limitations or assumptions around the
integration of these accounts make the accurate reporting between different entities difficult. This tends
not to be a limitation of the GL solution itself, but rather the ad-hoc nature of the feeds into such a system
from various packages that may or may not be financially aware and therefore require complex mapping
and consolidation.

The result is a set of solutions that are prone to problems. In complex systems, data can become stale in one
system, where the clerk updating the account does not maintain data to an adequate standard. A delay in
updating data can lead to discrepancies between systems. Tree-based rule structures cannot easily be
implemented and deployed in many of such distributed systems due to the requirement to map disparate
data sources, where account fields may be named differently.

Functional Overview
There is a separate white paper 0060 that covers a closely related mechanism for how to perform the full
general-ledger accounting solution directly on the Bitcoin blockchain.

But, the present specification covers the ability to automatically extract, categorise, and feed an existing
general-ledger system from information that has been stored on the blockchain (and for certain accrual-
based functions from information in the pending transaction store) by other processing systems (note that
the information stored on the blockchain may also contain tokenised input, so this is not a solution for
booking only Bitcoin transactions).

This mechanism, together with the tokenisation defined in white paper 0165, will allow an automated,
consistent, and reliable method of posting:

simple financial transactions (denominated in BSV, paid into or from an entity’s account);
complex financial transactions (denominated in tokenised form, paid into or from an entity’s account);
multi-party transactions (multiple inputs, and/or multiple outputs) in either simple or complex form;
and
inter-entity transactions both simple and complex.

Through this method, it will also be possible to produce more complex extracts that allow full substantiation
of the account balance for the chart of accounts, including:

assets and debts; and

cash flow.

The solution will monitor the public keys and derived public keys (see white paper 0042 for details of
deterministic sub-keys), and other addresses in a hierarchical fashion and map that tree structure against
the chart of accounts. This key hierarchy allows other systems to generate financially robust data, without
having to build the complexity into those legacy solutions, as the blockchain will enforce the controls
automatically.

As with a standard ledger solution, the rules allow the entity to post at the granularity that meets their
needs from a coarse rolled-up value to a granular individual transaction (or a combination of the two).

The specialised extract-and-posting solution itself relies on a blockchain oracle (see white paper 0160 for
details ) to constantly monitor the blockchain and use the canonical rule-set defined by this white paper to
detect, aggregate, and post the relevant transaction inputs and outputs[1].

The derived accounting system can be set up to automatically consolidate and post individual sections of
the chart of account values as a part of, or a combination with other sections of the chart of accounts,
allowing users to either validate and report on their own area or as an overall summary of the organisation
as a whole.

This model simplifies the ongoing audit requirements for the company, since the source data used for the
posting is the underlying cash movement (for the most part) and is a publicly unalterable record.

In addition, by using the same cryptographic techniques to sign the posting rule-set that was used and the
posting data itself, it provides a robust chain of evidence to support the requirements of any external
auditor.

Technical Specification
In order to post entries to the general ledger package, the system must first extract all the transactions from
the blockchain that have not already been posted.

Use-Case Model
The following use case model demonstrates the steps involved in a generic blockchain-posting approach.

Key Use Cases

[100] Determine Accounting Configuration
Description
As an Account Posting Agent I need to get the details about how to detect what it is that I must post, plus
where I must post that to.

Primary Actor
Account Posting Agent

Main Success Scenario

The following diagram shows the data set that is built up by the various steps.
This highlights a number of key features about the configuration:

There is no requirement that every account must have a posting rule applied to it; equally, there is no
requirement that multiple rules can’t point to the same account.
There is no requirement to ensure that all keys are covered by an allocation rule (although best practice
would be to ensure that there was at least a single allocation rule for each root key to ensure that
transactions were not dropped by accident).
It is possible to double-stack rules within the hierarchy (e.g. have an allocation rule defined at the child
and at a parent). This is interpreted as posting at the child and not at the parent (to prevent double-
posting), but allows ‘exception’ rules to be created without complicating the sub-key model.

[200] Extract Transactions from Blockchain

Description
As an Account Posting Agent I wish to extract all the transactions that I am interested in and have not
already posted.

Primary Actor
Account Posting Agent

Main Success Scenario

[300] Create Posting
Description
As an Account Posting Agent I consolidate all the individual account postings into a posting report.

Primary Actor
Account Posting Agent

Main Success Scenario

[400] Post to General Ledger
Description
As a General Ledger I need to post all the blockchain transactions into the relevant accounts.

Primary Actor
General Ledger

Main Success Scenario

Key Variations
Using the Blockchain as the General Ledger
This paper covers the solution where the Bitcoin transactions are simply part of the organisation’s trading
position, and therefore need to be included within their existing accounting model. Such a scenario is likely
to be the case until the Bitcoin environment becomes ubiquitous — in particular around areas such as tax
liabilities, which currently require calculations to be performed within the fiat currency, and those liabilities
to be paid through ‘traditional’ banking payments in that fiat currency.

Once Bitcoin ubiquity has been achieved, it is possible to migrate the general ledger itself onto the
blockchain and simplify further the process defined within this paper. White paper 0060 describes the
method for achieving this.

Accrual Postings
As described above, this mechanism effectively only allows cash-based accounting, which supports many
companies and businesses but can be inflexible in some circumstances.

It is possible to use the same methods above to handle accruals-based accounting, by running the posting
rules off of the transactions rather than the blockchain block (in practice, the method would likely post from
the transaction, then reverse and re-post from the published blockchain block, as this would allow the
general ledger (GL) to determine certain liabilities more accurately). In practice, to support this, the Account
Posting Agent would need to be a Bitcoin node in its own right (although it would probably be
implemented as such regardless).

This means that transactions that should be accrued for later settlement (for example those published with
an nLocktime value) can be fully accounted for before the underlying settlement is committed to the
blockchain.

Substantiation
As an alternative to posting the accruals from the blockchain (which is very complicated in terms of rules
when some of the other techniques such as using the blockchain to operate an Accounts Receivable
solution described in White Paper 0124 are used due to the complexity in deriving the redeem scripts here),
the mechanism used in this white paper can be used to generate the substantiation for the general ledger.

In this situation, the actual postings to the general ledger are generated from the application systems
themselves (e.g. the payroll system posts directly into the GL).

But, in order to validate that what the payroll system has posted matches what has actually occurred, a
substantiation report against the cash (or in this case BSV) movement is produced and apportioned.

Whilst the process for generating this report is identical to the process for posting, the advantage is that —
generally — the rules and the consolidation are broader, thus reducing the implementation complexity of
the solution.

Notes :
[1] Note that whilst the paper talks about posting blockchain transactions, in practice the mechanism is at a
lower level of monitoring individual transaction inputs and outputs, which allows a single blockchain
transaction to be posted against multiple accounts simultaneously, although it is important that the
solution ensures that integrity is maintained such that partial posting cannot occur.

[2] Whilst the rules to derive redeem scripts here work, it is unlikely to be pragmatic to implement the
model in this manner and would be more efficient to implement a ‘sweep’ address to which fragmented
individual redeem scripts are collated and the account posting generated from this account.

[3] Note that this step is simple for BSV transactions, since the value of the transaction remains the value of
the transaction. But when posting tokenised transactions (e.g. the actual transaction is in USD or ounces of
gold), then the rule must specify how to derive the value from the metadata within the transaction.
Bitcoin in law
By Craig Wright | 18 Dec 2018 | Bitcoin & Blockchain Tech
On confirmation, the recipient faces minimal, if any, ongoing risk of fraud from the transferer (Alice, A).
There remains an ever diminishing risk of a block re-org resulting in a lost transaction, but after multiple
blocks, it becomes a near-zero probability.

Even on a 0-conf transaction, the risk to Bob (B) is minimal as long as B has checked a node (or multiple
nodes to be more certain).

Using the API (RPC) call to a Bitcoin node, the merchant can use the call gettxout . If it returns anything,
then the output is unspent (at least as reported by that node). If nothing is returned, we know that the
output either never existed or has already been spent. In an SPV, where we know the transaction path, and
we know it existed, the option is that a transaction has not been spent, or a merchant could have a double
spend.

Without explicit collusion from A and a miner, and this is probabilistic at best and not in any miner’s
interest, the simple addition of a transaction (TX) into the mempool is good delivery.

The rules of property and the rules of currency differ significantly.

Under the ordinary rules of personal-property (1) transfer, the transferee obtains only the title originally held
by the transferer.

So, A cannot give a better title to B than A has in ordinary property law. As a consequence, if a tokenised
asset (not currency) is stolen from a party and passed to another, then the receiver cannot receive the full
title. In this, if A has property stolen by M, and M (Malicious Mark) passes it to B, then A has a right of
recovery from B, even where B received no notice of an adverse claim.

In Bitcoin, a tokenised asset can be linked and registered to a key, but also to the individual’s identity (such
as through a PKI-based key registration process).

In this process, A can seek to repudiate a transaction to other parties, and seek redress in court. The
international basis of Bitcoin can make this process more difficult and add further complications, but the
use of tokenised “sub assets” acts to allow property ledgers, which act using the commodity value of Bitcoin
without necessitating the currency use.
Miller v Race (2) was a fundamental decision in the growth of the law of currency (even though it did not
involve currency).

In Miller v Race , Bank of England notes (not formally legal tender at the time of the case) where held to
operate under the law of money. The result was the owner of a stolen Bank of England note was not able to
recover from the party who (innocently without knowledge) received it (in exchange for value). Hence, the
recipient maintained good title. This case acts as a foundation for the monetary use of Bitcoin in cash (or
currency) exchange for value. A party who has received bitcoin as a consideration for an exchange at value
receives good title.

The principle that good title to money is obtained in a transfer of bitcoin even when passed via a thief is
now a question as to the nature of the exchange.

As a transfer of currency or private money, Bitcoin is governed by the money rules. When used as a means
to record other property, it is covered by the rules for ordinary chattels. See (3).

Notes:
1. “Personal property.” Sir Robert Harry Inglis Palgrave. Dictionary of political economy, Volume 3. 1908. p.
96
2. Miller v. Race ((1791), 1 Burr. 452). http://www.commonlii.org/int/cases/EngR/1825/166.pdf
3. Blackstone, William (1775). Commentaries on the Laws of England . II . Oxford: Clarendon Press. p. 16.
See also; Morris, Raphael Cohen (1933). “Property and Sovereignty.” Law and the Social Order (1982 ed.).
p. 43.
Private blockchains are a matter of economic forces
By Craig Wright | 18 Dec 2018 | Bitcoin & Blockchain Tech
The issue of “private blockchains” comes to a purely economic outcome. The issue of public vs private is,
and has always been one of setting the correct controls. An encrypted session is more secure than one that
is merely “hidden” or “air-gapped.”

To securely encrypt a session, we have techniques that have already been developed. The use of symmetric-
key encryption and one-time pads provide the ability for an organisation to set access policies and controls
that maintain confidentiality and allow the data to be maintained privately, whether inside a firewall or on
the web.

One use of a “private blockchain” is the means to keep proof and attestation of a transaction. One thing
many do not understand is that such a thing is rather simple in Bitcoin.

OP_HASH256 5b093a8f05ed915e63f4799ebe143c1776279048ca2fd470512d399bcea259ae OP_EQUAL

In this script, we have the hash of the abstract in the Bitcoin white paper.

The typical means of explaining the scenario is shown below:

It is also said to be insecure, as a “miner could take the output.” Well, the other way to think about it is that it
is a way to pay miners for a service. Bitcoin is a commodity ledger. It is for use in storing data and for
transactions.

Fees should be low.

The fees on the Bitcoin SV network to send and save a hash puzzle can be in the order of $0.02 today, as
long as you do not care that the puzzle is saved that minute (for example, if 3 blocks or 30 mins are OK).

The Bitcoin wiki says the following about hash puzzles:

they are not secure, because they do not contain any signatures and thus any transaction attempting to
spend them can be replaced with a different transaction sending the funds somewhere else.

The (false) assumption here is that it matters. A business can use the blockchain to save hash values and
data.

It can do something as simple as a Data Push to save a name (in the script or in OP_Return) and then save
the hash as a part of an on-chain record.

With the ability to have a transaction sent to multiple outputs, we can also use the process to link to
accounts. For example, we can have Input 1 linked to Output 1 in a transaction, paying the same business
wanting to store a record.

We can use a system that links the record values and allows these to be constructed into a ledger of values
that we seek to prove ( as shown in the link ).

Now, we have another input for a small value (in fact, we could have a smaller transaction with only this
input and output value as a hash puzzle, but this is more difficult to compile into a complete ledger of many
records), and the second input links to the output as a hash puzzle this time.

So, we now have a file identifier (such as the description or file name) and the record hash. This is a forensic
proof of a file’s existence. Signed and encoded, it can be a record of a contract between parties that can
stand on its own in court.

It can act as a proof of the first existence of a file. A media company can demonstrate the existence of
values. It is also not using OP_Return, it is the hash puzzle itself.

Bitcoin also supports SHA256d. This is a hash of the hash. It can be used to allow other uses of puzzles. We
can (in script or otherwise) create a hash puzzle that uses the hash of the file hash and not the file. In this,
we have created a means to allow evidence and proof without ever leaking the file.

Some of the many uses of a hash include:

saving the hash of a log file to ensure that it has not been tampered with;
software-version hashes — so clients can be assured that they are downloading a valid version of the
software (Microsoft host hashes, but all websites are vulnerable to hacking, the Bitcoin blockchain is
not.);
contract hashes.

In saving the puzzle as a Hash < Hash (file) > > variation, we now need to provide the 256-bit hash and not
the file itself as a pre-image. If the security of RipeMD160 is good enough, then we can even save more
space.

Cisco use an IOS verification as a means to validate software. The validation could be made far more secure
using Bitcoin. Simple tools to check functions for customers can be created today. The addresses in Bitcoin
could be used as a means to mark the source (in the example, Cisco) and validate the image or software.

These are all uses that can be easily implemented today.

This is why we are scaling Bitcoin to allow millions of transactions a second. Bitcoin has value as cash, when
it is money, and to be money, it needs to be a commodity. The commodity value of Bitcoin comes through
use.

So, why is the puzzle secure…

Very simply, the output goes to the miners.

We could even have a very-low-fee or no-fee transaction that miners would accept, knowing that they could
have a payment later. If we need the record for 7 years, set up an nLocktime value for a spend in 7 years,
allowing the transaction to be spent and to be prunable. Alternatively, if it does not matter that the
transaction is in the UTXO set, spend it now. The puzzle is then available to be grabbed by miners.

Let the miners have it. It is the fee for storing the data and adding value.

So, the real question is…

If you can make a public blockchain more secure, more easily accessible, and also less expensive (no servers
to run, no staff to maintain it)…
When the public system is faster.

When it is cheaper and more secure.

When it is run without the need to hire your own staff to maintain it.

Why would you even start thinking about a private Internet or a private blockchain…?

That is the real puzzle.

Expectation of Profits
By Craig Wright | 20 Dec 2018 | Alternative Coins & Systems
The US Howey case used the Expectation of Profit as an element in International Brotherhood of Teamsters
vs Daniel . Daniel involved contributions by employers into a non-contributory pension plan, which was
maintained for their employees.

The managers invested the contributed funds to earn profits. Ultimately, these profits would have flowed
through to the employees as benefits. The Supreme Court found that the expectation-of-profit element was
missing. It focused on what was viewed as a relatively small percentage of the planned assets derived from
earnings rather from employer contributions.

As a logical predicate, the court could have decided not to care about actual performance. The focus would
have been on reasonable profit expectations of the plan’s beneficiaries.

Many investment schemes go wrong; they do not have any less involvement in the sale of securities for that
reason.

United Housing Foundation Incorporated vs Forman is helpful in the US in determining Expectations of

Profits . In this, the purchases of interest in a cooperative housing project were to receive financial benefit
from their ownership. No profit on a resale of interest was possible. In this case, the interest could only be
resold at the original purchase price.

The project leased commercial space to third parties. Any income derived was to be used to reduce the rent
on the housing units. The court said this was far too speculative and insubstantial to bring the entire
transaction within the Securities act.

Neither Daniel nor Forman should be interpreted as giving promoters leeway structuring investments and
investment transactions in a manner that does not involve security offerings.

In Daniel, the court was influenced by the fact that Congress had just subjected pensions to its extensive
regulation by ERISA.

In the case of Forman, the obvious motivation of the court and the motivation of the purchasers were to
attain a decent place to reside and an attractive price to do so.

The opinion decided in such a way was not to find the security in a social construct. They could have decided
that each was a security.
SCC vs Edward is a case in which the Supreme Court did wish to find the presence of a security. Note, this is a
controlled or regulated security. The scheme involved the sale of pay phones packaged with a 5-year lease
pack and management arrangement.

This also incorporated a buy-back agreement. The court rejected its own dicta from an earlier case. The court
held the fact that a money-making scheme that offers a contractual entitlement to a fixed rather than a
variable return did not prevent it from being a security.

Investment Contract
There is confusion around what constitutes an investment contract. The term has no meaning in a
commercial context; it is simply a construct of legislators and judges. It is detailed in the Howey Test. The
Howey litigation looked at a particular case leading to the Howey Test. We can break down the Howey Test
into four predicate subjects.

1. The Investment of Money

2. Common Enterprise
3. Expectation of Profits
4. Solely from the Efforts of Others

Investment of Money
The meaning of money can be disposited easily. If we look at ICOs and coin offerings, the US Securities Act
covers all offers and sales of securities, regardless of the form of consideration to be exchanged in the bargain.
The consideration does not actually have to be money. A court could use money as a short-hand term for
something such as cash, cheques, or other negotiable instruments.

It can be anything that would constitute liquid consideration. For an investment to exist, one must put out
consideration with the hope of financial return.

The most important case in such a matter in the US for the meaning of investment is International
Brotherhood of Teamsters vs Daniel .
The Supreme Court in the case had to determine whether an investment contract existed where employers
under a collective bargaining agreement made contributions.

Common Enterprise
There are two separate and disparate formulations of Common Enterprise . These have emerged through
cases in the Courts of Appeal.

The first is vertical commonality. This focuses on the community of interest of an individual investor and the
manager of the enterprise.

The other is horizontal commonality. This concentrates on the interrelated interest of the various investors in
a particular scheme.

When considering Common Enterprise as an element as per the Howey Test, it can be useful to note that
courts have identified different versions of vertical commonality.

One version is known as strict vertical commonality. In strict vertical commonality, it is required that the
fortunes of the investor be linked to the fortunes of some other party.

In another version, which is known as broad vertical commonality, a requirement that the fortunes of the
investor to be linked to the effort of another party exists such that it can be expected to accept horizontal
commonality, if it exists.

Solely from the Efforts of Others

This is an element of the US Howey test that comes with a question of whether investors are passive or
otherwise. Such cases of pyramid schemes where, once brought into the scheme themselves, the other party
is outlooking for prospects to bring them into, sales meetings run by promotion companies can be
incorporated.
On Predicates
By Craig Wright | 21 Dec 2018 | Bitcoin & Blockchain Tech

No, not these.

To many, it ends up making it seem as if Bitcoin and automated smart contracts could be a way of
completely automating the law. It is a fallacy in that we can see common law expressed as a set of predicate
expressions that require human intervention.

We will start with the semantics of common-law predicates to both address the “code-is-law” or smart-
contract realm, and gain a better understanding of the nature of common law.

The semantics of a word dealing with its meanings.

We can look at the pragmatics as these deal with the relations of words in context and in their use.

Pragmatics include the scope of the speaker’s purpose — social effect, the particular use of the word, and
the selection made in the context as related to the words surrounding it in physical context.

The common law is based on the judicial decisions of cases.

A case is based on factual situations that are brought before a court in order for a judge to offer a
resolution.
Each particular case brought before a court is separate and representative by different facts.
Each court is in effect provided a set of sentences describing a set of facts. Each sentence selects a
proposition, and describes a possible set of worlds and propositions that constitute a more complex
proposition.

One difficulty is that facts are often in dispute in a lawsuit. The resolution of factual disputes by a judge or
jury through the judicial system provides for the determination of the unique factual setup.
The factual setup creates the conjoined set of propositions. We can see from such analysis that each case
involves a uniquely determined set of facts. These facts are expressed as a proposition and a set of possible
outcomes, and a legal decision as to whether or not that set of facts is within a particular set of predicate
terms that derive some legal predicate is up for dispute.

The predicate is peculiar to common law, our words used for characteristically common legal concepts.
Such things include tort, contract, unconscionable. Each of these words has an everyday non-legal meaning;
they also have a specific use in legal terms.

Words such as negligent, good faith, and intent may have different uses depending on the context, too.

Predicates have limited sets over what they range. We can say that common-law predicates are
semantically unique. From this prima facie it may appear that at the face of common law, a predicate
system constrains a judge in reaching a decision. In some other ways we can also argue that the judge is
not unconstrained. Common-law judges have the ability to use a variety of different means that are not
open to civil-law judges. It enables some extrajudicial flow from the semantic analysis, and judicial decision
making is sometimes seemingly inconsistent with other cases.

Such is not in accord with the most positive theories of judicial decision making or theories to do with the
economic efficiency of law. We also know that if a judge says, “This is a battery,” then unless a superior court
reverses the judge, no matter how ignorant or perverse that judge’s decision may seem, no matter how
much the parties and other spectators may disagree, the decision stands.

A judicial decision need not be fixed in stone but can be altered by a higher court.

STARE DECISIS
There is no rule of stare decisis laid down by statute in Great Britain. There is the House of Lords practice
statement 1966. It is the statement of an intent of a court.

If we look at examples of cases, applications of judicial precedent, we see that simple terms such as printed
in one can mean books, journals, and alike, or that printed publications can be something different, such as
microfilm in the other. So even when there are seemingly conflicting outcomes, there can be a difference in
the predicate model.

STARE DICTIS
Judges have human fallacy. No judge likes to be overruled. Hence no judge invites reversal.

In the common law, the decisions of judges in disputes brought before them rely on the interaction
between other judges and their opinions more than unstatutory enactments.

Judges are not responsible for deciding factual issues, though. Facts may be determined by the judge or
jury.

The facts of a legal dispute, once decided — what we can call a case, are a proposition. A conjunction of all
the propositions expressing the particular factual findings sets the case.

Judicial function of the common-law judiciary decides whether or not that case is to count as a particular
legal predicate.

The difficulty in deciding between stare dictis and stare decisis in cases comes down to not only the
determination of facts but the particular determination in different circumstances.

What we see is that the judicial process is far more complex than can be noted in such a simplistic area as a
smart contract. In the process, the court needs to be able to adapt their decisions to fit with the
requirement of time and also into the decisions of other judges and society as may be seen fit.

Judges adapt not in a revolutionary sweep but rather in an evolutionary manner.

The effect is similar; the common law is let free to do what is needed and moulds itself to social, political,
moral, and economic requirements.

The result is that we cannot expect “Code is law.” to hold true.

The requirements for judicial bodies to be able to modify outcomes leave a scenario where the concept of a
hard and fast predicate can easily be seen as unfair.
The myth of the full validation node
By Craig Wright | 21 Dec 2018 | Bitcoin & Blockchain Tech
There is a long-running false narrative of “full validating nodes.” The dishonesty that has been sold as a truth
is that running the Bitcoin node software while not mining matters in any way to the security of the
network. The inaccuracy promoted is that you can make any difference as a “validator” without being a
miner.

First of all, we need to look at the Bitcoin white paper again. A node is defined in detail. In the definition, we
see that a node must mine blocks.

Miners are nodes.

If you are not creating blocks, that is you are not mining, then you are not accepting or validating anything.
You are merely doing as miners say, and it is explained in the white paper, too.

The longest chain wins.

We will start by exploring what a so-called “full validating node” will do, if a double spend has occurred; that
is, if the majority of miners accept an alternative chain to what your node has originally accepted.

The issue in Bitcoin is not validating rules. It is validating transactions in blocks.

Orphans happen.

If you have a validation node that sees and accepts a transaction in Block 4 of the image, and the majority of
miners see and accept a separate transaction in Block 2 that conflicts (i.e. a double spend), you do nothing
as a non-mining system.

Let us say, Alice is running a non-mining node, and she has been duped into believing the false narrative of
the “ UASF full validating or non-mining node . ” Alice has a transaction paid to her from Bob. Alice is a
merchant. Bob has just created a transaction to pay Alice for a valuable exchange that is completed using
Bitcoin. Alice does not know Bob, and Bob is in an overseas jurisdiction where it will be difficult for Alice to
take action against Bob.

Alice hence does not trust a 0-conf transaction, and waits to see that her full validating UASF node sees
Bob’s transaction in a block. She sees this at Block 4.

Bob is a skilled attacker, and the transaction was sufficiently large to allow the attack to be commercially
valid as long as Alice trusts her UASF node. Bob is a small miner. He could control 25% of the system using a
compromised mining pool. He is the dishonest miner noted in the Bitcoin white paper.

Bob has also attacked Alice’s node. He cannot do it for good, but needs to do it long enough so she sees the
longer chain first. To do so, Bob acts as a man in the middle, and slows blocks from the honest chain. Such is
an attack that only works for UASF (foolish) nodes.

In an SPV model, Alice will take a header from any miner as long as it matches the required PoW conditions.
In such a scenario, defined in the original white paper, Bob loses.

In the UASF model, Alice needs to download a full block and verify it all over. At scale, doing so can take a
long time for her block, and it is simple to subvert and delay. Let us say that Alice is on an old ISDN line, and
Bob can flood it. Bob can make a small block where his transaction will be included but where, say, only 100
transactions are included in his block.

Let us say that in such a scenario, miners are accepting 10 GB right now. It takes Alice 16 to 20 minutes to
validate a normal block from miners. She accepts Bob’s later block in under 30 seconds.

Bob can use the time differential; Alice now sees and validates Bob’s transaction in his Block 4 before the
real valid one in Block 2, that all other miners process. So, Bob has sent Alice a double-spent transaction,
and she sees it as valid. The rest of the network sees Block 4 as the attack.

Alice will obtain a block from the valid chain that beats Bob’s attack block in time, but it can be a long time.
It could be hours or days. The miner network has validated and utterly rejected Bob’s block in short order,
with his block having next to no chance of catching up after the 6th block period.

Eventually, Alice reverts to the same chain as of all other miners. But, as Bob sent a payment to himself that
was included in Block 2 and double-spent the amount in Block 4, Alice now sees her validated wallet as
empty. Bob managed to pull one over on her.

If Alice had used SPV and trusted the miners, the system described in the white paper, then she would have
been safe.

Even on her old slow link, Alice would have received the header of Block 2 and rejected Bob’s transaction.
She would have seen a different spend when she checked the merkle tree of the valid block. She would
have seen a block header in mere seconds and how the input Bob signed to her was also double-spent to
the network.

Bob does not need to do much to attack Alice in such a way, as long as he keeps her thinking that her node
matters and that she needs to validate the entire block, that miners cannot be trusted. Such is the irony. In
not trusting the competitive process that is Bitcoin, in thinking her UASF node matters, she becomes less
secure.
Bob can partly flood Alice’s network — slowing transaction and block propagation to her.

You see, the attack is the UASF. The deception that has been allowed to creep into Bitcoin (or that pseudo-
Bitcoin called BTC) is that non-mining nodes help in any way. They do not. The concept lowers your own
personal security, and limits the usefulness of Bitcoin.

Bitcoin only works when it scales on-chain. The attack has been to convince a widely deceived “community”
that Bitcoin is about socialism, about “decentralising everything.” Decentralisation is a tool to introduce
competition. Nothing more, and it is a small part of the system.

It is not about rules

The rules of Bitcoin are “set in stone.” Soft forks and all of the changes make something that is not Bitcoin.
You are not validating Bitcoin, you are validating the fork of the week, when you allow soft forks and the
UASF model.

Mining is not about changing the rules. The rules of Bitcoin were set in stone at version 0.1.0. It is a sound
protocol, and much much more of the work that went into creating Bitcoin was designing rather than
coding.

Even now, all the issues raised have been things I previously considered and planned for.

Bitcoin has had many trying to hijack it. The narrative of the “validating node” IS the attack. It is a slow and
insidious one that is designed to slowly alter Bitcoin. In it, people start thinking that a slow migration from
what was defined in the white paper to a SWIFT-like accounting system is an improvement. It is what Core
have done.

The irony is that not one of the main core developers was ever known as a security and risk expert, before
they became self-aggrandised as one. And yet, they have been selling how secure the alterations they have
made to Bitcoin are.

The attack is the UASF. Bitcoin was secure and in SV remains so.

Over the next 12 months, I will be documenting at least 100 ways in which BTC can be subverted, before I
get to the final one that, with the introduction of SegWit, cannot be fixed.

Bitcoin, as it was defined in the white paper, as a protocol was secure. It had code issues, overflows, and
bugs, but the protocol was sound. In BTC, it is not.

All of the real changes to BTC have been about subverting the key controls in Bitcoin. They have all been
about making Bitcoin something that cannot scale, that cannot function.

SV will be returned to the original protocol. It is close now, and will be closer as we move forward.
Account and Transfer Systems.
By Craig Wright | 22 Dec 2018 | Economics
Most payment systems today are based on the deposit of funds and the transfer of credit from one party’s
account in a bank or similar organisation to another. If we take the standard nomenclature from the
Uniform Commercial Code (U.C.C.) Article 4A (US) that defines the class of “wholesale wine transfers,” we
can say that generally such a system is one where bank credit is transferred from the “Originator’s” account
to a “Beneficiary’s” account.

UCC Article 4A utilises the classes of actions of “fund transfer” and “payment order” as a means of
categorising payment instructions that are exchanged between payment intermediaries.

“Funds Transfer” is defined in U.C.C of 4A-104(a) as the generic term covering the process, procedure, and
collected series of transactions that when combined constituted the intended transfer of bank credit
between parties.

U.C.C. S4A — 103(a)(1) defines the term “Payment Order” to consist of an instruction provided by one
individual (be it the user of the system or one of the banks participating in the system) to a party which is in
contact directing the recipient to process a part of the funds transfer.

Consequently, a “funds transfer” typically will be comprised of a series of one or more “payment orders.”

U.C.C. S4A-103 (a)(2) defines a beneficiary as “person to be paid by the beneficiary’s bank.”

An “Originator” is defined by U.C.C. S4A-104(1) as “the sender of the first payment order in a funds transfer.”

In an account-based system, before an exchange takes place, an originator will maintain a bank-account
balance with the “Originator’s Bank.” The beneficiary will hold an account balance in the “Beneficiary’s
Bank.” The aim and outcome of such a payment transaction is to effect the transfer of some portion of that
bank’s credit to the Beneficiary’s Bank. We can also say that the transfer reduces the liability of the
Originator’s Bank to the originator, and creates a corresponding increase in the liability of the Beneficiary’s
Bank to the Beneficiary.

In Bitcoin, we see such systems in exchanges and custodial wallets, where the account holder does not
maintain direct control of their private keys, and hence is subject to the security and controls that are in
place at the provider site.
Crowd Funding and ICOs
By Craig Wright | 24 Dec 2018 | Alternative Coins & Systems
The following are some notes on ICOs (all are securities) that can act as a set of things to consider . Always
know the rules for registered funding portals, completion of offers, cancellations of offers, and withdrawals,
the requirements for non-resident funding portals, and the miscellaneous provisions attached to funding
portals.

Securities issued includes: restrictions on resells and disqualification provisions.

Crowdfunding platforms need to be addressed. Look at Kickstarter etc.

Addition:
Rewards-based model
Look to the form of crowdfunding where perks to non-accredited investors, T-shirts, movie passes, software,
etc. are issued without receive of any ownership of the company; look at limitations and possible fraud.

Equity-based model
Such a model represents a common-share-based raising, and Kickstarter and Angel Funds are examples;
look at additional issues with ICOs.

Charity-based model
Such a model represents a donation-based system where people can give money, raising it before a
charitable crowd source.

Debt model — peer-to-peer debt

A crowdfunded debt model allows investors to pull money — ICOs etc . One can make use of it in situations
where mortgage companies are unavailable.

Litigation funding
There are varieties of different litigation-crowdfunding sources that allow commencing and continuing
litigation; look at issues such as LexShares.
Product pre-order
Such is a pre-sales situation; it is a form of reward-based model, and allows a pre-order to invest and receive
products as manufactured. The investors get access before the public does. It may be at a discount price; look
into capital-raising issues.

There are abuses in each of the models, and enforcement can be problematic.

Look at certain cases such as Federal Trade Commission vs Eric Chevallier . Permanent injunction being
sought, it is an FTC act. Unfair or deceptive acts or practices in affecting commerce can be used.
Breach of contract — Remedies for breach
By Craig Wright | 27 Dec 2018 | Bitcoin & Blockchain Tech
When the court decides there has been a breach, there are many remedies at its disposal.

One solution is to require specific performance. As such, a breaching party is required to fulfil the contract
as written.

For example: Person A has a written contract to sell a piece of real property to person B. A may then turn
around and sell the house to C. The law requires that the house go to B.

A major reason for specific performance is that courts do not have to spend time estimating damages to B.
Such a contract can easily be determined within a smart contract.

The reason for such a thing is that damage determination can be difficult, and the court would have to
determine how much B valued the house at and subtract the price of the house to calculate B’s loss.

As value is subjective, it may not be easy to calculate; B has a reason to exaggerate, and then objective
evidence may be refuted or not support such claims.

In other cases, specific performance is not easy to achieve. In such a case, bargaining of power amongst the
various parties can create scenarios leading to different damage remedies.

Sometimes, such a scenario may even lead to zero damages; consequently, any smart contract that is not
purely based on specific performance as detailed within a contract could easily be overturned or subject to
legal review.
Contract Law and Smart Contracts
By Craig Wright | 28 Dec 2018 | Bitcoin & Blockchain Tech
Contract law is designed to minimise:

the cost of writing a contract;

the cost of courts rewriting contracts;
inefficiency (including behaviour) from inefficient, poorly written, or incomplete contracts.

Courts use and select the rulings that lead to the fewest exculpatory clauses. Doing so leads to contracts
being as short as possible and feasible, and still delivering the necessary terms and conditions.

I have an old paper on some of such things here:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2957057
An immutable file and data store
By Craig Wright | 06 Jan 2019 | Bitcoin & Blockchain Tech
I shall be starting a weekly post on uses of Bitcoin (BSV). BSV allows using the full potential of Bitcoin and
the many possible systems and applications that can be created using it. All of the solutions are based on
patents we have been granted at nChain; as such, they cannot be used other than on the Bitcoin SV chain.

Alice is in for a ride…

This week, I will cover a system that can be used to create a secure file store.

Our user, Alice, has an ECDSA public key:

Pa(0) is her public key (it can be registered with a PKI CA ) which is not used as a Bitcoin address. She
does not publicly link the “identity key” to her Bitcoin addresses. Rather, she can use the technique in
PCT application number PCT/IB2017/050856 to create a deterministic sub key that does link to a used
Bitcoin address. We will call it method 42 hereafter. There are other patents in the entire process, but
such is enough for the post.
Da(0) is the Secret Key Alice uses to sign messages with Pa(0).
Pa(1) is a deterministic key based on the method above, and is associated with a Bitcoin address. Such
an address can be used to hold a file, a contract, an invoice, or even an image safely and securely for as
long as the user desires.
F(1) is the first file. It has a hash using a common hash function (such as but not limited to SHA256).

To illustrate how it is possible to build upon such a technique to provide yet further innovations, here is one
example of how the technique can be used to secure a file (of any type, but we will use an image file as the
example) in a digital wallet (that acts as an app). Public/private key pairs are often used in relation to digital
wallets.

In the following example, we have a user who wants to access a file where the file can be encrypted using a
separate key for each file. If users are responsible for storing their encryption keys (and the files themselves),
problems may arise when the encryption key, the users themselves, or their hardware become unavailable,
as one such scenario renders the encrypted files inaccessible. Conversely, though, storage of the encryption
key with an application provider requires a degree of trust in the provider and their security mechanisms. If
the app provider’s systems are hacked, the encryption key(s) become available to unauthorised parties. Files
(such as private images) may then be stolen or compromised. So there is a need to store the encryption key
in such a way that it cannot be obtained by an unauthorised party but can also be reproduced when
necessary.

In our system, a separate key is used for every file. In general, a single secret key is used for many files; in a
standard AES symmetric-encryption-based application, the user will have a single key to protect 1,000s of
files. In the system we propose, a separate key is calculated for each file, and yet, the user does not need to
fear losing the file nor any of his keys.

A significant benefit of PCT/IB2017/050856 is that use of such a technique allows for the generation of
multiple common secrets, corresponding to multiple secure private keys, based on a single private master
key for each node. Now, if we take the nodes to be the application “boxes” such that we have a file to be
stored, we can use it to create a new key for each file and then allow the file to be stored securely, privately,
and permanently on the Bitcoin blockchain.

We achieve such a goal by determining a series of successive deterministic keys on the basis of a process
agreed in advance between the application functions. Multiple private keys are consequently kept secure,
despite the need to only securely store a single private key at each party. Not only does doing so ease a
considerable security burden, it enables the user to generate hierarchies of keys which are derived from a
base or master. If the user likes, (s)he can generate “sub-keys,” wherein the keys in the hierarchy have a
logical association. For example, an operator can generate keys which represent and secure related
accounts or entities associated with a particular organisation or individual. Thus, deterministic keys can be
generated securely and in such a manner that they reflect the environment or context in which they are
used.

More importantly, when the key and associated Bitcoin address are used to calculate a file address in the
Bitcoin blockchain, the file ownership remains pseudonymous. Alice can fund the sending of the file to the
deterministic address using a Bitcoin wallet and key that has no relationship to Pa(0) in any way.

We will call such a key and the associated address Pf(0) funding address. Alice can have bitcoin in Pf(0) that
has no relation to her identity in any way and still send securely and privately to Pa(1).

In essence, the technique provides for improved secure communication and file storage, and even the
creation of secure (and even watermarked) files and exchange between a pair of nodes or parties on a
network. A user knows that they can save a file, such as an image, on the Bitcoin blockchain and that it will
be available decades later. The technique, with other techniques I will discuss in later posts, allows a user to
securely save all the files and data they ever own with no fear of loss or compromise.

The method:
Alice starts with her ECDSA master key (which can be a sub key itself, but I will not overly complicate a
complex topic).

Alice has a file. The parts of the application act as a pair of nodes on a network in our solution and
exchange within the application or device (i.e. parties). The application can calculate a key for each file,
and allows the user to maintain each file encrypted separately with its own private key and public key
and exchange the respective public keys while keeping the private keys secret.
The application exchanges a message between its functional components.
The application can “agree” on a deterministic key which is based on the message. The key is
“deterministic” in that the same key will be produced upon multiple executions of the key-generation
algorithm.
Alice has her master key, Pa(0), and a one-time Bitcoin payment address from the public key, Pf(0). For
Alice, it does not even matter if the address and key are kept, after she has funded the secure file; in
 fact, it is best if she uses it for the one payment (and loading of a file) and then discards it. Such is the
privacy method used in the Bitcoin white paper.
Only Alice knows Pa(0), as it is never used on the public blockchain.
Using the process in method 42 , Alice creates a secret key s(af.0) between the key she is using to pay
miners to host her secure files and the master key. It is then used as the communications key, the
process of which is detailed in the patent; it is to secure communications and then to be forgotten.
The file encryption key s.f(1) means the same process and is detailed below.
Alice now calculates an address she can easily determine later and that can be calculated in an app
using a deterministic process:

s(file.1) = H[ Da(0) | H(file) | INDEX ]

Pf(1) = s(file.1) X G — > Such is an elliptic-curve operation.

The index value can be determined in many ways, and is not covered in the post here to maintain
some level of simplicity.
The Index can be as simple as:

INDEX= Hash( index ); where index is the file number or even a simple non-cryptographic hash or even a
simple file checksum.

Pa(0) remains private in the entire process. In fact, Pa(0) can even be a threshold-based key such as in
WO2017145010A1 .

Method 42 — http://patentimages.storage.googleapis.com/e9/d4/1a/644d344019a178/EP3268914B1.pdf

The process now allows Alice to send a file from the Bitcoin address associated to Pa(1), where Pa(1) is
calculated through a method such as:

Pa(1) = Pf(1) + Pa(0) = [ s(file.1) + Da(0) ] X G

Alice can now send a file using a transaction that incorporates the file she wishes to save to the blockchain.
Small files can be sent using either OP_Return or OP_PushData, depending on whether it needs to remain
or could be pruned:

OP_PUSHDATA1 / {DATA} / OP_DROP

OP_PushData4 allowed 4.3 GB to be pushed to the stack

The file is signed using ECDSA and thus authenticated. In encrypting (AES and more can be used as a
symmetric-encryption algorithm), she knows it was her file, even though she no longer has the private key
for Pf(0), as she can compute a secret that is used to decrypt the file using the public information and Pa(0).

The file in the transaction is encrypted using a method-42 process.

 Pf(0) = Df(0) X G
Pa(0) = Da(0) X G
s.f(1) = Da(0) X Df(0) X G = Df(0) X Pa(0) = Da(0) X Pf(0)

As Alice knows Pa(1) and can see that Pf(0) was used to send a file to Pa(1), she can see the public key Pf(0).
As a result, and as she knows Da(0), she can calculate s.f(1).

So, Alice can compute the keys used and the file location. The file is encrypted using the symmetric key,
s.f(1). So no external party can determine the hash of the file, as they cannot view the file.

Alice can now use a simple hashtable-based system to map many files. With a small amount of information,
Alice will be able to access her files securely and from any location and any system. I will explain this aspect
later this month.

Unix links files, and uses a simple directory to create a folder. Alice can do the same. With only a key index,
she can now start to access her files anywhere.

More importantly, only Alice knows the existence of the files. Even though Pa(1) is derived using a
deterministic system from Pa(0), the existence of Pa(1) on the blockchain still gives an external party no way
to link the file stores in the transaction Pa(1) to Alice nor even to merely determine a relationship to Pa(0).

As a result, Alice has complete access to all her files. Not just now, but as long as she wants. She can save
files from her childhood and come back and find them 50 years later. A system that saves images could save
each image once (and only once), as the ability to match hashes means Alice will always know if she has
already saved a copy of a file. She will be able to create entire drive stores that are available to her and her
alone, and to maintain complete privacy based on pseudonymous linking.

Alice can also create firewalls and partitions. Using the method-42 process, Alice can now encrypt each file
separately, and hence she can share each file (in whole or part) and even sell access to files. More
importantly, unlike a drive-encryption system where all files are encrypted using a single key, Alice has a
separate key for all files. If a single key is shared and compromised, it does not endanger the security and
privacy of the other files.

As only Alice knows the values in Pa(1) and the file, she has a completely pseudonymous, highly available,
and distributed file share. It is private, encrypted, and traceable. She can even use a GIT-like system to map
the changes to files over time. As Alice can have a single copy of each file she has and only one copy (that
can be accessed anywhere), she uses far less storage than you would expect.

We can make the procedure more secure using HMAC’s and other schemes where Alice has even more
security and privacy, but doing so is beyond the scope of today’s post.

XOR and OTPs

We can even move away from AES and slow encryption. The ultimate encryption system is an OTP (or one-
time pad). It can be used with XOR and a Zeta function to create a fast and secure single-use encryption
system.

I will not cover such mechanisms in detail in today’s post, but it relates to other patents we have coming out
during the year.

A two-party system
We now add Bob.

The technique further enables secure communication between the parties, without the need to store the
common secret, since the common secret can be separately determined by each party as required on the
basis of the shared message. Importantly, the message does not need to be stored with the same degree of
security as the private keys and in some cases may be publicly available.

Our user, Bob, has an ECDSA public key:

 Pb(0) is his public key (it can be registered with a PKI CA ) which is not used as a Bitcoin address. He
does not publicly link his “identity” key to his Bitcoin addresses. Rather, he can use the technique in
PCT application number PCT/IB2017/050856 to create a deterministic sub key that does link to a used
Bitcoin address.
Db(0) is the Secret Key Bob uses to sign messages with Pb(0).
Pb(1) is a deterministic key based on the method above, and is associated with a Bitcoin address. Such
an address can be used to hold a file, a contract, an invoice, or even an image safely and securely for as
long as the user desires.

Each node determines:

an updated version of its own private key, based on its existing private key and the deterministic key,
and
an updated version of the other node’s public key, based on the other node’s existing public key and
the deterministic key

Updated determination may be achieved by applying a neat mathematical process to the existing private
key and the deterministic key.

Each of the pair of nodes then determines a common (i.e. shared) secret on the basis of its own
updated private key and the other node’s updated public key. As the deterministic key is based on a
shared message, and is therefore common to both nodes, the same common secret can be
determined by both nodes, but by means of a combination of different updated private and public
keys. The common secret can then be used as the basis for secure communication between the nodes.

Basically, we can use a modified version of the process listed above and incorporate data into a transaction
between Alice and Bob.

In such a permutation, Alice and Bob each know the secret, and can each access the file and prove it came
from the other party. At the same time, even though the file is publicly available, it cannot be decrypted.

Alice and Bob could even allow a transaction to have a pre-signed nLocktime-based expiry so that either
party could choose to send the UTXO expire transaction (that is not stored on-chain), allowing the file to
expire and be pruned. Again, there is much more to explain, but today’s aspects alone are sufficient to
spawn several new companies (sorry Dropbox, OneDrive, and Google Drive…)

In conclusion
The applications for PCT/IB2017/050856 are clearly numerous and varied, and are not even limited to use
with Bitcoin or blockchain environments. Essentially, such an innovation can provide significant security
benefits for any situation in which sensitive data, communications, or controlled resources need to be
secured. Therefore, its potential use cases are countless as the digital world grows with increased cloud
storage of data, newer methods of digital communication, and the anticipated explosion of Internet of
Things devices.

Welcome to Metanet. The system is deeper than any Rabbit hole you can imagine…
Now, I start to explain it all.

References:
1. Determining a common secret for the secure exchange of information and hierarchical,
deterministic cryptographic keys. h
ttps://patentimages.storage.googleapis.com/e9/d4/1a/644d344019a178/EP3268914B1.pdf
2. Secure multiparty loss-resistant storage and transfer of cryptographic keys for blockchain-based
systems in conjunction with a wallet management system
http://patentimages.storage.googleapis.com/38/81/de/27b37646a28b52/WO2017145010A1.pdf

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Returning Bitcoin to its role
By Craig Wright | 08 Jan 2019 | Bitcoin & Blockchain Tech

In this series, we will be looking at the changes to Bitcoin and why these have degraded the system. This
will document the Core alterations and the myths and start to explain why Bitcoin was fine as it was
originally and why it needs to be fixed as a sound protocol and a sound money.

Set in Stone
Why CLTV was a bad idea
By Craig Wright | 08 Jan 2019
| Alternative Coins & Systems
People seem to have a misplaced idea that the SegWit-coin (BTC) Core developers are even adequate
developers who understand Bitcoin and seek to make it work. Such ends cannot be logically constructed in
the same sentence. They either understood Bitcoin and are seeking to subvert it, or they have no concept of
Bitcoin. Such developers cannot simultaneously be adequate and understand the system; the results and
outcome of their changes to BTC from Bitcoin preclude such an eventuality.

CLTV or CheckLockTimeVerify was not some new idea and concept discovered by Core and implemented in
2015. It is in fact an OLD rejected proposal that has been resurrected to allow the introduction of a parasitic
protocol that has no relationship to Bitcoin (and, in fact, does not work — see the Lightning Network).

OP_BLOCKNUMBER dates to late 2010. It was discussed in both forums and private communications with
multiple people.

CLTV was rejected — it is not Bitcoin

CLTV is not needed. It was basically declared a bad idea — time and time again. Yet, as soon as the fools that
wanted to play took charge, they decided to experiment and break what they did not understand.

CLTV is unnecessary
Simply put, there is no valid use of CLTV that is safe and cannot be achieved using nLockTime. Lightning is
not Bitcoin, it is a parasitic side protocol that destroys the security of the system. So even if it worked (it
never will), it would not be an appropriate use case.

The creation of a CLTV-locked transaction requires templates and negotiation between the user and the
merchant. It is the same when nLockTime is used.
The required “template construction process” and negotiation aren’t supported directly using CLTV, and
even if it were to be implemented, it would be clunky on-chain and limit the development of additional
protocols within Bitcoin, as we will soon illustrate below.

What is/was the issue?

Why did CLTV come about as a concept? It started from the misplaced concept in OP_BLOCKNUMBER
(OBN hereafter). In dissecting CLTV, we need to start from the beginning and ask why it was a bad idea then
and why it was never required.

A false issue

Bitcoin was designed to allow many transactions. The script is rich, and can be used to exchange a vast
number of transactions. The system is in effect unbounded.

In exploring why a user called ByteCoin wanted to add additional OP_CODES to Bitcoin, we need to look at
the flawed logic behind the request and, for once, to answer in full and not simply by pushing it away,
saying “We can’t safely do OP_BLOCKNUMBER.” Whilst it is true it is also unsatisfying, and so has been a
source of the contention over the last decade, I often keep it short when I see something I disagree with
and when I am annoyed with people not seeing what I think is clear. But in the coming year, I shall
endeavour to rectify the lack of clarity (even as I respond shortly to the trolls).

The explanation that I had proffered was correct. It also did not do enough. The answer proffered is like
when one is talking to children — it was abrupt and ended. It could even be seen as condescending and
without enough substance for many to grasp the system and build it. So it is a decade late, but it can be
addressed now. It is too late for BTC, but then with Bitcoin, there can only be one.

So let us analyse Bytecoin’s response as it should have been addressed close to a decade ago.

At the moment, if you make a payment to someone but they’ve wiped their wallet then the coins are
irretrievably lost.

The saying was true to a limited extent, but it is also a non sequitur . I have filed a number of papers for a
variety of threshold techniques that will allow users to protect their keys, but they do not follow as a reason
for CLTV or any other on-chain time lock.

When it is explained in detail, it is really simple.

The general high-level concept for time locking a transaction using nLockTime is that you can have a
transaction that allows for recovery later, where the values are stored on-chain. So using nLockTime , Alice
and Bob could create a transaction that is valid only after a set time or block height.

Let us say that Alice and Bob want to do a transaction. In the scenario, Bob is completing some work for
Alice, and Alice has agreed to pay Bob for his work. In order to commit the funds to the contract, Alice puts
her payment into a 2-of–2 transaction. Most importantly, Alice wants to be assured that if Bob doesn’t do the
work, she can get her money back. It means she can redeem the deposit she has made, but only after a
contracted time has elapsed. To do so, Alice has Bob sign a return transaction from the 2-of–2 escrow
address that has not yet been funded by Alice.

We can thus create a 2-of-2 transaction to fund it and ensure the return of the funds if Bob does not
complete his task adequately. Alice can have Bob sign a return transaction. And it can be constructed in a
manner that allows Bob to be paid if the task has been completed.

So we can say that if Alice wants to do the typical CLTV idea of a locked transaction, she can always do so
using nLockTime, but without all the CLTV hassle. In doing so, Alice wants to send a payment to Bob, but
also have a condition such that she can recover her funds if the contract does not go through. She can use a
hash puzzle or even have an escrow condition allowing Bob and Alice to set a mediator in advance. When
Bob has completed a task, Alice and Bob do an exchange that allows Alice to access her goods and Bob to
get paid.

At the same time, what if Bob does not complete his end of the bargain? Well, with a time lock, Alice will be
able to recover her input deposit later on. In CLTV, the idea is that a transaction is created where the return
value is inside the script. You need to have all of the logic set in advance, and it is public and visible.

The logic in such a system should be in the wallet.

The wallet should save the transaction that has been partly signed by Bob and is now available for Alice to
send if the payment is to be reversed for any reason.

What if Alice loses the signed refund transaction?

Such is the typical response for why CTLV and variants needed to be introduced on-chain. As I said, it is a
logical fallacy.

The nTimeLock (and possibly also nSequence-locked) transaction is a file.

The private key Alice uses is a file.

If Alice can lose the transaction, then she can also lose the private key. Both are files. In the example, CLTV is
sold as a requirement as it allows Alice to recover later and she does not need to keep the signed
transaction from Bob. Yet, what is glossed over is that Alice must maintain the key that is used to access the
CLTV-locked funds, and the key is a file.

So, Alice somehow has to find the means to protect a transaction that is linked to a file she needs to
protect…

Alice can easily protect the time-locked transaction from Bob. In the correct use of keys in Bitcoin, Alice and
Bob use the public key once. Their identity is firewalled from the world. If Alice posts the transaction that
Bob signed on a public forum, it could be done in a manner that does not disclose her identity. It is in fact
far simpler to save a file that will in time be public than to have to require script alterations and to lock users
into a limited subset of what they can do. For example, the parties can allow s cript alterations and even
negotiate alternative points within the contract. The process can include the amount or terms. In the real
world, many issues that cannot be sorted simply arise after the fact. If we want to stop the drift into courts
as a means to resolve disputes, we must allow the parties to an agreement to continue to have the
opportunity to negotiate. Note here, I have stated the opportunity to negotiate as the parties do not need to
do so.

It is a very narrow path to walk when setting how you believe others should trade, and it is one that leads to
failure.

Alice also has more freedom than in the CLTV case

Bob and Alice can continue to negotiate where Alice knows she can recover her funds in full at any time.
Bob does not have a means to spend the transaction without input from Alice, so after the expiring of the
nLockTime value, Alice has all the power. She can co-sign and then spend the transaction recovering her
funds or go back to Bob to negotiate.

Alice has to maintain files. Losing access to the key used to redeem the transaction renders it lost, which is
not a point of whether the transaction is done on-chain in CLTV or otherwise. Alice needs to have access to
a secure file. So, the above is not a valid CLTV argument. It is, as said, a non sequitur .

Much of what seems to be argued comes from a false understanding of what Bitcoin is and how is works.
Worse, much of it is tainted on a misaligned comprehension of what some think Bitcoin should be. Bitcoin
is not an implementation of Tim May’s anarchist system. It is far from anonymous, and it cannot be made to
be anonymous. Bitcoin is private and designed to work inside the existing common-law legal frameworks
defining money and trade.

Similarly, if the network is flooded with 0.01 fee transactions and you make an urgent payment but
forget to include a higher fee then you can’t reissue that payment backed by the same coins but with
a fee.

Again, we have a logically flawed argument — if the network is flooded, you cannot send an alternative in
any case. So it is also a non sequitur . More, it is not even describing how Bitcoin should work, but rather the
cap-limited concept that SegWit coin promotes; it is not how Bitcoin is designed.

Here, the CLTV solution has no relationship to the issue posited in the original post.

More importantly, CLTV or the earlier named ideas do not help you here. If you have a transaction and the
fees are too low, then setting a block-height time to expire it makes it something no merchant in their right
mind would touch. Using nLockTime, a merchant can have a chained transaction, or you wait. The replace-
by-fee concept is flawed, and if nSequence was used (in an agreed contractual exchange with a merchant),
all the parties could achieve the intended result in the original version of Bitcoin already.

If we lose sleep over the comments in the original post, we may just finally intuit that the mysterious CLTV
method with the proposed solution was maybe to send a CLTV transaction that double-spends the original
with a much higher fee. But then again, why would one need CLTV — just replace with a higher fee. So the
link to CLTV remains unclear. It is another solution seeking a problem.

If you could cause the current block number to be pushed on the stack and do some maths with it
then you could implement a payment that must be spent by the recipient before a certain block
number is reached or else the script would allow it to be spent again by the sender for example.

In the original 2010 post, the concern was that people could construct a transaction that sends from a valid
input to an invalid transaction output. But, how does CLTV help here? If you do not construct a transaction
in a manner that can be recovered, CLTV will not help you.

It is also of no concern. If you are negotiating, then send the signed value allowing the nLockTime
transaction to be used as a redeem transaction.

The idea, again, of losing the file is also not a concern in the sense that, if you lose the redeem transaction, it
would be the same as losing the key. The false idea that you lose one file but not another, or as a single
store, the key is safe, but you lose the transaction is just foolish. Sorry, there is no other way to put it. The
redeem transaction could be saved in the same database or file as the keys. Losing the transaction is also
losing the key.

So, even having CLTV does not mitigate loss. To say otherwise is disingenuous.

At least Mike Hearn got it .

Bitcoin is not PGP

Bitcoin is not a web of trust, and you do not protect your keys in the same manner in Bitcoin as you would
in PGP. In fact, the idea is that you keep the public key private and only create an address and key pair for a
single interaction. Identity is not used in Bitcoin. Identity is a separate process outside the Bitcoin protocol.

There are ways to allow the private use of identity, but it will wait for now as the applications for patents
need to mature a little more.

Using nLockTime
The process was documented many times, but I will refer to the one here . Simply put, all of the problems
that the proponents of CLTV were asking for can be done with nLockTime, and they can be done in a
manner that is simpler and far more elegant. It also allows the developer to explore and create without
being constrained to the limits of the protocol.
The last line is important. Not all negotiations need to be on-chain — merely the completed and settled
transactions must be.

Bitcoin is not peer to peer as in users run nodes; nodes are always miners. Nodes are not a part of the peer
process in Bitcoin, users are. nLockTime is and always was superior to CLTV, even taking the security issues
of CLTV away, as nLockTime allowed for more interaction between parties. That is, the peers are allowed to
act as peers — to negotiate at all points and not to be forced.

Wallets need to have smarter logic.

A wallet that saves the transaction that is yet to be broadcast and to secure, it would offer far more value
than CLTV ever could. Bitcoin is designed to be simple at the centre; the logic can then, as with the Internet,
be created on the periphery. Building unnecessary complexity diminishes the system.

nLockTime always allowed so.

CLTV and the former variants are all a combination of anarchist folly and foolishness, added back to allow an
attack against Bitcoin, aka Lightning. It is all they allow. The ability of Bitcoin to operate was diminished.
Effort was expended creating a system so a few individuals who would never be hired in the real world
could say they “fixed” Bitcoin.

Miners are not peers

It is a major fallacy that needs to end.

Miners are not the ones in Bitcoin that determine what occurs in a transaction, the users do. Miners validate
and settle the system, and maintain the security ensuring that transactions are ordered correctly and that
double spending does not occur. The miners ensure that the base protocol does not change, that it is set
and immutable.

Miners are not the ones that decide what is and is not to be contracted. As long as the protocol rules are
followed and the required fee is paid, miners incorporate the transactions. The miners do not have any idea
who the individuals are, and do not have a means to link public keys and identity. It is something that Core
allowed, when it started the false myth of keeping keys.

Users need to have access to the keys that are associated with unspent coins. They do not need to have
access to all keys they have ever used, and nor should they have to.

My article is already longer than had been planned, so the issue will be relegated to a later topic. For
instance, the concept of an exchange sending your withdrawal coins to an old address leaves you in the
possible scenario where you can’t prove to the probity of the transaction or that you don’t have the keys
anymore. The whole ‘paying to an address on file’ model needs to be revisited and changed.

Users can and do maintain files. They need to do so whether they have CLTV or simply a private key. So, the
fallacious argument that holding a signed transaction that is locked for later broadcast using nLockTime in
any way reduces the functionality in Bitcoin is flawed; CLTV reduces the level of control in an erroneous
nanny-state form of contempt for the user that is utterly misplaced. As the user has to maintain a file (the
private key) securely, saying that the user could lose the transaction or not be able to send it is simply
misleading.

If the user cannot access the key, they cannot access the funds in a CLTV-locked transaction.
If the user cannot send a signed transaction to the blockchain, then they cannot redeem the funds in a
CLTV-based transaction.
So, if you can send a file, a transaction to the blockchain to redeem CLTV, you can also redeem using
nLockTime.

With CLTV, once the transaction is incorporated into the blockchain, the contract is set. Both Alice’s and
Bob’s hands are tied. They can add a separate transaction, after the fact, if they want to renegotiate, but
doing so also introduces aspects of trust.

If Alice has a signed transaction from Bob, Bob cannot stop her sending it by force, nor does he need to do
anything. Bob can negotiate with Alice, and try and convince her to not send the transaction while they are
negotiating. Whilst the negotiation is occurring, Alice can end it at any time sending the signed transaction
from Bob.

Bob now knows that Alice can do so and that he cannot stop her short of offering something of value to her.

nLockTime, other than being more secure, is also more fair and just, and follows the standard contract
negotiation process that is used in the common-law world.

Privacy… CLTV loses it

In CLTV, the conditions are published in the script in advance. With nLockTime, the parties to a transaction
have various redeem script options that are not published in advance. Alice can have several possible
transactions signed by Bob. Merely the ones that are then used ever become public.

As a consequence, an exchange that is done as a peer process between Alice and Bob is far more private
than CLTV can ever hope to be. With CLTV, all of the conditions are there to be seen to the world. Forever.

CLTV is less powerful than nLockTime

nLockTime is both more secure, more private, and more powerful than CLTV.

In our example, we have a limited set of conditions that can be used in a CLTV-based transaction, and all are
always set in advance. But, nLockTime allows Alice and Bob to change their minds and engage in a
renegotiation right up until a transaction is settled on the blockchain.

For instance, in the example of the 2-of-2 contract above, say we have Alice in possession of a redeem script
that Bob has signed and where the nLockTime value is set for 10 days from now. Alice can return to Bob and
negotiate in any time up to the final process with knowledge that she can recover at day 10.

Alice can also go to Bob after day 10 and negotiate, knowing she has a fall back to recover funds.

But, in our current scenario, Alice can go to Bob at day 7, 8, and then 9 and attempt to make a new deal. The
signed redeem script that was set to ripen at day 10 need now never to be known. If Bob and Alice conclude
a negotiation on day 9, it is what is published. Nothing of what Bob and Alice would have done need ever be
public.

In such a scenario, both Alice and Bob have the ability to negotiate with each other, and the right is
maintained up until the transaction is finalised and encoded into a block.
It is a good thing. I do understand that those wanting socialism and anarchy do not like the concept of free
contracting, but it is at the heart of trade.

MORE POWER!
Imagine that there are more options in the script. Alice, Bob, and Charlie are all negotiating. Each can set a
variety of nLockTime-satisfied conditions that cannot be sent prior to a predefined time.

Alice can have a script signed by Bob at 10 minutes and one by Charlie at 15 minutes with a later one signed
by both Bob and Charlie at 17.5 minutes.

Bob could have a script signed by Alice that is valid with conditions from 11 minutes on and another signed
by Alice and Charlie at 20 minutes.

In allowing the wallet to control a level of the processing and to hand the control of the system back to the
users, it becomes more powerful and flexible than CLTV could ever hope to achieve.

Conclusion
There were many areas of the original Bitcoin code and system that needed improvement. The code quality
was a long way from being desirable, and the system was not complete, with many stubs needing to be
finalised. But Bitcoin as a protocol was complete, and the changes to it by the Core developers have not
helped at all.

It is time to return Bitcoin to what it was, and with the SV client, we shall be doing just so.

In addition to a new idea that can be used to create a new business, I shall be detailing the errors in ideas
surrounding Bitcoin each week. I should have done so a long time ago. For not doing it earlier, I am sorry.
Smart-card-based mobile wallets
By Craig Wright | 13 Jan 2019 | Bitcoin & Blockchain Tech
In today’s instalment of business ideas that can be created using IP nChain has developed, I will detail how
a smart-card application can both help secure a Bitcoin wallet and allow pseudonymous (private) and
secure system authentication.

We (nChain) have been awarded or granted a patent [3] on the use of ECDSA as a means to securely share
and create keys. The mechanism can be used to create a system that allows uses to authenticate to
computers or to create a wallet-key store that can work with a smart card and a mobile phone to allow a
single-use Bitcoin key that always updates the address.

The existence of Java Smart Cards that have biometrics is not new; such cards are starting to be rolled out
into common use.

A wallet can be used as an application on a smart phone. The data used in the process below can be saved
publicly without any loss of security, written onto the blockchain, or backed up otherwise that allows
recovery if it is ever lost.

A biometric smart card can be issued where the ECDSA key for the base part of the exchange remains
unpublished and not publicly available on the blockchain. The associated address can even be attested on a
PKI (Public Key Infrastructure) where the Bitcoin address (and not the Public Key) is recorded by a CA
(Certification Authority). Doing so will even allow for a complete AML/KYC-based identity system, and an
identity biometric card (such as the UK residency cards or passport) will allow the use of a Java ECDSA
process.

Such a process solves all of the issues with PKI and privacy.

If we take the example in the patent, we now replace the laptop with a smart card.
NFC-based key exchange as per 1092/42

We end with a system that allows keys to be signed on the device (such as a phone). Here, the key is stored
as a joint process:

P0 = secret (smart card) X G (G is the ECDSA cure operator)

Pi = secret (wallet value) X G

The “coin help ” on the blockchain is a c composite; that is, the wallet value plus the smart-card secret, and
the user can have a backup for the wallet.
Smart cards that use biometrics are now available.

The app on the phone sends the coin secret (wallet value) to the smart card with the transaction hash. To do
so, the app constructs the hash of the transaction (the phone has the “smarts” that allow the transaction to
be constructed) and secret (wallet value) to the smart card.

The smart card signs the hash using the composite key:

S = secret (wallet value) + secret (smart card)

Then the app on the user’s wallet sends the following to the smart card:

Si = secret (smart card)

H = hash (transaction to be signed)

The smart card now computes the value for the Bitcoin address associated with the composite key, (P0+Pi).
The card returns the signature as:

(R,S) i— a composite ECDSA signature for the address (P0+Pi).

The app sets the change (if any) to a new address, P(i+1).

The address for P(coin+1) is derived on the smart card and returned to the app. In order to do so, a new
secret is generated on the app and sent to the smart card:

P0 = secret (smart card) X G (G is the ECDSA cure operator)

P(i+1) = secret (wallet value + 1) X G
P(coin+1) = P0 + P(i+1)

The phone app never needs to send the secret to the card, it sends the public key. If it is known — one
possible means to do so — by the card holder (such as when not only a hashed address but a key is used),
the app can do the calculation.

Using the smart card and the app, you can now have a secure wallet that requires the card to sign, which
can also be made to enhance wallets such as Handcash or Centbee. Every time a message is signed, a new
key is generated securely.

Using the card, a separate wallet can be created for each device and for multiple reasons. It allows all that
people seek from a clumsy and antiquated hardware device such as Ledger and with far more flexibility. The
process ensures that you only use keys once; and more, it can allow you to attest to a key later whilst
maintaining complete privacy.

Each coin is sent as it is spent to a new address. Each is used once and only once, and the card only has to
complete a simple operation, as most of the transaction construction is completed by the phone or app
device.

A backup of the smart card can be created and stored in a safe allowing recovery, and, together, the card
and app work only when the user’s biometrics are there to sign, such as the user’s fingerprint. The one card
can be used over and over, never exposing the key as the registered key on the smart card is never used to
send and receive Bitcoins.

More, the card can be used with the process detailed below to encrypt files securely (see also the last post)
and to even authenticate to a computer and secure a VPN to a remote system.

Personal-device security — details of the base invention

The present invention describes a new method to securely encrypt data on any personal electronic device
including (but not limited to) PCs, laptop computers, and tablets. The method employs the technique for
sharing a secret value between two nodes as described in the nChain patent entitled ‘ Determining a
common secret for two nodes .’

Description of the problem

Data encryption on personal devices such as laptops or PCs is intended to protect the hard disk data in the
event that the device is lost or stolen. Existing methods suffer from a variety of drawbacks. For example, to
decrypt the hard disk, the user might need to enter a secret such as a PIN or passphrase. But short codes
such as the typically 4–8-long-character PINs can easily be broken by a hacker who has physical possession
of the device and plenty of time to try common combinations. Passphrases are much more secure, but
these depend on the user memorising a lengthy set of code words or a long sentence. A much more secure
process involves the use of a cryptographic key, for instance by plugging in a USB drive. Even such a
method, though, has security vulnerabilities. Despite the direct physical connection between the USB drive
and the device, the transmitted secret can still be intercepted due to the electromagnetic signals generated
during transmission (e.g. via power analysis) [1].

The present method overcomes problems of such nature by enabling the personal device to calculate the
secret based on transmission of only non-secret information by an authenticated user.

Glossary
DCS — patent entitled ‘ Determining a Common Secret for two nodes ’
PED — the Personal Electronic Device to be encrypted (e.g. a laptop, PC, etc.)

Keyring — the device containing the user’s master key (e.g. smartphone, USB key, etc.)

User — authorised user of the PED and owner of the Keyring

The Software — when capitalised, ‘Software’ refers to the application running on the PED that performs the
elliptic-curve calculations and communicates with the Keyring.

The App — when capitalised, ‘App’ refers to the application running on the Keyring that performs the elliptic-
curve calculations and communicates with the PED.

ECC — ‘Elliptic Curve Cryptography.’

Session — The period of time when the PED is unencrypted and in use by the User. A session begins with
User Authentication, followed by PED Decryption, and ends with PED Encryption.

Cycle — A full round of Encryption and Decryption events (between which the PED is idle)

The key elements of the invention are as follows:

1. The encryption/decryption key is a full-strength cryptographic key (e.g. AES256) that is itself never passed
between user and device. Instead, the key is recalculated when needed after authenticating the User’s
Keyring. The encryption key is used for only one encryption/decryption cycle. A new key is calculated for
each cycle.

2. The method uses the secret-key sharing protocol described in nChains patent ‘ Determining a common
secret for two nodes ’ (henceforth abbreviated to DCS —’ Determining a Common Secret’).

Exclusions
1. The actual encryption/decryption process employs existing standards and is not described here.

2. Protocols for handling interruptions to the communications (e.g. disconnected cable) are not described
here.

Technical Description
In the following description, reference is made to the DCS. For consistency, the same terminology is used
here as in the DCS, which is as follows:

PED (‘Server’) Master Private Key = VMS (kept secret by the PED)
PED (‘Server’) Master Public Key = PMS (non-secret)
Keyring (‘Client’) Master Private Key = VMC (kept secret by the Keyring)
Keyring (‘Client’) Master Public Key = PMC (non-secret)

The description is by way of an example assuming that the PED is a laptop running the Software and the
Keyring is a smartphone running the App.

Initialisation (refer to DCS ‘registration’)

The initialisation phase begins with a fully unencrypted laptop onto which the Software has been
downloaded and installed (into a partition that will remain unencrypted). The compatible smartphone-App
version of the Software has been installed on the smartphone — by ‘compatible’ meaning the same ECC
standard (for example secp256k1) with a common set of parameters including the generator G is used on
both devices, and the software on each device uses a common protocol as described herein. The ECC
parameters are permanently stored on each device (these need not be kept secure).

1) The laptop and smartphone are connected. The connection is made either by a cable or by a wireless
protocol such as Bluetooth. The laptop Software establishes contact with the smartphone App, and verifies
by exchange of appropriate signals that the Software versions are compatible and in sync.
a. Note: all existing security measures are assumed to be in effect. I.e, the smartphone has been unlocked by
the user’s security code, and the user has logged into the laptop with the password in the usual way.

2) The laptop Software and the smartphone App both independently generate their own public/private key
pairs based on G. The initial generation of keys are the master keys. The private keys (VMS and VMC) are
each kept secure on the relevant owning device. The public keys (PMS and PMC) are each transmitted to
the other device. Each device permanently saves the three master keys (their own private/public keys +
other device’s public key).

3) The laptop creates a new message ‘Mn’ (n = new), and uses a standard algorithm to create a hash of the
message resulting in a 256-bit integer:

Message = Mn (Hash160 of a randomly generated number) [1]

Message Hash = SHA-256(Mn)

Initialisation continues through to the end of the first Encryption phase. From then on, each session is
composed of a decryption phase at the beginning and an encryption phase at the end.

Encryption
4) The laptop Software uses Mn to recalculate its own next-generation private/public key pair and the
smartphone’s new public key:

Laptop’s new Private Key = VnS = VMS + SHA-256(Mn)

Laptop’s new Public Key = PnS = PMS + SHA-256(Mn) X G
Smartphone’s new Public Key = PnC = PMC + SHA-256(Mn) X G

5) The Software can now calculate a (new) secret Sn:

Software calculates Sn = VnS X PnC

(Note: the App could also calculate the secret, as in DCS, but in the present invention only the Software is
required to derive the value).

6) In the present example, the secret Sn is not used as the encryption key, although in some variations it
could be (see variation 1). In the present example, the laptop’s serial number is encoded within the
encryption key, to ensure that it is specific only to the laptop. The Encryption key E is calculated as follows:

E = SHA256(SHA256(salt + Sn) + serial-number)

where

Salt = Mn (for explanation of cryptographic salt see [2])

7) As part of the log-off and shut-down processes, the Software encrypts the disk. The Encryption key E is
not stored anywhere, and the message Mn is not stored on the laptop. The message Mn is securely stored on
the smartphone for use in the next session to decrypt the hard drive.

Decryption
8) The laptop and smartphone are connected. The connection is done either by a cable or by a wireless
protocol such as Bluetooth. The laptop Software establishes contact with the smartphone App, and verifies
by exchange of appropriate signals that the Software versions are compatible and in sync.

(Note: the step is identical to step 1 in the initialisation phase)

9) For App authentication, the laptop creates a new message ‘Mn.’ Mn will be used for authentication in the
current decryption phase, and will also be used for encryption in the subsequent encryption phase. The
value is newly created and different to the previously created message that was stored on the smartphone
at the end of the encryption phase. To distinguish the two, the previously stored message will be referred to
as Mo (o = ‘old’). The laptop sends Mn to the smartphone, and uses a standard algorithm to create a hash of
the message resulting in a 256-bit integer:

Message = Mn (Hash160 of a randomly generated number)

Message Hash = SHA-256(Mn)

10) The smartphone App first calculates a new generation of a private/public key pair based on the value of
Mn (refer to DCS for details):

Smartphone’s new Private Key = VnC = VMC + SHA-256(Mn)

Smartphone’s new Public Key = PnC = PMC + SHA-256(Mn) X G

11) The App then signs Mn with its new private key, and sends back to the laptop Software:

Signed message = Sig-VnC <Mn>

12) As in DCS, the Software authenticates the App by verifying the signed message. It does so by
independently calculating the App’s new Public Key (PnC) using the formula in (10) and then performing a
standard ECDSA check between Sig-VnC <Mn> and PnC.

13) Having established the App’s credentials, the Software now sends a request to the App for the ‘old’
message Mo that was securely stored exclusively on the smartphone during the previous Encryption phase.
For added security, the App signs Mo with its new generation of the private key, and sends the signed
message back to the Software: Sig-VnC <Mo>. The Software can verify the signature, and retrieve Mo in the
usual way.

14) The message Mo is associated with the laptop’s and smartphone’s previous generation of public/private
key pairs — i.e. the keys that were generated in the previous encryption cycle. The laptop is able to now
recalculate those keys and hence also recalculate the secret S and the Encryption key.

15) The recalculated encryption key is used to decrypt the disk, and the User may now operate the laptop as
usual. The newly created Message Mn is retained in memory for the duration of the session, which will end
with an encryption phase when the user logs off, restarts, or shuts down (etc.).

Variation 1: Encryption Key = Secret Key S

In some scenarios it may not be necessary or feasible to embed the serial number into the encryption key —
for example, where the PED is a device type that does not have an accessible serial number. In such cases,
the secret Sn itself can be used as the encryption key.

Variation 2: Folder/File encryption

A variation is the encryption of individual files or folders. The PED and Keyring applications can be designed
to prompt the user for which files/folders to encrypt. For each individual file/folder, a new salt (Message Mn)
will be generated from which a file/folder-specific encryption key will be derived. In such a case, the Keyring
application will securely store a table linking the unique file/folder ID to the associated Message. As for disk
encryption, the encryption key is valid for only one cycle — as a new encryption key is calculated for every
new cycle (i.e. the relevant stored message Mn is replaced on the table after each session in which the
file/folder has been accessed).

References
[1] http://theintercept.com/document/2015/03/10/tpm-vulnerabilities-power-analysis-exposed-exploit-
bitlocker/

[2] http://en.wikipedia.org/wiki/Salt_(cryptography)

[3] Personal Device Security Using Elliptic Curve Cryptography for Secret Sharing:
http://patentimages.storage.googleapis.com/4c/c5/d2/48ad44c210de89/EP3257006B1.pdf
Footnotes
[1] The choice of message is arbitrary for the purposes of generating the encryption key, but needs to be
new for each cycle. The message is reduced to 160 bits by hashing in order to keep the message length
short.

This story is published in The Startup , Medium’s largest

entrepreneurship publication followed by +411,714 people.
Subscribe to receive our top stories here .
Taking money over the web using Bitcoin — the way it was
designed
By Craig Wright | 20 Jan 2019 | Alternative Coins & Systems
Back in 2009, Bitcoin used a feature that allowed for the IP-to-IP exchange of information. The 2009 wallet
was not more than a proof of concept, and many of the best aspects of Bitcoin have been disabled as those
developing the software failed to understand it.

Last week, I discussed how a key could be used in a smart card , whilst privacy was maintained using the
firewall’d identity model of Bitcoin. For the coming week, I will show both a method allowing a web server
to securely accept payments in bitcoin naively and a method allowing fiat and other tokens to be
exchanged whilst maintaining an absolute level of privacy.

PKI certificates — the process

Such — not mining — is the peer-to-peer aspect of Bitcoin, and it is one of the first things that the Core
developers removed.

In 2009, a lot of work was still required.

In 2009, the system was not yet complete. Several possible methods needed to be tested, and the method
used in the 2009 client left a lot to be desired . Then again, it was merely a proof of concept.

To fix such issues, we need to start by understanding that nodes and wallets are separate. Nodes are miners,
and wallets are what is used by the user to allow for a P2P transaction. In today’s post, I will explain how an
ECDSA-based web certificate , an SSL/TLS-server certificate that allows you to surf the internet securely, can
be the basis of a merchant payment system — a system that remains secure and private, and yet is also
constructed such that it only sends a payment to a particular address once.

In other words, it never reuses keys.

There are two ways to send money. If the recipient is online, you
can enter their IP address and it will connect, get a new public
key and send the transaction with comments. If the recipient is
not online, it is possible to send to their Bitcoin address, which
is a hash of their public key that they give you. They'll receive
the transaction the next time they connect and get the block it's
in. This method has the disadvantage that no comment information
is sent, and a bit of privacy may be lost if the address is used
multiple times, but it is a useful alternative if both users can't
be online at the same time or the recipient can't receive incoming
connections.

The certificate is something that can be used in both S/MIME and HTTPS.

If we take the key that is associated with a CA-registered certificate, we can create a public record of all
coins that are sent to the merchant and at the same time retain privacy.

We will start with Alice, a consumer, and Bob, a web merchant with an ECDSA-based web certificate for his
site HTTPS://www.bob.com.

Alice has a Bitcoin master key. The master key is not used to send or receive bitcoin, and can be a method
to create an identity key (and could even be on a smart card ). Such is the key which we will call P(Alice).

Bob’s website (I will leave it to others to think on how simple it is to extend the mechanism into email with
S-MIME) has a master key P(Bob).

Alice has a set of coins (that is, UTXO references) that can be completely unrelated to P(Alice) and which
have no relation to her main key at all. We will call it P(A-1-i); here, (i) refers the number of the coin used.

Alice can create a common secret (s1) using the process documented in the following document:

DETERMINING A COMMON SECRET FOR THE SECURE EXCHANGE OF INFORMATION AND HIERARCHICAL,
DETERMINISTIC CRYPTOGRAPHIC KEYS

To use such a mechanism (one of many examples), Alice goes to Bob’s web store, and now seeks to pay.
Alice can calculate a shared secret with Bob. To be more secure, Alice can use the web-session ID that she
shares with Bob, the invoice number, or anything else. It can be used in an HMAC -based value to add
further security and privacy, but for today, I will use a simple hash to make the process simpler to
understand.

Alice and Bob can both compute a value S, which is linked to keys that Alice and Bob use on the web. Alice
can have an identity and authentication key that does not link publicly to her purchases, but secures all of
her communications with Bob.

Alice sends a message to Bob that is encrypted in a Bitcoin transaction. The transaction can be completed
using either an offline or online process. If Bob is online, he can store the value of a nonce from Alice as a
part of the web checkout.

If Bob is not online and has a rather simple site, he can use the blockchain to record information about the
payment and check it.

Alice sends Bob a transaction to P(Bob). Bob does not use such an address, so the payment is small; without
the dust-limit, a mere single satoshi will suffice. Alice sends the message for the payment to the P(Bob)
address, and Bob does not use it for funds. We can say, Bob ONLY will spend from the address (the one
associated with the P(Bob) public key) when the certificate is marked as expired. The process acts as a form
of distributed “ revocation list ” where Bob can control his own key. More, if Bob’s key and certificate are ever
attacked and the dust transactions here are spent by an attacker, it acts as an automated alert. Bob could
keep a small amount of funds in the account as a means to allow hackers to think it is a valid address for
use (e.g. $2,000) that would only be lost, if the account was hacked, but that also alerts all of Bob’s
customers to the attack.
Bob can make the account more private using a subkey — see Fig. 9 in the patent:

Fig. 9 from patent 42

Bob could even have a process where the invoice number is associated with a subkey.

Alice now sends to the address associated with P(Bob) — and in the script or as an OP_RETURN value
includes a value that has been encrypted (such as with the use of an AES encryption algorithm). Using the
method noted above, Bob can calculate (S). The data in the message to Bob sent with a single satoshi (plus
mining fees) contains all Bob needs to know to find where Alice has sent the payment. Bob uses the
symmetric key (S) to decrypt the data in the message:

Encrypt(S)[M]

which gives Bob the message from Alice, M.

Decrypt(S)[M]

Bob can now compute a key address from the derived key:

P(Bob-Paid) = P(Bob) + HMAC(M ~S)xG

The message key is P(Shared Message) = HMAC(M ~S)xG

ONLY Bob and Alice will know the new secret HMAC(M ~S) .

Alice can prove that she has sent a payment to Bob. Bob can find the money from Alice and verify the
transaction.

At the same time, no outside party can determine the address that Alice sent her payment from — P(A-1-i) to
Bob at P(Bob-Paid).

As Bob has a record on the blockchain at P(Bob), and has a complete audit trail of all the payment
addresses he has received. The record can be linked to invoices, purchase orders, and more, allowing Bob to
construct a complete audit trail of all exchanges and one that cannot be deleted, altered, or manipulated.
The method fulfils all the required legislative accounting issues for Bob, and he can have a split address
where VAT and other sales taxes are sent to the government as he is paid. In other words, Bob does not
need to experience costly audits, and the tax authority can be paid immediately without delay.

Tokens and Bitcoin

Using a protocol such as Tokenized or one of the various ones that nChain has filed patents for, Alice and
Bob can also exchange tokenised fiat. It means that Alice could pay Bob using a GBP token issued by a
bank in the UK. Such a token is transmitted using the process listed above, allowing Alice and Bob to safely
and securely transact using digital cash in their local currency of choice, whilst still using Bitcoin as the
“plumbing” for the exchange.

Metanet linking
As such, even if Bob is running an offline website — that is, a simple system without a back-end database —
the records received against the P(Bob) key can now act as a form of immutable data store.

The message that Alice encrypts to Bob can be the complete order.

It can be completed using existing EDI message types. Unlike EDI, the method is safe, secure, and private.

Better, the record is immutable. There is no place for accounting frauds. You can reverse transactions, but
doing so requires a return of funds to the originating source.
Alice and Bob can record the entire commercial process.

Bob can hold a series of hierarchical addresses that record all stages of the order — from invoicing and
payment to sending and delivery. If Bob now has a sub-master key for each client (see the patent above and
Fig. 9 ), he can also construct a separate subkey, that is known to himself, the client, and the tax authority
for audit purposes, but no others, allowing him to retain an absolute level of privacy, where other clients and
suppliers do not even know how many transactions he is doing. More, he can construct payments in a
manner that allows him to isolate internal employees and have them know only the information related to
their own departments.

While the CA-linked key is not touched, the accounts can be sent to the old address. A sub-CA key could be
linked to the accounting year and rolled each tax period, too. You close out the certificate, collect any
payments made as dust, and at the same time, close the books ready for the new accounting year.

EDI message

EDI is an existing encoding scheme for commerce.

We can see the ANSI and EDIFACT message formats in the image below:
ANSI vs EDIFACT

In our system, we use the encryption key for the data in the message (not the payment) as the “group
message.” There is no need for an interchange message. Such would be a middle man, and in Bitcoin, we
have removed the need for him.

Standard EDI

The new model for commerce is one where all records are immutable, cannot be lost, and allow Alice and
Bob to trade privately.
Bitcoin Data Interchange

And, tools to map EDI to a Bitcoin transaction would simply look like EDI tools as they are today.

Even embedded into a Bitcoin transaction, the encrypted EDI XML format could simply be extracted and
displayed or printed as any other invoice or order:

Displayed invoice

In the existing EDI world, clients are charged using models that operate within price bands based on
anticipated volumes of Kilo-Characters (KCs) or documents. There are also hidden charges such as
minimum record lengths with many providers specifying a record length of 128 to 512 characters. The result
is that if you send 12 documents of 12 characters, you would be charged for up to 5,120 characters, even
though only sending 144 characters.

For merchants with a large volume of small transactions, they can add a substantial amount to your
monthly charge.

Such a thing is not an issue with Bitcoin.

Though the maximum message size allowable for NACCS EDI messages is 500,000 bytes, the reality is that
EDI and other related messages are generally in the order of 150 bytes. The sending of an immutable,
private, secure invoicing and accounting system for fractions of a cent per invoice — compare doing so to 2
to 3 dollars for some EDI solutions and even $0.20 for a simple Visa transaction, and… it is time to start
rethinking how you do business.

In such a model, no Bitcoin address need ever be used more than once, and the payments and invoices are
linked privately — which can even be pseudonymous, as the ID need not be in a user cert.
Bitcoin and Quantum Computing
By Craig Wright | 23 Jan 2019
| Bitcoin & Blockchain Tech
Even if a quantum computer existed — they do not — Bitcoin would be fine.

Quantum computers are hypothetical machines that are based on several postulates from quantum
mechanics in physics. If such hypotheses from Deutsch (1985) and others prove to be true, then it is possible
that quantum computers could outpace classical calculation on an electro-mechanical computer. Much of
the existing hype stems from Shor’s finding (Shor, 1999) of a polynomial quantum algorithm that allows for
the factorisation of selected classes of numbers and algorithms (especially those associated with
cryptographic processes).

As with all undeveloped but potentially promising technologies, the scientists creating them oversell the
near-term capability. And so is to be expected. Without funding, they would never come to exist. The result
is that there are many purely theoretical attacks right now that are using quantum computation as an
excuse to move people into new and untested areas. One such area of attack has been in cryptocurrency
and Bitcoin where many false rumours have been spread [1]. Some of the reporting (intentionally) obscures
the forms of calculation needed to break a system [2], confounding the reader into a false belief that the
end is nigh.

The reality is that the arguments are spurious at best; at worst, they are intentionally designed to deceive. In
a paper , we demonstrate the flaws in such arguments, and show that systems (such as Bitcoin) are safe for
at least the next few decades and maybe all time from such an attack.

[1] http://www.cryptocoinsnews.com/quantum-computers-will-destroy-bitcoin-scientists-warn/

[2] http://www.cryptocoinsnews.com/nsa-working-encryption-cracking-quantum-computer/

Bitcoin is quantum resistant

Economically, it thus merely becomes viable to attack well-known and reused Bitcoin addresses that have
exposed public keys and which hold large amounts of value for periods longer than 30 days. Even at the face
value, we can demonstrate that it is not of concern. A large organisation that has a fixed address for
receiving payments and ones that are derived from it is still not vulnerable. Any payments being received
can first be moved between addresses from the receiving address to an alternate address owned by the
corporation or another group within minutes of receipt. Further, an attack on a Bitcoin address requires an
attack on all the keys associated with the address. Using multi-signature addresses, an organisation could
create a 15-of-15 key. Even allowing for the hypothetical scenario where an exposed private key could be
reverse-engineered in under 30 days, we come to the creation of a multiple-key address that would take 18
months to compromise.

privacy can still be maintained by breaking the flow of information in another place: by keeping public keys
anonymous

The simple answer is to not reuse Bitcoin addresses.

If it was ever an issue, the simple addition of an indexed hash to a Bitcoin script completely mitigates all of
the theoretical quantum attacks.
An example quantum-killer script.

In the script above, we have added a hash puzzle to a key we use merely once. I would like to see others
think; so rather than detailing the possible scripts, I shall leave suggestions that others could create.

Additive hashes…

Option 1: We can modify the signature, the (R,S) value saved on the blockchain, using the hash and other
values. The script allows you to add values.

The value <sig> that represents the signature can itself be modified in script. ECDSA plus a hash is immune
even in theory to such so-called quantum-computer attacks (that do not exist). A developer can create a
script template that takes the signature, duplicates it, and checks against a hashing OP_CODE.

E.g. [Hash256(<Sig> +<pubKey>+ <Data_Hash(i)> )] Mod (N)

==< Redeem Value>

In doing so, the following are known:

<Sig>,
(N),
<Data_Hash(i)>, which must solve to the hash puzzle.

<Redeem Value> is thus only able to be computed by the holder of the <pubKey> value, and this only
becomes known.

Next, we can create conditional branches that are based on such options. Now, if we look at how we can link
ECDSA keys homomorphically and create additive structures from them, we start to see that we can create
a 1-of-2 signature script where one key is used in the un-signing and the other in the hash puzzle.

Public-key variants
The hash puzzle can have a variant of the key in a hash puzzle. For example, we seek to use the value
<pubKey>. Let us say that <pubKey(1)> is needed, and so is a solution to the problem:

<pubKey(1)> = <pubKey(0)> + Hash(Hash(S)).G + Hash(Hash(Y)).G

Now, we also add a hash puzzle to solve for Hash(S+Y) where Hash(Hash(S+Y)) is given…

Here, + represents point addition.

The truth is that Bitcoin was always quantum resistant. It stems from the scripting language, and the vary
part of Bitcoin that allows it to be safe from any future attack is also one of the things that Core and BTC
have done their utmost to subvert.
Ensuring honest money
By Craig Wright | 23 Jan 2019 | Alternative Coins & Systems
In law, there are provisions concerning the wrongful retention of monies. In the UK, such matters are covered
under the Theft Act S. 24A, Dishonestly retaining a wrongful credit .

In such acts, the legislation does not consider more other than that the monies came from a “wrongful”
source.

Ensuring that money is honest

The simple answer is to allow your wallet to select and process “coins” based on what you expect to receive.
There are some simple means that will always be accepted.

1. If a merchant accepts a payment in consideration without prior knowledge of the wrongful nature of
the “coins,” the merchant is safe no matter where the coins have originated. In other words, valid
commerce (without knowledge) creates fungibility.
2. The merchant quarantines the monies until a set period has passed when no claim is made and no
indication that the money is from wrongful sources has been filed.
3. The merchant returns the funds (minus any mining fees).

A Bitcoin wallet can be constructed where the received “coins” are not immediately available to be spent —
that is, they are quarantined. For example, if an unknown “tracking spam” dusty transaction is received or a
payment is received to the wallet without any indication of where it comes from, it is placed into a “warm-
storage” isolated container that does not add the transaction to the wallet balance or total.

At the same time, the “coins” that a merchant expects can be made immediately available for spending. For
instance, if Bob (a merchant) receives funds from Alice (the customer) where Alice has added the input
transactions to a template that Bob provided to her, then Bob knows that it is a valid transaction that he can
accept.

Bob could now go through the transactions and either place them into a longer-term quarantine or have
them automatically returned. To do so, Bob simply selects the transactions that are not valid, and returns
them to the sending address.

It follows that if Bob receives TX(A1) and has no idea where it is from other than TXID and the script template
(A1), he simply returns the coin to the address where the mining fee is taken from — TX(A1).

In other words, Bob simply “bounces” the transaction. If Bob cannot explain wealth, then it remains that he
will be taxed on it. So, where an amount has been received and it is not wrongful but acts as a “tip” or
donation, the taxes in the local jurisdiction would then be accounted based on the isolated amounts.

Not only does such a process ensure that Bob is safely acting within the law, it also means that Bob can easily
account for the amounts gained from trade or other means. If there is any untoward or wrongful value
accepted, Bob knows that his wallet has not been tainted by such an act, and he will be safe from prosecution
or a tortuous claim from a person who has sent funds to Bob in error.

Privacy
The means used in tracking “coins” in Bitcoin comes from what is known as “dust spam” or several related
terms. When a Bitcoin address is reused or even published on the web or in places everyone can copy, the
values of the keys can be mapped to an identity of the key holder.

If you receive 1 satoshi (sat) tracking spam, the answer is simple: send it to be mined. Returning a payment to
the originating address is legal. And it allows you to take out the reasonable costs of transaction, that is, the
mining fees.

The wallet could simply have a weekly sweep feature where all quarantined amounts (under, say, a set limit)
are sent to the originating address minus a payment to the miners. In the instance of a 1 sat transaction, the
entire amount would be returned to miners. The miners earn more, and so the use of “tracking dust” or spam
will stop. Why would anyone seek to waste even small amounts of Bitcoin, if they know it will just be sent to
be mined? When no information is leaked by the receiver and such spam cannot be used as a web bug or
tracking cookie.

As with other posts, the concept is to allow an address to be used once. When an address has been used, it is
cycled. In the key space of ECDSA, there are more than enough values for all people on the earth to cycle
millions of times a day for centuries and still never expect to have a collision.

In doing so, we allow Bitcoin to be the private cash system it was designed to be, and at the same time, we
allow it to be the honest money it was designed to be.
Storing IP on the Blockchain
| 27 Jan 2019 | Bitcoin & Blockchain Tech
By Craig Wright
Electronic distribution of intellectual property (IP) poses numerous risks for the creators of the content,
since it becomes difficult to maintain control of such property or monitor who is using it and for what
purpose. Ownership can be hard to prove, and authors may be unable to stop infringements or monetise
their works effectively.

Traditionally, IP rights are managed by the notaries via cumbersome and expensive procedures. And the
time between the creation of an original idea to the time a patent gets filed can be quite long, resulting
in lack of IP protection. For companies that produce inventions or other content worth protecting, it
bears high risks and high operational cost.

Using blockchain as an IP registry, authors can store IP as an encrypted document, representing a digital
certificate of authenticity. It ensures a tamper-proof evidence of ownership and a chronological
recording of transactions, and promotes transparency and decentralisation. Since blockchain
transactions are immutable due to the proof-of-work algorithm, once the information has been
registered on the blockchain, it can never be lost or changed, retaining the moral right with the author.
The IP stored on the blockchain can be saved in an encrypted format, allowing only authorised parties,
such as the author, collecting societies, or customers who have paid for access, to decrypt the
information.

Blockchain also offers possibilities for licensing works by reducing the cost of transactions and creating
a direct link between authors and users. Smart contracts, atomic swaps, and other techniques can assist
in the sale and licensing of intellectual property and automate the workload of the collecting societies. A
smart contract is a computer program which can facilitate, execute, and enforce a contract by itself. The
terms of the contract are pre-programmed, so that the parties can do business without the
administrative burden and cost. For example, in IP, such methods could mean that licences are self-
executing upon use of a work.
Smart contracts can also be tied into micropayments for use of content. Doing so would work by the
author assigning a Bitcoin address to the content, which then allows a potential user to make a small
payment to the author in return for use. As a result, the author can be remunerated without having to
pay the high transactions costs of existing financial networks. Such a method is simpler and more
transparent than many other existing means of payment for authors.

The following diagram demonstrates a potential implementation of IP on the blockchain:

1. An author produces some content.

1. The author encrypts the content using their public key. The encrypted content is then inserted
into a transaction T1 (for example, within OP_PUSH … OP_DROP in the locking script). The
transaction is submitted, and stored on the blockchain. At any time, the author can prove
ownership of the content by decrypting it and signing a message using the Bitcoin root
hierarchical key. Such a step ensures a provable, timestamped, and immutable proof of
ownership for the IP registration.

1. A reader requests access to the IP. Doing so involves the exchange of public keys of the reader
and the author, which occurs off-block or through a P2P swap of a symmetric access key.

1. The reader and author initiate a generalised atomic swap (below):

1. The author encrypts the content with the public key of the reader and a new public key for
which the private key is kept secret. The author then creates a transaction T2 that stores the
new encryption on the blockchain.

1. The reader makes a payment transaction T3 to the author’s address. The payment can only be
spent if the secret key is revealed.

1. The author spends the funds of T3, and thus releases the secret private key to the reader. Doing so
equips the reader with all information required to decrypt the IP stored in transaction T2. The
blockchain contains an immutable record of the access transaction, proving that the reader has
paid the fee to access the IP stored on the blockchain.

As blockchain technology goes mainstream in various industries such as finance, supply-chain

management, and manufacturing, acceptance of blockchain by governments is a mere question of time;
several notarisation firms, such as P&TS (Switzerland), already offer notarisation services for invention
announcements based on blockchain technology, in order to establish irrefutably the possession of an
invention or a work [1] .

Several blockchain platforms already exist that allow IP management:

Bernstein Technologies [2] offer blockchain-based solutions for intellectual-property

management, allowing companies to manage the whole innovation lifecycle by creating a trail
of records on the Bitcoin blockchain;

Binded [4] allows artists to register the copyrights on their art/photos on the blockchain, with
an option to register the work with the U.S. Copyright Office;

proofstack.io [5] allows to secure a copyright worldwide in 60 seconds, and protect and share
the contents;

Proof of existence [6] is an online-notary public service that allows its users to upload digital
documents and get them verified by the blockchain without exposing the content.

With many outdated and inefficient systems (or none at all) in place, we may see blockchain solutions
being introduced to streamline and simplify the management of intellectual property.

The following use-case model demonstrates the steps involved in a generic blockchain-posting
approach.

We can map and save data, secured using a shared secret and saved on the public blockchain in a
manner that allows it to be unalterable, too.

A part of the idea is to have a system that allows the IP to be mapped. Not merely loaded, but to be
recoverable and able to be found when needed [3].

Atomic swaps
In this section we abstract the atomic-swap procedure one level further to the atomic exchange of
access to a controlled resource.

Suppose Alice controls access to some resource by an ECC public/private key pair. Such a resource could
be funds of one type of cryptocurrency, it could be funds in multiple types of cryptocurrency, or it could
be access to a webapp, a rental car, or an encrypted document. We will present a method for Bob to buy
access to such a resource from Alice in BSV. The exchange is atomic: either Alice spends the BSV she has
received from Bob and Bob gets access to the resource, or neither happen.

The method is derived from section 2 of [nChain, 2018] on pseudonymous key transfers. The key
difference here is that we do not need an additional step of performing a traditional atomic swap
involving hash puzzles to construct a derived private key. Instead, we use the generalised atomic-swap
method to allow the private key to be exposed in the same step as the transfer of value.

Method

Note that although the private key

“Lightning” Network and the Financial Industry Regulatory
Authority (FINRA)
By Craig Wright | 01 Feb 2019 | Alternative Coins & Systems
Many “crypto exchanges” fail to understand that they are money handlers. Basically, “crypto” is not an
excuse. The storing of highly sensitive data concerning the exchange of various assets for other assets or
monies makes all exchanges subject to regulation. Account numbers, cardholder data, bank statements,
and secrets that could be used to commit insider trading are all required to be secured.

Such areas are controlled through regulation, and are maintained by regulatory authorities such as the
Securities and Exchanges Committee (SEC) and the Financial Industry Regulatory Authority (FINRA). The
claims of blockchain do not relate to an exchange at all. Firstly, blockchain is a settlement function, and
next, it is not even remotely related to the clearing function of an individual exchange.

The regulations in force and already in place through the FINRA and the SEC primarily concern
communication—the archiving of electronically stored information (ESI) is of specific concern.

In the US, just a few of the regulations, established by the FINRA, include:

FINRA 10–06 — The provision says that financial firms retain records of all social media
communications. Such a provision includes any and all “crypto exchanges,” and means that all posted
tweets and all communications with those promoting the exchange and any asset on the exchange
are retained (which means that a deleted tweet must be recorded as deleted).
FINRA 11–32 — Says that tweets and text messages are written material which need to be preserved.
FINRA 11–39 — Establishes the requirement to retain, retrieve, and supervise business communication,
even when such communication is conducted from a personal device.

Many believe that such rules merely apply to US exchanges — which is false. The “Long Arm” provisions of
the US allow for interactions with any exchange that:

uses a .com domain;

accepts USD;
holds or trades against USD or USD equivalent (and such means USDT); or
has any network communications that pass a US server at any point in time.
To be compliant, “crypto” exchanges require an immutable archiving system capable of archiving all
necessary ESI. And not just capable — one that is in fact capturing all of the information. The mere archiving
of data is not sufficient; it must be archived in an immutable format to meet compliance standards.

When an “ anonymous coin ” such as Zcash is traded, the exchange is in criminal breach when it does not
link the withdraw to the individual explicitly. The individual would then be required to retain all movements
of the coin — the loss of such records itself being a crime if the amount was to change ; that is, the coin is
reported lost, and then is even used (moved).

Enjoy the read…

http://www.finra.org/sites/default/files/SEA.Rule_.17a-4.Interpretations_0_0.pdf
Generic Thin Operating System for Blockchain IoT Devices
By Craig Wright | 03 Feb 2019 | Alternative Coins & Systems
Continuing the series of posts related towards concepts that an entrepreneur could develop into a profitable
business and company, we will look at the use of the blockchain to control IOT systems . The idea is based on
nChain’s patent number WO 2017/187397 Al .

The world will soon be awash in IOT devices. Such devices may be extremely small and contain only limited
processing and memory capacity. It would be an advantage to have an operating system that is generic yet
small enough to be loaded into any device and yet retains strong cybersecurity. A further advantage is to
enable simple, secure, and robust control functionality including the possibility of processing payments for
services provided by the device. The preceding goals can be achieved by interfacing IOTs to the Bitcoin-
blockchain protocol.

The Metanet is the network of everything.

When you come to understand the idea fully, you start to see that you can capture information and control
sensors and gate and control systems in a manner unlike and far superior to anything that came before.
Sensors send to and watch the blockchain. They do not ever interact directly with a command system. The
ability to set monitor keys that are derived keys means that an external attacker would not even know what
keys are used.

Key Elements of the System

An operating system: purposefully ‘thin’ (small size) and therefore implementable on any IOT (exact
specifications not discussed herein)
Easily ‘upgradeable’ as device-specific function is not hard-coded into the device, but rather loaded in
from a secure repository such as a DHT
Managed by autonomous agents (either resident on the IOT or external)
Interfaces with the blockchain to enable functions inluding the processing of payments
Robust security (based on the Bitcoin ECC)

The Implementation
A blockchain IOT device ( BID ) is an agent set up to execute certain instructions that are securely stored off-
BID and accessed through cryptographic keys. In a preferred embodiment, the BID resides on the IOT itself,
but in other embodiments, it may reside off-device and have internet connectivity to the device. The IOT
device has its own key (and an IP address) so it can securely communicate with other devices or DHTs, etc. Its
‘operating system’ is a simple generic system with some embedded functionality for (at least, but not limited
to):
 cryptographic calculations
retrieving instructions from an external source (such as a DHT)
performing simple actions such as toggling switches (i.e. as on the physical IOT device)

Thus, the BID does not contain its own instructions embedded, and does not ‘know’ what it does or how to do
it; it only contains a way to securely retrieve instructions. A BID can only perform a set of simple actions (the
following are illustrative only and not limiting):

Access to its own master private-and-public key pair

Ability to send data to an IP address or receive data from an IP address
Secret-sharing-protocol (#42) calculations

In one embodiment, such actions are embedded in machine code, and:

look up and interpret data stored on the blockchain; and

operate (through a standard API that is essentially a mere set of switches) the physical device it is
attached to.

All of a BID’s communications are encrypted (see invention #42 ). Doing so allows:

(i) greater security from hacking

(ii) simple universal software-upgrade protocols

(iii) device agnosticism

The intention is a generic operating system that is usable in any IOT device. The device itself is not
programmed—all programs are stored separately and loaded onto the device at set-up time (or, in some
embodiments, at execution time).

Auto-feeder Example
The following illustrative example relates to the auto-feeder IOT device . The following is also a recap of the
system.

Carol’s two dogs Archimedes and Bertrand are left alone all day in the backyard, and they are both friendly to
each other provided they do not eat at the same time, which for some reason causes them to get very
aggressive and fight each other. A and B both have identifying RFID collars, which are detectable by an IOT
auto-feeder that dispenses specified quantities of food.
Transactions are set up to hold (through metadata linking to the DHT or even in a Metanet transaction) a set
of instructions to control the IOT and a generic agent. The blockchain is used not only as the control
mechanism but also to record information (such as for the ability to capture the number of feedings, what
time they occurred, which dog ate, has maximum food allocation been dispensed, etc.) and provide
cryptographic security. An important function of the transaction is to ensure that food is dispensed only if one
dog is present at the feeder at the same time. Such is done with an XOR function as per the truth table:

If neither A nor B are at the feeder, do not dispense food;

if A is at the feeder but not B, dispense food;
if B is at the feeder but not A, dispense food;
if both A and B are at the feeder, do not dispense food.

When a dog is at the feeder, its RFID signals to the auto-feeder to unlock the dog’s secure current puzzle
solution (which is securely replaced with a new puzzle solution after each iteration). If not, a random number
is presented instead.

The BID Operation

The auto-feeder is a BID, monitoring its own state. It stores two secret values (S1 and S2) received from a
separate control agent. They are used conditionally when the dogs’ RFID collars are detected within range.
Based on its instructions as retrieved from the appropriate DHT, on detection of an RFID within range (along
with other conditions related to the time of day, number of previous feedings, other restrictions, etc.), it sends
a signal to a generic agent acting as its control agent (see below). The signal includes:

S1 (= Puzzle-A Solution)— if Archimedes’ RFID is detected else Random Number

S2 (= Puzzle-B Solution) — if Bertrand’s RFID is detected else Random Number

The auto-feeder then:

checks for a valid UTXO indicating that the previous related UTXO has been spent (i.e. meaning that it
 passed the current XOR test) and guaranteeing that required information has been stored (i.e.
regarding the feeding event);
if the above answer is true, then it performs its conditioned instruction (here dispensing some food)
receives a transmission from the control agent enabling it to share two secrets (S1 and S2, as per below)
and internally updates the secret values — ready for the next iteration.

The big issue in IOT is valuing data — trust me when I say, people start to set the value of data and create
information where there is a cost.

With 50 billion IOT devices expected to be online in the next 5 years, there is an opportunity.

If you think about it, you start to see that we can easily port anything that IFTTT does, but without a company
in control.

50 billion machines each making many small transactions and saving and accessing data to and from the
ledger… I think the miners will be just fine.
Careful what you wish for…
By Craig Wright | 08 Feb 2019 | Alternative Coins & Systems
I moved to the UK in October 2015. We still had business interests there, so I would fly to and from Australia,
but my home was already to be in Wimbledon, London.

In 2016, I was dressed in a turtle neck. The PR people had the idea that they would transform me into the
vision of a genius that the world wants to see. The idea was a poor copy of Steve Jobs. The flaw here comes
from looking backwards. When he started, Jobs was the outsider. He was rejected, and fought to grow what
he was building each and every day. The attempted building of an alternative version of what I created goes
against all I stand for. Yet, I allowed myself to get into such a position.

I should say, I allowed myself to be dressed as the image that another saw as marketable, and I did not have
the courage to stop and say no. Or I did, but at (close to) the worst possible time.

I like to wear suits. I enjoy wearing ties. So is my choice, and with wealth comes the right to decide. In my
case, I plan to dress as the nerd in a three-piece suit. I like how I dress, and I am comfortable. I do not make
my team wear suits nor dress as I do, I choose it for myself. I am comfortable in a suit.

The end of 2010 and on was hard enough for me. There was a lot occurring in my life that weighed down on
my mood. Bitcoin was never designed to help an anonymous money-transfer system, and I was always
opposed to those seeking to operate outside the law. I have worked for casinos. The thing people do not
understand: There are licensed casinos, and there are illegal ones. I worked for companies such as
Centrebet, and even helped launch Lasseter’s Online in the 90s. They were licensed, and acted within the
law.

I do not like Wikileaks, and I have never been a fan of Assange’s methods. More importantly, I am strongly
opposed to criminal markets and bucket shops. Ross Ulbricht and others like him are criminals. They are
not freedom fighters, they are not libertarians. They simply are predators, and they are all that Bitcoin was
designed to make far more difficult.

Bitcoin cannot scale as a “home-user” system, and as such is incredibly simply to subvert. I will be releasing
such techniques that extend work I completed prior to Bitcoin [1, 2, 3]. Many of the aspects of Bitcoin that
were the hardest are not those that people look at and try to understand. Bitcoin was not designed as an
anarchist system. It was designed to allow trade and commerce, but in the limits of the law.

Any blockchain is able to be controlled and made to work within the legal frameworks of where it exists. It
does not stop government taxing, and it does not bring down banks. It was never designed for such a
purpose.

A blockchain is a system that is incredibly private when the people using it remain within the limits of the
law. It is conversely incredibly simple to trace when the parties to a transaction have breached the law, and
it allows a complete audit trail to exist. The past is something people do not understand, and few have
learnt. In the 90s, a far more anonymous electronic cash system was developed, and since then, many
others have been created.

DigiCash was founded in 1989. Unlike Bitcoin, DigiCash was based on an anonymous model. The system
incorporated the transfer of blinded transactions that used DigiCash as a settlement system. Bitcoin uses an
open pseudonymous model that has a distributed and competitive group of miners who fight/compete for
the right to validate transactions in exchange for fees.
The central clearing company, DigiCash, was there to detect double spending.
The issue solved by Bitcoin is to have a competitive system to stop double spends.

The issue of a central party stems from the failure of DigiCash and the subsequent liquidation of the
company which led to eCash being shut down.
Bitcoin solves the issue as it has no single party which can fail and, with such collapse, take down the entire
system. It was never about all users running nodes, and it is certainly not about equality or taking down the
establishment. Chaumian eCash can be implemented inside Bitcoin script. I know it well; I have patented it,
and will in time realise how it can be achieved. The issue here is that the main issue with eCash was that it
used an anonymous currency. Bitcoin does not face such an issue and the regulatory issues that follow.

I have no interest in the use of Bitcoin or any other system in helping criminals nor should anyone. Bitcoin is
an immutable ledger. When it comes to criminal activity, Bitcoin is a permanent and an unalterable
evidence trail. I was not afraid of Gavin and when he met with the CIA. Bitcoin is an immutable data store,
that is something that honest government desires. I was saddened and disillusioned by Silk Road and the
dark web. I needed to complete what I called “other things,” and I have done so now.

I needed to fix what I allowed. Bitcoin was designed to allow private electronic cash. It was always
something that was not more than Main Street and what is money for the common man. It was not
supposed to have been used for Silk Road. That is why I left.

Silk Road failed as a consequence of Bitcoin’s design. No blockchain will ever be crime friendly. Such is the
nature of the system. The audit trail allows the authorities to track from one criminal to another. We saw it
in action as Silk Road was taken down, then Silk Road 2.0 was taken down, and then the corrupt FBI agent
who stole bitcoin was caught and arrested. Bitcoin is sunshine. It is the cure for the festering wound that is
corruption, be that from government or from criminal groups.

I was embittered for many years. The design of what has become Bitcoin and Metanet started in 1998 with a
project I called Blacknet. It was never Tim May’s version, although he was my inspiration for it. Tim and I
were both aligned in being libertarian-Randian, but his concept of it was also one of no government, and he
never saw that human nature has elements that would collapse it.

I have worked in digital forensics a long time prior to creating Bitcoin. I only ever worked for the
prosecution. Silk Road was poison to me. I saw a decade of work corrupted, twisted, and for a time I
despaired. Bitcoin was like a child to me. I saw a child who had lost their way and become the worst thing
they could be. One who was into all that was wrong, twisted, and corrupt. I knew it was never the end for
Bitcoin and it would result in the death of all I had wanted to create.

There is no anarchist solution in any blockchain. I have ensured it. There is no form of PoW or PoS or any
hybrid system that cannot be regulated and monitored, and the most beautiful part of what I am releasing
(and have completed) is that the more you try to make something anonymous (rather than
pseudonymous), the more it can be controlled. The more you seek to be like Zcash or some other crime
coin, the more privacy you give up.

Creation is mostly long hours of boring and repetitive work. It is not about making a fast buck, and it is all
that ICOs are not. Bitcoin was created to be a means to allow the world both to commoditise information
and to create sound money.

Lightning—all about losing data

The economy is all about information. Bitcoin was a means to take data and add value, it is an informational
commodity; that is how it obtains value.

In a perverse twisting of this, Lightning was created.

The only reason for it stems from the collapse of Silk Road 2.0. The creation of off-chain channels that allow
information to be deleted is designed for one and only one reason: to avoid law. It is a vain attempt to create
Silk Road 3.0.

It is why the Core team have capped Bitcoin at 1.0 MB and refuse to allow it to scale. It is why they added
SegWit and other completely ignorant and insecure changes that have been discarded when I spoke to
some of the same people a decade ago.

The entire path of subversion that has gripped Bitcoin was a vain attempt to create a system that allows
drugs to be sold without records. It is a means to allow bucket shops and the creation of illegal securities.

Sign, and we will believe you…

There is a real problem with such a call from Core for me to sign. There are a number of downsides I will not
discuss and a couple I will. You ask to see my keys; well, you are in effect asking to see my bank statement.
Doing so is the opposite of what Bitcoin is about. I really do not care if you like that you cannot tell what I
have or do not have. It is a form of information asymmetry that I desire to preserve.

The likes of Bill Gates and Mark Zuckerberg have a large amount of non-liquid wealth. It is known. What
they do not disclose is how much wealth they can deploy.

Most critically, why should I. What, may I ask, am I to gain in return? You see, it is a contract negotiation, and
you have little or nothing I desire. Sorry, but so is the entirety of the scenario. Informational asymmetry
allows me to have some level of consideration that I can exchange. What are you offering for it?

Gavin knows I have the early keys. What does it matter?

If I choose to sign for some and not others, it is my choice. I could, but it would require something I value in
return, and it is not money.

If I sign, the next attack is simple: I stole the keys. No matter what I do, there is no path from PoSM (proof of
social media) to acceptance for me. Bitcoin is the mirror of what I see, a world of work. We are stewards to
wealth. We do not own it, it owns us, and we have to sacrifice daily to make the information flow to retain
the right, not the privilege to help maintain the plumbing that is the conduit of life.

More, it does not matter. All that does is what is created.

Will I create more, if I parade as a monkey before the grinder on the stage and dance… No. To be honest, I
would lose the time and ability to create. I would be dancing on the string that fame requires. So again, I
reject such a path. Building is the only truth path. Creation.

I had a lot of help along the way. Without Hal, the code would have crashed time after time. I am not going
to list the people who helped me here, but Bitcoin started because of my ideas. It was my design, and it is
my creation.

And, making certain that it cannot be subverted by criminals is and remains my duty.
I was Satoshi.

Further reading
1. Wright C (2008) “Advanced Methods to Remotely Determine Application Versions” NS2008 LV, USA
2. Wright C (2008) “Using Neural Networks” Google
3. Wright C (2008) “Exploring Data Visualisation” Strategic Data Mining
The story of Bitcoin, continued
By Craig Wright | 09 Feb 2019 | Alternative Coins & Systems
My first marriage ended in October 2010. It had been rocky for a time before it ended. I mentioned in my
last post how I worked doing forensic contracts yet only for the prosecution. Some of them didn’t involve
court. The same side but a completely different aspect of life. October 2010 was when I started to go quiet.

I was offline for much of January 2011. During the time, I had travelled to Venezuela where I was working
with a “Jawbreaker” team. The work was focused on stopping the trafficking of humans for the sex trade. I
was in “prevention.” I did not bring people to justice, I worked with teams to stop things, permanently.

My “Blind Date” in Venezuela had me progressing west to the border of Colombia. It was my last operation
of the type. I was shot twice, and evidence of it is likely to still exist on the Internet for all my efforts to have
destroyed it. I met with Colombian El Departamento Administrativo de Seguridad (DAS) agents, as my job
was accessing systems and information, and on the occasion, it was related to an operation associated with
garnishing evidence against FARC-V. Before, I was what some people would call an “agent of influence.”

I’m not ashamed of my past, but I never wanted to talk about it. I still do not. The best answer to many
aspects of life, the darkened dirty parts, is a solution delivered through a salve of sunshine. So, rather than
staying in silence and allowing others to paint a false picture of my life and Bitcoin, I am going to fill in the
missing pieces. I always had enough people to be proud of what I did that I did not need to make it public.
My uncle knows me well; Don Lynam was very senior within military intelligence, and I grew up respecting
him and my grandfather. I saw their sacrifice, and I wanted to emulate some of it.

People smuggling, sex slavery, and many forms of illicit exchange exist in the modern world. People do not
like to talk about them. But they exist, and they are insidious, and they are evil that must be stopped.

Terrorist financing occurs because of the existing banking system and the ability to lose transactional data. I
worked on Bitcoin for a long time before I found something that would not be able to be used in a manner
that was anonymous. A system that economically collapsed to one or none. It needed to be private allowing
people to engage in their day-to-day lives and even do things that were mildly wrong. At the same time, it
had to be the ultimate anathema to all that was evil in the world.

I designed and created Bitcoin to stop the need for people like me — people who worked with SAD
operatives and even those acting in the tracing of funds.
I was a pastor for a time. But, the images of what I have done, what I have seen, and the cruelties I have
witnessed in the world led me to abandon the position. I have witnessed children as young as 10 with AK-
74s and women who have been forced to watch the death of their children knowing that other members of
their family are being held and, if they try to escape, will be killed. All of it exists because of a system that
allows records to be lost.

I designed Bitcoin to create an immutable evidence trail, money that is private and yet does not suffer the
fate of Gyges. Anonymity is a curse. Nothing good comes of it.

I do not dream. Not that I do not remember, I have and in the usual delta-wave structure, and I do not
dream. In some ways, it is a reaction to some of the things that I’ve seen. They are images that are vivid yet
repressed.

I came back from Colombia and Venezuela already rather disillusioned. The first thing I found was Bitcoin
being used in the dark web. I discovered the creation I had given birth to, something I designed to bring
light was being used for all the worst reasons. Not only drugs, but people. Silk Road didn’t blatantly advertise
people the way that they did drugs and guns, there are other names for everything, yet people know what is
being exchanged.

And I saw my creation twisted into something I despised, and I entered a deep abyss of despair. Eventually,
later in 2011, I started working on the solution to the problem I had birthed. The start of the company called
Panopticrypt. Since then, I worked on a number of creations that connect alongside Bitcoin and in fact any
consensus system. Silk Road did not create a world without force. It allowed people not only to sell drugs
and to engage in the low-end overly hyped media-fuelled dark-web store that enabled people to sell credit-
card information, commit fraud, and even sell people.

Children between the age of 12 and 16 were exchanged using Silk Road.

Some were forced into prostitution, and others were sold to work as beggars in the US and Western
European streets. In the years that Silk Road operated, over 1000 children were exchanged in Western
Europe through the north-eastern Italian corridor — bought and sold using terms that allowed so on Silk
Road and bypassing the filters so they maintained plausible deniability. Some of the children were
kidnapped, and others promised a better life. Terre des Hommes is a good source if you want to learn about
the impact of such an illicit trade.

Such is your hero if you worship and praise to the idol of Free Ross . It is a story that is told of free trade and
friendly people engaging in commerce without the nasty state intervening. They neglected an essential part
of the story. They forgot the people that were trafficked. They forget the lives of those damaged forever
because of hard drugs. They ignore the dealers who use it to fool other people into a lie and allow them to
be captured into a web of deceit.

In 2011, I had no idea what to do. I had sworn I would never go back to the work I was doing overseas, and I
had applied for a formal role as an officer in the military police which luckily I did not follow up on. I left an
excellent job at a chartered accounting firm, BDO, taking a golden-handshake redundancy that funded me
for a time. The redundancy was offered in December 2008, and it is how I was able to spend 2009 working
and burning down my savings.

After two years of earning very little but spending a lot on my research, I saw what I created as it started to
become the thing I despised.

Do you want to know why Satoshi had to be anonymous?

Think about it. My past working as a prosecution forensic expert and in other roles with the government
would never lead to a system that I could have publicly stood behind.

In order to fund my work, Dave Kleiman and I sold code that was used in gaming illegal out of countries
such as Costa Rica. David took the biggest risk because gambling is not illegal in Australia. Nothing he was
able to earn in Panama was able to be repatriated legally in the USA.

Dave was already ill in 2011, and I pushed him further. The only way I could fund and further the research
that I have been doing to stop that which I saw developing was derived from gambling. Dave oversaw the
operations. There are other people who are still around and that are associated with the Costa Rica
operation, but I will never name them. We used Liberty Reserve to hold funds and pay people.

It is ironic that the only way I saw to fix the problem that I have created was to utilise something even worse.
In early 2013, the US government seized funds and stopped the operations of Liberty Reserve. The money I
was using to pay for computers and operations stopped.

Shortly after and because of the stress and problems that came from it, my best friend was dead.

George Gilder authored a book called Wealth and Poverty . In it, he describes the Faustian bargain that is
the capitalist system, and he links it to Adam Smith.

I decide on the name Faustus for such a reason. It is my bargain to stop what I see as wrong.

I expect a lot of people will want to start discrediting all of it here. The thing is, the more they now seek to
discredit me, the more I am going to release. When I finish, even Atlas will shrug.

I had a lot of friends, many in the police and military, who I have abandoned. I am going to come out of the
dark and start finding them again, and I hope that they all understand my lost decade.

People in the group of companies and others pushed for me to come out in 2016 to clear up the lies. I was
afraid. If I start to tell the truth of Bitcoin, it is to also open my past. It means that I am going to open all the
dark secrets, and when I do, many more will follow. I spent over 25 years working in places many would not
believe exist in a modern world, and once Pandora opens the box, there is no way to stop the secrets
coming out. It was my lack of courage , the fear of what can come from my past, and the need for courage
to face the future that stopped me before.

I am opening the box.

Please do not think it is the end of the story. It is only starting. Bitcoin changes the world, and I have enough
courage to follow through now.

Jimmy has said not to comment on it, but I will. To be open is to be open. Bitcoin has an issuer. It is a system
that is set in stone and when changed is a new system with an airdrop, so a fork is a new system. BTC
became a new system when the fork added SegWit, it is a new system with new issuers.

I am the issuer for Bitcoin. There is no decentralised here. The only protection I have was remaining
unknown. As I prove who I am over the year, I prove who the issuer is for Bitcoin. The issuer of a money
system who did not ask for permission and knows that it was not legal when it occurred. Bitcoin (BSV) was
issued in 2009. BTC was issued with an airdrop in 2017.
Secure wallet systems
By Craig Wright | 10 Feb 2019 | Bitcoin & Blockchain Tech
Early on, I created a system that we had awarded as one of our earliest patents.

After Mt Gox, it was clear that there is a need for a “Secure Split Key” technique — to build upon the
Deterministic Key Generation technique that I have documented before. In order to address the issue of key
management (including with exchanges), I created a number of systems that allow users and businesses to
securely store a private key (such as for a digital wallet) in such a way that it cannot be obtained by an
unauthorised party, but can also be reproduced when necessary. Titled “Secure Multiparty loss resistant
Storage and Transfer of Cryptographic Keys for blockchain based systems in conjunction with a wallet
management system, ” the full description can be found in PCT application number PCT/IB2017/050829 .

In summary, a commercial wallet based on a “Secure Split Key” or threshold system can secure a digital
wallet, or another type of resource for that matter, by:

splitting a cryptographic key (or a mnemonic seed for a cryptographic key) into a plurality of shares
such that it can be restored or regenerated from two or more of the shares: such could be performed
using a known cryptographic algorithm called “Shamir’s Secret Sharing Scheme” (4S), which involves
splitting the key up into unique parts or shares that are then distributed to different parties. The shares
can be used to reconstruct the key when needed. Each individual share is of no value or use on its own,
until it is combined with one or more other shares. The number of shares required to reconstruct the
key can vary according to the needs of the situation. In some cases, all shares may be required, while in
 other cases, merely a sufficient number is required;
determining a common secret at two or more nodes on a network i.e. parties, and then using the
common secret to generate an encryption key which can be used to encrypt one or more of the shares,
or a message relating to the share;
using the common secret to transmit at least one share of the key between the two or more nodes: the
two steps can be performed using the foregoing technique and the invention described above (PCT
application number: PCT/IB2017/050856). The transmission of shares between the parties must be
performed in a secure manner because any unauthorised interception of multiple shares could enable
the interceptor to reconstruct the key.

Therefore, different shares of the key or its mnemonic can be transmitted securely between different parties
and then stored in separate locations. The key does not exist anywhere in its complete form until required,
at which time it can be regenerated from a specified number of shares, e.g. using the 4S algorithm that was
used to split it. No single party has the ability to generate the private key unilaterally, not even the user. Even
if the user dies, becomes incapacitated, or loses the key, the other two shares could be used to access the
funds by another legitimate party — e.g. an attorney, next of kin, etc. Alternatively, if the wallet provider is
hacked, the key and thus the funds remain secure.

So, for example, a digital wallet provider could use the technique as follows in a ‘2-of-3’ scheme — i.e ., there is
a threshold of 2 shares required for regeneration:

A user registers with a wallet provider to create a new wallet to store his/her funds (for example,
bitcoins).
A public-private key pair is generated and associated with the user’s wallet.
The private key is split into shares using 4S.
One share of the private key is sent by a secure transmission to the user using the technique described
above.
Another share of the private key is retained by the wallet provider and stored on a server.
Another share is sent by a secure transmission to a remote location for safe storage.
The wallet provider can destroy any or all copies of the complete private key, because it is no longer
needed. When the private key is needed for subsequent authorisation of the user (e.g. because the
user now wishes to make a transaction), the key can be reconstructed from the user’s share, which
(s)he provides to the wallet provider when needed, and the wallet provider’s share.
In the event that one share is lost, the key can still be reconstructed using the remaining two shares.

Therefore, we have created a solution for securing a digital wallet (or, indeed, any other type of controlled
resource) which avoids the risks associated with either storing a private key yourself or trusting a third party
(such as the wallet provider) to do so. With such a technique (in combination with the Deterministic Key
Generation in the first invention described above), no Mt. Gox-type hack would succeed in stealing bitcoins;
a hacker would not be able to access users’ complete private keys, and could not steal their bitcoins.
Introduction — Threshold-Schema Basics
Differences between different transaction-signature schemas:

Threshold signature:
There are many participants, and each one holds merely a share of the private key. Combining all shares,
the transaction (tx) is signed. The result is the same as a single signature. The public key (for verification) is
the same for all of them.
More importantly, the division of keys can be extended in script. Alice can have a 2-of-3 scheme where Bob
has one key for the first key in a 2-of-2 script, and Bob may use a 2-of-3 scheme where Alice has one key for
the second key. Together, they can both securely self-backup the other or even create a more complex
system that enables the level of control they require.

Most critically, it is a system that allows for the generation of keys that are sent to the parties in the system
sequentially merely once. The shares are used, and then a new key is created.

If you think it through, it also allows shares to be used by devices. Such can be the user’s device or such may
be systems (such as an oracle or IoT controller) that act to sign based on a vote.

A user could have a shared-key system where one key is a simple pin-based derived key; another key root is
stored on the device, and is stored securely; the third is a recovery root key, which can be locked in a safe or
an escrow service.

When used on a web-based wallet, the online system would not need to have the user’s entire key, and yet
could act to recover lost bitcoin and tokens.
The false lure of anonymity
By Craig Wright | 12 Feb 2019 | Alternative Coins & Systems

One of the strangest things for me comes from the retrogression into things like proof of stake and the associated failed models
of cryptocurrency. When I was working on Blacknet in 2005 and 2006, I stumbled upon what later became the solution to Bitcoin
and the problems that I saw. DigiCash released eCash in the 1990s. It was a form of cryptocurrency that was more anonymous
than Zcash or Monero, and it is nowhere to be found anymore. In part, the failure stems from an attack against the founding
organisation, but it should also be noted that eCash continued even after the bankruptcy of David Chaum’s company. Creating a
distributed group is not the solution people believe it to be. The problem is that they are not looking at the correct answer.

Many individuals acting in a distributed group on the same software program that is not a protocol that is fixed and immutable
are in fact what everyone loves to call centralised. If we for instance take Zcash or Monero, or even Ethereum, every one of them
comes back to a simple case of one organisation. Even where people love to say, “but we are decentralised,” they end in a single
instance of an organisation. They neglect to note that they are under law an unlimited partnership.

Unfortunately, I have lost track of how much or little people know, especially when looking across disciplines. I have studied law,
economics, computer science, history, mathematics, and even theology and ethics, and my greatest failure in doing so has been
losing track of the understanding of the average person.

I did a master’s degree in statistics, in part to learn what I know now and also to understand propagation methodologies. It was
during my studies that I first read a paper called “Ultrafast Consensus in Small-World Networks” [1]. Following the discovery, I
spent years going down the rabbit hole of Newman and Watts [3]. The node structure in Bitcoin is linked to the ledger. Blacknet
was a dead end not because it didn’t work but because some of the earlier methodologies that are completely separate to
Bitcoin now worked anonymously. An anonymous system will never be scaled to the world. At best, an anonymous system forms
a methodology for black markets and illicit and illegal trade. I was never interested in creating a dark-web money.

Bitcoin needed to be private and yet easy to stop or control such that illegal and illicit activity could be stopped at scale. Bitcoin as
such forms what some have called a mandala network . Miners, as they are now called, form the nodes. There is no such thing as
such a node, as in the system, it doesn’t work the same way. If you read the Bitcoin white paper on page 3, section 5 details it
incredibly well in my opinion. The first point I put in section 5 is that “new transactions are broadcast to all nodes.”

Bitcoin works in layers.

Nodes can come and go, and they can choose how they interact with the system, but a node is not a wallet. What they do is
validate transactions in the order of time in which they have received them, and as the paper says, “Nodes express their
acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous
hash.”

There is no such thing as a full node that does not mine blocks.

In 2008, I published a number of methodologies that have been used within certain circles of law enforcement to do a mapping
of systems forensically [2]. The concept of running an anonymous cash system through blockchain is one that is simple to control.
It was designed in such a way. You see, although users can pseudonymously send transactions through VPNs and TOR, nodes
cannot operate anonymously. The system is designed such that nodes that are building the ledger need to interact in a manner
that leaves a trail.

Any anonymous blockchain system requires validation systems. The scale in a small world. The alternative is easy to “sybil.” I will
be explaining the process behind it later in the year. If Bitcoin was to be a mesh network, it would require at least 11 and up to 30
hops to act in a distributed manner. An attacker, a government, or another party needs at most 2 to 3 hops worth of control to
subvert the network. The Raspberry-Pi mentality does not even see that they make it incredibly simple to subvert the network. In
order to subvert a mesh network, hardware worth around US$2000 is required. Such a system can create unbounded forking
leaving the network percolation to branch endlessly or simply create an unbounded number of double spends.

Bitcoin solves the issue in a simple way: nodes become commercial.

Sorry, I told you so.

I was explicit and clear with the point. Users do not run their own Usenet servers, they don’t generally run their own SMTP servers,
and the idea of money is not to have some wizard-hatted technocrat dictating how everyone needs to run the same system. The
system works because it is competitive. It’s what distribution means. It is why it is decentralised.

Bitcoin, any blockchain, is merely decentralised through competition. A system such as Ethereum is one entity. It is a loose
partnership that is constructed at best as a formal partnership and at worst as a common-law partnership with unlimited liability.
The reality here is that saying you are a distributed group means nothing under the law. If three people start acting together to
create and implement software, and they don’t have a corporation or some other limited liability structure around them, then
they are still a single enterprise, a partnership, and the worst part of it is that an unlimited-liability partnership leaves all parties
equally liable.

When I said, “The current system where every user is a network node is not the intended configuration for large scale,” I don’t
know how much clearer I could actually have been. As it says in my earlier post, “The more burden it is to run a node, the fewer
nodes there will be. Those few nodes will be big server farms .”

Here is the thing: There is no other way that it can work in a small-world network. There is no other way that it can work in the
Bitcoin node structure. Bitcoin is merely secure if the network distance for the miners, that is the nodes, remains at a level of D<3
or, in other words, the hop count is always under three hops. To achieve such an end, a number of large competing organisations
will be created. I was incredibly specific in my point, and yet people seem not to understand me, and you wonder why I get so
frustrated.

A thought experiment
Let us say, for instance, that AnonCoin has been created. It is a more anonymous, private, and secure coin than either Monero or
Zcash could ever hope to be.

Now, there are two aspects of the system that we can incorporate into our analysis and thought experiment.

1. There needs to be some manner of on-boarding onto other systems, and such is an exchange.

1. As a blockchain system, it requires nodes. Such nodes act in a distributed consensus.

The overlooked aspect of any blockchain is the requirement for nodes to reach consensus in a provable manner. The primary way
of doing so is a proof-of-work system. Parties cannot cheat, and the investment they have made is reflected probabilistically
through the results of a proof-of-work system.

Individuals (or organisations) running nodes can split into smaller fragmented units, but doing so comes at a cost. Remember, we
have a small-world network, and the more exit and entry points a node is required to manage, the greater the cost. There can be
benefits for nodes to have exit and entry points in geographically distributed positions. There is a cost in acting as a set of
separate players. Through the small-world nature of Bitcoin, it incentivises any attempt to “sybil” the network. Bitcoin is not a
proof of work on finding a block solution but rather finding the block solution and ensuring that all others in the node network
have your block to work on before anyone else discovers a competing block.

Consequently, Bitcoin is not about finding a block first. It is about distributing a found block.
Now, in our hypothetical AnonCoin, the nodes are distributed, and it is a blockchain. For it to work, it must be a small-world
network. Miners are economically incentivised to act within the rules as it is very simple for other miners to discard dissenting
players or nodes.

Nodes could attempt to have many entry and exit points acting in what seems to be an independent manner. But due to the
nature of the system, it only makes them a larger target by increasing their attack space. In a manner of and analogous to my
paper analysing the territorial behaviour of botnets, nodes in the AnonCoin network form an economic balance. Too large, and
the cost of maintaining the systems becomes prohibitive, too small, and the distribution function for a global system becomes
easy to subvert. The particular equilibrium will depend on the system, the number of nodes, and the value being traded.

In a proof-of-work system, nodes may be able to come and go, but the requirements for power dictate that it ends in large data
centers. More importantly, the network consolidation of a small-world network leads to a small number of competitive miners. To
be viable, a scaled system cannot be readily moved. The bandwidth necessary to distribute transactions and blocks to all miners
directly without going through multiple hops consolidates nodes into large facilities. There can be hundreds of such facilities
globally, potentially thousands for a scaled cryptocurrency, but such are not home-user systems. In fact, there is no way to create
a system that is secure and globally distributed and to scale it using a blockchain other than a small-world distribution. No matter
how it is constructed, a blockchain-based system collapses into a small-world network.

Recognising the small-world distribution is important. Every resilient system needs to be non-brittle. If AnonCoin seeks to be a
system that acts outside the law, it is by nature brittle. Bitcoin was designed to ensure privacy and utterly destroy anonymity. It is
an important distinction. Anonymity is the realm of cowards and those without courage. It is utterly different to privacy. Private
transactions involve individuals, and leave traceable records. People can engage in private communications, and yet have no
other party know who they are; different to anonymous transactions, each party in a private communication can trace the other
one.

The first attack on AnonCoin is the exchange attack. In the US, bearer instruments have been made illegal. In time, the regulators
will understand that systems such as AnonCoin and even by extension Zcash and Monero are bearer instruments. I am
presenting in Oxford next month on the relationship between electronic transactions using blockchain and the fact that such are
able to be taken as transactions in writing under English law.

Simply saying that our anonymous coin is illegal makes the exchange of such a coin illegal. Right now, the majority of exchanges
are acting outside the law as illicit and illegal bucket shops touting the fact that they are (falsely) misleadingly able to trade
without a license. The reality is very simple: Blockchain is a clearinghouse system. It does nothing to protect exchanges or to alter
the law of transactional exchange, nor does it mitigate or remove the requirements to hold a license.

In time, it will be explicit and well understood, and such an exchange seeking to operate will be shut down or need to operate as a
dark market allowing for the simple seizure of all asset.

The second part here is the requirement for nodes. There is no working system that will scale with billions of nodes. If the USA
decided to ban and criminalise AnonCoin (as it arguably already is a bearer instrument), it effectively ends all use of AnonCoin
within the USA . That simple.

When I designed Bitcoin, I was extremely careful in the node design. At scale, a blockchain is an immutable evidence store that
acts in layers. Users are able to transact as if it was materialised cash and not a dematerialised electronic transfer. On an
interesting side note, a lot of the economic design came from the study into alternative financial systems including Islamic
jurisprudence, which I learned during my comparative international-law studies. Bitcoin is in fact (‫ك‬ ​) ṣukūk in nature, and
operates as a depreciating system within the constraints of one of the largest banking formats globally, one that allows smart
contracts such as ones that comply with Murabaha, Ijara, Istisna, Musharaka, Istithmar, etc., while simultaneously allowing typical
methods of Western finance.

The side note apart, it is a manner allowing an honest banking system that can track and trace all transfers leaving records and
stopping crime.

Going back to our node situation, we have the scenario when nodes must invest. As with the research I conducted into
distributed botnet controllers [4], Bitcoin-based systems form a distributed peer architecture that allows peer-to-peer cash
between users which is settled on-chain. It’s what the nodes do. The nodes are the clearinghouse and settlement system. Such is
the primary third party that is replaced. Bitcoin allows even banks to remove settlement functions and to distribute tokenised
electronic cash in a manner that doesn’t require something such as the BIS or Bank for International Settlements.
Everybody is not a bank in Bitcoin. Banks offer services such as loans and the investigation into capital, and how it will be
allocated in a manner that exceeds the nature of any automated system currently in existence. With Bitcoin, people have a
method of securely storing cash. They can of course also tokenise many other goods and services allowing for more
instantaneous, open, and secure trades to occur. It is a system where people cannot lose invoices and where negotiations can be
stored permanently.

The authorities can easily determine the requirement for online service providers (OSPs) to handle the filtering of access in the
reporting of such access to banned services. In 2008, I studied law at the University of Northumbria, Newcastle. I completed an
LLM in international commercial law, and specialised in Internet intermediary liability. It was part of the key to Bitcoin. I needed to
create a node system that allowed control yet freedom. What people fail to understand is that Bitcoin is about balance and
neutrality. A set protocol is one that allows OSPs to compete fairly in all of the major jurisdictions globally. I have not considered
North Korea. If you take the time to read the document that was my dissertation [5], you will note that I came to the conclusion
that the simplest path was to restrict the end-state OSPs and hence the local jurisdictional node. In such a manner, individual
governments can choose what they do and do not allow. Everything can be stored online, but not everyone can access it.

In the case of nodes, access is easily restricted, and ISPs can be required to filter certain types of access.

Personally, I do not like the idea of censoring open communication, but I do not believe in anonymous communications. It may,
of course, seem ironic.

If made illegal (as I argue that AnonCoin already is within the USA), than an associated node is by nature illegal. It no longer
matters how much is being transferred or even if the node operator is poor or rich; the simple fact of the matter is that it
becomes a criminal act. Some of the methodologies I developed when working on tracing peer-to-peer networks can be used
here. Nodes can’t hide in Bitcoin, and likewise, any blockchain with a proof-of-stake or any other thing that AnonCoin could
possibly contemplate remains the same if it is developed using blockchain technology.

Now, such is the incredibly important part of any blockchain technology: nodes cannot hide. Bitcoin requires that the
commercial nodes, the miners, the systems that run the network, and not the users, are available. They can come and go, but at
the end of the day, they need to connect to and become part of the network. For the same reason, they can be detected and
easily mapped. The one real problem that cannot be solved in all of it is that Bitcoin requires a stationary end node. If the
requirement changes, the economic ability to earn diminishes. More importantly, nodes distribute to known addresses. They
form mappings in the creation of an ultra-small-world map. It leads to a system that has the centre of the mandala network
acting to ensure ultra fast consensus.

It is not the 10-minute settlement time but rather at scale milliseconds which secure transactions.

A node cannot operate as a commercial miner through TOR. If it uses a VPN service, it can be traced. The users connecting to the
network, the individuals sending payments to merchants, they can maintain a level of anonymity and privacy conducive to the
level of exchange that is being conducted. Even if they don’t divulge their identity, they can retain an invoice in an immutable
form that cannot be exploited by criminal activity. Such is the real promise of Bitcoin. It is the balance between privacy and the
need for safety and security whilst giving up neither. It is putting a cost on the tragedy of the commons and ensuring that privacy
is valued.

The myth of AnonCoin is that it can operate anonymously. That nodes can operate at scale without being tracked or recorded or
blocked. It is not the case. The only manner in which blockchain, the reality being bitcoin, but for the purposes here I will say any
blockchain, can operate is within the existing legal framework. As soon as it divulges and acts without and outside such a
framework, it is simple to block. And once the block occurs, the value diminishes.

No system based on proof of work can scale without value and nodes that can act validly within the network structure and within
the law. There are other issues with proof of stake, and it can be used in the creation of a criminal system, but I will detail other
flaws in time.

At its heart, this is what it’s about. I really don’t care if you commit a crime or not, if you buy and sell drugs or not, but what I do
care about is that you have just left an evidence trail. If you do not like the law, lobby the parliament, become an MP or, if you’re in
the USA, a congressman or whatever else, and seek to change it. I have zero tolerance for people who think that rebellion is an
option in a working society, or rebelling for the sake of rebelling. In some societies, rebellion is an option. Bitcoin does not
discriminate between government and citizen; it places the same transparency measures on both, and seeks to keep both
honest.

Bitcoin scales perfectly well. The problem that those in Core and associated systems see is not with scaling but rather in the
creation of a system that forgets. The entire path taken by the BTC Core development team in subverting what was Bitcoin into
an air-dropped alternative system has been focused on creating something designed to allow drug markets. Simply put, there
has been no other mainstream focus at any point since the collapse of Silk Road. Bitcoin is the truth machine.

It is what some people hate and seek to subvert.

They want something without records. Privacy is not enough. Privacy works when people are honest. What they seek is a system
leaving records to be lost and one that allows criminals to breach the law with impunity. They want a system that allows terrorist
funding, paedophilia, and everything else under the rocks that never see the sun. Bitcoin does not allow such things in any form.

Proof of stake
I’m sorry to inform you that proof of stake was actually one of the first things I investigated. It is a retrogression. Proof of work is far
more advanced. I first looked at the idea of staking owners at around 2001/2, and spent a lot of wasted time investigating a dead
end. Proof of stake is not stable. We have a proof-of-stake-based system in the US Fed right now. It’s not a stable form of money.
Some will argue that the commodity theory of money has been discredited, but I will argue that even state-based fiat money
forms a commodity function. It’s one that is driven through fear, yet it remains a commodity. It has a dual function as both an
informational commodity and a taxation-based one. With a requirement to pay tax, it is an exchange good against such a rate. I’ll
expand on it later in another post, leaving it to say that even fiat money forms commodity-based money.

I have posted before on proof of stake . I will dictate the mathematics behind the system and why it must fail later in the year. It
will be in a peer-reviewed journal. I am not interested in helping you make fewer mistakes earlier, and I’m very happy for people
to continue down such a road for now. I never said I was nice.

The simple end is that we don’t end up with an honest distributed system using any proof-of-stake model. More importantly, the
consensus structure of the network does not evolve. In any model, proof of stake fails to form a consensus based on a small-world
network, and the result of it is that it becomes simple to attack. I don’t expect you to take my word for it, but you have to wait till I
publish; and very very simply put, I have no interest in saving the people going down such a trail.

For now…
Over the year, I plan to detail everything about Bitcoin. Little by little in my own time frame. Is not really my problem if you don’t
like it, but such is how life works. If anyone should not like the court system, it would likely be me. Yet I understand it is the best
we have. Following the Wolfe reforms, the legal system in the UK has improved quite a lot, but the fact is that it is still expensive
and not open to the majority of people. The implementation of court-based signatures and electronic arbitration increases the
democratisation of justice. It is something that is important to me. Justice is not about crime. It is ensuring that society works and
is free.

References:
[1] Ultrafast Consensus in Small-World Networks (2005) http://authors.library.caltech.edu/5147/1/OLFacc05.pdf

[2] Wright, C. (2008) “Advanced Methods to Remotely Determine Application Versions” NS2008 LV, USA.

[3] Newman, M. E. J. & Watts, D. J. Scaling and percolation in the small-world network model., Phys. Rev. E 60 , 7332 (1999).

[4] Territorial behavior and the economics of Botnets (2012) http://ro.ecu.edu.au/cgi/viewcontent.cgi?

referer=http://www.reddit.com/r/btc/comments/7f9hjn/i_just_met_dr_craig_wright_in_malta/&httpredir=1&article=1148&context=ism

[5] Wright, Craig S. The Impact of Internet Intermediary Liability (April 17, 2008). Available at SSRN:
http://ssrn.com/abstract=2953929 or http://dx.doi.org/10.2139/ssrn.2953929
The start of Metanet
By Craig Wright | 14 Feb 2019 | Alternative Coins & Systems
Way back in the depths of the late 90s, I was a young brash 20-something with this concept that I would
change the Internet for the better. I never really looked at people properly. I took them at face value, and it
led to many problems.

Metanet and Bitcoin started with the concept of an economically incentivised Internet.

What fools promote.

The plan was to be able to create a system that was secure through economic incentives. It is an area where
I have been ridiculed for promoting it for most of my 30 years in information security. Unlike some such as
Marcus Ranum who promoted the concept that a pair of pliers is the ultimate firewall isolating a network
and stopping all commercial activity, I saw such a scenario as the attack. In my scenario, I see a world where
attackers have to pay more and more as they attack a network.

If a user wishes to engage with the site and use the services being provided, they could put up an escrow
amount that they could get back at the end of the session. The site could charge small micropayments for
continued use, or it could allow free access with a small deposit.

The ability would incentivise many forms of commercial activity without having to rely on the sale of user
data in the breach of privacy that we see in the ad-based tragedy of the commons in the Internet today.

Everything needed to achieve such an end has been developed now. There is a lot of work still to do, and the
ideas need to be fleshed out and developed fully, but having said so, it is important to note that the
foundation has been laid and the patents have been filed.

Some of the steps that were thought necessary turn out to be less valuable than required. In the 1990s, I
started at the wrong side of the problem. And I did not realise that the solution was far simpler than I had
imagined initially. I had thought that digital money such as in the form of eCash could be issued from each
site. Back in the early days of the cypherpunks, there was a lot of conjecture about such a form of digital
cash. We still see it in the “crypto” community today.

Such is the fallacy, where everybody can have their own coin or money. When I started the project, I fell for
the same flawed misconception — not realising that in fact it is a system that is less effective than barter.
Money is best when universal. If every site has their own form of tradable currency, the reality is that no site
has currency. To be money, it needs to be universal.

In the early versions of economically incentivised servers, I foresaw that sites would sell individual coins and
tokens generated along the lines of something like Hashcash.

In such a scenario, each system would simply create its own universal proof of work and then sell it
individually to control access. It is the current multi-coin system we see in the cryptocurrency world right
now. It is also the scenario I had abandoned in the early 2000s. When you start to think it through and take
it to its logical conclusion, the problem with such a world becomes manifest. If every individual and every
site have their own payment system, we in fact have something that is less effective than barter. If I want to
go to Alice’s site, I need to swap Alice coin for Craig coin. The computational intensity in managing the
exchange of so many forms of currency removes the informational value of money. The reason gold was
successful is because it gave a single measure to the financial economy on a global basis. The value of
money comes from the value of information.

AGIMO IPv6 session

I was involved in the training of a number of government departments concerning security and IPv6. It is an
area I’ve been looking at for a long time. In particular, IPv6 alters the security position of many sites. The
ability to find hosts through port scanning is incredibly limited using IPv6, with an attacker being expected
to spend decades scanning a single range. More importantly, we can integrate IPv6 directly into Bitcoin. We
have been working on intellectual property that allows for the allocation of addressing over mobile IP
sessions that is based directly on the allocation of a payment through Bitcoin. In such a way, attackers
would have to deposit an escrow amount that they could get back only if they follow the rules and that they
lose if they breach them in any way. Even a simple distributed denial-of-service attack would become
infeasible.

With the ability to allocate separate session addresses for each and every client tied to a deposited bitcoin
amount, an attacker would need to expand an immense amount of money to engage in a simple attack
such as for a denial of service.
Of course, there is an issue of truth in all of it here. Metanet creates an immutable Internet. It allows the right
to be forgotten through key dis-allocation, whilst maintaining a copy of all material ever posted to the
Internet. From an attacker point of view, it is the worst invention ever. Not only would attackers be required
to pay money for the use of a site as they attack it, an immutable record of all the changes and the attack
itself would be created.

We can imagine a system like GitHub and associate it with every change ever created on any system
globally. Imagine every single change is digitally signed with an evidential quality ledger. Internal errors will
be reversed leaving a trace of the error and private details of the changes including the parties responsible.

Now take it as a basis for the entire global network. Imagine a cyber attacker seeking to alter the state of
the machine. Over an encrypted and secured channel, the attacker would need to exchange keys and
access a role-based identity system linking the individual to his or her actions. We could simultaneously
allow pseudonymous access to public pages whilst logging every action conducted by any party that loads
or alters any information. From a business point of view, the attacker would have to pay the business for the
right to attack it, and at the same time every alteration would be immutably stored.

I was involved with SANS.org from the late 90s on. It was until I dropped off the face of the earth in 2015 and
effectively vanished from such a side of my life. Whilst I was involved, I completed more training than
anyone else before or after me. I also taught occasionally. Two of my favourite courses included SEC560 and
SEC660 [1]. Metanet alters the entire framework of the course in every way possible. Fully implemented,
reconnaissance and scanning become infeasible. Imagine having the equivalent of a network access policy
that is sold as a template in Bitcoin. On purchase, an immutable record of the transaction can be logged
and audited immediately.

More importantly, the audit function can be separated entirely; the audit and monitoring function can be
provided by an indexing service on the blockchain. The process of attacking the network and auditing the
attack can be completely separate. The simple act of scanning the network will require the purchase of the
rights to access each individual service or at the least an algorithmically defined escrow payment.

In learning to be a computer hacker, one of the most critical aspects is how to clean up the logs. Effectively,
it is the destruction and deletion of the evidence of the attack. To be successful, an attacker needs to both
break into the system and cover the records and access logs. They need to hide from the system
administrators and slowly pivot across the network. Metanet alters the scenario radically. With Bitcoin, we
now have a means of incentivising people to use the network correctly but also to record every action that
they do while attacking. The consequence is that an attack would be immediately alerted at remote
locations. An attack would be instantly reversible.

No system is perfect, and insiders may always copy and leak information, but with the ability to record all
access on a write-once-read-many media format on the blockchain, we radically alter the economics of
information security. Bitcoin is not merely an information commodity. It is the ultimate information-security
tool, and it drastically shifts the balance of power away from the attacker to the defender.
Years ago now, I taught FOR572 under Jonathan Ham. One of the things I remember was the forensic
process and how live logs could be used to capture and stop an attack before it could escalate. The system
I’ve been developing within Bitcoin will eventually become the global backbone for the entire Internet. It
will enable the people defending a network and servers to watch and monitor all access to their systems.
Every stream will be able to be captured using payment channels in Bitcoin transactions. All static
information will end up stored and associated with Bitcoin transactions that are controlled
cryptographically. The end result being that attackers foolish enough to target a system will find
themselves logged on an unalterable data store that is replicated globally.

Interestingly, IPv6 supports jumbo frames of up to 4 GB. Such can be incorporated into Bitcoin transactions
as we scale the system, allowing for payment-channel-based exchanges using:

OP_PUSHDATA4;
{Data}; and
OP_DROP

in a transaction and exchange. The data can be streamed using a payment channel, and as transactions are
malleable, the data can be authorised, and a hash may be used when sending to the blockchain rather than
the data. In other words, Alice sends a block of data to Bob who hashes it for validation and sends the
redacted transaction (which has been signed but which he malleates) to be verified by the miners.

Notes:
IPv6
The IPv6 protocol was designed to supersede IPv4 addressing while supporting the growth of the Internet.
While the IPv4 protocol accommodates 4.2 billion unique IP addresses with a 32-bit address, the allocation
of IP addresses on the Internet was not completed in the most efficient manner, leaving a shortage of
available IP addresses. With deployment of technologies such as NAT and CIDR, the Internet continued its
growth, but was still somewhat limited without the widespread availability of globally unique IP addresses.
New technologies such as mobile phones and PDAs connecting to the Internet have increased demand for
addresses, as has the spread of Internet technology to populous countries such as China and India. As a
result, a new mechanism was needed to accommodate continued growth and adoption of Internet-
connected technology.

The IPv6 protocol was designed to meet such growth demands, expanding the address size from 32 bits to
128 bits. A 128-bit address is approximately 340 undecillion or
340,282,366,920,938,463,463,374,607,431,768,211,456 addresses. With so many unique addresses, the IPv6
protocol can accommodate 7 unique IP addresses for each atom in every human on earth.

Of course, all of our atoms don’t need so many IP addresses. Instead, the sheer volume of available IP
addresses provides for more flexible deployment of address space on the Internet. For example, ISPs will be
able to geographically assign IPv6 prefixes to different parts of the world, allowing for the simplified routing
of traffic on the Internet. Organisations can obtain an IPv6 prefix with sufficient available addressing to
accommodate all present and future addressing needs.

IPv6 features
A key feature of IPv6 is the expansion of address space, permitting route aggregation on core Internet
routers through geographic address space allocation, improving delegation and management of addresses
to organisations and ISPs alike, and providing hierarchical distribution of address space that makes
troubleshooting and Internet routing simpler.

Another valuable feature of IPv6 is support for addressing auto-configuration. Anyone who has been
responsible for manually assigning IP addresses to hosts understands that it is a problematic and
cumbersome process. With 128 bits of address space, it becomes possible to use the globally unique MAC
addresses on all network cards as IP addresses. In such a way, administrators can simply introduce a new
node to an IPv6 network without manually specifying an IP address; the IP address is configured
automatically based on the local MAC address and advertisement information from the default gateway on
the network.

During the transition process between IPv4 and IPv6, it is possible to establish IPv6 tunnels over the existing
IPv4 Internet using IPv4 Protocol 41 or one of several tunneling protocols such as AYIYA (Anything In
Anything) or Teredo (Tunneling IPv6 over UDP through NAT). It is also possible to continue supporting IPv4
traffic on an IPv6 backbone using gateway services that translate IPv4 packets into an IPv6 format.

Another significant change in the IPv6 protocol is the use of a fixed IP header. While the IPv4 header could
expand to include additional information such as strict or loose source routing, the IPv6 protocol has a fixed
header length of 40 bytes. In order to accommodate additional flexibility in the protocol, IPv6 introduces a
Next Header field that indicates what the embedded protocol contained in the packet payload is. It is
similar to IPv4’s embedded protocol field, but unlike such a field, the next protocol can include multiple
embedded protocol fields, one right after another. Currently supported protocols in the IPv6 Next Header
include the encapsulating security protocol (ESP) and authentication header protocol (AH) for IPSec, the
destination-options header to specify processing options at the destination system, and upper-layer
protocols such as UDP, TCP, and ICMP.

References
[1] http://uk.sans.org/course/network-penetration-testing-ethical-hacking
Proof of Work
By Craig Wright | 16 Feb 2019 | Bitcoin & Blockchain Tech
In 2016, I could have come forward and jumped through many hoops in a vain attempt to have people “like
and accept me.” Vain, as it is not a result that will ever be achieved. The “crypto” community is not seeking
Satoshi, they want a constructed myth that allows them to believe they can have an anonymous system of
money and those things parliaments seek to stop, they can allow. They would not want me, as the system I
created is not anonymous and it cannot be made to be anonymous. The nature of a “blockchain” is a system
that acts as an immutable and admissible evidence stop that binds both the individual and the system they
exist within.

In 2016, I wasn’t ready for a start. I hadn’t planned on being outed in 2015 (even if it was probably a result of
my own cockiness). But the so-called “sign publicly, and everyone will know” mantra doesn’t actually prove
anything, and the people selling that story know perfectly well that such is the case. Of course, what they are
also selling is a quick fix. None of them want Bitcoin. They’re all seeking something different and in trying to
change the system to deliver it. In vain. Then, they get to get rich in a Ponzi scheme, and say they tried their
best when the house of cards comes inevitably crashing down.

In May 2016, I came to the conclusion that the best I could hope for in signing publicly and doing everything
that would be needed would be the exact opposite of proof. I would start by signing; and then there would be
other questions. The ones more greedy and undeserving individuals such as Ira Kleiman would come out
expecting much more and saying that somehow I had stolen keys that I never had access to (it does not
matter that it is not actually possible let alone feasible on Bitcoin). It would no longer be enough to try and
blackmail me into making them instantly rich, but to see a long-term gravy train.

Most people, even those in “crypto,” don’t understand Bitcoin. There are those I trust and those I don’t. They
fail to understand that you cannot simply steal someone’s keys without access. They fail to see the issues that
collapsed eCash, and they rarely care. But such is the problem; Bitcoin is a completely new narrative. It alters
everything, and in 20 to 30 years from now, people will not recognise the world we are in because of Bitcoin.
A Decade ago
10 years ago when I created the site and released Bitcoin, I didn’t always check who and where I gave credit
to. The problem that I never really thought about was that everyone in the space seems to have wanted an
anonymous system. The issues created with an anonymous system is exactly what Bitcoin solves. Bitcoin
provides pseudonymous transactions, and removes anonymity altogether. The source of the problem goes a
long way back as to why any anonymous system won’t work. There was a paper done as a quick montage in
1997 titled the Unintended Consequences of eCash . The notion of an anonymous system barely scratches
the surface of the issue and others have gone far deeper in tracing and recovery and how this impacts a
monetary system.
The bad news and the author’s predictions on why anonymous money will not happen hold just as true then
and now.

Regulators and law enforcement are not going to allow or change the law to remove the legal restrictions
and prohibitions on the issuance of anonymous and semi-anonymous cash. What people don’t understand is
that it actually ends up restricting rights of speech when you seek an anonymous cash system. The creation
of an anonymous rather than pseudonymous system allows for further restrictions as courts can then tie
anonymous speech to terrorist money laundering and other nefarious activities.

And anonymous transactions are anything but anonymous. I wrote years ago about web bugs, and the irony
in creating an anonymous cash system is that it leads to a profiling system that allows everything you do to
be mapped and modelled and opens the regulatory requirements to enact it. If you want privacy, the last
thing you want is anonymous money, because anonymous money allows every action to be traced using
legally viable methods and law. With anonymous money, government and regulators have methodologies to
supplant social media, ISPs, and the entire framework surrounding the system in a manner that allows
complete profiling and capturing not only all the use you like to believe is anonymous but in fact everything
you do.

In Bitcoin, I didn’t create proof of work nor find a manner of getting it to work, as Hal Finney had done so
many many years earlier. I didn’t create the constructs such as a Merkle tree or a tree of signatures as was
constructed by Lamport in 1979. Bitcoin uses technology to achieve a means of structuring an economic
security system.

I didn’t create an anonymous system. I created a system that works with logs and within the legal
frameworks that exist within the common-law world. I created a form of money that I posit is a sound
commodity because it’s an informational service and hence an information commodity. A system that scales
because of competitive engagement and that has no single point of failure at scale through the fact that
organisations compete and seek to maximise profit.

The problem with David Chaum’s eCash system comes from anonymity and the perverse fact that a more
anonymous system leads to a more restricted one. If you remove all tracing from money, you just create an
incentive to allow restrictions on everything including free speech and destroy the thing you wanted to
introduce and create.
Bitcoin works because corporations fight to integrate enough technology, enough network capacity, and
enough infrastructure to ensure that the network is secure and well-connected. Most importantly, many
individual miners compete. In either BTC or ETH even now, we see less than 20 nodes on the network. A node
is a single instance of a validating entity. Such can be distributed across many machines and take up an
entire data centre as I hinted to in 2010, and yet if one of these miners, one of these nodes fails, the
profitability for others increases, attracting others to take their place.
In time, I don’t expect to see 20 miners. I would expect to see upwards of a thousand. Governments and
banks will want to protect their local environment and interests, and it is very likely that each of them will
start acting to protect the network as Bitcoin and the Metanet grow to encompass everything we’re doing.

The thing that is new with Bitcoin is the move away from anonymity and finding a balance point on the knife
edge of pseudonymous transactions. A system that allows privacy and yet simultaneously remains within the
aspects of the law, and one that allows practically every country on earth opening traceability for users and
the ability to maintain their own information in a manner that has never been achieved before. The true
secret of Bitcoin is that it is an immutable and unalterable evidence trial. A system that with identity
registration for corporate groups allowing only a single set of corporate books will stop every future Bernie
Madoff scenario. It will stop records being altered such as with Enron, and it will radically alter the face of
modern accounting.

It of course scares people.

There is a lot of money being made in the false narrative that Bitcoin and associated systems are there to free
the world for anarchy. More importantly, there are a lot of people making money in insider trading and
pumping vacuous penny-share offers in a manner that has been done every decade as people tend so easily
to forget the last scam. None of such people want what Bitcoin is. To them, Bitcoin is the antichrist, the
bringer of the end, and all they desire not to be. For Bitcoin leaves an unalterable trail of all the scammers and
all the false information.
It is the Enrons, the Maddoffs, and the Charles Ponzis that seek for records to be forever lost.

There has not been one single ICO that is not a scam. If you’re raising capital to build a company, you sell the
business of the company, what can be created, and how you’re going to create it. Selling a pre-sale, a paid
invoice for goods that are never delivered, is all that the so-called utility tokens are. Most importantly, they are
old scams in new bottles. It is the analogous scenario to the web in the 90s and the USENET penny-share
scams. Both sprung up and disappeared with the investors’ money just as quickly.

The zero-sum scams are what we see in ICOs and new coin offerings that are going to radically alter the world
in an ecosystem of blockchains. The issue is, there can be only one blockchain. It is a protocol war. Like the
Internet before it, Bitcoin and, by extension, blockchain form a system underlying everything else. When you
have one blockchain, it is stronger than many. A part of the issue is the economics of the system; it leads to a
strong single system or many extremely weak and fragmenting systems that end in death and destruction.

No matter what I do, I will never live up to the standards that some people want. The reason is, I am not what
people want. I am not an anarchist, I do not believe in a world without government, and I do not have
thoughts of a world without banking. Bitcoin does not bring capital funding to the unbanked in and of itself.
It is a depository and a form of money that allows for payment and very simple saving but does not introduce
capital raising and many of the other aspects banks provide. Bitcoin can be the foundation of a system that
allows the unbanked to become banked. It does not start with anonymity, it requires identity and reputation.

As soon as I prove conclusively to everybody, it ends work.

There are those I trust and those I don’t. I trust some of my business partners such as Jimmy, Calvin, and
others I will not go into details of, but some people would prefer a quick win. They just want to make money
and get out. I saw it all too clearly in 2016. More importantly, others that I have no involvement with would use
it in a manner that I could never accept.

As soon as I conclusively give everything I know, it will be used for a quick pump followed by a very quick
dump. Not one part of it will lead to Bitcoin being implemented or innovators building.

Such was the dilemma I had to face in 2016 and then even in 2017, when I started to appear again. What
happens, if too many people simply believe not because of work but mere belief? The uninformed religious
dogma that has filled the space. It is going to take a long time to slowly teach people how Bitcoin works and
what it delivers. And I can’t do so unless I work. I understand that the path which I’ve chosen is something
that will sit on my shoulders for a long time. It is not one where people adore me or like what I’m saying but
rather one of truth. It is the harder path and the longer path.

My part is to build and teach. There are people that I will choose to categorically prove to. And those people
are ones that will also have a hard path, for we will be building.

The biggest difficulty is not simply aligning people or finding something that can align long-term. My vision,
path, and strategy will take many years. Not the 10 that have been seen publicly with Bitcoin nor the 10 before
that, but decades more from here and the point we’re at. In doing so, there are certain things I can do very
well and others that are best handed off to others.

The dilemma, simply put, stems from trust. In Bitcoin, trust comes through an investment. Miners have to put
large amounts of capital into a competitive system that works if they support the system. Long term, the
miners who do not support the growth of the system will find themselves in a severely depleted capital
scenario. In Bitcoin, we have a signalling method that allows people to easily understand the investment and
support within the system. The difficulty comes when considering one’s own life.

In my case, there isn’t a simple external proof-of-work derivative that I can use. Others can see it from me. As
I’m writing here, I had formal papers accepted to peer-reviewed conferences today. I’ve completed, at current
point, 1,168 white papers that will result in a total of 2 to 3 patents in papers for each white paper. We are
scaling Bitcoin, and later in the year, we will have more transactional capacity than Visa and MasterCard
combined.

With everything in life, we need to choose what we do and how we focus. In my case, my involvement in the
accounting, day-to-day management, and financial aspects of the company are minimal. The times that I
have focused on such areas I do not excel at resulted in the consequences of not being able to produce the
best results in what matters most, research and development.Consequently, you either focus where you are
best or fail.

The difficulty comes in signalling from others. In early 2016, I didn’t trust my own instincts, and I was a led
down a path that I did not like. I understand why people did so. There are always the ones who want a quick
return. I understand it perfectly well; for a small investment, a small part of something, why not take the
opportunity to make a multi-billion-dollar sale where your investment will increase 10 times or more in a
matter of months. I get it perfectly well, and so is the problem.

Can I definitively prove who I am? Yes. I actually can very simply. But, what does it achieve… long term. Doing
things too quickly leads to trouble.

It’s not a matter of signing with keys alone. There are people who already know I could do so and which of the
early keys they saw, and know I have access to, yet it does nothing to help with repudiation. There is a
problem in the IT in the cryptographic community in thinking that code creates law. Or, for that matter, that
code can capture the real world. It doesn’t and it can’t. There is actually no such thing as non-repudiation. A
few academics residing in ivory towers like to believe cryptographic solutions can be achieved here, and
many fools believe them. Unfortunately, such people ignore law. The key is not identity. It can be shared,
stolen, copied, or assigned. In a court, you have to attest to a key. So the funny thing is, all the people such as
Wired asking “How do I prove?” and going to the people who don’t want proof is so much of a joke.

Likely, I don’t care.

Using my dilemmas not getting into the media for selling myself to raise money or prancing around
television shows. My issue is something that many in the past would understand and that I can imagine
personally. When Getty had to consider what would happen after he finished, for the fate of his company, the
issue was succession. He worked to the very end as shall I. But what about other people.

My goal is creation. It is building something that will last. It’s not about being nice or liked, it is simply creating
a structure that’s going to last. One that will not have people selling out under me and one that allows people
to build over time. I understand the temptation very well. Money is actually incredibly addictive. Maintaining
the balance is something that takes a lot of discipline and work in ensuring that you don’t give up the reason
you have wealth, and that you keep building is an interesting dilemma in itself.

It is also a power in keeping something to yourself. There is a little vestige in that you can make sure people
will hold on and keep building and not take the easy gain and stop. I don’t want to be remembered because I
was yet another billionaire or I came up with an idea and moved on. I seek nothing less than creating a
commercial replacement for the entire Internet. One that solves the tragedy of the commons and at the
same time provides a global commodity that becomes a money. A sound money. A global money and the
means of measuring economic information as we move into an information economy.
I would like to have far more publications, and I am working on it.

But mostly, I intend to see Bitcoin scale into a global economic system and become the plumbing for the
information world.

So, I’m not asking for you to believe me. I really don’t care. I have set up an evidential trail that now insures my
place in history. Something people don’t understand about Bitcoin is that it is also a time lock. Bitcoin with
nLockTime allows for the pseudonymous release of information at defined times. It’s a concept that I took
from Asimov. It is aimed to ensure that information is provably released when the author chooses. Only when
the author chooses.

So, no matter what happens to me, I know my place in history.

It’s a very good feeling, that one. I will also say that I am far from done. It’s taken me 20 years to build the
foundation, and now the edifice needs to be constructed. Later in the year, I’m going to start tearing down
many of the myths. Lightning is a dead-end, decentralisation is but a tool and taken too far is a drug that will
kill its host. The mathematics are actually fairly simple.

In some ways, the narratives about me have actually been quite good. For me at least. I publish in peer-
reviewed journals and conferences. They accept blinded submissions. In other words, they are judged on the
quality of my work. The opinions of the twitter trolls come to mean nothing. Such is the point of blinding in
academic publications. It is only the quality of one’s work that matters. I expect to have around 70
publications for the current year — excluding patents, of course. Such publications will be on mathematics,
economics, game theory, law, history, computer science, and epidemiology.

They are some of the topics required to understand Bitcoin and blockchain fully. Like it or not, there is
nothing that you can do to stop it, whether you like me or not. Here lies the really interesting part.

Back to my dilemma: how to find people, when engaged in the creation of a system that will alter the world,
who seek more than short-term gain. People not simply seeking money but rather to alter the fabric of the
world in history. I believe I found some. I see it in Calvin, I see it in Jimmy, and I see it in Steve. There are other
people I will not dox and call out here, but they exist in the background. Such people understand the long
term, and by long term I don’t mean 6 to 12 months.

How do you find someone willing to work the next decade?

Over the next 20 years, all of it will become clear. I expect, before my time is through, to publish in the order of
3,000 patents and 5,000 or more peer-reviewed publications. At such a point, it becomes rather difficult to
hide. I’m not publishing them pseudonymously or anonymously but rather as myself. I can achieve such an
end because of the wonderful team I’ve finally built to support me and the help I get from external parties to
keep much of the problems of life away from me.

There are many who will not see my vision and many more who will not support it, yet it has come too far to
stop it. The question is now: how do I find the people we need? More importantly, how do I find people I can
trust?

Such is the dilemma that is not posted by the trolls and haters. They love to call me a scam and say that I
won’t do what they wish. Honestly, I find it quite funny. You see, it is them, the others that seek from me. I
wonder how many of you actually thought about it, the call for me to prove.

If Craig Wright does not say that he created Bitcoin and sign and dance and do a jig the way we want, he
must be a fraud. As if it is their adoration that I would seek or want. It is hilarious actually when you think
about it.

In proving to the fools that I can sign a key publicly, I open the next round of attacks. I also enable some
people to make a quick pump, gain, and exit. It doesn’t interest me.

I don’t get any special favours when filing patents because I’m Satoshi.
I don’t get any special favours when I’m submitting a paper to an academic blind review in being Satoshi. In
fact, they have no idea that I am Craig Wright until they accept my paper.

When I finish my current round of studies and sign up for my next PhD, being Satoshi will gain me nothing.

So, I am going to do things my way. It’s a long path. It’s a hard path covered with thorny bushes and
surrounded by brambles. Yet, it’s the one I’ve chosen. And to me, it’s incredibly rewarding. It’s one where I will
teach governments and institutions about the future. It’s not one the fools from Anonymous and Lulz and the
idiots that they have become after the groups will be a part of, thank God.

It’s a world where I release what I want as I choose. It’s a world where, if you have come to my attention and
are doing something wrong, I’m going to target you.

The hardest part of all is understanding that, one day, I’ll be put in a position that no other person has ever
been in. And from there, I need to choose a path, or road of succession. It’s a part of why I study Rome and
Marcus Aurelius and Octavius. All things are finite, and in my case, succession is something that needs to be
planned carefully. But for the time being, the immediate needs to be planned carefully. It’s a path that is
going to make me seem like a hard and calloused bastard. It’s the only one I can choose.

One thing I have learned in all the time is that vigilance matters. Even when bringing something good into
the world, one needs to be cognisant of Machiavelli and his Prince. It is not whether people like you — for even
the most loved has enemies.

My path is simple in its complexity.

I hold a key, a methodology, and a way to definitively prove, and over time, I will release parts of the story bit
by bit. As I do, I utterly destroy the scammers in the industry. I will bring down the ones seeking to make
criminal industries out of Bitcoin and blockchain, and I will alter the path of the industry, and I don’t care if
you like it — for it’s what I’m going to do.

In doing so, I am going to create more wealth than I believe anyone could ever imagine — I certainly cannot.
And I’m going to make other people wealthy, in some cases wealthier than they could even imagine. More
importantly, other people who are partnered with me I’m going to make immense sums, and here is the rub:
they are going to work like they have never worked before.

It’s how to see it actually progressing. I don’t see anyone getting in and getting out with the sort of gains that
happened as the scammers milked people off their money in the past and in the start of the industry.

Because as much as other people want, sometimes for me, sometimes for themselves, a definitive proof, a
moment and something they can run with in a bang, there is none. There is a long path where we create a
future, a global interconnected world.
The great mining swindle
By Craig Wright | 18 Feb 2019 | Bitcoin & Blockchain Tech
One part of the hijacking of Bitcoin stems from the manufacturing of ASIC chips. The purpose of a node is not
simply to find a puzzle that gives you the block subsidy. I will say subsidy again here as it is a diminishing
incentive and not a reward. The Bitcoin white paper defines the process conducted by nodes in section 5.
Nodes do not merely solve a simple hash puzzle — a process that ASIC devices help with — but they order
transactions in chronological sequence, verify the integrity of transactions, and ensure the propagation of
blocks and transactions.

In fact, the very first step for running the network and being a node is about network propagation. In the
white paper, the first step is explained to be: “1) New transactions are broadcast to all nodes.”

It is very simple; consensus is provided to the entire network incredibly efficiently in an ultra fast manner due
to the formation of a giant component in the network that develops as a result of an ultra connected small-
world system. As such, the primary element and aspect required to run a node are network conductivity and
propagation.

The second step involves the chronological ordering of transactions that are collected into a block. To collect a
transaction, the node first needs to verify and validate the time-ordered sequence of inputs and ensure that
the transaction meets all of the rules. To do so, it needs to be both a computational system and a storage
system.

Only then steps three and four are progressed by the node for seeking the solution to the block puzzle. But
equally important, one must also note that step four involves propagation subsequent to the solution of the
puzzle. When a node has found the solution, it is paid through the propagation of a block to all nodes. Such
are not all users, but all other miners who act as nodes.

Next, nodes self-validate and verify. To be a node, you build on other parties’ blocks when and if they are valid.
As we see in step five, a node validates the block ensuring that no double spends have occurred and that all
of the transactions the other node included are valid and within the rules.

The white paper defines a node.

There is no threat of mystic pseudoscientific FUD spreading such as “selfish mining,” as all nodes send as near
as possible to all other nodes. In a small-world network, there is no place for a non-mining Sybil node. You
cannot jump between nodes and intersect and inject blocks quicker than other nodes as you are always
reacting as a selfish miner.

The process in Bitcoin is simple:

1. A node discovers a block, and propagates it to the network.

2. Close to all nodes automatically have the block.

3. The selfish miner with valid nodes checks and verifies the other node’s found block.

4. The selfish miner now reacts sending an alternative block subsequent to the other node’s block.
5. The selfish miner is acting following a time delay, and is not instantaneous. The selfish miner who seeks to
instantly send a previously discovered block after the fact and on the receipt that another node made a
discovery always loses, and must instantly send to the network multiple blocks. The result is that the selfish
miner is easy to subvert. An honest miner suspecting a selfish miner can simply send a fake block header
from any network address where the node of the selfish miner will then need to respond before checking.
The result is an incredibly simple to detect so-called attack.

6. More importantly, the node of the selfish miner has a guaranteed win that becomes probabilistic in nature.

What people fail to understand in all of such myths is that it is not the discovery of a block but rather the
propagation of the block to all mining nodes (which is redundant as the only nodes within Bitcoin are
miners) that is important here.

It, of course, brings us to the swindle. A few parties such as Bitmain have misled the community into believing
that miners are paid rather than subsidized with the “block reward.” Nodes are paid to include transactions,
and it is done using fees. The block subsidy is a degrading temporary measure designed to incentivize the
early investment into developing nodes. It helps subsidize the cost that would incur in building a large-scale
storage system. But such is not what companies such as Bitmain specialize in creating. Such companies
create ASIC chips. They are a small component and not even the major component of a node.

Between 2011 and 2015, I worked amongst other things on the development of large-scale storage and data
distribution. The company (Cloudcroft) in Australia that I had working on solutions managed to create a large-
scale compute and storage platform. In 2015, we managed to get the storage capacity of 6.2 PB for each
single rack. Extending the same luster-based file system and moving towards ExaDrive DC100 SSD drives
would allow a node to run energy-efficient SSDs, drawing as little as 0.1 watts per TB and in the current
configuration storing up to 77 PB in each rack.

For an average 1TB block, we would have 144 blocks a day, 365 days a year (where a maximum block would be
expected to be in the order of 50 TB). In other words, 52.5 PB of storage or a single rack. Nodes would
optimise it, and have systems globally distributed in order to maximise propagation, but, the current system
would merely require 6 racks per node to replace all of global commerce and accounting.

I will say it again: each node could replace the entire global accounting and financial system with immutable
records — now.

The current market players such as Bitmain understand perfectly well that the subsidy will go down and that
the value in the next six years needs to come from transactional volume. They do not seek long-term
solutions. At present, they are seeking to extract as much value out of the network as possible without
reinvesting. They do so by trying to convince fools that the only part of the network that mattered was solving
the hash puzzle and that the transaction fees were irrelevant. They do so in getting fools to run inefficient
hardware that would not meet the standards of any data center rather than moving towards scaled
efficiency.

The lie, the misleading of the industry, has been the sale of small home “nodes” that do nothing. They simply
allow companies such as Bitmain to sell ASIC-based pet rocks and a few to gain a level of collectivist control
over an idle mass of uninformed people (see BTC, ETH).

It is time that people start to see what a node is and how it works and to stop the lies that have formed the
foundation of the industry.

Bitcoin is an immutable evidence system, a ledger that stops fraud.

Bitcoin is the ultimate truth machine.

Hello Dave…
By Craig Wright | 22 Feb 2019 | Bitcoin & Blockchain Tech
Hal Finney was an amazing man in many ways. Without him, Bitcoin would not exist today. Hal is a far
better coder than I will ever hope to be. You see, I’m not a specialist. The initial versions of Bitcoin had a lot
of problems. To put it simply, they fell over and crashed repeatedly.

Unfortunately, Hal was also a big part of a problem. He got it eventually, but more than anyone else, I think
he made me doubt. I’d been working on a solution to a problem that is now expressed as Bitcoin since the
90s. It had resulted in battles with organisations that I had founded early on, in fights with people who did
not want to spend so much money on R&D. Without Bitcoin, the earliest decades of my life would have
been much easier.

Hal was far more the anarchist than I could ever imagine. I had many in my circle who were anarchist in
nature, and I didn’t really think about the utopian goals they held and problems they could cause later on.
Hal wanted people to run nodes early on. He is the reason that we had a block cap. I knew that I should have
fought back and not have allowed it.

The scarcity in Bitcoin is defined in the number of issued tokens. Hence it’s an integer, and there cannot be
more decimal places. As much as Hal was a great supporter, he also saw flaws that didn’t exist within
Bitcoin.

Towards the end of 2010, I had become incredibly disillusioned. It wasn’t just issues with the Australian
government, but rather issues with many parts of life in general.

I didn’t run away from Bitcoin, but I needed to know more about the system I created. Most critically, I
needed to know that it could work at scale as I had planned. Towards the end of 2010, WikiLeaks had started
promoting Bitcoin as an end to their woes. WikiLeaks and I have not had a good relationship.

Shortly after, the dark web and most prominently Silk Road started integrating Bitcoin. As a system that was
designed with an audit trail, Bitcoin was designed not to be even remotely similar to the anonymous digital
cash that had been propagated earlier and promoted in systems such as CHL, Monex, and DigiCash.
Bitcoin was supposed to solve all their issues, and yet I saw such sites starting to rely on Bitcoin. More
importantly, unlike even the more anonymous eCash that had been shut down, Bitcoin was being used on
the dark web and not on banks. eCash had been accepted by organisations such as the Deutsche Bank,
before it was closed down and the attitude of people involved in the community ensured that no bank or
responsible organisation was touching it.

Bitcoin started to seem to me to be delivering everything I was opposed to, and everything I thought it was
designed not to be started to appear. So, all I can say is that I was disillusioned.

Even Hal started to get it. In December 2010, Hal said:

“Ultimately it’s good for the network for mining to be expensive. It makes it that much harder for a well
financed attacker to dominate the network.”

So, unlike the earlier idea of needing to put a cap on and slowly build to allow many nodes, he started to get
it. Unfortunately, by the time I was already disillusioned.

He still saw Bitcoin as the store-of-value and digital-gold idea, though.

“I see Bitcoin as ultimately becoming a reserve currency for banks, playing much the same role as gold did
in the early days of banking. Banks could issue digital cash with greater anonymity and lighter weight, more
efficient transactions.”

He never got around to understanding how efficient Bitcoin can be. I guess we all have baggage that
weighs us down from the ideas we had before. For Hal, it was the cypherpunk concept of money and digital
cash. It is not what Bitcoin is, nor is it what Bitcoin was designed to be.

What I have learned, and I have learned the lesson very well, is that you cannot teach other people and you
cannot make them learn. You can provide material and give them a path to learning.

With people like Hal, I’ve come to learn that no matter how much you like someone, it is not worth
investing in saving one person from a flawed idea to the exclusion of offering a means of teaching others. I
have learned the hard way not to focus on an individual, not to try and save them but rather to get material
out allowing as many people as possible to learn — and first those who seek to learn.

Learning is a privilege, not a right. It has to be earnt. It is a proof of work in itself. Some people think that it’s
important for me to come out and bring everybody in as quickly as I can, except it is utterly wrong.

My time, as with everyone’s, is incredibly limited. We live short fast lives, and unlike many people, I do not
have time to waste. So, I only want the people who really really really want to learn. The people who are
going to take what they have learnt and create and build and grow the ecosystem.

Do you think I care anymore? It’s funny that you do. With close to 1,200 papers in our patent pipeline, no
matter what happens now, I will have exceeded Mr. Edison, and by the time I’m finished between
everything I publish, I’m hoping to actually achieve 10,000 papers. The funny thing is, you think saying
anything against me stops what I am doing. It doesn’t. But it does give me a laugh.

In 2010 and early 2011, I was disillusioned as I saw Bitcoin used in a way that it was designed not to be
used in. The funny thing is, the people later proved I was right. Because of Bitcoin, Silk Road was stopped,
and many of the people behind it are now in prison. It didn’t make things easier at the time, but it is a nice
vindication now.

I needed to go away, and I needed to prove to myself that the system I had created worked the way I’d
intended. It does, and it always did.

Such is some of the irony I can see in boondoggle attempts to create something that Bitcoin was designed
not to be, to try and make it more into something that Hal and Wei would’ve designed.

Lightning and sidechains are designed to lose records, to allow the creation of an anonymous system that
loses records. The reason for the BSA is not consumer protection, it is to ensure that all financial institutions
maintain records. Interestingly, everything that is being done to create Lightning and off-chain solutions is
the reason why failed cryptocurrencies of the 90s were shut down. The irony is that Bitcoin can only be legal
by keeping all records of transactions.

“The Bank Secrecy Act (BSA), as amended and implemented by regulations passed by FinCEN [Financial
Crime Enforcement Network], requires a wide-swath of otherwise unregulated financial institutions to
register with the government, implement anti-money laundering procedures, keep data, and report certain
transactions and other data,” Reuben Grinberg, a lawyer for Davis Polk & Wardwell, wrote in his academic
paper on Bitcoin in 2011 — again with the flawed misconception many try to spread that Bitcoin is
anonymous.

When you start to lose records, the concept Lightning and sidechains are designed to create, sidelining the
currency altogether becomes simple and effective. “Under the statute, FinCEN has power to prevent US
financial institutions from dealing with institutions that deal with Bitcoin, which would essentially outlaw it
in the US,” Grinberg (in Quartz). “Previously in interviews I have said that I think it’s unlikely that the US
Government would just outright ban Bitcoin. But this action shows that its not impossible.”

Well, not Bitcoin, but, Lightning.

Liberty Reserve was based in Costa Rica, which is not a member of the Financial Action Task Force on
Money Laundering (FATF), the international organisation that collaborates on anti-money-laundering (AML)
rules. And yet, Costa Rican authorities cooperated with the US government (which is a member).
Forex accounting in script
By Craig Wright | 24 Feb 2019 | Alternative Coins & Systems
Continuing with business ideas that can be implemented within Bitcoin using the scripting options of BSV, I
will detail the concept of a particular form of the Ricardian contract . There are some who believe that such
a contract will be the killer application for blockchain, the thing that supersedes current smart contracts .

The process defined within this post will drastically simplify the ability of contracting parties to manage and
maintain their contracts. More importantly, the ability to publically specify control conditions and triggers
means that it is materially simpler—in the event of a dispute — to agree the state of the contracts.

Fortunately, I used to talk to people like Ian Grigg and others in the industry a lot. Ian had a lot of what could
become seeds of ideas. I guess you could say he had an imagination that allowed him to see a space
elevator but not how to create it.

In the linked article, they discuss how “in 2018, there has been a renewed interest in Ricardian contracts .”

Such contracts were never outside the goals of Bitcoin. Bitcoin is designed to work within law. I’ve been
saying it for many years: law is law, and code is mere evidence at best.

We have filed numerous patents that lock the concept of legal constructs that are designed to be
enforceable as paper and ink although they are created using electronic means. I will take one of them as
an example. The priority date for the contract is February 2016. It has been granted in the European Union,
and will be separately granted (where it is not already granted) in around 80 countries including the USA.

Registry and Automated Management Method for Blockchain-Enforced Smart Contracts

XML/XBRL language and display in script

The concept of a legally binding Ricardian contract dates to periods earlier than many suspect. There were
issues with the admissibility of transactions involving EDI without a master agreement. The problem was
the display of information to the individuals, and there were a number of issues with digital signatures. Such
issues date back to the 80s, and many had talked about the creation of a system that would allow the law to
recognise such a contract.
In part, such a process was what took me to studying law in detail. It is what I studied before my LLM in
International Commercial Law, and if you look hard enough, you will find several of my publications on the
topic going back to 2006.

I am presenting a few papers on the topic. Two of them start the process explaining how smart contracts in
Bitcoin may be formed to constitute a legal agreement. There are requirements for the electronic exchange
of many forms of a contract that require the equivalent of paper and ink. We detail the legal requirements
and how they can be achieved in Bitcoin during my presentation at Oxford next month.
The failure many people seem to have been understanding in the creation of new intellectual property
stems from the fact that it involves more than a mere idea. The idea of electronically exchanged and
validated contracts has been discussed in scientific, legal, and science-fiction literature since before Asimov.
The issue is not the mere idea that something can be created but the development of a system that works.
To get a patent, it is necessary to not have a mere idea but to create a functioning solution.

Unfortunately for those who seek salvation in an endless chain of new blockchains such as EOS, my
intellectual property predates all of it. The first and most critical point to remember is that you cannot create
a legally enforceable contract using illegal means. The flaw in systems such as EOS and block.one right now
is that they will need to license intellectual property to be run legally. A failure to hold a valid license
invalidates the contract.

An automated account
The solution allows us to create an automated accounting system. All tax can be paid and all of the
contracts registered. The system can be self-enforcing and self-auditing.

As a simple example, imagine an online store selling goods. If the goods are being sold internationally, they
can be sold without VAT being charged and any international customs fees can be incorporated. When sold
locally, VAT (a goods and services or value-added tax, a consumption tax) can be accounted at the time of
the transaction. Using tokenised notes, the organisation could instantly pay any and all tax that it has
collected as a part of its trade. Doing so simplifies contracting for small businesses, and stops many forms of
fraud within large organisations. More importantly, it allows governments to collect revenue with minimal
interference to business.

The system can incorporate consumer credit and hire purchase agreements. Bitcoin can be used as the
base protocol, as payment, or even just as the protocol and exchange system for any number of foreign
currencies. Linked to banks and exchanges, we will see an instantaneous remittance of funds to and from
any national currency over a Bitcoin-based system. The system follows the requirements of the Bank
Secrecy Act, and can automate the filing of the associated reports.

Linked to a common exchange, a smart contract could complete an

atomic swap and record the foreign-exchange evaluations. All reporting
of gains and losses would be stored within the system allowing for the
creation of an automatic report that can be filed with the relevant
authorities without even the click of a button.
Where foreign currency hasn’t been used, existing currency rate services can be linked allowing the system
to instantly remit the value of the exchange and report on any tax required. An organisation can choose to
report in any currency — not just bitcoin.

The implementation needs to go beyond what many people see as a simple link to signing with the digital
signature associated with the Bitcoin address. In what we detail as number 42, a granted patent by nChain,
we set up a deterministic system that allows pseudonymous publication that is linked immutably to
identities allowing individuals and by extension organisations to sign and execute legally binding contracts.

Later in the year, I shall be explaining how the system incorporates all the requirements for ink and paper
and allows for the execution of deeds and land titles. At present, no other system comes close to replacing
the requirements of paper signatures as they have not taken into account the requirements under law.

Our system will allow for the creation of complete end-to-end development contracts that are legally
enforceable without resort to paper. It would allow complete payment of subcontractors in the integration
of existing project-planning and scheduling software.
The reason behind completing the PMP certification over a decade ago and getting to a stage where I was
teaching Prince2 was to understand the project-management methodology. Our system allows not only for
the integration of the general ledger and accounting functions of a business but the complete integration
of business applications including project charts that can be displayed through linked Bitcoin smart
contracts.

We have a number of methodologies that allow for the creation and testing of forward-payment contracts
and ensure that parties cannot alter contracts or even transactional components in the process.

The result is that any legally binding contract or deed may be created and executed within Bitcoin.
Effectively, in the existing patents, we have captured every possible legal contract. In patents that are still to
be granted, we go beyond what people even believe will be possible.

In this one patent, we detail multiple contractual examples:

Example scenario 1: Public registry of an asset

Example scenario 2: Creation and registry of an asset with hidden ownership
Example scenario 3: Lease contract
Example scenario 4: Rolling contract
Example scenario 5: Contract conditionality

It includes the ability to roll a contract and incorporate schemes to allow people to pay what is locked in
advance without having to lock an amount of bitcoin or other currency into a script. Linked with the
codification scheme that has been incorporated here and other patents, we can represent property titles in
any registered system.

In effect, it captures the requirements for shares in existing equities.

When linked to other patents in our portfolio, it allows not only for the creation of existing securities, but it
creates a path to financial innovation within many industries.

More importantly, all of it can be achieved using existing languages and facilities such as XBRL, XML, JSON
(etc.). We also allow for the integration of state. The patent we looked at more closely today has been
granted in due time in Japan, and so was the reason for our visit to Tokyo last month. By the end of the year,
it should be granted within close to 100 jurisdictions. As a consequence, developers have certainty when
building on Bitcoin (BSV).

So, what I have presented here is not a simple single solution. Rather it creates a link to contracts, project-
management interfaces, rolling smart contracts, automated accounting, and enforceable digital contracts.
Such means are all possible using the technology defined above.

A mere idea does not matter, an implementation does.

Lessons in monetary terms
By Craig Wright | 25 Feb 2019 | Economics
The general understanding of money and finance is incredibly limited. I started to notice that people would
quote authors where they had not even read the text that they were quoting from. The problem here is that
they take a small tidbit and treat it as if they understood the context in reality.

Consequently, I am going to define some of the primary terms and their correct usage in monetary theory.

Store of value
It is commonly known that money serves as a store of economic value. Such value is created through the
potential use in exchange for other commodities, where money itself is a form of commodity. Money is
exchanged for other commodities whose immediate utility in consumption exceeds that of the monetary
commodity.

The asset which acts as a temporary store of value enables trade, and acts as a medium of exchange.

Many forms of assets outside of money have the capacity to store value. A common example is gold. The
characteristic feature of money as a store of value is its inherent capability to measure against another unit.
As such, it forms a unit of account. It is part of the necessary argument in the principle of nominalism. To
put it simply, a USD100 note stores USD100 worth of value even in a period of high inflation, where the
purchasing power of the USD100 depreciates relative to other commodities.

Throughout periods of inflation or deflation or periods resulting from other sources of volatility, money acts
as a stable mechanism to denominate obligations and payments. Money can thus be treated as an
independent measure of value without regard to other factors that may be extraneous to the monetary
system that is used as a unit of account.

See: Proctor, C., Mann, F. A.: Mann on the legal aspect of money . 6th edn. ch. 9. Oxford University Press,
Oxford (2005).

We may say that “a debt is not incurred in terms of currency, that in terms of units of account” [1] and
further extend the argument by saying, “contracts are expressed in terms of the unit of account, but the
unit of account is only a denomination connoting the appropriate currency” [2].

Consequently, a store of value is a function of a contract denominated in a particular unit of account. If a

contract is directly denominated within bitcoin, bitcoin is a store of value for such an exchange. But, holding
and saving bitcoin does not make it a store of value outside of a contract denominated explicitly in bitcoin.

Store of wealth
Many confuse a store of value with a store of wealth. Value and wealth are completely separate, and
deflationary and inflationary pressures can change the amount of capital goods available for consumption
when compared to other commodities.

A store of wealth maintains a capital position and the ability for an individual to consume at a given rate. An
increasing store of wealth allows an individual or organisation to increment the amount of consumption or
access to capital goods over time.

Value shares and stocks are a long-term but risky store of wealth. Bonds and similar instruments are a
shorter-term and commonly lower-risk store of wealth that returns less on the investment.

Inflation hedge
Where the stability of a unit of account suffers through volatility or because of either high deflationary or
inflationary pressures, an inflation hedge acts as a means of introducing stability into a volatile currency or
where uncertainty exists. Both the US dollar and gold act as an inflation hedge. The USD is used by many
African countries and a number of South American countries, for instance, over their own local currency due
to the comparative stability.

Gold has been traditionally used as a means of storing wealth and creating a stable value platform in times
of uncertainty. Such is why in times of uncertainty or even war many people move towards placing their
money in gold. In the past, when gold was used as a backing mechanism for national currencies, gold itself
could be a store of value — which no longer applies outside of contracts that are directly denominated in
gold.

Store of value and the law

The store-of-value function of money has relevance to the law of unjust enrichment. In legal terms and in
equity, an individual who receives a payment of money comes under the presumption that (s)he will be
enriched by at least the amount of the receipt. The individual will not be heard to argue that money is not a
benefit or that money cannot be used to discharge a liability.

The law recognises that the recipient may be enriched in some circumstances through the use of monetary
instruments beyond the nominal value [3]. The individual could be held liable for the interest accruing on
money or a fluctuation between exchange rates [4].

The law of property and money also underlies the principles of value in the rules governing tracing [5].
Money is capable of being mixed in the sense that the value is incorporated into a larger fund of value that
may derive from other sources. It is important to note that even though many people may have contributed
to the total value of the mixture, they will not necessarily take a proprietary right in the asset which is
represented in it [6]. Monetary value in an asset differs from the exercise of allocating specific money assets
to selected parties. Tracing follows the amount owed as a proprietary interest, and recognises assets
belonging to certain claimants.

References:
[1] Adelaide Electric Supply Co . v Prudential insurance Co . [1934] AC 122, 148.

[2] Auckland Corp. v Alliance Assurance Co. [1937] AC 587, 605 (PC).

[3] Jeff and Jones, Law of Restitution (7th edn, London, 2007), paras 1.018, 1.033.

[4] Sempra Metals limited v Inland Revenue Commissioners (2007) UKHL. 34. [2007] 3 WLR 354.

[5] Foskett v McKeown [2001] 1 AC 102, 127 per Lord Millett.

[6] LD Smith, Law of Tracing (Oxford, 1997).

Statist
By Craig Wright | 27 Feb 2019 | Bitcoin & Blockchain Tech
In his analysis of classical liberalism, Ludwig von Mises [1] poses the question:

In opposing government interventions, is liberalism not implicitly bound to advocate some form of anarchy in
the end?

Anarchy ≠ Libertarian

Anarchy in all its forms is simply a means to promote the philosophy of collectivism. Be with the herd, do as
you’re told, don’t think we will do it for you. So is the true mantra of the ‘free’ anarchist. There is no such thing
as anarcho-capitalism, there is socialism. It was Marx who sought the abolition of the state, and it is Marxian
theory in another form that leads to the misnamed anarcho-capitalist attack on true capitalism.

Mises rightly argues that “ the anarchists consider state, law, and government as superfluous institutions in a
social order that would really serve the good of all, and not just the special interests of a privileged few.”
They in effect throw away the baby and the bathwater thinking wrongly that all government is equal.

Such a utopian view of society leaves “ the anarchist [a]s mistaken in assuming that everyone, without
exception, will be willing to observe these rules voluntarily .” They falsely assume that all members of a
society will naturally decide to fit in.

Bitcoin is an immutable evidence system, it provides the rule of law universally to all. It applies to people,
corporations, and the state. In making all things available, auditable, and able to be reviewed, Bitcoin creates
a framework that can lead to an honest system. Yet, a framework alone cannot create a sound system, for all
people need to be vigilant.
http://trademark.trademarkia.com/au/trademark-1284365.htm

As with all utopian philosophies, the anarchist misunderstands the real nature of man. We do not exist in a
world of angels and saints, but one of disagreement, conflict, and imperfection.

Liberalism is not anarchism, nor has it anything whatsoever to do with anarchism.

In saying so, Mises is arguing that capitalism cannot exist in an anarchist system; it requires law. Even in a
system of law and punishment, people commit heinous crimes. They commit sexual assaults, they murder,
and they steal, and yet the anarchist believes that once law has been removed, all people within a society will
suddenly become voluntaristic and one without force. The delusion shows no logical thought.

Mises saw the deception and the need for limits. Might does not make right, and for society to work, we need
controls.

Liberalism is therefore far from disputing the necessity of a machinery of state, a system of law, and a
government. It is a grave misunderstanding to associate it in any way with the idea of anarchism. For the
liberal, the state is an absolute necessity, since the most important tasks are incumbent upon it: the
protection not only of private property, but also of peace, for in the absence of the latter the full benefits of
private property cannot be reaped .

Anarchy is rooted in a misleading concept mandating the dismantling of all government . It insists that no
leaders can exist, no government whatsoever. Others, more on the borderline, insist on the complete
privatisation of government with the claim that commercial government cannot be corrupt (ignoring Enron,
Maddoff, and the multitude of corporate frauds).

They cry that a consistent mantra of government is force. Yet they ignore how a society may exist even when
privatised. When pressed as to the question of how punitive measures will be taken against those
committing crimes against another person, a response is always given through a form of government. Even
Rothbard completely missed the contradiction in his hatred of government. His self-refuting ideal discredits
his thesis.

Rothbard is not libertarian, he is the most insidious attacker undermining the ideas of Mises and Hayek. In
calling for a court, Rothbard in addressing crime creates a contradiction. Crime is not contractual. Murray
Rothbard understands this very well, and uses the lack of understanding of jurisprudence to mislead his
reader. It creates a system of “Might is right.” An encoded axiom of law that is said not to be of the state but of
a voluntary constitution of man, and yet, what is government? The federalist system of the United States was
just the same idea.

In a competing court system where the accused can shop for jurisdiction, the rich and the powerful exceed
the right of the victim for redress. Such an abject opposition to monopoly in any form is itself opposed to
freedom. Monopoly exists in every system, it is not something to be expunged completely, but something to
be managed by a means that delivers the optimal and most efficient results.

Rothbard proposes the lore of the Hatfields and McCoys. It’s a system that allows one to go through a
personal retribution process taking the law into one’s own hands. And when the wrong victim has been
selected for retribution, there is a system of allowing retribution back in an endless stream of attack. It is a
philosophy of a man who hates and wants to see things burn.

Worse, it is hypocritical and contradictory. For the system proposed is itself a state and the government, but
the people Rothbard preaches to are deluded into believing that such a system will be different. Like Marx,
the Rothbardian attack on capitalism is insidious.

It is said [2] that crimes against another or the property of an individual can be codified and held within the
system of private courts. Yet, where is such a governing body to set a standard in civil laws? If all members of
a society subscribe to different and possibly conflicting courts and laws — then there is no law. To have a set of
civil laws, even mere property law, and contract requires codification, and the contradiction in saying that it
can be individually agreed upon for every contract remains unnoticed throughout the anarchist false and
twisted promotion of an artificial freedom.

A legislature is necessarily required for the codification of law. A judiciary becomes necessary to deal with the
societal rights violations that can and shall occur, which is admitted with the call for no leaders, no king,
neglecting that the judiciary and legislative bodies are in themselves government.

The anarchist reasons that societies are enslaved by government in some way and thus liberty is repressed.
Yet we are not animals, humans are more. The polis, the city, the state define us as more.

In a stateless society, if a utopian ideal could ever be created, we end in a system of corporate oppression. For
people will freely come together and form corporations, it is their right. They will do so as they banded in
states of anarchy to form feudal kingdoms. People will sacrifice personal liberty and freedom to a baron or
overlord for protection. And the corporations will have the power to buy courts, to own courts, and to choose
their jurisdiction in a manner that allows them to be above the law. Such is the outcome of the anarchist lie of
“no-state capitalism.”

It is “Might makes right.”

And it is a simple conclusion to find and determine, for the individual is always going to be less capable than a
corporate body. And corporate bodies will always form. Some will always choose to form groups and relegate
their power through another. There will always be some who choose certainty over freedom.

All societies throughout history that have built civil law on a sound foundation of natural law with
government that understands freedom and personal rights grow faster and deliver peace, prosperity, and
liberty. Without it, no society can thrive and all become corrupted. It requires vigilance for us to remain free.
We should not be taught not to talk about government and politics but rather to debate both with vigour
and enthusiasm and gusto.

For it is not government itself that is the problem, it is the natural state of all systems in the world to decay.
The only way that we can stop corruption is through active work. If we own a house and we do not maintain it
in time, it will fall apart. If we do not paint the walls, the wood underneath will eventually rot and decay.
Likewise, all governments become corrupt when people do not fight for the rights of civil law and liberty.

It is not the abolition of the state that will set us free, it is the involvement of people in the state seeking
honest government and freedom that creates an environment of positive growth and empowerment for all.

Anarchy is not libertarian. It is yet another attack, a utopian ideal that can never be achieved and a path to
power for those seeking rule over the others in their group.

Most of the collectivist camp now call themselves progressives. It is a modified form of the prior term
socialism. Such a collectivist attack on free society is a pincer movement. The progressives attack from one
side and the voluntarists from the other, for the anarchist is truly a collectivist at heart. In each case, the truth
is repackaged to increase the appeal of what is a bitter pill.

A free-market society requires a sociopolitical economic system that is designed to maximise the peace,
prosperity, and freedom of all the individuals within it. In it, government is necessary to grant, ensure others
respect, and recognise certain rights. Government is needed to protect and defend rights; we are not all equal
in power or ability. What is important, though, is to ensure that government is limited and the powers of the
government are controlled and restrained through the jurisdiction of the people. It is the right of the people
to ensure that they have a government whose primary if not sole function is to defend the inalienable natural
rights of the individual through the rule of law .

From Plato [3], we can see that justice involves “the having and doing of one’s own and what belongs to
oneself” (434a). Here, it can be extended such that both excess and deficiency may be seen as unjust. The
Platonic definition of justice seems plausible when viewed in such a way. All things are not equal, and nor can
they be. It is the greatest of injustice to hold back the ones who can thrive so that they will be equal to all
others. It is unjust to take from those who work the hardest to support those who are lazy.

A Platonic conception of justice comes from a conviction that everything in nature is constructed through a
hierarchy. People are no different. We can seek to promote honesty and fairness, but some will always
achieve more than others, and not just through luck. It is easy to say that luck is the cause of many people’s
success, but to say so is a cop-out.

Luck itself is created through hard work.

Plato did not form a concept of an ideal state. He, like everyone, exists as a product of their own time. He
could not know what would be discovered in the future, nor could he know the flaws in any arguments that
originated from a false understanding of science at the time. All systems evolve, and the state evolves too, for
the state is people.

It is the people in a society, and if they want a free open state, they need to be involved. If you are not, you are
relegating and delegating control and freedom to the hands of others. It may be your right, but equally, if you
forgo such a right, you forgo the right to complain.

So, I am called a statist by the anarchists who seek collectivist control and a means to silence me. In their own
hypocrisy, they seek to repress my right to act as I will, and do not understand that in a society they would
create, I would rule.

So, being a statist as the anarchists define it is no insult. Mises (by such a definition) was a statist. Adam Smith
was a statist. Thomas Jefferson and Benjamin Franklin and George Washington were all statists.

We all believe in the rule of law and efficient government.

If a belief in a small efficient government means now being a statist, then I am proud to be a statist, I am
proud to support and fight for freedom against the collectivist delusion and the grasping for power from the
anarchist and progressive hypocrites that have become all too common within our society.

Just say no to anarchy.

References
[1] Mises, L.: Liberalism in the Classical Tradition (1927). Retrieved from http://mises-
media.s3.amazonaws.com/Liberalism%20In%20the%20Classical%20Tradition_3.pdf

[2] Rothbard , M.: Man, Economy, and State, with Power and Market (1962). Retrieved from
http://mises.org/library/man-economy-and-state-power-and-market

[3] Plato: The Republic.

Clickwrap smart contracts
By Craig Wright | 03 Mar 2019 | Alternative Coins & Systems
Clickwrap contracts are functionally the same as the shrink wrap method in software licenses and other
product offerings, but formed in the digital world. A clickwrap contract allows the purchaser to read the
terms of the agreement before accepting the product.

Clickwrap or “clickthrough” contracts are the most commonly formed web-based contracts [1]. Such
contracts may start with a web-based advertisement (an invitation to treat) or some other collateral offer for
consideration. Such web-based orders are generally included when the customer “clicks” an acceptance
button (such as one labelled accept , submit , proceed to check out , or some other similar phrase).
Clickwrap Internet contracts [2] have their own issues, but they still mirror many of the technologies that
have preceded them.

As the response to the offer or acceptance immediately displays on the customer’s web browser, web-
based communications fulfil the requirements of an instantaneous transaction. There are some possible
avenues of dispute with such an analogy. For instance, what happens when a customer accepts to finalise
the transaction, but their Internet link drops before they receive the reply? To answer the question, we need
to look at the case of Entores Ltd v Miles Far East Corporation [3].

Lord Denning at 333 [4] explains the position of the law with regards to contracts conducted via telex: “It is
not until his message is received that the contract is complete…”

From Lord Denning’s analogy, we may see that a “contract is only complete when the acceptance is
received by the offeror: and the contract is made at the place where the acceptance is received.” [4] Thus,
the contracting parties are under an equitable obligation to notify each other of any failure. In cases where
communications have failed and one of the parties is left believing that the contract was successfully
negotiated, the other party would be stopped from denying the contract if it had not taken reasonable
steps to notify the other party of the failure.
In cases where both of the contracting parties normally reside and contract within the European Union,
additional statutory requirements apply. The electronic commerce regulations [5] as introduced by
Parliament in the UK in 2002 override the postal rule in some instances, and may require a separate
acknowledgement through means such as e-mail for web-based transactions. Paragraph 11, for instance,
explains: “The order and the acknowledgement of receipt will be deemed to be received when the parties
to whom they are addressed are able to access them.”

Although the directive does not change in the position of contracts negotiated solely by e-mail [6], it does
set the boundaries required for web-based transactions.

As an immutable evidence system, Bitcoin solves many of such problems. In web-based and email-based
communications, methods always exist to allow individuals to bypass controls and even to argue that they
have not agreed to all terms. Using Bitcoin, we can remove such a level of uncertainty in contracting.

Clickwrap and Metanet

And, we can extend the idea to allow for contractual negotiations within Bitcoin and by extension the
Metanet. Clickwrap followed from the use of shrink wrap contracts in physical software and media
purchases (such as CDs and DVDs). The inclusion of a notice that says, “by opening the packaging you have
agreed to the terms,” results in the purchaser being legally bound to the terms of the license or contract.

Using the recent Court of Appeal decision in Golden Ocean Group v. Salgaocar Mining Industries [2012]
confirming that the courts would treat a series of ongoing electronic communications both to be writing
and as signed documentation per the Statute of Frauds (1677) with cases such as WS Tankship II BV v The
Kwangju Bank Ltd [2011], where the parties accepted that the word “signed” in the Statue of Frauds (in the
judge’s words) “does not necessarily involve signature by an individual using pen and ink and that it suffices
that the guarantor’s name is written or printed in the document,” leads to the reasonable argument that a
transaction made on a distributed ledger (such as Bitcoin) is made in writing.

In the US case of Williams v America Online Inc [7], some of the difficulties that may occur with online
contracting were demonstrated. In the given case, Mr Williams started proceedings in Massachusetts
stemming from a class action over the installation of AOL software. AOL asserted that the proceedings must
commence in Virginia as the terms say Virginia was the exclusive jurisdiction of any claim. Mr Williams,
though, argued that alterations to his computer came about before he agreed to the conditions. Mr
Williams described the complicated process by which he had to “agree” to the conditions after the
configuration of his computer had already occurred.
Then, Mr Williams demonstrated he was able to click “ I agree” without seeing the terms of service — which
meant that the actual language of AOL’s terms of service failed to display on the computer screen unless
the customer specifically requested it, overriding the default settings. The court rejected AOL’s assertions
[8]. Although it was a contract case, the difficulties posed through the media add additional burdens to an
already burdened system. So in this case, the license associated with the disseminated content was
subverted by the ineffectiveness of the means distributing it.

A smart-contract solution
We can solve problems such as the one in Williams v America Online Inc using smart-contract features in
Bitcoin. It is not necessary to definitively prove that a party has comprehended a set of terms but rather that
parties have downloaded it and agreed to be bound. One such means of doing so would be to require the
contracting party to provide the hash of the terms and conditions, which can be implemented as a
standard Bitcoin hash puzzle.

Before Alice is given the unlock code for media or a program that she has purchased, a smart contract can
be configured that requires that she gives the solution to a hash puzzle based on the terms.

The unlock script can require that Alice provides the following information:

Hash(“Terms and Conditions” || “I agree”)

In doing so, Alice now has to download the terms and conditions and construct the solution to a hash
puzzle based upon the downloaded data. The application can be configured to display it upon the user
screen allowing her to type “I agree” into a custom wallet that can then provably show that Alice
downloaded the terms and conditions. More importantly, it demonstrates that she has viewed the terms.

The same can be extended by incorporating the hash of the terms into personally identifiable information
that remains pseudonymous. It could even be as simple as just using the hash of Alice’s key:

Hash(“Terms and Conditions” || “I agree” || <Bitcoin Address>)

Where Bob and Alice are negotiating for a file or other media source, the hash puzzle can be incorporated
into the payment exchange. In doing so, Alice can agree to be bound by clicking or typing “I agree” into a
custom application that incorporates the address she is using to be bound under the contract. Such a wallet
or custom application would enable the exchange of the terms and conditions and the addresses, and
could be set up using a derived key linked to a certified key and known by the parties (see “ Determining a
common secret for the secure exchange of information and hierarchical, deterministic cryptographic keys ”)

A business opportunity…
Integrating either native bitcoin or tokenised fiat for payment against tokenised goods, a developer would
be able to provably exchange contract terms and conditions over the Bitcoin (BSV) network. In saving the
encrypted terms and conditions directly within the OP_Return field attached to a Bitcoin transaction, the
parties to the transaction would now have irrefutable proof of the exchange. The final terms and conditions
could be encrypted using a shared common secret as described in the process above, and an application
that calculates a validation-level hash puzzle would allow for the creation of evidence proving the
acceptance of the terms.

Notes:
[1] Dunn (2001); Durtschi et al (2002)

[2] Reed, 2004

[3] Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 (Court of Appeal, United Kingdom)

[4] Entores Ltd v Miles Far East Corporation ; Lord Denning at 333 “Suppose a clerk in a London office taps
out on the teleprinter an offer which is immediately recorded on a teleprinter in a Manchester office, and a
clerk at that end taps out an acceptance. If the line goes dead in the middle of a sentence acceptance, the
teleprinter motor will stop. There is obviously no contract. The clerk at Manchester must get through again
and send his complete sentence. But it may happen that the wine is not go dead, yet the message does not
get through to London. Thus, the clerk at Manchester may tap out his message of acceptance and it will not
be recorded in London because the ink at the London end fails, or something of that kind. In that case, the
Manchester clerk will not know of the failure but the London clerk will know of it and will immediately send
back a message ‘not receiving’. Then, when the fault is rectified, the Manchester clerk will repeat his
message. Only then is there a contract. If he does not repeat it, there is no contract. It is not until his
message is received that the contract is complete…”

[5] Statutory Instrument 2002 №2013; ELECTRONIC COMMUNICATIONS, The Electronic Commerce (EC
Directive) Regulations 2002

[6] Ibid, Para 9 (4) “The requirements of paragraphs (1) and (2) above shall not apply to contracts concluded
exclusively by exchange of electronic mail or by equivalent individual communications.”

[7] MARK WILLIAMS and another (1) vs. AMERICA ONLINE , INC. 2001 WL 135825 (Mass. Super., February 8,
2001)

[8] “The fact the plaintiff may have agreed to an earlier terms of service for the fact that every AOL member
enters into a form of terms of service agreement does not persuade me that plaintiff’s … have notice of the
forum selection cause in the new terms of service before reconfiguration of their computers.”
Schnorr
By Craig Wright | 03 Mar 2019 | Bitcoin & Blockchain Tech
Most of cryptocurrency efforts has been defined since Silk Road as one attempt after another to alter
Bitcoin from a pseudonymous system to create an anonymous system that may be used for the dark web.

Unfortunately, the story about privacy has been manipulated. Private communications are utterly different
to anonymous communications.

We need to consider accountability. Private communications allow people to engage in trade and to
communicate knowing that their communications and exchanges are accessible only to the other party.
Yet, such a form of communication is important, for all trade requires some level of reputation. There are
many aspects of trade that are more private, yet here, the reality is that privacy is linked to an ability to seek
redress against another party.

In Silk Road and other dark-web operations, it is by nature not a concern. In such an exchange, you cannot
form a valid and enforceable contract. It is very simple, as illegal contracts cannot be enforced.
In other words, a contract to engage in an illegal or criminal activity is void ab initio. Hence, you cannot
legally enforce a contract to buy illicit drugs. Such has been the goal of all seeking an anarchist and
anonymous coin. Unfortunately for such people, it is also what Bitcoin was designed not to facilitate. With
an immutable evidence trail, Bitcoin creates a system that acts within the law.

To trade, to hold money validly, and to act within legal society as most people seek to do, we require money
with traceability. In fact, to be money under law, the medium of exchange is necessarily traceable. Within
existing laws, source-of-wealth legislation means that anonymous systems are heavily restricted and lead to
an oppressive level of control. More importantly, ownership of money becomes fungible due to legal
considerations. Money cannot be taken as with many goods due to a legal construct. In other words, when
money has been exchanged without knowledge of fraud or malfeasance and for good consideration, it
becomes the property of the receiving individual, and all ties to former ownership are severed.

The exchange requires that the individuals involved are capable of demonstrating a source of funds. If you
have money that you have received and cannot demonstrate a source of, it is not always yours and can be
taken in many instances. An example is the use of mixers. If you do not maintain the source and destination
keys, you are not able to validate your ownership of such money and it can be disputed. More importantly, it
is very simple to stop an anonymous system. One thing we all should have learned from the rise and
massive collapse of cryptocurrencies in the 1990s is that anonymity is the enemy of any cryptographic
monetary system. Just as the government was easily able to stop eCash, it can easily stop another
anonymous system.

So, why Schnorr?

It brings us back to the endless progression of so-called fixes and improvements. We had SegWit, then
Lightning, and now have a multitude of systems that are somehow going to make them work. It is a
common method used by a lot of failing organisations in the Silicon Valley tradition: fail, until you succeed,
or run out of money.

In doing so, we see an endless row of technical enhancements designed to deliver a promise to the market
that this time we will succeed. Yet such is all it is, a mere promise.

But what exactly are they trying to deliver?

It seems to be the question that few people are asking. There are the common lies propagated about how
they will enable scaling. The same lie was spread with SegWit, though the truth is, none of it has any
relation to scaling at all. Unfortunately, very few people involved in the industry seem to have the technical
capability to understand what is going on. And those that do are seeking something other than they
promise.

In signature law, there is nothing particularly special other than an agreement to be bound. It requires an
act or attestation by an individual — not a legal entity such as a company but a person. The
misunderstanding in the legal framework around signatures and systems such as Bitcoin and derived
alternatives lies in believing that a signature can be separate from an individual. A company cannot sign,
and a machine or an agent cannot sign. The reality is that an individual agrees to be bound.

The way it was circumvented in the delivery of earlier EDI systems was to incorporate a binding master
contract. In having such a contract, parties agree to be bound using the results obtained through the
electronic exchange. There is no additional privacy in hiding through such a system, and it remains the
individuals who are bound.

Which brings us to the endless push for changes to Bitcoin such as the eponymous Schnorr signature. It is
consistently if a little dishonestly pushed as the solution to privacy woes. The truth is, it is not a privacy nor is
it a scaling solution.

An individual can construct a system where they can be bound using such a signature, but so is not the
reason for its introduction and continuous proposal. The real reason is that a group of technologists believe
they can circumvent law and introduce a system that allows users to gain plausible deniability and hence
some level of additional anonymity.

In a typical Schnorr scheme, if we have two signers in a cyclic group, we cannot be certain that there are not
in fact multiple additional parties. For instance, if Alice is dealing with Bob, and Alice and Bob together form
a joint signature and public key

P(joint) = P(Alice) + P(Bob),

then Schnorr allows for the additive processing of the individual signatures so that only one associated with
P(joint) will be visible.

The requirement is that all parties sign. It is not a 2-of-3 scheme, it is an end-to-end scheme; consequently,
all parties involved need to provide a signature. It is important as Alice has no way to determine if Bob is a
single or multiparty signatory. As such, Alice could be entering into an exchange where P(Bob) is in fact
itself a compass signature constructed of P(Mallory) and P(Biff) — so:
P(joint) = P(Alice) + P(Mallory) + P(Biff)

The proposed benefits of allowing a multiparty signature to hide the fact that you are backing up key parts
are untrue. They are misleadingly promoting that Schnorr is going to provide an additional ability to backup
keys privately. It is an utter falsehood.

The question is, what is gained — at least in the misguided belief of the developers seeking to introduce
Schnorr? The belief is that, in not allowing Alice to definitively know who she is dealing with, the parties will
be able to have a level of plausible deniability under the law. In theory, such developers believe that they
can circumvent the legal process, and create a coin that will work on a dark web allowing drug sales in the
manner that Silk Road promised. It, again, is utter bull. It’s the same fallacy that misguided attempts to lose
records such as the Lightning Network keep proposing. Such developers and associated fools fail to
understand that legislation such as the FinCEN (BSA) Bank Secrecy Act requires that records are
maintained and that the mere act of deleting them is enough to make their system illegal. More
importantly, it does not deliver plausible deniability. The exchanges between parties can be captured
allowing evidential proof and the association of individuals with multiple transactions. And the fact that you
are part of a signature whilst not allowing legality for non-persons to sign and be bound conversely delivers
evidence when used in criminal trials.

What exactly is more private?

When implemented correctly, and where keys are not reused, Bitcoin can be as private as an individual
would desire.

Keys can be exchanged using thresholds and ECDSA. It is possible on any system now. It can be a dealer-
based system where an individual such as Alice can decide to split her key into multiple parts and issue
parts of her key to other parties to enable recovery in the event of loss.

Further, keys can be split using dealer-less algorithms. Such algorithms can be constructed in a way that
hides the membership or voting rights associated with a key. As an example, a corporate voting key could
be divided between eight board members with a requirement for six of the members to actively engage in
the reconstruction of a valid signature. So, the irony in the endless facade of seeking anonymity over privacy
is that privacy offers more.

The Bank Secrecy Act (BSA)

The endless push to argue that the block size needs to be capped and to force people onto Lightning and
other half-baked solutions is purely a response to FinCEN and legislation such as the Bank Secrecy Act. It is
a misleading argument saying that ‘crypto’ is new and hence law does not apply. The entire argument is
utterly ignorant. It seeks one purpose, the creation of a system that allows for the deletion of logs and
records.

Silk Road was one of the worst things to happen to Bitcoin, and yet also proved the efficacy of the system. It
proved that Bitcoin would never be a good system for dark-web money. It was intentional and designed
into Bitcoin from the beginning. As money, it must be traceable.

As a promissory-note system, in the form of the Lightning Network and all other associated misguided
attempts to move the settlement off-chain and hence allow exchange without records, there are many
aspects of the BSA that need to be considered by nodes.

The Bank Secrecy Act (BSA) was introduced in an effort to combat money laundering and terrorist financing.
The act comes under the control of the Office of the Comptroller of the Currency (OCC) in the USA, and
mirrors requirements that need to be enforced globally.

BSA 31 USC 5311 et seq introduces a complete set of requirements detailing record-keeping and reporting
practices. In Bitcoin itself, all records are maintained on-chain, and are publicly visible. Any exchange, bank,
or other organisation is able to monitor the records and also require documented proof of the source of
funds. Such laws don’t go away or change because of technology, nor shall they.
Interestingly, although Bitcoin itself or any of its derivative systems is not a store of value outside of the
contract denominated in Bitcoin, the use of a promissory-note system within Lightning creates a store of
value. It is a store of value under Pub. L. 111–24, title V, §503 , and is not associated with the commonly
misused term in economic analysis.

Lightning, by removing the clearing and settlement functions of Bitcoin and turning it into a node-based
payment channel, now introduces reporting requirements, ones that are intentionally being circumvented
by those creating Lightning. Fortunately, you don’t change the law by making something designed to allow
crime.

Some people will think that such things apply only to banks and exchanges. A thorough understanding of
the BSA will lead you to understand that such is not the case. In fact, any Lightning hub will start coming
under the requirements of the BSA. There is no point in seeking to alter Bitcoin to create an anonymous
coin. Far better anonymous coins have existed. All of them have been shut down. The one thing that
allowed Bitcoin to survive is that it is within the law. There is no future for any cryptocurrency acting outside
the law. They are very easy to stop.

Systems such as Monero are incredibly easy to stop, and come under existing legislation.

Miners
As with the worst addition to corrupting Bitcoin, P2SH, Schnorr signatures remove some of the validation
from miners. In seeking to consistently alter the protocol, the BTC Core (SegWitCoin) developers are seeking
to create a system that cannot be validated fully. At the end of the day, it shows their hatred for Bitcoin.

As the Bitcoin halvening approaches in the next year, we are not going to see a manipulated spike with the
regulatory bodies now closely watching Bitcoin exchanges (a.k.a. backstreet gambling houses or bucket
shops). Rather, the use of on-chain transactions that are competitive with other systems on the market will
need to fund the difference in incentives, or the miners will leave the chain. We can expect the combination
of legislation being enforced (it exists right now) and the halving to drastically impact the price of BTC. The
elephant in the room that nobody talks about is really the economic cost of the transactions. To be
competitive in a way that allows people to move from existing systems to Bitcoin requires a marginal fringe
cost of around 0.005 USD a transaction — no more. Even that is too much. To compete with the existing
commercial system, Bitcoin will need to scale to thousands of transactions a second and an average cost of
around a tenth of a cent per transaction or far less.

Removing profit from miners is just the perfect way to kill the chain.

Fortunately, Bitcoin is incredibly robust. It was designed to allow the legal integration of electronic cash and
much much more. As many fraudulent attempts occur, people will start to wake up to the fact that nothing
is really being achieved. No growth is happening in BTC, and the endless integration of useless technology
such as Schnorr that is designed with one reason, to circumvent the law and create an anonymous crime
coin, remains a dead end.

Then again, watching the Rube Goldberg machine in action has been fun. If such individuals had actually
taken the time to see what was happening, they would have started focusing on attacking what we were
doing. Meanwhile, we are approaching number 700 in patents filed, and I expect to have number 1200 filed
over the year — at least.

Thank you for discounting me, and thank you for ignoring us for so long.
Proof of (unregistered) security
By Craig Wright | 04 Mar 2019 | Alternative Coins & Systems
There have been many people pushing proof of stake as an alternative to proof of work. They claim that
proof of stake was somehow more advanced and even that it differed from a standard securities offering in
some way. All of it is false. Proof of stake is not secure, and more importantly, it fails to deliver any of the
benefits delivered by blockchain. Most importantly, it is a simple equity that is designed to facilitate bucket-
shop trading as it manipulates fools and misleads regulators.

The argument for systems such as Ethereum (ETH) moving to proof of stake is that it will allow
decentralisation. But what exactly is decentralisation?

It’s easy to throw words out and promote true equality, but the reality is something incredibly different. If
you take any share (a common equity), you are actually in the same position after logical analysis whether
it’s on a blockchain or not. If we take Apple Inc., we will find that the distribution of shares is more widely
distributed than systems like Ethereum. In other words, Apple stock is more decentralised than the so-
called decentralised cryptocurrency.

In the US, Section 2(a)(1) of the 1933 Act, 15 USC 77b (2017) defines a security as:

(1) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond,
debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement,
collateral-trust certificate, preorganization certificate or subscription, transferable share, investment
contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas,
or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or
group or index of securities (including any interest therein or based on the value thereof), or any put, call,
straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or,
in general, any interest or instrument commonly known as a “security”, or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.

The paragraph alone is wide enough to cover proof of stake in all forms. SEC v. W.J. Howey Co, 328 US 293
(1946) [Howey] and United Housing Found, Inc., v Forman, 421 US 837 (1975) [Forman] extend the definition
further.

In each of the cases, the court focused on the definition of a security as an investment contract. The
Supreme Court interpreted it to be “a contract, transaction or scheme whereby a person invest his money in
a common enterprise and is led to expect profit solely from the effort of others” (Howey, 328 at 295).

Securities may be certificated or non-certificated, i.e. registered electronically (known as “dematerialised”),

or a book entry. Certificated securities are represented in physical form, i.e. paper. So, the notion that a token
on a blockchain is something new is false. It is a view used to promote the issue of securities without
registration or adherence to the law.

The holder of an equity is a shareholder, owning a share or fractional part of the issue. It can be seen as
being analogous to a proof-of-stake model and compared to a non-dividend share.

In consequence, ETH acts as a security token as it is purely an investment designed to allow others to profit
through the capital gains of a held token. At present, two pools control 53% of the Ethereum network.
Moving to a proof-of-stake system allows the top 1% of active holders to control the entire system. The US
Supreme Court has distinguished Forman from Howey through the motivations of the buyers.

On the Ethereum wiki, proof of stake is defined as follows:

“Proof of Stake (PoS) is a category of consensus algorithms for public blockchains that depend on a
validator’s economic stake in the network.”

Put simply, a proof-of-stake token allows an economic stakeholder to profit by holding tokens. The model is
such that those who are holding large amounts for the pure investment value are rewarded for mere
holding. Such a system removes reporting and market-manipulation controls on securities as large holders
are able to run an almost unlimited number of separated validators.

There is no mechanism that can stop a cartel that holds 51% of the available tokens from forming many
small Sybil voting validators. In such a scenario, a set of machines controlling 51% of the available Ethereum
network tokens would be able to run over a set of 5,000 virtual machines in a system that allows them to
vote as if they are a large number of individual members.

Contrary to the statement addressing the security of the network made by the Ethereum team, there is no
way to stop such an attack or attribute it. Effectively, it is a simple means of market manipulation and
control. Most importantly, it is an attack based on 51% of the available or free tokens.

Capital-lockup costs within Ethereum and related systems mean that only a fraction of the total supply is
used in voting and validation. The promoted validation requirement has been touted as 1,500 ETH . At the
current market rate of USD125 for one ETH, the cost of becoming a validator would exceed USD187,500.
The number of ETH per address is currently around 2.17 , and when the top 50 addresses are removed from
the analysis, it leaves an average of 1.87 ETH per address. A full analysis of the holdings shows that the
control of ETH by individuals who can access the required number (1,500) to become a validator is taken by
under 2% of the total network. Of the 2%, some of the individuals are using ETH in business applications, and
would not be able to lock up the required amount.

The result is that 2% of the network are able to control the other 98%. Effectively, it is a security offering
requiring that voters who hold a security obtain a minimum number of shares before they are able to vote.
It is simple to conclude that most purchases of Ethereum seek to profit through an expectation derived
from the effort of others. The chief consequence of the security regulations has been to create a “seller-
disclose” perspective of securities law. In Howey, the motivations of the buyers differed to those of an
ordinary buyer of land. An ordinary buyer of land would care about the unique features of the transaction
including the real-estate location and the health of the property.

We can extend the idea by looking at those who might seek to hold ETH (or for that matter any PoS token)
and note that validators are effectively being rewarded dividends for holding and not spending tokens.
What we see is not a common business but rather a payment for locking up a valuable security that acts as
a dividend.

Howey and Forman differ in the motivation of Forman buyers’ desire to obtain low-cost housing. The
characteristics of the transaction are determined in exemption under the security rules. The buyers in
Forman sought an apartment rather than an investment return. Investors holding large amounts of ETH
and acting as validators are clearly seeking an economic return.

To quote the promotional material concerning proof of stake on Ethereum :

The node will only contribute to the network if it is left running online. This is essentially the idea behind PoS:
merely holding the asset will contribute to the network.

The mere requirement to lock up large amounts or a large value removes the ability for any smallholder to
amplify the amount of ETH returned as a dividend. Consequently, Ethereum validators act as if they were
preferential shareholders with a dividend. Perversely, standard shareholders in the system are not paid a
dividend at all. The proof-of-stake promotion page is incredibly misleading .

They talk about people with USD100,000 worth of Ether able to lock up only USD80,000. The minimum
required value at present is over USD180,000 worth of Ether. The majority of individuals with the capability
to manage nodes will be severely limited. At present, it is limited to only 2% or less of the total set of owners.
In other words, only the top 1–2% of all investors in Ethereum are presented with an opportunity to vote in
the system or be paid dividends. The purpose of the 1933 act was to ensure honest reporting. But what we
see in the proposal for proof of stake in Ethereum is incredibly misleading at best, and fraudulent is a better
word.

Further, proposals to destroy deposits of validators that do not agree with the majority lead to numerous
breaches of US security law. Any analysis of ETH as a commodity-based system disappears as soon as
Casper is introduced and the system moves to proof of stake. The ability to destroy deposits creates an
attack surface. An attacker can target individuals and systems strategically basing the attack against
competitors who have a different view on the future of the coin.

The paper discusses the effect of exchanges acting as validators. Such a scenario is unlikely to be allowed
due to the custody or risk posed through an attack on the exchange. An exchange staking ETH would place
customer funds at risk and in error result in lost customer deposits. Existing bailment laws would preclude
such a thing from happening.

The result is that even fewer large holders would be expected to operate.

An attack against the Ethereum network under proof of stake would be incredibly simple. The attacker
would simply start by targeting and invalidating large holders that are acting as validators on the network.
It would be expected that less than 1% of the existing network would be operating as validation nodes.
More importantly, the selection of coin age skews the system towards those with more money. Effectively,
the proof-of-stake system acts as a sham consensus layer hiding the fact that a manipulated security is
used to control an extremely centralised development system that acts as an unregistered company.

Insider trading
The creation of US securities law is designed to introduce a virtuous cycle of reporting and compliance.

The introduction of proof of stake would seem to be designed for aiding fraud and insider trading. Large
holders are actively incentivised to run multiple validation systems and seek to manipulate the control of
the system. In particular, insiders within the development teams will be able to actively manipulate the
price. As with many proposals seeking to alter blockchain-based systems in order to avoid regulation, it
seems to be designed purely with the intention of aiding an increasing control by a privileged few and
hiding such an ability from regulators.

Shareholder controls
It is best to simply call it a proof of equity by a preferential voting mechanism. Large holders in a proof-of-
stake system are weighted with more of a say. In any definition of a security, proof of stake fulfils all the
requirements. It is a system that allows only a few early adopters and wealthy investors to seek control of
the system through preferential voting rights whilst misleading the average small investor into believing
they have a say.

Finally, it is interesting to note that Apple Inc. would be considered many times more distributed and
decentralised than the entire Ethereum network. Voting is distributed between hundreds of parties or more
in shareholder meetings of Apple Inc., and in fact, using common mathematical standards for measuring
the decentralisation of networks, J.P. Morgan would be considered around 500 times more decentralised
than the Ethereum network.

But then, it was only ever it seems a scam to fool low-end shareholders into investing in an ever changing
system based on an ever increasing pool of new capital inflow.
PoS ETH is clearly a security.

Ethereum may be close to a commodity right now, but it is about to become a tightly controlled security (an
equity where only a few large stakeholders vote). Where a security is fungible, the rules of the security aren’t
affected by judgements made about the owner. With a non-fungible security, a system that alters the
dividend payments (as we see for validators) is allowed.

The [Howey] test is whether the scheme involves an investment of money in a common enterprise with
profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the
enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic
value.

With proof of stake, Ethereum will move to fulfil all of the requirements of the test. Yet, it is not registered…
The myth of forks
By Craig Wright | 06 Mar 2019 | Bitcoin & Blockchain Tech
When I removed myself from public view towards the end of 2010 and 2011, it was as I was rather
disillusioned. Bitcoin was designed as a system that allowed for sound private money and would make
criminal uses less viable. Between Wikileaks, Anonymous, and a number of dark websites including but not
limited to Silk Road, I saw Bitcoin being used in a number of ways that disheartened me.

I had said that I had believed that Bitcoin would be attractive to those with a libertarian point of view, but
many who jumped on to Bitcoin are far from libertarian. I’ve detailed the difference between anarchy and
libertarian thought many times, and it is Marxist communism that seeks to expunge the state. Bitcoin was
never designed to be anti bank or anti government. It is about a sound system that produces an evidence
trail and incentivises good behaviour.

In The Sociology of Money (N. Dodd, Cambridge, 1994, xxii-xxviii), the author demonstrates how when the
marketability of a good is directly observable by its potential recipients, the more likely it is to evolve as a
medium of exchange. It requires a pseudonymous system — not an anonymous one. The people involved
need to gain trust in the system through the ability to validate a chain of their own money. That does not
mean, as many say, they need to run a node, but rather that they can validate the source of their funds and
ensure that it has been paid in a manner that meets expectations.

I utterly failed to comprehend how many so-called anarchists and socialists would run around calling
themselves libertarian or capitalist. Much of what I hear being described is not related to the concept of
money in the Austrian economic school at all. Most of it comes from authors such as Simmel and his
concept of perfect money (see Simmel, G. (2004) The Philosophy of Money . London: Routledge.). Such
socialist-inspired and sociological-based flawed concepts of money seem to have propagated throughout
what is the SegWit or CoreCoin (BTC) community.

It seems that few in the more anarchist aspects of the community care for or want to understand the law of
property in money. The principles of value inform the rules governing tracing, and set the foundation for the
law of property of money. The exercise of tracing is a process where the value inherent in one asset is
associated with the value in a second asset that is being exchanged for the consideration (see Foskett v
McKeown [2001] 1 AC 102, 127 per Lord Millet).

The law of tracing is important to Bitcoin. Many of the issues associated with eCash derived directly from
the inability to trace blinded eCash. In Law of Tracing (L.D. Smith, Oxford, 1997), the requirements for money
to be traced under law are thoroughly investigated.

We live in a society with law and government. In fact, without law and government, we would not live in
society not have society. All of the systems that allow people to run Bitcoin are created because a
contractual and legal framework exists that allows for the creation of complex computer systems, global
networks, and widespread exchange. In removing law, we remove the systems needed to create complex
entities that can allow corporations such as Cisco, Intel, and even Microsoft to exist. Without it, the necessary
frameworks allowing Bitcoin to operate are non-existent.

The utopian fallacies of money and society have been propagated for millennia; in The Laws (5.743 d), Plato
wrote:

Our society, we pronounce, must have neither gold nor silver, nor yet much making of profits from
mechanical crafts, or usury, or raising of sordid beasts, but only such as husbandry yields or permits, and of
it only so much as will not force a man in his profit gathering to forget the ends for which possessions exist,
that is to say, soul and body. (1961, p 1,328)

The described fallacy is propagated and exponentially expounded through the errors in the understanding
of economics promoted by a community I sadly used to be a part of. Abolishing money or making Bitcoin
universal will not become the end of all fraud, thefts, crimes of passion, fear, tension, anxiety, and long
working hours.

Aquinas promoted the principle of “just pricing,” Ruskin as an advocate of a form of labour money, and the
fixed wage, argued in Unto This Last that “the price of everything is to be calculated finally in labour” (1862, p
215). Ruskin unfortunately and extremely adversely affected Gandhi with his Fabian socialist utopian lies
leading to the millions of deaths that resulted from the policies of a Utopia that could never exist.

Such then is the myth that seems to propagate in “crypto.” The idea that money alone will abolish the state
and create freedom. Not vigilance, not evident work, but rather a utopian ideal as we see with neo-Fabian
authors such as Simmel (2004, P 346):

The complete heartlessness of money is reflected in our social culture, which is itself determined by money.
Perhaps the power of the socialist ideal is partly a reaction to this. For by declaring war upon this monetary
system, socialism seeks to abolish the individual’s isolation in relation to the group as embodied in the form
of the purposive association, and at the same time it appeals to all the innermost and enthusiastic
sympathies for the group that may lie dormant in the individual.

Such thinking has led to the failure to understand Bitcoin, and the drive to alter it to something it can’t be.
Bitcoin is not anonymous, nor should it be. It does not need to be more private outside of the dreams of
criminals and anarchists. And it scales, as I originally envisioned, through corporate competition. The system
is an ultra small-world graph, and it requires large network connections and the desire of companies
seeking profit.

Orphans are a part of the protocol

As nice as Hal Finney was and as much as he was needed at the start of the project, he was absolutely
terrible for me. I stopped working at the end of December 2008, and dedicated most of my time to doing
research and Bitcoin. In effect, I put about everything I had into it. Heart and soul and, more importantly,
money. I’d taken a golden handshake when I left BDO, and I had a massive set of loans taken out on the
three properties I owned at the time. One of them was my farm. At the time, my property, which was a
combination of a farm, cattle ranch, and orchard, was my sanity and the thing that enabled me to have
some downtime.

It was over a decade of my life where I had invested in the orchard and many improvements, and it even
planted a small timber crop.

To continue paying the bills in the early days of Bitcoin, I had to end up selling it. By the end of 2010 and the
beginning of 2011, I knew that I wouldn’t be able to maintain it — the loan repayments and to keep going
without getting another job. There wasn’t an option for venture capital back then. On top of it, I ended up
paying over $1 million fighting a tax audit that I would end up winning. After going to the tribunal, I ended
up getting more than I had originally claimed, and the tax office tried claiming that I had recklessly
underclaimed.

Funny enough, if I’d moved the intellectual property into Australia at the time, I would have been paying
much more tax now. So I do have to thank the government for saving me from my own mistakes. I spent
my weekends listening to audiobooks and studying as I walked about my farm back then.

Getting to the point where I knew that I had to sell the property in itself was a blow.

What was worse was listening to Hal when he explained over and over how Bitcoin wouldn’t work. He was a
far better coder than I was, and had been involved in the industry much longer. I believed in my idea, but
always thought that he was focused on a different goal.

Hal was similar to people such as Wei who sought a completely different system. They looked at building
systems without government and without corporations. When I talk about libertarian values, I had never
once thought of the anarchist side of it. In fact, it is a socialist means of attacking capitalism, and I never
considered that people who call themselves libertarians would be so deluded.

Then I should have, I was involved with all of such people in the 90s.

I always saw how things would end up in data centres. It is part of the design. Bitcoin is about competitive
corporations securing the network. It is not decentralisation for the sake of it, nor is it the creation of a
system that removes all government and corporations. Such a utopian perspective, as I have discussed
earlier in this article, is rather delusional.

I still miss my farm.

It may be that I could buy it back now or even have another one here in England, but I know it might not be
the case for many many years. To complete what I started, it is going to require many hundreds of plus-hour
weeks.

Hal kept talking about second-layer systems. I never really equated the push that we still see now to try and
make a democratised system of nodes distributed throughout the globe as I knew it was about a small-
world network. I didn’t realise that Hal was seeking more nodes and not more edges.

I should have explained it far better, but then I also think that if I’d done so at the beginning, people such as
Hal would not have been there. I don’t think Bitcoin is what he wanted.

A part of the problem was that there was no value in bitcoin back then. The security model of Bitcoin is
economic, and the cost of running a node was something that I understood and that I think many people
did. Nodes are miners, and such is how they make money. There is no such thing as a validating node.
Validation is done through the creation of blocks.

I saw the network fragmenting and people starting to create sidechains and alternatives that took power
away from Bitcoin. The problem here is that the security model of Bitcoin is an all-or-nothing zero-sum
game.
What people fail to understand is that Bitcoin is designed as a commercial system.

True, when it first came out, it was an Alpha product, and the code standard was limited. I am not the
coding God that people make me out to be, and there was a lot of work in getting it where it had to be just
to launch. More, it didn’t even work at first. Bear and Hal acted freely, and gave a lot of advice, and basically
fixed a lot of the shit that I had left. I act on a high level these days — Steve and the team wouldn’t let me
near live code again, and I’m not saying it’s a bad thing. It’s the curse of being a generalist rather than a
specialist.

Nodes need orphans. There is nothing to solve here.

Orphans are an economic signalling technique in Bitcoin. One of the reasons the block cap was put in place
is that I did not have a clue on how we could have a floating limit work at the time. The problem was that
the solutions all required monetary value.

Even orphaning blocks (as a signalling method) requires value to be of use. If you’re merely losing a reward
of 50 bitcoin when bitcoin is not even worth a fraction of a cent, the incentives do not exist to think about
the network, the connectivity of your node, or any of the other aspects of Bitcoin that people seem to
ignore. This is the point; Bitcoin mining is not about finding a block, it is about ensuring that all other
mining nodes know that you have found a block and that it is valid.

Once the network is large, there is an incentive for nodes to watch the validation times and propagation
rates of blocks across the network. Once this occurs, they can start monitoring the time of discovery versus
the time of propagation for blocks and then set limits on what they will produce versus what they will build
on.

A block limit should be an economic function. More importantly, it is more about the inclusion of any
transaction that you can take with any amount of fees. Where a miner starts to see orphans occur, they
know that in losing the blocks they are losing rewards.

Bitcoin was designed with a two-week limit on difficulty for this reason.

Every 2016 blocks, Bitcoin was designed to reset its difficulty such that the system maintained itself in a
fluctuating zero-sum game. It is a multi-leader Stackelberg game. But more importantly, the block reward
is a zero-sum game meaning that orphans are not included in the two-week total. For the total supply, the
two-week average creation rate will stay at 2016 block subsidies. If there are 1 million orphans, there will still
be 2016 blocks discovered. Yes, I am exaggerating there a little, but the point is that extra blocks skew the
reward towards better connected networks. Not home systems, but large well connected data farms that
act to ensure that they are incredibly well connected.

The way it works is that if you have three nodes (yes, I know that such is not the case, nor shall it be) for our
toy model of Bitcoin and each has equal hash power, then the better connected node wins more blocks.
Imagine two of the three nodes have 10 times the bandwidth of the other. What will occur is that more
transactions will be able to be taken and processed by the two miners than by the third on the more limited
network. A part of the problem here stems from the block subsidy. People using it as the value of bitcoin
and not as an incentive to build the network as it was intended.

We will assume that a 1GB block can be propagated from the first two nodes without too much problem
and that it takes a large amount of time which effectively reduces the comparative hash rate of the third
node. If we take block propagation of the 1GB block to take one minute on average (which is excessive but
designed to make my point) for the two faster nodes, then each will lose 10% the hash rate equally. That is,
some will gain a benefit and some will lose but at equal rate. Conversely, our slow node will lose around 65–
70% of its effective hash rate.

Instead of an expected daily return of 48 blocks, the slow node will now expect to earn from a mere reap of
16 blocks with the other faster nodes each getting paid from additional 16 blocks in total reward. This is a
significant differential, and will lead to a scenario where the slow system either goes bankrupt or updates its
network. If it was to update its network, the equivalent hash rate between the systems would again equalise.
Conversely, if the system went bankrupt, we would expect other players to come into the market due to the
large increased profit margins of the remaining players.

On the other hand, if the two nodes can only handle blocks up to 100MB, the node creating 1GB blocks will
end up losing an effective 50% of its hash power. This means that it would expect to earn only 24 of the 48
blocks that it is finding each day. The fast node will benefit by slowing down a little, maybe to 300 MB.
Doing so will still give it an advantage and yet stop the losses from having the main impact.

Most importantly, as the block subsidies start to disappear, more and more of the profit-earning capability
of a node will need to be derived from transactions. To do so, a node will want to build more and more
transactions into a block. The issue now becomes one of paid versus unpaid transactions and of a rate per
transaction.

There is no need to create an artificial fee market.

The socialist fools of Core who are running SegWitCoin (BTC) don’t understand that markets don’t need
their help. They seem to believe that they need to be the socialist planner saving the Utopia that they wish
to create. It is the irony of them calling themselves libertarian.

Orphans are the signaling method that allows organizations to control the rate of discovery and the rate of
loss in a manner that lets them know when they need to upgrade their network and also to control the fee
level that they will take. There should always be a certain number of free transactions in every block. Fees
should be driven to a point that is as low as possible, and through capitalist competition should be driven so
low that inefficient nodes are bankrupted and removed.

Subsidising home users remove the security of Bitcoin, and allow it to be easily attacked. Bitcoin becomes
secure because a large number of competing organisations fight for the right to take your transaction.

There is nothing to fix in orphans. They are a critical part of the design of Bitcoin.

On failure
Bitcoin didn’t fail, but other parts of my life did. I used to own horses. When I sold my property, I had to sell
them too. A horse that I had had for a decade, a mean grumpy thing like me. I had to give him away. It
broke my heart.

Say what you want, that it was only an animal, but I interacted with them more than I did with many people.
Outside of Dave and my property, I had a very isolated life. At one point, I was doing four post-graduate
degrees simultaneously, and I was working. The period includes my master’s degree in law and a master’s
degree in statistics. I needed such information to complete Bitcoin, but at the same time, it left me isolated.
I had work, my farm, and one really good friend — Dave.

Dave started getting sick in 2011, and I knew that I had to give up my farm.

I did isolated forensic jobs, and did work for a number of casinos and sports betting sites such as Centerbet
to try and keep some money coming in, but the first thing I needed to do was actually prove that Bitcoin
worked.

It was the nature of what I did with Panopticrypt between 2011 and 2013. Nothing that I could commercialise
and make money out of, just rule research so I would know that I hadn’t wasted my life completely.

I spent millions testing alternatives. I needed to be certain I was correct. That the system worked as a
commercial solution and also that something like a home-user version (as the BTC Core group, Hal, and
many others want and wanted) was not valid. Or, at least that if it was, it would not end as a crime coin. I
worked to create a mainstream system, and making an anonymous coin would have simply ended me.

I worked out how systems such as Monero, Zcash, and for that matter any anonymous blockchain could be
infiltrated and stopped.

They needed to work with a large number of organizations and some quite unsavory characters to do so.
I’m not talking about the honest licensed gaming companies and other types that used Liberty Reserve.
This was a part of the problem. Dave had been storing all the money we used in accounts attached to
Liberty Reserve. It’s not as much of a problem for me as it was for him because gambling laws in the US
preclude sports betting in any form whereas it is legal in Australia.

Dave and I worked with law enforcement and others for a long time. Dave took opiates, because his
condition left him in constant pain. But more importantly, contacts of his told him about the impending
takedown of Liberty Reserve eight weeks before it occurred. He was left with the problem of knowing that if
he moved his funds, it would be tracked. Effectively, to do so would have ended his career.

Rock, hard place.

Frying pan, fire.

If David had talked to me about his problems with money, I would have helped. When it comes to work, I’m
rather excessive and focused. My wife will tell you so, I hyperfocus, and the world moves around me, and I do
what needs to be done. It is how we have gotten to completing over a thousand white papers and how I
had 20 academic papers accepted for publication in the last two months. I can’t say it’s good, it takes a toll in
anyone’s life, but you could say I’m driven.

Towards the end of 2010, many people sought to start making alternative systems, sidechains, and more.
What people will start to realise is that Bitcoin only works as a single solitary chain. It will never be more
than it is now, and eventually people will give up, and it will collapse unless it is one. I looked at proposals
from people looking to do alternative blockchains, and tried to come up with solutions that allowed
alternative chains to exist without splitting CPU power.

Where we are with the Metanet now has come about following another decade of research. I did not have a
clue about how to do it until last year. What you’ve seen is the equivalent of the Internet circa 1991. We have
a lot more coming, it is just not public quite yet. What people are seeing as development in BSV is nothing
compared to what is about be released.

I wanted to bring my inventions back into Australia, but I also needed to do so without shooting myself in
the head. I wanted to remain as secret as I could and also repatriate funds to Australia. I was still doing a lot
of contract work with government, and even acted as a prosecution expert, and conducted judge
prosecutor training.

I had spoken at many conferences where even in 2010 I had started trying to teach people in government
and law enforcement about the benefits of Bitcoin, how it mitigated the problems of most forms of money
today and allowed them to actually trace money better than they had ever dreamed when it came to crime.

Then Wikileaks, then dark websites…

Everything I built Bitcoin to be seemed to be falling apart at that stage.

I wanted to have a means to be open with government, but could not find one. I spent a year studying
distributed botnets , not just the common knowledge — I had gone about as deep as you could expect
anyone anywhere to go, and then some. In many ways, botnet territories mirror mining nodes within
Bitcoin. I had actually based some of the design on learnings following work I’d been involved with
concerning fast flux networks and distributed command-and-control servers.

There is nothing to fix in orphans. They are a critical part of the design of Bitcoin.

I always believed that if Bitcoin would eventually scale enough for my ideas to have a chance to succeed,
nothing could stop it. I was also afraid that it wouldn’t make it to the stage it needed to reach to continue to
grow. If I had been able to at the time, I would have patented everything to do with Bitcoin. Unfortunately,
there was no way possible that I could see that would have allowed me to do so. Satoshi, the issuer of a
monetary system, can be close to anonymous, though even then I wasn’t, but you cannot file an
intellectual-property claim using a pseudonym.
So it was a choice at the time.

More importantly, it was also of monetary reason. Filing patents globally is incredibly expensive. My guess is
that each patent is costing us between $25K and $70K, and right now we are approaching a total of 700
that have been processed. You can do the maths.

Likely, nobody really understood what the hell we were trying to talk about. SPV is something I’ve been
arguing about for years now and everyone’s ignored. Likely they have because I was trying to spark
someone into understanding it, but they haven’t understood it, which means we’ve been able to file patents
on how it is actually achieved. It’ll be out later in the year.

It is going to be painful for someone to discover how simple it really is, and more importantly, it is absolutely
critical for the scaling of the network. Other people’s loss.

When I wrote that Bitcoin was set in stone, I was referring to a protocol that can do about everything and
will result in massive damage to the network when split. More importantly, the concept of splitting a digital
currency is really scammy. There are no splits, there is a demerger process when all nodes agree, and where
they don’t, there is the original protocol.

The creation of a protocol change is the creation of a completely new cryptocurrency.

You can airdrop all you like, except it is covered under existing law. Bitcoin remains the original currency
that was formed in 2009, and the new currency is created alongside it. There is no democratic voting within
money.

Gold was valuable when it was used as a global form of exchange. It was not valuable because gold was
different in different countries nor because different governments exchanged at different rates, it was
valuable as it allowed a universal measurement of value. Even when individual governments debased the
currency, gold was valuable as it allowed measurement of the debasement. And that’s important; looking
across global trade and global exchange, we want a system of value that can report on debasements and
allow us to see the value of our money in any location as it is spent in the location. To do so, we need a stable
base currency.

Miners can choose to reject blocks such as of those that have more transactions than they’re willing to build
upon. They can choose to risk being orphaned and to orphan others. It is a part of how Bitcoin works. What
is not a part of the system is the addition of new opcodes and the radical changing and alteration of the
signature system such as with the removal of signatures in SegWit.

All of the divisive and socialist bull about money is at the heart of the attack on miners, but then, with the
push towards proof of stake (aka proof of illegal security), we see that most of such myths are nothing but
an attempt to create a system that allows for illegal bucket shops, criminal activity, and more importantly,
pyramid and Ponzi schemes designed to allow one to facilitate the creation of ICOs which are merely a new
form of stealing money. Rather, I should say they are an old form of stealing money with a new label, for
none of it is new, and USENET scams existed way way back.

There are no forks

To put it simply, there are no forks in Bitcoin. The radical alteration of the base protocol by BTC in 2017 was
not an alteration to Bitcoin. It was the creation of a completely new system that simply copied the existing
coin holders and ledger and modified the system.

Bitcoin is not a consensus system based on democratic voting.

Bitcoin does not democratize shareholding. Shares have been de-materialised for a long time. Electronic
trading is nothing new. Being able to create shares outside of a registered body is an old fraud, and it has
been going on since the 1960s.

There are absolutely no benefits to society in having many blockchains. First, there are no such things as
special-purpose blockchains in the same way that there is no such thing as a special-purpose Internet. You
have a general-purpose system that does everything, or you have nothing of value. More importantly, the
system security is incredibly low unless it congeals into a single unit and stays that way.

Bitcoin can be used for tokens. It is nothing new.

When you have an equity or share that is created across multiple ledgers, you no longer have a ledger with
any value. If you split and make a copy of a blockchain, then you have the original share held on the ledger,
and you have a sham copy of the same on another one. As an example, if we have bitcoin with tokenised
gold issued and someone creates a new copy of a blockchain using the original bitcoin ledger, then we do
not gain any further gold. You also cannot now distribute the same gold between two sets of blockchains.

The entire creation of the concept of splits is simply a form of fooling those who have no idea about Bitcoin
into believing that you can change the protocol and still have a monetary system that works.

They are attempting simply to take the network effect of Bitcoin and steal it into their experiment. Luckily,
we have enough capital now to be able to patent my ideas. Bitcoin, every blockchain that could possibly
ever compete with it, and every other distributed ledger technology compete, and only one will win. None
of that phases me because I’m about two decades ahead of the market, I’m very happy to be here, and I
don’t really care if you wish to ignore me because you don’t cost me money.

There is value in being able to withhold information. Information is a commodity. This is the core of the
heart of Bitcoin. I have information of value and others wanted. Information is property, and I choose how I
distribute my property.

One of the worst things within the cryptocurrency space is the community. The toxic rabble that you like to
call crypto as a community scares off business and adoption. Do I want followers? No. Do I need followers?
No.

I have more intellectual property patented than any bank, any large vendor, and in fact more than even
China combined. Very simply, we hit the filing of just under 700 this month, and that alone is only the ones
that you will see for now. Unlike most organisations, we hide the publication of our patents as long as
possible. It still gives us the priority date, and ensures that no one catches on to what we are doing before it
is too late — and we will have moved on to the next 20 projects.

With just under 1200 white papers that in time will lead to around 10,000 global patent filings, I really don’t
give a shit whether you like what I’m doing. But you are going to have to pay attention whether you like it
or not.

The mis-focused attempt to abolish banking and modern finance through Proudhon and turn it into crypto
anarchism in the seeking of equality through the abolition of monetary systems with the concept that
“Money hides itself — we must dispense with it;” “Let all merchandise become current money, and abolish
the royalty of gold” (Proudhon, 1927: 46) is a canker on the ass of society. What is even worse is the neo-
utopian revitalisation of the flawed ideas of More (1516) with the mislaid attempt to radically transform
money in a false belief that a redesign of the price system will somehow by itself improve economic
conditions and global equality.

It is not technically feasible to accomplish what is conceptually correct, namely to transform the money
function into a pure token money, and to detach it completely from every substantial value that limits the
quantity of money, even though the actual money suggests that this will be the final outcome. (Simmel,
2004, p165)

Bitcoin doesn’t create equality, no blockchain does. The existence of a sound commodity money based on
principles of supply and demand does not mean you become richer, and it does not mean that local
currencies alter in form. It does mean that they compete, and it requires far more than simply having
Bitcoin as a HODL platform, in other words a pyramid scheme or Ponzi.

Bitcoin is a system of work. In proof of work, it is fairly much a Protestant work ethic digitised and
exchanged online.

What Bitcoin adds is efficiency. It does not democratize shareholding, and nor should it. Like it or not,
people can issue shares in companies, and governments can control them however they want. Regulations
are designed to protect investors. The interesting thing is that investors seek capital that is better protected.
There is a premium placed on investing on the New York Stock Exchange over the Delaware exchange. The
reason is simple: investor’s confidence.

With global corporations, a company in California can seek to raise money through the issue of shares on a
stock market in Panama today. With de-materialisation, the electronic trading and payment are quick and
simple. For the consumer, existing broker systems are actually more attractive than any digital token right
now. It is not the consumer that is seeking the technology.

One party to the problem is the capital raiser seeking to gain a benefit without going through the necessary
consumer protections. Right now, there are many ways of raising money from sophisticated investors. Such
is the real issue with ICOs and the fraud propagated in selling them as democratising finance. They are
democratising nothing; they are doing the same scams that we saw with pink sheets and USENET tokens
over the previous decades ending in the last century.

All of them are seeking to raise money based on the token itself. They are not selling the benefits of the
company, rather they are seeking to create a pyramid scheme where they sell the concept of a token that
will naturally increase in price because everyone wants it. A monetised and marketed greater fool scheme.
The worst of them are scams such as Ripple and XRP that offer nothing new to the market, but sell a false
promise of a blockchain implementation without a blockchain.

The promise of Bitcoin and blockchain is linked to the immutable ledger. It comes when there is one set of
books. If an organisation can have multiple sets of books, they can easily commit fraud. If they have multiple
blockchains, they can easily commit fraud. As soon as you can start moving between Bitcoin and some
sidechain or alternate chain, you have the ability to construct elaborate schemes such as those run by
Bernie Madoff and Enron. With Bitcoin, vigilance is still necessary, but it is possible to construct a fully
auditable system that allows for a single immutable record stream making fraud more difficult. Not
impossible, but more difficult.

References:
Dodd, N. (1994): The Sociology of Money. Cambridge: Polity.
More, T. (1516): Utopia.
Plato (1961): The Collected Dialogues of Plato, ed. E. Hamilton and H. Cairns. Princeton, NJ: Princeton
University Press.
Proudhon, J.-F. (1927): Proudhon’s Solution of the Social Problem. New York: Vanguard Press.
Ruskin, J. (1862): Unto This Last ( Cornhill Magazine ).
Simmel, G. (2004): The Philosophy of Money. London: Routledge.
Smith, L.D. (1997): The Law of Tracing. Oxford.
The labour fallacy of mining
By Craig Wright | 07 Mar 2019 | Alternative Coins & Systems
I have noted a good number of people hold on to the same common fallacy as was promoted by Marx.
Labour is not a goal, it is a means. If labour can be reduced and the level of production increased, it is a good
thing. There is an infinite amount of work and hence labour to be distributed. There is and always shall be
more labour available than there are people to conduct it. There is no fixed labour pie that needs to be
distributed.

The goal is consumption. It is the creation of real wealth; such is products and services that people want. We
DO NOT work to work, but rather for what we can obtain. More importantly, we save and invest so we can
have more later, that society can fulfil its obligations, and those who save and invest can expect more to be
returned in the future.

Yet, it seems to me that many here worship the obstacles over the end. They see increased productivity
through advanced technology and processes as a bad thing. Making more work (labour) is simple. Salt the
fields and make agriculture far less efficient, become Luddites, and smash the machines. The problem in the
equalisation of all people and “fair distribution” of labour is that we end up all being relegated to being
equally poor.

Productivity matters.

Distributing labour just lowers productivity. Yes, there can be more labour, but as there is less output, we all
work harder for less, and we all suffer. The fallacy that labour determines value and that there is a fixed
amount of work to be done has to end. Such common sophism does nobody any good.

The scaling debate did not start in 2015. It started in 2008 before Bitcoin was even released. I should have
realised at the beginning that the people who started to attack Bitcoin would seek to try and undermine
everything I was doing. Way back in 2008, James Donald, a closet socialist seeking utopian society with the
pretence of being a libertarian, started the attack that I should have realised and seen through at the time.

James wanted an anti-corporate, anti-government solution where every miner is equal, the world has no
banks, and the big bad state will be attacking Bitcoin on a daily basis. Never did he think that maybe using it
for logistics systems, EDI, payment, voting, and much more, we would have corporations and the state using
Bitcoin. Not just as money but as an immutable layer for everything.

Honestly, I am sick of the head-up-the-ass teenage-level thought.

James A. Donald and the entire Core /Lightning community failed to understand Bitcoin and, when they did
understand it, really decided they hated it. It is why they seek the settlement system they want through
Lightning.

We can build a privacy layer on top of this — account money and chaumian money based on bitgold coins,
much as the pre 1915 US banking system layered account money and bank notes on top of gold coins, and
indeed we have to build a layer on top to bring the transaction cost down to the level that supports agents
performing micro-transactions, as needed for bandwidth control, file sharing, and charging non-whitelisted
people to send us communications.

The scaling debate, as I said, is nothing new.

The simple answer is that the debate has been between ‘how do we break Bitcoin’ versus Satoshi’s Bitcoin.
When I built Bitcoin, I always said that it would be commercial in the end. I’ve been very clear on it the entire
time. It is not about decentralisation in some democratised system. That is demagoguery. The aim was to
create a stable platform. An evidentiary system that allowed monetary exchange with traceability that acted
within the law. I don’t fear a corporation or government takeover on a global system, and nor should anyone
who is rational. In particular, the technology acts to ensure accurate reporting and accounting within
corporate structures. It incorporates everything that is necessary to ensure that corporations are honest.

It is not a scaling debate, it is a Marxist social utopian debate about this idea of a world without law and
government. Bitcoin was launched when it was because of the financial crisis. It did not start and the design
was not created because of the crisis. It started years before, because I wanted to find a means of creating a
system that would simplify auditing. When I worked at BDO, I took the idea further, and was involved with
the development of computer-aided audit tools (CAATs). I was constantly surprised by the level of fraud and
corporate misappropriation within every organisation I ever audited. Most issues were very small and added
up to be a material amount.

The launch of Bitcoin occurred when it did not as a response to the global financial crisis but as I was offered a
golden handshake and could leave in December 2008 and start working on the project in 2009.

So, I really don’t give a rats whether you like me, whether you believe me, or a damn thing for that matter,
because I have the force of law. Satoshi is not a socialist shit show; he is a grumpy overworked, overeducated
bastard! So get over it, because it’s the best you’re getting. You know what, we have filed 692 patents. And it’s
only just beginning, as the results only come to be published years later with the method we are having. In
the next five years, I expect to have over 10,000 patents filed.

Such is what Bitcoin is about. It creates global megacorporations. Not little ones like Google, Facebook,
Amazon, or Apple. Bitcoin will create corporations that dwarf every organisation in existence in Silicon Valley,
and I’m understating.

All of the attacks, all of the people out there who I spoke to and told me time and again how Bitcoin was
broken, how their socialist ship shell of an idea didn’t work with it can go stick their heads up their asses. It
works, we are scaling it, and I’m patenting more of the system than you will ever understand.

I am sick of people who hate the notion of Bitcoin. It includes people like Hal Finney too. Again, Hal had his
head up his ass, and sought something other than Bitcoin. He didn’t want a payment system, he wanted his
crypto anarchist shit-show money.

Bitcoin is not high-powered money.

I’m sorry I didn’t stand up for Mike Hearn. He ended up doing the same thing I did in a way because he
wasn’t tied to Bitcoin the way I was. He is someone I should have fought for.

Absolute ass hats, Peter Todd and associated and complete and utter idiots really pushed their idea. They
talked about the perverse incentives miners had. In the typically Marxist and insidious rhetoric that could
have come right out of the book 1984 , such guys twisted everything into the idea of decentralisation at all
costs.

Selling fools on the idea that big corporations are bad.

Who do you think creates computers?
 Who do you think creates network chips and CPUs?
Who do you think runs silica and fabrication labs?
Who do you think runs global logistics systems that move things around the world?

It’s simple: huge corporations.

Guess what, without huge global corporations around 6 billion people will die. We are in a world of global
connectivity and corporate interconnectivity. The utopian bullshit is utter crud. The reality is, corporations are
going to exist. Global megacorporations are going to exist. Bitcoin is not a reaction to them. Bitcoin makes
bigger, more connected, more global systems. Like it or not, globalisation is here to stay.

Here’s the thing: the Bank Secrecy Act means that every single Lightning transaction will need to be recorded
on an immutable ledger. You can track and trace every node. Lightning is really easy for doing so. The reason
Lightning is so easy to track is that it requires a near 100% up time, and when a system goes down even for
seconds, it collapses the whole channel.

I will publicly release methodologies to take down systems like Lightning. I have a better plan: I’m giving
them to government.

See here’s the irony in calling me the Bond villain… James Bond works
for the government.
Bitcoin is an incentive model. As it is written in the white paper: if a greedy attacker is able to assemble more
hash power than all of the honest nodes, the attacker still has to choose between defrauding people or
getting paid to validate transactions. It works because the protocol does not change. And it is very specific.
The incentive model of a blockchain does not allow a protocol change.

Very simply, any time a new addition is made to the protocol, it splits from the network. All of the old systems,
all of the SPV nodes, all of the people using Bitcoin continue on the original protocol. In telling people that
they need to update their software so that they have the new protocol, developers are misleading people into
switching from Bitcoin to another system. Such is why the 51% attack is not a problem. Even if an attacker
gains 51% of the network’s hash power, the best they can do is spend their own transactions or those of
whom they are involved with a second time. In doing so, they have also left an immutable evidence trial —
which is admissible under law.

The system becomes better incentivised over time. With each halving, the incentive is funded with
transaction fees more and more. Consequently, it becomes more and more difficult to attack the system. If a
greedy attacker assembles a large amount of hash power, enough to take over 51% of the network, and he
seeks to change the protocol, what ends up occurring is that he splits off into a new protocol. Both the old
and the new system run simultaneously. The problem, though, for the attacker is that transactions do not go
through his system. He needs to mislead users into thinking that the new protocol is Bitcoin. It requires that
all users change protocols.

It has nothing to do with running home-user nodes. Only miners run nodes as a node creates a block.

Wallets will validate transactions that they receive. In particular, a merchant will check that the transaction he
is receiving contains all the required details to ensure that the transaction is valid. It is a part of how SPV was
designed to work. Consequently, the merchant would need to change protocol. The merchant does not need
to validate every single transaction as a node does. He only validates the format of the transaction he has
received as payment. He keeps a record of it, a copy, as it is immutable evidence that is admissible in court. It
acts as a receipt, an invoice, and more, and allows him to validate on the node network the state of the
transaction source and whether any double spending has occurred.

If the merchant detects any double-spend attempt, he will know about it within seconds, and he can detain
the person violating the law just as a shop will detain a shoplifter. More importantly, though, there are actually
valid reasons to double-spend. But such transactions will not be completed in such a manner as it is clearly
illegal.
Nodes vote not to change the protocol but rather on whether they will build on a particular set of
transactions or not. The reason the protocol doesn’t change is that it is outside the purview of nodes to alter it.
Nodes can choose not to process a particular form of transaction, and it is enough to make such a decision to
effectively stop such a form of transaction from being used for some period of time. Doing so will not allow
the addition of new protocol features.

The effect is that changes to the system such as Segregated Witness in CoreCoin (BTC) create an alternative
to Bitcoin. The misleading part of it is that they create an airdrop of the existing network to mislead
consumers.
Proof
By Craig Wright | 13 Mar 2019 | Bitcoin & Blockchain Tech
The code-is-law movement is a pernicious attack on freedom. There is no definitive means to assess truth
through a computer program. The strength of law comes in its flexibility — the ability of judges and juries to
weigh evidence and find a balance based on proof. Those seeking to subvert justice will tell you that proof
can be obtained through mere digital data, that evidence through a simple key is sufficient.

Such a movement, one of code as law, is all Bitcoin is in opposition to.

It is all anyone who believes in freedom should be opposed to. It is something that childish hackers and
those aligned to states who oppose freedom seek to promote. It is not simply leaving choice to a mere
algorithm, but in taking away the power from the existing system, they seek to weaken the underlying
tenets of law and the structure of society. They call it by many names, some say it is anarcho-capitalism,
others do not care for the label, but just seek disorder and chaos. Yet with all, the aim is very clear: to
undermine the nature of justice.

Gli Hecatommithi, published in 1565 by Geraldi Cinthio and the inspiration for Shakespeare in the creation of
(the tragedy of) Othello, begins with the refrain:

There once lived in Venice a Moor, who was very valiant and of a handsome person; and having given proofs
in war of great skill and prudence, he was highly esteemed by the Signoria of the Republic, who in
rewarding deeds of valor advanced the interests of the state…

It is an interesting piece and well worth the read, yet it also comes to the heart of the matter: what is proof?

Many will have you believe that signing a message with the digital key is itself proof and not mere evidence
in the construction of a case. It is a fallacy I need to rebuke. It is an idea that is miasmic through its virulent
and noxious constitution. Being of mephitic nature reminiscent of toads wallowing in the pond they
defecate in with its septic rankness, it pollutes the minds it touches.

The Moor, Othello gave proof through deeds. Yet such is what some would seek to obfuscate. They seek to
obscure the very meaning of proof for it eats at the heart of law.

Companies
When it comes to companies acting digitally, there cannot be a company signature, for a company does
not act. It (the company) has human agents, directors, and officers, and they act for the company. They can
sign, they can bind the entity, and they can be bound. Not a computer program, but people.

Digital signatures of files are based on data that must be securely stored to remain of evidential quality. In
asserting that a digital signature is proof beyond a doubt, we remove the human element of law; it is at the
heart of the attack on law and society that those seeking the code-is-law movement deploy to muddy the
already turbid waters.

It is an attack that we can call to be of burden-shifting analysis. It is one designed to undermine the scrutiny
of the complainant’s evidence in determining sufficiency. One key aspect of any requirement for evidence is
a burden of proof. First, we must adduce whether a party has a duty to prove a disputed assertion or
charge. It consists of a dual burden of put-forth suasion and the burden of production. Such is the
evidentiary burden or onus probandi.

In such an analysis, we must first ask, who seeks to prove?

The burden of proof is due to one carrying the risk of non-persuasion. In a trial, the judge or jury when
presented with the evidence will be convinced or not. Not because of a digital key but through the full
weight of evidence.

In common-law trials, it is not the mere possession of a file that leads to one being found to have induced
insufficient evidence to promote a burden of as proof may be required. A burden of proof denotes the duty
of establishing the truth of operative facts surrounding the issue in question to a level where the
preponderance of evidence supports the assertion or not. It remains a matter for courts and people, for
juries and judges. Here lies the insidious nature of the attack upon law; yet law is not binary. We cannot
make law binary, and code cannot be law in any fair society.

Pro opere et labore

For work and labour is the proof. Othello had given proof of his valour through action and deed. A signature
issued through a digital file is at best a conditional or presumptive proof, that is, a fact that amounts to
proof where no other fact amounts to disproof. It is not in itself more than mere evidence. In civil law, there
is a term known as full proof , which is a proof by multiple witnesses or public instrument.

It is insufficient to require others to prove without reason. You may seek proof, and before investing money, I
would warrant such a test, if it is the reason and base of your judgement. In seeking to determine the
burden of proof, we must start with an analysis of the parties. Who is seeking proof? What are they seeking
to prove, and who are they seeking against?

As a self case study, I will bring up the story of my qualifications. They started to be attacked, yet I had not
gone to the press or sought publicity through them. Whilst I was out of reach for the media, some use such
a way to attack my name. I did not seek to prove. Yet so is the point; why must I? Later, I approached the
matter by bringing forward a selection of my degrees — not all, not even half, but enough to demonstrate
the felicity of the act and the false nature of the attacks. Here lies one of the problems with proof of social
media. The Internet as a commons suffers the tragedy of all open socialist systems. Without value, without
price, nothing is free; and the cost is a burden that even Atlas would shrug from his shoulders in utter
disgust.

So, for all the misinformed attacks on law, why would I bear the burden? Not as Hamlet did to consider the
easy way out, but rather to take the burden of an oppressive is wrong in pangs of despised misplaced spurn.
To take a calamity of a long life full of grunts in the waiting of unearned effort. To take action, and in doing
so oppose the cowardice of conscious acquiescence to the mob and the rule of the common social group
we cannot even see. For so is the cesspit of the unearned social attributions that we call social media.

Why not digital proof?

The insidious nature of code as law is the desire to bypass the institutions that have built up over the
centuries. None of it will ever be achieved, yet it is at the heart of all the attacks on what Bitcoin is and
conversely, on what they seek to create. You see, Bitcoin is not just an idle and unassociated key. It is not
anonymous but pseudonymous. The distinction is important, it is the difference between a digital identity
and the abyss of binary law enacted through code alone. So you ask, why is it so calamitous and repugnant
to those who value truth and honour society?

It comes from the nature of trust.

Mere possession of a file is not evidence, nor can it be held to be anything but evidence of possession of a
file.

It is an important point that must be stressed. Computers are not secure, and the average person will never
get to the point where everything they do can be secured. There are ways to make security better and
reduce the strain on an unknowing population who do not know how to maintain the security of digital files
that lead to identification and evidence, but even then nothing is perfect. In a world where everything is
digital and by those who seek the dystopia arising through code is law, we would see people wrongfully not
only accused but framed.

More, the burden of proof lies on those seeking to adduce evidence. I don’t care for your belief. I don’t want
your adoration, so I have nothing to prove to you unless I choose to. It is another important point to stress;
the media seeking either to appoint a king or to cast one down is not seeking truth. In the world of click-
bait media, the truth is roadkill after a lorry has passed. It is a world fighting for relevance and one that seeks
to exist outside of truth, for truth is its enemy. The truth does not pay for advertising, and it does not allow
retraction and commentary and social-media storms. The click-bait media consists of such things Bitcoin is
not.

It seeks to force people to jump and prance and act upon the stage of its choosing. Yet, I choose to play my
own game.

What is the right to privacy?

It is the right not to answer when others seek answers, to choose not to give to them. For, if it is not you
who have been promised, then where is the right that you think you have? The nature of the social-media
culture that has come through such a duplicitous and ensnaring yet deceptive and deceitful subversion of
journalism and print has led people to believe that they have a right to seek answers, not truth where
justice must be served, but in surreptitious and worm-like thrusts into the heart of truth.

By nature it is Machiavellian and in form perfidious, yet few see what it is and what it can become. The
digital culture that some seek as a means to subvert the institutions that have come through slow
determination is a rot in the core of a fruitful society.

It is important to ask what is being sought.

In seeking to surreptitiously alter the nature of thorough reporting and of truth, of moving the onus of a
burden to those who do not need to provide evidence from those who seek to gain through the losses of
others, we see a means of hiding under the rocks that becomes the norm. It allows those who seek to prey
on the weak and the ignorant to hide behind the false veil of freedom that they call free contracting when
they cover a face of fraud with a mask.

There is no solution in mere digital keys. Bitcoin aids in reducing the cost of doing business. When used
correctly, it provides an evidentiary trail that can lower the cost of taking action in court, yet it does not
replace the court with mere keys. Most importantly, it doesn’t shift the onus of who must provide evidence.

Something that many have forgotten is an important part of truth. If I was to seek to profit saying that I have
multiple degrees when I do not, it is fraud. Yet, if I’m not seeking to profit from you, and I’m not seeking your
approbation, you also have no right for proof. When I chose to hand over evidence of a few of my many
degrees, I did so in a manner that was forced. If I choose not to discuss my studies in theology, and you are
not a part of the church I was once with, you retain no right to probe. As difficult as it may seem to those
brought up through the deception creeping into their ears through proof of social media, you do not have
the right to choose what will and will not be private in another person’s life.

When I was an Elder of the Uniting Church and acted as a trustee of the church’s bank, those within the
church had a right to parts of my past. They had a right to understand the theology I stood for and the
beliefs I held. Yet the world doesn’t.

What some fail to see is what they are due.

If I was seeking to raise money selling myself as the creator of Bitcoin, those I sought direct investment with
could ask me for evidence, if so is why they were investing. Conversely, if they were smart, they would not
look for proof of the past but to what I could offer going forward. Such would be evidence of work, of
papers, and of patents. It would entail reviewing code we plan to launch and those things we seek not to
discuss within the organisation.

Or, I can choose to prove what I want how I want to whom I want. You see, certainty has a price. So does risk.
It is funny how people fail to comprehend the value of information. Some, of course, see the value in
attacking me for what I choose not to do. Yet they fail to see the value they add.

I don’t seek to garnish attention from those within the ‘crypto’ community. In fact, those who acted as
steppingstones to get Bitcoin where it is for the most part have served their purpose and will sink slowly
into the mire. They have supported the weight of taking Bitcoin to where it is needed to be even as they
opposed it. And in doing so, many bore the weight of my steps as I pushed them down into the morass of
the quagmire they have created as they split away from Bitcoin seeking to make something else. It is fine;
their use has passed. And the ooze is slowly covering all they were. It may not seem this way to many, but so
is the nature of Bitcoin; it is, as some have called it, a truth machine, and in time all truth will come out that
needs to.

So what is proof?
No, it is not as you’ve been told. Evidence is not possession of a key. It is evidence of possession of a key and
no more. Imagine if it was all that was required. If evidence could be adduced from the mere possession of a
key, then all that would be required in attacking the cases against Silk Road and ones such as Ross Ulbricht
is for another to use a key. If we are arguing that the possession or use of a key is a singular proof, then ones
such as Ross Ulbricht would be proven to be falsely accused if another was to spend using one of the
respective keys. If one that had been attributed to an account was used elsewhere, then suddenly he would
be innocent.

Ross Ulbricht used the alias Dread Pirate Roberts. Just as in the story from which the moniker originated,
another claimed the handle and ID of Dread Pirate Roberts, reopening the Silk Road website one month
after the original site was seized by US law enforcement, and Ross claimed another had held them before
him. If a mere contrivance was sufficient to avoid law, he would be out now.

Yet, it is not how law works. It is not how truth works.

But it is what some want. The average person will never be as secure as they should be, for the cost of
obtaining such level of security exceeds what most people are willing to pay. Yet, if merely finding a file
containing a private key is a means to get someone off of a crime or conversely to frame someone falsely for
a crime they did not commit, then we no longer have a foundation of law. It is what some seek.

Some fail to see the change that is happening. It’s slow, and it will take decades, yet it’s going to occur. The
promise of blockchain, Bitcoin, lies in the truth. Not the subverted version that they sell. Not sidechains and
Lightning and methodologies that allow people to create many sets of books and ledgers, but one truth,
one source of immutable evidence.

What you are going to see in the next decade is the creation of thousands of pieces of intellectual property.
Software and code and more patents than many countries own. Such is my legacy. Not caring what you
think or even allowing you to understand me fully but creation as its own reward.

It may be droll, yet I find it a little whimsical that as others seek to attack my “reputation” within the
“community,” I converse with lawyers, bankers, and business people… And they such as the lawyers “get
Bitcoin” when I explain it.

They get what Bitcoin actually means.

Why Lightning will never be currency, and why BSV matters
By Craig Wright | 15 Mar 2019 | Alternative Coins & Systems
Under the provisions of FinCEN, any exchange accepting and transmitting virtual currency is a money
transmitter [1]. The law is rather explicit and simple to understand. It also facilitates a number of exceptions
that mitigate any problems with Bitcoin nodes (that is miners), yet captures Lightning and associated
payment systems that are layered on top of Bitcoin.

When going through the act part by part, we can see that an ISP or service provider is not included as he
who merely “provides the delivery, communication, or network access services used by a money transmitter
to support money transmission services” is explicitly exempted. Note, though, that such a rule would not
incorporate Lightning nodes as they facilitate the passing of money and funds for other individuals.

More importantly, those who seek to take crypto (Bitcoin) for payment of goods and services or through the
use of commodity storage on the blockchain are also exempted as the act specifically exempts any party
that “acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service
through a clearance and settlement system by agreement with the creditor or seller.” Miners of course are
the clearance system. Conversely, in a Lightning channel, mediator Lightning Network nodes operate to
provide liquidity.

Lightning is in no way a clearance and settlement system. It is a payment system. It more importantly does
not act “as an intermediary solely between BSA regulated institutions.” Bitcoin networks are not registered
clearing systems. They may be covered by settlement and clearing exemptions, but they do not extend to
allowing Lightning Network nodes. Part of the problem is that Lightning is not a settled transaction. Bitcoin
remains settled within blocks. Lightning conversely acts to update a series of promissory notes.

Importantly, the exemption at point (F) requires that a node “accepts and transmits funds only integral to
the sale of goods or the provision of services, other than money transmission services, by the person who is
accepting and transmitting the funds.” It would exempt common Nakamoto payment channels and those
created by Mike Hearn. Lightning, though, is not simply between the two parties of a simple payment
channel. It requires multiple hops and intermediaries.

The average distance[2] on the Lightning Network is 4.9 hops.

If Alice and Bob deal directly, it is but one hop. Where Alice and Bob and Charlie interact, we have two hops.
The existing Lightning Network expands to up to 10 or 11 hops — while it is a minimal small size. The fact of
the matter is that there are four or five layers of intermediaries between people who are engaged in trade
when using the Lightning Network. Yet, no interaction or payment is made in a manner that allows the
recording of the transaction. As such, Lightning acts as a mixer network to confuse and obfuscate
payments.

It really doesn’t matter that bitcoin is not currency under the act. It further doesn’t matter in the US whether
it is a security or commodity for both are covered.

More importantly, the act defines monetary instruments:

(iii) All negotiable instruments (including personal checks, business checks, official bank checks, cashier’s
checks, third-party checks, promissory notes (as that term is defined in the Uniform Commercial Code), and
money orders) that are either in bearer form, endorsed without restriction, made out to a fictitious payee
(for the purposes of § 1010.340), or otherwise in such form that title thereto passes upon delivery;

(iv) Incomplete instruments (including personal checks, business checks, official bank checks, cashier’s
checks, third-party checks, promissory notes (as that term is defined in the Uniform Commercial Code), and
money orders) signed but with the payee’s name omitted; and

(v) Securities or stock in bearer form or otherwise in such form that title thereto passes upon delivery.

A money transmitter is clearly defined in the act, too. We do not need to worry about the limitations in the
term currency as the act incorporates “other value that substitutes for currency” and continues to
incorporate any “electronic funds transfer network; or an informal value transfer system”.

There is a defense in that the people engaged in activities infrequently without seeking profit for low value.
This would not incorporate the majority of Lightning nodes.

The act does not differentiate between standard currencies and convertible virtual currencies. In fact,
anything that substitutes for a currency (including bitcoin) is covered by the existing act. People involved
with ongoing local Bitcoin transactions who do not save the required amount of information concerning
those that they’re buying and selling from are breaching the act. FinCEN note that where a dealer acts
between a customer and involves a third party that is not part of the direct currency or commodity
transaction we have a monetary transaction that must be incorporated against the requirements of the
BSA. In particular it is noted that the transfer of funds between a customer and a third party, such as for a
Lightning intermediary node that is used in funding an account or transferring value in the transfer to
another party, is covered under the act.

The Lightning Network’s use of payment channels effectively allows

users to transact with each other directly rather than broadcast their
business to the entire world (aka public blockchain).
Such is the reality of what Lightning is seeking. They are not trying to scale Bitcoin or any blockchain for that
matter. They want to take payments away from the blockchain allowing parties who are engaged in
transactions on sites that sell illicit goods and services to bury their transactions in a way that prohibits
government organisations such as FinCEN from tracing them. Of course, it is already illegal.

In explaining the reason for the existence of the Lightning network, it is said that rather than leaving the
blockchain to track and monitor payments, something that meets the requirements of a monetary transfer
system, users contract through payments between each other on their own. They would avoid the
expensive and time-consuming interactions with the blockchain. And it is claimed that where there’s a
dispute, the balances on the Lightning Network will decide how the funds are split up. And so is the rub;
only the balance would need to be maintained. In particular, if Lightning was available, functional, and able
to actually send funds, then a system such as Silk Road could be created in a way that would stop those
transacting from being traced.

Lightning is not anything like the original payment channel that was defined within the white paper. The
original channels all settled on-chain, and allowed updates on an ongoing basis. Here is where the similarity
ends. The difference is that the original channels acted between two parties. The two parties maintain an
existing relationship in buying and selling until they settle the bill. Lightning conversely alters such a
relationship by allowing multiple parties and multiple hops. As in the image displayed below, we see
multiple parties in the Lightning transaction.

Lightning is a payment channel with trusted intermediaries added into Bitcoin.

It is sold as a scaling solution. The reality cannot be further from the truth. The simple fact is that it is a
means of losing transactions. The concept is simple; the parties to the transaction maintain an offline ledger
that is settled periodically. The difficulty comes as there is no recording of the intermediary states. When
there are many routes and many hops, the parties to a transaction on either end do not see the
intermediary exchanges, only the balance. When it finally settles on chain, all of the intermediate steps are
lost. The particular reason for this is that Bitcoin maintains a complete record of all transactions. Even where
two parties set up a payment channel.

Some argue that a payment channel between Alice and Bob using the original methods in Bitcoin would be
less secure. Yet, the argument they use for Lightning incorporates a multi-signature wallet whereas that
used in the supposedly insecure payment channel uses a single key on each side. Such shifting of the
goalposts is widely used within the community to hide the fact that they are not seeking to scale or to
secure the network but simply to create a means of losing transactions.

Routing is important in Lightning, as liquidity hubs, that is middle men, are required.

A further important note is that parties in the Lightning Network, the nodes acting as hops, are “incentivised
running these connecting nodes through (small) fees that are paid out every time a transaction uses one of
their connections.”

1. Routing through existing payment channels may involve a transition fee (negligible) on any or all of
the channels.

Lightning nodes are in no way analogous to miners on the Bitcoin network. In Lightning nodes, the
payment is incentivised through the hop in a manner that allows highly centralised nodes to act for profit.
Liquidity is an issue as the channel must have a path with more funds than the channel needs (including
fees).

The claim is:

Privacy — the participants in the channels which the payment goes through don’t know anything other
than who ‘bounced’ the money and to whom it is supposed to ‘bounce’ on. So, in our example, the
friend’s mother will not be able to tell if her son is the one who made the payment or that I did. She
doesn’t know if the payment is for Starbucks or is meant to “jump” from Starbucks to another payment
channel so that our consumption habits and privacy are preserved.

Yet it is not privacy they seek, it is anonymity. It is designed as a system with an end goal of losing
transactional data. We can in fact rewrite the claim in a manner that is more accurate:

Total anonymity— the participants in the channels which the payment goes through don’t know
anything other than who ‘bounced’ the money and to whom it is supposed to ‘bounce’ on. So, in our
example, the fencer of stolen goods will not be able to tell if the drug dealer is the one who made the
payment or that I did. She doesn’t know if the payment is for meth or is meant to “jump” from the
fence to another payment channel so that our consumption habits and privacy are preserved.
Importantly, it doesn’t allow the government to track illicit behaviour.

Lightning is a solution to problems that some see within the Bitcoin network. They are not problems of
scale but a rather problems that stem from pseudonymous transactions and not anonymous ones.
Lightning is designed with one purpose, the destruction of records such that parties engaged in illicit
activity including terrorist funding, child exploitation, and drug sales can easily act in a manner that was not
available using Bitcoin.

As with Monero and other systems that are designed to bypass legal requirements, the push for Lightning
and now the proposed integration of Schnorr signatures into Bitcoin is purely a methodology designed to
subvert privacy into anonymity.
Lightning is a series of hops through middle men who act as TTPs (trusted third parties).

An important and seldom discussed aspect of Lightning is that it creates a few key hubs that pass 99.8% of
the traffic on the network. Effectively, they are paid banks that act outside of the requirement of the Bank
Secrecy Act.

The few nodes detailed in the existing Lightning-network map aggregate the majority of transactions. It is
not outlying nodes with additional distance in hops but rather such central highly connected nodes that act
as money transmitters for profit and yet do not maintain records as required by law.
Under financial law, TTPs are required to record all transactions that they help process.

The lie that is promoted is that Bitcoin cannot scale. In order to promote such a lie, artificial limits have been
maintained on the protocol, and the fundamental aspects of what created an immutable evidence chain
that can act as money had been removed in the creation of an airdrop that many people believed to be
Bitcoin. BTC is everything Bitcoin was designed to oppose.

In order to minimise the prevalence of money laundering, the BSA requires money handlers to report
transactions involving more than $10,000 in value from one customer as a result of a single transaction or
two or more related transactions that occur within a 24-hour period. The BSA requires that money handlers
report suspicious activity. It includes money laundering or fraud. In fact, it requires that any transaction
between parties that may have interacted with a dark-web site be reported. An activity is suspicious where
$5,000 in funds or assets that may have originated from illegal activity or which have transacted through
different sources in a manner designed to hide any illegal activity is believed to be involved.

Bitcoin itself is not immune to the act; in 2017, the US treasury took action against foreign-based virtual
currency exchanges including BTC-e.

As we saw in United States v. Budovsky , №1:13-cr-00368 (DLC) (S.D.N.Y Sept. 23, 2013), digital currency is not a
safe haven, digital currency comes under the purview of money-services businesses. As such, a promissory-
note system such as the Lightning Network is within the scope of the law as it stands today. Simply arguing
that it’s decentralised means little. The network is controlled by nodes owned by people. The law does not
care whether your computer operates without you watching over it; every system has an owner, and every
owner is responsible for the actions of the computers he runs.

For all the efforts to avoid law, Lightning is nothing new. As with every system before it, the digital-currency
system within Lightning is covered under the requirements to report suspicious activity and anti-money
laundering (AML) provisions. Nodes that don’t comply are simply in breach of the act.

Notes:
[1] FinCEN’s regulations provide that whether a person is a money transmitter is a matter of facts and
circumstances. The regulations identify six circumstances under which a person is not a money transmitter,
despite accepting and transmitting currency, funds, or value that substitutes for currency. 31 CFR §
1010.100(ff)(5)(ii)(A)–(F)

[2] See http://bitcoinvisuals.com/lightning

Finite State Machines in Script
By Craig Wright | 18 Mar 2019 | Alternative Coins & Systems
This note provides methods for constructing deterministic and non-deterministic finite state automata in
Bitcoin Script. The “best” method produces a one-to-one relation between the definition and the state table
of the automaton. An important feature of the technique is the absence of nested IF clauses.

In this post, I seek to start introducing people to the basics of the Bitcoin Script language (a Forth-like
language) and how it can be used in the creation of a new type of computation.

1. Introduction
Certain programming problems are difficult to solve procedurally even using structured code, but simple to
solve using abstract finite state machines (FSMs) [1].

For example,

a compiler must distinguish a text string representing a floating point number from an algebraic
expression that might well contain similar characters in similar order;

a machine controller must select responses to pre-determined inputs that occur in random order.

Such problems are interesting as a program that responds to indefinite input is closer to a “thinking
machine” than a mere sequential program. Thus, a string that represents a floating point number is defined
by a set of rules; it neither has a definite length, nor do the symbols appear in a definite order. Further, more
than one form for the same number may be permissible — user-friendliness demands a certain flexibility of
format.

Although generic pattern recognition can be implemented through logical expressions (i.e. by
concatenating sufficiently many IFs, ELSEs, and THENs), the resulting code is difficult to parse, debug, or
modify. Such an approach is highly unstructured.

Programs consisting mainly of logical expressions are often slow as many processors dump their pipelines
upon branching [2]. Using a series of Bitcoin Script to solve each possibility in parallel, it leads to a different
process and dynamic.

Bitcoin Script can be implemented as a well-structured language that encourages natural, readable ways to
generate FSMs. The present note describes several high-level Bitcoin Script implementations.

2. Case
A puzzle can be used in Bitcoin Script in conjunction with a key for the payment based on a series of output
steps. Where oracles are trusted or at least share-known keys, the system allows for input and output to be
created between systems and/or devices.

For instance, if we consider the common task of inputting numerical input, a poorly formatted system and
program allows for the user to enter the entire number before informing him that he typed two decimal
points after the first digit. A friendly program, by contrast, refuses to recognise or display illegal characters. It
waits instead for a legal character or carriage return (signifying the end of input). It permits backtracking,
allowing erasure of incorrect input.

Using the alt statement, in Bitcoin Script, a switch or case statement can be simulated.
A state table.

An example of an FSM is defined in Wikipedia:

http://en.wikipedia.org/wiki/Event-driven_finite-state_machine

An example of an FSM is defined in Wikipedia.

Here, the use of values stored in the alt stack allows for the creation of a switch or case statement.

A switch statement is a more structured way (than multiple if-else statements) to express conditional logic
in C-like languages. It usually looks something like:

A language system that converts case statements into alt statements in Bitcoin Script simplifies the process
of creating FSMs.

It allows us to have a simplified means of creating Bitcoin Script case statements:

which is semantically equivalent to cascading if statements:

Such a form of implementation has many uses. For example, we can use it in the creation of policy
contracts.

evaluate policy-holder-age also policy-holder-sex also smoking-flag

when 20 thru 40 also "F" also ANY perform young-female-policy

when 65 thru 999 also "M" also "Y" perform old-smoker

when other perform all-other-cases

end-evaluate

In such an FSM example, the “preform” state would be a token sent to a start oracle or agent. It is defined as
a deterministic switch.

The implementation of a transition table becomes a useful method for programming Bitcoin Script. It is
straightforward in Script to define and program something that resembles a tabular representation. Each
row corresponds to a possible input.

From the current state of the Agent/Script, selecting a column that specifies a cell that contains the
subsequent action to be undertaken is followed by the corresponding state transaction. From a
programming perspective, the distinction between an FSM and a jump table is that the FSM maintains a
state variable his current value specifies from which row the next input will select an action and transition.
As such, a mini compiler for FSMs can be programmed simply to create the desired outcome in Bitcoin
Script.
We may then create more complex algorithms such as the one given in the example above. In the example,
code can be determined that increases payments on successful results or reduces the payment when
things are not favourable.

The agent would take the initialisation payment and output and reset on a repeat.

We can see the example defined in a state table below:

3. Fuzzy State Machines

A means of reducing the predictability of the AI behaviours is to allow an AI agent to combine multiple
behaviours at the same time — which is achieved through the use of fuzzy logic to implement a Fuzzy State
Machine (FuSM). It differs from binary logic in that states in an FuSM are not restricted to being on or off;
instead, they can hold an intermediate value.

So at any point in time, more than one state may be active and to some degree on and off. If we go back to
our police-character AI in the open city game, there may be a chasing-the-player state which can be
combined with either the on-foot state or the in-vehicle state.

Counter-intuitively, such an approach can reduce the complexity of the Script state machine, while adding
more complexity to the behaviour. A FuSM will typically require fewer states, due to the possibility of
combinations. Utilising a Fuzzy State Machine allows the combination of actions that can be less
deterministic and predictable.

The engine code providing the means to change states based on fuzzy logic is more complex than the
straightforward code needed for binary decisions. But, assuming that it is implemented in a suitable
manner, the state machines can be expanded upon, or rearranged, with no changes required on the
engine.

An approach for converting a deterministic FSM into a non-deterministic FSM is to simply use a random
number generator to select a triggered rule. It may not be necessary to implement a deterministic finite
state machine to have a perceived level of unpredictability; the same can be achieved by a system or object
that has a large number of defined states and a complex mesh of transitions, giving the appearance of
being unpredictable.

Finite state machines are a simple and effective artificial-intelligence technique for controlling a system and
providing the appearance of intelligence. In some cases, the perceived appearance of intelligence is more
important than the actual intelligence, and it is more important that FSMs are able to provide such a
perception.

Randomness can be seeded through block hashes and depth with the addition of address and value input
and a hash randomisation process. After a value has been “randomised,” the 8th digit, for instance, of the
hash can be evaluated in Script as a FuSM.

A further example would be the implementation of a “Range” [3] function where the case is decided in the
value of the hash lying within a determined range.

4. Why Bitcoin FSMs

FSMs and even FuSMs are simple, and can be predictable (that is, a deterministic FSM; as noted, an FuSM
would add a degree of randomness). In each case, given a set of inputs and a known current state, the state
transition can be predicted, allowing for easy testing. In an FuSM, the state can be determined and tested
probabilistically.

Due to their simplicity, FSMs are quick to design, quick to implement, and quick in execution.

FSMs are an old-knowledge representation and a system-modelling technique, and they have been around
for a long time; as such, they are well proven even as an artificial-intelligence technique, with lots of
examples to learn from. And it is easy to transfer from a meaningful abstract representation to a coded
implementation.

Bitcoin Script takes things from a simple and straightforward approach to defining finite state machines.
The implementation of a mini compiler that transforms the tabular representation of an FSM to Script
allows for the simplified creation of smart contracts. Extended, such an approach could be implemented
allowing any object-orientated language to be converted into Bitcoin Script. Such an approach can be
implemented on both deterministic and non-deterministic FSMs. In non-deterministic ones, we use
additional information beside the current state and current input to decide on the next transition. Such
additional information can be anything from block height to calculated random values.

An FSM that passes over an exponent field in a string that could be a floating point number is represented
in the state-transition table above.

As can be noted, the creation of a system to convert simple state tables into more complex FSMs greatly
increases the value of Bitcoin Script, and allows for the creation of complex smart contracts.
Example: Quake
The full life cycle of a Shambler monster from Quake is defined below.

A Shambler is a monster entity from the single-player component of Quake. Its mission in life is to kill the
player, once it is aware of the player.

Example of sub-states: the monster can only perform one attack per execution of the attack state; Melee —
close, Missile — far, depending on inputs. We can use a random number in Melee to add unpredictability.

Blue : states.

Orange : triggers.

Black : entry and exit point.

Arrows : state transitions.

Each monster object, for instance, can be defined as an agent/oracle, and in such a manner, a series of
parallel scripts could even be used to create a Quake Computer Game through the implementation of a
series of layered/hierarchical FSMs.

A further example is the full life cycle of a Rocket from Quake:

A Rocket in Quake is fired from the Rocket Launcher weapon which may be possessed and operated by a
human player.

Blue: states.

Orange : triggers.

Black : entry and exit point.

Arrows : state transitions.

Each agent runs a script. It in effect creates a system similar to objects in OOP forms of coding.

Parallel Code
In the Shambler example, we can send a series of payment-channel-based communications back and forth
between the parties. Code can be included that allows for the spawn state and then the initial-move state.
At such a point, the system starts acting as a payment channel. And if-then conditions determine whether
the move state or the die state occurs. Where the move state is set to send information to the touch state, a
payment channel is used that is based on an nSequence update between the parties.

A fairly standard concept of a Bitcoin payment channel is linked in an image below:

Transactions are only immutable when they have been sent to a miner. That is, if we have Alice and Bob
interacting, and Alice is seeking to run her programme on Bob’s server, each iteration is an updated version
of the protocol used in the computer programme, such as the one in our Quake example.

The input from one transaction can be used in the calculations of a new under-broadcast transaction.
Each of the simple steps updates the last nSequence time value, and allows for a series of transactions
between the parties that will eventually settle. In the context of a game, we could have a series of updates
that are replaced one by one allowing concepts such as shadowing to be built into Script.
At any particular time, we have a series of templates being updated between the parties.
It can be unidirectional or bidirectional, and it can involve updates using secured information so that Bob
and Alice can only act sequentially. One example of such a system would be to integrate a hash chain
allowing Bob and Alice to update an index in order using a hash puzzle to prove that no transaction is out of
order.

As each transaction is sent, the nSequence values are updated — which leads to miners replacing the
previous version if they see it. When signed using a series of hash puzzles, incremental payments, or even a
dual signature, the system is safe. Alice could, for instance, send to Bob’s server using a two-of-two
signature scheme. Alice sends a partially signed transaction to Bob in CTx1, which is then replaced with a
further series of partially signed transactions (CTx2 — CTx4…) that consist of updated data and nSequence
numbers.

Periodically, Bob’s server will save the data by signing the last transaction in sending it to the blockchain.
Alice cannot cheat, and she does not have a completely signed version.

The result is one of the simplest ways of looping a Bitcoin transaction.

Later in the year, I will explain the use of OP_CodeSeparator, and once you start to see what it does, you will
understand how powerful some of the methods can be. Luckily for us, nobody managed to grasp any of it,
and many called it all a fraud allowing us to file a number of patents on topics that would have been
available freely had I not been attacked.

Many transactions at once…

What many people fail to grasp is that Bitcoin transactions can also act in parallel with multiple transactions
running in multiple parallel channels. That is, we can code systems in the same way that CuDA-based
scientific programmes or GPU games are developed.

Looking at some early Forth coding techniques, we can embed multiple sets of data in multiple
transactions.

Transactions can be used to immutably store any data and as a series of linked functions that can run
individual components that are stored and accessed on the blockchain. Unfortunately, far too many people
have been trained and brought up on the concept of code that does not thread. In particular, the
methodologies used within Windows and Intel-based systems are incredibly different to those within
Bitcoin and older systems — many of which ran across many parallel systems and processes.

The concept of looping within Bitcoin incorporates both unrolling as occurs in GPU-based compilation now
and running multiple threads in parallel. Importantly, if we take something as simple as a for-each loop, we
create the concepts by sending it back and forth between elements. It can even be done in an individual
wallet. If we take the wallet itself as the programme, we can utilise a variety of both online and offline calls to
securely create input and output signals that link to transactions.

We can imagine our for-each loop waiting for input for the wallet. Each time the user hits a particular key,
information is sent back to the wallet that tests a statement. It could be conducted on the user’s machine or
even on a remote machine. For instance, the user types in a particular password which is securely sent to a
remote server and validated against a hash-puzzle solution, to see whether it is in the required element,
where the system can give different results and continue based on input or end.

We could, for instance, have a transaction that collects and updates information on a IoT system that
monitors energy use. It could collate information from multiple servers and agents either by direct
communication or by monitoring other transactions on the blockchain and collating information from
within the same. The in-state could be writing a payment to an energy company or turning off the device.
I would recommend people have a look at the Starting Forth site:

Do…Loop – Definite, Indefinite Loops

In Chap. 4 we learned to program the computer to make “decisions” by branching to different parts of a
definition… www.forth.com
And:

http://galileo.phys.virginia.edu/classes/551.jvn.fall01/primer.htm

The true reality is that Bitcoin is far more powerful than people imagine. In the coming weeks, I will start to
detail a number of simple Forth-like instructions and lessons involving Bitcoin Script.

Notes
[1] E.G., A. V. Aho, R. Sethi and J.D. Ullman, Compilers: Principles, Tools and Techniques (Addison Wesley
Publishing Company, Reading, MA, 1986); R. Sedgewick, Algorithms (Addison Wesley Publishing Company,
Reading, MA, 1983).

[2] J. V. Noble, “Avoid Decisions”, Computers in Physics 5:4 (1991) p 386.

[3] http://dxforth.mirrors.minimaltype.com/miser.html
Free Speech
By Craig Wright | 18 Mar 2019 | Bitcoin & Blockchain Tech
Free speech is not the right to be heard on any platform but rather limitations set by governments and
authorities in blocking individuals from speaking. It has nothing to do with allowing a platform, it is
not a positive right.

The biggest attack on free speech right now does not come from governments.

Free speech is attacked when people are drowned out and those who wish to listen do not through
fear or ridicule placed against them.

The problem stems from the socialist commons that people try and say is the open Internet. Like every
system that is not commercially valid and sold for profit, the Internet has become a sewer. In allowing
social media to be falsely sold as free, when in fact it is far more expensive than any system should be,
we end up oppressed in the manner that we are.

It is not government that is the oppressor, but rather the ignorant and those trolls in society that seek
to oppress others through their own hatred and discontent are. Is not government we need to fear for
such ignorance; it is a far more pernicious threat.

We have the right to exclude people.

We have the right to our own copy. When we say something, write something, or create it, it is ours
and we have a right to choose how we disseminate it. We should be able to profit for and through it.
We should not be selling our futures, our ideas, and our knowledge, or even our social
communications to those who run the current social-media organisations so that they can simply sell
them inefficiently for badly placed advertising or, worse, as a means to gather information about us.

Free is the evil within the Internet.

And worse, free is incredibly expensive.

Under the Digital Millennium Copyright Act (DMCA) and privacy provisions within the United Kingdom
and European Union are controls around stopping people from bypassing security or privacy controls.
Allowing bots to bypass such controls is a criminal act. Unfortunately, Twitter makes money out of
such things, and allows people to intentionally bypass the law.

The people within Twitter are criminals.

It’s very simple; no terms of service, especially those that leave the rights of the copy holder with the
product, allow for the intentional bypass of security controls. Twitter has a number of privacy controls.
They are designed to allow private communication. Intentionally allowing people to set up bots
designed to bypass the security controls is a crime.

Simply put, organisations such as Twitter are designed purely to sell your data, and they do not care
whether they are criminally breaching the law. Breaching copyright is a serious offence. Those in
organisations such as Twitter should understand that their organisations are liable when they fail to
take action. Doing so is not censorship, it is protecting the rights of the copy holder. Free speech does
not mean other people are free to steal your works. Free speech does not mean privacy can be
abrogated to the dustbin of the Internet socialist system that seeks to create the tragedy of the
commons on a grand scale.

The Solution
The solution to the problem is to commercialise everything. Doing so will actually benefit everyone.
Right now, many thousands of adverts are sent back and forth mostly unread to earn mere cents. Your
data is sold, and you have little control over your information.

Bitcoin and Metanet will change the nature of such things.

Every post on a social media platform would be able to be transmitted through an encrypted smart
contract. Doing so would mitigate the ability to post illicit material in a manner that people could find
an index easily, but more importantly, it would allow for a service that is not free. Because remember,
free is the most expensive thing on the Internet. It would allow for a system that promotes truth and
penalises trolls. If everybody needs to post a small micropayment and escrow a small amount of money
to use the service, then each individual who is honest can earn every time someone tries to attack him.
Reputation can be built over time through tokenised exchanges, and individuals can charge more
from those who attack them.

Rather than blocking, individuals could be meted at different levels. For those who really act to troll,
who are offensive, they may be filtered by increasing the amount they would need to pay.

As an example, we could allow payments in the following manner:

Trusted parties could be charged 1/10 of a cent or even a flat fee;

individuals who interact with you on a regular basis as associates could be charged a cent.
Organisations seeking to advertise or sell something to you could be charged $0.50.
Individuals you seek to block could simply be charged an exorbitant amount such as $1000 per
post or link that includes you in something.

If you want freedom of speech, you need to remove the right for individuals to shout you down. It is
not the strong or powerful that need free speech, it is the meek and those in society who cannot be
heard. In allowing social media to become the cesspit, it has become We destroy the rights of the
many longing to be heard. We destroy ideas, and we degrade society.

Everything has a cost. Not all costs are monetary, but they always exist. Until people realise it, they will
never be free.
Learning Script
By Craig Wright | 18 Mar 2019 | Alternative Coins & Systems
The foundation of recursion comes in 6 functions. OP_ADD and OP_1ADD encapsulate point 4 and point 2
(below) respectively. Point 6 is completed using OP_MUL. It leaves us only the Monus, the Characteristic,
and the Identity functions. They will be covered later.

Following Godel’s Axiom, all mathematics that is decidable (and as such, we may say, anything of any of use
in science, engineering, and finance) can be solved using the following six (6) constructs.

The 6 functions are the primitive functions used in the characterisation of computability using recursive
functions.

Multiplication Function:
OP_MUL covers the x.y function at point 6.

With a b OP_MUL , a is multiplied by b.

Successor Function:
Point 2 is simple; it is covered using OP_1ADD.

The successor function acts to form the level-0 foundation of the infinite Grzegorczyk hierarchy of
hyperoperations. Such allow the mathematical functions to be built. They include the addition,
multiplication, exponentiation, tetration, and functions.

Addition:
OP_ADD covers Point 4.

a b OP_ADD: a is added to b.

The Monus Function

Today, I will start in earnest with a Monus function.

It calculates the cutoff subtraction. When we calculate it, we know that we will not have a negative value
returned. In creating mathematical functions and a compiler, it is an extremely valuable function.
I have expanded a more detailed script than is truly needed below. It is a rather careful and detailed script,
and a simpler function can be created.

The Monus function acts as follows:

More importantly, we can save other functions and call them such that they load into the Monus function.

Note how we can incorporate functions into functions.

Here, we have extended the results to calculate the Monus[S(x), S(y)] function. We can of course use any
function for a comparison.

There are more efficient methods to calculate the Monus. But I shall leave them to the reader.

© Copyright 2019 – 2021

Forks as a demerger, or a split as a copy?
By Craig Wright | 20 Mar 2019 | Alternative Coins & Systems
There is a lie and myth of decentralised consensus where a small group of developers alters a protocol and
says that it is a fork that somehow relates to the original system. Bitcoin was said to be set in stone, and it is
the only way the system works. I shall detail in this post why Bitcoin must follow the original protocol and
why alterations that take away from the white paper mean that they are no longer Bitcoin.

Forking the software is not the same as altering the protocol. There is a radical difference that people have
been trying to obscure. The reason for doing so is simple; they are misleading investors in a false and vain
long-term attempt to hijack a system.

A split would be covered by demerger law if completed legally and not as an airdrop…

The key technology within Bitcoin is the ability to create a single ledger. It cannot be divided into two and
remain Bitcoin.

One use of Bitcoin is to store information such as ledger records. Let us start by imagining that property
records are stored on the Bitcoin blockchain. Ask the question: if the ledger is copied, what happens to the
property record? If you have a real estate ownership record stored on an original protocol, and the protocol
has now been copied by a new set of developers who have decided to take the protocol in a different way,
ask the question: do you now have two copies of property? Can you sell the real estate record proving
ownership of your property to two parties and maintain a legal right under both titles? If you have a
company share, is the share now valid on both chains?

People (the ignorant, fools, or those seeking to scam others in reality) will seek to sell a false concept of
decentralisation. They will tell you that even a security token issued over Bitcoin or another copied
blockchain will allow you to democratise finance. It is utterly false.

There are many things that Bitcoin solved. The ability to bypass regulations is not one of the solutions. In
fact, it makes systems easier to regulate, and it makes it harder to operate outside the law. The concept of
an ICO and the so-called ability to operate outside of regulations is nothing but a re-badged penny
stock/pink sheet scam in the form that occurred in the 90s using USENET and websites.

Apple shares are decentralised.

Google shares are decentralised.

Monsanto shares are decentralised.

Here lies the point; anyone can buy an amount of common stock and vote. More importantly, there are rules
that protect not only the founders of such organisations but also small investors. This drive to say how
finance is being democratised because of ICOs and associated scams (every single ICO that has ever existed
is in some way a fraud designed to mislead and steal funds from foolish investors) is simply an investment
engine.

Prepaid investment tokens are not new.

There is not one single use case of any ICO or tokenised good that has not existed in some form in the 20th
century. Anyone who tells you that an ICO is in any way different is again attempting to pull the wool over
your eyes. Bitcoin can help businesses lower the cost of managing their ledger records. It in no way at all
helps democratise shareholding or even aids consumers.

More importantly, no blockchain will ever significantly reduce the cost of an IPO for a company. To make the
claim that it will materially change the cost of capital raising is to falsely and misleadingly claim that the
ledger and database behind raising capital are in any way a material aspect of the costs of conducting an
IPO. Blockchain does not help market. Blockchain does not aid in auditing statements and assertions made
about the future as they have not been recorded. The fact of the matter is that every ICO ever created has
simply been a pure scam designed to raise money by bypassing existing law and confusing regulators,
saying it is decentralised.

If you can change the protocol, you cannot call it decentralised.

The protocol associated with any blockchain is set in stone.

As soon as you alter the protocol as a developer, you have exerted power. It is the nature of decentralised
systems. If you can change protocol, you are proving control. Arguing that you are only a group of
developers is irrelevant. In the UK, we have the Unincorporated Companies Act.

In effect, if viewed as a derivative associated with an informational commodity, Bitcoin and any related
time-chain system (which is the correct term for blockchain) cannot fork the protocol. An alteration means
in effect that it is a system controlled by a small number of individuals.

Such control and power is important. When we look at Bitcoin, the rules allow miners to risk orphaning
blocks but not to change the rules. As such, I mean that the block cap is outside of the protocol. Miners can
accept an arbitrary limit with an understanding that if they choose not to take larger blocks or build on
larger blocks, other miners may bankrupt them.

The reality is that there has never been a group of more than eight people who control Bitcoin Core (BTC).
Consequently, all code changes, all protocol changes to the system are overseen by a group that is smaller
than many public company boards. More importantly, the same group has confused and misled miners and
investors into believing that you can only run Bitcoin by updating the software they provide.

It effectively makes them an unincorporated board issuing derivatives under their control.

If they could maintain software, yet had no rights to alter the protocol, it would be different. If the protocol is
set in stone, the actions of a group of developers no longer matter. There is no way to decentralise a group
of developers. Anyone who’s telling you differently is lying. Developers are people, and no matter whether
they use pseudonyms or not, they are simply individuals acting within a system that can be controlled by
the law. Even if they don’t have a formal partnership or a company, they are in effect simply an
unincorporated partnership or trust.

How does the fraud work?

Fraud is an attempt to gain money out of people through deception.

So I will quite simply call the airdrop scams associated with protocol changes a fraud. Creating a new coin
and competing based on a promise of a new system is different. As such, something like Ethereum Classic
(ETC), when it was originally created, was a completely new coin, and those owning Bitcoin did not receive
anything.

It is an important point;

In the 1990s, there were many Internet security offerings where shares would be distributed for simply
signing up to a webpage. There were also a number of attempts to split organisations and say that they
were not a demerger.

When miners act within the rules or change the limits within the rules of the manner that Bitcoin works,
only one ledger exists. If we take the introduction of a block cap, it is not a change to the protocol rules. Any
miner could seek to continue with blocks bigger than 1 MB, and if more than 51% of the network supported
it, it would be the new norm. There is no requirement to update or change the software.

It is the bait and switch, a change such as Segregated Witness, that is a protocol change and requires
software to update.

The miners, as they validate blocks, do not impact user wallets. To take two examples, if nodes start
enforcing a limit on the size of blocks or the number of transactions they will accept, it does not in any way
alter how users receive transactions. In fact, a user could have an nLockTime transaction set to run three
years from now, and it will remain valid.

Miners can choose what they will and won’t build on. But, it does not allow for the introduction of new
aspects in the protocol. It allows rules to be enforced within the protocol.

The distinction is that miners cannot force a change that alters the ecosystem. Any such change is the
creation of a new system and protocol. If we take the change implemented by the Core team, what we see
is not a vote on something like block size by miners. Rather, it is a group of individuals promoting a new
system.

We saw the same happening in the alteration by the Bitcoin Cash team.

When Bitcoin Cash forked away from Bitcoin, they promoted a radical alteration that required that they talk
to exchanges. Exchanges had to be convinced to alter the software running on their machines.

It occurred with the introduction of a new form of reordering, radically changing the way Bitcoin operates.
The Bitcoin white paper explains that transactions are ordered by time of arrival. It is a key aspect of what
Bitcoin does. Bitcoin Cash created an airdrop copy of Bitcoin by duplicating the existing ledger and then
continuing it going forward with the addition of an altered protocol. It incorporated new OP_Codes and
radically changed the block-ordering system amongst other alterations.

No amount of hash power alone can do so with long-term success. Interestingly, many of the Bitcoin Core
supporters mistakenly came to believe that a UASF could work and that users can set protocol rules. Which
is also an error. The distinction is that the protocol is set, and miners can choose to act within the protocol.

It is not Bitcoin that changed at the fork. It is BCH that was altered just as it was BTC that forked away from
the original Bitcoin protocol to drop the requirement for digital signatures.

And it is part of how they fool people. The current bucket shops that call themselves exchanges and yet play
loose and fast with other people’s money — acting outside of the requirements of law (such as the US BSA)
— alter a ticker symbol, and people believe that such is what dictates the underlying ledger system. They do
not notice that they need to update their software.

They do not see the updates from the organisations and companies that are running Bitcoin. They do not
notice that if such organisations and companies stay on the original protocol, their transactions will no
longer be valid.

It is an important point; miners can choose not to validate a particular rule at any time and risk losing profit
if they like to do so and others do not follow, but they cannot alter the protocol itself.

It is a key aspect of the security model of Bitcoin.

The quote “They vote with their CPU power, expressing their acceptance of valid blocks by working on
extending them and rejecting invalid blocks by refusing to work on them. Any needed rules and incentives
can be enforced with this consensus mechanism” only remains valid where the protocol itself is unchanged.

SPV — Simplified Payment Verification

People have either completely failed to understand SPV or helped mislead others when it comes to its use,
seeking to promote a false agenda. Importantly, if a user is storing keys, they can store an input transaction.

The customer wallet, that is the person sending a transaction, can even be offline. They do not need to
check whether change is sent to them, they dictate where the change is to be sent, and if the merchant
doesn’t send the transaction to the network, then the user is not ever charged.

SPV is far simpler than people understood. There are no needs for private proves or any of the other
boondoggle projects that people are seeking. All that needs to occur is for the wallet to store not only the
keys but also the transaction details for the last transaction. Consequently, if Alice is sending bitcoin to Bob,
and she has two input transactions (Tx1 and Tx2), then all she requires to store is the block headers, the
Merkle paths for the transactions that she wants to spend, and the transaction itself. Bob can simply check
the information and calculate the Merkle path and block headers to validate the transactions that Alice is
sending to him against the inputs. At this point, Alice only needs to keep the block headers, as I explained in
section 8 of the white paper.

Note the following features of the offline customer SPV wallet:

1. UTXOsTXs — Pre-loaded full, unspent transaction outputs (UTXOs) can be stored as pre-paid ‘money’
available to be data containing Alice’s available unspent transaction outputs. Full transaction data alongside
a Merkle path constitutes a Merkle proof that the transaction Alice is spending is valid. Hashing the full
transaction will give the TXID which is required as part of the input data for the new transaction spent.

2. Private/Public Keys — The wallet must have access to a set of private keys to sign UTX outputs and
public keys to specify change addresses when conducting transactions.

3. Merkle Paths — The Merkle path of each of the transactions containing the UTXOs will be used by the
merchant’s point of sale wallet to verify that the UTXOs are valid. Note the Merkle proof provided by such a
wallet does not prevent a double spend, but acts as a fail-fast mechanism against spam attacks.

4. Minimal Processing — The SPV wallet is required to sign the unspent transaction outputs (UTXOs) in
order to spend them. It requires the offline wallet to be able to implement ECDSA, meaning that enough
processing power is required to perform elliptic curve point multiplication and compute hash functions.

5. Block Headers (optional) — The customer wallet may wish to include block headers to verify that
payments to point of sale SPV wallets have been processed. It would also require storing the TXIDs and
Merkle paths after interaction with a point of sale wallet.

For Alice, even the block headers are optional. Bob of course will need them.

As long as we do not change the protocol rules, there is no way to attack the system. In fact, even if a group
of miners with more than 50% of the network chooses to alter the protocol, they will suddenly find that no
one is spending any bitcoin on their network. Such is the nature of a split. It is not miners voting on protocol
changes; there are no protocol changes.

Only miners are nodes — an important aspect of Bitcoin. It is not your software that dictates the rules and
what miners can do. In fact, the consensus is purely enforced by mining. The protocol is the entire system.

It is why SPV can work and why it doesn’t on a system such as BTC. Where the protocol can change, SPV
does not exist. Bitcoin allows for local validation that links to the main chain. In fact, the process is incredibly
simple. All that needs to occur is for the recipient to store the transaction. If we assume that Alice and Bob
seek to exchange transactions, and Bob is selling goods that Alice wishes to buy for bitcoin, then SPV can be
very simple.

If Alice has maintained a copy of the transaction she was paid with and the Merkle branch, she can hand the
two parts of a transaction and the respective block to Bob who can now validate and verify the entire
transaction chain very simply.
Any needed rules and incentives can be enforced with this consensus mechanism.

The last line in the Bitcoin white paper is incredibly important. If you require all SPV wallets and the entire
set of organisations running Bitcoin or creating transactions to upgrade, then you have an alteration to the
protocol and not the rules. Here lies a major distinction.

As the last line in the white paper explains, rules and incentives that act within the bounds of the Bitcoin
protocol can always be updated through the simple decision of miners who accept the proof of work chain
and vote on the acceptance of valid blocks. The system acts without any further alteration of the network.
Note that the conclusion very specifically says that nodes and only nodes need to vote. The white paper in
section 5 is explicit in saying that a node is in fact a miner and creates blocks. All others on the network are
wallets and users of the network. Both are important in the security model in that the security of the system
cannot be hijacked unless the majority of the users are fooled into altering the protocol.

It in effect may be likened to software that needs to be changed in order to be compromised. That is
through social engineering.

It is extremely simple to prove.

We have a logical statement; the statement is that the simple voting on rules by miners can set any rules
within the protocol. Logically from here we can deduce that any rule outside of the ability for miners to vote
on by rejecting transactions and blocks is also outside of the protocol. Logically, there is no other way to
read the statement. Either nodes (always miners) can set rules through voting alone, or it is outside of the
protocol.

We will now look at the difference in establishing rules that are outside of the protocol and hence create a
system that is not Bitcoin.

The addition of changes leading to Segregated Witness required the alteration not only of how miners
operate, but also the update of software used by users. Hence, it is not the mere voting by nodes, it is a
replacement of the former software with something else. In fact, it is simply a different set of software.

Very simply, we can logically argue that such a change alters the protocol in such a manner that it is no
longer Bitcoin. More importantly, such a form of change requires that the users of the system are duped
into accepting the change. It requires a power structure. The nature of decentralisation as a term and as
something in law and art is one of power decentralisation. The very argument or way used to enforce it is in
itself not decentralised. In fact, the parties who are changing the protocol are not miners, they are not users,
but rather a small bunch of developers. That is, a small bunch of people are dictating the course of a
protocol and a financial investment. There is nothing decentralised in it at all.

This is important; people have the right to create a transaction using Bitcoin that will be valid for years
potentially. It includes the ability to pre-sign partially completed transactions using nLockTime that could
be allowed on the Bitcoin network years later. Such is a key aspect of Bitcoin that is destroyed in any
protocol change. In fact, it is the key aspect of any system built on a time chain.

You cannot have certainty and contracting and hence you cannot have any validity on any system that
allows protocol changes. Importantly, there are many protocol changes that would need to be valid for
multiple years. Real-property transactions can be required to be valid for over a century. Any alteration by
Bitcoin within such a time window violates the probity of contracts and property.

If users have to change software, it is an airdrop into a

new system.
I’ll use two analogies here; the first one is Linux versus Microsoft.

If you have Microsoft software running on your computer, and I hand you a disk saying that all users must
use the software to ensure that they maintain network connectivity, and you install it, my calling it Microsoft
software does not make it so. In fact, the disk I handed you could have been a Linux install disk, and you are
now mistakenly running Linux while calling it Microsoft. It is what was done to Bitcoin. There are a number
of users who have installed the new protocol and think that it has any relation to Bitcoin at all.

If we now look at it from the point of view of users, one of the earliest use cases of Bitcoin was the ability to
form contracts that will remain valid for years. Importantly, the way it was done in the first place required
users to store files and protect the integrity of their own transactions. Using nLockTime, users could store
many possible transactions that may be valid if certain events happened in the future. None of them would
be added to the blockchain unless it was later valid. It could take generations. In particular, it could be
something that would be valid only decades later. It allows for succession planning and even wills.

But with protocol changes, the same is no longer valid. If a transaction cannot remain valid, we have a
separate system that is created. It is not an aspect of the system such as miners choosing block size or even
when existing transaction script codes will be available but a radical alteration to something that changes
the nature of Bitcoin itself.
Privacy versus hypocrisy
By Craig Wright | 21 Mar 2019 | Bitcoin & Blockchain Tech
Many of those arguing for anonymity are truly arguing for power and the control of others. If we take into
account the criminal violation by certain individuals of controls that are designed to provide privacy, we
start to see the hypocrisy in the argument.

A perfect example is the http://twitter.com/BotFaketoshi system using a bot to illegally bypass controls,
which in doing so represents a crime according to the DMCA.

The people behind such things argue that they are doing them to seek more privacy, and yet they are
willing to violate the privacy of others. A closed Twitter account is private. When you exclude people by
blocking them, you set the limits of privacy you choose. Twitter provides such privacy controls, and yet they
fail to monitor them or ensure that others do not bypass them. In the European Union, there is an implied
right to privacy. It is a fundamental human right.

And yet, Twitter and the trolls it supports and helps seek to bypass the controls.

They say that they are fighting for freedom, and yet they are crushing the privacy rights of others.

The right to free speech allows you to stand in a public place and talk if people will listen. It is not a right to
fence the men and make them listen, nor is it a right for an audience. It is not a right to come to someone
else’s talk and talk them down or talk over them, nor is it a right to be heard.

But free speech is a right to live in a world without trolls.

And privacy means that you can exclude people. If we cannot have private spaces where we can exclude
other people, then we have nothing. Everyone needs some space where information can be shared with
others in private, to discuss secrets, plan, and even set a rate on information. The rate on free speech and
privacy allows us to charge people for coming and listening to us and to exclude those who won’t pay the
rate. And it is not monetary in all cases. It can be as simple as being polite.

Knowledge asymmetry is important. We own the rights to all of our labour. The current socialism of the
mind is a pernicious attack on the rights of man. The attack against intellectual property is an attack against
the right of labour. All labour starts within and through the human mind. If an ox or horse works in a field, it
will gain nothing. It is the human controlling it who gains the benefit of his and their work, and likewise, it is
the human mind which creates all value.

In bypassing the controls, I set over my privacy, and in selecting who I want to share information with, those
who create bots and other systems to breach controls over computer systems that are allowed to run on
systems like Twitter radically alter how people interact.

Social media has become the cesspit it is because of the creative commons. People expect everything for
free. The result is that trolls operate at the same level as the euridite. That those who want to interact to
gain knowledge can be drowned out in the sea of ignorance that surrounds those who are paid to attack. It
is what Bitcoin cures. Such individuals who act as trolls are ‘Sybils.’ They are parties without value.

Information comes at a cost.

Not all costs are monetary, some are a societal cost, and the way we act in the way we interact is a cost.
Trolls bypass the ability to form rational relationships. They take away the ability to act in a manner that is
civil and polite. In particular, they force us into a provision of acting as an aggrieved party. You do not have
an unlimited right to free speech in all contexts. Even the U.S. Constitution does not allow you to walk into
another person’s home and tell him or her your feelings. You do not have the right to invade the privacy of
another and force your views on him or her. It is an attack on free speech.

The ability to block trolls on social media is critical. The ability to stop people to have them act within
societal bounds is critical. In 2015, I was forced into a position that ultimately put every aspect of my life
under a microscope. Contrary to popular opinion, at no point did I agree to sign publicly on a web page, and
nor does it say so. One thing I’ve learnt in the interceding years is the ignorance of people and the inability
of them to read past the headline.

The ability to exclude others has value. You have to act within the bounds of society if you want to be able to
talk and interact without being excluded. It is not a bad thing, it is how culture and society develop. It is how
children grow up and stop being toddlers throwing tantrums.

And yet, it is what many seek; they want chaos and a world they can watch burn.

Looking to the future

A part of free speech is learning and understanding the art of rhetoric and how you interact with others. I
have had many faces and worn many masks. You can say it relates to the genesis of Bitcoin as Janus was
the god of beginnings, time, and passages; like with Bitcoin, he looked both to the past and the future.
Others get to maintain privacy, whether you create something does not change it. So, people’s need to
understand my life is not their right.

Well, I get the guilty pleasure of watching those who seek to attack me end in pain. It is not something I’m
proud of, but then, I’m human.

Unlike Canens, I do not get to throw myself into the Tiber in my final swan song; I have too much still to do.
I’m sorry to disappoint you, but there is no way you get to change that the organisation we have built will
continue what I’m doing no matter what and, more importantly, can act with or without me now. It matters
and is important, although there is still much for me to do.

Janus’ other mask

As a result of many things that I have not wanted, I’m going to have to go into court and verify properly my
involvement with Bitcoin. I’m particularly not looking forward to doing so. It’s going to result in a lot of
people losing money very quickly. There are a lot of vested interests that have been trying to slowly wean
away from the sham Bitcoin BTC that has been airdropped due to my failure to help with scaling and not
splitting off miners in 2017.
Some would always lose. There’s nothing I can do about it, but I did hope to minimise everything and bring
it down simply and easily. But like it or not, I am going to be in court this year, and like it or not, I don’t have
the choice. I did all I could to hide and suppress information concerning the development of Bitcoin and
much more, but in the next 12 to 18 months, there will not be much left in secret about the start of the
system. In a way, it saddens me.

Trust me, it won’t stop me.

I will simply do my utmost to suppress as much as I can. Some things will remain with the court and only be
revealed within the privacy of the court. The problem, of course, is that there are no steganographic controls
that one can place across talking. Even when there is a court order protecting privacy, we already know that
such things leak. I’m not holding it against the court or law. Even with orders stopping the dissemination of
information, people talk. So is reality, and I understand.

It saddens me, because it was my right to privacy and not your right to know.

I did all I could to muddy the waters. I did all I could to stay private and have a life with parts that remain
mine. Early on, I could even put up with the false claims of fraud, knowing that in the long term it’s not
going to matter, but people are going to discover that they have made an error that they are going to be
very sorry for.

I spent a long time designing Bitcoin, there are few flaws left. The code needs work still, but it is a separate
thing to the protocol. No, BTC is not even close to Bitcoin and very simple to stop. People fail to understand
that decentralisation is about power. The only way to decentralise power is to affix and set the protocol
immutably and allow no change. A system that can be altered is not decentralised.

Here, of course, lies the problem with Twitter. It is a central platform that allows a group of individuals to
skew the results which should be neutral. But it will change. They have spurred us into action, and they will
find that we will replace them. I did not really want to act; I wanted to sit and design and allow others to
build, but it seems I do not get such a privilege, I do not get to be the architect, but need to take
responsibility for my creations.

Unfortunately for many, it is going to be painful. Bitcoin is a protocol and platform, and it is designed in such
a way that in the end, only one will survive. We don’t publish patents until we need to. We are not a normal
Silicon Valley company that needs to seek money but rather one that can stay in the shadows and push and
steer the direction of the world. Soon, you are going to see what it all means.
Not in a way that you are understanding nor shall.

But then, many of you have taken my rights. You forced me to act when I did not want to, and you are
about to see what it means. We will start with one or two and move from there, and doing so will lead to the
collapse of the whole Ponzi as the dominoes fall one after another.

As you discover what I am and what I have, you are going to discover that I plan and plot over the decades.
More importantly, you still have no idea. I will work to ensure that stays for as long as possible, but
unfortunately, some of the same plan will be curtailed by fools.

It is a human right to privacy; not allowing but having others force their way into your home, onto your
property, that is acting outside the bounds that are set on them, means to allow chaos and restrict freedom.

It is an attack on the rights of humanity to force others to listen to what you have to say. You have no right
to make other people hear you. When YouTube closes your account for violations of hate speech it is not an
attack on freedom. But when they take action to restrict the rights of those talking because of politics or
finance, and yet they seek to say that the platform is open, it is an attack on freedom. It is not government in
this case, but individuals.

Twitter has a right to choose the policies on the site within the law. But once it does, the enforcement of the
rights must be equal. Allowing criminal and illegal systems and people who commit hate crime is not free
speech, nor is it part of what the company can legally allow. It is an attack on society. Then, many seek the
same.

Lucky for me, and unlikely for many others, I have the resources at hand and the help of others that allow
me to weather it and more, to cause more damage to my enemies in their attack on freedom than they can
imagine. What you did not want is about to happen. When we go to court, you will see how much pain will
result on your end and how little comes to mine.

I did not want to have to go down such a path, I did not want to give up my privacy, but please understand;
though I have a long time frame, I also remember and act.
Peer-to-peer digital electronic cash
By Craig Wright | 22 Mar 2019 | Alternative Coins & Systems
Bitcoin is not a cryptocurrency.

Too many people get it wrong. As the white paper explains, Bitcoin is a peer-to-peer electronic cash system.
In the white paper, it is written, “costs and payment uncertainties can be avoided in person by using
physical currency, but no mechanism exists to make payments over a communications channel without a
trusted party.”

There is a reason for it; Bitcoin is an electronic cash system, not a ‘crypto’ system, and not a currency in any
form. I will start detailing the part concerning currency.

What is currency?
Black’s Law Dictionary defines currency as:

Coined money and such bank-notes or other paper money as are authorized by law aud do in fact circulate
from hand to hand as the medium of exchange.

[Griswold v. Hepburn, 2 Duv. (Ky.) 33; Leonard v. State, 115 Ala. SO, 22 South. 504; Insurance Co. v. Keirou, 27 111.
505; Insurance Co. v. Ivupfer, 2S 111. 332, 81 Am. Dec. 284; Lackey v. Miller, 01 N. O. 20]

Alternatively, other terms such as virtual currency have developed. A virtual currency is defined as:

A digital representation of value that is not available in physical form but which can be used as a medium of
exchange, a unit of account, or a store of value. Virtual currency is stored and transacted in electronic form,
and therefore does not have legal tender status in any jurisdiction. Virtual currency includes a subset
referred to as cryptocurrencies (an example of which is Bitcoin) which are protected by cryptography.

Unfortunately, the errors around what Bitcoin and other things are have propagated, and many people
claim that even Bitcoin is a cryptocurrency.

A subset of virtual currency and digital currency that is protected by cryptography and predominantly
generated and exchanged through the use of blockchain. While all digital and most virtual currencies are
centralized with supply controlled by the developer of the currency, cryptocurrencies such as Bitcoin are
decentralized and not created or controlled by a single central entity. Therefore, supply and value of
cryptocurrency is determined by demand.

As such, they fail to even define the notion of decentralized . Even the description used is logically flawed.
Virtual currencies are defined as being centralized because the supply is controlled by the developer of the
currency. They write that cryptocurrencies would be different because they were decentralized and thus not
controlled by a single entity or group (such as a small group of developers as with Bitcoin Core or
Ethereum).

The same by nature reflects a requirement for a set protocol. If any party can alter the protocol, then it is not
by nature decentralized and is controlled by a single (usually not incorporated) entity. Importantly, the Fifth
Money Laundering Directive ((EU) 2015/849) (MLD5) has already been updated to incorporate all of the
changes, and unfortunately misuses the term cryptocurrency within the industry.

Article 1(1) of MLD5 extends the “obliged entities” that fall within the scope of MLD4 in a number of ways, by
amending Article 2 of MLD4.

Providers engaged in exchange services between virtual currencies and fiat currencies. Fiat currencies are
coins and banknotes that are designated as legal tender and electronic money, of a country, accepted as a
medium of exchange in the issuing country, such as the euro. The Commission refers to this type of
provider as a virtual currency exchange platform (VCEP).

Importantly, MLD5 already calls for provisions:

[To] combat the risks related to the anonymity, national Financial Intelligence Units (FIUs) should be able to
obtain information allowing them to associate virtual currency addresses to the identity of the owner of
virtual currency.

Crypto
The confusion stems from the fact that ECDSA, the digital signature scheme used within Bitcoin, has a
similar basis as elliptic-curve cryptography or ECC. In fact, public-private key schemes within both of them
are exactly the same and interchangeable. The difference is that bitcoin is a mere signature. It is sent in clear
text. Cryptography by definition is secret writing. Bitcoin is not secret. Unfortunately, here lies the confusion
that has become part of the core of the system.

Cryptography simply means secret writing. As explained, many of the mathematical functions used within
Bitcoin are similar to those used within cryptography, but Bitcoin is not cryptographic.

Digital signatures are based on the same mathematics as public-key cryptography. Here’s where it ends.
Based on does not mean is . A digital signature is a tool that provides a means to validate the authenticity
and integrity of any data. It does not provide confidentiality — which is encryption.

E-currency
Bitcoin is not a currency or an e-currency at present, but it could be. Importantly, tokenisation methods
allow for the creation of a national currency on top of Bitcoin. Such a system would be an e-currency.

It is not a lost cause even now, and we have the capability to securely tokenise currency offerings on top of
Bitcoin.

Unfortunately, many many people have not understood the nature of Bitcoin, currency, or how the system
functions. The truth of the matter is, Bitcoin is and was at its heart an electronic cash system that works as a
peer-to-peer exchange. It is not because nodes act as peers, but rather individuals do. When Alice and Bob
exchange consideration using Bitcoin, Alice sends a transaction to Bob that he can send to the network to
be settled. The peer-to-peer process here happens between Alice and Bob, and does not involve the
network other than settlement. Too many people have got it wrong.

Far too many people fail to understand what I said. At no point have I said that Bitcoin is a cryptocurrency, a
currency in any form, or anything monetary-wise other than digital electronic cash. It is important; there are
legislative requirements detailing the handling of currency. The handling of Bitcoin and other electronic
systems has now been incorporated into the acts. Having said so, Bitcoin only becomes an e-currency when
it is used as a national currency or when it is the basis for any currency that has been built into a script
within Bitcoin as a token.
Digital Rights Management: Serialised Media
By Craig Wright | 24 Mar 2019 | Bitcoin & Blockchain Tech
In a fair exchange protocol , two parties either both honour an exchange (such as a contract), or neither of
them do. It is known that deterministic fair exchange is impossible without a trusted third party (Even and
Yacobi 1980). But under the Bitcoin protocol, a validated blockchain acts as a trusted third party.

Current State of the Art

The Bitcoin Wiki (2014) includes a page on ‘Atomic cross-chain trading’ which describes a protocol where two
parties own coins in different cryptocurrencies and want to exchange them without having to trust a third
party or centralised exchange. There also exists a BIP (Bitcoin Improvement Proposal), entitled Atomic Cross
Chain Transfers (Tiernan, 2014), that describes the method. Others have hinted that by combining secrets, a
more symmetric solution is possible. We demonstrate how it can be achieved in Bitcoin.

Problem Statement
The objective is to implement a fair exchange protocol under the Bitcoin protocol.

Benefits
The proposed protocol offers all the benefits of the atomic cross-chain trading protocol, i.e. it enables two
parties to conduct a fair exchange using separate transactions and no third party, and is both atomic and
secure. At the same time, the proposed protocol is perfectly symmetric.

Key Elements
The proposed invention describes the first known implementation of a symmetric fair exchange protocol on
the Bitcoin blockchain.

Proposal
The locking and unlocking scripts are described below in pseudocode. It is inherent that the scripting
language supports the described algorithm.

Alice and Bob wish to trade entities of value, such as bitcoin, other currencies, contracts, goods, or services.
They have agreed that Alice shall give Bob e 1, and Bob shall give Alice e 2. Let H( x ) be the OP_HASH160
Bitcoin-script hash of x . Note also that in the Bitcoin script, as used here, a non-zero locktime indicates the
earliest time that the transaction may be added to the blockchain and in practice is expressed in Unix time
(the number of seconds that have elapsed since 00:00:00 UTC Jan 1, 1970), whilst a zero locktime is
interpreted as no locktime (for immediate broadcast). The protocol is described in Table 1, and the
transactions are given in full in the appendix.
Table 1: Symmetric fair exchange protocol.

Such a system can be used to exchange secrets used in media and DRM.

Appendix
References
Bitcoin Wiki webpage (2014): Atomic cross-chain trading, http://en.bitcoin.it/wiki/Atomic_cross-chain_trading .

Even, S. Yacobi, Y.: Relations among public key signature systems, Technical Report CS0175. Technion, Haifa
(1980).
How to make a brain wallet
By Craig Wright | 27 Mar 2019 | Bitcoin & Blockchain Tech
In the past, a concept known as a brain wallet was common. It is something that has a lot of value and
yet has been overlooked because of bad security practices. The creation of a brain wallet can be
incredibly secure. But, it is also something that suffers from the same problems as associated with
passwords. And here lies the problem; a brain wallet is not a password and should never be treated as
one. There must be sufficient entropy to ensure the security of the system.

If you read the Bitcoin wiki, they tell you not to use human-generated passphrases. Doing as they say
is not necessarily best, and in fact, the strength of a brain wallet should be related to the information
and value being stored.

If you are storing millions of dollars in a single key, then a simple 12-word brain wallet is a very bad
idea. If you are storing USD50 worth of value, not many people are going to seek to crack your
passphrase. The reality is that the cranks in the industry love to tell you that you must have perfect
security for everything. Seeking such an end is completely wrong.

They, like many in Core , will tell you never to use a brain wallet. The reality, though, is that nobody will
crack a good phrase. What they should be teaching is how to create a good brain wallet. Done well, it
is completely secure and you can ignore the cries of “it’s not perfect.”

Right now, we still cannot crack 20-character passwords with a few special characters, not in
reasonable times. And by reasonable times I mean decades . The secret is not to use two or three
words but rather to take something that no one will guess or find and modify.

I can set up a structure that I know and can tell others about, and doing so can offer a source of
recovery for a key.

The given page has a key associated with it. It’s from a book I quite enjoyed. Using it, I have a method
to create a key. Even with such knowledge, I do not believe someone will find my key. The key has 50
bitcoin associated with it — in fact, it holds/controls 50 bitcoin before any split and has never been
spent. It is a brain wallet, and even telling you so and giving you the data needed, I propose that it
remains secure.

My process is as follows:

The first footnote of the page has a value, 1547. I start by transposing the number in the first footnote.
Here, I take the first number and leave it where it is, then I take the fourth number and place it before
the second number.

I now have the number 1754. In footnote 2, there is a number in Roman format, XXX, which comes to be
30. I add the two numbers to get 1784.

I take the number as a year, and now go to the All England Law Reports for the same year.

Footnote 3 in the first book now links to note number 13 in a particular case that occurred in 1784. The
case matches the requirements as Earl Cowper translated the Iliad, fixing many of the errors that had
been allowed to exist in the papal translation. Earl Cowper had a relationship with the Newton family,
yet they derived of Sir Isaac. So, finding the case requires that you know a little of the history of the
people.

In my case, it requires you know a little about the case and more.

The brain wallet for the key, one that today holds around USD250,000, can be cracked using note 13 on
the page I did not image and a combination of values that can be derived using the text on the first
page of the first book. In particular, the first 80 words of the first book I transposed with seven
sentences from the reference at point 13 followed by nine sentences of the second image. Every sixth
word is deleted from the second, as is every eighth word from the third.

Such a formula is enough for me to create a key that is attached to a brain wallet , one that with the
right texts that are of the correct print can be used to reconstruct a secret key. I am also going to
categorically claim that with the money remaining in the wallet, it will not be discovered even with the
clues.

In fact, there is more entropy in such a simple scheme than there is in any deterministic wallet created
by Core .

So, the monkeys who run around saying that the world needs to be perfectly secure are the ones who
are clueless. They can argue in DeFcon how they can crack many many simple keys, but the reality is
that they simply have no idea about security or risk and seek not to teach people but to become high
priests protecting the security of everything through their magic numbers.

So please, crack away. You have access to money right here. Run through every combination you can
find as you won’t be stealing; I’m telling you, it’s a prize. I’m also making the some will say bold claim
that you will not have a clue what the key is.

A part of the reason is that everyone assumes that it must just be hashed using SHA256.

Well the assumption is not correct.

Let me give you some further information.

I start with SHA512.

Split it in two. The first 256 bits are now hashed using SHA1, and the second 256 bits are hashed using
RipeMD160 with the two parts being concatenated and hashed into the key using SHA256.

So, such is the secret to a brain wallet in a very valuable Bitcoin address. From here, you can find the
secret key to an ECDSA public key that unlocks a lot of bitcoin. Yet, even giving you all the
information, I guarantee that no one will take a single bitcoin from it.

The reality is that brain wallets can be incredibly secure, but we need to teach people how to create a
secure system. Even if I was to take a simple passphrase such as “Who is John Galt?” I could make it
secure.

In such a case, the security would be in the process that is not shared. I take the word Who , and hash
it using SHA1 to obtain H1. I then take the second word is , and hash it using SHA256 to obtain H2. I
take the third word John, and again hash it using SHA1 to obtain H3. I then finally take the last word
Galt? and hash it using SHA256 to obtain H4.

Now, I simply concatenate all of the values and hash them using SHA512 followed by SHA256:

SHA256[SHA512(H1||H2||H3||H4)]

The result is a value that you will not guess, unless, as I’ve just laid out, you know the process. It’s part
of the concept of a brain wallet. To teach people how to use one also involves teaching them how to
create a good process and that the process itself is part of the secret.

So, surprise me.

I would be remarkably impressed if somebody was to put together all of the required details even with
the information above to obtain money from the brain wallet I have just described.
Why the protocol is set
By Craig Wright | 28 Mar 2019
| Bitcoin & Blockchain Tech
Bitcoin is only decentralised when power is removed from developers and others who can change the
protocol. That is the point. The argument about decentralisation is about decentralisation of power.

The only method to maintain decentralisation of power is to set the protocol and lock it. It must be set in
stone .

When, as with BTC (SegWit Core) or ETH (Ethereum post DAO), you end up with a few developers who have
the ability to alter the protocol, you have the power to impact a large number of people — which is not
decentralised as claimed but rather highly controlled.

The same matter of course is what the developers seek to cover and hide. They want power, they want
control, and they achieve the same by misleading others into believing that the protocol needs to change.

An example scenario
To discuss the matter, I will explain by example of a scenario what could occur. Let us say that two
individuals have a long-term relationship and an investment. As a result, they construct a two-of-two wallet.
Alice and Bob must both sign.

We face a fairly standard two-of-two multi-sig address.

Let us propose that both Alice and Bob are through such a method preparing a gift for their grandchildren.
Their grandchildren have only been born recently, and Alice and Bob have two grandchildren who are less
than one year old. Alice and Bob have decided that they want their grandchildren to have access to money
that they were investing for them — but not until their grandchildren turn 25. It is actually a scenario that
can be problematic in law. It is an area where parents and grandchildren have decided to attack the
concept of common-law trusts and argued that they should be allowed to access their money earlier, and in
some jurisdictions, courts have allowed it. There are ways around it that would enable blocking funds until
the individuals turn 25, but doing so can be expensive and then difficult to change. Bitcoin solves such an
issue.

Let us say that Alice and Bob are in their 80s. They do not know whether they will see their grandchildren
turn 25, and even today living to one’s hundreds remains unlikely.

Alice and Bob create a laminated paper wallet for each child. It is stored in a safe deposit box.

Alice and Bob want to ensure that their children cannot pressure them into spending the money if
something happens to the other grandparent. They know their children can be manipulative, want access
to the funds, and would seek to gain control if anything happened to either Alice or Bob.
Consequently, Alice and Bob deposit an initial amount of 100 bitcoin into the multi-sig address. Alice and
Bob decide jointly that they will not spend more than 50 bitcoin of the joint address ever, and promise to
leave the rest to their grandchildren.

To ensure the pact, Alice and Bob sign a series of nLockTime transactions. They don’t want their children to
know what they are. They also want to lock it so that if something happens, the other cannot be pressured
into altering the trust.

Alice and Bob sign a future-dated nLockTime transaction for 50 bitcoin. Alice assigns it to Bob and Bob
assigns it to Alice. It is set for six months from now, and every three months, Bob and Alice update the
process discarding the original transaction.

Bob and Alice trust each other, so they do not see the process as an issue.

Bob and Alice also sign 25 bitcoin to each grandchild from the untouched 50 bitcoin and 25 bitcoin to each
grandchild from the 50 bitcoin that they have an earlier time lock on. The time lock is set to 25 years from
now for each grandchild.

Things change…
Six years have passed, and Alice and Bob now have two more grandchildren. They now alter the process to
assign 12.5 bitcoin to each grandchild from each of the two lots of 50 bitcoin — which means potentially 25
bitcoin for each grandchild if Bob and Alice do not need to access the other 50 bitcoin. The lock time here is
set to expire allowing access to the coins 19 years from the date.

Two years from the same date, with 17 years to go before the grandchildren are old enough, Bob passes
away leaving Alice. Alice can no longer alter the pact that she and Bob set up, even if she is pressured by her
children to do so. So now, there are four transactions that pay 12.5 bitcoin to each of the grandchildren
which cannot be altered and reconfigured, so that each grandchild can only access the funds when they
turn 25. As such, two of the transactions are configured to be accessed in 17 years and the other two in
about 22 years when the respective children turn 25.

With Bob gone and Alice’s health and wealth on the decline, Alice needs to access some of the funds. She
can never draw down on the 50 bitcoin that had been left for the grandchildren no matter what pressure
would come. She can gain access in a few months to the coins left by Bob assigned to her. The respective
locked transaction becomes valid in three months, and Alice is able to pay for the care she needs. As Bob
assigned the transaction to her, she can now sign, too, completing the transaction. It had been signed so
that Alice can now move control over 50 bitcoin to her address that is a single-key address she controls.

During the same time, bitcoin has become valuable, and Alice’s greedy children pressure her for access. Bob
and Alice were afraid so, and feared that in their old age the pressure from their children might lead them
towards giving up control of their money. Alice pays 20 bitcoin to cover the expenses she will need in order
to enjoy the rest of life, and leaves 30 in her control.

She signs a time-lock transaction for the 30 bitcoin dividing it up between her grandchildren. Each of them
will receive 5 bitcoin when they turn 25. She leaves the other 10 bitcoin to her children, and destroys her
private key. She tells her children, who are angry and upset because she has time-locked the payment so
that her two children can only access the amount of bitcoin in the locked transaction 10 years from now.

Her children do their best to try and take control of the assets that Alice used to control, but as she has
overwritten the keys, they can no longer do so. Similarly, when Alice and Bob’s mothers were both alive, they
too set up a custodial-wallet system associated with the children. Each of the time-locked transactions to
the children are configured to transfer coins to addresses that the children own, but only when the time
block is validly released.

Once the grandchildren turn 18, their parents will no longer be able to pressure anyone into giving the
money to them. Alice’s children will have to make do with the comparatively small amount she has left
them and let the grandchildren inherit when they turn 25.
Two years pass, and Alice also passes away.

Each of Alice and Bob’s children now have a locked transaction that they cannot access for another eight
years.

The four grandchildren are able to recover their bitcoin by spending the locked transaction as they each
turn 25.

Custodial services exist in such a world to ensure that no data can be lost. They use an encrypted copy of the
locked transaction, and store it on-chain. Nobody can see the transaction unless they know the details to
access it, and yet it is perfectly secure.

Unlike on-chain solutions such as CLTV that are public, the nLockTime transaction field allows Alice and Bob
to construct a trust that remains secret. They used to be common in countries such as England, and
allowed people to plan their estates without having to tell everyone what they own. In other words, they
allow privacy.

Unfortunately, the lies that have been propagated by a bunch of people seeking to make a drug coin have
led people to not understand Bitcoin’s strengths. Not everything should be on-chain. Importantly, even
though Alice and Bob created keys for their children and grandchildren, they maintain the ability to control
their own finances and secession without allowing others to see what they wanted to do.

It is what Bitcoin is.

It is the strength and benefit of Bitcoin. If anyone tells you otherwise, they are either ignorant of what
Bitcoin is or rather disingenuous.

Here lies the reason why the protocol needs to be fixed and set in stone. If the protocol changes during the
described period, then everything Bob and Alice have planned falls apart. Let us say that there is a major
protocol change one year after Alice dies. The signature format is altered, and some of the opcodes that Bob
and Alice used are now rewritten. The locked transactions are no longer valid. Alice and Bob have passed
away, and hence have not been able to sign the transaction so that bitcoin is lost. A bunch of developers
have altered the protocol and destroyed their wealth.

To be money, to be a source of contracting and wealth, Bitcoin needs stability.

Developers will tell you that they need to be able to change the protocol. It is a lie. It is a means to grasp
power. If the developers can change the protocol, they have the power over the system and can alter
everyone’s wealth in the system. They will tell you how bad miners are; but miners can only follow certain
rules, and cannot change the protocol.

A miner can reject a block that they do not want to process and risk losing money in the orphaning of
anything they win after doing so. A miner can decide whether a block is valid with a thousand transactions
or a million transactions and to risk losing money to enforce his decision but cannot change the protocol. If
the block cap is set to 128 MB, it has no impact on the protocol. The transaction that Alice and Bob signed
remains valid. A transaction signed on a 20-year-old version of Bitcoin software will have remained valid.

For the developers to alter the protocol, they need to fool users and the system into accepting a new and
replacing the old software being used.

If a transaction cannot be saved offline for 50 years and then introduced later, the protocol has changed.
Bitcoin requires stability in the protocol to be money. It is not just the limits of 21 million bitcoin, and it has
nothing to do with the capacity of blocks; the protocol requires that transactions written now remain valid
in the future.

Bitcoin (BSV) will have all of the initial opcodes fixed and re-enabled this year. Once this happens, a
transaction signed in 2020 within an nLockTime and set for 50 years from then will be valid in 2070. Such is
the strength of Bitcoin.
The same will not be the case with SegWit coin (BTC) or any of the other altcoins.

The reason is simple: Unlike Bitcoin, the alternative systems are about developer control. They are a small
group of people seeking to control and alter the protocol in Bitcoin because they want to control the
monetary and contract system that Bitcoin can create.

Bitcoin is not about giving power to a few developer wizards. It is about taking power away from anyone
wanting to change the monetary system. It is removing power. Bitcoin stops anyone from altering the
system. It is the strength of Bitcoin. And to achieve such an end, the protocol must be set in stone.

If a developer can change Bitcoin such that a transaction written now will not be valid in a year, 10 years, or
even 50 years, it is not Bitcoin.
Welcome to science
| 30 Mar 2019 | Bitcoin & Blockchain Tech
By Craig Wright
To be a valid hypothesis under the scientific method, there are steps that need to be followed. It is not
simply enough to say that something is a theory; there are requirements that must exist before
something can be called a theory in science.

The scientific method requires that several key fundamentals are addressed allowing something to act
to increase knowledge.

1. Explanatory power
For every hypothesis or theory, there is a requirement that it explains the subject matter that it is
addressing. A scientific theory or hypothesis will apply a minimum set of assumptions and should be
falsifiable. It should be tested through methods of formal empiricism without needing justification
through external calls such as a call to authority. In order to falsify a theory, we should have tested it, and
if it does not pass the critical test, then it is considered falsified.

To investigate a number of fallacies that are considered to be theories by many in the Bitcoin
community, we start by looking at selfish mining and block reordering ( CTOR specifically).

In selfish mining, does the theory explain anything? We have here a possible flaw, but why is it not
exploited?
In CTOR, does it act to explain something?

Selfish mining in particular seeks to explain Bitcoin using a mathematical model. Doing so in itself forms
a hypothesis and not a theory. Before such a hypothesis is published, the authors would need to do
testing against a null hypothesis of the existing state of Bitcoin. It is simpler than people believe: run up
a number of nodes, and measure how they react. It is not particularly complex. It is not about testing a
mathematical model against the mathematical model but rather testing against reality.

Unfortunately, it is something that has been completely ignored when it comes to Bitcoin. Those
seeking to publish papers about the energy use, vulnerabilities, etc. seek an agenda first, and aimed to
confuse people with seemingly scientific jargon that does not relate to the system being explained.

2. Predictive success
The next part of investigating whether a hypothesis is scientific is to see whether it produces greater
predictive success than the existing belief structure. That is, does it enable us to understand the
phenomena we wish to investigate? It provides a means of prospectively testing our theoretical
understanding. If a theory has no predictive power, it has no use in science.

The point is critical; neither CTOR nor selfish mining had or have been tested with a result. In fact, both
provide results that differ significantly from the behaviour of Bitcoin.

The selfish-mining scam was all about creating a reputation and showing off by a postmodernist quack
trying to pose as a scientist. This is important to understand. To be a valid scientific hypothesis, the
thesis proposed needs to be tested and demonstrate statistical results that align to the behaviour of the
system being described. It is not simply a test of the mathematical model, it is a real test of the system.

Saying “I do not want to create something others will exploit” is not how science works. It is how quacks
and charlatans sell their snake oil.

When a scientific theory has been proposed and tested, even if it is not correct, the evidence produced
when testing the hypotheses will be valuable. It is valuable because it still provides greater insight into
the system. In the case of something like the completely unscientific claims of selfish mining, it is not
only that there is no evidence; no evidence was ever sought.

Postmodernist pseudo science is still alive.

When we seek to evaluate a system scientifically, novel, unexpected behaviour is good. That would even
help. Unexpected results provide insights that allow us to conduct further research.

3. The hypotheses allows control

We can use the results obtained by the hypothesis when it is valid scientifically. We gain something
from the hypothesis describing a system as it allows us to predict the effects of changes such as growth
and scale.

In Bitcoin, we would expect to be able to gain insecurity, to be able to scale further, and to understand
the interactions of the system. But so was never the goal of the snake oil being peddled in things like
selfish mining or CTOR.

Provably
It is why all the attacks against Bitcoin are worthless; they are all snake oil.

Not one of such systems has provided any testing. Not one of the so-called hypotheses and claims uses
the existing system as the base and tests against the alternate. And doing so is important: to test the
hypothesis and to create a valid scientific paper, the authors would have needed to test their claims
against Bitcoin. In selfish mining, they would need to run up real nodes and test the system.

The process of hypothesis testing includes:

Step 1: State the null hypothesis (H0).

Step 2: State the alternative hypothesis.
Step 3: Set α.
Step 4: Collect data.
Step 5: Calculate a test statistic.
Step 6: Construct rejection regions.
Step 7: Based on steps 5 and 6, draw a conclusion about H0.

Bitcoin, as it was designed originally, is the null hypothesis. Always.

When it comes to something like selfish mining, step 2 would be:

Can selfish miners gain a significant profit advantage exploiting the strategy. If they do, what are
the consequences? Would it be easily detectable?

Alternatively, when investigating something like a proposed block-order change, we could investigate a
question such as:

Is CTOR faster than the default order in Bitcoin blocks? What are the consequences of changing the
transaction order?

Or when investigating Lightning, we could have asked:

Can you create a system (such as Lightning) that will be allowed in anti-money laundering (AML)
law and at scale?
Does it allow competition?
Does it result in records being lost?

When it comes to all of the proposed changes, the scientific method looks to verification. Before making
such changes, we should always ask the question, can it be verified? Then, we must remember to ask
whether the hypothesis helps us:

explain;
 predict; and
control.

From there, a valid hypothesis can be the path to taking us into further knowledge, so we should ask
whether we could then start a research programme to understand the issues: is the flaw detected and
easily mitigated? Not, it is messy, and doing otherwise is prettier.

In Bitcoin, what is economically incentivised?

Like intelligent design, the pseudo-scientific quackery simply ignores explanations. They have an
answer, no tests needed.

Here is where we are with the field of blockchain. People rarely test. Rather, they make claims such as,
“We are better as we have scientist X or Y…”

Such is the false appeal to authority. It relies on an argument from ignorance.

Importantly, you cannot take one false theory to explain another (which is what happened with the
claims of security flaws in Bitcoin as a result of transaction malleability).

All such claims are quantifiable

All of the so-called hypotheses concerning Bitcoin can be tested. Every one of the claims links to a
measurable and quantifiable metric. When testing, we should be looking at:

reliability;
precision; and
accuracy.

They are not the same, though some people confuse them. The first, reliability, relates to whether we
can repeat the same results over and over in an experiment. It refers to an ability to have either or both
position or/and accuracy stay within predictable bounds.

Precision is how true we are to the mark each time we make a risk measurement. In other words, we
find how close to the real value we may lie on average, and in effect, it comes to the level of variance we
have. We can actually be imprecise with the mean value right on the bullseye and results that have a
large variance or spread. They would be centred around the expected mean on average but with results
that vary widely.

Accuracy is how close we are to the mean or other value we see as the measure of risk. We can say it is a
measure of how close we are to the bullseye.

To have a good measure of risk, we need to aim for both precision and accuracy. It is also important that
we can reliably have a measurement that we can have others examine and produce.

Qualitative measures
Those who tell you that they cannot qualitatively measure the results of the system change are seeking
to promote an agenda without evidence, which generally means they are seeking to avoid truth. To be
scientific, research requires that we make predictions, and here, the ultimate test of such predictions is
the result delivered by systems in the real world over time.
The next time somebody tries to tell you that Bitcoin needs to be fixed because transaction ordering
using CTOR will be better, that selfish mining makes Bitcoin insecure, that malleability allows funds to
be stolen, or any of the other associated myths and lies, remember that they need to test using empirical
evidence or they are selling you snake oil.
On testing and causal statements
By Craig Wright | 01 Apr 2019
| Bitcoin & Blockchain Tech
All changes result in unintended consequences.

Whenever we start going down a path of implementing a policy, we need to think about the consequences
— both the seen and the unseen.

It is perhaps most importantly the unseen we need to look at. We cannot say that an intervention has
achieved the best outcome and that is better than something when we have not actually compared it. So
when we look at a risk-reduction process in information technologies or implement a new economic policy
or for that matter any other intervention, we need to investigate it fully.

In business, good project managers and, more importantly, portfolio managers will investigate the various
results and compare them against what is in effect a null hypothesis. That is, they will compare a sample
project against the status quo. When doing so, we need to also contemplate all the alternatives. It is where
many people fail.

More importantly, when we are doing correlational studies and investigations that do not allow for
experimentally controlled trials (the gold standard of double-blind testing), it is critical that we investigate
causation in a rigorous process.

Austin Bradford Hill (1897–1991) was a British medical statistician whose great contribution to science was to
leave us with a set of minimal conditions that are required to establish a causal relationship between two
events. Hill’s criteria has become the basis of modern epidemiological research. It is one of the mainstay
methodologies I use in my research both in evaluating economic effects and when investigating malicious
software and other security controls. In particular, it is useful in evaluating the human aspects of information
security and risk. It is not just epidemiology but also other fields such as economics that can benefit from
such an approach.

Hill’s criteria is the basis of good scientific research where we are seeking to establish a causal relationship
amongst social phenomena and in particular ones where we cannot engage in controlled trials. In some
instances, it is in fact better than a controlled trial, as the process of creating a controlled trial changes the
environment and creates a bias in many of the results. Although it is true that a controlled trial may provide
the best answer to a particular problem, it is not always true that we are investigating the same problem.
One example would be looking at studies of irrationality. The university-controlled trials testing the
reactions of students generally biased the results. In selecting risk trials, for instance, we take selective forms
of risk that bias the results towards male or female risk takers in the study. Later studies have now shown
that the original studies into irrationality have been the result of poor methodology with both women and
men exhibiting similar levels of risk. What was demonstrated is that the forms of risk taking differ between
men and women but overall the levels of risk are similar.

If we are to make a claim that population growth results in poverty or that capitalist governments cause
poverty in developing nations or even that Keynesian spending results in long-term growth, then to be
scientific in our approach, we need to demonstrate a causal relationship. Hill’s criteria provide one of the
ways in which we can do so.

For example, as an economic investigation, we can formulate a strategy and hypothesis based on welfare-
based systems such as a guaranteed minimum wage.

It seems like a good process, and we have created a safety net. Again, an issue is that we are not thinking of
the unseen events, that is, what will occur if there was no welfare? In starting such a welfare system, the
differential incentive to work decreases. It is not hard to explain.

Basically, it is not poverty but a differential between income that people see as the greatest disparity. Even
in Western nations where there is no need to be poor and in fact where most of the poor are wealthier than
the middle class 100 years ago, what we see is a desire for more against the others in society.

So, the end result of such a policy is that more people enter welfare. The immediate result is that those
earning need to pay more for the increased welfare state; there are less incentives for productive work. The
differential decreases further, making welfare more attractive and creating increased incentives for state
support. The result is more welfare… A degrading cycle of creating more and more welfare.

It takes us back to Hill’s criteria. Here we have nine criteria to measure any correlation effects against. The
criteria are as follows:

A temporal relationship where the cause always precedes the outcome. If there is some factor that is
believed to cause an event, then it must always necessarily precede the event. The first criteria is the
most critical and essential of all of Hill’s criteria. If the first criteria is not true, then we have a correlation
alone and no causal effect.
Next, we need to consider the strength of the relationship . It is a statistical measure of the strength
where the factors are highly related. We can look at the Pearson number for correlation as a means of
testing the value.
Next, there is an effect-response relationship . It is a measure of input. As we increase the amount of
one factor, the other must also increase. For instance, if we put more time into training people in
security awareness, then naturally, for it to be causal in the relationship we would have to have
improved security. The improvement is not required to be linear, and we may find that each
incremental expense returns less, but it must return something more than it would’ve if it wasn’t there.
The fourth relationship is consistency . The results need to be replicable and repeatable. They should
apply in different population groups and samples.
Next, we look at plausibility . The association that we are purporting exists needs to be supported by a
valid theoretical basis. There needs to be some phenomena that can act in a manner that causes the
result or event.
 The sixth criteria is that we consider alternative explanations . Many so-called scientists fail here. They
merely assume a relationship matches with their understanding. It may be true that we can dismiss
many arguments out of hand as they have already been investigated and shown to be false, but it does
not mean that we do not consider alternative explanations. We must always consider multiple
hypotheses prior to making any conclusion about a causal relationship between events we seek to
explain and investigate.
Experimental evidence is also important. Even though we cannot expect to completely re-create an
event, we should be able to implement an appropriate experimental regime that supports our causal
argument.
Next, there is a requirement that the causal effect is specific. It is one of the weaker criteria, and we
can demonstrate causal effects without it. The absence of specificity does not negate a causal
relationship, but the existence of specificity between associations does add additional support to the
existence of a causal relationship. Here it is important to always examine specific causal relationships
within a larger systemic environment.
Lastly, we have coherence . Ideally, any association we are purporting exists should fit within the body
of existing theory and knowledge. There are ways, of course, to introduce new theory, and Thomas
Kuhn referred to the changes to the accepted theoretical basis of science as a “paradigm shift.” To
reject the existing theoretical basis of science, we need to have particularly good and strong proof and
evidence supporting our new claim of causality.

The third of Hill’s criteria, the effect-response relationship, is one that seems to be missing in much of the
so-called science we see. For instance, in carbon studies we should see a related increase in atmospheric
CO2 leading to a corresponding increase in global temperatures (all other things being equal). We should
also see a corresponding and commensurate decrease in global temperatures as atmospheric CO2 levels
decline. The matter has been something that is rarely investigated and hence still relegates much of the
climate study to pseudoscience.

In a couple of my publications, for instance, we looked at the effects of economic sanctions on criminal
groups involved in cyber crime. Two of such papers are:

“ Criminal Specialisation as a Corollary of Rational Choice ” (2012)

and

“ Territorial Behaviour and the Economics of Botnets ” (2012).

In demonstrating the economic effects of a policy designed to reduce cyber crime, we need to investigate
all of Hill’s criteria. In such an instance, what we find is that cyber criminals are rational actors. Like most
other people in society when acting individually, they act in their own rational interest. When they are
offered opportunities that provide better returns for low risk, they will take such opportunities over the
antecedent of a poor return or one with high risk.

Of course, the current way to answer the matter and the mainstay of many Keynesian economists that
propagate government circles is to argue that what is rational for the individual may not be rational for
society as a whole. They argue that irrationality comes of collective rationality.

Of course, what they are saying is not that the collected actions of the many are in fact irrational but that
people choose things that they did not desire. It is a typical political fallacy that is designed to appear
scientific. Many economists make very poor scientists.
Putting forward such an argument is of course rational in itself. For when we see government favouring
Keynesian-aligned big-government economics and rewarding those who support the idea of big
government, we also see incentives given by government to those who promote big government. So the
individual behaviour of such rational economists is to support an irrational policy itself. It is of course rational
to support a biased policy when you gain from it at the expense of others.

What could be termed irrational is a libertarian policy that exists with little support and certainly none from
government. As a libertarian, one has to fight harder and do more. But here, it again comes to what is a
subjective value. When comparing rationality, we need to look at the values of the individual. In my case, my
greatest value is freedom, and it cannot be given through big government and subjugation. In this case,
economic constraints and an acceptance of lower benefits come as the cost of upholding one’s values.
One further part of this rant is that we need to start accepting that it is not irrational to hold one’s values. In
fact, the only rational choice is to uphold one’s values. As such, we start to see where one’s values lie.
Saving research
| 02 Apr 2019 | Bitcoin & Blockchain Tech
By Craig Wright
Today’s business post is about a method to record research and development data in a way that is
tamper-proof and allows privacy, review, and a means to validate the results.

One nChain invention that will come out soon is one we describe as providing a distribution protocol for
blind dealer-less thresholds.

The simplest answer to how we can help scientific research lies in saving data as its obtained. It can be
either the full data, blinded data, encrypted data, or a hash that proves the existence of data at a point in
time. Having said so, today I will detail something more in depth.

As such, we use Bitcoin-transaction scripting to create a means of sending a verified user response. That
is, we can issue a questionnaire and link each response back to individuals while maintaining full privacy
and scientific double blinding. We know that we have issued the survey or other material to an
authorised and validated party, and yet we also know that we cannot tell who will have responded in
each event.

As such, Alice can authenticate to Bob, and once she has validated her identity, she can set up a blinded
address. Bob will be able to respond to the blinded address without knowing it is Alice that he was
receiving data from.

The method relates to a distribution protocol for blind dealer-less thresholds used on the Metanet. In the
described system, Alice OR an Alice group creates a blinded version of a message by means of secret
sharing, and sends the blinded message to a Bob group. The Bob group then creates a signed version of
the blinded message by means of secret sharing, and sends the signed blinded message to the Alice
group. The Alice group then creates an un-blinded version of the signed message by means of secret
sharing, and obtains the un-blinded message, signed by the Bob group, from a threshold number of
shares.

A dealer-less blinded ECDSA threshold key

Alice and Bob can now communicate and exchange surveys, research data, and more using a blinded
ECDSA key. As Alice is the party to be blinded, it’s more important for her to have control of the system,
but at the same time, we can also create a threshold scheme such that Alice can be double-blinded from
the people handling the results. Alice submits her blinded keys and transactions that she has received
and signed to the blockchain.
Bob can now communicate with Alice knowing that it is an address he has created for her, yet
simultaneously does not know which particular individual he is communicating with. The same
mechanism could also be used in voting.

Bob and Alice verify each other out of band. The transaction to be used can be atomically swapped or
swapped by using oblivious transfers over Bitcoin transactions.

Alice can complete a survey and then blind the hash that she sends to Bob. Bob can then verify the
identity of Alice through unrelated communication channels, and such a process can also be blinded.

Bob signs a blinded hash, the one he just received from Alice, and returns the signature.

Alice can then un-blind the signature to obtain a valid Bitcoin transaction that she can send to the
blockchain.

Bob will not know which transaction he has helped Alice sign, yet can be sure that she is a member of
the party of research subjects.
I am not going to detail the full process here; it will be published in the patent shortly. The figure above
demonstrates some of the complexity of the system. In time, it will be released in SDKs allowing users to
implement such methods without understanding the full background process.

The end result is a combination of both voting, secure research methodologies, and even the ability to
pseudonymously issue forms that can be double-blinded and allow for validated individuals to complete
research and surveys without giving away their identity.
Decentralised planning
By Craig Wright | 03 Apr 2019 | Bitcoin & Blockchain Tech
Governments cannot take into account wide-scale effects. You may ask why central planning always fails. No
person, department, or other body can predict the course that society will take, and even when it is
marshalled, it still ends up being unpredictable.

A market outcome is the view of society.

The market is society. A few public servants are not society, and will never have a clue about society.

Central planning does not work. It is a failed experiment that pops its zombie head up time and time again.
Then again, those in such a position do not want to lose their position, so as far as incentives go, those in
government have strong incentives to ensure that government and all its cock-ups continue unabated.

The matter is again a part of what Bitcoin is about. It takes the primary underlying system, and moves the
control away from individuals or groups. It is not about miners or developers or exchanges; Bitcoin is a system
that removes power. And it is important; the underlying basis of money should not be about control. You can
build on top of something like gold and yet maintain a stable system, a means of measuring and of
transferring.

Recently, we have seen yet another slow insidious attempt to change the nature of what Bitcoin is. In the
article Peter Todd Advocates Raising the 21 Million Bitcoin Limit , it is explained that the developers of Core
again seek to alter the primary purpose of Bitcoin and capture power.

Contrary to what is said in the article, Bitcoin won’t die. The reason is simple: BTC is not Bitcoin. Yes, the
insidious attack has used the name in a manner that is straight out of Orwell’s 1984. It does not mean new
rules, it is an altered protocol, and Bitcoin is fixed and set in stone.

With Bitcoin, there is no messiness that derives from forks, as the protocol is fixed.

Bitcoin isn’t currency; rather, it is cash and a commodity. A currency is something issued and controlled by
government. Bitcoin can never be currency in such a way, although a currency can be built within a tokenised
system on top of Bitcoin.

There are not two kinds of Bitcoin, there is one. There can only ever be one. The truth of the matter is that
others seek power, and the only way developers can do so is to control and alter the protocol. Consequently,
the fact that they can do so means that they have power over the system. It means they are liable for
consequences that are covered by the scope of law. The more they argue against it and the more they
change the protocol associated with their copy of Bitcoin, the more they show their hand as they grasp for
power and control.
Satoshi Nakamoto
| 05 Apr 2019 | Bitcoin & Blockchain Tech
By Craig Wright
Satoshi Nakamoto is an amalgamation of 富永 仲基 (Tominaga Nakamoto) and Ash Ketchum (サトシ;
Satoshi).

The name wasn’t something that I spent months and months on deciding, and it doesn’t mean anything
related to what you see on the wikis. Rather, it was an attempt at privacy.

I’d met Tim May back in the 80s when I was involved with DECUS under a number of SunOS groups.
There were of course the black sheep groups such as the cypherpunks. For a start, I understand that
anarchy is a utopian pipe-dream. Unfortunately, when you get groups of people who have little
interaction with the real world, they are starting to believe stories and myths of a society that can exist
without order. Worse, they start to believe in computerised order, the singularity, and that code is law. A
few of us got on, but for the most part I was ridiculed by people who refused to understand that risk is a
probabilistic ideal and can never be perfected and removed. More importantly, I was ridiculed by people
with no idea of people or society.

There is a lot to be said for a classical Western education.

The moniker, Satoshi Nakamoto, was simply a way of being able to work and have some privacy in my
life.

It was both a homage to Tominaga Nakamoto and a play on the second. The Economist had an article in
1988, and it featured the phoenix of rising money; in order to make some fun out of it, I used Ash (aka
Satoshi) from the Pokemon fame.
Funny enough, most of the lawyers I speak to get it. When you actually explain the technology behind
Bitcoin, those who have a grounding in law and economics start to see the system. Privacy and
anonymity are polar opposites. I am Wesleyan. If you understand that, you’ll start to understand my
philosophy on wealth. If you read Andrew Carnegie’s The Gospel of Wealth , and not just the title without
moving forward, you may start to understand my long-term plans. Unlike Andrew Carnegie, I don’t plan
to retire in my 50s, nor in my 60s, nor in my 70s, nor even in my 80s.

There is a lot of work remaining to get Bitcoin to where I want it to be. I expect at least 30 years of work
to do so. At that point, I am hoping it will be sufficiently advanced so that others can carry it forward.
Having said so, within the year it will be locked with the protocol fixed and the asinine changes
removed.

From here, once it is set in stone, it will remain set in stone.

Code is not law. Those lazy of thought and mind enough to believe that they can abrogate the
responsibility that they have to the society they live in deserve all they get. In a democracy, you have the
right to seek change. It does not mean people will agree with you. If you don’t like the law, work to
change it. The great men of history are not great because they sought to throw away the law, they are
great as they sought to align it to freedom.

It is simple to say that things should be different.

It is difficult to stand up and take the brunt of the attacks that come to one who stands against the
status quo. It is simple to say things should be different, but it is incredibly hard to have the courage to
stand up and fight for change. There are many ways to seek change in our society.

Anarchy is not one of them and never can be. It is simply the path to destruction. It is the path to
totalitarian control, a path that those who promote it seek. They do so as wolves leading lambs.

I knew that eventually I would no longer be able to be secret. I knew that my past and my involvement
would start to come out, but I had hoped for a longer period of time. The irony that few saw is concealed
in the name.

Tominaga was a merchant and philosopher. He wrote during the Tokugawa period of Japan.

The time for remaining in the shadows has passed. Tominaga taught us that “concealment is the
beginning of the habit of lying and stealing.”

He was an anti-traditionalist, a logician, and an early capitalist in the days of mercantilism. He once said,
“our age today is one of corruption by liars and robbers.” We remain in such an age. Money has been
corrupted. We create synthetic systems of synthetic systems designed with nothing more than a goal to
move numbers between systems. Money from Main Street to Wall Street and away from where it’s
needed.

We see the same again in what we call crypto.

The frauds and the charlatans seek to pump false gains, and they say that what they do is about
democratising freedom, and in fact they seek to remove the controls that protect the average person so
that they can better engage in their Ponzi schemes and scams. Nobody wins by having ICOs. They are no
different to the dematerialised penny shares that floated around the Internet in the 90s as web IPOs.
Unfortunately, all too many of us are too young to remember or were not exposed enough to the
Internet at the time.

People know very little about my life. My belief system aligns well with Nakamoto Tominaga’s. He
promoted the doctrine of simplicity and honesty. It is not, as some such as Gandhi have promoted, the
abandonment of technology but rather the use of technology as capital. Rather than seeking simply to
escape from work, we find ways to improve what we are doing and extend it, to create more, to build,
and to evolve.
The irony of those attacking and calling what I’m doing a lie is that they do not even seem to understand
the value of truth.

I always liked the Japanese way of thinking, the only philosophical theories of the Indian and Chinese
Buddhists too profound and abstract to infiltrate into the minds and thoughts of the common people
within early Japan. It led to a simplification but also, for quite some time, a difference in how
intellectuals were perceived. As with the Roman Republic, the people at the time were not anti-
intellectual but rather avoided the trap of intellectual society as they created based on logic and simple
truths.

Tominaga was the Eastern Voltaire.

Nakamoto always said, “concealment is the start of lying and stealing.” I will say, anonymity in its truest
form is the heart of crime and deception. Those seeking to tell you that anonymity is in any way like
privacy are seeking to draw you into the shadows. They are the wolves who seek your fleece.

To create Bitcoin, I used the very system of thought it is designed to collapse. Those with socialist
tendencies, and yes, anarchy is in all forms aligned to socialism, tend to think in terms of religious
mysticism. If you have read Nakamoto Tominaga’s surviving works, you may come to understand the
same. All of what I have said and done is hidden in plain sight. Such was the nature of my company,
Panoopticrypt. It means, all that is hidden.

When you understand the difference between privacy and anonymity and how the latter destroys the
former, you start to understand the deceptive call that the mystic makes on society in the pervasive and
insidious call to a utopia.

Although I liked Tim, I knew in the 90s that I needed to find something else. I knew it would be my life
goal, after reading Wei Dai’s juvenile and ill-conceived call for b-money:

I am fascinated by Tim May’s crypto-anarchy. Unlike the communities traditionally associated with the
word “anarchy”, in a crypto-anarchy the government is not temporarily destroyed but permanently
forbidden and permanently unnecessary. It’s a community where the threat of violence is impotent
because violence is impossible, and violence is impossible because its participants cannot be linked to
their true names or physical locations.

Bitcoin was designed to scale to create something more than the casino that is finance. It is not the
exchange that people called the market that allows growth in the creation of capital but rather the
exchange of goods between individuals for consumption. A market is not the casino we call the
exchange. Such lies need to end.

My revolution is not cypherpunk.

I took all they had, and I created something more. Bitcoin destroys anonymity in all its forms. It allows
privacy, takes all that such people sought to do, their foolhardy desire to create a utopia, and changes it
allowing Main Street, those that seek to work and create. The proletariat. The middle class. The average
person seeking to create a life. It builds a society for them.

It is nobler to suffer the slings and arrows of outrageous fortune but as you take arms and oppose them.
Not to die or to sleep, not to end. To see not calamity and long life, the whips and scorns of time are hard
and challenge the patient merit as the unworthy take acts of pale thought against us.

The bare bodkin is insufficient to pierce the armour of the man with a passion to change the system
corrupting us. Social media need no longer make conscious cowards of the soul, for when we go forward
we will know that those who seek to attack us must face reality and cannot hide in the shadows of the
great pith and little movement.

In the present world of finance, what Tominaga would have called a world of decadence, a place where
many people are cheating and stealing and creating ICOs, it is intolerable that in allowing those who
teach the lies, the utopian view that code is law and that a world can exist without order, we should let it
occur and not stand to oppose it. Those people who say that they are bringing freedom as they seek
what they call a democratisation of finance protect the corruption that seeps through it rather than
oppose vices.

They all imitate a habit of secrecy. They create rules and hierarchies. They enact systems that are
deplorable but operate through secret instructions and techno-mystical religious dogma designed not
to create, not to build capital but to enable the transmission of secrecy. They tell you they seek truth, yet
in reality they obscure and they cheat.

Bitcoin ends all of it. Not in minutes, not in days, and not quickly. None of it occurs in “Internet time.”

The path forward is already set in stone. And right now, I don’t care whether you believe me. I have my
own way of doing things, and most importantly, the first part is to understand that code is not law.

In the period coming up in the growth and development of what I’m creating, you come to understand
who I am and what I have created and why. In time, there won’t even be any doubt, but it is my time and
my way to choose.

Most importantly, I’m not going to do anything in any way that aligns with the lies that are taught by the
crypto community. I am going to teach you how flawed, how insidious, and how evil the heart of code as
law really is. I’m going to teach you about the frauds that they propagate, the lies that they use, and the
totalitarian ends that they seek to bring as they try to enslave you.

The end of the long road that one steps on in seeking a world where code acts as law is one without
humanity. Code is inflexible, there is no heart or soul in code. The strength of the law is that it can be
flexible. It is not fixed and unalterable, and can bend.

I was a part of the movement that was the cypherpunks. Not because I agreed but because it needed to
be stopped. When you understand Bitcoin, when you understand a sound system of money that acts to
allow exchange privately but with an immutable evidence trail, you will start to understand why I
created Bitcoin.

I created Bitcoin to ensure that the world the ignorant seek to create, the totalitarian utopia by those
seeking a world based on an inflexible code-is-law algorithmic system, never evolves.

I spent 20 years designing Bitcoin. I started in 1998, and went through more iterations than I can ever
hope to imagine and remember before finally coming up with something that worked. Welcome to
freedom; it comes through a system that consumes utopians and spits them out. The system within
Bitcoin is stronger than you believe, and it was designed to not work in many other ways. It takes naïve
idealism, and crushes it if it does not evolve into something of considered thought.

It no longer matters whether you like it; Bitcoin was carefully considered, and no blockchain-based
system ever allows you to create the totalitarian utopia that is the ultimate dystopia of a world where
code is law and order is crushed in anarchy.
Two steps forward, one step back
By Craig Wright | 06 Apr 2019 | Alternative Coins & Systems
All progress comes through a path of resistance. To understand this, we need to understand that a status quo
will push back when you start to understand something. With all technology, there is a rush forward and we
take two steps, and then as those who profit from the past start to see their world eroded, they push back
and create a revolution. Whether violent or nonviolent, all change moves through a series of revolts and
revolutions.

A revolution has those who seek change take action against an established order.

Such are always aggressive in nature, but the aggression can be focused away from violence, as it has been in
Bitcoin. It leads to a movement, groups of people that work together to advance a shared political, social, or
ideological concept or goal.

The revolt in step 1 gives way to a revolution in step two.

The status quo and established order see it as in the revolt making its way to revolution, they act to protect
their interests. As they push back, the change is forced onto a back foot; a step is taken backwards. Here, the
status quo and those that seek a new order merge and mingle. And we take a step forward in a shared
evolution.

I’m not proud of everything I have done. But I would do it again. I’m not always proud of the aggression and
brashness and lack of polish I had in my past, but without them I would not be the man I am now. A part of
me sought to resist change. The apotheosis into what I must become is not easy. And some of it involves
owning my past and those things I’ve done to get to where I am now.

Few people understand what was required in the beginning of Bitcoin. When Bitcoin was launched in
January 2009, it required a series of machines to send and transmit information without fail. This is far more
difficult than you can imagine.

In my ranch that I used to own in Bagnoo, Australia, I converted part of my shed and home to run computers.
In my house outside of Sydney, I took my garage and ran racks of machines.

I had racks of computers in my converted shed. With the mezzanine I had plenty of space. Earlier, I spent
money to have fibre laid and opened up a rural town to fast Internet. Few people seem to understand that
the first version of Bitcoin following the genesis block fell over. The genesis block is dated to 3rd January, 2009.
The first mined block occurred on 9th January.

They are both days where I travelled to my farm. I had to travel 3 1/2 hours to get there.

I ran 67 machines in a cluster. They were Windows servers. I managed things and coded on Windows XP, and
loaded software on machines running on Windows Server 2003. The first version of Bitcoin was launched and
started to run, but stopped. There were program errors in the Bitcoin code, but they weren’t the biggest
problem. I needed to reconfigure the systems.

I’d started with a major miscalculation.

Microsoft patch Tuesday.

The original machines were a group of workstations and not a domain. When I initially installed them, I used a
series of Windows Server 2003 licences. And then MS09–001.

It wasn’t actually the first problem, but it was the biggest. All of the machines weren’t running at block one.
There were what I hoped to be enough. Bitcoin didn’t run on Linux at the time. I had Centos, Redhat, and
Solaris machines on my network to handle DNS and sendmail, but Bitcoin ran on Windows.

The week between genesis and block one was busy. I moved away from Windows Server 2003, and set up a
Windows 2008 domain. I set up a forest hierarchy with machines just outside of Sydney, in Bagnoo, and live
links to a Melbourne server. I had connections to a Methodist Church just outside of California where I
donated some time running their IT. I figured that since I paid for the systems sold, it wouldn’t matter if I ran
Bitcoin on the server. I did the same in Tumbi Umbi in the church there. Both of them had a number of
machines that I’d set up. I paid for the Internet connections personally, and donated the servers and the
licenses, so I figured using them to run Bitcoin nodes wasn’t outside the scope of what I could do as it wasn’t
costing them anyway.

The first reboot was an eye opener. I had configured all of the machines with the same time zones, even those
in different countries. They all shut down to patch at the same time. The entire Bitcoin network stopped
following the genesis block, and needed to be started again. When they came up, network services and
connections were flaky, and the network forked and split, and it was a big mess to say the least. The funny
thing is, the code had fewer flaws running on Windows Server than it did on XP.

Those machines are gone now. I replaced them every 12 to 18 months. Servers were donated to a number of
churches and ran email means for such organisations. A couple ran web servers. During the year I started
installing machines that ran Windows XP and nodes. There weren’t a lot of machines running Bitcoin in 2009.
To my knowledge, Dave ran one machine, that’s full-time, and he ran three or four on or off. Hal Finney ran a
machine. Bear ran one or two.

Around 10 machines, maybe 12, mined Bitcoin between 2009 and 2011. They included churches and charitable
organisations that I did work for freely. Any Bitcoin they had remained with them, and if they have them, they
have them, and if not, it’s lost until someone later in history recovers them when the keys become exploitable.

I had between 60 and 100 machines running at the time, of which an average of 55 or 56 would be mine
personally. In the beginning, 75 were mine personally.
There was a lot of supporting infrastructure. The Cisco routers, the switches, the firewalls. I used a
combination of IP tables and checkpoint, and had snort running as my IDS.

You might guess, it took up a bit of my time.

The speculation around which bitcoin belonged to whom always made me laugh. Some of the most clueless
pseudoscience ever spouted came out about which bitcoin Satoshi owned or not.

My old blog, gse-compliance.blogspot.com, was not updated much in this period. You could say, January was
a very quiet week. A newly constructed and chucked-together Windows domain is not a fun thing to
manage. At the same time, I was still finalising the handover from leaving BDO. I was out completely by the
third week of January, and it gave me a lot more time than at the start of the month which was hellish.

Eternal vigilance is the cost of liberty. Even blockchain is not enough, we need to actually monitor the logs.
But immutability is a start. Bitcoin isn’t just money. It is far more, but to be more it needs to be first and
foremost money, cash. The security of Bitcoin is based on a stable protocol and an economically incentivised
system.

There was a secondary part of the name, Satoshi, that is Satoshi Sugiyama who was adopted by an American
and given the name David Phillips. It comes from a book, The House of Morgan . David was adopted in both
cases. David Kleiman was adopted, and so was Satoshi.

I admired the “characters” in the book, The House of Morgan . It reminded me of a more glorious and
honourable period in banking. Not something that we could go back to, but something we could remember
when formulating Bitcoin. Pierpoint Morgan was an interesting character and one that proved himself
through work.

Dave ran machines as did a few other people. I don’t know how many of his earliest bitcoin Dave kept, I never
discussed it. In 2009, bitcoin had no real cost. So, outside of my personal addresses, I don’t know what was
actually kept. I doubt that the machines running at the charities or churches I was involved with at the time
even exist anymore. My estimate would be that they managed to collect amongst them between 80,000 and
100,000 bitcoin. If they exist, I hope they do the same people well. You never know, things turn up.

Then, people don’t understand the cost associated with it. The cost of the Internet connections, the servers,
the Microsoft licenses, and the electricity alone came to more than people would care to remember. All up, I
spent around AU$1.1 million. As such, between the period of 2007 and mid-2009, I had costs that would be
directly attributed to Bitcoin of about 70% of the same value. I think my mortgage at one stage between the
three properties I owned had blown up to around AU$1.4 million.

It’s why I needed to sell my ranch.

I said I was owning my past, and in time I’m going to detail all of it.

Again, I’m not proud of it all. I’ve been asked in the past how I managed to get data about a number of
criminal networks that I modelled. One of them was because of AnonymousSpeech.com. I used it for email
and domain registration, but I also used it.

Vistomail was used in what some people would call Canadian pharma spam. Spam didn’t originate from the
servers, rather the systems that would run globally allowed other people to register domains and fast flux
systems that allowed for the control of botnets and compromise of systems around the world. I both helped
and hindered some of it.

I helped in that I discussed Bitcoin with a number of people that were associated with a company called High
Secured and people who had been using money through Liberty Reserve. Neither of such people were
particularly interested in Bitcoin as money. Liberty Reserve allowed people to take US dollars and transfer to
and from banks without conducting AML, so to them Bitcoin wasn’t money.

What they did do was use it as a signalling system. A number of bots were created by people who were
associated with something that came from the Russian business network. After the same group of Russian
cyber criminals fell apart, some of the parties started their own systems.

Bitcoin enabled them to get past some of the controls that the Microsoft teams had been putting in place.
Not because of money, but because a transaction could be used as a signal. If one key signed the transaction,
command-and-control servers in a hierarchy would act. If another key was signed, different servers would act.
In effect, the systems watched the Bitcoin blockchain and gained instructions without leaving any trace. It
helped as a form of covert communication.

Most importantly, for such individuals, Bitcoin started to be a way of controlling the spam servers. I wanted
Bitcoin to be used in many ways, and one of them included controlling agents and software instances, but I
didn’t want where it went. Consequently, I started tracking communications on such networks. Both Liberty
Reserve and High Secured and a few other networks ran my code. I placed back doors in them. At the same
time, I ran a number of TCPdump instances and collected traffic. With the machines I had ended up running
on such networks, I fairly much had a backplane.

So the irony is that I both held money on the servers and helped get rid of them.

Between 2009 and particularly after the end of 2010, the Australian tax office made my life difficult. The two
companies I had founded ended up in liquidation as result. I spent over $1 million in legal fees, and with
accounting and other losses I think the totals came to around 3 million lost. The Australian tax office started
bankruptcy proceedings during the process. They began in association with the dispute over tax.
The dispute that started here ended in January 2013. The biggest problem started around mid 2011. At that
point, I structured my assets. I did so to protect them. The amount of bitcoin I had at the time was not even
something I really cared too much about. It was the intellectual property that actually mattered, it is what I
have fought to protect the last 20+ years.

Back when all this started, it was not the amount of bitcoin itself that was valuable but rather the intellectual
property I’d been developing.
In time, I even got to the point where I had the ATO need to “accept that Dr. Wright did take reasonable care
in preparing and lodging his income tax.”

Ironically, the tax office then used the liquidation of my companies that they had caused to try and have me
disbarred as a director. They took action with ASIC seeking to have me banned from being a director of any
company for a period of 20 years. They lost it, but the action also cost me a lot of money.
The end of it was that all of my claims bared a small $77 amount that was allowed. To offset the $77, I was
given an extra 10,000 that I didn’t claim but should have. An individual from the Australian tax office actually
maintained that I should be charged for recklessly under-claiming — a claim which was quickly thrown out.
All of my interest expenses, the travel to and from the farm to manage systems in the claimed amounts of
Internet communications for my personal use, were me personally, and not my companies or businesses
were allowed, as you can see in the document.

At this stage, my interest bill alone had come to over $100,000 a year personally. The loans I had taken out in
the previous years all grew. It was eventually allowed and so with the corporate deductions — not that it
mattered, because too much had been done to the companies, and they had to go into liquidation.
I get pulled up a lot by people saying that I use people who die as a means to cover up things that have
happened. The problem is, I don’t know who will die in advance of their death. My grandfather knew Prof
David Rees. I attached details of work I had been doing that was based on mathematics and a system called
Cocao that Prof. Rees had pointed me to many many years before. I told the Australian tax office about David
Rees in 2009. I was discussing some of his role as I moved assets into other companies again in 2013.

Prof Rees died in August 2013.

At this point, the Australian tax office claimed that I had used Prof. Rees knowing that he would die before
they would contact him. Prof. Rees gave me notes on the Asymptotic Theory of Ideals . I use them today. They
have been incredibly helpful in some of the work I’ve been doing. I don’t know the future. We are all mortal,
and if you need something verified, do it when the person is alive. Then, the Australian government never
really sought to prove anything. They just wanted me gone.

I was angry at this. I was angry with Dave Kleiman when he didn’t tell me how badly off he was. I was angry
with people taking a system I created and changing it to something else.

Everybody looks at Bitcoin now, and thinks it’s worth so much, so I must have always known I’d be rich.

I didn’t.

I saw myself as a failure in 2011. I used the pseudonym as I thought I could just go on, and if Bitcoin failed as
all of the other digital-cash schemes had failed, then I could go off and just become a lecturer and potentially
a barrister, and nobody would know about my past failures. It was risky, but everything I did was.
Bitcoin was a long way from being finished.

I don’t think people understand what it’s like to sacrifice nearly everything you have for decades to try and
create something. Worse, to be left in a position where you think it has failed. Some of what drove me was the
anger from all of the events, but at the same time the mere act of creation is a reward and a drug in itself.

Like it or not, I’m not going away. In all of it, through all the pain I managed to prove and solve and find the
way forward. If I had been able to, I would’ve patented Bitcoin. The thing you don’t understand is that, unlike
copyright, a patent requires that the real name is used. A copyright can be maintained under a pseudonym, a
patent cannot be. I was too afraid of the consequences of what might happen, and at the same time even
when not successful by being painted with the brush of Bitcoin in those early days, it would’ve been worse
than anything that came from some of the other papers that I did.

Some of the things that are taken for granted now resulted in a series of attacks against my character at the
time when I released them.

Bitcoin would’ve been far more than any of those in controversy.

Truth is not derived from a code-is-law perspective

You cannot sign truth with the digital key. Some want to do so, but it’s because they hate law. I don’t. I did
when I was young, some of my outlooks were similar to those we see in SegWit Coin (BTC) now, but over time,
I have changed and learned that law is important, and so is process. So, like it or not, I’m gonna do it my way.
I’m going to make it long and drawn out, and I’m going to detail all of the steps and little by little include
verifiable evidence. Again, evidence isn’t a mere signing of a key.

If you don’t get it, you don’t get Bitcoin and you don’t get reality.

I get to tell my story my way. Others wanted to take it from me. When people outed me in 2015 and some
tried to paint me as something else, it was because I’m a threat to their agenda. Then, I will always be THE
threat to their agenda. But more importantly, exposing them and their lies is more important long term than
simply prancing around in a definitive manner in the way some wish; that which I can do now may not
always be something that I should do now. You see, I have a long-term outcome and a long-term outlook.
And sometimes you will discover that it is better to allow people to go on and have them think that you’re
less of a threat because of what you do. When you think it through, if you think it through, you may start to
understand.

I still miss Dave. He wasn’t ever a partner, I’m a ruthless corporate asshole. I don’t have partners. I do have
friends, and I do work with others who are shareholders. I do contract.

None of us thought about the value of bitcoin. Not back in the beginning. It wasn’t about the value of bitcoin.
I find speculators and “HODLers” to be perverse to tell you the truth. But then, all to their own. There is a
difference between speculating and investing; I won’t cover or detail it here.

Nor do I seek to save people. If you’re a speculator, if you’re invested in that fake copy of Bitcoin, BTC, then I
don’t care, it’s your problem. I have something to build, and I figure it’s a 20- to 30-year journey to get it
created properly. Oh, in the next four or five years, you’ll start to see just how big it is, but it’s nothing
compared to where it’s going in the decades to come. I didn’t go to what was at one stage millions in debt to
own bitcoin. I went into debt, I worked hard and long and smart, and studied, and gave up most of what
people need and seek and want and love and enjoy for the chance to create something.

If you think Bitcoin was ever just about owning a lot of bitcoin, you’re more of a fool than you imagine.
© Copyright 2019 – 2021
My Mentor
| 07 Apr 2019 | Bitcoin & Blockchain Tech
By Craig Wright
Calvin Ayre is my friend.

It becomes very hard to have friends when you have money. I have a few, and I would include Shadders
and Jimmy in the list.

Calvin is in part my friend as he is also my mentor. There are not many people I can learn from that are
alive and outside of books, but Calvin is one. Not academic knowledge, Calvin teaches me street smarts,
he helps me with my interactions with people and, importantly, shows me how to live.

Calvin lives a pretty good life. It’s not the life I want; I enjoy family, study, and many quiet things. But
Calvin is a billionaire who doesn’t have a collection of yachts and a lot of other junk. I admit, I had a bit of
a spending spree when I first got to a certain point. But what it taught me is that what makes me
happiest is working. You may not understand it, but I love learning, study, and creation. I love work.

In that penny-store novella by Andrew O’Hagan you will find that there is not much that is real or true. I
was never paid $15 million. So forget that one. In fact, what happened was that O’Hagan was offered an
opportunity to follow us over a number of years. He would have the chance to see the growth of nChain,
or at least so was the offer we made to him. He never accepted. So he got to ask a few questions, he saw
the office as it was being built in London and very little more. Mostly, he got hearsay rumours and
innuendo from people who had no idea what was going on.

There are bits and pieces of the story that are true. I would estimate, 15% of the book.

If he had not tried to play us, he would’ve discovered the real story. But, he was more interested in a
quick sensationalist report, and cared little for the truth. As a result, there is little truth in what he wrote.

I take time to get to know people. When they are being offered something big, I make sure they can be
trusted first.

Yes, some people in the organisation wanted to sell out and do a quick boom of patents sold to the
highest bidder. You might know by now that doing so is not how I work. And if you’re smart, you will
understand that the organisation is here, still. I’m a part of it, still. So, the best proof for such things is
time.

When it comes to Calvin, I never needed to worry that he was just in it for the money. That he wanted
money from me. It helped. When you start to learn who can be trusted and who can’t, you start to
understand a little bit more about the scenario.
You will find that there are many who want me to be gone. They understand that in the long term,
scams cannot work with me around. Unfortunately for them, their time has passed. Code is not law. Code
will never be law. In the coming 10 years, we move into the next phase of what was and is Bitcoin. As
such, you start to learn about the lies that have been told over and over by those seeking scams and the
path to fast money. If you want to be rich, I suggest you learn to work harder and smarter and longer
than you ever have.

I had hoped for more time, but what you’re going to find out as a result of a conman’s attempt to falsely
use a lawsuit to get money out of me is just how much false information exists, how many lies people
have been telling about me. I don’t think there’s one entirely accurate document out there in their list of
evidence. In time, you will find it out.

Just sign a key… The constant stream of fools trying to teach you that code can be evidence in itself and
that we can remove courts, judges, and law is a part of why I created Bitcoin. I did so to ensure a path
away from the fools. In a two-of-three escrow contract, courts and arbitrators can be incorporated.

Smart Jurisdiction
Today, I’m going to pose a very simple smart contract that can be integrated as a business idea.

A two-of-three multi-sig is nothing new, it was in the original version of Bitcoin. Escrow was never about
removing courts and jurisdiction. Rather, it allows organisations to automate the selection of
jurisdictional functions. It can be done through a combination of locations and consumer law. As such,
we can incorporate more than one set of resolvers. That is, multiple parties can be used depending on
the legal aspects of the contract. We don’t remove lawyers, we automate some of the functions. That is,
many of the aspects of administrative law are simplified; they can be encoded and made into a smart
contract.

As contracts within the Bitcoin framework get larger, certain aspects can be directly integrated using
keys. Each regulator, arbitrator, or court can be built directly into the contract. In a two-of-three multi-sig
transaction, where both parties are in the same jurisdiction and it’s a simple contract, a value-based
determination can be used for a key. If the value of the contract is under a certain threshold, the local
court and magistrate key is used. If the amount is over the threshold, then we select a District Court as
per the rules. The selection of such a system can be automated.

That is, we can compile a set of rules based on the value of the contract. We can create a codified
contract scheme that incorporates the administrative rules in a particular jurisdiction.

Linking it to oracles, the court could automate many of the administrative rules associated with civil
procedure or with scenarios such as securities offerings in a particular jurisdiction.

Bitcoin contracts can be created in script to allow such scenarios. Using thresholds, the certificate
associated with the court can be set up in a controlled and secure manner.

More, we can have alternative paths. If a consumer law issue is being argued, the deciding key would be
associated with a consumer law tribunal. If the issue is in equity, a key for the court of equity could be
used. With a Merklised path, we can construct a system that allows civil procedure laws to be
incorporated into a smart contract. The system then allows for the simplified integration of the existing
court structure, arbitration structures, and dispute resolution, and about everything else you can think
of — all within a simplified transaction.
Panopticrypt
By Craig Wright | 07 Apr 2019 | Bitcoin & Blockchain Tech
I started the company Panopticrypt in June 2011.

At this stage, I was still deep in disputes with the Australian tax office. My two companies that I’d formed in
2009, Information Defense and Integers, were beyond saving. As with everything in my past, it was the
intellectual property I fought to keep, not the money. Nothing has changed now. Even the battles in the
early days of nChain were about keeping control of the direction and vision I seek. Unfortunately, we even
had a few people wanting to research Ethereum and other coins and other consensus mechanisms. I
handle such things better now than I did.

Panoptic has a meaning of “showing or seeing the whole at one view.”

Crypt comes from that which is cryptic. A puzzle or secret. Bitcoin is such a system. A ledger that shows the
whole while becoming cryptic enough to allow the system to be private. Hence the name: Panopticrypt.

As a side note, I will be showing how you can create a perfect hash puzzle at the CoinGeek conference in
May this year. It is one where the individuals can select any output address, yet simultaneously create a
secure hash puzzle. It’s something that could have been done with my original code in 2009.
As another interesting side note, there is a philosophy known as Panopticism that was proposed and
developed as a concept by the philosopher Michel Foucault. In his book Discipline and Punish , Foucault
discusses how humanity can be better ordered. Incentives control everything we do, and when applied
correctly, economics allows us to create a system that evolves toward something better. Evolution does not
always achieve the results one may think; for instance, Herbert Spencer’s concepts of an evolutionary
system of society takes such a control concept too far. Systems evolve to fit. The concept of fitness is not
referring to the most powerful or the most energetic but rather the one that adapts correctly to the system
it is part of. As such, fit is not what we see today as fitness. Fitness in this concept refers to an adaptation to
the environment and the system one exists in.

We are on the knife’s edge of change. We have a world that has increasingly thorough surveillance
techniques. We can choose privacy, or we can fail in accepting the alternative and its consequences.
Anarchy is not an option. There is no privacy in anarchy for all people do as they will, and there is no right to
privacy in an anarchic system without law. Here, the strong, the powerful, and the wilful survive and take
control.

Like the prison system of the Panopticon, we have everything reviewed by a central body and nothing is
private. Bitcoin changes the balance. The power to change the path of such a system comes from a power
to change corruption and fraud. We can never get rid of such things, but we can disincentivise them and
make them more costly, which leads to their reduction. Seeking anonymity removes such strength from
Bitcoin.

It is only on the knife’s edge that we can navigate such a path, and like the knife’s edge… it is a path that is
precarious.

Friends
I have not trusted many people in my life.

Doing so has lost me many friends over the years. In part, it has come from my expectations and in other
parts a conflict between what we seek. Dave was a friend for a long time and perhaps one of the very few
people I think I could ever keep trusting.

I have friendships that failed and that I regret not having maintained.

Peter Robinson worked for me in Sydney. It was for one of the early iterations of a company I had called
DeMorgan. It is an interesting name, one that I have some family ties towards and one that means “of the
Morgan.” I had worked for what was then the Australian Stock Exchange, in fact when I first worked for the
exchange in Queensland, it was the Brisbane Stock Exchange — by the time I went back, it was the ASX.

It’s perhaps been nearly 20 years and certainly over 15 since I spoke last with Peter.

My intellectual property, the systems I create are the things that hold the highest value in my life and have
done so throughout my life. I’ve sacrificed and thrown away many things on the altar of potential creation.

Peter was a good guy, he is a damn good coder even if he hadn’t gone to university, and when he put his
mind to something, he could achieve a lot. Unfortunately, his goals were different to mine, and he was
working for me. He had a software application that he wanted to develop. Some small parts of it helped in
what I was doing in the early days, before I knew what I was doing, but it was never something that
particularly interested me. Unfortunately, it was something that Peter wanted to do. Here’s the trouble; if
you have a friend who works for you, you have choices to make. Do you put the business first or your
friendship?

If you want your business to be successful, your friendship has to take a backseat.

Adam Selene wrote how the moon is a harsh mistress. Yet the moon is kind and loving compared to a
corporation. When you create a business, when you seek to create, the path can be far harsher than the
moon would ever hope to be. At times, I wonder if Mike (the computer in the book) managed to exhibit
more human traits, including friendship (the one thing I did well was always conceit). The quality that Mike
possessed and that Mannie refers to as “his most human quality” (25.33) resounds with my most human
quality, being not the one that people most admire.

I also started a company called Strasan in 2011 with other people who were friends at the time. The meaning
of the company name was twofold. One meaning has Persian links, the other was a misrepresentation of
the word Strassen and is related to the Strassen algorithm.

It’s an interesting algorithm when it comes to asymptotic complexity.

Unfortunately, the other people in the company wanted something different than I wanted. I’m willing to
look for the long term. To take a risk at creating something great. I know the story of Achilles, and I choose a
path that few would. Achilles could’ve faded, he could’ve had a life without sorrow and without pain, and yet
he chose one that would immortalise his name and what he achieved. Right now, you haven’t seen what is
coming, and people think that Bitcoin and blockchain is the big invention, but it’s just a Lego block. It’s a
Lego block that was needed in the creation and that if not available, if not solved, and if not incentive based
would not have led to solutions that will create the Metanet.

It’s funny, people don’t seem to understand that I don’t do the accounts or filings or other things for myself.
They use companies, individuals, employees, and more. My companies used company secretarial services.
So like it or not, you’ll start to find that it is not me behind the company shares, issues, or updates. It’s not
me when it comes to the filing either.

I am completely and utterly horrible at such things. That’s why I leave them to other people. Then again,
some of them have been worse than me.

I do not even manage my LinkedIn profile. To tell the truth, I haven’t even looked at it.

The stupidity of some of the soon to be debunked claims about me is that the people making them don’t
care about truth. They seek anything to discredit me. Some of the things come from their lack of
understanding how things work within organisations. They see themselves acting on their own accounts or
finances or sending something to the tax man, and think that’s how everyone else’s life happens to be.

Mine isn’t.

When there are errors in files, it isn’t because of some malicious construction, but rather errors happen in
files and filing. My current EA is brilliant. She does a great job. I’ve had people in the past who though very
nice have not been incredibly efficient. The funny thing is, we have documents that are being compiled
wrong and it is easy to determine as being an error, yet the truth of the matter is that people do not want to
look and see the discrepancies that are clear but seek to find something to discredit me in error as doing so
is what protects their false idea of what Bitcoin is about.

One of the biggest problems people harp on is that of contracts that have been filed in error. There is one
document on the Internet right now that is a compilation of separate documents that are not related.
Unfortunately, when they were put together, they were saved in the same file.

On one page of the document, it calls for appendix a . Following it is appendix 1 . In one section, it calls for a
schedule, and then there is an appendix. The fonts change. There is a cover document, and if you actually
look at the full document, there are nine pages in total in the purported seven-page document. Yet nobody
thought to check whether it was a single document before jumping on it and saying it proves me wrong. I
could have, but then, why? I wasn’t seeking to have your approval, and nor do I need it.

So, going forward is going to be fun. We now have more patents in play than any of the large global players,
and going forward, my intellectual property, not just Bitcoin but all of it, is going to determine the path
taken by many aspects of the world for years to come.
Bit Gold Is Not BitCoin
By Craig Wright | 08 Apr 2019 | Alternative Coins & Systems

And BTC Is Not Bitcoin

Bit gold has never had anything to do with Bitcoin in any way or form, and in fact, the systems have no
relationship to each other. There is a similarity in the name. That’s it. The technology behind bit gold is
utterly different to the one behind Bitcoin.

Most importantly, most of what the author says is wrong. The origins of money as self-referenced by Szabo
have no relationship to reality. They make a good story — no more. They are a good low-level, by which I
mean high-school, analysis without any insight. But then, nothing there was really designed to create
insight. Precious metals do not have an unfortunate scarcity due to their costliness of creation. Trusted third
parties were not invoked to stamp and assay money so that it can be trusted, but rather so that they could
control the system. The standard metal value could easily be weighed. In fact, even when a coin had been
stamped, merchants would weigh gold coins.

A gold coin can be clipped. Gold coins lose value as rubbing against a bag creates gold dust. Wear through
mere use reduces the amount of gold in a coin. So, where gold was used, it would still be weighed.

The proposal for bit gold has no relationship to Bitcoin in any form.

The author should have pointed out the same rather than falsely mislead people into the belief he had
anything to do with Bitcoin. The way bit gold worked, if you can even argue it worked for it never did, was in
many ways the opposite of the way Bitcoin would work.

There is no blockchain or timechain and nothing related to it in bit gold.

Szabo is a part of why they needed to try and destroy me. He was clearly pliable if not complicit. He is part of
the fraud they seek to engage in to create a system that is not Bitcoin, in order to allow engagement in
their scams and frauds. Welcome to Bitcoin Core or rather SegWit coin BTC. Because BTC has no
relationship to Bitcoin anymore. The airdrop that they conducted in 2017 created a completely new system
that fraudulently drew people into believing it’s Bitcoin.
Let’s have a look at what bit gold is.

We start with a challenge string. There is no challenge string in Bitcoin. The concept of proof-of-work (PoW)
was not new. The earliest variance of it goes back to the 90s, and Hal Finney’s replaceable proof-of-work
system was one that functioned and was coded well. So in bit gold, a user creates their own PoW. They send
it off to be registered and timestamped.

Each individual creates their own proof-of-work in bit gold. Bitcoin does not work the same way. Individuals
don’t run nodes in Bitcoin. Miners validate transfers between individuals. Szabo sought a system that was far
closer to Wei Dai’s b-money than to Bitcoin. Because Bitcoin is not anything like it. There are no limits to the
amount of money that can be printed in bit gold. In fact, bit gold is a system that seeks to allow all users to
individually create their own money. It is what the BTC or SegWit-coin coders want to turn a blockchain
into.

It’s an attempt to make Adam Back’s hashcash work. Unfortunately, it seems too many people fail to
understand Bitcoin itself and never bothered to understand the system that they are falsely aligning it to.
Bit gold is a system that allows anonymity. Well, if it worked, it would.

Nick Szabo is not a cryptographer. Neither is Adam Back.

Bit gold is not a precursor to Bitcoin. Bit gold is a failed dead end that has no relationship to Bitcoin
whatsoever, and they who think it has any relevance will simply fail to understand Bitcoin as Szabo did. He
did not ever write on anything like Bitcoin because Bitcoin is nothing at all like the cypherpunk anarchist
system that Bitcoin is designed to destroy.

The truth of the matter is that I don’t particularly like the individual. He has no honour and less integrity. He
has basically written a false concept and misled people into believing that he could be Satoshi. It is me.
More importantly, he has done so to obtain financial gain. He sought people to invest in his boondoggle
plan. He knows enough of law to know that doing so alone is fraud.
The Reason for Law
By Craig Wright | 08 Apr 2019 | Bitcoin & Blockchain Tech
There are very clear reasons for having law cover what is allowable as admissible evidence and what is
rejected as hearsay . When a party to a dispute that has nothing to do with a piece of evidence claims it is
real, they need to support their assertion. In other words, simply claiming a document is real does not make
it real. Importantly, there are reasons why you need to control evidence.

I will provide an example using the following link:

http://www.scribd.com/document/372445141/Exhibit-11

A certain person who sought to gain money outside of the tax system in a manner that would give him
money for nothing claimed that it was a piece of concocted “evidence” about myself and my dealings. I
generally don’t read everything I get in complete detail; I’d rather trust my staff and not read every one of
the hundreds of documents I get every month. But when problems occur, it is always good to go back and
look at things.

So… Let’s analyse the document.

You will note that there are 10 pages; 9 consisting of the document itself and 1 exhibit cover sheet. You will
also note that some but not all of the pages are numbered. There are seven pages numbered starting with
page 2 of the purported document, which is page 3 of 10.

The Trust names on the cover sheet (page 2 of 10) and in the contract are similar but different (I use a lot of
similar names in naming companies, but they are not the same).

Page 2 (listed as 3 of 10) lists Appendix A , but there is no Appendix A . Appendix 1 is given on page 7 of 7 in
the 9-page document. The fonts on the same page are different.

Page 6 of 7 (page 7 of 10 of the exhibit) shows “Denariuz Seychelles Trust” in accordance with page 2 of 10
(the contract cover).

Page 3 of 10 (listed as 1 of 7 in the document itself) entails “Denariuz Seychelles International Trust.” The
names are similar, but they refer to completely different trusts, and there are multiple documents.

There is no witness page — to be executed as a deed, it needs to be witnessed. As for altering and adding
addresses: it is a digital document. I have attached the page without any addresses.

Basically, what they have is a group of documents that have been leaked on the Internet by people who
have sought to discredit me and claimed they had hacked into my servers. When we (not Dave, but a we)
had Hotwire, there was a number of ex-staff members who had stolen data and broken into servers and
drives they had not been allowed to access. I cannot say whether the material came from them or not or
whether they shared it with other people.

The document is an altered compilation of four other documents (at least). Some parts are real, and others
are not. It forms some of the so-called evidence and proof showing that I cannot be Satoshi. Effectively,
what we have is a long-term campaign to ensure that I have lots of problems allowing the scammers to
keep scamming.

Generally speaking, I don’t read through everything and ensure that every filed document is correct. I still
don’t do so now. When my EA hands me a bunch of documents, I assume that they have been correctly
filed and maintained. But… One thing I’ll never do is believe that a document sent over the Internet and
received from an anonymous hacker is real.

Here lies the irony of it all. People calling me out as a fraud are saying that because my name has been
associated with things it must be. Interestingly, a set of documents with matching page numbers in part
has been handed to a court to support a claim. Under the rules of evidence, it is hearsay. Mr. Kleiman und
nobody associated with him were ever a part of or a party to any agreements or companies. More
importantly, he has no way to know which documents may or may not be substantially correct or which
have been altered. He would not even know if an unintentional compilation of different documents had
occurred.

It is interesting to note that I don’t do my own accounts, I don’t do my own filing, and I have people who
provide advice on all of such things. Importantly, I pay for bookkeeping, accounting, internal audits, external
audits, and legal tax advice. When documenting accounts, other people run things for me.

There is a big distinction between signing an authorisation and creating something. In the coming weeks,
we shall be starting a number of actions for libel. You are responsible for what you say and print. When you
make a false allegation claiming that someone has engaged in fraud and that you have proof of it because
of a claim made over Twitter or some other source, you better check the probity of the source before you
decide to repeat it.

When you take something from an anonymous group with a vendetta, when you have documents
obtained through hacked servers, when you make claims based on hearsay… You leave yourself liable to
prosecution for malicious statements.
The document provided by Mr. Kleiman as Exhibit 11 is a compilation of other documents. Most importantly,
you cannot assume a document is correct because it supports the position you want to think is real. The
worst part of it is that a group of anonymous trolls seems to gain power when fools choose not to think. If
individuals decide that they don’t want to talk, that they would like to keep some privacy, it does not make
the same individuals guilty of anything; and a lack of response is not a response in support.

I have not always had the best support staff. The company is well-organised now, and they who help me are
efficient — which was not always the case. In the past, I’ve had problems with staff, and some who had taken
documents leaked them. Even with watermarks and other such things, accessing documents and tracing
them can be incredibly difficult. Even if the compilation were non-malicious, an accident, or an error, it still
would not be a valid document. It could be used as evidence for a flawed process, if so was the claim — more
importantly if so was the claim and it had been obtained legitimately, but neither is the case.

The document is not being used in claims concerning bad process. There is no claim associated with errors
or the inability to maintain systems well, but rather it is a claim that the single document supports an
assertion without ground. Yet, people take it without validation, and claim that something they have
received from an anonymous party is proof for anything. You have been listening to the lies of the likes of
Wikileaks for too long. Parties breaking into servers and sending documents that they purport to be true
are rarely trustworthy to any extent. If you think that someone will hack a server and release documents and
yet can be trusted, then you are too dumb for words. Then, fake media sites like Wikileaks have taught
people to be dumb, to believe lies, and to stop seeking truth.

There is a reason people in groups like Wikileaks seek to attack me, promote lies about me, and defame me.
Such groups seek a world where they have power. A world where lies, corruption, and deception that are
instigated over computer networks are a part of everyday life. They seek a world where records are altered,
changed, and copied and where they can set the truth, come back, and change it at will. Welcome to
Wikileaks, and welcome to 1984. Anonymous and the other groups that support Wikileaks have hated me
and everything I stand for for a long time. They have hated me not for what they claim, but for a system that
provides immutable truth that cannot be altered, a system that provides a single record that stops
corruption, a system that makes fraud expensive and stops all they are supported by. With Bitcoin and
Metanet, there is no reason for WikiLeaks and no way for such anonymous cowards to hide.

When you take something that has not even been admitted as evidence, let alone proven to be true, and
you decide to use it in defaming someone, you better have deep pockets, because in time, you who defame
and slander and libel will face action.

Enjoy bankruptcy, coming through a libel court near you…

From simplicity comes …
By Craig Wright | 09 Apr 2019
| Bitcoin & Blockchain Tech
The Silicon Valley culture of change at any cost, with pivot at every moment is detrimental to most of what
we see in society. It replaces simplicity with chaos. Simplicity can lead to complexity, and it is important to
note that complexity is nothing like chaos. Rather, simple rules lead to infinite and unbounded
combinations of outcomes. If we take for instance the game of life, we see a set of simple rules that when
repeated and iterated create something remarkable.

Here lies the problem in the “cryptocurrency” development community; they seek complexity, and end with
chaos. Like many technocrats, they want to control the outcome and not let it evolve.

Bitcoin is a simple protocol. As such, the security of the system is protected as miners cannot update the
protocol. A miner can choose to not accept a transaction, and can seek to reject blocks with the same
transaction at the risk of losing and the orphaning of anything they win. Even if they choose to do so, it
merely delays a transaction. A transaction can be replayed a week later, a month later, a year later, a decade
later, or whenever the user decides. It is a key strength of Bitcoin. Miners don’t set protocol, rather the
protocol is set in stone. If you change the protocol, you move away from Bitcoin. Protocol changes are not
forks but rather new competing protocols with a possible airdrop.

This is important; miners set rules.

One such rule concerns the block cap. If just over 50% of the miners want to increase the size of the cap, it
will rise, and many miners who are rejecting the increase will go broke. It’s how the system works. Hobby
miners are forced to compete, and if they cannot, they are forced out of the network. Bitcoin was never a
system designed to allow everyone to run a node. It was always destined for data centres.

Rules are different to protocol. In the white paper, it is explained that any necessary rules can be set. In
other words, where a majority of miners chooses to enforce a particular set of transactions, that is to reject
something based on size or fees or anything else within the protocol, they can do so at the possible cost of
lost revenue in case they choose wrongly.

Importantly, the distinction is whether a transaction can be replayed later. Rules can change, the protocol is
set.
As such, a transaction that is signed today but does not get into the next block can be tried at a later date. If
the value of bitcoin against, say, the US dollar increases, a low fee on a transaction that has been rejected
may be accepted later. Where today blocks are being made full continuously because miners only accept a
certain cap, in six months the scenario may be different. In all of the cases, no changes are required to the
user software, SPV, or applications.

Having said so, Bitcoin is incredibly powerful in its simplicity. The scripting language included with Bitcoin
can be extended to code about anything that can be thought of.

Schnorr
Ironically, Schnorr signatures have been promoted by supporters of several alternatives to Bitcoin (such as
BTC) as a means of scaling. The argument is that multiple signatures can be collapsed into a single system.
Instead of having five parties carrying out five separate signatures, a single signature would suffice. Well, so
is the claim. The truth is a little different. As with all of such changes, the developers behind them are
seeking to create an anonymous system. They are seeking to alter the protocol within Bitcoin and create
something completely different. Bitcoin was never designed to be anonymous, and yet anonymity is what
they are seeking.

But can it help with scaling?

Here again we have a series of lies designed to hide the fact that the developers of SegWit coin (BTC) are
seeking to remove the key strengths of Bitcoin of privacy over anonymity.

Generally, a transaction will be conducted by having one party pay another. As such, Schnorr signatures do
not save space at all. There is no aggregation. Alice signs a transaction to Bob. She has a single signature
that is signed to a single-signature-based spend address. Consequently, the purported savings are
negligible or less. At the same time, though, they remove the ability for all users to trace transactions easily.
Again, it is a false promotion of something that does not exist as an issue so that they can create a system
that cannot be tracked easily by government and, more importantly, can lead to something they believe will
act as an anonymous currency allowing drug sales.

The flaw in their argument stems, as always, from the fact that in a legal system, such a desired end is easy
to stop. To have value, bitcoin needs to be easily exchanged. To be able to do so, it needs to be legal.
Exchanges and custodial wallets need to be simple and act within the law. It is the point of exchange that is
simplest to attack and remove. In removing the ability to take bitcoin in and out of the general
cryptocurrency system from and to the fiat-currency system, they remove all usefulness and value.
Bitcoin and Contract Jurisdiction
By Craig Wright | 11 Apr 2019 | Bitcoin & Blockchain Tech
Jurisdiction (or the location where a case may be heard) can be a big issue on the Internet. In a contractual
negotiation where the client is in country A and the web server is in country B, the case may be heard in A or
B based on whether the transaction was business to consumer (B2C) or business to business (B2B).

Where a contract was a B2C negotiation, the consumer can sue that business in the courts of his own
country (justified as a consumer is likely to lack the required resources to bring suit overseas).

In B2B disputes, the court used for the dispute is that of the country in which the defending party is based.

Enforcement is another issue. Just because a party in a B2C case has won damages, it does not mean that
there will be an international treaty to enforce the judgement.

All of this can be rectified using smart contracts with bitcoin.

Trolls and bullies
| 11 Apr 2019 | Bitcoin & Blockchain Tech
By Craig Wright
The irony of those seeking anarchy and calling out for BitCoin to act outside the law is that they are not
only trolls but simple bullies. It’s rather hypocritical to talk about an anarchist society where everyone
gets along when it’s the same people who cannot act in society. It is generally the antisocial loser who
fails drastically who seeks to put down other people rather than address his own problems.

Such is the realm of the anonymous coward. It is itself the one reason many of the same people think
that anonymity matters. They believe that it gives them power in their otherwise useless lives.
The hypocrisy of them seeking privacy while attacking other people and invading the privacy of their
victims should not be lost on people.

When they complain about the consequences, it needs to be remembered that they are the
consequences brought upon people through their own actions. Metanet is a system that differs from the
Internet as such losers no longer have power. The damage that social media has released upon society
comes from the typical tragedy of the commons that all free systems or seemingly free systems release.
With the Internet, the inability to charge access based on use leads to abuse.

There are costs associated with the Internet. PII or personally identifiable information is sold by social
media and other groups to pay for such free access. It incentivises and encourages the worst aspects of
society. They who do the worst feel good momentarily as they attack others and engage in antisocial
behaviour designed to boost their own worthless egos.

With the introduction of small micropayments, individuals will be able to incrementally select the
amount that an individual has to pay to communicate with them. For individuals we want to talk to we
can set the bar very low or even make it free. For people we are only loosely acquainted with we can set
a smaller but slightly larger amount that in balance evens out if we communicate with such people.
Conversely, those seeking to sell us products we don’t want who seek to engage with us whereas we
seek to avoid them will have to pay more.

When taken together, we alter the incentives and make it less profitable in every way for the Internet
troll and bully. Rather than having free reign to gratify their minuscule worth through ego stroking, the
necessity to pay for access means that they will have to start acting within social bounds.

The promise of the Internet was the creation of a place where people could freely express themselves.
The problem is that anonymity and the lack of costs have led to a system of trolls spewing hateful
messages with no social consequences. In fact, many of such fools engage in a race to the bottom as
they compete to formulate responses and go to the bottom of the barrel. Such is the tragedy of the
Internet, and it lies in the creation of cyber bullies and trolls.

Trolls seek to rile online communities to their discontent. They do so in order to attract attention which
they feel they’re not gaining and they rightly need and are worthy of. They stroked their egos starting
social unrest. Cyber bullies, on the other hand, simply use the Internet to hurt people.
Sometimes, such people are both cyber bullies and trolls, and sometimes they switch between such
equally despicable and antisocial processes.

Trolls are able to leave inflammatory comments designed to stir discontent because they can hide
between the anonymous layers of the Internet. The cost of tracking them exceeds the cost born by such
worthless individuals. They make out a target that they can throw incendiary comments at. It can be
hate posts or racist, sexist, or profane material designed to cause pain to other people while stirring their
incestuous communities into a feeding frenzy.

All of it is about attention. They want to take away from the author and draw attention onto themselves.
They seek to extract value from other people because they are too worthless to onus on their own. The
more they take away from the original author of a post or the commentary that follows, the more
attention they get and the happier they become, until the ego is stroked through their antisocial attacks.

Trolls focus on being a mere nuisance.

Such individuals can shift focus and start to become something worse, a cyber bully. Such antisocial
criminals start to target individuals. Rather than simply posting inflammatory statements about a
community, they start to target individuals seeking to shame or intimidate them. They seek to remove
the privacy of others as they hide in the shadows. They seek to take away the power of other people as
they cause fear and intimidation. Such individuals use anything from mean-spirited comments over
private pictures right up to falsifying information and data. They taunt, and they seek to bring the
person down. It is only in hate and fear that such low individuals who seek to hurt and demean others
gain pleasure.

Such sick individuals seek a reaction. They seek to create negative attention on those they attack, and
try to cause distress. It is the problem resulting from the social media format of selling identity rather
than paying for access. Bitcoin and the Metanet change the format forever. The same people will no
longer hide behind their lies, frauds, and deception, and we move to a world where they who seek to
make others fear are punished for their deeds.

The troll tax…

The troll tax is not just a cost benefiting women, it is a cost benefiting all those who are targeted.

For female writers, [being harassed online] means a tax that steals time, steals energy, costs
productivity, lessens their ability to compete, to promote themselves, to network. For anybody who in
any way presents as a woman online, there is a danger of a mental toll, and sometimes a real world
physical threat. What am I told? Get off Twitter. But, are women just not supposed to participate in the
public forum? The public forum is happening online, and women cannot just be told to leave it. That’s
not a viable option.

As the Metanet replaces the Internet, trolls will slowly become extinct.
Evidence and law
| 12 Apr 2019 | Bitcoin & Blockchain Tech
By Craig Wright
It’s funny, the cypherpunks want to demonstrate that code is law. In part, they think they can back me
into a corner. They think that they can support their assertion by making me sign something publicly. As
such, they have a whole plan about keys and how it suits their purpose. Little do they understand, law
works differently.

The important thing to understand is: law is law . Code (programs and algorithms) in any form is merely
evidence. Bitcoin was designed to work within a common-law framework. I studied law to a point where
I completed my master’s degree in international commercial law from Northumbria University, UK in
2008. At that point, I was still not a lawyer in any sense. I’m a member of the Society of Legal Scholars
now, and I have taught law in the past. Subsequent to my Masters of Law (2012), I did training to be a
barrister and training to be a solicitor, although I never completed the practical experience or worked as
one. I’m now doing my doctor in law.

You see, ownership of the key is not proof of anything other than the possession of a key. The call to
have a precedent based or derived on or from a key signing is dangerous to say the least, and any
competent judge would not base law on such basis. We are not talking about a registered digital
signature, and even if, there is no such thing as non-repudiation. I have said so many many times before.
It is a key aspect of law, no matter what someone claims: an individual always has the opportunity to
repudiate. I won’t cover all the details of it here as it is really about evidence law and goes into far more
detail than my post shall.

And it is not how Bitcoin works. You don’t have a key that is associated with an identity in the format
that something like PGP uses. Although some people have used foolish single-key systems in Bitcoin, it
is against the design of the system. Bitcoin was developed in a manner that uses keys once and only
once.

It is incredibly ironic that people think Bitcoin is in any way about anonymity. I wouldn’t stop people
trying to hide behind TOR, but such is not the purpose of Bitcoin. Bitcoin was birthed using a credit card
payment. The records of the same payment are required to be kept by the banking system for 25 years.
It hasn’t been that long. More importantly, I claimed the expenses on my tax in the 2008/2009 tax year.
You see, a domain purchase in August 2008 is within the Australian tax year, but I was audited, which
ended up going to court.
I used AnonymousSpeech.com for many years, and held copies of the SecureAnonymousSurfing
software. I started using it when I was investigating malware breaches and peer-to-peer copyright
violations. It enabled me to track and analyse people breaching software licenses and media licenses
and such people who were attacking my clients, that is, cyber criminals. I used the service as it stopped
the cyber criminals from being able to find out who I really was.

This is the source of Vistomail and the registration of the domain bitcoin.org.

What you don’t realise yet is that I used my credit card. Yes, as crazy as it might seem to you, I used my
credit card to purchase anonymous services. I even claimed it on my tax. I had an argument with the tax
office in Australia about claiming it.

It’s funny, people who discount law understand so little about it and the rules of evidence. Well, with a
number of court cases about to start, you are going to find out some of the history of Bitcoin. I had a
floating account balance on the AnonymousSpeech.com system. What people don’t realise is that the
domain is registered on an anonymous site with links to registration in Switzerland, but when I did so,
the domain could only be registered using a bank transfer or Visa card.

The site now takes bitcoin, but it didn’t back then because Bitcoin hadn’t existed yet. Such is the
ultimate irony to all of it: Bitcoin was never anonymous. It was paid for using a credit card. The domain
used was paid for with an account that had money transferred from the credit card network with full
KYC and all the logging requirements of the modern banking system.

Don’t worry, the tax office has audited me so many times that none of it could ever be lost. And this one
is mine. Unlike many of the other things that have occurred in the companies that I have created, it is
something I did personally.

When a bunch of cowards decided to dox me in December 2015, they should have checked their facts
first. I moved to the UK in October 2015. The video I did where I talked about the Turing completeness of
Bitcoin was conducted from Soho in London. There’s a reason why they arranged for a bunch of media
shills to wait outside a house I was no longer living in, they didn’t do their homework and didn’t care.
The plan was to stop me. To stop scaling Bitcoin and to try and take what Bitcoin is and break it and
create a drug coin. Such is the entire purpose of Lightning. The Lightning Network is a system designed
to allow criminals to purchase drugs and other illicit material and records being lost but still settling on
Bitcoin in such a way that they can avoid anti-money laundering rules.

Argue all you want about the nature of evidence, but there is one simple point I can categorically prove:

The source of the funds that went to pay for the bitcoin.org domain registration on
AnonymousSpeech.com derived from my credit card. More importantly, the same records remain
current and valid.

There is one sole purpose of all the copycat coins like Monero. It is the entire reason that BTC changed
from being Bitcoin into some lab experiment designed to avoid law — one that is still failing.

I told you to be careful in what you wanted and what you wished for, because you’re going to get it. I am
the person behind the moniker Satoshi Nakamoto, and as a result of all the trolls and haters, I’m going to
provide evidence. Not in a way that anonymous cowards would do. I’m going to use courts and law.

Welcome to law.
The Genesis of Genesis
By Craig Wright | 12 Apr 2019 | Bitcoin & Blockchain Tech
Some time ago in a blog post far far away , I wrote about the genesis block and the start of Bitcoin .

Many have argued that the initial block in Bitcoin is a flaw. It is nothing of the sort. The so-called lost bitcoin from the genesis block do not exist as spendable bitcoin; it is an
anchor.

The problem people have when they look through glasses tainted with greed is that they don’t see the simple facts, but rather paint the scenario with one of their desire. The
first thing to remember is that there were no bitcoin sales in January 2009. Bitcoin was a system that cost money to run and create, and yet had no value. When asked about
the lost value of the genesis block, the calculation is simple: 50 bitcoin times zero. Remember, anything times zero is zero. There is nothing lost.

More importantly, the keys vary between the genesis block that is public and the early code that was distributed. In September 2008, I sent many copies of the early code.

txNew.vout[0].scriptPubKey = CScript() << OP_CODESEPARATOR <<

CBigNum(“0x31D18A083F381B4BDE37B649AACF8CD0AFD88C53A3587ECDB7FAF23D449C800AF1CE516199390BFE42991F10E7F5340F2A63449F0B639A7115C667E5D7B051D404”)
<< OP_CHECKSIG;

In this version of the code, it was not called a “block chain” — such was a later change.

//
// The timechain is a tree shaped structure starting with the
// genesis block at the root, with each block potentially having multiple
// candidates to be the next block. pprev and pnext link a path through the
// main/longest chain. A blockindex may have multiple pprev pointing back
// to it, but pnext will only point forward to the longest branch, or will
// be null if the block is not part of the longest chain.
//

Orphans and forks are part of how Bitcoin works. Such was always the design. They don’t impact transactions, but rather are part of how mining works.

The genesis block did not only have a different hash, it had a completely different address.

This version was completed and posted to people on Wednesday, September 10, 2008. It was a busy busy week. I took time off work. I had a few weeks vacation, and I was
preparing for another certification. I sat the SANS/GIAC GSE-Malware exam. They don’t offer it anymore; it was considered too difficult.

The GSE exam is hands-on. You have multiple days of testing after you pass the theory test. I had been prepping for the theory test for the month before. In the exam, the
student needed to reverse-engineer malware. This point was probably my peak technically. I was still teaching and coding C/C++/C# on a very regular basis, not that I ever
went to develop sound production code very well.

I sat the SANS/GIAC Security Expert Malware (GSE-Malware) certification . The year before I had sat the GSE-Compliance stream . The GSM is no longer offered as only four of us
managed to ever achieve it.

Even now, very few people sit the GSE. I’m proud to have been one. Having been the only individual who sat all three, I can tell you that the malware exam was the hardest by a
long way. The GREM exam and certification still remains, which is the reverse-engineering-malware training and certification .

Interestingly enough, the reason I sent the code out at the time was that I’d been procrastinating from studying more for my malware exam. I’d spent every spare moment
since September 2007 studying. I was simultaneously enrolled in a master’s degree in statistics at the University of Newcastle and finalising my master-in-law degree from
Northumbria (Newcastle, UK). It was a busy time. I would spend mornings on Bitcoin. I got up at ridiculous times, and started by coding and checking my material before
having breakfast.

I had memorised practically everything over the year that would be included in the GSE-Malware exam, and had practised with IDA and Olly until I knew every shortcut by
heart.

Now, I’ve left it far too long, and I don’t play with disassembling code other than in the occasional way to remember the past. So, I can flood my way around Hex-Rays, but if you
asked me to engage in reversing Objective-C binaries using a REobjc module… I would need to do some serious studying to remember how to do it.

On September 10th, the most memorable thing for me was that the Large Hadron Collider at CERN was powered up in Geneva, Switzerland.

I guess for other people, it’s going to be different. I was living and breathing low-level networks and low-level code at the time. On top of them, Internet law and a few other
areas. I am doing two doctorates simultaneously right now, but I am not doing a fraction of the study hours I was doing then. I was living on four hours’ sleep for two years. I
was used to being up at 3 AM or 4 AM seven days a week.

Then, after I had stopped with the work at BDO, it became even more ridiculous.

But that’s another story.

I had my presentation ready for IT Security World around the same time. I was discussing document storage and WORM storage, something required by Sarbanes-Oxley
(WORM means write once read many ). I still fail to see how people do not understand that the blockchain, that is Bitcoin, creates immutably singular storage that allows
organisations to securely manage documents.

I presented on the legal aspects of compliance and security when I visited the US to present at IT Security World.

So many people believed that you couldn’t have privacy and retain information. I’m still having a hard time getting people to understand that you can.

I had a publication the same year concerning document-destruction practices in organisations. I did a lot of publishing in the Institute of Internal Auditors and risk-
management journals. The header of one paragraph was “Destroying Documents: Bad for Business or Illegal.” I argued that organisations shouldn’t need to destroy documents
ideally, management could be done cryptographically, and key control could be much simpler.

My blog posting at the time slowed considerably during the same weeks.

But with staff at BDO, we created a number of forensic tools. One of them had to do with analysing the mining of data. I never managed to gain much traction talking about
mathematics with IT people. But the software we created enabled the prosecution of a child-grooming offender in South Australia. By reviewing chat logs in social media, we
were able to use the links between individuals to deanonymise accounts.

I knew perfectly well about the interconnectivity of network systems at the time. I had testified on a number of criminal cases using such techniques to deanonymise social
media accounts. One people in the crypto community won’t like is that of catching copyright infringers. There was never any one individual, it is never some poor person at
home but rather organised crime rings.

Some cases involved specialised hardware, such as for a raid I did later on with an ex-NSW Police Sgt. I did a lot of work with friends (‘Clarence’ — Bill Bush) which involved
systems that broke satellite transmission, systems that allowed karaoke bars to act without paying for their licensing and where people would sell rights using peer-to-peer
networks. There was never once a case where anyone ever mentioned raiding some poor home user. Rather, some of the copyright offenders created global networks, and
sold pirated software to tens or hundreds of thousands of users. Almost all included a backdoor designed to capture financial transactions and de-privatise people’s personal
accounts.

My knowledge of peer-to-peer networks was gained through analysing networks in regards to conducting piracy investigations in the music industry.

1. There is a longstanding legal principal, a piratis et latronibus capta domimium non mutant, which translates to mean ‘things taken or captured by pirates and robbers do
not change their ownership.’ Hence you can accept that simply because some other infringer has placed infringing television broadcasts in a public place, i.e. the web, it
doesn’t mean anyone who aggregates such infringing content is no longer a copyright infringer.
2. A criminal cannot avoid culpability by producing a disclaimer, guarantee, or warranty — otherwise all economic criminals would include a disclaimer in their handiwork.

Ah, remembering all this…

I got back around October 5. I gave myself an afternoon off, and then I started studying for the GSSP exams . There were two: secure coding using Java and C. I still had a lot of
work to do in C# at the time .

But, I started another master’s degree to help. I had to give it up before I graduated. I ended up completing all but one subject. I was enrolled at the time, around 2012–2013, in
both my PhD in computer science and the master’s degree at Charles Sturt University. It would have been my fourth master’s degree from them. But, I had people complain.
The university had given me two separate student IDs, and I was completing both degrees simultaneously. Doing so is technically against the rules, and unfortunately, I needed
to choose one or the other. Such is life.

Ironically, I still sat ITE505 Enterprise Applications Development . As such, I think I learnt everything I needed to.

Getting back to the development of Bitcoin, part of it involved economically incentivising DAT s.

DATs are digital auditing techniques.

If you’re wondering why the Wayback Machine only has material of mine saved dating to 2015, what you’re missing is that I used both robots.txt and metadata tags in my
pages. It isn’t that the pages didn’t exist, it was that I was trying to remove them in 2015.

You’ll notice in the post I made before launching Bitcoin , I wrote:

From my observations, the accounting and audit would seem to be increasing its productivity at a rate of between 1 and 3% per annum. At this rate, not only can organizations
who are not growing fail to maintain equilibrium (this is currently attained through exceeding with the big four) in the long run, but within a decade, small to medium firms
will likely lose up to 50% of their business to them.

One of the biggest reasons for the development of blockchain, Bitcoin, is that I saw the changes in order technology that were about to come in the development of
productivity tools. It wasn’t just money. It’s a form of money that radically alters the way we do business. There is a reason why WP0001, general ledger accounting on the
blockchain and the first filed patent application I had with nChain, is about accounting.

I wrote at the time that DATs have also shown an accuracy of over 96% on analysis of non-fraud financial statements. It is important; to be effective, the system needs to link
into a single immutable data store. Such was Bitcoin. I know that it seems boring to most people, but I find the creation of something that will reduce fraud to be massively
exciting and groundbreaking.

As I said back then, to make such types of productivity gains, we don’t need to work harder, we need to follow the often used idiom that we need to work smarter. We need to
look at working with each other and think about how we can better implement technology.

So the fun thing for you to know is that you can find links to the blog pages dating back to 2007. Yet the archives are not so old. Those who have a little bit of skill in digital
forensics and web analysis will realise that the absence of evidence in the Wayback Machine is proof of very little at all.

Having said so, back then I was considering how we would gain access to data .

The funny thing is, I had people such as those at SAS who read my blog. One thing you will notice is that I cannot update timestamps for comments. So the pages existed. All it
does is show your own ignorance and how little you know about how the Wayback Machine actually works.

On Keys
To recover the public key from an ECDSA signature (R,S), we require knowledge of the curve and the message that was signed (or at least the hash of the message). With both,
we can calculate the public keys. One of them will correspond to the private key used.

I always find it strange to see how people react as if 50 bitcoin in the genesis block mattered.
At the time, they had zero value. The genesis block was designed never to be spent. There are many ways to do so; ECDSA allows for an unknown private key in the creation of a
signature that can even link to an invalid public key. There’s even a way to create a self-signed Bitcoin transaction. Here, you compute the value of the private key after creating
the signature, which can be done as you know the value K, the ephemeral key.

In September, the version of code that I had finished and sent out was a lot simpler. It contained the following line:

txNew.vout[0].nValue = 10000;

If it had been left, the amount of bitcoin would’ve been completely different. COIN is used as a multiplier, and comes to 10,000,000. So the initial reward would’ve only been a
small fraction of a bitcoin and not 50 bitcoin for the initial block. At least, the initial genesis block would’ve started that way. The idea with the block subsidy was that early
adopters would get a lot more so that they could reinvest in the network and make their investment valuable. I greatly underestimated human greed and the propensity to
scam people.

txNew.vout[0].nValue = 50 * COIN;

What we ended up with is what you see now listed above.

Such techniques are not going to go away. Change is pervasive; either we embrace it in an entrepreneurial manner, or it will steamroll us.

I haven’t stopped reflecting on the nearly two decades. The process has been interesting to say the least. Thinking about it, all that occurred and all that I went through, I
wonder how I managed to do it. I certainly couldn’t do what I did then now. I am still very productive, I write more than one paper a day on average, sometimes closer to two.
But I certainly cannot study at the rate I used to, with age comes change. The consolidation of knowledge that I’ve learnt brings a different result. And through it, I am not the
same man that I was then.

Would I go back and do it again?

Yes, if I could, and I would do it just the same way. There are things I did not like at the time, but I like the place I’ve come to, the person I have become, and everything about it.

The phoenix must burn to rise.

Patent wars…
By Craig Wright | 13 Apr 2019 | Bitcoin & Blockchain Tech
Blockstream raised USD60 million on the promise of 2 patents. The patents are:

Cryptographically concealing amounts transacted on a ledger while preserving a network’s ability to

verify the transaction ; and
Transferring ledger assets between blockchains via pegged sidechains .

And the existence of others demonstrating that Mr Back can complete a patent and have it granted.

Security attack detection and defense

The first two are filed by Blockstream, the third is a Microsoft patent that had been granted before Mr Back
had any involvement with Bitcoin and which is not related to blockchain at all. It just shows that he could
follow through on something of such form. Mr Back also has other patents that have nothing to do with
Bitcoin, such as “ Multi-site data redundancy .” So, he has demonstrated that he can write a patent as a part
of a team.

Neither have been granted; both remain pending.

So, as those dedicated to bringing a world of anarchy, drugs, and illicit material fight to defame me, I work
faster, more thoroughly, and far more effectively individually than all of them combined, and that’s before I
add my team which makes me more efficient and far more effective.

Transferring ledger assets between blockchains via pegged sidechains

First of all, it calls for an SPV proof. SPV or simplified payment verification is defined in section 8 of the
Bitcoin white paper. It involves a Bayesian query system. As the Bitcoin whitepaper explains, a user simply
needs to keep a copy of the block headers of the longest proof-of-work chain and then verify the Merkle
branch.

You will be told over and over that it doesn’t work. The claim is that SPV doesn’t enable simple and secure
access to Bitcoin for users. The truth of the matter, though, comes down to the patents. Like all the other
things they are doing in attacking Bitcoin, they are seeking to make something that does the opposite of
what Bitcoin does. They are seeking to “rectify” the ability to trace monetary transactions that is part of the
foundation of Bitcoin.

The patent here is about sidechains. Like Lightning and the failed attempts before it, it is all about losing
information. When we’re talking about money, the way it works in the current financial system, all
transactions are recorded. Not just for the period of the transaction but for years or decades. Doing so is
ideal when we’re talking about normal commercial transactions. Bitcoin allows privacy, but it doesn’t allow
anonymity.

And here lies the rub: With a sidechain, they seek a system that can be secured using Bitcoin but yet allows
the loss of the transaction record. When you’re buying a coffee, a refrigerator, a car, or anything in the
normal commercial world, records are important. But when we compare it to the illicit market, we see that
Bitcoin doesn’t work very well as it can be traced. In other words, Bitcoin allows honest transactions but at
the same time increases the ability of law enforcement to trace illicit transactions such as those that exist in
drug markets.

A sidechain is effectively a completely new blockchain that runs in parallel to Bitcoin but which may be
deleted periodically. For instance, the concept would allow a blockchain that updates every month. At the
end of each month the account status is recorded, and then the original sidechain is deleted. The concept
allows for accounts without a history. It is effectively opening up the ability to launder money and engage in
illicit activity.

Doing so in effect is the only use case. It is also one that cannot exist in law. The fact that it is an anathema
and breaches existing law means little to them. The argument will be that it increases the ability to scale.
Yet the truth is that records must still be kept. In a system with 1 million transactions occurring using a
sidechain, we have just as much data being created as in a system that is a single blockchain. There is no
saving in having many blockchains running as sidechains unless you incorporate record destruction.

And such is the gain.

In Bitcoin, all the records need to be maintained. In a sidechain, you can periodically delete records. The
overhead of a sidechain actually reduces the scaling capability of Bitcoin, unless you consider each system
able to be pruned with the records being deleted. If we imagine the use cases, we start seeing that it has no
use in anything legitimate.

Share transfers need to be maintained. Consequently, tokenised shares and other securities or derivatives
would not be able to run on such a system. Tax receipts need to be maintained, Bitcoin allows doing so in a
simple manner, yet you don’t want and cannot use a tax receipt for an illicit purchase or sale as would be
conducted over a drug market.

Blockstream and its personnel and some of the trolls they fund will tell you that Bitcoin was designed to
allow drug markets and illicit use. It is not. I created Bitcoin following my time in an audit firm. It helps
create an honest marketplace. It reduces corporate fraud, tax fraud, and general account fraud. It was
created to make an honest system.

My claim in R&D in Australia would have, if the government had not attacked Bitcoin and had the patents I
had been filing remained in Australia, been taxed there. Such was the purpose of the R&D tax credit.
Blockstream and the trolls that they help promote will tell you how nothing that I created has value. Yet
nChain, the company I founded based on the research I had been conducting in Australia, has already got 16
patents that have been granted, 700 patents that have been published, and a total at present of 1278 patent
families in progress.

Such patents are more fundamental and deeper on a business level than anything created by Blockstream.
Blockstream have managed to get multiple rounds of funding for a total of over USD101 million with a seed
round alone of USD21 million. With such funding, they have not managed a single useful addition to Bitcoin.
They have engaged in boondoggle projects such as Lightning and altered a system (BTC) that was originally
based on Bitcoin but became an airdrop copy that I will refer to as SegWit coin.

I have no problems with the Australian government rejecting my USD36 million research and development
claim. If they had not rejected it, all of the funds would have been left within Australian jurisdiction and the
government would have the right to tax me on each individual airdrop derived from Bitcoin. You see, BTC
has become a new creation. It is not a split in the sense of a share split, but rather a new system with an
initial value grant. As such, it is taxable. So, being that there are multiple billions of US dollars value that have
resulted as a consequence of my research, I am more than happy to have taken them away from Australia
and now be located in the UK.

The irony in what they try to tell you about myself and my company is that they say what I’m doing is a
scam. Yet, Blockstream with two patents and no ability to scale BTC’s airdrop raised US$100 million . My
research and the team I have put together have resulted in a patent pipeline that will likely deliver over
10,000 patents. Not two, 10,000.

At the same time, my team is building our scaling platform. I started such work in Australia with a platform
called iDaemon. It was a micro-services node designed to scale. Next year, the results of such research and
the extensions done by the team that we have put together in the UK will result in the launch of what
iDaemon became: Teranode.

I don’t think many people think through the costs of running a team of 50+ people. IT engineers and
researchers with an average salary cost around £130,000 a year (including the ancillary costs and
remembering that what you get as an engineer isn’t the cost to the employer). This comes to 6.5 to £7
million a year. With office space, computer systems, legal and accounting fees, and more, we end up with a
cost in the order of £10-£12 million a year, before we take all the ancillary costs into account.

We have been running at such a level at nChain (including as its predecessor, DeMorgan group) since 2013.
It comes to around AU$23 million each year in expenses. That is over a period of more than six years.

This is before the cost of mining systems, computer systems, networks, and more has been incorporated. All
up, it’s an amount in excess of AU$140 million. So, remembering that the Australian research and
development program delivers a tax offset, that is not even the full picture if it had been granted as money
in hand. The Australian tax incentive program for R&D returns 43.5% of eligible expenditure for companies
with less than AU$20 million aggregated annual turnover .

But then, why would we expect them to tell the truth about any of this. When you can put documents on
the Internet and say that the creation was purely mine, yet you can create hearsay, why would you care
about truth? Then again, the truth of the matter is we fired multiple staff members who were engaged in
the theft of intellectual property.

We ended up taking an injunction out against such former members/employees of one of my companies.
They had approached investors with a plan to raise between AU$10 and AU$20 million in seed capital. They
seem to believe that any code they had created while working for me remained theirs. After we took an
injunction on them, at least one of them leaked modified stolen information.

Others altered records.

Interestingly, the anarchists who seek to say that law doesn’t matter ignore whether things are hearsay. If
you receive a document that is posted on the Internet from a random control that is claiming to have taken
the document from a hacked server, you should treat it with a grain of salt.

One thing you need to understand: even in Australia, I didn’t do the accounts. You may not understand, but
I ran a public company. We had engaged internal audit and accounting staff, Ernst & Young as risk advisers
and internal auditors, KPMG as external auditors and accountants, three separate chartered accounting
firms to file taxes. So if you’re asking me whether I filled out and signed forms based on material that I had
been given from auditors, accountants, lawyers in three countries, and more without checking every value
line by line, I will answer yes, as will every other company officer or director I’ve ever met who was not
directly in charge of finance.

There’s a reason I had a CFO. There’s a reason we had an audit committee.

I know many people seem to think that many things go away with Bitcoin, but they don’t. Bitcoin does not
remove audit staff. Bitcoin doesn’t remove the need to pay taxes, nor does it remove banks.

We can compare the numbers to capital raised by the Ethereum foundation. For a dead-end project that I
could have explained the flaws of in aim and focus more than a decade ago, it raised in excess of USD200
million .

It’s strange, there are a few documents that float around the Internet that people seem to think are the
entirety of everything we did. My firms have and had multiple project managers. Some of them were
absolutely amazing. The risk register below was conducted as a weekly exercise, and was updated with all
the exposures on the different projects. It was one of over 50 different risk registers that we maintained.

And projects such as iDaemon, which formed the foundation of what will become Teranode when it is
launched formally next year, consisted of complex systems that were interconnected and which had high
risk and a lot of design. Yet, few people understand the complexity that results from changing protocol. I
would have been happy to sit there doing work in the background with nobody ever discovering who I was,
that I created Bitcoin, before it launched and even later. The image below is from the project as it was in
December 2013. It’s changed a lot since then.

In the four years from when I initially launched my creation, it took a lot of time and effort to get to the
point where we could start even testing a future design that would scale and which would enable
businesses to manage a distributed blockchain, Bitcoin.

Critically, the biggest issue stemmed from the constant changes. A protocol that was designed to be fixed
and set in stone kept being modified by a bunch of fools seeking to create a system that was more friendly
for drugs and illicit markets. If it wasn’t for such idiots, we would have been able to launch a scaled node
years ago. A tremendous amount of time was wasted. But, we shall be launching a system that can scale
into terabytes and eventually petabytes per 10-minute blocks. The system will be able to handle global
commerce, not just cash, all commerce on a single system that is immutable and resistant to fraud.

BTC is not Bitcoin. It is a fraudulent airdrop designed to scam money out of the unwary.
 The joke is… Bitcoin is “pseudo anonymous” rather than “anonymous;” hence, one’s illicit activities are
recorded in the transaction chain for the entirety of time and for the whole world to reveal.
How else would law enforcement be able to celebrate the capture and shutting down of Silk Road and
other illicit activities?

So, it is close to being funny to think that such people believe that they can stop what we’re doing by having
altered documents, having had staff that had formerly worked for my companies breaking in and altering
my records (and making my life more annoying), that doing so will in any way stop what we’re doing. The
truth of the matter is that for every altered record that has been recorded and claimed to be something I
had personally authored, there are around 3000 business documents. Documents that have been reviewed
by lawyers, accountants, and auditors and which are associated to research that is leading to the largest
portfolio in this sphere of influence globally.

But even so, what people neglect is how little my competition is doing other than base attacks. They believe
they can stop me and my companies and my partner organisations (note this is not a partnership but refers
to agreements under joint venture between other groups) in what we are creating.
Each week, in addition to my studies and other aspects of my job, in addition to the research I complete and
file, I review reports on the status of different aspects of the company.
I care about the status of the scientific research we are conducting.

I put a lot of time and effort in doing so.

But no, other people do finance, and other people do HR. I admit such things are critically important and
that the company can’t run without them, but at the same time, I’m smart enough to know that they are
not my strength and that other people do them better. Each of such reports exceeds 50 pages, to go
through all of it without being kept in endless rounds of meetings means that I have to focus on what I do
and leave other aspects of the company to others. So, when you want to talk about documents that
purportedly show how I have been manipulating records, you might want to note that I have no access to
the financial systems of the companies I manage or have founded. I like it better that way.

But then, we are building a trusted financial system, it takes time. And yet, we are still doing it faster than
the scared children that attacked my reputation or believe that doing so will stop me. They are too busy of
course trying to create systems that lose financial records and create anonymity.

Cryptographically concealing amounts transacted on a ledger while preserving a network’s ability to verify
the transaction

Here lies the other aspect of what Blockstream and associated parties sought to do.

They want to take the simplicity away from Bitcoin to create a system that is more similar to Monero. That is,
one that hides the amounts spent makes it simpler to engage in illicit activity. As I keep saying, the only
reason for doing so is the creation of an illegal system. There is no valid system here that will ever result. It
creates an account-based version of a digital currency that would not meet the requirements of the MLD5
updates that are due to come to force in January 2020. That is, if they even managed to create it. The truth
of the matter is that an anonymous system is incredibly simple to stop.

Many forms of anonymous digital cash have existed in the past. A mere banning of such an instrument
makes it unable to be used, it leaves the system impotent. Such laws can cover all of it in restricting access
to applications. Strict liability offences of mere possession utterly destroy the usefulness of any such system,
and yet they still try.

I’m not going away — which is unfortunate for them.

We are here to create a global financial system. One that is more effective and more efficient than anything
people can imagine and that needs to work within the existing legal framework if it is to succeed. The
simple answer is that there are very few people in the industry who understand it enough to see what’s
going on. Those who do will take sides. Those who want global financial freedom will understand that
Bitcoin needs to work within the law. Those who seek an anonymous drug coin will continue on the path
selected by BTC in its airdrop copy of Bitcoin. Unfortunately, or, if you hold my point of view, fortunately,
such fools will see that they are going down a dead-end path and that code is not law and never will be.
Bitcoin is not against banks
By Craig Wright | 14 Apr 2019
| Alternative Coins & Systems
Forget the lies you have been told about Bitcoin. Bitcoin doesn’t stop banking, it doesn’t even stop central
banks. In fact, central banks were born using a gold standard. The first central banks actually had a one-to-
one reserve requirement. It didn’t last long, and they realised that they could do a four-units-to-1 gold
standard in the British central bank. The fact of the matter is: there is little difference between bitcoin held
with Coinbase and the modern banking system.

We dream of an invincible bank

We have a vision of systems that are built on the Bitcoin blockchain, which maintains a global, open ledger.
It is the vision of a single ledger, so that banks, governments, and corporations cannot fudge the numbers.

We have a vision of a system that is not required to and does not need to keep full private keys to access
customer funds in the blockchain. We have a vision of a new financial system where we can have a partial
seed system with the user such that if we are hacked, the funds cannot be moved because we don’t have all
the seed parts.

We have a vision of a system that allows you to maintain all your assets, to keep invoices, and to track all
expenses over time. A system that automatically returns all tax records and that can allocate them based on
the information provided by the user. A system that does not allow you to cheat and use someone else’s
records or to copy an invoice from another party.

We have a vision of a system that allows users to manage all their assets and finances from anywhere on
earth cheaply and simply.

A familiar interface

We imagine a system that provides a simple account-keeping interface, one that in vein is similar to
traditional banking screens for familiarity, yet the e-Wallet far surpasses traditional banking in usability,
code efficiency, backwards and cross-device compatibility (computers, tablets, and mobiles), and that “of-
course” factor where the software itself is invisible to use.

Bitcoin — simple and not dumbed down

The truth about Bitcoin transactions is that they take roughly 10 minutes to settle, but they take only
fractions of a second to propagate across the network with a minimal fee and tip.

We envision a system where we do not sugar-coat any of it, and show users in real-time how their
transactions are going with understandable statuses like Transaction in progress , confirmed, and even
failed and contextual explanations. We envision a system where we are frank with our users so that they
know and can act accordingly and immediately.

Swiss-banking style lockouts and cold storage

Do you want to lock a certain amount of bitcoin away until a set date? Such capability is encoded into the
DNA of the original design of locked wallets and storage procedures, and because the keys never exist.

Our philosophy on security is also fundamentally different from one held by those who use obscurity of
information and hide to stay safe. Even if our cold-storage architecture is known and our internals
compromised, our security lies in the genetic building blocks of our transactions and keys. We focus on
atomic security rather than assurances.

Let’s talk money. Pick a scenario…

The thing people try not to tell you is that Bitcoin becomes stronger and more powerful the more it is used.
Not because people HODL, but because they use Bitcoin on a day-to-day basis, paying fees to miners and
ensuring the strength of the network increases.

Forged in Australia — taken global

With our own developments, we do not depend on open-source code in critical areas. We’ve built on top of
algorithms like Shamir’s Secret Sharing Scheme and Elliptic Curve Digital Signature Algorithms with code
that is our own. We integrate dedicated random-number-generation (RNG) hardware in lieu of software
RNG.

By authoring our own code, we can inject line-by-line performance and tuning methodologies and need not
be restricted to only using tools.

An honest, transparent fee structure

Every fee is calculated dynamically per transaction with the specific instance’s variables and bit-count so
that every fee is exact, instead of relying on categories and tiers for fees.

We have a vision of a system that will allow users to ‘tip’ a bit extra for each transaction to hasten it; however
much they want. Our competitors with their (bastardised) copies of Bitcoin (BTC, BCH) have largely skirted
around being scared of imposing additional fees, but we don’t see an issue here at all. It is the closest truth
to how Bitcoin really works, simplified.

Proper privacy

Each transaction on a bitcoin e-Wallet uses a newly generated set of keys. The open ledger that is the
blockchain means that anybody can see any transaction. When transactions start grouping around one re-
used set of keys (or public address), one can start collecting forensic data on it (as we have). The same
cannot be done with our transactions. Our users remain pseudonymous as the standard.

We imagine a system where wild operators do not collect unnecessary data on users. Subpoena and police
seizure? That’s fine. If you’re a global bitcoin-wallet application, bitcoins cannot be taken as we don’t have
enough parts to access the funds, and we do not reasonably store any personal information on the users.
Everything can apply using existing anti-money laundering rules and yet also require good old-fashioned
police work.

The user signs every transaction

Just like credit or debit cards, every transaction needs to be signed by the user. The signature we have a
part of, and the user has the other part. Together, the funds are accessed. Separately, they’re useless
mnemonic seeds.

We dream of an invincible platform

The e-Wallet is just the tip of the iceberg, and the real beast is our flexible iDaemon Bitcoin platform. From
day one we’ve drawn our plans to deliver something like the e-Wallet, an exchange and a bank with
bitcoins.

Now, we want to help others make it a reality. Not a world of bucket shops and ICO scams but one of global
inclusive finance. A system that allows people to trade and be paid in any currency settled on Bitcoin in a
secure instant global system.

We have a vision of anyone being able to access their money, even if they can’t get a bank account. We
have a vision of anyone globally being able to hold and manage assets and build a portfolio of investment
items, no matter how poor they are. We have a vision of a regulated economy, but where regulators
compete and are accountable. An economy where the best exchanges attract the best companies.

We have a vision of an inclusive world, a world where fraud is expensive and rare and where people are held
to account for their actions.

We have a vision, and it is Bitcoin.

BTC and Censorship
By Craig Wright | 15 Apr 2019 | Alternative Coins & Systems
There are those out there who try to explain how Bitcoin is about censorship resistance. Primarily, the same
people are associated with the fraudulent scam BTC, that is, the airdrop-altered fork of Bitcoin code
designed to confuse the ignorant investor.

Let’s explore the issue in the lie that is propagated with BTC.

One of the greatest features of a decentralized blockchain is censorship resistance. With the money in your
bank account, a third party has control over where and when you can send it. With Bitcoin, you can send
money to whatever address you like without fear of government interference. However, freedom is not the
natural order of the world. The fight against oppression and censorship is a constant battle. While Bitcoin
has an important history of circumventing censorship, we’ll look at the omnipresent threats against the
cryptocurrency and its level of resistance .

The claim is clear: those in Bitcoin Core seek to say how they circumvent censorship and allow anything. It is
absolutely false.

BTC was eroded the first time a “soft fork” was allowed. There are no forks in Bitcoin. The security of Bitcoin
is based on a stable protocol.

Bitcoin is a system based on a stable protocol. It is secure as long as the protocol is sound and does not
change. Against such a protocol of course goes the attack that those seeking to alter Bitcoin have used. But
really, they have not attacked Bitcoin; rather they have fooled people not familiar with Bitcoin into believing
that an airdrop copy of another system is Bitcoin. And the airdrop copy is what resulted in BTC ( Core) .

As I explained when I wrote the white paper:

If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to
choose between using it to defraud people by stealing back his payments, or using it to generate new
coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new
coins than everyone else combined, than to undermine the system and the validity of his own wealth.

Importantly, when we consider an attacker with more hash power in Bitcoin, even if the attacker manages
to accomplish gathering more than 50% of the network (by mining hash power) under his control, it does
not throw the system open to arbitrary changes, such as creating value out of thin air or taking money that
never belonged to the attacker. Nodes are not going to accept an invalid transaction as payment, and
honest nodes will never accept a block containing them. An attacker can only try to change one of his own
transactions to take back money he recently spent.
No node in the Bitcoin network, no miner nor merchant, and certainly no SPV system will accept an
arbitrary change. The protocol is set in stone.

The only way that Bitcoin can express censorship resistance is to have a stable protocol. With a stable
protocol, what may be temporarily censored today, for whatever reason, can always be replayed later.

A stable protocol is important; a signed transaction remains valid in Bitcoin. Such is not the case when the
protocol changes. The introduction of changes to the protocol means that a transaction that is currently
valid may not be valid later. A transaction signed for a future date using nLockTime in Bitcoin will remain
valid not only now but a decade or 100 years from now. As soon as the time specified in the time lock has
been reached, the blockchain will accept the transaction. In the worst addition and breach of the Bitcoin
protocol, P2SH, such an insecure alteration allowed miners to be taken out of the equation. The contents of
a transaction using P2SH can now not be checked and validated. Consequently, transactions that are invalid
may easily be incorporated into the blockchain. More importantly, transactions that are valid can be made
invalid.

Changes to the protocol leave transactions that are already on the blockchain to be marooned in a way that
they cannot be later spent. For instance, if a transaction is incorporated into the blockchain using an opcode
that is currently valid but which is later considered not to be valid, the transaction cannot be parsed by
miners until the payment receipt is sent, which may occur at a time after a soft fork has already invalidated
the contents of the transaction.

For a transaction to be censorship-resistant, it must be able to be replayed now and in the future.

If you change the protocol, you can’t make the same promise. So BTC is full of censorship. Consequently,
BTC is not Bitcoin, and is all about censorship. Every time you change the protocol, you censor a transaction.
There is no way to tell which transactions may or may not be valid anymore because of the addition of pay
to script hash (P2SH), and worse, in the doppelgänger copy of Bitcoin, BTC, SegWit means that you cannot
determine the format of signatures or opcodes that may be there in the future.

Bitcoin doesn’t change protocol. It is why we will fix the errors in bad code that has been introduced into
Bitcoin and then ensure that the protocol is locked down and set in stone as it was designed to be.

If you can change the protocol, you CENSOR a part of the transaction population. Hence, BTC is neither
censorship-resistant nor Bitcoin.
Wiki
| 16 Apr 2019 | Bitcoin & Blockchain Tech
By Craig Wright
At the time, Wikipedia wanted to remove the page. There wasn’t anything good that had been
published which detailed and described Bitcoin other than the white paper. Wikipedia requires
referencing, and the only thing I could find to try and link it to is what’s in the references there. Then,
people would take away the wrong concept.

I dropped off the “Cypherpunks” list and backward economic theory around 2002. Consequently, I didn’t
even know about b-money and all the work Wei Dai had done until mid 2008 or so. I referenced Adam
Back not because he was the inventor of proof-of-work but for his help at the time. It wasn’t until much
later that I even realised that the working version of hashcash came from Hal Finney and that the code
Adam Back had put out there didn’t work.

I had emailed other people. In 2007, I had emailed Aurora and a few others. People either couldn’t help
me or did not get back to me. Adam Back was well down my list, but he responded.

What I did get from Adam Back was Wei Dai. I didn’t even know of b-money before Adam pointed me to
a link. I definitely had no idea about Nick Szabo. Unlike many people I talked to, Wei did not come across
as a complete anarchist. Then, I didn’t spend that much time talking to him.

It was Wei I believe who pointed out Szabo’s bit gold boondoggle.

So, I was trying to get people who could help me more, remaining private to some extent. Bitcoin isn’t
Adam’s hashcash invention as he puts it. It doesn’t use the code, and is not even similar to what Adam
had released. It came from the Aurora paper, for he couldn’t get onto them and they didn’t respond. It
was when I was talking to Hal that I discovered he had taken Adam Back’s code and made it work.

So, Wei is referenced as he helped. Adam Back is referenced as he pointed me to Wei.

The problem with Bitcoin that I had at the time was that it was very hard to see anything like it and put
it into words, but the people who were coding it with me would understand.

I had a few references, and we were trying to keep Wikipedia from deleting Bitcoin as an entry. It did not
say that Bitcoin was like b-money, but it was referenced more as a way to compare a cart and a car. The
paper had initially started with the title “Electronic Cash Without a Trusted Third Party,” which is
important. It remains primarily cash. But to be money, it needs to also be a commodity. That is, an
informational commodity that takes data and commercialises it.

Hal knew much more of Wei and the other attempts post DigiCash than I did.
We don’t want to lead with “anonymous”
By Craig Wright | 17 Apr 2019 | Bitcoin & Blockchain Tech
One thing I’ve learnt during my time with Bitcoin is how important it is to choose your words carefully.
Privacy and anonymity are not the same thing, but even I have been careless with the use of words in the
past. A large part of it links to how we use words in common speech. After all, language is not like
mathematics.

When explaining the differences between privacy and anonymity, it can seem simpler to take the short
route and not go into the details, as they can lose people. The problem of course is that although you gain in
the short term, you spend much more time in the long term fixing up mistakes. I’ve used the word
anonymous when I’ve meant private in the past. Most people have. Yet, it is not what Bitcoin is about.
Bitcoin leaves an audit trail, and for honest people provides a system that is private but will never be
anonymous.

The people who became attracted to Bitcoin in the early days were not the ones I needed to really grow it
to where it would need to be. To be honest, I didn’t really think it through at the time. I was heavily involved
with the digital-forensics and information-security industry, and we had a lot of people who were more
directed towards an anarchist point of view. At the time, though, I didn’t really notice it much. I was too
focused on getting what I was doing done, and I had been dealing with auditors and a lot of others before I
released Bitcoin. So the move from people who you would say were white-hat hackers or even just auditors
towards the grey and black communities that ended up grasping and integrating Bitcoin was something I
had not prepared for.

Slashdot Submission for 1.0

Slashdot Submission for 1.0bitcointalk.org
I tried to keep people interested at the time. It was difficult. I saw the project slipping towards all of the
problems I didn’t want, those who bore hatred towards banks and government. I didn’t want to comment
on other people’s belief, especially when they would be donating time. There was no way to run Bitcoin
nodes and mine profitably back then.

All of it is part of my original disillusionment. Not only is Bitcoin unrelated to energy stability, but more, the
last thing I wanted to do was make a taunt saying that we were outside the reach of government. Bitcoin is
not outside the reach of government. Bitcoin can be shut down even now. Every system can be controlled
right now. There was never a point in the history of Bitcoin, nor was there any technical advancement that
ever took Bitcoin outside the grasp of government and regulation. To think so is simply asinine. Bitcoin was
designed to work on the fine edge of law. It was designed to allow a new system of global money while not
poking one’s finger at government.

Right after I had explained that we should not be taunting, the next comment was:

“The community is hopeful the currency will remain outside the reach of any government.”

How does saying we are hopeful that we shall remain outside the reach of government help anything? And
the reality here is that it was never the case. There has been no point in Bitcoin’s history where it was outside
the reach of government, and in fact, there never will be such a point.

Soon, illegal bucket shops that call themselves Bitcoin exchanges will come under regulation. The reality is
that they have always been under regulation, but the regulators will start to understand them. Bitcoin
always happened to be a system that would end in data centres. And data centres can always be stopped.
The mere possession of something can be made illegal.

Please tell me, how do you convince the majority of people in the world to use a new system when you
make it opposed to the government system that they live within? Most people vote in democracies and
choose. For every anarchist there are at least 100 others who do not want anarchy. Such is the simple
situation.

If you ever wonder why I became angry, it’s because I saw my life’s work taken and beaten into something it
was designed not to be. And the thing they try to create can never be. There will never be a system that
manages to get around anti-money laundering (AML) laws based on Bitcoin.
The “Perfect” Firewall….
By Craig Wright | 20 Apr 2019 | Bitcoin & Blockchain Tech
Security is a story of economics. It is about risk. In my time in the industry, I’ve worked for a number of large
players and managed the security for a number of highly secured organisations. In the 90s, I acted to
implement and secure the Australian Stock Exchange as they first went online. I also helped organisations
such as Lasseter’s Online, an online casino. The reality is, none of them were perfectly secure. They were all
secure enough.

This is important. Security is a risk function. You do not pay more than the value of the asset to secure it. If
you do, you are not secure.

Marcus Ranham and I had a number of run-ins back in the 90s. He was one of these people who had this
idea of perfect security, in particular with his Gauntlet firewall product and his company Trusted
Information Systems (TIS). I had a number of clients in the federal government who implemented it
because it was secure but fell for the lie of perfect security. You see, one part of the security triangle is
availability. And Marcus had the idea that disconnecting the Internet would be a good security control.

One of the government departments received threats of a denial of service. They would go to conferences
and training where Marcus presented and taught them the ultimate firewall: a pair of pliers. The problem
here was that disconnecting the service greatly disadvantaged many people who used the government
site. Think about it now; imagine Google disconnecting from the Internet.

I was ridiculed for my argument. I told the department that they should not disconnect under any
circumstances — if anything implement multiple redundant paths. For two weeks, the government
department disconnected from the Internet, and stopped payments to a number of people who were
disadvantaged. To some of us, not receiving money for two weeks may not seem all so important; we can
live on savings. For many of the people impacted in the late 90s, it was a problem. Luckily, very few people
overall had their payments processed online at that stage.

Bitcoin does not need to be perfectly secure; there is no such thing. Bitcoin needs to be resilient and
available. In seeking the perfect, we destroy any hope of achieving something that can be great. Such is the
problem with Core and others, and in seeking perfect anonymity, they create a system that cannot work in
the real world. In seeking perfect security, they chase a dream that can never be achieved. As with all things
in the world, there is no perfection, only risk.
The immovable
| 23 Apr 2019 | Alternative Coins & Systems
By Craig Wright
Many people in the bucket shop , sorry, “ crypto currency exchange ” industry want to see me gone.

The Church of the immovable Ladder

Unfortunately, at least for them, this isn’t going to happen. It’s not going to happen now. It’s not going to
happen in the decade. It’s not going to happen in the next 20 years. You see, I’m here to stay. What
people fail to understand is that I do not write patents covering bitcoin. What (IP) we giveaway on BSV is
protected by patents that equally apply to any other system… but are no longer close to being free. The
distinction is that other systems will need to pay. By the end of this year I hope that we will have around
1,000 patents published. More importantly, the initial patent families should place us in advance of any
other player in the industry. You see, we don’t publish straightaway. Others do, but we don’t because
that would give away what we’re doing.

So, while a few industry players are trying to learn how to swim in this pond and inventing single use
limited patents and intellectual property we create new technology that will radically change
everything.

In fact, I see some of the patents that we’re developing leading to thousands of applications each.

So the truth of the matter is that I am not going anywhere.

I won’t be out of this industry in 20 years time. You see I don’t intend to retire. You have no idea how
much we have been doing in the background. As you have been hiding and calling me names, I’ve been
building and creating. In a couple years time we will have a system that can take the entire world’s
global commerce and every other blockchain and run it without missing a heartbeat. More importantly,
we have ways to stop all the not so fun systems, the scams in the bucket shops. I expect them to cry, to
call foul to do anything in their power to stop me but the fact is that they missed their opportunity.
Bitcoin is here to stay. Real bitcoin, not the temporary fraudulent system that people try and call bitcoin
(BTC) but bitcoin. You see, bitcoin is a stable protocol. If you change the protocol, you change it from
being bitcoin.

Please bet against me.

Pretty pretty please. If you are someone like a Binance supporter, please bet every cent you have, and
add leverage with all that you can possibly get and bet more. I want you to, because I want you to be
begging on the streets with all the criminals that are going to be out of jobs. I want you to learn,
criminality does not pay.

“If you trust in yourself. . .and believe in your dreams. . .and

follow your star. . . you’ll still get beaten by people who
spent their time working hard and learning things and
weren’t so lazy.”
Terry Pratchett, The Wee Free Men

I know this seems a little bit strange for a few people, but bitcoin started in its current iteration in 2007.
That is when I knew that I could create the system that we have now. By the way, that system is not the
fraudulent system that some people call bitcoin that is traded as BTC. That broken busted (BTC — core)
thing is nothing like bitcoin.

In 2007, there was no housing crisis yet. That came later. So you see, although everything had been set in
2007, it wasn’t until 2008 that things started to come to a head. At that stage, bitcoin was basically
complete. So, I’m sorry to “burst your little bubble” but bitcoin has nothing to do with the collapse of
Lehman Bros nor with the subsequent bailout. Unfortunately, that was badly timed. The reality is bitcoin
is not anti-bank, it is not anti-government and in fact it is not even anti-central bank. Most importantly, it
can’t be made to be.

One thing bitcoin was created for is to end the manipulation of financial systems. This was never what
we see in the west but rather criminal manipulation. It was designed to ensure that Web Money, Liberty
Reserve and a group of criminals associated with things such as the Russian Business Network (RBN)
were the real target. In 2007, the RBN had a number of ISPs pull the plug. Others such as RX Ltd Trading
a bit longer. They survived because of the growth of Liberty Reserve and associated money-laundering
organisations. Bitcoin was created as a means to ensure an immutable audit trail. In time, this will be
linked to logins and much more. To start, it provides an anti-money-laundering trail that cannot be
altered. This is enough to ensure privacy while also ensuring that anonymity cannot exist.

The reality of bitcoin is that it creates a system that stops many of the problems we’ve had in the world.
Right now, the Russian government avoids sanctions. They are building their own network but the truth
of the matter is that they still rely on SWIFT. The big problem here is that SWIFT is terribly insecure and
very simple to bypass. So, imagine a system that is immutable that even governments can’t bypass. One
that pulls them into order. One that stops criminal activity as it can be traced, tracked and those
violators brought to justice.

“SWIFT is the electronic bloodstream of the global financial system, cancelling Putin’s credit card could
have far reaching consequences for the Russian economy as Iran discovered when scores of its financial
institutions were expelled from SWIFT in 2012.”

Mark Dubowitz, the executive director of the Foundation for Defense of Democracies

This is the true use and benefit of bitcoin. It’s not some anarchist idea of avoiding the state or some other
stupid utopia, it is a system that brings everyone into a global alignment or isolates them in the way that
North Korea was isolated. In time, as capitalism throughout the world grows, the benefits of compound
growth will leave countries like Iran and North Korea more and more isolated. They will stagnate and
either come into the mainstream dropping their totalitarian dictatorships or wither in power allowing
people to take action against their leaders.

More importantly, bitcoin also provides an immutable platform. A payment system that is honest and a
means of disseminating truth. Not something like the left media from WikiLeaks that is funded by
Russia and is designed purely to attack capitalism, but the truth. Not some post-Hegelianist Utopia and
post-modernist anti-scientific meme but discoverable truth.
In the coming decades, technology in the West will become so cheap and so widespread that a tablet
connected to the metanet will be able to be dropped over a country like North Korea cheaper than the
paper drops in Vietnam. More importantly, these tablets in the future will be able to communicate
directly to the people of that country in their own language. We are coming to a world where the
dissemination of truth will not be stopped. Not by partisan anti-corporate and anticapitalist
organisations like WikiLeaks and not by government.

Liberty Reserve was many times more decentralised than an organisation like Binance could ever hope
to achieve. Liberty Reserve was connected to the Hawala network and a series of distributors and
countries including Nigeria. Overall, they had over 30,000 input and exit points for Fiat currency.

They were able to get criminals on and off of the Liberty dollar or Liberty euro network through tens of
thousands of distributed systems. Yet Liberty Reserve was brought down.

The truth of the matter is that criminal groups are always “centralised” in some way.

Bucket shop exchanges that are designed to manipulate markets, create wash volume and to generally
facilitate frauds, always have someone behind them and those people can go to prison. Liberty Reserve
was based out of Costa Rica and was outside of the treaty agreements with the USA. Yet they have been
taken down. Liberty Reserve operated a distributed network of tens of thousands of Fiat input and
output systems that left no logs, and yet the people involved have been put in prison.

This is why I created bitcoin. It’s not a protest against government, it’s a method that over time will
replace SWIFT with something that cannot be easily bypassed by criminals or even governments.

If you ever wonder why people attack my reputation, it’s because they are the criminals and they seek to
ensure that their illegal operations, bucket shops, illegal gambling, drug sales and more continue to
persist. Right now, organisations involved in the “crypto currency” industry are predominantly seeking
to make money through assisting and enabling money-laundering. Luckily, the nature of a blockchain is
such that all of this can be used as an evidentiary trail for a long time.

So the drastic irony here is those who have on-boarded themselves to this industry have failed to
understand the purpose of bitcoin. It’s honest money. If you want to commit crime on bitcoin, a token
scripted within bitcoin, a system that acts within bitcoin is a Fiat marker, then you have to understand
that you have an immutable evidence trail associated with you. Those exchanges who think they can get
away with trading don’t understand this very well. They are easy to take down and their assets easy to
confiscate. The illicit and illegal bucket shops are about to end. The wash trading and crimes that
replicate the USENET penny share schemes and pink sheet web IPOs schemes of the 90s differ in
blockchain in that a record, or evidence cannot be deleted.

Welcome to law.

Welcome to court.

You’re about to find out why I created bitcoin and yes I am Satoshi Nakamoto. I created it to stop all of
the global scams. I created bitcoin to start to bring order into the norm. Thank you for helping it grow
and in your ignorance giving me everything I need to stop you.

In time, CZ will be gone (or in prison). These fools hate the idea of a single ledger, a single set of books,
they want to have more fraud than Enron could do in a millennium.

In time, Roger Ver ( Pipe bomb manufacturer ) will be gone (or in prison).

And, I will be here.

This is my industry, it is my creation and I will be a part of it for as long as it exists.

Decentralised or just inefficient?
By Craig Wright | 26 Apr 2019 | Bitcoin & Blockchain Tech
Let us do a little thought experiment.

Later in the year, I’ll be talking about a way of doing serialised algorithms across machines. It is something I
developed in 2005. It seems to be what many seek to add into cryptocurrency, and yet it is what I rejected 15
years ago in creating Bitcoin. I will explain at the next CoinGeek Conference some methods that will allow
the creation of nodes that can mine without any parallelisation being possible. That means, one machine
will earn as much as two machines and as much as 10 or a million. In other words, it does not matter if you
have one ASIC device or 100 racks of ASIC devices; the result is the same return.

We have a patent being filed on the technique as I’ve never published it. So I’m going to leave you with the
Hegelian dilemma that will be posed here; do you seek to use my technology even with a patent and my
permission, or do you avoid it because I have created it?

The Socratic dialectic

So let us start our thought experiment. Ignore for a moment that it is me who has proposed the algorithm,
and consider that a serialised one-way function exists, that is, a function that is simple to verify and yet gains
no extra ability through the introduction of parallelised systems. I’ll leave you to do research on such
functions for now, but they do exist, and if you don’t believe me, you can have a segue through a discourse
of alternate information as you learn that serial functions that cannot be parallelised have been known for a
long time.

Inherently sequential.

There are many problems that had been known well before computer science. One that has been talked
about many times throughout history is a common one in project management — an analogy based on
humanity.

The number of women will not reduce the length of pregnancy.

My little addition is simply that I’ve found some that act as a one-way trap.

In our experiment, let us assume 1 billion people are now running and using sequential gold. We’ll call it for
the experiment an alternative form of bit gold, for it’s nothing like Bitcoin. Like with Bitcoin, a core group
sets the software updates and rolls out the node software.
In sequential gold, protocol changes will happen in one timeline, no change will happen in another. We’ll
experiment with both possibilities and see what happens. To start, let us look at a fixed protocol. Something
set in stone like Bitcoin. As such, we’ll start with an experiment when no changes in it occur — ever — and
look at our first set of problems. We have 1 billion people running our protocol. It’s completely decentralised,
and the discovery is a serial lottery. Here, every block is randomly found, and no one can predict what the
next one will be.

There are 31,556,926 seconds in a year.

Let’s keep a few people happy and make one-minute blocks. This means we have approximately 525,600
blocks every year. With our collection of 1 billion people, we now expect the average person to win the
lottery once every 1900 years. The maths is not too difficult.

Bitcoin is an economic incentive system. The security of Bitcoin relies on a group of individuals investing
money in building to create a secure system. It is not the tragedy of the commons which we have in the
communist or socialist version of Bitcoin.

With 1 billion people or families seeking to earn money from their node using a sequential algorithm, no
party can expect a return. It becomes a pure lottery. Basically, everyone in the world runs a node with the
vain hope of achieving a rare lottery win. Without delving into the plethora of dystopian novels based on the
concept of a society that slaves as sheep to fulfil another’s destiny with the hope of one day winning the
lottery and getting out of the grind, we can start looking at this further. Such a version of Bitcoin becomes
the classic problem of the tragedy of the commons ; if I need to propagate the blocks of every other user
and I do not expect to win, why would I want to?

Why am I investing in creating an infrastructure to pass blocks around the global network helping people I
will never meet?

We can argue that each individual gains knowing that he has a secure monetary source. Yet, where is the
incentive not to cheat? Think about it for a minute: the majority of people are going to come to understand
that they have a better return on money buying a government lotto ticket than they do investing in the
support of the Bitcoin node network. Consequently, why would you leave your node running, consuming
electricity and costing you money to validate other people’s transactions? Few would.

The reality is that most individuals would only leave their system on and running if they needed to
personally check and validate a transaction, and then they would only do so while it was occurring.

If individuals come and go and need to download and update the blockchain every time their transaction
occurs, they are still investing money and yet getting few returns. Why invest even more for the chance of a
lottery ticket? It is something no one seems to investigate when seeking to make Bitcoin into sequential
gold. Once you do so, you remove the incentive and you remove the security of Bitcoin’s network effect, that
is, an ultra small-world graph. The network collapses into a mere mesh. Once this occurs, it cannot be
secured.

So now let us assume that we have a dedicated core of users who see the importance of Bitcoin’s node
network and distribution. We’ll assume that a mere 0.1% of the population using Bitcoin understand such
importance and will maintain it no matter what. So we have 1 million people running a node all the time
and the remaining 999 million people running a node 1% of the time, which means our lotto will be
distributed in the following way:

1. Those who do not care — (999/1000)*1 = 0.999

2. Those who are staunch supporters of the network no matter what — (1/1000)*99 = 0.099

The total sample set is now 1.098.

So the distribution is:

1. 0.999/1.098 = 90.98%

2. 0.099/1.098 = 9.164%

In effect, our staunch supporters of the network are expected to win more than the average because they
are online more often and protecting the network more. Yet, such actors still only receive 9.1% of the
network transactions and across all of the users gain a mere fraction of the rewards. Yes, again, many many
times more than the average person, but the reality is that they still only achieve a block once every 173
years.

We have to assume that the same group of dedicated altruists will sacrifice their earnings for their entire life
just to ensure the integrity of the network. Yet, at such scale, we can expect large costs. Current network
costs at such scale will result in monthly charges of around US$10,000-25,000, and you can double the
figure when you add computational costs, storage costs, and more. In such a version of a distributed coin,
sequential gold, what we end up with is another project that needs to be saved by government. It is the
typical consequence of the socialist mindset in their hatred and desire to bring down companies that fails
to understand that you cannot create anything through destruction.

The problem is one that is faced over and over by “utopians” and socialists throughout history. It is the
economic problem: how do they get other people to pay for their costs? It is what Bitcoin truly solved.

What you will start to discover, if you analyse it, is that the network will always degrade. In 2013, I had
simulations on my website demonstrating this. Unlike Bitcoin, sequential gold never incentivises a single
fork. As soon as an orphan chain comes into existence (which is a natural part of Bitcoin and an aspect of
the security model of Bitcoin), the system starts to fragment into more and more chains that will never
rejoin. Without the economic incentive to build corporate systems and funded miners, the system degrades
in a tragedy of the commons.

An evolving protocol
It merely gets worse if we consider a protocol that is not set in stone. If the protocol is allowed to evolve, as
occurs with competitors to Bitcoin such as Core coin (BTC), then we have a scenario where the network
fragments unless all users are running the same version. It is more important in a network of a billion
people with a lottery than it ever would be in Bitcoin itself. If every party does not upgrade, you will end with
enhanced protocol forking that never rejoins. The network fragments very quickly.

There is an answer to such an issue: you hand control, that is power to the development team.

You allow them to take control of not only the protocol but the software updates. You allow them to force
you to have updated software. Once such power is granted, the power over everything in your life has been
relegated to such people. It is why Bitcoin was hijacked to create (BTC) Core coin.

A group of people with strong ties to anarchist and criminal groups seeks power. In the true sense of 1984
doublespeak, they will tell you how they’re freeing you. They will do so as they have you relegate control and
give them the power to update and change the protocol. Such is the true path of BTC ( Core ).

It is everything Bitcoin is not.

Only a stable protocol disseminates power. The reason is that power comes from the ability to change the
protocol. Once you remove the ability to change the protocol, you take away the power of those seeking to
alter it.
The wheel of time is not on an axis
By Craig Wright | 27 Apr 2019 | Alternative Coins & Systems
The failure in understanding change lies in believing that the wheel of time is on a stationary axle. We move
forward as the wheel does. The wheel of fortune rises and falls, and as it does so, it takes us further along the
road. It is a path, a journey in one direction. As one rises, another must fall, but only to rise again further
along the road. Such is the nature of revolution, and it is powered by reaction.

Every revolution (anonymous coins, silly ideas of democratising finance) has a reaction.

No reformation can occur without a revolution that is strong enough to create a reaction. The Internet is a
commons, and as with all commons, the tragedy is that it leads to exploitation. The criminals, the trolls, and
more have exploited the Internet, and have eroded the freedoms we have owned over centuries of battles
and struggle.

Now, we start the reactionary response to a revolt.

And, we reform the world.

Rights as property

In its simplest form, a Bitcoin transaction involves the creation of an entry in a ledger.

The value on the ledger is updated such that the original holder of a cryptographic private key is assigned to
a new cryptographic key pair.

The cryptographic key pair is associated with a Bitcoin address.

The direct assignment of value across a ledger is not difficult to represent against existing money transfer
and currency rules. AML law refers to funds, and Bitcoin is already covered.

It becomes more difficult when some of the more exotic use cases start to be deployed.

Some of the areas that Bitcoin covers include:

transactions to and from multi-signature and multi-party addresses [i];

conditional smart contracts;
linking and embedding information into the Bitcoin blockchain and the tokenisation of real property
and chattel goods [ii];
theft and fraudulent procurement; and
international and cross-jurisdictional assignments [iii].

Monetary transfer and transmission rules

The exchange of bitcoin for other currencies clearly comes under existing AML [iv] regulations, and where
an exchange [v] has been used as a part of the process, KYC [vi] requirements will still apply.

The various requirements attributable to Bitcoin across each of the jurisdictions can vary to both AML and
KYC [vii].

Why do I say democratising finance is a silly idea?

Bitcoin doesn’t democratise finance. ICOs don’t. The existing system does. The reason why we have a
concept of qualified investors is to protect people without access to information from those who prey on
the weak. The creation of ICOs is simply a means to bypass informational controls, a means for those
without something of value to take money they have not earned. It’s just something that people use to
bring back penny share scams, pink sheet scams, and web-IPO scams. None of them are new, and none of
them require blockchain. More importantly, the whole nature of blockchain has nothing to do with this.

A concept known as dematerialisation resulted in shares, derivatives, and other financial assets being
moved from paper-based records into computer databases. People have been able to trade shares without
going through regulated exchanges for decades. The reason they do not do so is that they lose money.
Nearly without exception, every time an organisation seeks to raise money using one of such distributed
systems, no company has developed, and the money disappears. In the 90s, webIPOs.com and hundreds of
other distributed scams did the same thing. And for the same reason ICOs will be brought low now, the
scammers selling you decentralisation of finance will be shown to be pure scammers.

It was never the goal of Bitcoin.

Bitcoin does help organisations and companies maintain their records. It helps them pay their tax. It helps
them maintain compliance with the law. It helps them maintain shareholder registries. You see, Bitcoin
helps corporations. Bitcoin had been developed and designed before Occupy and the associated idiocy
started protesting against banks and companies, and was never intended to attack banks or corporations.
Bitcoin does bring honesty to such systems. Bitcoin makes corruption easier to fight. Bitcoin makes tracing
illicit drug sales simpler. Bitcoin leaves an evidentiary trail that can be used in fighting human trafficking.

It is a 20-year (at least) process from now. Nothing is quick.

Notes
[i] Several offer and acceptance issues that had not been completely resolved remain. The question of online
software downloads generates its own difficulties. For instance, does the transmission of a Bitcoin
transaction constitute acceptance, or does the inclusion into 6 blocks, etc? In many software-vendor
licenses for instance, there exists a condition saying the “loading of the software onto a computer indicates
your acceptance of the following terms…” The terms of the agreement are likely to be enforceable if the
software company can demonstrate that the user had an opportunity to view the terms prior to installing
the software. The issue does not exist within Bitcoin.

[ii] Application of the Definition of Money Transmitter to Brokers and Dealers in Currency and other;

Commodities, FIN-2008-G008, Sep 10, 2008. The guidance also notes that the definition of money
transmitter excludes any person, such as a futures commission merchant, that is “registered with, and
regulated or examined by…the Commodity Futures Trading Commission.”

[iii] Complications may occur if parties reside in a state different from where they hold their Bitcoin wallet (
Hyde v Wrench , 1840 ) or other form of account ( Treitel, 2003);

In such cases, both the location where the Bitcoin wallet is accessed becomes an issue and the time at
which the acceptance is made is a critical point. The place where the user accesses the wallet may affect the
acceptance. In many jurisdictions, the time and place of receipt of a message derive from when it is
available to the recipient ( Art.1335 Italian Civil Code ; US: Restatement 2d of Contracts , S 56; Germany: case
RGZ 144, 292 ). In the case of a Bitcoin transaction, the time it is available to the recipient is when it arrives
on the client’s wallet or when it is accepted in the blockchain at an agreed depth. In such a way, the timing
and even validity of an offer and acceptance of a contract may come into dispute and may even come into
effect in two or more places ( Apple Corps Limited v Apple Computer, Inc . [2004]).

[iv] Anti-money laundering.

[v] 2 31 CFR § 1010.100(ff).

[vi] Know your customer.

[vii] Bank Secrecy Act Regulations — Definitions and Other Regulations Relating to Money Services.
Businesses, 76 FR 43585 (July 21, 2011).
The puzzle of the double hash
By Craig Wright | 30 Apr 2019 | Bitcoin & Blockchain Tech
There is a long-standing puzzle within Bitcoin that has not yet been solved correctly: why did I use a double
hash?

First of all, the explanation of the double-hash problem as given in the CoreCoin wiki is utterly false.

If you double-hash a value, birthday attacks remain. If you have two values that hash to the same result,
forming a birthday attack or collision, they will still collide. It is simple to show. It is assumed that we have
two values X and Y. For a given hash function, we have a collision such that:

A == Hash(X) == Hash(Y).

Now, given the result that both X and Y hash to the same value, A, we can easily see that no double-hashing
or squared-hashing process will help as:

Hash(A) == Hash[Hash(X)] == Hash[Hash(Y)].

In fact, we lose one bit of information for the additional hash operation. We can say that if we iterate a hash
n times, it makes it n times as likely that a collision will occur. I am taking some liberty here, and the maths
involved in what I’ve explained is not completely accurate, but it is true that for each time we rehash a
function using the same hash function, we lose collision security for the function. In fact, if we look at how
addresses in Bitcoin are created, we see that the double-hashing function increases the effect even further.
In other words, the hash of the hash in the scenario is more likely to lead to a collision than a single hash or
even the hash of the same hash function (a double hash).

A == Hash-a(X1) == Hash-a(Y1)

B1 == Hash-a(X2)

B2 == Hash-a(Y2)

If B1 = B2, then we have the senario from A.

But, there are also values that will exist such that:

C == Hash-b(B1) == Hash-b(B2).

As such, the probability of finding a collision in two values, that is to separate public keys, is increased (more
than with just a double hash) when we utilise separate hash functions (e.g. SHA256 and RIPEMD160).

So, I have to point out that in this area (as with so many others), the Bitcoin, sorry, CoreCoin wiki is in error.
Double-hashing is not used within Bitcoin to increase security. In addressing, it does add one benefit in that
if one hash function is found to be vulnerable, then the other hash function will remain secure longer, but as
with the scenario above, collisions could be found more easily. So, unfortunately such a seeming benefit is
not the reason.

Ferguson and Schneier (Practical Cryptography) proposed using a double-hash function as a means to
defend against “length-extension” attacks with SHA-256, and they named it SHA-256d. Merkle-Damgård
hash functions such as MD5 or SHA-256 are vulnerable to such an attack. If it was an issue, we could have
used an HMAC, but the reality is that Bitcoin is an economic system. The security of Bitcoin is always about
the cost to attack vs the cost to defend.

Although the computation of a particular SHA-256(k||d) can exist that suffers from a length-extension attack
which could be found, it will also easily be detected, monitored, and blocked. Finding script that follows the
scenario is not really what I would consider an issue. In fact, it’s really a non-issue, but I won’t go into details
here. There are many better ways to stop length-extension attacks in Bitcoin right now. Which is part of the
power of script.

So, if it reduces security, why do we do it?

We have a number of patents coming out covering all of it. Unfortunately, all the sham forks of Bitcoin have
made it necessary to patent many of the technologies that people did not understand. One use of the
double-hash function in Bitcoin is the specialisation of individual verification functions as Bitcoin scales.

If you start to think about it, you will see that where:

A == Hash(X),

now:

B == Hash(A)

allows us to have the value (A) sent to a miner in a way that doesn’t allow them to broadcast a block without
individual transactions. In a Merkle tree structure, we could have all of the block sent and solved apart from
a single transaction. Doing so would allow us to construct an ASIC mining facility that does not host the data
in blocks. The miner is now a distributed function.
As such, the proof-of-work and the verification can be handed off to specialised entities. The ASIC facility can
pay the verification facility upon discovery of valid blocks, and yet the system allows them to interact
without being able to cheat either party. In fact, they can even have agreements with different miners and
pools and allow it to occur without worry: if one party cheats, both lose out.

From the question of where to locate facilities, the matter becomes interesting. China and many places in
Central Asia have power, but do not have network access. Being able to distribute such functions is
valuable.

With a Merkle tree, we can allow a verification node acting as a distributed system outside of China to send
simple but easy to validate hash functions that can be statistically checked by the miner without having to
validate all parts of the transaction. In other words, if block propagation is a problem in certain areas, it isn’t
a problem for large-scale Bitcoin miners in BSV.

In fact, it is only the tip of the iceberg of what can be done. Later in the year when the patents start being
published, you shall get to see some more.

Illicit material
The use of a double-hash function also allows us to create a system that can be distributed and validated
while acting within the law. Distribution functions can be sent to specialised systems that act in local
jurisdictions. Consequently, it allows us to have immutable data storage that can be filtered with the hash
being validated and a subsequent prune of illicit material being allowed in certain jurisdictions. That is, the
double hash within Bitcoin creates a method where we can selectively deliver content.

The blockchain is immutable, but with a double hash, the request for a record can be restricted and logged.

So I pose a hypothetical question for you…

What would happen if BTC, ETH, etc all started hosting child porn and other illicit material and only BSV can
filter it?
Don’t be fooled — Bitcoin is not BTC
By Craig Wright | 08 May 2019 | Bitcoin & Blockchain Tech
In order to clear up some areas around my history as the creator of Bitcoin for people, I need to point out a
few fallacies. Firstly, there is the fallacy that Satoshi acted in a particular way. The reality is that as Satoshi, I
interacted with people who held views that differed from mine. In creating Bitcoin, I sought to create an
honest and legally enforceable cash system. To be cash, that is to be money, Bitcoin needs to be neutral. It
is not a system that is friendly to crime but a system that is friendly to most people. Such are people who
act across the law in a variety of ways .

BTC is passing off as Bitcoin, it is a fake airdrop copy.

Bitcoin is a system that is private. It is not anonymous.

Bitcoin would be convenient for people who don’t have a credit card or don’t want to use the cards they
have, either don’t want the spouse to see it on the bill or don’t trust giving their number to “porn guys”, or
afraid of recurring billing.

The point made is important; anonymity breeds crime, and crime kills freedom. You will note that I did not
promote drugs or any other illicit activities. I did not promote Bitcoin for such uses. Bitcoin is not a good
system for illicit activity, as they involved with Silk Road discovered. Porn is legal. There are many other
things that are legal, some of which may not want to be associated with people’s credit cards. Here’s the
thing: Bitcoin is private allowing you to use it as cash and make purchases the same way you would going
down to the corner store in the past and picking up legal but socially not acceptable items. When I was a
child, certain things were allowed but not condoned. The means were not anonymous. If you paid for them
with cash, people still knew, but people with knowledge were very limited.

Bitcoin does not stop debt

No cryptocurrency can. No system ever will. Debt is contractual. Unless you ban all contracts, debt exists,
and to ban all contracts means to ban all trade. Even in Bitcoin, you can create debt obligations and bonds.
In fact, you can create a lighthouse project that needs to be repaid over time. There is nothing, and I mean
nothing, that can be done in the modern world that cannot also be done in Bitcoin.

There is a great falsehood about Bitcoin that has been spread by such people seeking to hijack the
platform and create something else. It is the claim that Bitcoin was anti-authority. Bitcoin is an immutable
log and an immutable evidence trail. Bitcoin is a form of money that is traceable allowing for the
requirements of a sound and honest money dictated by Joseph Stiglitz. Unfortunately, the people who
sought e-gold and DigiCash and tried to create bit gold did not want Bitcoin. Such groups sought
something completely different to what Bitcoin is, and have hijacked the narrative.
There is nothing at all about Bitcoin that is anti-authoritarian. To say so would be to say that gold itself was
anti-authoritarian. When I created Bitcoin, I created a monetary system that would work within the existing
framework. E-gold, Liberty Reserve, and many others came about, but the reality is, they all ended as a result
of legal action. Bitcoin needs to work within the law to be valid.

Cypherpunk and the fallacy of no true Scotsman

I’m sorry to disappoint you, but I used the Cypherpunks mailing lists on a regular basis. I was one of the first
people to use them. The fact that there were some who were, like Julian Assange, anti-everything did not
mean that I or Bitcoin was anarchist. To assume that everyone on a mailing list holds a select view means a
false understanding of the list and the people on it. The no true Scotsman argument that no Cypherpunks
list member would ever support a regulated system is utterly false. The fallacy of composition needs to be
considered. The simple argument here is made that all ‘cypherpunks’ support anarchy, yet I was on the list
— which is easy to prove. I do not support anarchy in any form. I did not in the 90s, and I never will.

“The system is entirely decentralized, without any server or trusted parties,” details Nakamoto. “The network
infrastructure can support a full range of escrow transactions and contracts, but for now the focus is on the
basics of money and transactions.”

Note that if you read the white paper, you will discover that there are two aspects here:

1. Peer-to-peer cash is distributed when two parties exchange a transaction.

2. The node network is a distributed database.

They are separate concepts. When I released the software in 2009, everything was put onto one single
simple package. It was not designed to remain so, and in fact, I always expected that in time, miners as
nodes would start to aggregate into large corporations that would run out of data centres. Competing
organisations make for something that is decentralised. Which is how Bitcoin works. No individual
organisation, corporation that runs a Bitcoin node in order to mine and verify bitcoin can change the rules.
The protocol is fixed.

With the tortious airdrop copy of Bitcoin, BTC, what we see is a false version of Bitcoin designed to hide the
fact that a small group of control-freak developers seek to dictate monetary policy through Bitcoin. They
seek to alter it to make it anonymous rather than pseudonymous and to act outside the law. All of it comes
through the results of Silk Road. That is, Bitcoin demonstrating that it is not a good drug coin. It was
designed not to be. Freedom does not include crime. Contrary to the continuous lies saying that nothing
bad was sold on Silk Road, captures of Silk Road demonstrate sales of:

plastic explosives;
ammunition;
poisons; and
hard drugs including crack, ice, and worse.

The simple reality is that many people seeking the illicit casino world and the drug-coin world have hijacked
Bitcoin to make something that Bitcoin was never designed to be.

“It’s [BitCoin is] very attractive to the libertarian viewpoint if we can explain it properly.”

No matter how much of an anarchist you are, let alone libertarian (which is not anarchist at all, by the way),
one thing to take note of is that fraud is never acceptable. The first thing to note here is that passing off is a
form of fraud. It is a tort based on the deception in claiming something that is other than the real matter is;
you lead someone to believe that he is getting what he is seeking, and give him something else. People are
being led to believe they are getting Bitcoin when in fact they are getting a crippled developer-controlled
mutation.

The protocol was open but not open to change. Bitcoin works and is decentralised only when the protocol is
fixed. The lie that you are being told is that developers need to be able to move the goalposts and make
new protocol changes whenever they feel like it. The Internet protocol does not change. New applications
are built, and additional systems are constructed on top of the protocol, but the protocol itself remains
stable. TCP is valid today just as it was in the past. If I plug a computer running DOS version 5.0 onto the
network using a TCP stack program from the 80s, it will still connect to the Internet. If I connect a XENOS
machine or a SunOS 3.0 computer using code from the 80s and 90s, it will still connect to the Internet, and
it will be able to send and receive packets. That is protocol stability.

For Bitcoin to work and be stable, the protocol cannot change. If the protocol changes all the time, we end
up like IPX. And when it does, business investment becomes stifled. The length of time needed to both
create a new process and program and then recoup the costs is not given.

On decentralisation
Bitcoin is only decentralised through the protocol. Here lies the nature of decentralisation. Decentralisation
of power involves the inability for an individual to take control of the system. In order to ensure it,
developers cannot set the rules. The lie that you are being taught by the promoters of an airdrop copy of
Bitcoin which trades with a ticker symbol BTC (also known as Core coin) is that the false copy was in any
way decentralised. The truth is that the promoters of such a controlled derivative seek to pass off an
extremely highly manipulated system as one being decentralised.

Such is the founding spirit of Bitcoin: it’s a system that acts as a protocol of sound money that leaves a
traceable evidential record. It is a system that is antithetical to crime. It is a system that is antithetical to
anarchy, and it is a system that works within the law and regulations as they have been constructed in the
world of common law.

When I made the following comment on the peer-to-peer mailing list, people saw it and decided to cherry-
pick words:

A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed
since the 1990’s. I hope it’s obvious it was only the centrally controlled nature of those systems that doomed
them. I think this is the first time we’re trying a decentralized, non-trust-based system .

They extract the word decentralised from the argument. But it’s not what the context says; what I wrote
was “ a decentralized, non-trust-based system .” As such, we end up with a:

global distributed database, with additions to the database by consent of the majority, based on a set of
rules…

It is important to remember not that it is a decentralised system, but that it is a global distributed database.
Additions to the database are created using a fixed protocol — which is the key here; Bitcoin is a non-trust-
based system because it has a fixed protocol. As soon as you allow developers to change the protocol, you
trust the developers.

Developers are not decentralised. Developers acting within an open-source project act as a system with a
benevolent dictator. I left Bitcoin as a project so that I would not be the benevolent dictator. I left to be an
absentee dictator. One who set rules in stone. I explained it well, I would have thought, but obviously it
went over everyone’s head.

The discussion involved people asking about changing the protocol. It was argued that the number of coins
and other protocol aspects of Bitcoin would need to be changed. I said categorically that Bitcoin’s rules as a
protocol are predetermined.

At the start of the post I categorically said that Bitcoin was created as a system “with no central server or
trusted parties.” Trusted parties are ones such as developers who hold power over the protocol. If a
developer can change the rules, they set the rules.

When a dishonest system like Core coin (BTC) seeks to alter Bitcoin in creating an airdrop that poses as if it
was Bitcoin, they are conducting an attack on the system. There is a common law tort for it: it is called
passing off — which is where someone fraudulently pretends to be someone or something he is not. When
Core forked Bitcoin in 2017, they created a new system, and yet they pretend that it was the original Bitcoin
protocol. To be honest, to act within the law, Core would need to call it something else.

They could call it Core coin , developer coin , protocol-changes-weekly coin , but they cannot legally decide
to name it Bitcoin. They could call it airdrop-altered-version-of-Bitcoin coin and still be honest, but they
wouldn’t want to do so. They want to pass off their illegitimate copy as the original .

If you simply want to create a copy of Bitcoin, the copyright allows you to do so. You can for instance create
a system such as Ethereum or even Litecoin without any risk of passing off and having people confuse your
new coin with Bitcoin. It allows for fair and honest competition. But of course it is not what people in such
camps want. They don’t want honest competition, they want to use lies and fraud and argue that fraud was
somehow part of a libertarian ideal. It is not.

Set in stone
As soon as you allow any developer to start changing rules, Bitcoin is no longer decentralised, and if it is no
longer decentralised, it is no longer Bitcoin. I will say it in another way: if the rules of Bitcoin that form the
protocol change, you have altered Bitcoin and created something other than Bitcoin . Just like a SunOS
machine from the 80s being able to access the Internet today, to be Bitcoin, the system needs to be stable,
and a transaction signed today needs to be valid 50 years from now. If such is not the case, if developers can
alter the protocol, you are not talking about Bit coin.

Set in stone.

The big error here is thinking that Bitcoin without government does anything. Without government, Bitcoin
doesn’t stop banking fraud and doesn’t stop fraud at all. Fraud is stopped when you have requirements to
act under law and Bitcoin as an evidentiary trail. The point is, Bitcoin reduces the need for certain
governmental controls when government exists.

Central banks are not the issue; manipulation is .

The root problem with conventional currency is all the trust that’s required to make it work. The central
bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that
trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of
credit bubbles with barely a fraction in reserve.

My profound distrust is not towards central banks. It is towards technocrats who think they know far more
than everyone else. It is my motivation behind creating Bitcoin. In the quote above, I make it very clear that
I do not believe in the long-term viability of currencies that are trust based — that is, the DEVELOPERS can
alter them as and when they please! That is, BTC is the reason Bitcoin exists. Bitcoin exists to ensure
systems like BTC fail…
Custodial standards
By Craig Wright | 10 May 2019 | Alternative Coins & Systems
In the credit card industry, there is a security framework known as PCI-DSS . It represents really a minimal
security level for anyone running anything that accepts and stores other people’s money online. PCI-DSS or
the Payment Card Industry Data Security Standards are what set a minimum in the online-payment
industry for people accepting credit cards.

I am going to be pushing for the same as a minimum standard.

I was a PCI, web-security, and code auditor . The fact of the matter is that the cryptocurrency industry has
simply been used as a means by many involved with stealing money from customers and conducting
pump-and-dump schemes to profit. None of the same individuals will want to support a security standard.
Doing so would expose the flaws, the embezzlement, the theft, and the crimes that they continue to
perpetrate within the industry. Right now, I am of the opinion that for every so-called exchange hack, 99 of
the hundred reported occurrences are internal and cases of embezzlement. Of course, it becomes easy to
blame a hacker when you have no required logs.

There are different ways of ensuring security. An organisation could remain completely decentralised and
update records and logs using a secure system such as nChain’s “safe wallet” threshold-key storage and
wallet system so that keys are not stored on the server [1]. Where keys are stored in custodial wallets and the
funds exist on a centralised server (as with Bitfinex, Binance, and Mt. Gox), we need to start asking the
providers how they are protecting our money.

More importantly, with new standards such as Europe’s MLD5 coming into force at the latest in January
next year, we’re going to see requirements where custodial systems start applying required levels of
protection.

There are some who believe that, because they dictate either custodial systems such as wallets or crypto-to-
fiat exchanges, the same requirements do not apply to crypto-only exchanges. It could not be further from
the truth. The important thing to remember is that every single crypto-only exchange such as Binance is a
custodial wallet system . As such, if they do not comply with Europe’s anti-money laundering (AML)
legislation and reporting controls to the same level as all banks or exchanges need to now by January 2020,
they will be considered criminal money laundering operations. If you think that such legislation and
controls do not matter, ask the principles of Liberty Reserve , formerly of Costa Rica.

Seeing the recent Binance attack (which was very likely an embezzlement ) and all the rest that has
occurred and continues to occur within the industry, we even need to start looking at secure systems with a
minimum setup — or otherwise expect the industry to be subject to all the attacks and never be trusted. The
reality is that Bitcoin should remove the need for such an industry, but custodial systems that maintain the
security of use of funds take the requirement from the user to a centralised system that stores more value
and leads to a loss that is far greater than ever associated with Visa or MasterCard. Basically, such cowboys
have created a system that makes Visa look like a secure alternative, and we need to change the inherited
narrative.

The irony is that the hackers continuously get away with attacks because logs are deleted. Yet, we have a
system that makes deleting logs impossible. Bitcoin (BSV) could be automated such that it links to the
logins within the organisation. For instance, in an organisation that controls access to the databases it uses
to store custodial data through SSH, each login could be stored immutably on the blockchain. The records
could be obscured such that no individual outside the organisation would be able to find out information
about the login and yet at the same time no attacker would be able to compromise the system and delete
the logs. Doing so would very quickly allow for the tracking and tracing of attacks on any system that holds
custodial data.

Doing so would bring trust into the cowboy industry that we have today as we clean it up and get rid of the
trash that seeks to take customer funds and treat clients as if they were cows to be milked.

If a system is not custodial, we can more readily ensure that it is secure. People receiving funds can have the
keys stored on systems that are not involved with the payment system at all. That is, a branch office can
have all of the keys maintained at the central head office and need not worry about being attacked.
Exchanges and custodial services are the problem. The described way was how Bitcoin was designed, and
yet it is what they who seek a cowboy industry want to tell you is too difficult to achieve.

If we do it right, we could start to get institutional and government support. More importantly, we can start
a narrative moving away from cowboy money launderers and thieves into a professional industry.

Like it or not, I’m going to make sure the industry starts to clean up. It’s time for the money launderers,
Ponzi pump-and-dump promoters, and people seeking to make a quick buck scamming people through
wash trading and false information to be brought to justice. It’s time for the industry to start
understanding that it needs to have the basic security controls that even a Visa card processor would be
ashamed not to have. Right now, the crypto industry is not even as good as the Wild West of the Internet in
the 90s.

It could be secure, but they who designate themselves as leaders don’t want it to be. If they promoted the
interest of clients and users of the system that is far from secure and started to clean up the industry, most
of the people would be out of a job. It’s time to professionalise, and they who don’t like it are going to start
to learn, but they won’t be able to cheat customers.

References:
[1] http://coingeek.com/nchains-security-inventions-prevent-mtgox-2-0/
Crypto flim-flam
By Craig Wright | 13 May 2019 | Bitcoin & Blockchain Tech
Unfortunately, every new technology opens up opportunities for the flim-flam man and night singer. It is no
different with my technology and what people have done with it. In time, Bitcoin will change the nature of
such opportunities, but it will take time. Right now, even what people are being sold as Bitcoin is a cheap
copy. A night singer is nothing new. During the South Sea bubble in 1720, fraudsters would sell shares in
stock. The form of pump-and-dump securities fraud involved inflating the price of an asset using false and
misleading positive statements so that the perpetrator could push the price up and sell their cheap asset at
a far higher price.

We see the same now occurring in what people call cryptocurrencies.

New tokens are created that are fraudulently purported to have some long-term value. Many, as with
Binance’s token, tell you that they are not securities, but simultaneously they will go up in price. They will
sell you the lie that because they are tokens, they are something new. The reality is that all securities and
commodities have gone through a process of dematerialisation decades ago. In the 90s, we saw a wave of
penny share scams based on the electronic sale of tokens over bulletin boards and USENET.

In the case of Binance, they tell you how they will build a decentralised exchange. The reality is that it is a
pure fraud. There is no such thing as a group-owned decentralised exchange. It is purely and simply a
means to enact what used to be called a humbug. That is, a deceptive or false talk, hypocrisy, and posturing
that is empty. When they tell you they were decentralised, they throw the word out there without any
explanation. They say it’s on a blockchain, so therefore it’s not centralised. But, every single token launched
as an ICO is centralised. It’s run by a group. It’s controlled by individuals. Binance controls Binance coin.
Binance controls its exchange. Most people don’t understand that decentralisation means the
decentralisation of power. The Binance exchange is controlled by individuals, and is subject to law.

In fact, it is subject to US law. Binance.com places the exchange squarely within the realm of US control. To
say so is not a mere assertion, “.com” domains have been considered to come under US territory for decades
now. It is well tested in law.
The night singer selling pumped securities.

Such things of course are part of the problem right now. In a few months, laws that cover all of such
exchanges including the mythical DEX will start to be enforced. Whether in Europe or North America,
companies like Binance will have to start reporting on suspicious activity and money laundering. They will
need to be able to do so going back in time for all of their customers if they are to trade in January 2020 at
all. As such, if they operate past December 2020, they will be acting criminally unless they will have already
moved to integrate a complete AML KYC project. They haven’t really even started, and they have no
intention to do so.

The democratisation of finance

The hyperbole of democratising finance is the consistent cry of security scammers everywhere. We hear it
again around crypto. The democratisation of finance is the promise that all households can make money
and/or manage risk by buying appropriate financial services and products without having to do the research
or effort that is required and conducted by institutional investors. We saw the same in the early 1990s, and
we saw it as it led to the Internet bubble. They who are seeking to run scams rely on the lack of financial
education, captured by ones promoting false promises to the financially illiterate.
The Internet boom of the 1990s reflected one of the 1920s, and is mirrored again in the world of crypto
assets. We see promoters pumping enthusiasm for crypto assets in the same manner many in prior decades
sought to create mass public enthusiasm for stocks without value, as they now created for digital tokens.
The characterisation of economic democracy through investing is nothing new (Frank, 2000).

Wall Street itself was presented as the saving force allowing the common man and small investor to get
past the elitism of the entrenched financial industry. Ones such as Warren Buffett used populism to defend
Wall Street as they built their own empires…
…while the world of finance had once been a stronghold of WASP privilege, an engine of elite enrichment,
journalist and PR man alike agreed that it had now been transformed utterly, being opened to all. This bull
market was the Gotterdamerung of the ruling class , the final victory of the common people over their
overlords. (Frank, 2000: 92)

In the 1990s, as with the 1920s, the illusions of moneymaking were only swept away when the market
crashed and the corporate scandals and frauds were finally revealed. Unfortunately, in this new round of
growth of valueless assets and tokens that point to digital nothing, we will have to see the emperor in his
full glory as the market for digital assets returns to its true value. Only assets with use that develop
something for the larger world will survive. As a protocol, Bitcoin competes with substitute goods. It acts as
a digital ledger that is being pumped and sold as if it was something else, but in the end, only one ledger
will survive. Which will be the ledger that competes based on market performance — not exchange prices,
for they are not the market. People have used the language of 1984 to tell you that such exchange was the
market, but to say so could not be further from the truth. The exchange is Main Street, not Wall Street. Yet
they tell you that the valueless flipping of coins and gambling speculators in a wild orgy of monetary
pumping means value. Value is what is offered to society at large. And markets come through use.

Following the passing into law in the UK of the Companies Acts of 1856 and 1862 — facilitating the creation of
limited liability companies — the average investor “was wealthy, tended to confine his investments to two
or three companies and was interested to a certain degree in the running of these companies.” (Jefferys,
Trends, 172–3).

The new technology and the ability to use professional mailing services started to change the scene in the
1880s and 1890s. Companies started to create hype around new investment opportunities. It led to a boom.
There were new issues and the creation of many organisations that took money but never delivered
anything. The British mail order firm G. Smith Dalby-Welch Limited listed more than 510,000 individual
investors across Great Britain
following its founding and launch in 1868 to where it grew to promote securities across Britain decades
later. The company’s pamphlet, Finding the Buyer, as was published in 1911 (London Guildhall, pamphlet
21957), promoted securities to the average man. It was financial democratisation at its widest. It was an age
of bucket shops.

It is an age that we are seeing once again as false assets with no value or use are pumped and sold to the
unwary who have no idea of what they’re buying but are told that they could get rich if they get in early.

Many people complain that the financial crash of the 1920s, the Internet boom and bust of the 1990s, and
other problems throughout history have been the result of interference from banks who use credit
instruments to prop up a failing economy. There is an error in their method of thought. Many fail to see that
the problem of democratic access to finance is not why the economy is failing. The banks are not the
problem. they are but a symptom. The misallocation of funds is not the result of misallocation through
banking or government, but starts and derives from fraud and deceit. It is, once again, what we are seeing.

The very same catchphrase has been reused. The democratisation of capital was the cry of the market in
1929. It was an era when shoeshine boys would tell you of the great stock bargains . Today, the equivalent
of the shoeshine boy is a telegram group or a chat group where people falsely pump digital assets that no
one in the group understands.

In 20 years, we will look back following the massive crash that will come and see one surviving protocol. Not
a protocol that sells to the market in order to democratise finance, but a single protocol that offers value.

John Rothschild said in 1996:

Are we at the same fatal stage in the market today, when people who aren’t expected to have stock tips
have stock tips, including hot dog vendors, shoeshine boys, the homeless, pedicurists, barroom dancers, toll
takers, and the trumpet player at the racetrack? Will stock prices fall off the cliff under the weight of
enormous popularity?
We are at such a point today. We are at the critical stage, but we have moved from stock tips to crypto
assets. Now, we find hot dog vendors, the homeless, and the flim-flam men peddling illegal exchanges and
talking about money to be made, wealth that cannot be avoided, and riches without work.

When you hear people say that Bitcoin and blockchain democratise finance, ask them what they mean.

The term democratise finance is nothing new. It was used in the 19th century, whenever flim-flam men and
humbugs tried to sell worthless pieces of paper with a promise of instant riches. It is the promise of getting
rich quick without work, without effort, and without knowledge of the market you’re investing in. It is the lie
that a bucket shop is a market. It is the lie that allows people to take money from the needy, the ignorant,
and the foolish, and is the lie that has become crypto.

BitCoin doesn’t have value because of bucket-shop exchanges. They are not the market. A market for any
good is use and its final destination as a commodity product.

It’s not my place to save you. Do know that I do wince when I think of what is coming. We will keep
building, and we will keep creating. At the same time, we understand that it is not a short journey. It is one
of delivering value; not on the bucket shops and illegal exchanges designed to help criminals, money
launderers, and drug dealers move money with impunity, but the future plumbing in the system that
changes the Internet from a commons that must fail to something that has value.

I am not on social media. If you see me, or at least my image on Twitter, Facebook, or Telegram, then it is
not me. You are being conned. More importantly, I don’t sell anything publicly. If you have a deal that seems
too good to be true, it’s unlikely to be true.

References
Frank, T.: One Market Under God. Extreme Capitalism, Economic Populism and the End of Economic
Democracy, London: Vintage (2000).

Jefferys, James. B.: Business Organisation in Great Britain 1856–1914. New York: Arno Press (1977).
Money is a measuring stick
By Craig Wright | 14 May 2019 | Bitcoin & Blockchain Tech
Something that people don’t seem to understand well is that money is not in itself a valuable. Money is
simply a measurement of stored debt. It is a call on society for past exchange. Money is the societal contract
we enter into to exchange goods and services and, rather than barter, to be able to put down a marker that
we can use to exchange for the things we want later. Money is the marker of us selling into the ledger and
then taking back out of it.

Value comes from the things we exchange money for.

Many thousands of years ago, the creation of money came from the ability to store commodity goods and
have a ledger value associated with your holdings. In the Bible and other associated documents, a talent is
used as a measurement of stored grain:

Shekel (2 bekahs): 2/5 ounce / 11.34 grams — Exodus 30:23

Talent (60 minas): 75 pounds / 34.02 kg — Ezra 8:26

The farmer would need to keep the best seed as 30lbs/13.5kg of seed was used to seed and plant half an acre
of land (0.2 hectares). Modern farming is more intensive, and uses nearly double the amount of seed grain.

Starting in the Late Bronze and Early Iron Ages, communities created silos that were excavated into the floors
of houses not only for the storage of grain in a single year but to save across one year to the next. Storages
started to increase in size as towns and villages became larger. The resulting larger granaries served a
communal and administrative purpose, and the farmers would be given a tally related to the weight of grain
deposited.

The coinage that we see in common use in the ancient world, shekels and talents, originated as grain
receipts. Farmers and other producers would store large amounts of grain following a harvest. In addition,
farmers produced straw that could be used in the production of bricks. It led to the origin of trade and
exchange. Ones who were better farmers continued to farm, whereas others who could now specialise in
pottery, creating bricks, and other artisan trades would be able to exchange goods and services for part of the
stored food. It is the origin of money. Value stems from the consumed goods that we have within society.
Money is simply a call on that set of commodities which we all seek.

Money itself was and is not valuable, what can be obtained through the ledger that is money has value. Such
is the way to look at money. Not as GDP or a call on what GDP captures, but as a call on the individual items
being created within the entire economy. Such is the supply and demand aspect of money and goods. It is a
calculation that is too complex for any individual to plan and will always be too complex, no matter how
powerful our computers become. If Moore’s law was to go into overdrive and continue doubling every year for
a thousand years, we might just start to be at the point where a computer that stores every bit of information
about everything occurring in society would be able to calculate better than capitalism. Unfortunately, the
storage for such a system would require more atoms than we have in our universe.

Money is thus the call at a point in time of goods and services as society values them. If we have more grain,
the value of grain compared to other goods will diminish. In a simple ancient economy, the scenario would
have been clear. In such a sort of Robinson Crusoe economy, the limited number of goods allowed people to
see the balance.

Importantly, it is not how much is being produced but rather how much is being consumed against what is
being produced that sets value. If we have 110 units in a simple economy and we are only consuming 100
units and saving the rest, then the value will deflate. Right now, we have a deflationary economy. Economic
growth leads to a scenario where we have more every year. Today, we are in the richest Golden Age of all
human history, and there is nothing stopping its richness from increasing further. It won’t stop some people
from trying to attack growth, but the reality is that we live in a world that is far richer than people could have
imagined 100 years ago. What few people understand is that the amount of wealth for every person on earth
has increased, and it has increased at a far higher rate than that of population growth.

Inflation is used to balance and hide the fact. There are many, especially in government, who believe that
growth is bad. Capitalism and growth are disruptive. They rearrange and reorder the status quo. They allow
new people to come into power, and remove such individuals who no longer provide what society desires.
Such is the nature of profit.

Money is simply a ledger used to exchange goods and services across time. It allows people to specialise,
create, and sell things now or in the future under contract for a promise of a share of the goods that are
available at a later time. When scaled, Bitcoin is not deflationary. A vibrant growing capitalist society is
deflationary.

Ceteris paribus (fancy economic jargon for “all things being equal”), Bitcoin is neither inflationary nor
deflationary at scale. Given a static population without economic growth, Bitcoin would have no growth at all.
The growth in the value of Bitcoin in a stationary economy exists only through speculation. In our modern
economy, computers become faster, cars become more efficient, and new knowledge and new inventions
increase the overall efficiency across society. It gives us more every year than any year we have had before.
With only 3.1% growth, we double every two decades. If you think about it, it means that for every person alive
in 20 years’ time, they will have double the amount of goods and services we have now.

This is why Bitcoin should be stable. A national currency measures political concerns. Bitcoin used across
global systems allows people to track and monitor the international economy both locally and internationally.
We’re not there yet; Bitcoin would need to scale massively for such a thing to occur, and it hasn’t achieved
the required level, and likely won’t for another 20 years. To do so, it needs to be a global ledger. It forms the
basis of what we’re doing with Bitcoin in creating a scaled system. In the next decade, we will have the
capacity not just for Visa or Mastercard but to allow all banking transactions to be conducted securely and in
a manner that leaves no room for doubt as to whether a transaction has occurred.

The value of money lies in acting as a measuring stick. It is a means of exchanging goods and services across
time, and allows people to value and account for capital.

It is what we seek to achieve.

Institutional madness
By Craig Wright | 16 May 2019 | Alternative Coins & Systems
There is a simple reason why Tether (USDT) has avoided being audited. At least 31% of the reported funds
have been embezzled from the Russian state with at least 13% of the total Tether value earned through
fraud conducted in the UK.

Institutions have rules that preclude them from investing in organisations that have benefited from the
proceeds of crime.

HODL is all about having a few people invest in Core coin (BTC) so that some others can get money out. If it
was about use, then it would be a spend-and-replace argument, that would place more upward pressure on
price, accepting that the 1-MB cap on Core coin precludes such an argument as an option. It would also
stop crime-friendly log-destruction systems (such as Lightning).

For some reason, those in Core c oin (BTC) have a mentality that they can stop the requirement to support
and submit Suspicious Activity Reports (SARs). SARs are a critical intelligence resource for tackling money
laundering, terrorism, serious and organised crime, corruption, and fraud.

Even more importantly, exchanges and those involved in money-handling services need to be able to
investigate their clients. Failure to do so is a crime, and will lead to the exchange in question being shut
down. Several bucket-shop exchanges (such as Binance) seek to flaunt the legislation. They ignore how they
are far more centralised than an organisation like Liberty Reserve. Liberty Reserve with over 30,000
distributed points, no central database, funds distributed across over 1,000 banks, and no direct links to the
USA was taken down in a global anti-money laundering (AML) action.

More critically, Liberty Reserve was taken down without all of the advantages that blockchain offers to law
enforcement. Liberty Reserve was able to delete records and still be charged. Liberty Reserve was far more
decentralised than any blockchain will ever be. Bitcoin survives not because it is decentralised but because
it acts within a legal framework that allows it to be traced.

To be valuable as money, Bitcoin needs to be widely used. Not as a money-transmission system that is
required to maintain its own logs such as Lightning, but on-chain. A critical part of understanding Bitcoin is
to understand that it acts within the legal framework — or it can easily be shut down. The so-called
argument made by bucket-shop-exchange promotion groups, Tether-pumping criminals, and the assorted
Ponzi scams within the industry is that Bitcoin is decentralised and thus it cannot be stopped. Nothing is
further from the truth. Bitcoin is decentralised, and as a result evidentiary logs are maintained across every
system that acts as a commercial unit within Bitcoin. The evidentiary logs within Bitcoin are the transaction
records. The consequence of decentralisation is an immutable audit trail.

Systems such as Liberty Reserve did not maintain logs. A few of the key people ended up in prison, but that
was it. If Liberty Reserve had been blockchain enabled, around 100,000 criminals who used the system of
the 2 million or so in the total client pool would now be facing prison or be on the run.

There are some who seek to create a system that does not rely on the controls inherent in Bitcoin. Such
people seek to create sidechains or Lightning Network systems that are money services businesses (MSBs).
By law, all of such systems, every node within the system, every user will need to keep full compliance
details or otherwise be breaking the law. It’s the dirty little secret that they are not telling you about
Lightning. It was always designed to be a system that loses records. You see, Bitcoin, blockchain in any form
does not lose records. The transaction either occurs or it doesn’t, and when it does occur, the record is
permanent and cannot be removed.

So, when you are told about institutional money coming into Bitcoin and then being lied to about Core
coin (BTC), remember that institutional money cannot invest in a system that is not legal. Bitcoin is legal,
but the implementation that some seek to create as a dark-mirror copy of Bitcoin [also known as Core coin
(BTC)] will require nodes to register with the government.

The very thing that they’re trying to remove, the immutable audit trail that creates Bitcoin, is the thing that
makes it legal and where other cryptocurrencies and digital coins have failed.

Blockchain does not preclude tracing; it simplifies it.

Market manipulation
Coin media — for want of a better word — is very little if such media is really a means to manipulate the
“market” as we see it now. More importantly, as we’re not seeing a large amount of use but pure speculation
and gambling instead, I’d argue that it’s not even a market. Today, we have seen arguments that Microsoft
was going to use Bitcoin in creating a sidechain for identity.Without even going into a number of patents
that cover some relevant aspects here and preclude unlicensed use outside of BSV, I will firstly note that
Microsoft is blockchain agnostic.

Importantly, what we are seeing is the scaling lie. Such a lie is created to sell the idea that Bitcoin needs to
act on Lightning nodes and sidechains. The reality is that the argument is purely made in order to destroy
evidence. The only reason for Lightning to exist is to lose records. Fortunately, legislation covers it.
Legislators have already thought about the same issues decades ago. In the anti-money laundering (AML)
provisions, the requirements cover funding. Bitcoin was always a means of funding, and as such has always
been covered.

Censorship
Stopping crime is not censorship.

The standard argument you get from the anarchist crowd is that Bitcoin is about censorship-resistant
money. Bitcoin is cash first and foremost, and acts as a monetary system. It’s very simple: miners accept
transactions, which can be moved, but a complete audit trail is always maintained. If users spend small
amounts of money, it goes under the amount of any AML requirement. For instance, if you spend £200 on
legal but questionable goods or services, there will be no required reporting. If you’re spending small
amounts of money, Bitcoin is just like cash. Anti-money laundering rules kick in for large transfers.

Where there are custodial services, any custodial services, or even mixing services or exchanges, the law
already encapsulates any blockchain. It is of value transfer or funding — which is all that is required under
the AML rules. As such, every single custodial service will need to follow the law.
If you are taking money in Europe or money from an individual who resides in or is a citizen of Europe,
you’re covered by European law. If you are taking a US dollar anywhere in the world in any form or
converting to such a system even with something that has a funding value attached and pegged to the
dollar, or if you have a single US citizen, US resident, or US user domain, you are covered by US law. You can
be covered by US law and European law simultaneously.

One of the primary reasons why I created Bitcoin was to make a system that could act without needing
regulatory control over the base money supply and still retain a level of resistance to fraud. It was designed
to minimise criminal uses and to make many of the abuses of the system, as occurs with SWIFT, easily
traceable. Such is why a number of exchanges (bucket shops, really) like Binance and Bitfinex exist — to
bypass the controls built into Bitcoin. So, let’s think about how we would go about such a scenario.

A suspicious activity report is created and sent through Interpol and other agencies. It notices a particular
address, which is reported to all exchanges and custodial banks. It can be a very quick process, which
happens within the banking industry already. The exchange or custodial wallet now has the choice of either
blocking any transactions from the same address or acting without the protections of law. Such
transactions would include any transacted coins that are joint to the earlier transaction.

The process is not difficult. Existing funding laws allow it to occur today, and the MLD5, the updated anti-
money laundering directive in the EU, simplifies the process for any regulator.

Let’s have a look at how the process works. Any custodial wallet or exchange that receives anything without
a source of funds that can be verified can be shut down. This is already criminalised. Next, if a Suspicious
Activity Report has called for funds to be frozen, then all of the parties have to act on such a call. The process
occurs right to the point where someone validates that they have a right to the money.

If Charlie sells tainted coins to Alice in exchange for goods and services as valid consideration without
knowledge, then Alice has the right to spend such money. So in this case, Charlie needs to exchange using
a non-custodial system with Alice who is also on a non-custodial system. If the amounts exchanged are
large, Alice will record Charlie’s identity. If Charlie is purchasing a car or real estate, then Charlie will need to
account for his identity, and Alice will maintain it.

If Charlie has tainted coins because he has done something illegal or even obtained illegal coins that he
knew were tainted, then Charlie does not have a right to them. If Charlie moves them or stores them in any
way on any form of custodial system including an exchange, Charlie’s coins can be seized.

Even if Charlie could go through a mixer, it won’t help. Mixers are custodial, and require anti-money
laundering provisions. The only way Charlie could get away with exchanging his coins is to do so using non-
custodial wallets and to exchange money to non-custodial wallets. If Charlie wants to transact with Alice
and he has at any time mixed any of the suspiciously reported coins, then they can be traced. The depth of
coin mixing is irrelevant. Existing law means that Alice can be asked where she obtained her funds. Unless
Charlie is spending very small amounts and far too small amounts to be a concern for money laundering,
then the system can be stopped.

Alice can accept payments without coming under the money-handling provisions as a merchant. She
cannot do so if she is an exchange or a seller of cryptocurrency. Consequently, it starts to become very
simple to filter out and block illicit uses of cryptocurrency. Small personal payments, say in the order of
£200, don’t matter. If Charlie had stolen £1 million worth of cryptocurrency, he could go round in a cycle of
stores where he doesn’t spend more than £200 in any one store in any one month with a very low
probability of detection — that is, as long as he doesn’t return to a store. If he was to return to a store, there is
a possibility he could be caught. So, Charlie would be able to go from store to store looking for non-
custodial systems that don’t run on something like Coinbase spending small amounts at each store over a
long time period. But if a single one of the stores was integrated with the Suspicious Activity Report system,
including if the store had a point of sale system linked to a custodial wallet, Charlie would be reported.

We have source-of-wealth laws.

Charlie would then need to prove in a court of law how he obtained his money from another person
through a valid sale. Charlie would not have the opportunity to make an argument saying that he randomly
got money from another person. If he tried it, his phone or other sources of whatever wallet he is using
could be legally confiscated.

Bitcoin and any blockchain-based system act within the law.

If both Charlie and Alice act to make an exchange using non-custodial systems where goods and services
are exchanged for the same bitcoin that is included in a Suspicious Activity Report and Alice does not
subscribe to any reporting system, but now Alice transfers her money into a bank, custodial system, or
exchange, then Alice will need to explain the source of funds. As soon as she does so, her funds will be
frozen legally by a reputable exchange or another custodial system. Failure to do so would criminalise the
exchange.

So, once the process occurs and Alice goes to Bob who runs a custodial service, information will be supplied
to law enforcement. If it’s a small low-value target, Alice is likely to be ignored and just get access to her
money. If it’s a high-value target and Alice has video footage or any other information, law enforcement will
take a look. Legal fungibility means that Alice will have a right to her money as long as she can prove that
she received it without knowledge of the illegal nature and for a valid exchange of goods and services.
Where people go wrong is that they think a system can act outside the law. It doesn’t.

More importantly, the false concept of censorship resistance is asinine. Bitcoin does not stop people who
break the law from getting caught. Importantly, Bitcoin creates an evidentiary trail that allows law
enforcement to step through and find the source of funds in any situation like the one described. The only
way that the system works outside of law is for a purely criminal system to exist alongside Bitcoin. Then, the
entire economy would need to be a criminal system, which is something that beggars belief.

Order exchanges to block addresses

Regulatory control is simple to introduce with Bitcoin. Personally, I’m tired of the arguments about
censorship. Never once have I said that Bitcoin was about censorship resistance. It isn’t. Bitcoin is secure
enough to act within legal frameworks. When you start adding systems on top of it such as the likes of
Tether and Wormhole that are designed purely as record-losing criminal coins, then it is not secure enough.
All of the changes people seek to do on Bitcoin are about creating a system that can act outside of the legal
frameworks we live in. But you can’t. Bitcoin takes you in the opposite direction, and makes it more difficult
for criminal coins to act outside the law — not less.

I will say it again: there has never been a single quote from me when acting as Satoshi that concerns
censorship resistance as the purpose for the creation of Bitcoin.

In fact, Bitcoin is easy to trace where crime is involved. Intentionally so. More, I have methods to allow
regulators and government to stop all crime going forward that comes from a blockchain. Any blockchain.

Double spending and orphans

The reality is, double spending is not a concern in Bitcoin. In the early days, when I ran around 70 machines,
it was easy to attack the network without consequences. In the past decade, the scene has changed. I
published a paper analysing the criminal nature of botnets in 2011, and as part of the investigation, we noted
that Bitcoin was being mined by large criminal botnets .

CPU-based systems achieve K hashes per second. GPU-based systems achieve G hashes per second. ASIC-
based systems achieve T hashes.

The reality here is very simple: One ASIC unit can cover the equivalent mining power of between 1000 and 1
million computer systems. If we’re talking about high-end computer systems with expensive GPUs, that’s
closer to the thousand X mark, whereas in the majority of botnets, we are talking about CPU systems and an
inefficient means of mining. The result is that even with the largest botnets, ASIC-based mining systems
mean that the criminals come off second best. With any ASIC system, the exponential power gains in
mining remove all effective use of botnets. The introduction of ASIC mining changed the game
completely. ASICs didn’t just increment mining slightly, they made it so that a small home user would
effectively beat the largest criminal botnet.

The argument on double spending is one of allowing fraud and getting away with it. Very simply put, if
you’re not going to follow law, you get caught and you go to prison. For instance, when you go to a
restaurant, you don’t pay until the end. If you don’t pay, you face prison .

So the argument on double spending isn’t even valid for restaurants. If you paid your meal with a fake
cheque or using a stolen credit card, you get in trouble. Double spending isn’t an issue for any merchant.
You don’t look at (the concept of) “safe” as a concept in isolation but rather as a relative term when
compared to other events. In our case, “safe” is compared to other systems. Right now, credit cards are
particularly unsafe. Even taking money as physical cash has risks. The most common fraud is the one
concerning one-pound coins. There are some 30–40 million counterfeit one-pound coins in circulation, so
about 2.8% of the total are fake. The counterfeit numbers of larger notes, such as a £20 note, are far smaller
— with Victoria Cleland, Head of the Notes Division, noting that just one note in every 5,000 was a fake.

Such is our best case.

We can set such a case as the upper boundary to beat. That is, for a £100 meal, the restaurateur will need to
account for two pence worth of fraud from £20 notes alone. If we look at the chance of doing a Bitcoin
transaction that can be double-spent, and we can reduce the cost of stopping double spends to one that is
under such an amount, we have lowered the risk. And the reality is that a double spend costs far more to
even attempt and needs to be conducted within seconds.

Reference
https://uk.practicallaw.thomsonreuters.com/w-003-7306?transitionType=Default&contextData=
(sc.Default)&firstPage=true&comp=pluk&bhcp=1
Why code must not be law
By Craig Wright | 18 May 2019 | Bitcoin & Blockchain Tech
In early 2014, I had a company called Hotwire in Australia that had just under 50 staff members. In
December 2013, with 45 staff members working on Bitcoin projects, I think we exceeded about everything
in the space. At the same time, at that point, we were hardly known. I discovered back then: there are good
and bad aspects of operating under the radar. When several early exchange sites closed in the period
between 2013 and mid-2014, it also limited our ability to liquidate assets for funds. We were nominally asset
rich and cash poor.

In that period, we were burning $4.6 million a year in payroll alone — just in Australia. A part of what we were
doing included trying to develop a core banking solution based on Bitcoin that used the Bitcoin ledger.
Some of my patents cover such a solution. When you get to a certain size in an organisation, you cannot do
everything. More importantly, then as now, my focus has been on research and development.

In 2013, only a few exchanges were operational, and none were trustworthy. We used the Caribbean
exchanges as a means to transfer bitcoin and other assets into cash. In 2013, there were not many sites that
could handle the volume of bitcoin transactions — more importantly, not without leaking data. It was not
the government that I was hiding from; it was the rest of the world. We wanted to create something then
that does not even exist now.

Going back even further, we see the start of some of the problems that occurred with all of this.

LulzSec, Anonymous… freedom fighters or the new face

of evil?
When we look back at the 2010–2011 period, you start to discover that a number of groups including
Anonymous and the splinter groups associated and derived from them didn’t particularly like me . The
same applies to WikiLeaks, which happened to be what I would call a criminal organisation .

Much of why I created Bitcoin stems from all of this. It includes fighting the AntiSec movement and the
criminal groups that have come from it.

Greg Maxwell has been a thorn in my side for a long time. Even now he is seeking to create a Zero
Knowledge Contingent Payment system, basically everything Bitcoin isn’t. They will make claims of privacy,
but such was never part of what it was designed for. One of the reasons for the Zero Knowledge Contingent
Payment system that is in development has been to enable conditional payments for ransomware.

Here is why we have law. You need to prove the source of funds. #Fail

The concept here is to set the decryption key as a pre-image for a public hash that is associated with the
decryption software used by the ransomware. Unlike Bitcoin, it will enable autonomous verifiable
ransomware to be created. It is what they’re seeking in a distributed autonomous network (e.g. DAO): to
create ransomware that does not require operators. With the use of confidential addressing, it would be
possible to create crime groups that are paid anonymously and that cannot be tracked . Removing
traceability enables such a scenario. It is possible to create verifiable keys within Bitcoin, the scripts are
powerful enough, but the problem is that the system is not anonymous.

Which is the reason that people like Contrarian and all the rest of the guys in Core want something like bit
gold. They are trying to manipulate my creation into the ultimate criminal system by adding
anonymisation features to blockchains. Ransomware cost the US economy alone over $1 billion a year .

It is the result of poorly designed systems that are hard to sell and track back to the source all the time. The
Holy Grail for many people such as those like Contrarian is the creation of a truly anonymous system.
With true anonymity and not simply privacy, there would be little to stop the creation of a criminal empire .
If you can take badly designed systems, as ransomware is right now, and create something that allows you
to sell and transmit without leaving any evidence, you are in a position that some people would kill for.

Ransomware doesn’t work terribly well as there are no ways of guaranteeing that the attacker will give you
the decryption key. There is no way of provably knowing that it is the attacker who is shaking you down for
money or even if they haven’t lost it. Right now, if any of such scammers create a network that is too large or
too efficient, they are traced and law enforcement will arrest them .
This is why some individuals who have been working on unnecessary products such as confidential
transactions and anonymity systems like Zcash and Monero have been working on verifiable proofs in smart
contracts. When Bitcoin is used, the introduction of AML/KYC controls to exchanges (as the law has started
to require, but which was always really part of funding requirements) leaves the use of Bitcoin for
ransomware as something to be avoided. So, what they’re seeking to do is to create a payment system that
can be used in the exchange with something like Bitcoin but which is more reliable when used for a variety
of different crimes — not just ransomware.

When you’re dealing with criminals, you instinctively know that you cannot trust them. So how do you
make a solution as a criminal that will allow you to implement something like a ransomware infection that
provably demonstrates that a payment to the criminal will guarantee that you get your unlock at the same
time?

The criminal can go back and forth proving that they can decrypt files and hence that they have the
decryption key, but the same process leaves an audit trail that can be used by law enforcement and makes
the capture of the criminal more likely.

So, what you need is something like a Schnorr signature and a mixer.

Combined with a key that is conditionally provable, we now have a system that could be extended to allow
another system to be created .

Doing so is of course possible in Bitcoin, but the problem with Bitcoin is that it has an immutable audit trail.
If you integrate something like confidential transactions and Schnorr signatures… then you end up with
something different. Here is where you come into the touted concept — decentralised and autonomous. You
can make a criminal organisation, one that distributes funds and pays members without having to be
registered in any country. This allows you to create ransomware that doesn’t have operators and has no
head on the Hydra.

When they talk about freedom, they are not talking about free society but the freedom to commit crimes.

So where is it all going?

In the period between 2009 in 2011, there was a member of AntiSec and Anonymous who currently uses the
handle Contrarian .

The same person was heavily involved with one of my former staff members in 2014. The issue was that we
had a temporary liquidity problem in the organisation. In time, we managed to pay all the creditors in full.
But, there were a few people who took it to be an advantageous opportunity and sought to exploit it.
We were dealing with a company called Rubik. A part of what is being talked about in the given chat log
that was captured between former staff members of Hotwire is about a plan to take software that had been
developed by my group and create a company within the financial services industry. To do so, they needed
the company to be in liquidation.

Most of the staff in Hotwire were people that I would recommend. Some were underhanded. Which is the
problem of course. It can be difficult to tell what staff are really like when you hire them. I like my current
team. But after all that happened, I’ve learned to trust people far less. You see, when I hired people in
Hotwire, it was done without share options and unlike most Silicon Valley start-ups. We just paid them a
good salary. Part of the contract involved an intellectual property agreement. All the software they wrote for
me and all the work they did remained mine.

Of course, if the company had gone into liquidation and had not paid people 100 cents on the dollar, then
they would have had an argument to be able to take the intellectual property.

This is of course a reason for court and not proof of social media (PoSM). Part of the story you don’t get to
hear on social media is how in 2014 I had people working as system administrators who were in charge of
the network, the Windows domain, and the storage servers. The interesting little thing here is that I still
have some of the computers and laptops from the ex-staff members.
Why this is important is that some of the documents that have been floating around the Internet originated
from a particular computer. I haven’t touched any of the computers in years. I’ve never logged on to any of
the staff machines even now. What I did do was hand them to my lawyers and the forensic investigators
that they had hired. Under discovery, you need to hand over any files in your possession. Possession is not
ownership. Possession does not lead to creation . Interestingly though, one of the staff computers had a
copy of my wife’s email store. He could send and receive email as she did. She was the Chief People Officer,
and had all of the HR details for other staff. More critically, he had copies of many of the documents that are
now floating around the Internet. He was also dealing with a person called Contraria n .

It turns out that the same person who used to work for me was dealing with someone who worked at
Verizon, and managed a number of government email servers. It goes beyond this course, Contrarian , the
mail-system administrator in Verizon (in the Australian Capital Territory), and some of my staff had plotted
to ensure that Hotwire would never come out of liquidation, and everything that I’ve been working for
would be up for grabs.

Like many other executives, I will sign large contracts and exchange a digital copy of a page, because that’s
all I need to legally do. The reality is that it’s not the contract as a piece of paper that is binding. It’s the
agreement. Which is what many people don’t understand. In the document below with Rubik, the
agreement is exchanged between lawyers who have copies. So altering the digital document may cause
problems, it ruins evidence, and if you don’t notice what’s happening, it can be problematic, but at the same
time it doesn’t change the nature of the contract itself.

But this may give you an idea of why I considered my software valuable. If you look at the figures in some of
the contracts below, you will start to see the level of expense we were engaged in.

Unfortunately, I’m a hardheaded stubborn bastard. If I had taken the option and allowed the company to go
into liquidation, I would have been $4 million better off directly at the time, and much more now, but at the
same time it would have allowed people who used to work for me to steal some of my intellectual property.
I don’t ever let people steal my intellectual property.

So, we took Hotwire back out of liquidation, and then we closed it and moved everything to the UK. If a
single line of source code or anything else that was created in my companies ever appears in any other
organisation, the same organisation can expect a long painful round of litigation that will result in a large
payment to us. The plot and plan here was to ensure that we were not able to get the companies out of
liquidation. A certain ex-staff member had to be injuncted and stopped from his plans to sell my intellectual
property. Of course, it didn’t stop some of the other attacks. A certain person who worked at Verizon
continued to help plotting with a certain Contrarian AntiSec member and some of my staff — or, sorry, ex-
staff — in an aim to ensure I wouldn’t be in the position I am now.

The ex-staff members had one agenda: they wanted to take the intellectual property we had created. The
AntiSec fools had a different agenda: they didn’t want Bitcoin. It’s interesting, they are powerful in their own
ground. On Reddit and in the world of anonymous social media, they have a lot of power and can set a false
narrative. They can create alternative facts, but reality is what matters.

It is for the same reason that I’ll be seeing people in court soon. You don’t get to get away with simply saying
Internet documents are real when you’re in court.
In court, when somebody flashes a document and says it’s proof, they need to do more than just show that
they have a document. It is why we have hearsay rules in law.
It is why, when you get into a court, you get to look at a document and see the discrepancies like different
fonts.

…and other alterations.

Luckily, going forward, and with Metanet, we will be able to store documents in a manner that stops the
AntiSec crowd from doing a simple alteration and leaving their usual trail of destruction.

Unfortunately, if I’d known a long time ago what was happening, I could have stopped it before it went
anywhere.

In 2014 and 2015, I was far too busy trying to answer queries from the government and deal with company
administrators in keeping the organisation out of liquidation. In order to complete some of the research I
was working on, which has led to the current pipeline of patents where over 700 applications have already
been filed and another thousand are on the way, I needed to focus on R&D and not on finance and staffing.
You see, it was the other people such as James Donald who I sparred with as Satoshi who where the die-
hard cyberpunks and anarchists. I designed Bitcoin to ensure that systems like bit gold never took off. I
designed it to ensure that the criminals wouldn’t have the advantage that they do have at the moment.

AntiSec
As part of an operation by AntiSec in 2011, around 18,952 scientific articles that were owned by JSTOR were
released after being stolen by Aaron Swartz. The person who leaked the documents by loading them onto
Pirate Bay was Greg Maxwell. His contention was that the documents were outside of copyright and
needed to be free. Many of the documents date to before 1923, so the argument is that copyright doesn’t
apply and thus the illegal theft of the information by Aaron Swartz and subsequent leaking of the
documents by Greg Maxwell should not be a crime.

What they do fail to note is that the documents were scanned and entered by JSTOR. Copyright did not
apply to all the documents in the original format. What people fail to understand is that if you get a
document that is not covered by current copyright and you scan and retype it, the digital copy is now
covered by a new copyright. It protects someone’s work effort.

For instance, if I have a document that I have a copy of where the copyright has expired, I can take a
photocopy of it without any issue. If now I pay to have it typed in and saved on a computer so that it is in
searchable format, I now own the copyright for the particular version of the document. It does not stop you
from obtaining a paper copy of the document and typing it yourself. If you do so, you own the copyright on
the typesetting and it differs from mine. So, Greg Maxwell didn’t help Aaron Swartz leak documents that
were outside of copyright; he stole JSTOR’s work product.

This was done as a part of an AntiSec operation.

A system like Bitcoin ruins everything that people in the anarchist part of the world want.

When I created Bitcoin, I solved the Byzantine Generals Problem using proof-of-work and an immutable
ledger. Which is the thing that people are trying to cover up. Which is the thing that people like Greg
Maxwell would hate to exist. In the quote below, there is an aspect of what I said that is overlooked but
which is a key and fundamental part of Bitcoin and how it works that needs to be talked about more.

A number of Byzantine Generals each have a computer and want to attack the King’s wi-fi by brute forcing
the password, which they’ve learned is a certain number of characters in length. Once they stimulate the
network to generate a packet, they must crack the password within a limited time to break in and erase
the logs, lest they be discovered . They only have enough CPU power to crack it fast enough if a majority of
them attack at the same time.

Bitcoin works in part because you cannot erase the logs . When people talk about systems that are more
anonymous, ones that are designed to lose logs, or even those like Lightning that hide connections, what
they are seeking to do is take away part of what makes Bitcoin strong and secure; it is the aspect of not
being able to alter information that they want to remove.

You see, my solution doesn’t allow the Byzantine Generals to deny what they planned. It isn’t the system
that the AntiSec crew wanted, but rather a system that stops frauds and stops people from altering records.

Don’t worry, it’s really hard to erase evidence, and it’s only getting harder with Bitcoin. When I managed to
get the company back and out of administration, ending what some had tried in an attempt to force me to
liquidate, I also got back all of the hard drives and laptops of the former staff members who thought they
had covered their tracks.

Enjoy court, I will.

One thing courts do that PoSM (proof of social media) does not is to filter the lies and manipulated
evidence. When you have a document obtained through the result of having a server compromised by
insiders who installed back-doors that was derived from another… it is generally not good to call it evidence.
Any system can be compromised when it starts with insider attacks…

In 2014, when certain individuals altered records within Hotwire, the reasoning had nothing to do with
today. It was purely to cause me problems with the Australian government. I did not run the financial
systems; we had auditors including Ernst & Young, KPMG, three smaller firms, and a specialist tax lawyer. I
did have a CFO I had to get rid of. He had left a trail of destruction by that stage. That particular individual
had gone to New York and tried to make a deal to sell my bitcoin and other assets. It was a deal worth
about US$300 million of which I would get 100 million. And he told me I was crazy for not taking it.

In altering records, they created a number of subverted files that were designed to keep the companies in
audit and lead towards liquidation. Such was the goal. Unfortunately for them and helpers like Contrarian ,
some of the same backdoors led to documents ending up somehow with Mr Ira Kleiman, who is of course
suing me through false pretences.

We didn’t find all of the problems that a few rogue staff members had created until years later. In fact, I
didn’t even know about them until around 2016. The point of having finance staff and accountants as a
director was so that I could get a summary report and would not have to go over the minutia. That is where
people like Stefan Matthews came in. Stefan’s background was in sorting out difficult accounting issues. It
wasn’t that we had no records, we had more records than the average multinational company the size of
Intel. The problem was finding out what had been changed and altered. We started suspecting things
around 2015. But with my head buried in research, I generally left most of the company to others to sort. I’ve
learned from such an attitude. Telling people just to get it done isn’t good enough.

On 9th April, 2014, we engaged an external administrator and placed the company into external
administration. We could have restructured in such a way that it allowed partial payment of debt. I didn’t.
We paid 100 cents on the dollar of every debt, and took Hotwire out of administration with zero debt owing.
It wasn’t all of the staff, most people who worked there were very good. And I admit, it was a very difficult
time for everyone.

What I never expected: the small group of staff who came to a personal view that they were redundant in
order to push an agenda of liquidation. They voted for liquidation at the creditors meeting, but were down-
voted as we offered a deed of arrangement that would pay everyone in full. But as I said above, a few staff
members had already planned their exit strategy. It was to take the software that the company had been
working on for me and sell it into their own company. It was both dishonest and illegal.

I never believed that I would have staff members seeking to liquidate the company that they were
employed by so that they could steal the intellectual property and start their own. It is part of the world that
a code-is-law mentality breeds.
This is why I chose not to be CEO when nChain was formed. I could not lead both research and the other
aspects of the group. To do one role well, you need focus. In trying to be CEO and Chief Researcher at
Hotwire, I allowed many things to escape my notice.
Funding and rights
By Craig Wright | 20 May 2019
| Bitcoin & Blockchain Tech
My personal bitcoin and the ones owned by the company were two different things. The ones that were
being used by the company were not brought into Australia.

The system lodged everything as rights to bitcoin. There is a reason for doing so; we didn’t know about the
tax certainty of bitcoin at the time. As such, they were being managed overseas. We transferred the rights
to bitcoin. In such a way, we could instruct someone else to make a payment without having the
uncertainties associated with Bitcoin under the Australian tax law at the time.

In a way, it would be the equivalent of having bitcoin on an exchange. When you have rights to bitcoin that
are held on a custodial wallet with an exchange, you have the right to funds but not the funds themselves.
We used a law firm in Panama for such a process. It was far from being ideal, but given that we could not
guarantee regulatory certainty, it was all we could do. The process worked by sending them a letter of
communication over Bitmessage, and they would make a payment.

When I started the process in 2011, the total value of Bitcoin was very low.

What did happen was the same that happened with many other exchanges. When we started going
through the audit process in Australia, we found it was difficult to get information. It cost a lot of time and
effort to get people to respond.

I was able to get controlled assets paid for, which included computers and software. Money became difficult
in harder forms as the price of bitcoin went up. It should be easier, of course, but you never know how much
you actually have of an asset that you don’t directly control. I locked my personally held bitcoin into an
account that was fairly well-controlled. It still is. There are ways of protecting files and storing them. The
company, though, was different.

One thing that people don’t know is that I ended up losing a lot of bitcoin through rights which went
missing. In 2015, we still had bitcoin in overseas holdings, and I knew the amount through the accounting
system, but accessing them was difficult. The biggest problem came when a number of people involved in
Panama vanished. No, I did not lose other people’s bitcoin… I had a good amount of mine vanish.

At the time, we had remaining rights to a little over 100,000 bitcoin.

None of them were early bitcoin that I had mined.

I never brought the money they earned in casino software back into Australia. In 2011, I had around US$30
million in Caribbean bank accounts. They were all in structured trusts and companies. If I had brought the
money back to Australia to use it as cash, I would have ended up paying tax directly. The painful process
that I engaged in was having a law firm in Panama buy bitcoin for me.

It was held overseas, and in 2011 and 2012, we went through the first bubble and pop. So I went through a
slight gain, then a loss, then later a gain again.

I wanted access to core banking source code.

I needed the code more than anything else to understand some of the systems that I wanted to build. The
only way I could get the knowledge was to get access to a commercial core banking platform. It was the
reason we did the Rubik/Temenos deal, too. It’s one thing to have a set of source code, but you also need to
learn how it’s installed, managed, and run. Additionally, I managed to get access to a full suite of SCADA
control software and did a lot of research into the exact effects of Bitcoin over time as it scales. I knew that it
stopped being a uniform system and became a dynamic system, but I needed to understand the inflection
points of my system better. To take it from Alpha and Beta into a working system required such
understanding.

The 1,300 or so white papers that we have created and which are all going to form multiple patents would
not exist, if I hadn’t done so.

It becomes a different world when you have money.

When I was younger, I would never have imagined giving the right to transact tens of millions of dollars of
your own money to another person. But even with Bitcoin, it is how the world works. The problem comes
when you have your money in places like Panama. When companies disappear, so do funds.

In late 2015, the people who ran the fund I was dealing with vanished from the face of the earth. It’s not too
hard to vanish with 100,000 bitcoin in South America. So no, I don’t like talking about any of it. I don’t think
anyone would. That is why I got help from Stefan. Stefan’s background lies in dealing with difficult
accounting scenarios. If I hadn’t, I would still be trying to dig my way through accounting paperwork and
would not have gotten any research done at all.

The part that hurts most is that I know it was partly an inside job. Some of the people that used to work for
me had contacts in the finance industry, but also, part of the same group had access to the company file
shares. It wasn’t even until the Kleiman case that we started to notice some of the things that had been
happening. I’m still embarrassed to say that there was a backdoor in the system I owned nearly 2 years after
a staff member had no longer been working for me. More than 15 months after we had approached lawyers
to send a cease and desist notice and have certain people injuncted from taking the software they had been
working on, selling it, and seeking angel capital based on it, we still had backdoors into the system that an
ex-staff member had left.

So that’s my biggest failing.

It was my hubris which led to the loss.

But it taught me a valuable lesson. It taught me an incredibly expensive lesson, but a valuable one. I learned
the lesson of not having control of your system. Not holding your keys. It’s wrong, it misses the point. In any
large organisation, shareholders are not going to be managing funds, nor are directors. Money flows
throughout the organisation.

The lesson I learnt was about audit and control. I’ve been an auditor in the past, so I should have known
better. Especially with my own money. Then again, if you’re handling other people’s money, you also have a
duty of care.

Things like Bitfinex, Tether, and Binance are just digital rights.

When you have Tether or some so-called asset sitting in one of the shadier B– exchanges, then you don’t
own the asset; you own the rights to it. We’ve seen the same thing I’ve experienced over and over: an
exchange gets hacked, an embezzlement occurs, and people disappear. In all of the scenarios, what really
happens is that other people’s money goes missing. I’ve been there. I don’t want to see it happen to others.

I really don’t want to see the scenarios I went through in the early days of Bitcoin continue. There won’t be
an ETF or anything else involving institutional money anytime soon because we have a system of wash
trading, embezzlement, and fraud.

When I instructed the members of the company who controlled a trust to exchange US$30 million into
bitcoin so that I could hopefully transact back in 2011, it resulted in the price hitting an all-time high and
then crashing again even further. It wasn’t until 2012 that the value of my holdings approached the point
where it had been the year before (which took 15-16 months actually).

I thought I was being particularly clever when I set up the structure I had in Panama — which part was fine;
the problem occurred later, when the price went up further. Law firms in places like Panama handle US$30
million routinely. It was in 2012 that the problem really occurred. It was when I wanted to bring things back
to be used in Australia. To me, the problem was the sudden and massive increase in price while still not
being able to take direct control.

My assets increased through all of what was happening, and it end up becoming one of the problems. I
ended up with more money than I had started with, but so did a lot of other people who shouldn’t have.

The funny thing is that people want to say that I’m defrauding somebody. Yet I’m not the one asking for
money, and I’m not the one asking you to hold funds so that another can get out with a profit, and I’m not
the person who runs an exchange that acts as an illegal bucket shop and operates custodial funds that are
exchanged without full anti-money laundering compliance and without the traceability that is inherent in
money.

If I was to create some useless shitcoin or even to alter Bitcoin to incorporate aspects that allow criminals to
operate and that help the funding of organised crime (as it happened with BTC, Monero, BCH, and others),
they would laud me as a saviour. But I don’t. I want to create money that is traceable .

It is true, I don’t want an anonymous coin. When I created Bitcoin, I didn’t create something to be
anonymous. I wanted private , which is not true anonymity. When you are operating as I was, a sudden
increase in price becomes dangerous. If you can imagine an asset that was worth US$20 becoming worth
US$200 and imagine starting with a US$30 million investment, you end up with something that is easy to
take when it’s tied to just rights without traceability. If you imagine a system based on Monero, imagine
businesses trying to operate. My US$30 million became US$300 million. And I wasn’t ready for it.

I’m actually still not ready for it, but it’s here, and such is life. I’m not ready to take the mantle of my creation
and try to teach people how it can be used to create honest global money. To be honest, it scares me
shitless even now.

Now imagine that the US$30 million investment had increased in value over such time, even as you’re
spending it. I thought when I bought a US$6 million computer and paid for the hosting that I’d bought
something immense. I couldn’t imagine it at the time, even as I was living it. Later, I made a deal that was
worth more than US$15 million a year for computer services. The results of all of that will be known soon. I
started discussing them with people already.

I still don’t hold my money. The difference now is that I have better controls. There is no way anyone can
obtain anything from the trust without the conditions I have set to be enforced — not even if I wanted
someone to.

I don’t like the fact that I’ve had people steal from me. But it has taught me a valuable lesson. An expensive
lesson, but a lesson nonetheless. What I see now is that many others are facing the same lesson.

If Bitcoin isn’t used, it has no value. Not that it’s digital gold; there is already digital gold. Gold certificates
have been tradable online for decades. Digital gold works as real gold. The truth of the matter is that digital
gold is only valuable as a digital money-laundering asset. Bitcoin is only valuable when it is used
fundamentally as a ledger and as cash.

If somebody is telling you that bitcoin will go to the moon, he is scamming you.

Bitcoin will have value when it is used . When it’s exchanged, when it becomes a ledger records are stored
on, when it acts to secure networks by recording digital information and logs that cannot be deleted by
hackers, but most of all, when it’s exchanged as cash.

I own a lot of bitcoin. My trust has been set up for the benefit of others to hold bitcoin for purposes set now
and in the future.

I have more patents on blockchain technology and in particular Bitcoin than any other person alive . Yet I’m
not going to tell you that it’s going to moon . Those who are calling me a fraud, those who are doing the
best to manipulate data that I used to own, alter records further, disseminate bits of documents and other
orders, and even help those who took the remaining money that I had and continue to swap it into Monero
and Zcash; you could argue that they are committing frauds.

Those who want to take the original idea of Bitcoin and pass it off as somethi ng else without
acknowledging the fact that they have altered it radically and are continuing to do so, they are committing
fraud. Those people who tell you that bitcoin will go up just because bitcoin will go up are engaged in a
Ponzi scheme where they pump the price using wash trades and illegal procedures. They are frauds.

You see, the thing with a fraud is that you have to make money through the actions that you’re taking. The
simple answer lies in finding where the money is likely to go and who benefits — not in building a system,
but in telling you that the system is going to go through the roof. Which in itself is a crime. Unlicensed
financial manipulation and the use of social media to manipulate people into buying are a form of fraud. So
when we step outside of 1984 and have people who fear going to court calling out fraud, you can start to see
where the problem lies.

I want a system that is honest.

One of my favourite authors is Lewis D. Brandeis. He is the author of Other people’s money and how the
bankers use it .

“ If you would only recognize that life is hard, things would be so much easier for you .”
― Louis D. Brandeis

When people understand that unaudited want-to-be criminal organisations that act merely as a bucket-
shop exchange to allow the laundering of money posing as gambling are not use, they may start to
understand that Bitcoin is more. I didn’t create Bitcoin for it to be a new form of money laundering, and I
didn’t create it to be anonymous for the same reason. When people tell you that my creation is there to
democratise finance, what they are really saying is that they want a system without controls and
regulations. They want a system where the strong can take from the weak and the criminal aspects of
society can take away from the rest of us.

I’m not working on creating Bitcoin to make myself more money. I ’m working on Bitcoin to create a
system that tilts the favour towards honest enterprise and hold both governments and corporations to
account . A system that allows people to control their own money, not to gamble with it on exchanges that
act without regulation forming a means to allow people in criminal groups to launder their ill-gotten gains.
So post by post, I’m going to start talking about what is going to happen when I go to court. You see, in
court, there is a procedure and a set of rules, people cannot rely on falsified information, and I can’t argue
that I don’t want to say things because I’m embarrassed. So I gain in strength in a place like the court. There
are many things I don’t want to talk about. There are the losses I’ve suffered and the fact that I have to
admit that people stole money from me, the fact that I have to admit that people took my invention, did
everything to stop what I was working on from being possible, and made it part of an ongoing system. I
have to admit that the system I created that was honest and could be linked directly to know your
customer systems to simplify compliance is being used to help criminals. But in court, it’s not the lies and
the proof of social media that work; the laws of evidence work.
Economic Security
By Craig Wright | 22 May 2019 | Bitcoin & Blockchain Tech
Reorgs and orphan blocks are not an issue with Bitcoin. To say that they are is to compound two separate
issues. Firstly, can you double-spend a transaction and get away with it? Secondly, does a periodic orphan
block alter the scenario?

They are separate issues. More importantly, what is being suggested is that a rogue miner with most of the
hash power will be willing to risk a billion-dollar investment to make money defrauding people on small
payments. Such is the issue that is being debated. There is no such thing as 100% safe .

Core coin Dev team discussions captured on film.

One of the attacks on Bitcoin that is constantly made by the Sophists in seeking to create something utterly
unrelated to Bitcoin and use their straw-man argument as a means of attacking Bitcoin is the one around
cryptographic security. Bitcoin was never cryptographically secure in the way that they’re arguing. It’s not
designed to be. It’s based on economic security.

In exploring the matter, I will look at some of the fundamental aspects of Bitcoin where they misled people.
Firstly, orphan blocks are a signalling method in Bitcoin. When competing miners fork as a result of
discovering blocks at about the same time, the blockchain forks into two possible chains that compete.

Orphan blocks do not imply blocks without transactions.

Bitcoin’s protocol loads both blocks, the orphan chain and the one that you’re working on as a miner, and
will recursively process any orphan blocks that depend on the others. In doing so, it will seek out any orphan
transactions and include them going forward. Consequently, a transaction that is in one block will end up in
the alternative fork, too. If a merchant receives money from a transaction and sends it to the blockchain, the
same transaction will get into both chains. Miners are supposed to maintain the orphan chain in memory.
Where an orphan chain or an otherwise forked chain occurs, miners are supposed to keep both chains for a
period of time. They will take transactions that are valid in either.

Consequently, if two miners, A and B, discover a block at about the same time and start to propagate it in a
manner that has around 50% of the network following either chain, then a temporary fork will occur.

Such is how the protocol works. When such a temporary fork occurs, the transactions accepted by A & B will
mirror each other closely, though some differences in timing may apply. Here lies the false argument made
against 0-conf transactions within Bitcoin.
False Equivalence
Description : An argument or claim in which two completely opposing arguments appear to be logically
equivalent when in fact they are not. The confusion is often due to one shared characteristic between two
or more items of comparison in the argument that is way off in the order of magnitude or oversimplified or
where simply important additional factors have been ignored.

Thing 1 and thing 2 both share characteristic A.

Therefore, things 1 and 2 are equal.

Reorgs versus Double Spends

In reality, such is what is being argued.

Reorgs and orphan blocks remain a nonissue with Bitcoin. Saying they were an issue implies a false
equivalence; those making the argument for it are seeking to compound two separate issues.

· Issue one : can you make a double spend and get away with it?

· Issue two : are transactions lost or altered because of transactional forks?

In confounding the two issues, people seek to take the debate away from Bitcoin and into alternate
systems. Reorgs impact Omni-based systems such as Tether and Wormhole with a disproportionate effect.
A small reorg drastically alters the parasitic layer of the Tether system, messing up the security of Tether in
more ways than I care to list here. Basically, we are back to the Wormhole argument. When a fork and
orphan blocks occur, miners track transactions under the protocol from both forks. If you don’t get it, read
the original alpha code.

More importantly, what is being suggested is that a rogue miner with most of the hash power will be willing
to risk a billion-dollar investment to make money defrauding people on small payments. Such is the issue
that is being debated. There is no such thing as 100% safe . There is only safe enough , and it’s all Bitcoin
was designed to be. Of course, safe enough is hundreds of times better than the existing system. The true
argument here is around acting outside the law. Which is where people like those involved in Tether are
funding people in order to create something that is radically different to Bitcoin.

Such groups keep wanting to change Bitcoin because they want a system that is cryptographic and not
economic in nature. They believe it will allow them to act in a way that can’t be stopped by government.
That’s what the matter is always about.

When I made the following statement in 2010, we were talking about accepting transactions and spending
them without any confirmations:

If you’re requiring more than 0 confirmations, it’s nice if you show the current balance (0 confirmations) and
the available balance (1 or more confirmations), so they can immediately see that their payment is
acknowledged. Not all sites need to wait for confirmations, so the dual current & available should be
optional. Most sites selling digital goods are fine to accept 0 confirmations.

Nothing has changed since then.

satoshi on July 14, 2010, 09:10:52 PM

I anticipate there will never be more than 100K nodes, probably less. It will reach an equilibrium where it’s
not worth it for more nodes to join in. The rest will be lightweight clients, which could be millions.

At equilibrium size, many nodes will be server farms with one or two network nodes that feed the rest of the
farm over a LAN.

What has happened is that people have been misled to believe that something needed for an external
parasitic system like Omni means that Bitcoin itself is not secure. The fact of the matter is a badly designed
system that is designed with the sole purpose of enabling criminal money laundering, and Tether is being
used with other equally poorly designed systems as an argument as to why Bitcoin needed to change. It
doesn’t need change. There was a reason I said Bitcoin was set in stone, and in part it was to stop such
corrupting systems from becoming a part of Bitcoin.

Despite what some people will tell you as they seek to create a system that is friendly to crime and money
laundering, Bitcoin was always designed to end in data centres. It was always economically incentivised. The
equilibrium is a balance between commercial entities seeking to maximise their transactional throughput
and the cost of going to a provider. SPV wallets will create the majority of systems within Bitcoin. It’s always
designed to be so. Importantly, the thing people have to understand is that SPV is actually secure and very
simple. There is no need to validate the entire blockchain, which is just the call of those with tinfoil hats
saying that the whole world is out to get you. Reality is far simpler.

A Double Spend Is not Based on a Reorg

The following is important to note: You cannot base a double spend of a transaction on a block reorg. A
block reorg is a probabilistic matter. Block reorgs are basically the same as quantum events in nuclear
science. You can predict that they will happen, but you cannot predict when they will happen.
Consequently, you cannot predict when transactions will be ‘reorg’d,’ and thus you cannot use the same
argument to say transactions will be double-spent.

It is the part they fail to mention. A reorg and a double spend are different things. If you could tell exactly
when reorgs were going to occur and you had masses of spare hash power to force blocks onto the
network, a reorg would be an issue. But it’s not how Bitcoin works. Remember, nobody knows when a block
is going to come.

The other part of the matter is that the mining subsidy slowly disappears. Next year, the mining subsidy
halves in both Bitcoin and Core coin (BTC). Four years later, it halves again. Without use, the Ponzi that is
Tether will not support Bitcoin. Most likely, the Ponzi that is Tether will end in a massive messy takedown
with multiple life sentences being issued to the criminals running it. There is no other way to put it: Tether is
a massive global money-laundering scheme.

Even 0-conf is safe when done correctly in Bitcoin. The problem is that very few people understand the
system well enough to implement it correctly. It’s about using SPV and the network as originally designed.
When it’s used and used in such a way, it is incredibly secure. When people seek to alter the controls and
incentives within Bitcoin so that they can make a system that is more friendly to money laundering and
crime (as with Core coin, BTC), the incentives lead to a less secure system.

What I Really Said…

The argument is nothing new. Before Bitcoin launched in 2008, I had to argue with James A Donald about
the security . The argument hasn’t really changed.

In the emails with James Donald, we discuss what happens if a double spend is sent to the network. I’m not
going to talk about e-gold or Liberty Reserve USD or any of the other systems like the one Szabo was trying
to create, but about Bitcoin. None of the mentioned people ever wanted Bitcoin, because Bitcoin is not
crime-friendly. If you read the email thread, you will see that I was arguing that we detect double spends. If
you read the alpha version of the code, you will note that orphan transactions are recorded and monitored.
The code didn’t do it terribly well, but that doesn’t mean you abandon it as people seem to want. We need
to check the network for double spends. You don’t fix double spends, you detect them.

0-conf is safe if you detect double spends.

You do so quite simply. You pole a random selection of nodes. The method works very well as long as you
accept that nodes are commercial entities. When you stop trying to make nodes Raspberry Pis, the system
can actually work.

As it says in my early writings, as transaction fees are used to pay miners, nodes have an incentive to include
all the paid transactions they receive. They can accept or reject free transactions as they will.
Bitcoin was never about non-repudiation. I’ve said so many times, too. It’s about fast secure payment and an
economically incentivised information ledger. As I said, transactions can be sufficiently irreversible in an
hour or so. That is, any transaction.

So, if you monitor and validate the network, the matter is not an issue. The counterargument that a big bad
miner will work to incorporate hidden blocks and transactions is ridiculous. It is the argument that a miner
will create specialised mining software that actively seeks to create fraudulent double spends and hide
them from other miners on the network. It would need to monitor all other systems, maintain and
broadcast the correct transaction and not the double-spent one, and then send out the double-spent
transaction. If the criminal miner was hiding a double-spent transaction in the hope that they would create
a block that contained it, they do so probabilistically while simultaneously leaving a huge evidence trail. An
evidence trail that would allow both legal action for recovery and criminal action. The anti-government
tinfoil-hat brigade needs to start thinking and stop considering an anarchist world because it’s not what
Bitcoin was designed to be.

Yes, many of the early people I was in communication with are anarchist in nature and are likely stockpiling
weapons as they put their tinfoil hats on, preparing for the government raid that they will blame on aliens,
but the reality here is that such a world was never the argument for Bitcoin. Those such as James Donald
sought a system that was radically different to Bitcoin. The same people are now involved with creating a
broken system such as Core coin (BTC).

I didn’t make it clear enough when I was talking in 2008, but it’s very simple: If you detect a double spend,
you wait before considering the payment valid. Here is the very very simple path to follow in determining a
transaction:

1. The merchant sends a transaction to the network. If Alice and Bob are contracting and Alice is
paying Bob for services, then Bob sends Alice a template and she signs it. Bob then propagates it to
the network, not Alice.
2. The merchant waits a second or two, and polls the network . Bob sent the transaction, and knows
where and when it was released. He can check for any transactions from Alice’s address before he
propagates, and after the transaction has been propagated, he will check again. By doing so, he is likely
to verify any double-spend attempt very quickly. The only way that Alice can double-spend against Bob
is to criminally collude with a miner where the same miner knows that Bob has evidence that would
apply in a criminal case.
3. The merchant considers the transaction secure if no double spend is detected . Where Bob has
checked the network and found that no double-spent transactions have been propagated, he can
safely conclude that his transaction is safe.
4. The merchant detects a double spend . Here, Bob has detected a double-spent transaction from Alice.
The process occurs in seconds. Bob can choose to wait and see if his transaction is confirmed or if the
transaction from Alice which double-spends his goes through. In both cases, he has evidence of
criminal fraud and can take legal action against Alice. Importantly, he has still lost no money and even
has a potential gain — in case Alice seeks to flee.

Here is the point: As I said in 2008, the only attack is double-spending on the network, and then…

Even if a bad guy does overpower the network, it’s not like he’s instantly rich. All he can accomplish is to
take back money he himself spent, like bouncing a check. To exploit it, he would have to buy something
from a merchant, wait till it ships, then overpower the network and try to take his money back. I don’t think
he could make as much money trying to pull a carding.

You cannot do a protocol change even with 51% of the network. Even SPV nodes will reject your chain, and
all you are doing is creating an airdrop copy of Bitcoin. Bitcoin is not designed to split. If you copy it and
release a fork with different protocol rules, it is not Bitcoin.

An attacker has only one attack, which is to attempt a payment fraud in trying to recover the money that
they paid. The other attacks that are claimed all the time do not apply to Bitcoin. They apply to systems like
Core coin (BTC).
SPV
I didn’t have SPV working when I first launched Bitcoin , and I’m glad that I didn’t.

I’m glad because SPV is utterly critical to making Bitcoin work and scale. And the thing is, nobody got it. As
simple as it was, as many hints as I tried to give people, in a decade nobody came close. So consequently,
one of the most critical parts of Bitcoin is covered by a patent. Like it or not, there is no way to make Bitcoin
scale and work without SPV. And it will only ever come to Bitcoin, never be on Core coin.

“ When once a banker has entered the Board — whatever may have been the occasion — his grip proves
tenacious and his influence usually supreme; for he controls the supply of new money .”
― Louis D. Brandeis, Other People’s Money And How the Bankers Use It
Shades of Black…
By Craig Wright | 24 May 2019 | Bitcoin & Blockchain Tech
If you believe the government cannot stop any cryptocurrency, you’re deluded.

Bitcoin will work because it stays within law in a manner that allows most nations to set policies. Bitcoin
doesn’t help corrupt governments; to such governments Bitcoin would be their worst nightmare. But when a
country follows the rule of law , the one of accountability, open government, accessible and impartial judicial
resolution, and stable just laws; Bitcoin can help promote a better society.

If you trust in yourself. . .and believe in your dreams. . .and follow your star. . . you’ll still get beaten by people
who spent their time working hard and learning things and weren’t so lazy.

― Terry Pratchett, The Wee Free Men

It is not an anarchist system — nor one that allows people to breach the rules that are set to create a stable
world.

Where people can bypass the rules of their government and act as criminals, trade and the economy shrink.
It is not the introduction of banking that causes business cycles, it is the imposition of rules that change
partway through the game causing uncertainty coupled with fraud and crime. Schumpeter discussed the
nature of business cycles demonstrating in part the capitalist forces of destruction that bring change. Yet,
such is but a small part of the cycle and is rarely unable to be predicted. The majority of the loss, because of
the pump and growth and the subsequent collapse with all of the inherent loss that is attached to it, lies not
in the dynamical change of the capital system but rather in the associated fraud and crime that come with
the misunderstood change.

There is no system that cannot be stopped. Bitcoin can work as it works within the rules. E-gold, DigiCash,
Liberty Reserve, and many others have tried one and the same thing in the past; they have allowed people to
bypass anti-money laundering (AML) rules and facilitated crime. All of them have been stopped. Bitcoin
needs to act within the rules. If it does not, then the exchanges and systems that allow people to use Bitcoin
act to stop it being widely used and disseminated and criminalise all of those in the system.

If Bitcoin or any other monetary system seeks to act outside the rules, it becomes an outlaw system, and once
it does, it is easy to stop. The majority of people want rules. They don’t want to fight in a world of uncertainty,
and want to know that the contract that they have conducted will remain valid not just now but throughout
the term of the exchange — for which we need rules.

When a system includes exchanges that act outside the anti-money laundering (AML) provisions, it is simple
to stop. Liberty Reserve and e-gold acted outside the rules, and they are no more. In coordinated takedowns,
the criminal-friendly organisations were stopped dead in their tracks. Individuals were prosecuted not only in
the US but in over 30 countries. In fact, with Liberty Reserve, individuals were prosecuted by the US in a
country that did not have an extradition agreement or treaty rights with the US. It is important to understand
that facilitating crime is a dead end. You cannot create freedom through crime and fraud and money
laundering.

I designed Bitcoin to be a system that worked within the rules.

If you run an exchange, it is not decentralised. If someone tells you that they have a DEX or decentralised
exchange that is above the law, they are defrauding you. Exchanges end up centralised but in competition
with each other, such as the New York Stock Exchange and the NASDAQ, because it is efficient. The sole
reason for a decentralised exchange is to break the rules. Yet it cannot exist. Any “decentralised exchange” is
managed and controlled, and can be manipulated, and so it is not a decentralised exchange. When an
individual has power over a system, it is not decentralised.

In a system like Bitfinex or Binance, an individual sets the rules and an individual is liable.
It does not matter how many countries an illegitimate bucket-shop organisation may choose to jump
through in a vain effort to find a temporary safe harbour; such criminal groups will always end in legal
sanctions.

I designed Bitcoin in a way that ensures that groups such as Binance who seek to facilitate money
laundering and crime will always fail. They defraud you in telling you that they are decentralised and cannot
be controlled. A blockchain is only decentralised when the developers and those in charge of the protocol
cannot change the rules. Bitcoin is a system that was set in stone. If the protocol is changed, then it shows
and demonstrates it is not Bitcoin. When those involved altered the rules, they impacted their entire
ecosystem — it is a centralised power structure. They defraud you when they lie about decentralisation and
tell you that they have no ability to change things but then alter the rules. When those in power are able to
change the protocol, they can change the lives and the finances of those involved in the system at an
arbitrary whim. It is why BTC is not Bitcoin.

The developers behind BTC are seeking to make the system more friendly to crime. They are actively building
changes that will make BTC more anonymous and take it further away from the path of Bitcoin. The same
developers seek to create a system that will allow fully autonomous ransomware that will never lead back to
the developers, allowing criminals to take money and exchange it for other funds with impunity. They think
the fact that they are on a blockchain will allow them to do so and that they will be able to do so without
government being able to shut them down. They are deluded.

Where a blockchain does not follow the rules, whether developers or other invested parties can alter the
protocol, it is simple for government to stop. When the action happens, as it did with e-gold, everything
invested in the system will vanish in a flash. When BTC disappears, it will not disappear slowly, it will disappear
in moments.

When this occurs, know that there are individuals responsible as it is not decentralised. Core and
Blockstream set the rules. They issue the code, and allow it to be changed. As such, they are in control, and
they are liable for the loss. If you hold BTC, when they make a change and the price plunges because it is now
an illegal asset, and when the changes occur that make BTC cross the line that will force the US government
to take action, as they will shortly with other assets such as Monero and Zcash, understand you have a target.
The developers are all liable, and can be held accountable for your loss.

This is part of decentralisation. Where a developer has power, he remains liable. It is only on a fixed protocol
where those involved act within the rules, but the rules allow people to act outside of liability.

Bitcoin gives us the ability to more directly focus government to deliver a just result. With information, we can
create a system that is fair, open, and honest. A system where all individuals are accountable and unable to
alter the records used within the system, allowing us to review and audit and hold those involved
accountable. Which is what many fear. In a good system, it is government and privacy which form a system,
and it is only where fair rules are enforced where all are equally accountable under the law. Such is what I
sought in creating Bitcoin.
It is a system that allows all people to view the laws and take action. It is a system that rewards those who
participate and gives no excuses when others fail to act. In such a system, it is only where fair rules are
enacted and administered through an engaged population that we can be certain of the world that is open
and equitable for all. It requires work. We cannot sit on our laurels or even expect others to deliver when we
choose not to engage.

Bitcoin, importantly, allows free government to compete. I did not want a system that would block any
country from enacting rules that it saw as being fair and that did not impede those of another country. I
wanted a system where a country that allowed gambling for its citizens, which another may consider
immoral yet is common practice in the respective society, would be able to engage in such activity. A system
that does not encourage activities that represent legal (but some would say immoral or illicit) activity
underground which promotes and breeds crime is to be desired. I sought Bitcoin as a means of bypassing
repressive legislation allowing countries to compete on their merits.

Bitcoin does not remove the need for government, nor of courts. It enhances them, and gives the power back
to the people who act within such a system. Where the people of a system can impose constraints on their
government and limit the powers of the forces within them, we can seek to be free. Where there is absence
of corruption and the ability for individuals to audit the records of government and organisations and bring
sunshine and light into the accounts of businesses, government organisations, and commissions, we have
the ability to be free.

Where people can vote knowing that what they say carries weight and cannot be altered, where people vote
knowing that corrupt officials cannot change the results and cannot influence them to vote against their will,
we have a chance to be free.

When we have order, where crime is minimised and fraud punished, we can have security and we can have a
chance to be free. Where regulations are not arbitrary and are available for all people to view and where the
cost of regulation can be seen and debated and enforcement is fair, we have a chance to be free. Where
criminals are defined through rules that are set in advance through an open system that does not impinge
on the fundamental rights of individuals and where people can review and vote on such a system, we have a
right and a chance to be free.
Where informal justice can be conducted in a manner that acts within the laws allowing individuals to
negotiate settlements and solutions through arbitration and mediation without having to always resort to
the courts, we have a chance to be free.

Bitcoin does not help money launderers. It does not help corrupt officials. It does not help those wanting to
stop the vote of the majority in a population, nor the corrupt who seek to manipulate results for their own
ends. In Bitcoin and the system that I brought into being, we have a chance to be free.

But if we want to be free, we cannot just trust in the system, nor can we just believe in our dreams. If we seek
to be free, we need to work and study and learn. In doing so, we can find a path in the pursuit of happiness. It
is not a promise, and it may not come to fruition, yet it is a path we can follow at a high cost. Freedom comes
at a cost, and if we want to build a world that we want our children to live in, then we need to work to create
and not rely on the effort of others.

Possession of a key is not evidence of ownership. It was never the intent of Bitcoin. It is the intent of people
like Greg Maxwell, James Donald, and others who seek a system that acts outside the law. If you have a stolen
asset, possession doesn’t make it yours. It applies to Bitcoin equally. If bitcoin is stolen through stolen keys,
they do not give the receiver ownership. They do not act as proof. In monetary law, money is fungible and
transferable only when it is exchanged without knowledge of fraud or malpractice and for good
consideration. It is critical. To be money, Bitcoin does not rely on the mere possession of keys, which is the
aim and desire of those seeking a new version of Liberty Reserve coin or e-gold. There are some who will tell
you that the mere possession of a key is definitive evidence. They are avoiding the rules of evidence and
courts, and seek to alter their nature. They seek a precedent and to change the narrative to one that favours a
more anarchist approach.

I will sign after I have definitively proven I created Bitcoin. Not before. The problem with the so-called
“experts” is that they have no expertise. They seek to create a narrative and change reality such that it aligns
with their beliefs, and believe that doing so will make them experts. Bitcoin is not bit gold, and it never will be.

‘Doing anything you want’ is not a system that is free. Freedom comes within society, and it comes with rules.
The GST Story
By Craig Wright | 29 May 2019 | Bitcoin & Blockchain Tech
The following is why you do not pay VAT or GST on Bitcoin.

In January 2014, the Australian government argued that GST should apply to Bitcoin. With the help of
Clayton Utz and a senior partner of the law firm, I applied for an offset based on the strange scenario of
having GST on money.

There is a refund system called the Tourist Refund Scheme.

I took around 31,000 XBT, which was valued at around AU$30 million, and used the private ruling system to
force the government into making a decision as to how they would treat Bitcoin and to show them that
placing GST on money was rather insane. It was a two-step process. I put a purchase order in to buy the
bitcoin from overseas. It resulted in a $3 million goods-and-services liability. I then took the money out of the
country and into Singapore, which was done within 24 hours, and as a result exchange-fluctuation effects
were negligible. Moving the money out of the country resulted in a GST claim totalling $3 million. With the
price fluctuation and other aspects, it resulted in what would have been a net loss of around $50,000 for
myself personally. Which doesn’t include the cost of travelling to and from Singapore to do so.
1. On 10 January 2014, you made a claim under the Tourist Refund Scheme (TRS) for your acquisition of
rights to a Bitcoin wallet, from Hotwire Pre-Emptive Intelligence Pty Ltd (Hotwire).

It was a rather surreal experience; the poor guy at the counter of the tourist refund centre did not know
what to do. The computer had a field in the database that had a maximum value of $9,999,999.99, and he
could not enter the amount that I was taking. The purpose of such an exercise was not to get a refund. It
worked exactly as I’d hoped. It’s not always good to poke a bear, but it needed to be done; the imposition of
GST on Bitcoin was ridiculous.

The public-ruling database of the Australian Taxation Office (ATO) has the anonymised version of my claim.
In looking at it, the tax office quickly realised how easy it would be to abuse the GST system if GST was
applied to Bitcoin. Which was of course the point I was trying to make. Unfortunately at the time, I was a
rather brash individual, and rather than allowing my lawyers to deal with the matter correctly, I pulled such
a little stunt to force their hand. It did. It was very quickly considered and rejected out of hand. The invoice
leading to a debt was reversed, and had to be re-entered without GST. So effectively, I bought and sold
bitcoin to myself over the border, and the result was that the Australian government rejected imposing GST
on Bitcoin. In 2013, we had been discussing the same matter in roundtables and at conferences. I’d met with
commissioners and the deputies, and we had been getting nowhere. It was actually looking as if they would
impose GST. Rather than spending years trying to focus an effort, I chose the quickest and nastiest way of
making them see just how foolish such a thing would be.
So no, there are matching invoices for the negative and positive, and there was nothing in my advantage as
a result. All up, the exercise cost me around AU$50,000. So, for all of you have used bitcoin between 2014
and 2017, the fact that you haven’t been paying GST on it is something you can thank me for.

The people in the tax office were not appreciative. Some of them felt that I’d been making a fool of them,
which was not my intention; rather it was just to get them to see how foolish GST on money would be.

Research and Development Tax Incentives

To debunk another myth, in the Australian 2014–2015 tax year, we had a group of companies who together
had a turnover in the order of far more than the Australian government allows for rebates .

Unfortunately, and as a result of many seeking to defame me, some failed to understand the distinction
between the offset and the rebate of R&D tax purposes. Back before it was publicised that machines I was
running also handled gaming operations, SGI had been happy to be a part of everything . You see, US law
precludes companies such as SGI from selling to organisations that are involved with Internet gaming . They
have export-license restrictions — which can be bypassed using grey-market sales techniques. Then, large
companies like SGI don’t like to be associated with such publicly.

What people fail to understand is that a turnover that would be large enough to obtain a tax rebate of more
than $20 million means that you are not eligible for the offset. You do not receive a direct cash payment, but
are able to offset other taxable income.

In my case, I would have been able to make a sale of bitcoin and intellectual property assets and use the
deduction to offset the amount. As such, I could have made a foreign sale of $20 million, and instead of
having an associated corporate tax bill of $8 million in the company and a capital gain of $10.5 million, I
would have been able to utilise the offset to sell bitcoin and other assets and minimise the amount of tax I
had to pay. Effectively, if I’d sold bitcoin and bought assets back into Australia, the tax regime at the time
would have left me with $1.5 million in cash for a $20 million sale. So for those who don’t like to think, what
you will find out is that there was never any money coming back from the Australian government. Using the
R&D tax scheme would have enabled my company to have continued within Australia rather than having to
move to Europe. But, Internet trolls really like to check facts.
Satoshi and Science
| 30 May 2019 | Alternative Coins & Systems
By Craig Wright
The scientific principle applies in all aspects of life, including jurisprudence and law. It has done so for a
long time . Generally speaking, the scientific principle is applied in the methodology followed below.

Step 1 : Question. The “thing” that you want to know.

Step 2 : Research. Conduct research.
Step 3 : Hypothesis. Educated guess or prediction of the outcome experiment.
Step 4: Experiment. Test the hypothesis.
Step 5: Observations. Data you collect during the experiment.
Step 6: Results/Conclusion.
Step 7: Communicate.

Those seeking to discredit me are going to find out the hard way how law works. I don’t need to give
more than I need to give as evidence. Bitcoin isn’t ‘code is law,’ it is not about replacing courts. Rather, it
augments them. People don’t want me stepping into court in seeking to prove I created Bitcoin because
it robs them of the narrative. I’ve had enough of people taking my invention and twisting it into
something corrupted and rotten, and it’s not going to continue. They are going to learn what Bitcoin
was and is really about. It is about the opposite of Liberty Reserve. It is about the opposite of e-gold. It is
designed to rip apart and end forever everything that such systems promote.

I’ve said it before: careful what you wish for.

I’m not good with people and not good in groups, which is part of why I vanished in 2015 as I was
uncovered. No, I did not make a claim in 2015; I vanished, others made the claim. In particular, people
such as Greg Maxwell worked to ensure that I was outed in a way that would make me disappear. But I
grow and learn, I am stepping up, and I will take responsibility for my invention and make sure that the
crimes that such people are helping are uncovered.

Bitcoin isn’t some immutable system that acts outside of the law. Such is what criminals want, and it is
not what I developed. If you think blockchain helps you make a criminal system, one that cannot be
stopped, then you are absolutely stupid. Bitcoin is about the same as having a bunch of law enforcement
officials that are incorruptible walk behind you every step of the way any time you want to create a
crime. When you’re acting responsibly and within the law, they are not there. When you seek to scam
people, to engage in fraud, it is a system that will record your actions.

I’ve said many times that Bitcoin was set in stone. To be decentralised, it requires a stable protocol. In
fact, as I have said, “ the only job the network needs to do is to tell whether a spend of an outpoint is the
first or not .” Nodes don’t set protocol changes, they choose to enforce existing rules and can put limits
within such rules. No more, no less.

What you are going to discover is that I am pro law and that there is no anarchy in Bitcoin.

I’m choosing court as a means to prove my identity as it is the correct place to determine truth. If you
believe the truth is obtained through a key, then you are seeking something other than Bitcoin. Which is
what people such as those who created Silk Road wanted. They are the ones who took my invention and
tried to flush it down the toilet and ended up getting 1% of what they deserved as a result. And yes, I
believe they got off easy.

It’s remarkably funny how people keep quoting things that I didn’t say or that are taken out of context.
Some of the so-called quotes attributed to me are not what I said, rather comments I was rebutting.
There is no single quote in existence from my time when I acted as Satoshi that is anti-bank, that is anti-
government, or that is anti-court. There is nothing in my entire time talking to people that can be taken
to be even remotely anarchist. Yet people cherry-pick parts of a statement and twist it maliciously to
create something that BitCoin was not.

My code was always covered by copyright. It’s right there in the initial version. The © marker means that
I expressed copyright and intellectual property law from day one. I did not bypass and give up copyright.
I allowed licensing of the code. And even that does not cover passing off. Ethereum, as much as a dead
end as it is, is not passing off trying to be Bitcoin. Litecoin, as much as a childish representation of the
system it is that follows any stupid change, is not trying to pass itself off as Bitcoin. BTC is. It split, and
resulted as an airdrop copy that has fraudulently been using the name of Bitcoin from 2017 on.

The aim of all such changes and the fraudulent airdrop is very simple: it’s an attempt to make a system
that acts outside of law, allows terrorist funding, and helps many other scams and frauds. That’s it. And
the thing is, it’s very very simple to stop. People are going to wake up one day and not find that the
value of their BTC investment is diminishing, but that it is zero. When such types of crime coins end,
they don’t end slowly — they end in an instant. One moment you will be looking at US$8000 per coin,
the next global trading will be suspended. More importantly, miners who seek to violate such orders will
find themselves incarcerated, and they will find their equipment seized. They will be allowed to stop
mining BTC and continue mining other coins. They will then simply move from scams such as BTC onto
Bitcoin and recover some of the losses. It is, of course, why the scam-coin (BTC) developers at Core seek
to try to manipulate the system and remove miners — they want to make it harder to stop, but the
problem is: Bitcoin is resilient to what they intend to do. The crime-coin attack is one of the things I
spent years working on stopping.

In court, I get to put up evidence. If any of it was falsified, people could point it out and I would go to
prison. Unfortunately for the crime-coin developers, there is nothing I will be submitting that is
fraudulent. Bitcoin (BSV) is a single system. There are no splits in Bitcoin. Bitcoin is the original system,
and is designed such that a transaction signed in 2009 will be valid in 2150. I don’t really care what
Ethereum or Litecoin does, they have little to do with my invention other than being poor copies.

You are going to have to put up with me as Satoshi, and I don’t care if you like it. It’s very simple: there is
no evidence you can ever propose that ever contradicts anything I’ve said, and there never will be.
There’s not a single post that I made as Satoshi that conflicts. In 10 years, my personality has changed a
little, I’ve grown, and I’ve learnt much more. I have been angry and gotten over it, and like everyone, I’m
older but still the same person, and I still believe in a world of law and order. That is, a representative
democracy. A system without fraud and a system where people can live without fear. It opposes
anarchy, and I will never support a system that acts allowing the strong depression of the weak.

The true market of BTC is zero. When it’s stopped, it will just end. You know how much e-gold is worth
today? Zero. Liberty Reserve US Dollars? Zero. You see, here lies the bit people don’t understand. As soon
as a system of such kind starts to move outside of the legal constructions that allow it to operate, it
stands on a foundation of watered sand and will eventually collapse. When it collapses, it can never be
recovered. When you understand this, you will understand why I created Bitcoin to act within the law.

Because I backed away from publicity, people were able to defame me, to libel me, and to get away with
it, but no more. People will learn the hard way that I don’t need to jump through what they say I need to
prove. Code is not law, and it will never ever in the entirety of the universe even slightly resemble law,
because it is a childish dream by people who cannot think beyond the realm of eight-year-olds. Law is
flexible and grows. The common law has been created over centuries, and exceeds anything that some
prepubescent seeking to make a distributed system without knowledge of anything about how the real
world works can be.

The takeaway here is that I’m going to clean out the cryptocurrency space whether you like it or not.

If you want to pretend to be Satoshi, I will see you end in prison. This is the thing, this is how evidence
and scientific principles work. It doesn’t matter whether I give you what you want, it’s not a falsifiable
claim. I have a claim that I am Satoshi and that I created the white paper. It is potentially falsifiable and,
if I lied, may be disproven. In court, there are consequences. I’ve made my claim under oath. I have sworn
it in a court of law. If it turns out that I’m not, I will face 20 years in prison. The thing is, it will never
happen, because I am the creator of Bitcoin.

Alternatively, the way I’m going to clean up the space is to force every single person involved in the
space to either swear they are Satoshi and created Bitcoin or back down and apologise.

If they claim to be Satoshi, it is a falsifiable premise. That is scientific. Here’s the thing: I don’t need to tell
you what I will do in order to discredit any particular individual at any particular time. Bitcoin is based on
game theory. Like poker, my cards are kept close. Some want me to tell what my holdings are, how
many bitcoin I have, when I can spend them and how. I won’t. When you see it coming, it will be too late.
You won’t get notification of the end. You’ll wake up one day, and BTC will be trading at zero.

Please note, this is not market manipulation, it is truth. I am pre-warning you. I’m the one living in a
jurisdiction — unlike conman John — that allows extradition, prison sentences, and law. I’m not hiding.
When I act, and eventually I will, BTC will not ever be called Bitcoin again and people seeking to do so
will be shown to be the fraud and scammers they are.

If you think I’m joking, if you think I’m not serious, if you think that I can’t prove what I’m saying, then
I’m going to be looking forward to meeting you in court. And I’m not going to give more than I need at
any time. I will give the minimum amount of proof to ensure that I win, and no more. I’m going to take
pitiful people like Peter McCormick apart, as sad as it is, because of their stupidity and as a lesson.
People are going to learn that you cannot lie and cheat and defame people without consequences. In
time, if I have to, I will work one by one through every person in the BTC community, until they all either
wear orange suits, apologise, or disappear. No exceptions.

I don’t care if you privately want to believe me or not. If you think it matters, you don’t understand
Bitcoin. I have reason for doing things the way I do them, and I used an MIT licence as it is patent-
friendly. I intentionally did not use other open licences as they oppose intellectual property licences. I
expressed copyright on my authorship from 2008.

The mere signing of a key is not evidence, and such was never the intention of Bitcoin. In fact, escrow
can incorporate the introduction of contracts linked directly to courts.

The process of what’s going to happen is that I’m going to make people like Roger Ver, Vitalik Buterin,
and the Core team stand up in court and formally apologise or be in contempt. They can work out how
long you get to stay in prison when you’re in contempt and choose when they want to come out of the
orange jumpsuit and apologise. You see, I don’t care whether you believe. Belief has nothing to do with
science. You could say that you don’t like me and that in your opinion I haven’t given strong enough
evidence, which sorts of things are legal and covered under free speech. Lies, defamation, and hate
crime are not covered under free speech.
So all of the frauds out there claiming that they had worked with me are going to find that I’m going to
discredit what they say. I’m going to do so in court, and I’m going to do it in such a way where they
never dig themselves out. I’m going to make sure that anyone anywhere on earth will see them and
treat them with scorn. They are criminals, and they deserve to be treated as criminals.

Some people seem to think that I had to come out there when I was exposed and do what the media
demanded of me. What you’re going to learn is that you don’t make demands of someone you want
something from. You ask politely. You don’t need to like me. But Bitcoin and blockchain are my system.
They act within the law, and are bound by it. You’re going to discover that decentralised only works for a
blockchain system as a concept where it acts within the law. You’re going to discover that anonymous
systems cannot act within Bitcoin. You’re going to discover that Bitcoin allows free speech but not hate
crime. You are going to discover that Bitcoin doesn’t allow trolls to continue to operate with impunity.
You’re going to discover that people who aid in hacking and compromising systems and people like
Greg Maxwell are the opposite of what Bitcoin creates, and you’re going to discover that such people
who run the sock puppets and manipulate social media and lie and seek to create systems that
undermine law are the antithesis of what Bitcoin was designed to be.

You get your day in court. You get to make claims about how I lied. Then, I get to show how you were
spreading false information and that nothing you’re bringing up is true.

After doing so, you apologise. Such is how truth works. Such is how the legal system works. Fools such as
Mr McCormick who think that they have something on me get to learn that they don’t. They get to learn
that there is a cost of calling people out using false information and that when you defame people and
when you enact a slander and a libel, you get to pay and face the consequences. The reason we
extended Mr McCormick’s time to respond is that I want him in court. We can force him using default
orders right now, but I don’t want that. I want him to stand in court and put up with his lies, and then I’m
going to tear every one of them apart and show every falsehood that he is basing his claims upon to the
world. And when I’m done, I’m going to go through each and every other scammer in the space. I’m
going to find every cowboy with a hat and no swagger and get him to understand what Bitcoin is really
about.

Yes, I am Satoshi Nakamoto. It was my pseudonym when I created Bitcoin. I was not a group, I did it
myself, but I had help from other people. Everyone has help from other people. When I asked people to
give me advice, they did not become part of the authorship. When I asked people to talk to me about
my project, they did not become the project. Those who helped code in 2009 and 2010 were valuable and
I needed them, but they are not Satoshi Nakamoto ; I am, and if you don’t like it, I don’t care.

If you wish upon a star, and you trust in yourself and you believe in dreams of a connected society, and
you believe that decentralisation will set you free, and you think you don’t need to go to university to
study, and you don’t work hard and study long hours, when you are going to get beaten by people like
me who work, who study, who sacrifice and learn, then you are only going to find that the world allows
you to seek happiness, but it doesn’t promise it.

Trust-less and Permission-less

Bitcoin is trust-less only as far as you follow the rules and stay without changing the protocol. Bitcoin
acts without permission as long as you stay within the rules and don’t change the protocol. There is
nothing stopping you from creating a new script. As long as you work within the existing system and the
rules, it’s allowable. Bitcoin is trust-less as long as you act within the rules.

If you act within the rules and Bitcoin, you can do so without trust. As soon as you change the rules, you
enter into a realm where you need law and trust. Bitcoin only works within the common law
prescriptions that I designed it to work within.

ICOs and associated scams are not how Bitcoin works. Such are systems just like e-gold and ones
promoted by Liberty Reserve. They are the realm of frauds and scammers. People will tell you that it’s
democratising finance as they are doing so to take your money without facing rules. They want to
defraud you. There has not been a single valuable ICO in the history of Bitcoin. There will not be a single
valuable ICO in the history of Bitcoin. Organisations like registered regulated exchanges will find that
Bitcoin creates a platform that enables savings and that it speeds up operations and reduces losses.
Bitcoin does not replace them. Bitcoin does not remove trust from systems such as ICOs. Only conmen
and fools say otherwise.
From the Bygone Days of Yore — Part 1
By Craig Wright | 03 Jun 2019 | Bitcoin & Blockchain Tech
In today’s post, I will go back to 2012: Panopticrypt had been running since 2011, and I was ready to start
moving some of my research into the mainstream. I’ll detail Strassan PL in a later post, as it was fairly
separate to Hotwire and related companies. In September of the same year, I started moving forward with
consolidating assets that I had in a number of overseas companies and intellectual property that I was
developing within Australia. I used a number of law firms back then as I do now. Problems generally occur
when you put all your eggs in one basket for services. I don’t have all the records that I used to have, and it’s
been quite some years, but we have been digging through old records because of the existing cases.

I called people together that I had known in late 2012. Steven McLaughlin was a friend that I’d come to
know through Charles Sturt University. I had been both a postgraduate student and a lecturer, and Steven
had taken some of my courses. Some of the other people at the meetings in 2012 included Jamie Wilson,
Robert Urquhart, Dave Kleiman over a video link, and my lawyers who were dialed in, too.

Steve was one of these silly buggers who would get up and go surfing in Bondi early in the morning. He is
one of the reasons I originally had breakfasts over on Monday on the beach or at least across from it and
quite a few drinking sessions at the Bondi Icebergs Club. Essentially, I invited people I knew and thought I
could trust as a result.

I told them I was forming a group of new companies to use some of my intellectual property and assets in
creating what I hoped would become a global financial conglomerate one day. At the time, I still believed in
some form of consensus in the organisation and thought that they could lead people without having to just
tell them what would happen. The people I selected were not suited to the roles. The primary meeting to
start it all happened in my house in Gordon. All I can say is that it was an eye-opener. Following it, I’m much
harder, a different person.

Steve taught me that when you had people who were existing friends, you shouldn’t leave anything
nebulous. I brought Steve into the group to run IT security and set up systems. My intention was to have a
number of related companies that would promote Bitcoin in many ways. One of the things I’ve talked about
is the ability for Bitcoin to be used as an immutable evidence trail. I proposed part of it in the company
group structure, and wanted to build it. Hotwire would have been the head company of the group, and
everything else would have had its individual area attached to it.

We’d sat around and talked about all of it in October 2012, discussing how a variety of different ideas would
be brought to fruition.

All started under the umbrella of the companies that I had at the time. I told the people there that they
would be given shareholdings and a wage. All of them were interested except one who left early in the
process. I wanted to leverage the capabilities of Bitcoin not just as money but in a number of different ways.
Many of the same ideas are now forming the basis of patents that I am creating with my team at nChain.

Steve had the role of integrating firewalls and IDS, and I wanted him to be able to use and leverage Bitcoin. I
wanted Bitcoin used as a means of proving the probity and integrity of firewall, IDS, and authentication logs.

All of the intellectual property originated with me.

All of the capital used to fund everything came from my personal accounts in Australia and ones held
overseas.

Ones in the gaming industry will remember a part of why Bitcoin was created. There is a day called Black
Friday in the gaming industry. The US government started sanctioning and closing gaming operations.
Some of them were my clients. All of the companies I dealt with such as Lasseter’s Online were licensed and
legal within their jurisdiction. Which did not stop them from being shut down. Those that weren’t shut
down were shut out of the international payment system. It was a means of controlling what was a legal
industry. Restricting the ability to stop legal trade enacted in a to the US extraterritorial company was not
something I agreed with, and I still don’t.

Steve was there in 2012 as I talked about creating a new set of companies.

I gave him an offer. He could become part of the company group, be brought in with a salary and a
shareholding, but what I needed was something to be created. I had asked for an implementation of syslog
that would save directly onto the blockchain. There was a multilayer concept here. The hash would be
stored in Bitcoin transactions, and then a second-layer chain in the form of something like Namecoin would
hold the full but encrypted records. In such a way, we could have an immutable access and storage table for
all of the logs and an immutable marker within Bitcoin itself even in the early days. Steve chose not to do so.
He chose to build a system based on existing ideas and products and existing databases, and told me that it
would be a better, more saleable concept. We could offer IDS as a service.

I told him every man and their dogs would do so and that I didn’t want to be involved in such a sort of
service business. I reiterated what I needed from him.

The system I envisioned would use the blockchain as a means of controlling sensors. When I told people
that I wanted a blockchain-based system, I meant exactly what I said.

I had set up a Hadoop database, and had started implementing SSH and IPsec integrations using Bitcoin
keys. Steve had started working on a solution to a problem associated with a customer he was working for,
the New South Wales ambulance. Steve had built a good extension of IDS based on the open-source snort
project in October 2012. He continued with the project while working on the solution for the New South
Wales ambulance, and told me that he could get a system built to the specifications that I’d asked for. The
important aspect of it to me was a system that used the blockchain to send and receive from sensors. It
would log all access to and from the root console directly into the blockchain. I had about zero interest in
taking an existing product and finding a better management interface. You cannot take a business of such
sort and scale it. You can’t create a patent on a process and a better front-end like that.

When I spoke to him, Steve repeatedly told me he understood what I wanted.

The reason I had Hadoop was to create an indexed and searchable set of global encryption logs that would
work across distributed servers. Effectively, every single intrusion log globally would be immutably saved
and could even be searched with the right authority. Yet simultaneously, the concept was to have it in a
pseudonymous manner that allowed no attribution outside of knowledge from authorised parties.

By May 2013, Steve had developed a system that was quite good for the time but only incrementally better.
It didn’t link into a distributed database, it didn’t save logins immutably in the blockchain, it had no basis in
economic security, and it was not related in any way to the work I wanted to do. Back then, very few people
understood Bitcoin at all, so I can’t blame too much. Unfortunately, they had too many things going on at
once and as such could not follow and micromanage everyone to see that they had really understood what I
wanted. So in May 2013, Steve came to me with the dev environment that enabled the management of
multiple firewalls and sensors using a cloud-based web interface. I told him it was absolutely unrelated to
anything I wanted. He told me it was what the customers wanted. I told him I had no interest in creating a
consulting company to sell IDS; what I wanted was to create something that we could sell globally. Nothing
even logged against Bitcoin at all.

I didn’t want to be in IDS and such a security company.

Autonomous agents could do so much more linked to Bitcoin.

Robert Urquhart was a forensic analyst I worked with from time to time. The thing is, you can work with
people on a small scale, and they can be good at a job, but it can also be an error to move them further than
they should be. I liked Robert, but he was not good for the role. A part of what I wanted of the solution was a
full forensic database. Definitive proof of all changes to a system, logged and recorded immutably. Steve,
Robert, and myself met to discuss it a few times, but the end result was that Steve handed me the product
he thought would be good, not what I asked for.

One of the things I wanted to be able to do was to secure the system. To do so, we could have a system that
matched its configuration against a record and a blockchain, and any change could be instantly audited. All
critical files would be recorded using a tripwire-type system, but instead of having a disc that needed to be
checked, the hash value would be stored in the UTXO set of Bitcoin.

A specialist wallet would be able to report instantly any system change or an authorised login. Bitcoin
needed value for such a scenario to work; it needs to be cash, but once it is, it can also be so much more.

Steve wanted an idea’s consulting company, I wanted a technical solution that provided security using
Bitcoin. I didn’t want to be told that it wasn’t possible, that it was hard, or that customers wouldn’t want it.
So Steve and I had a fight. We had been friends for years, and it was the end of it. Steve thought that he
deserved something for his effort. He thought that he put a lot of time into it (mostly while working for the
New South Wales ambulance organisation and setting it up for them) and that doing so alone meant he
should have shareholdings and a say in the company I was forming.

We had a bit of a yelling match.

I never used anything that Steve had proposed. I never wanted it.

I wanted a system that worked in a way that no other system had worked before. I wanted to ensure that
when the King’s Wi-Fi was being hacked, the generals could not delete the logs. Steve did not want to work
on such a system, and I said, ‘if that’s the case, I hope you have a great life building your solution.’ He then
sued me.
The matter went to arbitration as I am hard-headed and won’t back down. He would not work on building
the system that I needed and said I would give shares for. We didn’t have a partnership because I don’t have
partnerships. He argued that he had done a lot of work and thus he should be paid. I argued that he had
never had a contract with me, that I had made an offer that he had not accepted. And such was the point; if
you alter an offer, you don’t have a contract, you have an alternative offer.

Steve believed that because he had helped think of a name for the company, doing so gave him the right to
it. Unfortunately, thinking up a name doesn’t mean much at all.

Trust

I hired Jamie because I needed someone to run the finances in an increasingly complex organisation. We
were negotiating multi-million-dollar contracts, and I believed that I was able to trust the people involved.
All I would do in many of the cases was to simply send the one-page signature page.
Doing so turned out to be very problematic later on. Jamie disappeared for weeks in 2013 without telling us
any real details. We then found he had been in New York making a deal. What I do know is that the deal was
to sell the assets and company. I have no idea who the deal was going to be made with, although I do know
it was with people in New York. Jamie had come to an agreement to sell my bitcoin and my intellectual
property, and all he needed to do was get me to sign.

Not a hope in hell.

If I’d seen it coming, and I should have, things would have been different. Jamie was CFO, Chief Financial
Officer. He arranged the creation of contracts, and had signed off on the accounts. So it should have been
no surprise that he had set them up in such a way to include Easter eggs, backdoors, and about everything I
can imagine and worse.
He appeared in the office after his trip to God knows where in New York to meet God knows who and to sell
my intellectual property, assets, and bitcoin, and I told them where to shove it. It wasn’t something I
handled well. You see, the problem with even corporate keys and access is that there are levels of trust
within organisations. Oh, I have learnt my lesson, but at the time I had even given him all the corporate keys,
tax access under my name, and about everything else. So Jamie knew all about the assets of bitcoin, and
Jamie needed the money.
We never managed to clean up everything adequately and recover all that had been messed up.
Jamie vanished right before we had a tax lodgement due, and subsequently we ended up with a mess we
had to clean up. We ended up with external and internal auditors, and if it hadn’t been for the initial
problems that resulted with the Australian Taxation Office, we would have been in a much stronger
position.
So the irony is that my companies suffered fairly much all of the problems that I wanted to create solutions
to. Too much, too fast, and as I aimed too high too soon, I got burnt. I am still not good with people, but am
getting better slowly. Then, that doesn’t say much even now.

And I had some falling outs with a number of staff members and potential associates, but the fact of the
matter is, it really doesn’t matter whether you like someone or not; maliciously altering records is wrong.

When you first saw me step before the world in 2016, I was still incredibly angry. People who had at one time
been friends of mine had altered my records and added things to my company records to get me in trouble.
2013 had been the year of Silk Road. So the revenge people had taken against me had been to salt my
company records such that I ended up with a combination of real and false documents. The alterations had
been done to add known illicit addresses into the company records, which I guess had been aimed at
causing me a lot of trouble when they had been filed. You see, I filed everything.

FD Commercial Lawyers

The reason that I went to lawyers and had a number of documents validated was to ensure that I locked in
tax advice in an enforceable manner. I had filed an application for a private ruling at the same time I had
registered Hotwire and some of the other companies in Australia. I had overseas assets that were becoming
more valuable. If left in the trust or with companies overseas, I would not have to pay capital gains. I needed
to do so so that I could complete my 2013 tax-year filing in July of the same year.

I wanted to make sure that I paid the correct amount of tax and had the companies and group structured
correctly. Hence lawyers, accountants, and spreading the wealth.
We stored most of our records online.

All of it will start coming out now. I didn’t even hide my wealth from the tax office, the issue was that I
structured it in a manner that legally minimised my tax. Unlike most people, I didn’t hide the amount of
bitcoin that I had. I structured corporations to ensure the best means of using it, but hiding it was a different
thing and one that I did not do.

The records people seeded included declarations associated with my divorce settlement. I had a lot of
bitcoin, and I wanted to use it in my companies, and unlike most people, I approached the tax office and
told them about what I was planning. I filed a PBR to ensure that I filed capital-gains tax correctly. I claimed
the increase in bitcoin and my tax for the year. I did so after seeking advice from the tax office, after having
my lawyers look through it, and after having accountants educated enough to understand that bitcoin was
an asset.
Right from the beginning, we implemented accounting and control systems that would make the average
multinational blush with envy.
What I did wrong was to place too much trust in a number of people that were associated with the early
system and to think that because I had considered people friends once or because they had worked for me,
it would mean I didn’t need to do the normal level of access controls and to monitor everyone quite as
much as I should have.

We live and learn.

The Early Days of nChain

For a time, in the early days of nChain, we had a number of similar issues. We had started with a lot of new
staff and researchers who were fairly autonomous. It takes time to create a structure and organised groups.
In the past, it allowed cliques to form. In particular, a number of researchers wanted to put a lot of time and
effort into alternative systems like proof of stake and even Ethereum. Such individuals created a number of
patents that would be squashed and intellectual property that probably could have helped Ethereum,
which will be buried. The reason is simple: companies are not clubs.

We have a lot of good people and some good leadership within nChain now.

The process has taken a long time, but we’re getting there. I’m very proud of our staff as they are today. So,
you can say that I’m a hard bastard, and you’ll be right, but at the same time, whether you like it or not and
want to believe it or not, I keep my word for good or ill.

Trust can be a problem. I have had a lot of people who I had relationships with in the past which didn’t end
as well as they should have. I’m not nice, and I don’t negotiate well in emotional terms. I’ve learned the hard
way that just because someone is a friend, it doesn’t mean that the same person will be a good business
associate or someone to deal with within a company. I’ve learned that some people will go to any lengths
out of spite.

When money is involved, people start to act differently. It’s an important thing to note.

I had people in my past who I had trusted and who betrayed me. And then, once it occurs, I discovered the
hard way that if you don’t cut it out completely, it’s like cancer and it grows. The first time documents were
changed within my companies was to try and cause me pain after the fall of Silk Road. We had a cloud-
based storage system, and I never expected people to put backdoors into the Xero accounting system or
into the hosted file shares. I should have realised that some of the staff we had would react. Not all, some
maintained a position of dignity, but others… And it cost me a lot of time and angst over the years. So few
people managed to get their revenge, but the truth of the matter is that they fit themselves more in the
long run. Steve was one of the better ones. Then, I should have known better and as soon as any staff
member left, we should have purged all access to many systems.

For all the negatives, I worked with some amazing people. Through it, I have managed to strengthen my
resolve in seeing the need for controls and how a well-structured organisation with good controls helps
those who seek to achieve more than anything else.
MSBs and Account-Based Systems
By Craig Wright | 04 Jun 2019 | Alternative Coins & Systems
Monero and mixed coins (such as those using Schnorr) are engaged in the activity of money transfers and
money handling. Such activity, by nature, makes them an MSB. Any subsystem is required to comply with
the BSA obligations that apply to money transmitters. Every node and every software wallet engaged in
mixing would need to fulfil the obligations that apply to a money transmitter. They involve complying with
the anti-money laundering (AML) program, maintaining records, and issuing against the reporting
requirements as defined in their jurisdiction. Compliance would include filing SARs (Suspicious Activity
Reports) and CTRs (currency transaction reports). Peer-to-peer exchange is covered under the anti-money
laundering (AML) rules. Avoiding the requirements of the Bank Secrecy Act (BSA) in the US is not an option.

A money transmitter is any person engaged in the transfer of funds — any funds, including cryptocurrencies
and bitcoin. If you are running a Lightning node, you are acting as a money transmitter. It doesn’t matter
that you don’t like it. The law doesn’t care.

The problem with the so-called “experts” is that they have no expertise. They seek to create a narrative and
change reality such that it aligns with their beliefs, and believe that doing so will make them experts. Bitcoin
is not bit gold, and it never will be.

Bitcoin is not a bearer-bond system. It may be what Blockstream and others are selling, but it’s illegal.
Money has a long history in law. When you’re taking other people’s funds, whether from Bitcoin or from
non-chattel systems including electronic bank accounts or database entries, a key is not proof. Today, we
have many systems based on dematerialised assets. Shares are traded through online databases using
tokenised exchanges, and such has been the case since the early 90s. Real-world proof trumps crypto proof.
If you sign up for an account with E*TRADE and buy 10,000 shares of Apple, and someone attacks the
database and E*TRADE and changes your ownership record or takes your account and uses it to sell your
shares, you have a claim for the shares. It is the same with Bitcoin. One of the problems at the moment is
the cypherpunk element seeking to make the possession of a key a right to and proof of ownership. It isn’t.

Tim May and others sought such a world. I didn’t.

I created Bitcoin to trump the anarchist ideas of money that could not be controlled and that acted outside
of all regulatory controls. I created Bitcoin as an immutable evidence trail that is pseudonymous and cannot
be made legitimately anonymous and continue to work. I did so in order to ensure that the system others
sought and had developed in part in the form of e-gold and Liberty Reserve would be thwarted.

Arthur Budovsky founded and operated Liberty Reserve, an underworld cyber-banking system that
laundered hundreds of millions of dollars in illicit proceeds for criminals around the world. The only liberty
that Budovsky and Liberty Reserve promoted was the freedom to commit and profit from crime. Thanks to
this truly global investigation that included cooperation from 17 countries, Liberty Reserve has been shut
down, and its founder Arthur Budovsky stands convicted in an American court of law, facing the loss of his
own liberty.

— U.S. Attorney Preet Bharara of the Southern District of New York

When an individual uses a system such as CashShuffle through a distributed wallet, they are not using an
un-hosted wallet. When you’re using an electronic wallet with CashShuffle, you require additional third
parties to conduct transactions. In any mixer and when using Monero, multiple parties act together to
conduct and complete transactions. Doing so makes them a money handler under the various anti-money
laundering (AML) and funding laws throughout the world.
http://www.coindesk.com/eu-authorities-crack-down-on-bitcoin-transaction-mixer

CashShuffle (@CashShuffle) | Twitter

The latest Tweets from CashShuffle (@CashShuffle): “After over a year of development. CashShuffle has been
officially… twitter.com

CashShuffle is an MSB. If you are using CashShuffle in the UK, Europe, or the USA and you are not registered
as an MSB, you are committing a serious criminal offence. Many other countries will find that you’re an MSB
requiring registration, too.

To think that it’s a distributed system which makes you safe is a big error. You’re playing lotto with your
future. More importantly, it allows law enforcement to trace your addresses and, in the future, hold you
accountable. It doesn’t matter whether you’ve been a criminal before you start using such systems; the
mere fact that you are aiding and abetting and allowing criminals to mix money with your funds makes you
a part of the system.

Anonymity Is Not Free

Some (foolish) people like to say that anonymous systems create more freedom and that they will bring
down government. They are categorically wrong on all counts. Anonymous systems are the way to bring in
more government control.

If you want to bring in more government, you bring in more threats.

If you bring in anonymous systems and things that government cannot control, then the reaction is very
simple: government is increased. Most people want safety, security, and peace of mind. Most people don’t
care and will hand over control very simply. So the thing is, if you make it simpler for crime to exist, the
majority of people will hand over the reins of power to government. In creating a more anonymous system,
you end up creating a system that oppresses most people, and most people will accept it for safety and
security.

You may not like it, but such is the fact of the matter and how it all works. If you create a system that allows
terrorist funding, you have also created a system that allows government to crack down. If you want free
private communications, the last thing you ever want to think about allowing is anonymity.
Bitcoin may be decentralised, but the individuals involved are not. To be able to continue, the actors within
the system need to play within the legal framework and rules. Money laundering is illegal practically
everywhere on earth. There is practically no mining or for that matter network activity anywhere that
involves legalised money laundering. As such, miners need to act within the law, or they can be shut down
and the equipment seized.

As soon as a system is deemed to facilitate money laundering, it no longer matters that you’re running a
distributed system. In adding anonymity controls, many coins will find that such facilitation of terrorist
funding will lead to their complete removal. One day, a court order will appear, and on the same day, any
exchange transacting in Monero or using other similar systems will either have to stop immediately or be
aiding the facilitation of a money-laundering system.

Monero, the Lightning Network, Zcash, and all other account-based funding systems and anonymous
crypto systems are required, by law, to keep records and logs of the people involved in the use.

What people do not seem to realise is that when a court order stops such systems, it stops them dead. On
the day a case of money-laundering facilitation starts that is connected to Monero, all Monero globally stops
trading. Any miner or node that attempts to bypass regulation will be instantly criminally liable. The
maximum penalty is 20 years for each offence, and every single block could be prosecuted as a separate
offence.

When it happens, there won’t be a rush to get your money out. It will be as it happened with e-gold and
Liberty Reserve US Dollars. One day they will have value, the next moment they will be unsaleable and
totally value-less. One day they could be worth thousands of dollars each coin, the next day they would be
worth zero, and worse, the ownership could lead to criminal prosecution.

The error people make is that they think a cryptocurrency is inherently valuable because it can get around
law. It cannot. The unfortunate aspect here for many investors is that they will wake up one day and find
their holdings worth nothing. I don’t mean that they will see their holdings go down in price, rather, as with
e-gold, one day they will have assets that have a value, and a moment later the same assets will have no
value at all. It will be an instant drop from whatever market value exists to 0.

Where the Scams Lead…

One thing you’ll understand here is that those who are seeking an anonymous system are those who are
seeking to act outside the law. It is people such as John McAfee, whose life has been an endless series of
scams. He is a criminal on the run, he has broken law after law, and he fled countries as a result. He takes
money to promote scams, profits, and lives awake of destruction. Such is the problem with anarchy; it is
people like John McAfee who run Ponzis and scams and the people with money who benefit most from
your system without law. He wants anything to get more, and more steps on anyone to try to get it. There
are not many people on earth who are lower than him.

I’m still surprised people believe people of such kind. Ones whose lives have been nothing but lies and
promises that are empty. But then, many people don’t care to learn or build, and they become prey for
people like McAfee.

I would very happily face John McScammer a.k.a. McAfee a.k.a. conman John in court, because the defence
for libel is truth, and if I can get conman John into a court, by the time we finish he will be spending
multiple life sentences in prison. If I could, I would even get Mr conman John to sue me, because then he
would have to go to court, and he would never leave again without wearing an orange jumpsuit.
Fully Peer-to-Peer
By Craig Wright | 06 Jun 2019 | Alternative Coins & Systems
In 2011, I sent my last email as Satoshi to Gavin…

Gavin,
I wish you wouldn’t keep talking about me as a mysterious shadowy figure, the press just turns that into a
pirate currency angle. Maybe instead make it about the open source project and give more credit to your
dev contributors; it helps motivate them.

I don’t need to do what a bunch of cypherpunks told me to do. Evidence has nothing to do with a bunch of
idiots who say how keys should be managed because they want anonymity. Evidence is something that is
set in law and has been for hundreds of years. I built Bitcoin to be an honest immutable system that
wouldn’t suffer from the same problems that ecash, Liberty Reserve US Dollars, and all the rest of the scam
systems had.

Personally, I’m tired of it all, and people are going to start understanding what Bitcoin really is.

The level of hypocrisy is disgusting. You have groups of developers saying that they were distributed and
thus above the law. In the 1990s, a group of developers created a company called Webgo. The argument
about why they were not conducting security fraud was put forward as them being a bunch of distributed
developers and that it wasn’t really a company. The SEC didn’t care. The fact that they weren’t registered
only removed the protection the limited liability company (LLC) would have provided. In effect, they were
issuing trust or partnership shares without authority.

Developer groups who can change the original protocol are in control of their protocol.

The term ‘decentralised’ has become a marketing ploy. The ledger may be distributed, but when you’re
talking about a protocol that is not set and can be varied, then you have a software development process
that is controlled by an organisation. No cryptocurrency has a distributed development process. The reality
is, there is no such thing as a development process that is distributed without authority or power. The only
way to ensure a distributed system can grow without interference is for the system to act within the legal
framework as it exists and for the developers to be unable to change the protocol.

In 2015, some people wanted to tell my story, but without my knowledge or approval. The thing is, they
didn’t know the full story, and left enough gaps for those who did not want me as Satoshi to plant seeds of
doubt and to spread total lies. Wired and Gizmodo lapped up the lies, and their gutter journalism was taken
up by the bigger news outlets. So in 2016, I was left no choice but to come out yet again, but was
manipulated and misled. For example, the agreement with the BBC was that it was going to be a low-key
interview with Rory only. No cameras. Rory walked in with a cameraman. You may recall that in the
interview, I was angry.

Do you wonder why?

We Need Government
The issue is whether we have a good government or an oppressive and corrupt one. Anonymity creates
corruption, even in government. Especially in government.

You will find no quotes from me (as Satoshi) opposing government. In fact, the sole quote people use in
such regard is the following:

Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P
networks like Gnutella and Tor seem to be holding their own.

As always, they who seek to alter what I said have taken a single quote out of all context and
misrepresented the meaning. The part of my communications that everyone ignores is the ellided response:

[Lengthy exposition of vulnerability of a systm to use-of-force

>monopolies ellided.]

The only relevant spelling error in the section is the typo in systm . The word elide is used to mean “to leave
out of consideration” or “to strike out.” In saying so, I am leaving out some of James Donald’s notion; I was
not agreeing with him where he wrote (see http://www.metzdowd.com/pipermail/cryptography/2008-
November/014819.html ):

If I understand Simplified Payment Verification

correctly:

I will categorically say, as with every other person in the anarchist camp: no, you have not even begun to
understand. Mr Donald was responding to my claim of scaling. In his post , he replied to my statement that
Bitcoin could scale bigger than Visa — it could do so 10 years ago, had the code been tidied up — and that it
would scale through an increased block size. Later in the year, we will be doing just that and moving to a
scale level that will start to exceed the one of Visa.

Hal Finney and James Donald both wanted the same thing: they wanted something like bit gold. They did
not want Bitcoin.

The reality is that there are supporting mechanisms for taxation, and it doesn’t require the status of legal
tender. Bitcoin is a funding system. Bitcoin is an immutable ledger. Other systems can be built on top of
Bitcoin. Importantly, legal tender can use Bitcoin as a ledger. So where some people said that others
wouldn’t hold assets as cash in an inflationary currency if they can help it, they are misunderstanding how
Bitcoin works.

In part, I used the mailing list where Bitcoin was first announced because of some of the people from one of
my former universities. I enrolled at the University of Newcastle to do a master’s degree in statistics in 2005
for two reasons: Firstly, some of the people there at the university were highly skilled in network graph
theory and modelling. I needed such knowledge to develop Bitcoin. Next, some of the people there at the
University of Newcastle were deeply versed in the mathematics of monetary systems. Entering the
university gave me access to all of their work, so that I could research it. One of the individuals was Graham
Wrightson . With Andreas Furche, they formed the Monetary Systems Engineering Research Group. I was
with the University of Newcastle as a postgraduate researcher between 2005 and 2009.

I did not put down that I was Satoshi when I talked to them. I was just another postgraduate researcher and
student.

Having said so, some of the people at the University of Newcastle had been involved in the original version
of DigiCash and worked with David Chaum.

What I came to understand in reviewing the work conducted by the researchers was that Bitcoin needed to
act within the existing legal system. The authors in the group wrote extensively about the privacy debate. To
quote them, “the need for privacy in payments is emphasised by some and feared by others.” Bitcoin exists
upon a knife-edge. It is not anonymous, but it is private enough. I came up with the idea of networks
merging because of the group. In a conversation that I had when I started my degree with Prof Graham
Wrightson, I saw that the separate networks and communication infrastructure would end up merging. To
further quote them,

There are good reasons to come to the conclusion that it is generally impossible to create such a system at
all. The security of the current cash system rests with the fact that it is extremely hard to copy, or
counterfeit, bank notes and coins stop therefore people can assume the validity of a banknote without
consulting a central bank for verification, and exchange of banknote among many subsequent parties
without needing to know who held it before.

In doing my research, I came up with the conclusion that anonymous money was not desirable. To come to
a full understanding, I needed to complete postgraduate work in law. At one point I was enrolled in four
separate master’s degrees simultaneously.

Prof Wrightson knew of Wei Dai, and pointed me towards a paper titled “Knowledge-Based
Communication Processes in Building Design” that he knew of because of his work in machine learning.
Both Adam Back and Prof Wrightson directed me to Wei Dai. 戴维 turned out to be another cypherpunk,
and he was an incredibly helpful one. I used some of his code in the original release of Bitcoin — with his
permission. Andreas Furche knew of Hal Finney and Adam Back. So I emailed people. I was researching in
2005, and came to the conclusion that I could build something. By 2007, I was ready to start.

I didn’t contact Adam Back until 2008 when I was well and truly invested in the project I was conducting.

Bitcoin was never a cypherpunk experiment.

I left the Cypherpunks mailing list in the ‘90s because I couldn’t stand people like Julian Assange. I couldn’t
stand what some of the people there stood for. I was the opposite of many others on the cryptography
mailing list. Even those people I liked, such as Tim May, held concepts that I could not stand.

Prof Wrightson, when I talked to him, told me all about DigiCash. He is the reason that I took up a
pseudonym. The Monetary Systems Engineering Research Group had a lot of resources. I read their patents
and papers on transfer instruments , but more than anything else, I took away the problems that had
occurred with DigiCash. I saw what had happened with ecash. I saw what had happened with e-gold.

CSIRO and the Australian Taxation Office had conducted a joint Internet report in 1997. I got to read about
money laundering, and from Prof Wrightson I heard of a number of the problems that all of the previous
systems had had. I really didn’t want to go through the same problems that those involved with DigiCash
had grappled with.

I didn’t want to be a shadowy figure, such was never the intent of Bitcoin. The protocol was set in stone, so it
didn’t need someone like me to come and save it. Well, that was what I taught myself to believe. What I
never suspected was that a bunch of want-to-be comic-book criminals would take my invention and try to
turn it into a system designed to promote illicit activity. In particular, I didn’t think people would add
systems to create anonymity and build automated ransomware systems into Bitcoin. The purpose of
confidential transactions is just and solely this. It is not about protecting normal people; it is about enabling
criminals.

I wanted a system that allowed legal transactions which others wanted to block. In 2005, I ended up taking
a job with BDO in Australia. The job ended up being a key part of the puzzle as I learnt about auditing and
general ledgers. I had a basic knowledge but no hands-on experience.

The WTO decision concerning gaming blocked access to some of my clients. It blocked access to my
money. I had bank accounts in Panama that were associated with companies in the gaming space from the
time. The money had never come into Australia, and I had not spent it in Australia at any time. I was rather
furious that gaming projects I’d been working on were closing down. Such were for licensed casinos. They
were being closed down because the US was stopping banks from processing money associated with
gaming. They involved operations that didn’t allow money laundering and had stringent AML controls. The
whole thing was why in 2005, I started studying law, statistics, and about everything else I could think of — to
push the project I had been working on forward.

Black net started as a simple project to monetise information and create a private Internet. After the WTO’s
decision, my focus changed, and I needed to implement a monetary platform. Not everyone likes gambling,
but I was proud of my past and how I’d managed to get Lasseter’s Online over the regulatory requirements
and to become the first licensed gaming operation anywhere in the world.

Watching my clients close was bad. What was worse was that I was watching the licensed and regulated
operators close down. The criminals kept going. The worst money-laundering operations and criminal
operations kept taking money, and I watched as the US government’s imposed regulations destroyed good
businesses that had operated within bounds and opened up a black market for criminals. The crackdown
didn’t stop gambling, it created a system that was criminal. Before, the criminals had been regulated and
controlled within the industry. For the most part, they were on the fringes. It changed when the honest
operators were forced out.

The last thing I wanted to do was get in trouble for creating a system that enabled the payment of what was
legal but what some people saw as illicit. I wasn’t trying to make a criminal system, I worked extremely hard
to make a system that had an evidence trail. It’s no good tracing down someone who has made a payment
legally — which can remain private.

NETeller was a registered and licensed UK business before the US crackdown. They offered payment
services to overseas businesses. I worked hard to set up systems of logs and reporting so that the clients I
had worked with had sound systems that didn’t launder money and didn’t take funds from terrorists and
criminals. I watched them collapse, and I watched the illegal activities take their place. People didn’t stop
gambling; criminals started selling gaming services, they didn’t care where the money came from, and they
made more money taking terrorist and criminal funds and washing them.

SportingBet was a client for a time, and then funding was cut. The CEO was arrested in a stunt in America as
he got out from a flight.

So, I was not trying to be anonymous for the reasons the cypherpunks tell you. I wanted my privacy. I
wanted to create something that would allow people to conduct any business that was legal. I don’t care if
you’re taking money from a licensed sports book; if it was licensed, it would be fine. It’s why Bitcoin’s private
and not anonymous. But I didn’t want to have to explain the same to governments in 2010. All everyone saw
was a new system just like the rest.

Liberty Reserve, e-gold, ecash… they are nothing new because they allow people to have anonymous money
which favours criminals and crime. I invented Bitcoin to be different. I invented Bitcoin to walk the fine
razor-edge between surveillance and criminal systems that is privacy.

I argued that Bitcoin would scale, and it does.

Satoshi Nakamoto (aka Craig Wright) wrote:
>> I've been working on a new electronic cash system that's fully
>> peer-to-peer, with no trusted third party.
>>
>> The paper is available at:
>> http://www.bitcoin.org/bitcoin.pdf
>
>We very, very much need such a system, but the way I understand your
>proposal, it does not seem to scale to the required size.
>
>For transferable proof of work tokens to have value, they must have
>monetary value. To have monetary value, they must be transferred within
>a very large network - for example a file trading network akin to
>bittorrent.
>
>To detect and reject a double spending event in a timely manner, one
>must have most past transactions of the coins in the transaction, which,
> naively implemented, requires each peer to have most past
>transactions, or most past transactions that occurred recently. If
>hundreds of millions of people are doing transactions, that is a lot of
>bandwidth - each must know all, or a substantial part thereof.
>

Long before the network gets anywhere near as large as that, it would be safe for users to use Simplified Payme

The bandwidth might not be as prohibitive as you think. A typical transaction would be about 400 bytes (ECC is
2 HD quality movies, or about $18 worth of bandwidth at current prices.

If the network were to get that big, it would take several years, and by then, sending 2 HD movies over the Int

Satoshi Nakamoto - aka Craig Wright

http://web.archive.org/web/20081224103058/http://www.mail-
archive.com/cryptography%40metzdowd.com/msg09964.html

The problem is not that Bitcoin scales but rather that it is not designed to facilitate money laundering. It
does not make a good system for automated ransomware. It doesn’t work as a completely scaled criminal
system.

For distributed systems, Liberty Reserve and e-gold were far more distributed than Bitcoin has ever been.
The systems were more anonymous.

Bitcoin is fully peer-to-peer when parties exchange transactions directly. It’s what SPV was designed to be.
There is no need to have complex systems like Lightning. Alice and Bob exchange a transaction; Bob checks
Alice’s transaction, and ensures that it is valid and has not yet been spent; Bob sends it to the mining
network; the miners compete to include the payment from Alice into a block gaining a payment or
transaction fee. Bitcoin is peer-to-peer not because of the network acting to distribute blocks, but because
individuals exchange transactions.

E-gold was shut down because it allowed anonymous transactions. Being distributed will not save you.
Developers are not distributed. The owners of organisations and exchanges such as Binance are not
distributed. People are not distributed. If you can change the protocol, it is not distributed.

e-gold… Internet payments, 100% backed by gold

e-gold is the only tangibly backed, worldwide electronic monetary/payments system. e-gold is 100% backed
by physical… web.archive.org

“A systemic flaw in the e-gold design, present from the very beginning, made it vexingly difficult for e-gold
to expel a User, in a truly effective way, for criminal abuse of the system. e-gold investigative staff might
detect suspicious activity, block or freeze the offending account, and later discover the same perpetrator
had created additional accounts,” says the e-Gold founder. “One element was logic that allowed an e-gold
account full privileges from the moment of creation and only revoked those privileges in the event of
suspicion that the account holder was seeking to mask their identity or actually engage in illicit
activity.Compounding this weakness was an unrestricted ability for Users to create multiple accounts
without any obligatory indicator that they were all under the control of one person.”
The Right to Privacy
By Craig Wright | 07 Jun 2019 | Alternative Coins & Systems
Bitcoin is a system that works within the majority of legal frameworks — all of the ones in the free world. An
important aspect of how Bitcoin works is privacy. Privacy differs greatly from anonymity. Anonymity is
something that people seek when they want to commit crimes, hide illicit activities, and do things that are
generally wrong. Privacy is a right, anonymity is not.

One of the worst things to have developed with social media is the misapplied belief that people are owed
an explanation. Irresponsible reporting and illegitimate dump sites like WikiLeaks caused the start of such a
problem. Poor journalism allowed people to start believing the documents dropped online by a bunch of
anonymous trolls calling themselves muckrakers and freedom fighters that are quite often 30 to 50% fake
news which have dulled people and made them insensate to the bombardment of fake information.

Libel and defamation are not rights. Free speech does not give you the right to commit fraud, to mislead
people, or to lie. It doesn’t give you the right to make up alternative facts that have no basis in reality. Free
speech does not allow defamation and slander.

If you choose to abuse people and say that they must respond to you, you are using force. When you lie and
slander others, it is a form of force. It is an illegitimate force and one generally used by criminals. We have a
system that has been developed over many decades and centuries. The process of deciding on evidence in
a court is well and truly founded and based on reality. Bitcoin is not about changing reality, as some seem to
think. You don’t prove anything with the signing of a key. And you don’t do so publicly. If you think so, you
have no idea what Bitcoin is about. Then again, the majority of people listen to Core- coin (BTC) developers
and are misled by the lies about anonymity. That is, the lies they used to create a system that is friendly to
crime. It’s that simple: the same developers are creating a system that is designed in a manner that will
allow ransomware to run and pay the developers through an automated system. It is designed to allow
untraceable drug sales. It’s designed to provide terrorist funding.

If you want to prove something, because other people have decided to force your hand, you don’t need to
do things the way they want. In a court, you can limit evidence from being disclosed, yet it can remain
evidence. Privacy is important, but so is security.

If you don’t understand it, you haven’t taken the time to understand Bitcoin.

Tax and Gains

What people don’t realise is that you are liable for tax as it applies in your country in any asset, and Bitcoin is
no different. More anonymous systems have existed, and all of them led to people being arrested for tax
evasion when they tried to bypass regulation. With Bitcoin, you need to explain the source of wealth. It’s
very simple, you cannot just send a bitcoin to yourself and say such was the price. When you get a bitcoin, it
doesn’t matter how many times you flip it around your own addresses; you pay tax on the value that you
have gained. So, if you procured a bitcoin at US$10 and it is now worth US$1000, then you pay tax on the
US$990 gain. That simple.

If you lie about the source of your bitcoin, you pay more tax.

If you have an asset and you cannot say where it came from, you pay tax on the full value. There is a lot of
case law in taxation that can be applied to bitcoin and other cryptocurrencies, which means that the tax
office can simply tax you on gains as you spend bitcoin. If you don’t keep records, they will eventually find
out. Bitcoin is pseudonymous, and leaves an audit trail. In other words, it’s private, but it is subject to
taxation.

I know people like to think that Bitcoin helps them evade tax; it doesn’t.

I have provided sworn testimony in court listing a number of my addresses. People think you might want to
lie in doing so. You won’t. Especially not on early addresses that were mined. The reason is, you need to
explain both the existence of assets and where they go. If I claim to have the first 800,000 bitcoin, for
instance, and the respective addresses are known by a court, when they move, I become liable. If they’re
sold, I pay the capital-gains tax on them. What people don’t realise is that if you lie about Bitcoin addresses,
you end up paying for it. If you provide evidence that you own an address, you pay tax on the address when
it is sold at the market value of when it is sold. Source-of-wealth laws mean that you have to account for
where you purchased or mined your bitcoin and where you sold it.

In other words, you need to keep records. If you receive bitcoin from someone at a local-bitcoin exchange,
you better have records of the exchange and how much money you got the bitcoin for. If you don’t, you’re
liable for the full value. For instance, if you buy bitcoin in the future at US$500 and it goes up to US$600, you
have a taxable gain of US$100. Conversely, if you cannot prove the source of funds, you have tax on all
US$600. Contrary to what people believe, it is a very simple scenario, and the tax office near you will likely
come for a visit if you don’t consider it.

Privacy Is Different to Anonymity

The point here is that you do not have a right to unlimited speech. You cannot make up false accusations
and innuendoes and defame other people without consequences. A few people are going to start to learn
that they come under the purview of law.
Mr Maxwell was contacted to verify things that would have made Blockstream irrelevant. He likes to claim a
theft of $40 million, yet as I previously pointed out, the limit on a refund in Australia is $20 million. There is
no rebate over that amount. It would have simply been a tax offset in the business. But it doesn’t make a
good story. What Mr Maxwell doesn’t point out is that he is associated with the creation of a number of
AntiSec tools and is attempting to make a copy of Bitcoin that is more anonymous. The entire purpose for
Mr Maxwell’s attacks on me has been to allow him and his colleagues to alter Bitcoin in such a way that it
enables crime.

Mr Maxwell has been lying and making up false claims including submitting false evidence to cover his
tracks.

Some of the things Mr Maxwell has been doing include:

facilitating terrorist funding ;

aiding in the creation of a system designed to destroy evidence (including money-transfer evidence
and funding sources);
creating systems including automated ransomware and the ability to stop tracking of payments;
infrastructure hacking and DDoS funding;
funding illegal activities including leaking data and payments from malware associated with such
activity;
software that aids in the facilitation of cryptojacking;
adding in the creation of systems that are designed to enable funding that has the express purpose of
evading sanctions ;
creating systems to facilitate funding illicit groups (including child-porn rings);
aiding securities fraud ;
facilitating and conspiracy to defraud; and
funding the illegal theft of state secrets .

Some of the systems developed by Mr Maxwell are already being used by the Islamic State. Unlike Mr
Maxwell and his sock puppets, I may not always be expedient enough for some people, but I go through
with my actions. I have a law degree, and I am conducting research that will lead to a doctorate in law. I
have several cases that have been initiated (by myself against those shouting lies) for libel and slander, and
the defamation cases will go to court. Unlike most of the Twitter rabble, I understand the nature of libel and
Mr Maxwell’s involvement in the false claims and defamation that have arisen against me through his
fraudulent and misleading actions.

I want to give evidence that Mr Maxwell is involved with funding sites connected to the Islamic State in Iraq
and the Levant (Isil) and that following his connection in the past with AntiSec, Anonymous, and LulzSec, he
(Mr Maxwell) moved on to Bitcoin because of the false belief that it could act as an anonymous system
similar to how bit gold had been proposed or how e-gold had been before being shut down. He acted
under the false belief that he could create a system by altering Bitcoin that would allow criminals and
terrorists to exchange funds without the need to trust one another. Such was, of course, never the goal of
Bitcoin.

Mr Maxwell has been attacking myself as he seeks to create systems that are designed to bypass the anti-
money laundering (AML) and counter-terrorist financing (CTF) legislation. He will falsely tell you about
freedom and privacy, but what he is actually talking about is the development of systems that are purposely
designed to aid criminals in money laundering and terrorist funding.

When people talk about altering Bitcoin so that it can act without trust, what people like Mr Maxwell are
actually promoting is a system outside of law. In creating confidential transactions and sidechains, Mr
Maxwell and associates are seeking to create a system without records and logs which will enable terrorists
and other criminals to purchase goods and services on the Darknet . Bitcoin doesn’t suffer from the same
problems because legitimate exchanges may occur, and if individuals attempt to defraud another, the law
acts to stop them. The problem is not legitimate exchanges. When I created Bitcoin, I did so expecting a
system of legitimate exchange within the law. Mr Maxwell and others are seeking to alter Bitcoin in order to
create a system that acts outside any legal framework or court. In doing so, they seek to create a digital
currency that is anonymous but yet also reduces the risk of criminal organisations scamming or defrauding
rival criminal organisations. In other words, they seek to remove trust even between criminals.

I invite Mr Maxwell to sue me. It will save me the effort of filing against him. Don’t worry, it is planned, but we
have so little time and so many people to bring to justice.

Don’t worry, Mr Maxwell, I’m not hiding any more. You’ll get your day in court and, at the end of all of it, a
free room, a board, and a nice new orange suit.
Feign Madness but Keep Your Balance
By Craig Wright | 11 Jun 2019 | Alternative Coins & Systems

(假痴不癲／假痴不癫, Jiǎ chī bù diān)

Hide behind the mask of a fool, a drunk, or a madman to create confusion about your intentions and
motivations. Lure your opponent into underestimating your ability until, overconfident, he drops his guard.
Then you may attack.

I posted the strategy publicly in 2017. I left people believing that I was doing one thing based on the Twitter
persona, which they addressed as if it was a reality they should take note of. At the same time, I filed
multiple papers and have presented at several academic conferences. My two PhDs that I’m currently
doing, in law at the University of Leicester and applied mathematics at CNAM, are going well. At the same
time, we have filed just under 800 patent applications. There are at least 1280 white papers in the pipeline
that will lead to patents.

Simultaneously, the team has managed to obtain a sustained transaction rate of around 1,000 transactions
per second. By the end of the year, we will be able to handle a transaction volume the level of Visa.

In social media, people try to tell you how you should act. They seek to limit and restrict your freedom. It is a
common socialist ploy, and fits well with those of a more totalitarian power-hungry bent. But equally, it is a
simple strategy to bypass rules outside of social media and fake news. Hactivism and activism may be
defanged when you avoid and ignore them. The Twitterati are at best toddlers and three-year-olds in the
act of a tantrum. You don’t respond to a tantrum from a child; you teach them that they don’t matter
unless they play within the rules. Such is the lesson for the “crypto-sphere.” Unlike e-gold and Liberty
Reserve, Bitcoin was built and designed to act within the rules.

What people fail to understand is that anti-money laundering (AML) rules always covered Bitcoin. Liberty
Reserve purposely set up systems that allowed to trade with false identities. We see the same with bucket-
shop exchanges such as Binance today. Systems that set themselves up to specifically appeal to online
criminals through the use of weak anti-money laundering controls have been covered under law since the
creation of various funding acts requiring know your customer (KYC) legislation and anti-money laundering
(AML) controls. The word ‘funding’ is particularly important. Money laundering doesn’t require you to use
money. Any funding applies .

Arthur Budovsky appealed his conviction for money laundering using the premise that cryptocurrencies
were not money and hence the concept of money laundering would not apply. The problem, though, is that
anti-money laundering rules cover funding. If you read the text of the law, you will find that it incorporates
everything that you could possibly imagine, from bank accounts to cash to golden gems to watches.
Funding means any means of funding a transaction. So the reality is that cryptocurrency does not give
criminals a place to hide.

I designed Bitcoin with the particular goal of creating a system that did not allow criminals and money-
laundering facilitators to easily bypass the controls around the system. Bitcoin is pseudonymous, and does
not work well as a criminal system. Which was intentional. To be money under the law, the system needs to
support tracing.

If you seek to create a more anonymous system, as we have seen recently in BCH with the implementation
of illicit mixers and in Core coin (BTC) with the development of the Lightning Network, what you will find is a
system that no longer operates within the legal boundaries. Some think that they can get away with it
because Bitcoin is decentralised. We are seeing that such is not the case, but then again: such
cryptocurrencies are not decentralised.

FIOD haalt crypto-witwasdienst Bestmixer offline

De Financiële Inlichtingen- en Opsporingsdiensten, of FIOD, heeft een witwaswebsite voor cryptovaluta
offline gehaald… tweakers.net

What people fail to understand is that I was best served for a while building systems within the law and in
instructing and teaching people who could take them and ensure that regulatory bodies understood that
Bitcoin could not operate in a way that they could not stop.

To Be Decentralised
To be decentralised, a system requires the decentralisation of power. In any system where the developers
can alter the protocol, the system is no longer decentralised. In the Internet protocol or IP, no developer or
developer group is capable of altering the protocol. Using the RFC process, additions and extensions can be
made that develop and grow the protocol through the addition of new rules. In the case of technological
expansion, it sometimes becomes a requirement to move to new protocols. In our instance, we see IPv4
and IPv6 coexisting for the time being. Yet, they are separate protocols.

The analogy applies in a system like Bitcoin.

For a cryptocurrency to be decentralised, it needs to be set in stone.

The same does not apply to just Bitcoin. Any cryptographic asset that can be altered by the protocol
developers to change the nature of transactions such that it could alter the format making a transaction
signed today become invalid some time within the next 20 years is centralised. Creating something that is
decentralised is very simple; you need to launch a cryptocurrency in such a way:

1. Create a set fixed protocol.

2. Allow no pre-mines or special benefits outside of time for the creator and other investors.

3. Start the system with no value that is intrinsic in the system.

4. Allow individuals to earn in securing the network and validating transactions.

The requirements of such a system are that the rules are set on the day that the system is released. I did so
with Bitcoin. Our node implementation, the Bitcoin SV Node, will allow you to take a transaction signed in
2009 and know that you will be able to replay the same transaction and have it accepted by nodes on the
network — if it is valid — in the year 2100. Such is what decentralised means. It is why systems such as
Ethereum and Core coin (BTC) differ radically from Bitcoin.

We have some things to fix. The alterations such as in the form of pay-to-script hash (P2SH) that have been
tacked onto Bitcoin will be removed within the year — leaving the original and removing the systems that
are designed to help facilitate illicit activity. When talking about alternative coins such as Core coin (BTC),
we need to note that they differ greatly from Bitcoin. Their desire to make an anonymous system leaves
them in a scenario faced by e-gold and Liberty Reserve. Illegal funding systems can be taken down. Bitcoin
clones and poor copies are no different, and can be taken down. Decentralisation of systems alone does not
stop it, and in fact is a point that simplifies the process.

Bitcoin is an immutable evidence trail. Every single node maintains records, which allows prosecutors to
trace the path of money with an immutable record trail that cannot be deleted. It was always intentional.
Bitcoin was not designed to be anonymous. It was designed to destroy anonymous cryptocurrencies by
forming something that was far better.

There are no such things as decentralised exchanges.

To put it simply, exchanges all have owners. They are not funded by computers. The error that some people
make is thinking that decentralisation applies to systems. The decentralisation of power is the issue under
law. For a system to be decentralised, you need to decentralise control. When we are talking about
exchanges, they have to act within the law. If they’re not within the law, if they’re not following anti-money
laundering controls and do not have people appointed to respective positions, then they are simple to take
down. Being distributed across many systems is not the same thing as having power distributed amongst
many people. Distributed exchanges are only distributed as far as the systems are distributed, which does
not matter under law. To be distributed under law, you need to be distributed in power. When you have
systems such as Binance that misleadingly and fraudulently deceive customers in making them believe that
they are using a distributed exchange, they are always centralised. Centralisation comes from ownership
and control. Individuals within Binance have control, and hence the system is not decentralised.

If we look at something like BTC, we see that it is incredibly centralised. The developers change the protocol,
and have done so since they abandoned Bitcoin in 2017 and started a clone that is passing off and
misleading investors. It is centralised because a few Core developers set the policy that allows the system to
be controlled. It does not matter that they don’t change all of the rules; the mere fact that they can change
some of the rules means that they control the system.

It is simple to take down illegal cryptocurrencies.

The developers who are seeking to mislead investors into believing that something like BTC is decentralised
do so in order to fraudulently gain money from investors.

To be legitimate, a system such as BTC cannot split away from Bitcoin. When you split a cryptocurrency,
you are defrauding and misleading investors. BTC split with the addition of Segregated Witness and a
system that removed the key aspects of Bitcoin in a vain desire to make something that is attractive to
criminals. BTC split away, and copied Bitcoin to simply invent a way of making a new, more anonymous
version of Bitcoin, which has been the goal of the Core developers since the collapse of Silk Road.

What they’re going to learn is that Bitcoin is only resilient and robust when it acts within the law. It is very
simple to take down blockchain-based systems that stray away from the path set by Bitcoin in being a
system that works within the law. Once you allow terrorist funding, you can start targeting miners. Once you
allow for a system that is designed to become more anonymous and bypass the controls that were
developed when I built Bitcoin, you create a system that is open to jurisdictional capture. A court can order
a miner to freeze a transaction. If the miner does not listen to the court, its assets can be seized. The seizure
of criminal assets is possible across jurisdictions in the case of money laundering. It was seen in the
extradition from Spain of the founder of Liberty Reserve and the capture of funds from Costa Rica by the US
officials.

The addition of technological features that make Bitcoin clones like BTC more anonymous opens miners up
to legal action. Proceeds of crime rules allow miners who knowingly act to validate a transaction from an
unknown illicit address to become targets themselves. The changes to the anti-money laundering rules that
come into effect in January 2020 throughout Europe and in other countries around the world specifically
include cryptocurrencies, and make the scenario simple for law enforcement to apply. Once it occurs,
systems that are designed to facilitate illegal activities such as those involving the Lightning Network,
confidential transactions, and enhanced anonymity will see miners supporting them having their
equipment seized.

What developers fail to see is that being part of a social network or an open-source project does not exempt
you from law. All it does is remove the protections of a corporate structure. As a developer, you can be liable
for the actions of other developers in the group. The same has occurred before, and actions on distributed
developer groups including criminal cases date to the 1990s.

I would like to add a big thank you to Mr Antonopoulos who is helping ensure that all of the illegitimate and
useless cryptocurrencies such as Monero and Core coin (BTC) are made illegal. With their blatantly
erroneous statements about decentralised exchanges, Lightning, and other systems designed to breach
anti-money laundering laws and facilitate crime, such individuals are helping ensure that you will wake up
one day and find BTC, Monero, and Zcash to be illegal criminal assets and the mere possession to be a
crime. But at least you will be able to destroy your now worthless holdings before the police arrests you.

If it wasn’t for people like him, my job and getting law enforcement to understand such kinds of the
blockchain would be much harder. I guess it is necessary for those seeking justice, law, and order to have
criminals on the other side to make the case. It’s very helpful that they’re so incredibly incompetent when
promoting crime.
In acting as I did for a time, I have allowed those opposing my vision to actively come out saying how their
“bullet-proof systems” will enable them to hide and avoid regulation and act outside of the international
anti-money laundering frameworks. Binance, for instance, flaunts how it acts as a criminal-friendly money-
laundering site. It actively promotes the ability to launder Core coin (BTC) and other cryptocurrencies.
Unfortunately for its clients, there is little mentioned about how a seizure of the system would result in a
complete capture of all assets. One day, clients of Binance will awaken and find that all of their assets have
been seized, stolen, or embezzled. Then, such is the cost of doing business on a criminal exchange that
flaunts law.
Monetary Law and Blockchains
By Craig Wright | 12 Jun 2019 | Alternative Coins & Systems
The first thing to realise is that blockchains do not fork in a manner that splits the chain.

Where such a thing has happened, the reality is the creation of a new system that differs from the original,
and if it does not actively inform consumers that it is not the original, it is fraudulently passing off as
something it is a mere copy of. We see it in Core coin (BTC). Core coin implemented radical changes to the
Bitcoin protocol, and instead of launching as a new system defrauded consumers in leading them to believe
that they had bitcoin.

Forks occur. Bitcoin was designed such that orphaning blocks would occur. It is not a bad thing; block
reorganisations and forks are part of the design of Bitcoin. An orphan block is a game-theoretic signalling
device. To the user, it’s irrelevant. If your transactions get incorporated into a block discovered by miner A or
conversely miner B, it is of no concern. It merely concerns those seeking to gain fees as they compete to
incorporate your transaction in a block they find. The lie propagated about orphans being a problem in
Bitcoin is designed to enable parasitic systems that provide money-laundering evasion and facilitate security
scams.

The primary aspect of what makes Bitcoin valuable is that it is a transaction-verification system. It matters to
the protocol that a transaction signed now remains the same over 20 years’ time. The introduction of
alternative systems such as Segregated Witness creates a new system — which is no longer Bitcoin. I have no
issue with people creating competing systems such as Litecoin or Ethereum, but when someone decides to
fraudulently pass off in offerings such as BTC pretending to be Bitcoin, the matter is more serious.

When they do so to help facilitate the use of my invention to promote crime and money laundering, then I
get really upset. Such is what people around both BTC and BCH are seeking. They seek to make the new
version of a criminal money-laundering coin.

Dematerialisation
PoS is a form of equity with no dividends — that simple.

You don’t need to have dividends to have equity. Shares have been dematerialised for 30 years or so now.
Equities are all held as tokens. The settlement layer, e.g. something like Bitcoin, is irrelevant. Consequently,
the argument concerning ICOs was always a mere sham designed to confuse regulators and allow frauds to
go on longer.

Money Laundering
The Bank Secrecy Act (BSA), as amended and implemented by regulations passed by FinCEN (Financial
Crime Enforcement Network), requires CVC (which addresses most businesses that handle cryptocurrency,
including individuals in peer-to-peer networks who exchange money even over something like local bitcoin )
and many otherwise unregulated financial institutions to be registered with the government. Such
organisations are required, by law, to implement anti-money laundering procedures. They must immutably
maintain data and logs of transactions with the individuals involved, and from there they must report certain
transactions and other data. In particular, mixer systems and ‘anonymised’ coins, including ones using
systems like Schnorr, are covered by such provisions.

Under the anti-money laundering statutes, FinCEN has power to prevent US financial institutions from
dealing with other institutions that have to do with systems that do not account for anti-money laundering
(AML) and funds-handling provisions. Any system that does not engage in AML controls will in essence be
either criminal or outlawed in the US, the UK, Europe, and many other countries. Liberty Reserve was based
in Costa Rica, which is not a member of the Financial Action Task Force on Money Laundering (FATF), the
international organisation that collaborates on anti-money laundering (AML) rules. And yet, Costa Rican
authorities cooperated with the US government (which is a member).

There lies around a false belief. Grinberg said: “Not being located or not operating out of the US is not going to
save you unless you are ultra careful not to have any kind of connection to the US market, a tall order.” For its
part, Liberty Reserve allegedly encouraged criminal activity, and made no attempt to keep out US users. Even
if it had warned criminal clients not to use its service, the company still could have been subject to US law,
particularly if it suspected that its clients were laundering money. The same thing applies when it comes to
mixers.

The lies and fraud propagated by criminals and those who support criminals in articles falsely claiming that
illegal non-custodial services were okay are ridiculous . Such people are irresponsible and misleading people
with the aim to create a criminalised illegal monetary system.

In particular, the article blatantly misquotes the section relating to anonymising services providers. Section
4.5.1(a) clearly and most definitively explains, an “anonymizing services provider is a money transmitter under
FinCEN regulations.” The statement matches earlier FinCEN statements. The article is blatantly misleading
readers into promoting crime.

Section 4.5 of the FinCEN monetary guidance explains not only that enhanced CVC transactions are without
exception required to be registered, but that the mere use of something like the built-in mixer in CoinJoin
acts to alter the basic function of Bitcoin or BitCHcoin such that it is covered and must be registered as an
MSB. Anyone running such a system needs to prove that all of the coins involved in mixing did not come from
a US citizen. Moreover, the same applies to the UK, Europe, and many other countries. To prosecute, a
treasury or an FBI agent would simply need to send money to the site and enable mixing. If a single fake US
account can be set up, it is criminally a breach of the law.

So, my take is simple: pseudo organisations such as Coin Centre are simply there to hide facts and allow
criminal activity to continue longer than it should.
Taxing Crypto
By Craig Wright | 17 Jun 2019 | Bitcoin & Blockchain Tech
Like it or not, Bitcoin and other cryptocurrencies do not stop you from paying tax. They are not designed for
such a purpose. Rather, they can facilitate fair taxation. It is possible to integrate a value-added tax directly
into Bitcoin using script. Doing so would allow an organisation to pay its VAT instantly on the sale of goods
or services. Further, it can be integrated in such a way that even a reversal from the customer would allow
instant and automated taxes to still apply without fraud.

Anti-money laundering rules apply to Bitcoin and other cryptocurrencies (such as BTC). What people fail to
see is that money-laundering protections require exchanges to capture your identity. If they are not doing
so, they are a criminal organisation and will be shut down. If you’re using a criminal exchange, you can
expect it to be seized and your funds to vanish. In other words, your investment will become worthless in
moments. Anti-money laundering provisions apply even when we’re talking about peer-to-peer exchanges
(such as the mythical unicorn, a DEX). The reality is that they are simply money services providers that are
run by criminals seeking to avoid regulation and law. It is not only an unfair advantage for the illegal actor,
but is also an incredibly risky strategy if you’re an investor. All such exchanges will be seized, and all the
funds on them will disappear in the same way that e-gold or Liberty Reserve US Dollar vanished in an
instant.

Nobody Likes Tax

I don’t like being taxed, nobody does. Having said so, the reality is that the more we allow people to get
away with scamming the system and cheating, the more we give government departments an excuse to
crack down on us and invade our lives and our privacy. If we want to be treated like adults, we need to start
acting in such a way and understand that we live in a world of rules. If you don’t like the rules, work to
change them. You work to change them by lobbying parliamentarians and having those who represent you
support your idea.

People don’t seem to realise that Bitcoin was designed as an immutable evidence trail. It is anything but an
anonymous system. It was designed not to allow all of the under-the-table deals and frauds delivered by
systems such as e-gold or bit gold.

If we want a fair society, it needs to be one under the rule of law. If you want a fair society, it needs to be one
where everyone has an equal treatment under the law and pays the same amount of tax. That is, a single
rate likely based on what people consume. Right now, the rich pay very little tax. Even things like VAT are
easy to avoid if you have money. Utilising Bitcoin, we can change the scenario. We can make people pay the
tax that is due, and do so fairly. We can have scripting built into Bitcoin such that any individual transaction
automatically pays the required amount of tax, which is settled immediately so that there is no incentive for
a merchant or others to try and skate such issues.

With an automated consumption tax, the rich pay when they waste money on idle goods and services and
are incentivised to reinvest in building more. They are incentivised to invest in more capital, and take risks to
increase the value of their holdings — which leads to more growth throughout society. The poor don’t use as
much. The poor don’t eat at restaurants where meals cost thousands of dollars a sitting, and the poor do
not drink £5000 bottles of wine. If you live frugally, you pay less tax. If you waste money on yachts and fast
cars, you pay more. Such a system is inherently fair.

Bitcoin allows us to create such a system. One that doesn’t allow people to avoid taxes legally by holding
money overseas. One that taxes people on what they spend in the respective country.

There are ways to ensure your privacy. If you buy 10 bitcoin on an exchange, it will be necessary to
demonstrate that you either pay the tax on the bitcoin and claim a gain or loss or pay a penalty. If we want
privacy, the best way to achieve it is to work within the system to ensure that those in charge of the system
do not unduly crack down and stop people from being free. It is the anarchists and those who seek fraud
that bring restrictions upon the rest of us unfairly.

If You Spend and Use Bitcoin, You Need Records.

The principle is important to remember, because if you cannot provide evidence of where you purchased
bitcoin and for what rate, you can be held to have purchased it at zero. It means you will pay 100% capital
gains and cannot use the purchase price to offset the gain. If you attempt to use addresses that don’t
belong to you and then move or transact, you can be held liable and have to pay tax. It’s important to
register your addresses, because otherwise, if people alter records on you as it happened to me in the past,
you could be liable for more tax than you should be.

For small amounts, such as exchanges under US$200 and selective purchases as at restaurants et cetera,
the use of bitcoin does not invoke money-handling rules. For instance, if a department store accepted
bitcoin, I would be able to go in and buy a camera as if it was cash. The other side of it, of course, is that the
department store would need to keep a full record of the exchange. It would need to be available for tax
records. Using bitcoin also requires that you maintain full records, or you will discover very quickly that you
owe a lot more in tax than you believe.

Let us think of a small scenario. We have a few individuals:

Mike the miner;

Alice who purchased from Mike;
Bob who exchanges goods and services with Alice for bitcoin; and
Charlie who works for Bob and is paid in bitcoin.

With the four people we can follow the tax consequences associated with bitcoin and tracing addresses.

Mike is a miner, and he creates a new block. The block has a transaction Tx(M0) that has a block reward
including transaction fees of 17.5 BSV. We’ll say that Mike is located in the USA, for example. Mike has
average costs for each block he mines of USD15,000. The block is valued on the market at USD21,875. This
gives him a net profit of USD6,875 for the creation of the block. I won’t go into accounting principles and all
of the aspects of depreciation or other areas that Mike could claim, but without anything else to depreciate,
Mike will now pay tax on the USD6,875 that he has earned as profit for his block.

Mike will need to account for the value of the block either at the end of the tax year as a nominal asset that
can go up and down in price or when he sells it. If Mike is holding his bitcoin as an investment, he accounts
for tax gains and losses each year. If he sells immediately, he doesn’t need to mark the value to market but
can use the rate he exchanged at. For our example, we will use the instance where he sells in the same tax
year for simplicity.

Mike sends a transaction from his wallet. To improve privacy, Mike conducts a transaction where he moves
his mined bitcoin into new addresses. The process is:

TX(M0)

Mike earns bitcoin from mining to Pub(M-0).

TX(M1)

As Mike is a miner, he does not need to pay fees — he is not in a rush. He pays to each of the addresses, and
mines the transaction without fees into a new block. The process takes several blocks to be accepted, but
Mike doesn’t care as he is not in a rush.

Alice decides to buy 10 BSV from Mike because she wants to invest in some bitcoin. She wants to be able to
use the coins to purchase goods and services, but hopes the price will go up and that she will gain from the
investment. Alice buys 10 BSV from Mike at a rate of USD1,250 per bitcoin for a total expense of USD12,500. It
is conducted with an exchange through Alice’s bank account into Mike’s bank account.

In our instance, as Alice is not an exchange, she does not need to register as an MSP, and nor does Mike. The
process is detailed below:

TX(MA2)

Mike sends a transaction from his wallet to Alice. Mike cares about privacy — it is very important to him. As
such, Mike sends each transaction separately, and doesn’t send everything as one into Alice’s wallet. He
could do so, which would allow him to consolidate the UTXO set, and Alice would receive one single transfer
of 10 BSV, but as Mike and Alice care about privacy, they conduct three separate transactions. To ensure
privacy, Mike even moves other transactions. If Mike is lucky, he will get his fee back in a future mining
reward, but this is probabilistic. Alice and Mike have exchanged multiple templates, and have multiple
addresses rather than just one. Alice and Mike are doing so to ensure that they maintain maximum privacy.
Alice has a privacy-enhanced wallet that never spends across different coins unless she chooses to put them
in the same group.

In Pub(M1-B), Mike is sending to himself so the transaction is not broadcast and he gains 100% of the fee —
but to a new address. Doing so helps Mike appear to be sending a transaction to other people, and helps
improve his and other people’s privacy.
Mike could save himself a very small amount in mining fees, and Alice could do the same if she was willing
to wait, but doing so would reduce privacy — and we are talking about a cost of 1/4 of a cent to Alice for a
USD12,500 purchase and a cost of 1/8 of a cent to Mike as they now increased the privacy in the chain and all
the expenditures.

If Mike holds the remaining 7.5 BSV until the end of the tax year, he will account for the value based on the
market value at the time. Every good accounting platform can handle such a valuation process. The value of
the bitcoin sold to Alice is set by their exchange, which is the market value. Alice can now account for the
value of her bitcoin based on her purchase price. Any gain or loss will be calculated against the deduction
obtained from the purchase price.

It is important that Mike maintains good records of his transaction with Alice. Let us assume that it’s been a
very good year and between now and the end of the year, the price of bitcoin has increased from USD1,250,
where it was when Mike sold to Alice, to a value of USD2,500 just before the tax year ends.

Mike did not sell the remaining 7.5 BSV. As long as he can prove that he made the sale to Alice, he has no
problems with the tax on the initial sale being paid on his smaller profit. If he loses the record of the
transaction with Alice, then Mike will have to pay tax not on the increase and the remaining 7.5 BSV at the
increased rate, but rather he may need to pay tax on the full amount (ignoring the small fee rounding
value).
As such, if Mike fails to keep good records of his sale or cannot prove that he made a sale to Alice, he is now
deemed to have maintained the bitcoin that he sold and will mark to market the profit. In the first year,
Mike has now made a loss of USD3,750 in potential revenue from the block by not maintaining details of
where he sold to. If Mike sold to a responsible exchange, one that maintained proper accounting and
records, the scenario would likely be simpler than if he was selling to the general populace. But, if he was
selling to an exchange such as Binance that does not maintain good records, it is possible that Mike may
not be able to claim the sale.

Let us assume now that Mike does not have records and cannot prove the sale to Alice. She has held all of
her bitcoin in our hypothetical scenario for another year, and the prices skyrocketed. Mike would now need
to account for the value when Alice sells unless he can prove that he was not holding the key. Let us
assume that bitcoin skyrockets to USD10,000 for each bitcoin. He has already claimed all of the expenses
associated with mining the bitcoin, and cannot claim again.

The market value in the previous year for the 10 bitcoin started at USD2,500 for each bitcoin held and has
increased fourfold. Mike can of course claim the value that he paid tax on from the previous year.

So for each bitcoin that he sold to Alice, the tax office can now claim that he has again made further profit at
the end of the year. Let’s further assume that each of the addresses owned by Alice has moved and sold at
the USD10,000 mark. Which will preclude Mike arguing to have lost keys. As the keys have been used, there
is a presumption that they exist unless Mike can demonstrate his sale to Alice.
There’s a very good chance Mike is now bankrupt. The tax office can assess him as having hidden the
“cryptocurrency” earnings he made and as if he did not make the sale to Alice. It is your responsibility to
maintain records, and as a business, if you fail in such an endeavour, the tax office can and will assess you as
if you did not make the sale. There are important reasons why things work in such a way. It is not just to
maintain correct levels of taxation but also to minimise fraud. If Mike was able to operate without records,
he would gain an advantage over honest businesses. Importantly, shareholders and other parties would not
know whether Mike had stolen assets or manipulated his earnings. Bitcoin does not work in isolation. For
Bitcoin to work as an honest system within the world we live in, it requires records. Luckily for Mike, you can
store such records on-chain.

Allowing Mike to transact with Alice in a manner that captures her details ensures that Mike remains
profitable. Mike can seek to aid criminals by not declaring his sales and not maintaining proper record-
keeping, but doing so will quickly make Mike unprofitable and go out of business. In such a way, Bitcoin
helps to incentivise honest businesses, and pushes those who are not honest into bankruptcy.

Next, Let Us Move On to Alice…

We already know that Mike is going to want to ensure that he is covered from tax liabilities. In selling to an
individual such as Alice, he will ensure that he has all the details required and stored to maintain regulatory
compliance. If he doesn’t do so, he is dancing with the devil in a matter of time, and eventually he will be
audited and lose his business. More so, it turns out that if Mike is found to be reckless by the tax authority,
they can even double the amount he owes. Consequently, Mike is incentivised to ensure that he never loses
any details about the people he buys from and sells to. Some sort of on-chain storage with backup, and the
blockchain would be a massively effective idea for him.

So the next phase is Alice. Alice also wants to maintain details. The reason is, Alice is eventually going to
spend money. In our scenario, Alice is incentivised to ensure that she records all her information when she
purchases from Mike.

Alice has split up her keys because privacy matters to her. She has her 10 BSV split into four different
addresses. In the current tax year, Alice is going to spend from two of the addresses, leaving the others
untouched.
Alice makes two purchases from Bob — of a laptop and a high-end monitor. We will not consider the
depreciation or other aspects of the purchase from a tax point of view in our analysis.
In our simple example, Alice has made two purchases from Bob. The first purchase was made when bitcoin
was at USD2000. The second purchase was made when bitcoin was at USD2400. In the first purchase, Alice
was at the store and purchased her laptop using a corporate account. Bob linked the purchase to the used
account, and issued an invoice on-chain. As Alice has a corporate account with Bob, all invoicing and other
requirements are stored seamlessly on-chain allowing Bob and Alice to know that when tax time comes,
they will be compliant and breezed through their filings and any possible audits.
Let us now say that Alice sells a further 5 BSV at the end of the tax year; she already has her equipment that
she has bought for a total of USD1,991.48 on the first purchase and of USD603.39 on the second. Now she
makes an exchange on a compliant regulated exchange because she knows she needs records. In the tax
year she sells 5 BSV, and gets a rate of USD2,800 for each BSV she sells, giving her USD14,000 as we can see
below:

So, when Alice ensures that she gets all the details from those she is trading with, she knows she will be tax
compliant. Doing so is important; the reason is that if either Mike or Bob are audited, Alice knows they will
provide the tax office with her details for validation. If Alice tries to spend her bitcoin without filing for the
correct taxes, she knows the tax department will be able to instantly penalise her. Besides, it’s not worth the
risk. Alice has managed to make a gain as bitcoin increased in value, and has purchased a laptop and a
monitor. Alice is actually very happy, and pays her tax without fuss because she has 3.7 bitcoin remaining at
the end of the year and money in the bank. Even with the subsequent drop in value to only USD2,100, at the
point of the new tax year, Alice is happy.

Alice is very happy with the scenario as she understands that if she had not maintained records and paid
tax, she could have been assessed with a loss where the tax office would have charged her double the usual
amount. You see, when you cheat on your tax, other people have records that point to you. Bitcoin includes
an immutable audit trail. So if Alice fails to maintain both records of her own keys and cannot demonstrate
where she has sent her bitcoin, she can be liable for all the gains in the other transfers.

For instance, when she sends to Bob and if she doesn’t go to a compliant store that keeps tax records, she
won’t be able to claim. It may not seem an issue until you realise that the tax office can match all of your
sales and movements of bitcoin. When you buy from a registered exchange, the exchange has records. The
same applies to all custodial wallets. So, if you move your bitcoin that you have gained through exchanges,
eventually you have to account for it on tax. When you don’t, you’re liable for every other purchase and
movement of other people’s bitcoin. If you can’t prove where you sent bitcoin, you’re liable. Here lies the
mistake that people make. They think they can hide from tax. It’s really important not to try to hide from tax,
because Bitcoin is not anonymous. The tax office doesn’t need to prove that you made a sale, you need to
prove to the tax office that you made a sale.

I’ll say it again: The tax office doesn’t care, and doesn’t need to prove to you. You need to prove to the tax
office.

It’s that simple: they maintain records, and if you fail to lodge the required amounts, then you are liable.

It is actually simple. Software could make the scenario far more complicated with mixed wallets and rules to
set up mixing between your own accounts. When you own addresses, mixing with people who are under
AML controls is legal and compliant. You keep records of who you have been exchanging with, and Alice
could make the scenario even more private.

Bob and Charlie

And so it continues; if Bob pays Charlie using bitcoin, Bob and Charlie need to maintain records. Just like in
our example with Alice above, if Charlie fails to maintain records, he will end up being taxed excessively —
which will occur because Bob will keep records. If Bob doesn’t keep records, Bob will end up in the scenario
in which Mike could have been. In other words, he will end up paying far more in fees and fines to the tax
office. If Bob cheats, there are others who have records that link to him. As such, Charlie knows that Bob
wants to minimise his taxes, and has lodged to ensure that Bob minimises his own taxes, meaning that
Charlie’s income is known. If Charlie uses his pay that is held in bitcoin, any gains must be accounted for.

It is an aspect people neglect, but when you purchase bitcoin from an exchange, the exchange is required,
by law, to have anti-money laundering (AML) procedures and know your customer (KYC) procedures in
place. If they don’t have full KYC procedures in place, then they are a criminal organisation and will end up
shut down with all of the people using the exchange losing 100% of their money. Think of Liberty Reserve.

As such, for those of us who aren’t criminals, there is nothing but pain in avoiding keeping records and
reporting your gains in having bitcoin.

Imagine Now if Tax Could Be Automated

We need to help governments and tax authorities understand that Bitcoin allows tax to be built into Bitcoin
directly and in a fair manner. A value-added tax can be applied within script. Doing so would allow a
merchant to send the required amount of VAT to the government instantly as any transaction occurs. It
reduces fraud, and also means that the government can take a less heavy-handed approach to tax audits.

Smart contracts don’t avoid tax and government; they make things simpler, and remove much of the
bureaucracy from the means.

Becoming Non-Resident
Many countries are alike in Australia in the sense that they tax people as they leave the country. As a tax
non-resident, if you dispose of assets, you would only be subject to capital gains tax (CGT) if the assets
qualify as “taxable Australian property.” Such includes Australian real property and certain holdings of
shares in companies that have a majority of their assets as Australian real property.

Further, when you become a non-resident, you are deemed to have sold all your CGT assets that aren’t
taxable Australian property for their respective market values at the time. So it is theoretically possible to
pay the tax before you sell the asset, although you can generally choose to defer any capital gain or loss
until you later sell the asset. If you make such an election, your CGT assets are taken to be “taxable
Australian property” and so will fall within the Australian tax net if it is subject to a taxing event (such as the
disposal).

The meaning here is that as you properly plan your estate, you will be subject to tax as you move between
countries, and having bitcoin does not change the matter.

Note : Miners collect fees in a block, the users do not send them directly to an address; the miner selects it.
The Genetic Fallacy
| 18 Jun 2019 | Bitcoin & Blockchain Tech
By Craig Wright
The genetic fallacy avoids an argument by shifting the focus onto something’s or someone’s origins. It’s
similar to an ad hominem fallacy in the sense that it leverages existing negative perceptions to make
someone’s argument look bad, without actually presenting a case for why the argument itself lacks
merit.

(also known as: fallacy of origins; fallacy of virtue)

Description: Basing the truth claim of an argument on the origin of its claims or premises.

Logical form:

The origin of the claim is presented.

Therefore, the claim is true/false.

In one specific case, it comes down to arguments about the people. Bitcoin is technology. You know the
other side of the argument is failing when it has moved to attacking a person rather than the argument
itself. It is a common tactic in the world of social media. Proof of social media is not about truth but
rather about a deception that can change and mutate over time. It is one of the aspects of Bitcoin that
have been developed that allows for a system of truth. If you view my videos and presentations from
2014, you will see that I have the same outlook and concept of Bitcoin.

When evaluating an argument, it is better to go to the source and not to take modified versions of
information. Biased media sources colour articles in a manner designed to prepare a response from the
reader or listener. In part, it is why the post-modern “thinker” (which is generally a stretch) is one who
follows them without thinking, askew science and the modern legal process.
The attack comes down to the individual. You end with diatribes of YouTube videos, gut feelings, and
the general ranting of social justice warriors. In many ways, it is designed to take you away from the
issue at hand. The fallacy can be used in creating a red herring. The genetic fallacy is commonly
presented in a continued argument as a matter of creating misdirection. It allows the arguer to slip in a
red herring ( ignoratio elenchi ) in a relevant conclusion or relevant thesis, for example. They avoid
refuting the point being argued, and cloud the issue.

In effect, they attempt to redirect the argument. It is similar to the fallacy of avoiding the issue, too. In all
cases, the person with a weak argument attempts to avoid his argument and use social media and
personal innuendo to create a means to abandon the original argument and move on to something he
can handle better.
The attack is closely related to ad hominem . People will call out fallacies after fallacy claiming that
you’re wrong because you’re fat, or you can’t be Satoshi because you’re too old; the nature doesn’t really
matter other than that it avoids a logical discussion of the issues at hand. And in doing so, they who are
involved in such an attack seek to take the position away from the real question and into something
utterly unrelated.

In my case, we see a move away from addressing the scaling of Bitcoin and the use of a series of
personal attacks to have people focused on a completely irrelevant scenario. The question of whether I
am Satoshi becomes the issue. I may be, which does not solve to answer to the point. There are two
aspects here, and one may be relevant in the sense that as Satoshi, I can answer for the reasoning
behind why I created Bitcoin. But the reasoning has not changed from the beginning: what I can do in
either form, myself now or myself under my pseudonym, is point out that there are no true statements
or arguments made justifying that Bitcoin was anti-bank or anti-government.
What matters is scaling. Also, Bitcoin is a system that decentralises power. The question here that is
being avoided is where the power is being deployed. As Satoshi, I gain power only if I seek to change the
protocol. So interestingly, those who seek power, the illegal exchanges and bucket shops such as
Binance and the developers seeking to experiment and play with a protocol as they’re funded by those
seeking a system friendly to crime, are the ones grasping for power and hence seeking to avoid the
question.

In our instance, pointing out the funding for developers is not a genetic fallacy. There is an exception to
the genetic-logical fallacy: where there are biases that can act to be relevant to the claim, that set
boundaries on truth, they become an exception.

Pointing out that certain groups seek to promote money laundering and other criminal activities is a
valid logical argument, and does not act in the form of a genetic fallacy. The reasoning here lies in
looking at what is to be achieved in their arguments. Can we link the claims and consequences?

In a system designed to create truth, who benefits most through subversion? If the protocol cannot be
changed and yet it can be scaled, the argument about myself that is promoted in the attacks against me
becomes one that is easily seen to be a house of cards. The question of what matters is very simple. Can
Bitcoin scale. Can Bitcoin scale and remain a system that decentralises power and promotes truth and
trust?

The false claim is that, for instance, Craig is a bad man. If I am a bad man, then I can’t be trusted, and
hence my claims about Bitcoin cannot be trusted.

Here, of course, lies the fallacy that some are trying to promote. Bitcoin doesn’t need my promotion. In
having my team improve the code while maintaining the original protocol, we have scaled to handle
blocks the size of 1.4 GB. And before you argue that the block size doesn’t matter, that it should be small,
the argument on the nature of creating Bitcoin was set. In my persona as Satoshi, I am quoted from a
decade or so ago how Bitcoin scales to exceed Visa and that it can grow to be a system that will run in
data centres and that handles a load far greater.

The often misquoted directive that Bitcoin must be small is not a claim of Satoshi but of James Donald
and others who argued with me. So the question here is not whether I am Satoshi, because my views
align completely to those in the past. Rather the argument is one of whether Satoshi would have
suddenly changed his mind and now flip-flopped to support a system that is being changed to resemble
e-gold and the one of Liberty Reserve, all of which existed when he was there. Would he abandon his
principles and sell out for money? Such are questions that need to be asked. And selling out doesn’t
imply the support of the original stable protocol but rather the support of a system that facilitates crime.

Of further interest presents a point for you that matters. The only reason we stopped scaling past 1.4-GB
blocks is that other software needed to catch up. Bitcoin handled it without an incident. It was block
explorers and other software that had been built on a foundation of small blocks that needed time to
catch up. There is no scaling limit to Bitcoin. The scaling limit is imposed.

So, as you have been distracted and focused on me, I have built. People believe that they should know
how many bitcoin I have so that they can use the knowledge as market information. You won’t. If I
decide to move certain coins in the future, it won’t be by announcing to anyone. It will be a black swan
and an event that I choose. So, please understand that if you think it matters that I prove to you, you’re
going to be severely disappointed and likely suffer adverse consequences.
I am the creator of Bitcoin. You will never discredit it, and you will never stop my system. If you choose to
bet against me, I already know the outcome.
5/5 Bitcoin and the connection to contracting
By Craig Wright | 21 Jun 2019 | Bitcoin & Blockchain Tech
The postal acceptance rule and non-RBF Bitcoin

The postal acceptance rule states that where an acceptance is to be sent by post, the contract associated
with that acceptance is considered as concluded at the moment of posting the letter, not when the letter is
received (or in fact if the letter is received). If the offeror does not wish to conclude, the contract through
acceptance via the post, s/he may stipulate the form of acceptance. (The “postal acceptance rule” was
introduced to present assurance to the “new” British penny post. It dates back to Adams v. Lindsell , 1
Barnewall and Alderson 681, In the King’s Bench (1818) ; See also Household Fire Insurance Co v Grant [1879]
4 Ex D 216 ).

Lim (2004) points out that there have been at least “twelve theories or explanations offered for the postal
acceptance rule” . He further notes that two of these theories apply particularly well to Internet-based
contractual transactions. The first theory hypothesises that the postal acceptance rule is applicable to
Internet transactions as the communication proceeds through a third party. Next, an argument exists for
the theory that the postal acceptance rule applies to Bitcoin Transactions, as it is a non-instantaneous
means of communicating.

Contractual acceptance through Bitcoin remains unsettled by judicial review or decision. As such, there is
still a high degree of uncertainty surrounding the issues of offer and acceptance related to the formation of
contracts through peer to peer digital currency based communication. In the US, this issue has been
determined through statutory intervention ( Uniform Electronic Transactions Act, 1999; USA ). In the UK, the
issue remains unclear even following the ECA.

In cases concerning international transactions, the Sale of Goods (United Nations Convention) Act 1994 may
be applied. This act overrides the concept of “postal acceptance” is and as an alternative presents the
approach that acceptance “ will become effective at the moment the indication of consent reaches the
offeror” . In practice, the acceptance transpires at the instant that the communication arrives at the offeror’s
computer or possibly when it is incorporated into a block if the user is offline. While no decided cases on
this point are available as guidance, the courts have traditionally been disinclined to extend the application
of the postal acceptance rule.

Although telex, e-mail and Bitcoin transactions are separate technologies, they share many features. In both
Entores v. Miles Far East Corp ([1955] 2 QB 327) and Brinkibon Ltd v Stahag Stahl (1983) , the courts
declined to extend the application of the postal acceptance rules.

Lord Wilberforce ( Brinkibon Ltd v Stahag Stahl [1983]) stated at 42, “where the condition of simultaneity is
met, and where it appears to be within the mutual intention of the parties that contractual exchanges
should take place in this way, I think it a sound rule, but not necessarily a universal rule”. The issue of “block
confirmation” for Bitcoin Transactions could be an important factor in a future decision. Lord Fraser of
Tullybelton (at 43) differs somewhat in his judgement from Lord Wilberforce, stating that:

“A party (the acceptor) who tries to send a message by telex can generally tell if his message has not been
received on the other party’s (the offeror’s) machine, whereas the offeror, of course, will not know if an
unsuccessful attempt has been made to send an acceptance to him. It is therefore convenient that the
acceptor, being in the better position, should have the responsibility of ensuring that his message is
received.”

From the above cases, we can see that technological differences such as the inclusion of read and sent
receipts. Further, the arguable position of bitcoin transactions as to whether it is or is not “instantaneous”
has created a level of uncertainty in contracting as “the question of the applicability of the postal
acceptance rule to e-mail acceptances has not been judicially settled.” (Lim, 2002, p66).

The postal acceptance rule as a generally consideration does not to apply to Web-based communications.
This is because most Web-based systems employee mechanisms such as check-sums to maintain constant
communication between the client and server systems. The constant verification this communication
channel provides for the implication that communications take place though an immediate send process.
Thus, both parties receive communications instantaneously.

The UK Government has not adopted the Model Law ( As contained in the Electronic Commerce (EC
Directive) Regulations 2002, SI 2002/2013 ), which would have put to rest the postal rule argument
concerning email. The regulations do however unmistakably declare the point at which an order is legally
supposed to be communicated. Regulation 11(2)(a) states that where businesses contract, “ the order and
the acknowledgement of receipt will be deemed to be received when the parties to whom they are
addressed are able to access them ”. Where contracts complete by Bitcoin are concerned, the instant of
completion would be the time when the transaction is presented to the person to whom it is addressed and
not when the message is actually received by their wallet. Alternatively, the receipt of the transaction by
mining servers (nodes) would also form evidence of acceptance.

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34. Treitel, G.H. (2003) “The Law of Contract”. 11th Edition, London: Sweet & Maxwell

35. van de Graaf, J. & Peralta, R. (1987) “A simple and secure way to show the validity of your public key” . In
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Cases

1. Adams v. Lindsell, 1 Barnewall and Alderson 681, In the King’s Bench (1818)

2. Apple Corps Limited v Apple Computer, Inc. [2004] EWHC 768

3. Brinkibon Ltd v Stahag Stahl (1983) 2 AC 34 (House of Lords, UK)

4. Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256

5. Debenhams Retail Plc v Customs and Excise Commissioners [2004] EWHC 1540

6. Daulia v Four Millbank Nominees Ltd [1978] 2 All E R 557

7. Eliason v Henshaw , 17 US 225, 4 Wheat. 225 (1819)

8. Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 (Court of Appeal, United Kingdom)

9. Fisher v Bell [1961] 1 QB 394

10. Goodman v J Eban Ltd [1954] 1 QB 550

11. Hayes v. Brown [1920] 1 KB 250

12. Hill v. R. [1945] KB 329

13. Household Fire Insurance Co v Grant [1879] 4 Ex D 216

14. Hyde v Wrench (1840) 3 Beav 334

15. J. H. Tucker & Co.Ltd. v. Board Of Trade [1955] 2 All ER 522

16. L’Estrange v. Graucob [1934] 2 KB 394, 403 per Scrutton LJ

17. Lyell v. Kennedy (No 3) (1884) 27 Ch D 1

18. Manchester Diocesan Council for Education v Commercial & General Investments [1970] 1 WLR 241

19. MARK WILLIAMS and another(1) vs. AMERICA ONLINE, INC. 2001 WL 135825 (Mass. Super., February 8,
2001)

20. Partridge v Crittenden [1968] 2 All ER 421

21. Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd. [1953] 2 QB 795

22. Roscorla v Thomas (1842) 3 QB 234

23. Saunders v. Anglia Building Society [1971] AC 1004.

24. Stevenson v McLean (1880) 5 QBD 346

25. Thornton v Shoe Lane Parking [1971] 1 All ER 686

Statues and Regulations

1. Art.1335 Italian Civil Code.

2. Germany: case RGZ 144, 292

3. Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a
Community framework for electronic signatures

4. Directive 2000/31/EC on Electronic Commerce OJ 2000 L 178/1 and Council Directive 94/44/EC on Certain
Aspects of the Sale of Consumer Goods and Associated Guarantees OJ I 171 7.7.99

5. Law of Property (Miscellaneous Provisions) Act 1989 (c. 34)

6. Resolution adopted by the General Assembly [on the report of the Sixth Committee (A/51/628)] 51/162
Model Law on Electronic Commerce adopted by the United Nations Commission on International Trade
Law.

7. Sale of Goods (United Nations Convention) Act 1994

8. Statutory Instrument 2000 №1798 (C. 46) ELECTRONIC COMMUNICATIONS Electronic Communications
Act 2000 (Commencement №1) Order 2000; Electronic Communications Act 2000

9. Statutory Instrument 2002 №318; The Electronic Signatures Regulations 2002

10. Statutory Instrument 2003 №2431, The Land Registration Act 2002 (Transitional Provisions) (No 2) Order
2003

11. The Electronic Commerce Directive (00/31/EC) and the Electronic Commerce (EC Directive) Regulations
2002 (SI 2002 №2013). [Includes The Electronic Commerce Directive (00/31/EC) and the Electronic Commerce
(EC Directive) Regulations 2002 (SI 2002 №2013); On the 21 August 2002 the Electronic Commerce (EC
Directive) Regulations 2002 (SI 2002 №2013) transposed into UK law the majority of the provisions of the
Electronic Commerce Directive (2000/31/EC)]

12. Uniform Electronic Transactions Act, 1999; USA

13. UNCITRAL Model Law on Electronic Commerce with Guide to Enactment (1996), with additional article 5
bis as adopted (United Nations Model Law on Electronic Commerce (1996))

14. US: Restatement 2d of Contracts , S 56 & The United States Framework for Global Electronic Commerce

[1] http://blog.cryptoiq.ca/?p=534

[2] http://www.coindesk.com/code-is-law-not-quite-yet/

[3] https://bitcoincore.org/en/faq/optin_rbf/

[4] https://en.bitcoin.it/wiki/Double-spending
Operating an Escrow Document Storage and Secure
Signing Registry
By Craig Wright | 26 Jun 2019 | Bitcoin & Blockchain Tech
Abstract. We propose a system, method, server processing system, and computer-program product for
operating an escrow document storage and secure signing registry. In one aspect, the server
processing system is configured to: receive, from a user processing system in data communication
with the server processing system, data that is to be securely stored and maintained on the server for
the user. Such data will be encrypted in a manner that escrowed keys can be used to access data in
the event that a third party is to access the data without the individual’s signing and encryption key
(e.g. for access from the executor of an estate or a liquidator for a corporation). The data will be stored
in a time-stamped and digitally signed format to prove the integrity of the document in a manner that
cannot be altered. The document will be able to be signed by external parties who can validate the
authenticity of the document without having to read its contents.

Download and read the article here .

Logical Fallacies and the SCADA Problem
By Craig Wright | 16 Jul 2019 | Alternative Coins & Systems
The arguments for extreme events are interesting, and one has to wonder about the motivation for them.
The argument that a “ STUXPOCALYPSE ” will not occur and hence we need not worry about the security of
critical systems is astounding.

Straw Man

The first logical flaw is an argument based on the misrepresentation of an opponent’s position.

The argument is not one of apocalypse, it is one of widespread damage. Here, 100 deaths and a few million
dollars are considered widespread damage. It is quantitatively different from the end of the world. The point
is not whether an attack against Supervisory Control and Data Acquisition (SCADA) will result in the end of
civilisation as we know it. Even World War II did not manage to do so with all the damage it created, and a
SCADA cascade will not do something as dire.

So one has to wonder what the motivations and imperatives are for those who attempt to downplay the
security concerns surrounding unsecured control systems.

Using rhetorical tricks in order to mask the concerns around the security of control systems and to
downplay the nature of such threats smells a little fishy.

False Dichotomy or the Fallacy of Bifurcation

It brings us to the next flaw in the arguments: the supposition that only two alternative statements are the
only feasible options. It of course is not the truth, and the arguments here abound. There are many more
possibilities than those who seem to want to hide the security flaws in SCADA systems will allow.

The attack and compromise of a PLC using fine control are seen as the only issue. More, the only attack
vector is promoted as the sites being easily found through a Google dork search .

First, those sites that both are online and result in a discovery using a simple search-engine query are the
vast minority of sites. For each site that is poorly configured enough to have been indexed through a search
engine, many hundred exist online that have not been indexed.

In fact, none of the systems I have written about in recent times are accessible through a simple web
search. It does not mean that they are not accessible through the Internet.
NAT and simple technologies leave such systems obscured but online. Here we see that there is some
avoidance of obscurity. Which is a poor security control. It may help alleviate simple scanning worm attacks
to some extent, but the reality is, only to some extent.

Most of the attacks against Internet-connected hosts are not being targeted against the sites you can find
on a Google dork list. They are more and more targeted against internal systems where a compromised
client system is leveraged to attack the internal systems.

An external attacker with a flash-based exploit , a re-pinning attack against the client’s JRE , or for that
matter any number of malware and crimeware -based exploits can bypass simple firewall and NAT controls.
ATM networks associated with St George that are supposedly offline were impacted through a worm
infestation. Rail Services Australia managed to have a scanning worm inside the secure network a few years
ago, and just recently we have seen the U.S. Army’s drone network being compromised by a password-
sniffing Trojan.

Merely being behind a firewall or a NAT device does not make you offline. It does stop some of the simple
Google dork searches; but they have only ever been the tip of the proverbial iceberg.

Argumentum ad Ignorantiam

Next, we have the often cited claim that is assumed to be true (or false) simply as a result of not having been
proven false (true). In some cases, they are claims that cannot be proven false (or true in the converse).

I face the same in court from time to time, where it comes to the extreme. In one instance, the barrister of
the opposing party for whom I was acting as an expert witness decided, as they could not attack the results
I had obtained (the opposing expert having said the same in a published paper that he neglected to note in
court), to attack my beliefs. I have a degree in theology (and in law, various sciences, mathematics,
management, and more), and I am a trustee and from time to time a lay pastor.

I was told in court that I could not be a good scientist as I believed in imaginary beings (I believe in God).
Basically, we have here an argumentum ad ignorantiam , an argument that can neither be proven nor
disproven through science — which does not stop it from being deployed as an argument.

At the same time, we see it time and time again in calls to leave things as they are, to let sleeping dogs lie,
and to remain with obscurity and our heads in the sand, safe in the knowledge that what we cannot see
(foresee) will not hurt us.

But for SCADA systems, we have: “I do not see how, therefore it cannot be.” In saying so, we look at the
effects of attacking PLCs and the differences in the systems, and simply forget that most of them are
controlled from Windows-based systems. That LynxOs, Windows CE, and more act as agents.

Again, we assume it needs to be a nation-state effort such as Stuxnet, and forget it was a system designed
for fine control and not simply chaos. Chaos is far easier to achieve than fine control. It takes a lot of effort,
skilled people, and technical knowledge to create a system that can be automated and left to run remotely.

Breaking a system… is far simpler.

Red Herring

One of my old favourites that is so often used is the attempt to distract one’s readership (listeners if live) by
going off topic. In other words, to deviate from the topic at hand. In doing so, we can add a separate
argument which the author believes will be simpler to address and to run from the topic at hand.

There is a qualitative difference between cyber-terror events and kinetic terror events.

Yet, we see responses such as: “ For that matter, one could just get some C-4 and get a job at the facility
long enough to plant a bomb .” Well yes, we could, and having completed a degree in organic chemistry
specialising in fuel sciences (over a decade ago now), I also know just how likely you are to remove several
fingers in the attempt to make it.
Yes, it is possible (although not as simple as the movies would it make out) to obtain C4, Semtex, and other
forms of explosives containing RDX (cyclotrimethylene trinitramine) and PETN. But there is nothing on how
they are peppered with 2,3-dimethyl-2,3-dinitrobutane (DMDNB) allowing for both tracing the source and a
detective control.

Unfortunately for Bruce Willis, it is not actually as simple as it seems to sneak large quantities of C4 into
federal buildings unannounced anymore.

Fertiliser-based explosives are easier, but even then you can expect to be investigated from time to time,
and there is a level of risk with any kinetic engagement these days. Such is why for all the people out there
wanting to blow things up in the US, it remains a rare event. It is not easy, and not all terrorists want to blow
themselves up in order to achieve an objective.

It is why cyber terror is qualitatively different.

You can access an online system from anywhere in the world. The independent hackers ( cough FSB
sponsored ) in Russia who attacked Estonia and Georgia never suffered any repercussions. It is not as simple
as people think to organise a large-scale kinetic attack. It requires a high degree of co-ordination and effort.

On the other hand, hackers have managed to obtain access to critical systems by accident . Here, we are not
even thinking of the efforts of a former and disgruntled employee in attacking a water treatment plant ,
who of course also got caught as he was stupid.

Then, even the Large Hadron Collider and US drone control stations have been compromised without any
real repercussions for the lead perpetrators.

Such is what is really different here. To blow up a facility, you need to spend a lot of time, effort, and money
learning systems, building reputation, and doing more where you most likely have only one attempt (and
which, as history shows us, fails more often than it succeeds, even if we remember the successes and forget
the failed attempts).

To engage in a cyber-terror exercise on a vulnerable system requires skills that also allow an attacker to
engage in cyber crime and hence fund activities (and lifestyle) whilst remaining relatively anonymous. More,
you can be seated comfortably anywhere in the world, and as one detractor showed, you can even simply
do a Google dork search for such systems and choose what you feel like opposing AFTER you have selected
a target to attack.

Ad Hominem

Staying with a red herring , we have a very special form of it: the ad hominem attack, where we attack the
person to avoid facing the actual argument.

Here, we see comments such as: “Please go back to writing entry-level forensics books.” Not that writing
guides for people starting in a field should be seen as a detractor, but it is ignoring that that does not mean
we also do not do high-end academic research — which would not suit the argument and would not allow
the attack to seem as belittling.

The attack also comes in the form of an appeal to ridicule, where statements such as “ For the apocalypse of
stupid that will be happening thanks to the likes of CNN and the book of Langer and Wright. ” are used as
an argument and the attempt is made to present the opponent’s argument as being ridiculous. Which
does not actually constitute a valid argument, rather we see a form of petty attack.

We see the same in other attempts to ridicule:

When he opened the seventh seal, there was silence in heaven as the malware began changing PLC code.

From the book of Langer & Wright: Revelation Chapter 1 Verse 1

I guess it manages, again, to bring the straw man back up that has been supposed. In arguing widespread
damage, it seems that such must be a revelation-level event, or nothing we should be concerned with. I
wonder myself, what ever happened to middle ground?

Appeal to motive is next, and here we have a situation where the premise is dismissed through a question
of motivation. That is, by calling into question the motives of its proposer. The basis is to say that a matter
was all about money or similar. There are a number of flaws with such an argument in my case, not the least
of which is revealed as I donate most of the SCADA time and in doing more work in the area simply make
life more difficult for myself. Basically, I do so as it helps the people I care for. Then, such appeal to motive
was never a valid argument in any event.

I am still awaiting many of the other ad hominem attacks such as:

Poisoning the well : Here, adverse information is put forward in order to discredit one’s opponent. It
can be true or not. It does not, of course, relate to the argument at hand. I did mention one example
above, saying I believed in God (as a bad thing) as an example of why I couldn’t engage in scientific
discourse (I also believe in evolution).
Appeal to spite : a specific type of appeal to emotion . In such a fallacy, the argument is made based
on an exploitation of the listener’s (reader’s) bitterness or spite towards the other (opposing) party
and/or its beliefs, position, etc.

Argumentum ad Nauseam

Argumentum ad nauseam is an argument such as in the form of: “We have discussed the security issues
around SCADA for years, and nobody cares to discuss it anymore.”

Well, SOME people do not want to discuss it anymore. Then, nothing is making them do so. In fact, in
actually engaging in the argument, they disprove their argument through their own actions.

Onus Probandi

Onus Probandi is the logical fallacy based on a premise that a party needs not prove its claim, but that we
must prove it is false — not as a hypothesis or any other such thing, but just as a matter of fact.

They cannot, of course, and hence we see the concept again and again.

Argumentum ad Antiquitam

Here, again, we come to a conclusion that has its sole support in the matter of history. In other words,
something must be true as it has long been held to be true.

The argument goes along the lines of: “We have not seen many SCADA attacks, thus there cannot be any
SCADA attacks.”

Well, the fact that we have not seen an event does not make it improbable. In fact, we have the issue here
that the class of events in the ‘90s was distinct from those present in the current decade. We are more
connected, and more systems are vulnerable.

Fallacy of the Heap

How about we improperly reject the claim that SCADA systems are at risk simply due to imprecision. In
other words, as we cannot say which systems will be attacked and we cannot say exactly when an attack
may occur, we are concluding that it cannot ever occur.

Ummm… It seems that there is a consistent flaw in all of them.

I can add many more fallacies…

Ignoratio Elenchi

Ignoratio Elenchi is the constant use of irrelevant conclusions that miss the point. In some cases, the
argument is valid in itself. But it does not actually address the issue in question. SCADA systems are running
insecurely, and the compromise of such systems can lead to a loss of life.

One such example would be the compromise of rail signalling systems. Which could lead to a peak-hour
collision of two incoming commuter trains.

Is it the end of society as we know it? No.

Is it a tragedy? My God, yes!

Which is the point. Extending the loss of life to an argument where it is only valid if the entirety of society
collapses is ludicrous at best.

Kettle Logic

Here we see the use of multiple inconsistent arguments to defend a position.

“EMP’s Man Made & Solar… Now There’s Your Apocalypse”

Well… How about FUD?

Let us ignore the fact that making any real device that has a large-scale effect is both difficult and expensive
(and limited in range) and jump to something that is truly FUD.

Economics 101

We have systems that are not difficult to secure. We say they are, but the reality is: people are the
impediment, not the technology. In some cases, securing such systems will create a positive ROI from day 1.

More, we have a situation where small investments can forgo large losses.

The argument is not that civilisation will end, but that small incremental improvements, some that do not
actually cost money or even time, can make us much safer.

Economics is all about incentives. It is creating systems where people and groups do the right thing. Right
now, we are creating externalities and not allowing those who have failed systems to be responsible for
their failures.

The reason for doing so is that it costs money to implement a secure online system. If you can get away with
not securing a system AND do not have to face the consequences of a failure (rather when and not if), you
have an economic advantage over another party by securing to a level that any reasonable groups would
expect.

I for one have to wonder about the vitriol that some individuals hold for society if they can simply treat the
loss of life and property as inconsequential simply as it has not resulted in the complete collapse of society.

Incentives

Right now, we incentivise poor security practices. The firms and organisations involved with SCADA systems
who actually care to secure their systems are penalised. When we create negative incentives in bailing
SCADA operators out from the trouble they have caused in running insecure systems and yet fail to offer
positive incentives to such groups who actually act in a manner that is consistent with giving a damn, we
create less secure systems.

So, SCADA systems are online. We seem to have agreement that you can even get their details (which is the
tip of the iceberg again) with a simple SCADA search. Such are systems that have large-scale effects.

Yes, it may be true that damaging a nuclear reactor in a manner that results in a meltdown is really beyond
anything less than a nation state, but so what?

Loss of power in a city for a few days will result in lost lives (and I happen to care about the extremely young,
the old, the infirm, and others that seem to be overlooked in the opposing argument).
Again, WHY are some people trying to defend poor practice and NOT take SCADA operators who are
ILLEGALLY running systems online to task?

Why do some people want to continue to incentivise poor security?

Where Does It Leave Us?

World War II was a global and catastrophic event, but the earth still stands. So, do I think the earth and
civilisation will come to an end due to SCADA flaws (or FUD through EMP/HEMP devices)?

No!

What is at stake is the loss of life and property that will result from compromised SCADA systems. Not just
PLCs as the opponents of such a position like to try and presuppose, but Windows XP and other systems
that act as controllers. A Trojan on a Windows host allows an attacker to control the PLC without actually
writing specialised malware such as Stuxnet.

You think the scenario does not occur… Well, there you are wrong. The dumping of sewerage in
Queensland (here in AU) cost millions to clean, it cost businesses revenue, it cost jobs, and it also meant that
many people in the area were unable to enjoy their properties in safety.

Well, I am the Australian in the “debate,” so I am wondering why it is the other side that is making the “don’t
worry she’ll be ‘right mate” assertions?
Reversing Illicit Transactions on Bitcoin Is Simple
By Craig Wright | 24 Jul 2019 | Alternative Coins & Systems
There is a lie that is propagated by those who seek to falsely claim that Bitcoin was created as an anarchist
system designed to oppose government and banks. Such is the scam that tries to change Bitcoin into bit
gold.

Decentralization is what allows Bitcoin to substitute an army of computers for an army of accountants,
investigators, and lawyers. [1]

— Nick Szabo, Twitter.

The entire purpose of such an attack on the nature of Bitcoin is to create a system that acts outside of law and
which, unlike Bitcoin, is designed to facilitate illicit activity. In its goal, a group of developers and those
seeking to promote Dark Web sites that disseminate illicit material have started the campaign to make
people falsely believe that Bitcoin was about all users running the nodes.

In July 2010, I said how Bitcoin would evolve. It is not a system where every user has a network node. I
explained the concept in section 8 of the original white paper. Nodes are not individual users but a function of
the verification system, a.k.a. miners. There is the false idea that all users need to check a transaction to
ensure validity. In my 2008 white paper, I wrote:

“He can’t check the transaction for himself, but by linking it to a place in the chain, he can see that a network
node has accepted it, and blocks added after it further confirm the network has accepted it.”

The user does not need to validate every transaction. In fact, there is no point. If a node is not creating blocks,
that is, it is not verifying and releasing solutions to the hashing problem, it is doing nothing on the Bitcoin
network to aid the security of the system.

I explained the idea in further detail when I said that the design supported users being users. Running a node
is an economic function based on the ability to profitably earn money. The more difficult it is to run a node,
the fewer nodes there will be. In time, the system was designed to end with only a few large server farms
being used to order transactions. There is a reason that my model of Bitcoin is attacked. And very simply,
such is my model of Bitcoin. The concept that Bitcoin was designed to be a completely distributed system
with every user running a node started with arguments made by people such as James Donald when they
posited government control.

The error that many people make is thinking that I was ever designing a system that would act outside of law.
Which cannot be further from the truth. The key aspect of Bitcoin, blockchain, leaves it with an immutable
evidence trail. Simply put, the same part of the invention creates a system that cannot be validly used to
create a truly anonymous but equally secure system.

It is, of course, why people in Core and those such as Greg Maxwell oppose me so vigorously. Decentralised is
nothing more than a marketing term for crypto assets. The reality is far different. If we take the fork of Bitcoin,
that is, Bitcoin Core or BTC, we see a system that actively promotes how it is decentralised. The truth is that a
single group of developers sets the process and controls the system.

There is also a clear contradiction in how groups like Core approach the development of Bitcoin. In being able
to falsely promote Bitcoin as being decentralised, many groups associated with illicit activities seek to
increase the range and scope of laundering and illicit payments. They argue that government cannot stop
Bitcoin. The reality is far from it. 75% of the hash power associated with Bitcoin Core exist within one country.

Core have falsely advertised how users would have power. The lie in such a claim is revealed as only those
creating blocks get the vote on the validity of transactions within Bitcoin. The reality here is that a court
action taken in the US with reciprocal enforcement through Chinese courts would result in a requirement for
over 80% of the global miners and a larger number of wallets and exchanges to enforce a change.
As an example, if a class action from a hacked exchange or an instance where the keys were supposedly lost
was to occur, a freezing order could first occur censoring any transactions and then later force miners to
reverse or alter transactions. The false myth of “code is law” has been propagated to hide the true nature of
Bitcoin. If, for instance, the US Justice Department determines that a ‘large’ Bitcoin address has been
associated with illicit activity such as people smuggling, it can get an order in a global court to freeze the
respective address. Many within the cypherpunk community will say how unfair it is and that they should not
be treated as others. Yet, Bitcoin was never designed to act outside of law.

Such is the nature of the attacks that are happening against my reputation and which will be sorted within
courts of law.

Bitcoin does not act outside the real world. It is not completely virtual. Bitcoin is not permissionless. At no
point did I ever say so, not as myself using my real name and certainly not as Satoshi — my pen name.

People argue how I don’t understand Bitcoin; unfortunately, it’s the other way around. Government and
courts in general can alter Bitcoin. A court order can force a transaction to be invalidated. A court order can
change the nature of the blockchain and require that the UTXO set is updated. On hearing it, you will be told
how it is not possible because all the nodes won’t accept it. My answer is simple: so what.

The nodes that matter are associated with businesses. All of them have real physical addresses, and all of
them can be sued or charged with criminal offences. More importantly, an exchange or miner that decides to
go against the dictates of the US court following anti-money laundering decisions will find itself cut off from
global banking. To some, the argument will be about how they can simply use Bitcoin, except that such won’t
be the case. Such a decision would isolate a company from the rest of the financial system and have
downstream repercussions including the cutting off from suppliers and vendors.

When I created Bitcoin, I said that it was not something designed to bring about a socialist revolution where
every individual gets to be equal.

Some have tried to twist my words, and say that the fleshed-out Bitcoin will be the Lightning Network:

https://medium.com/billion-crypto-stories/the-first-thread-depicting-the-moment-of-divergence-in-
perception-of-bitcoin-evolution-ca0a3acb1e49

In effect, such is the desire of people like Mr Donald and not myself. The Lightning Network does not act
outside of law, and is not outside the effects of the real world. Other people have told me I’d have to go where
the “bankcard network” does not go. In the coming years, people will start to see how much will has been
pulled over their eyes as courts start to act. There is a reason that virtually every description of Bitcoin and
derivative systems contains a section describing how decentralised it is; it is only the myth that slows down
the interaction of courts in the determination of property rights within Bitcoin.

The only diffusion of power within Bitcoin comes from a set protocol. An immutable blockchain does not
mean it can’t be changed. In accounting, many organisations, including all American public companies, have
to maintain ledger records on read-only ledgers — which has been the case for over 10 years now. Yet all of the
organisations are able to alter and change the ledger they maintain. The process is simple, you record the
nature of the change. You don’t delete a record, you record a transaction saying why and how the record has
been updated. It is nothing new in accounting. And it is something that is easily promulgated through courts
and can be enforced by governments.

The truth of the matter is, miners exist in the real world. Mining pools and large mining companies spend
hundreds of millions of dollars setting up their environments and facilities. If a court order was to come in,
such miners would have two options: they could either stop mining on the chain where an order has been
given by a court, or they could implement the change. There is no other option that allows them to keep
mining and run a business.

If a miner decided to go against such an order, there are assets simple to seize. If an exchange decides to
breach, it is simple to close. I’ve commented on it before, but Liberty Reserve was at its peak over 100 times
more distributed than Bitcoin has ever been. Yet through a coordinated activity across 42 countries, assets
were seized and the system was shut down. To stop an illicit system using Bitcoin, the government would
need to know about the Bitcoin address and movements that are recorded publicly on the Bitcoin
blockchain and issue a court order.

Coordination would be needed across a maximum of three countries at present. Bitcoin is not about allowing
transactions that go outside of the purview of government. Such was always the aim of bit gold and not
Bitcoin.

Unfortunately, many of you have taken the false idea that decentralisation was the core of Bitcoin and built a
mantra of lies based upon it. In the coming 12 months, we will start to see actions by governments, and we
will start to see just how paper-thin the false mantra really was. Bitcoin was designed to be honest money,
and to be honest money, it cannot be anonymous.

Bitcoin is purely an economic system. The security of Bitcoin is economic in nature. Small transactions across
addresses and templates that are under a threshold which makes them economically non-viable to chase will
not be altered. But, large transactions across addresses will be. In time, people are going to start to see that
the laws of tracing and following apply to Bitcoin.

References:

[1] Nick Szabo (@nickszabo4), TWITTER (Sept. 3, 2015, 11:57 PM),

https://twitter.com/NickSzabo4/status/639663431918850048. Nick Szabo is considered the inventor of ‘smart

contracts.’

[2] https://bitcointalk.org/index.php?topic=532.msg6306#msg6306
Spam Away…
| 25 Jul 2019 | Alternative Coins & Systems
By Craig Wright
The first thing to understand about why people attack me and try to teach false mythologies about
Bitcoin is that they never wanted the version of Bitcoin I created. Bitcoin isn’t anti-government, and no
derivative blockchain ever will be. Many people are going to find this to be the case the hard way and
lose a lot of money in the process. Then, I have warned them, and if they choose to ignore what I say,
there is little I can do.

I’m going to start taking apart some of the false narratives.

Today, I am going to start with the narrative against sending many small transactions. It is a very
pernicious and subtle lie that stems from misquoting things I said and putting them out of context. It
originates from something that is quoted over and over and which you can see used along other
common quotes such as the ones linked here .

No, it is out of context, it is not what is being said.

Like many good lies, the narrative produced on the page relies on the laziness of the individual. They
want you to take something that is referenced and read it out of context. The original is correctly linked ,
but it doesn’t do justice to the entire post.

The second line of one particular comment seems to to some extent support the claim that the idea is
about stopping smaller payments.

Bitcoin is practical for smaller transactions than are practical with existing payment methods. Small
enough to include what you might call the top of the micropayment range. But it doesn’t claim to be
practical for arbitrarily small micropayments.

Firstly, as such we’re talking micropayments, and at the time in 2010, it was specifically saying that
micropayments in the order of 1 cent — 5 dollars were still valid, but not ones that at the time were a
thousandth of a cent. Even then, so it was at the time. The thread was concerning sending transactions
in the order of BC0.00000001 or at the time something around USD cents 0.000001.

But the most important part here lies in my follow-up comment. I posted across multiple lines. As I do so
often, I elaborated after my initial post. We see one example here:
Yes, micropayments are good.

Forgot to add the good part about micropayments. While I don’t think Bitcoin is practical for smaller
micropayments right now, it will eventually be as storage and bandwidth costs continue to fall. If Bitcoin
catches on on a big scale, it may already be the case by that time. Another way they can become more
practical is if I implement client-only mode and the number of network nodes consolidates into a
smaller number of professional server farms. Whatever size micropayments you need will eventually be
practical. I think in 5 or 10 years, the bandwidth and storage will seem trivial.

My comment was very simple, I wrote it was not very good for smaller micropayments “right now.” Right
now being in 2010 . I then talked about using roundup systems and purchasing a thousand page
accesses for searches at a time. As such, I was talking about Bitcoin at the skyrocketed price of USD0.10
for each bitcoin. The discussion was on payments and fees of less than 0.01 BitCoin, which at the time
was USD0.001. That is, 1/10 of a cent. At the time in 2010, Bitcoin was still in early developmental phases. It
was not about blocking access or saying that spam as people called it was bad, but rather about
detailing the system at the time.

Importantly, people fail to note that I said the scenario was likely to be different 5 to 10 years on. “5 to 10
years” referred to the period between 2015 and now. We surpassed the required level of computational
power years ago.

Bitcoin is practical for smaller transactions than are practical with existing payment methods. Small
enough to include what you might call the top of the micropayment range. But it doesn’t claim to be
practical for arbitrarily small micropayments. As such, a micropayment could be as small as 1/10 of a cent
and the size of up to $5.00. When looking at solutions of well under 0.1 c, you would need to layer
solutions — such as payment channels or, as I discussed, a means to aggregate. It is all there; in 2010,
BitCoin was not ready for things like pay per search or per page view without an aggregating
mechanism. They could have been done even then — just not in the form of individual transactions.

But the main and most critical part that people fail to see is that Bitcoin is designed to professionalise
and end in server farms .

If Bitcoin catches on on a big scale, it may already be the case by that time. Another way they can
become more practical is if I implement client-only mode and the number of network nodes
consolidates into a smaller number of professional server farms. Whatever size micropayments you need
will eventually be practical. I think in 5 or 10 years, the bandwidth and storage will seem trivial.

It is the point people seek to obscure. There is a false narrative and myth that Bitcoin is about running
user nodes in a distributed network of individuals. It never was close to being so, and such was never the
goal. More importantly, it doesn’t and cannot work in such form. The concept is not one of avoiding
government and law, it is a distributed money system that works to create an honest ledger.

Client mode is SPV. It is not what people call SPV in the community, but rather something that we’ve
been working on and building. The initial details of the concept are starting to be released in our wallet
workshops, but the reality is that nodes are miners and that home users and Raspberry Pis play no part
in Bitcoin mining. You may not like it, but there is little relevance here, and whether you like it or not, it’s
a fact of life.

The reason why people attack server farms as a concept dates way back to 2008. It dates to when I first
released the Bitcoin white paper and faced an argument from James Donald. His long-winded response
was a rant about government being able to take over and implement monetary controls. I said way
back, in the first set of posts, that the system would end in server farms. I did not say so once : I said it in
2008, I said it again in 2009, and I said it in 2010. It was not an accident or in error; Bitcoin ends as
commercial server farms. Such is how it professionalises.

Only people trying to create new coins would need to run

network nodes. At first, most users would run network nodes, but as the network grows beyond a certain point,

What you see in the desire to create small blocks is the desire to create bit gold and to replace Bitcoin.

Unfortunately for those failing miserably to understand Bitcoin (such as the Lightning Network
developers), you need to understand that Bitcoin operates within the real world, which means law. The
argument against and the attack on my version of Bitcoin had started before I even released the code.
James A Donald started the push for small blocks and transactions with the following statement:

But I think we need to concern ourselves with minimizing

the data and bandwidth required by money issuers - for
small coins, the protocol seems wasteful.

Here lies the push for all of the changes to my protocol.

In the following statement, James Donald captures the incredible lack of understanding around Bitcoin.

The smaller the data storage and bandwidth required for

money issuers, the more resistant the system is the kind
of government attacks on financial networks that we have
recently seen.

Bitcoin isn’t designed with government as a threat, it’s designed to work within global legal systems. It
incorporates many of the requirements of legislative processes such as Sarbanes Oxley and FINRA.

And, in my standard format I cut short a response to James Donald that everyone fails to link to the rant
that it was .

>[Lengthy exposition of vulnerability of a systm to use-of-force

>monopolies ellided.]

The rant that was cut can be found here .

I avoided answering and responding in full. I did so because I was getting annoyed. Hence the typo. You
can tell I was getting agitated as my responses started getting more errors. Unfortunately, Satoshi is not
perfect at spelling under duress. For the same reason, I tried to avoid getting into debates and
arguments when using the Satoshi pseudonym.

Instantant non-repudiability is not a feature, but it's still much faster than existing systems.

Bitcoin is better than cheques, and it’s better than the existing system we see with Visa and Mastercard.
But it is not and will never be a good system for crime and money laundering, which will be a very hard
lesson for some people. Those like Mr James Donald and many in Core will cry and complain as
government starts to crack down, but they will also learn what Bitcoin is really about. It doesn’t matter
how much you try to attack me or my reputation, the matter won’t change. The path Bitcoin is going
down was set in stone when I released the code. There are other ways to run the protocol and settings
within Bitcoin, but there is no way to run a Bitcoin system, any blockchain outside of law and the control
of governments.

People are going to discover just how fragile illicit transactions on Bitcoin really are.

And the thing is, the more you attack me for saying so, the more you are going to strengthen what I’m
saying. It’s simple to cherry-pick comments that I’ve made and to take them out of context and twist
their meaning, but the truth remains.

Bitcoin was never designed to be a system outside of law, nor was it designed to attack government.
Not one statement that I’ve ever made presents anything other than Bitcoin as honest money. Not one
statement that I’ve ever made explains Bitcoin as an uncensorable platform that would facilitate illicit
money transfers, illicit payments, or money laundering. If you think so, if you think that any blockchain
can aid you to such an end, you are in for a painfully hard awakening.

If you don’t like the fact that Bitcoin was designed to allow large server farms to act in a way that would
allow the government to enforce orders including the seizure of illicit gains, then it’s very simple: you
don’t like Bitcoin. More, you don’t want the idea of a blockchain at all. As I have written, Bitcoin is not
designed to run on every single node. It is very clear. As people cherry-pick answers and try to twist my
words, they do so with an agenda. They seek to alter Bitcoin and make it into something it was designed
not to be.

It was not then that I decided to leave the development of Bitcoin as Satoshi, but well before.

It wasn’t something that began with the creation of a heroin store and the development of Silk Road by
Ross Ulbricht and others such as Martti Malmi, it started way before.

But the thing is, no matter how hard you try, you can’t make a system that acts outside of law, because
you can’t make a system that acts solely in cyberspace. Every computer, every line of code, everything
you do exists in the real world. As much as you might want to avoid the fact, you exist in reality, and you
will never escape it.
Zeno’s Paradoxes and Bitcoin
| 26 Jul 2019 | Bitcoin & Blockchain Tech
By Craig Wright
A part of the reason for the number of bitcoin relates to a simple sequence that allows you to see how
many bitcoin are left at a glance, at least as an approximate figure. I’ve been asked why the block
subsidy started with 50 bitcoin each block, halving each block-reward period of four years.

There is an adequate number of bitcoin. More than we need for all of the uses that will ever be
developed.

There is a particular form of a Zeno’s paradox known as the Dichotomy paradox.

That which is in locomotion must arrive at the half-way stage before it arrives at the goal.

— Aristotle, Physics VI:9

In Bitcoin, we don’t need to worry about an infinite number of tasks or halvings as the limits on integers
allow the subsidy to disappear after around 2140. It’s an interesting sequence:

It looks different when we consider it another way. If we take 100 as an arbitrary amount because
percentages are linked to 100, we can now transform the values in a way that has meaning.

You will notice the block reward in the first four years to have been at 50 bitcoin per block for the
subsidy. It then drops to 25, then 12.5; and so on. And I have written them as 50/100, 25/100, et cetera for a
reason.

In the first four years, miners competed to earn 50% of bitcoin that would ever exist. In the second
halving, miners competed against each other to earn a further 25% of the total value of all bitcoin. At
present, miners are competing to earn 12.5%. After the next halving, miners will compete to earn 6.25%
of the total amount of bitcoin that will ever be available. That is, 1.6% of the total amount per annum.

In effect, the subsidy vanishes, but it is simple to see how much remains at any point in time.
When the block reward was 50 bitcoin as a subsidy, miners knew that 50% of the bitcoin would remain
after the halving.

When the block subsidy halved to 25 bitcoin, miners knew at a glance that 50% of the bitcoin that would
ever exist had been put out to market and that 25% would be remaining after the currrent block-subsidy
period.

Simply put, the block subsidy equals the amount of bitcoin as a percentage that will remain as a subsidy
at the end of the halving period.

So, as we move into the next halving in 2020 and the subsidy is reduced, the miners and others in the
ecosystem can easily see that with a block subsidy of 6.25 bitcoin a block, only 6.25% of the bitcoin will
remain available as a subsidy. That is, 93.75% of the subsidy will have already been collected and only
6.25 divided by 4 percent of the bitcoin subsidy will be available in each of the 4 following years. That is,
1.6% of the subsidy from the initial bitcoin will be available.

Which should make it very clear to the miners in the market that the bitcoin subsidy is not going to be
sufficient. The halving will not create a flood of bitcoin value through a sudden increase in price.

Instead of a Zeno’s paradox, some promoting bitcoin in a Ponzi-like manner arguing that the price will
double every halving are subject to the Persian chessboard or the rice and chessboard problem.

In falsely thinking that the price must keep doubling, they failed to understand that exponential
processes quickly get out of hand. Exponentials cannot go on forever. Just like the rice on our
chessboard, we eventually run out of the amount of anything needed, and in our case, there isn’t
enough value and money on the earth to continue doubling the price of bitcoin based on the subsidy
going away.

More importantly, it is looking at the wrong side of the equation. When the subsidy drops to 6.25 bitcoin
per block, it means that nearly 90% of the total bitcoin supply will already be on the market. Miners are
not the market alone. If the subsidy is the only way to earn and the transaction fee does not present the
majority of how block rewards are supplied, miners will be irrelevant to the market.

The Ponzi cannot continue. If Bitcoin doesn’t move towards a model where the subsidy is no more than
a small insignificant amount of the total reward earned by miners, then there will not be any value in
Bitcoin.

Luckily, we have managed to demonstrate blocks the size of 2 GB on the Scaling Test Network (STN) and
will be increasing the capacity further at a level that applications and other development teams can
keep up with. In the coming years, we will be running blocks that are in the order of tens of terabytes in
size. We will do so at a rate and cost that allow us to subsume all other transactions on the globe. We
will do it more securely and inexpensively than PayPal, than Visa, than Mastercard, or than cash.

Bitcoin’s value did not ever lie in subverting government or banks, it lies in Bitcoin’s efficiency.
Subsidised Growth
By Craig Wright | 29 Jul 2019 | Bitcoin & Blockchain Tech
When I started the Bitcoin network, the Bitcoin-Qt client was designed to both mine and act as a wallet. As
such, it was far from perfect as the alpha software, but many of the key peer aspects of cash such as in the
form of IP-to-IP transactions that have been removed form an essential part in making it a cash system.

In 2009, there was practically no value at any point to Bitcoin other than a promise of the future. Users
would have to download the entire blockchain, consume hard-drive and valuable network capacity, and
with a CPU time heat up their computers paying for electricity with no promise of anything past the dream
of Bitcoin being valuable one day. The dream was not terribly valuable at the time, and many people failed
to adequately protect the Bitcoin that they were mining.

I defined Bitcoin to work in such a way as there was no way I could see to bring on a large commercial
player who acted in competition with others and to convince them to run a distributed database in
competition at the time. Rather, the people using Bitcoin acted as a paid system to allow the system to
bootstrap.

I did so to ensure that the early users would help in bootstrapping the network. Before there was any real
value in Bitcoin, such interested parties would mine and help propagate transactions. As more miners
became available due to the popularity of the software, the difficulty increased and each party gained fewer
coins.

In the first few years, the total size of the Bitcoin blockchain was minimal. It was not too big an ask for
people who were particularly interested in the field to download a large file and try running the software. In
the age of hobby miners, the interaction between such individuals secured the network. At the time, it was
not difficult to participate, but Bitcoin was designed so that over time, fewer and fewer home-user systems
would be mining Bitcoin. Users generally don’t want to download an entire blockchain. It’s inconvenient.

More importantly, mining specialises. The end result is that home computers add a nearly negligible result
to the total amount of hash power.

If people bothered to read the comments in the code, they would see that I always termed miners as the
nodes in the system. It was always designed to specialise and move into professional data centres. I haven’t
said so once; I’ve said it many times, to many people. When I created Bitcoin, I created a system that was
designed to specialise as such is the only way that it can work.

//// Nodes collect new transactions into a block, hash them into a hash tree, and scan through nonce values
to make the block’s hash satisfy proof-of-work requirements. When they solve the proof-of-work, they
broadcast the block to everyone and the block is added to the block chain. The first transaction in the block
is a special one that creates a new coin owned by the creator of the block. Blocks are appended to
blk0001.dat files on disk. Their location on disk is indexed by CBlockIndex objects in memory.
Simplified payment verification (SPV) as defined in the white paper is not the same as the Electrum wallets
and bloom-filter-based systems that we see now.

Many people have misunderstood what I tried to define as SPV. SPV would work as a peer-to-peer system
with the receiver, the equivalent of the person being paid with a cheque or negotiable money order,
lodging the transaction. That is, the receiver sends or broadcasts to the miners.

I also saw specialised servers becoming available. They would be businesses based on an SPV model. For
those people not running their own systems and operating off-line services, they would be able to subscribe
to a commercial system that scans all new blocks and indexes them. The service would save the user from
needing to index and analyse blocks, and could be provided for a very small fee. The initial download would
only involve the block headers.

As transaction volumes get larger and larger, network nodes that are specialised analysing the blockchain
for clients and business systems that watch for corporate transactions would interact with server farms
allowing users to operate as users running only the client software.

Development work would then focus on the optimisation and parallelisation of blocks as they grow in size —
which allows Bitcoin to scale to any necessary level. As much traffic as you can imagine could go through
the system.

I don’t worry about network nodes consolidating. I’ve never worried about the fact that corporate entities
would be running a distributed ledger across the world. I don’t worry about government taking over
Bitcoin. The issue here is: there is no world government, and there won’t be one in my lifetime. States can’t
even agree within the USA, and we’re already seeing the European Union fraying at the edges.

The methodology didn’t require that every node needed to scan everything. Right now, for those who are a
little paranoid, monitoring blocks is still possible, but it will specialise over time. Indexing services, from the
free search engine onto more elaborate pay-as-you-go systems, will evolve.

You see, Bitcoin is designed to be honest money. A transaction system that works within the current legal
framework. To achieve such an end, it needs to act in a way that lies within the existing regulatory
frameworks. It then becomes the killer app for compliance officials and the system that enables accounting
organisations to simply scan and access client accounting records in a manner that is secure while also
private.
To be efficient and effective, a subsidy cannot remain across the entire life of a product. It would skew
demand far more than is necessary. Bitcoin was designed to be subsidised because the initial product had
no market value. As you’ll see from the subsidy diagram, adding a subsidy increases market demand. In the
initial phase of Bitcoin’s development, such an effect was essential. The demand was essentially zero. In
creating a halving every four years where the reward was lowered based on the subsidy being halved,
Bitcoin was forced down a path of professionalisation. The mechanism was designed to change the
quantity and price ratio as more professional server farms would be developed.

I did not contemplate ASICs in the manner in which they exist now with Bitcoin. I did so for GPUs and even
Xeon Phi systems, but none of it changes the essential nature of the operations. Over time, the existing ASIC
formats will need to change.

I foresee a large distributed database that is operated as an economically secure system. It will become a
global ledger — not because individuals run it, as such isn’t the way Bitcoin was designed, but because
individuals can operate a peer-to-peer network that is settled and secure without facing an economically
significant risk of double spending.
Contradictions
| 30 Jul 2019 | Alternative Coins & Systems
By Craig Wright
https://twitter.com/binance/status/1136307535068012545?s=20

In reality, life can be complex. Contradictions exist because humans are messy. There is a quote by Ayn
Rand that I like, even though it’s not technically correct:

”Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises.
You will find that one of them is wrong.”

In maths, we know that the statement is correct, but the world is not mathematics, and people are not
rational. Having said so, whenever a contradiction does exist, we know that we do need to check our
premises. What we find is that there is something amiss.

What I’d like you to think about is very simple: I am being painted as a fraud and a criminal by people
who opposed me and my ideals. My ideals involve delivering an immutable evidence chain that will
record transactions and make fraud difficult. On the other hand, we have people who promote anarchy
and crime.

Let’s have a look at some of the key detractors:

Greg Maxwell was involved in AntiSec, and helped with the theft of thousands of copyrighted
documents and other intellectual property. He broke into computer systems, altered records, and
released such stolen information to the world. Yet he calls for me to be imprisoned as he claims I altered
records.

Roger Ver is seeking to create Dark Web markets, and was an early promoter and proponent of Silk
Road. He had been imprisoned for selling explosives and for fraudulently signing a declaration saying
that they had not been explosives amongst other things. He is promoting systems that will allow
anarchy, drug markets, assassination markets, and crime generally. Yet he calls me a fraud. Why? As I do
not support the false assertion that a money that was designed not to be anonymous and that leaves an
immutable evidence trail which is admissible in court is supposed to aid darknet markets and take down
the state. Never in a single post as Satoshi did I ever say that Bitcoin was against government, nor did I
say that it was anti-bank. Cash and banking are separate things.

Vitalik Buterin has been behind the creation of the biggest Ponzi market and scheme of the decade —
with ICOs that have extracted billions of dollars from unwary individuals. Such ratios were created with
the sole purpose of allowing people to bypass regulatory control and to extract money from individuals
who would not be allowed to generally trade as they are uninformed and unsophisticated investors.
Vitalik calls it democratising finance — a term generally used when people seek to dupe the uninformed.
He calls BSV a scam as we seek to work within government and regulatory controls.

CZ of Binance and individuals associated with him run one of the biggest money-laundering operations
in the public world, and seek to allow individuals to easily launder money using cryptocurrency. He calls
me a fraud because I seek to add KYC and AML requirements to Bitcoin and other exchanges.

Effectively, such people call me a fraud because I’m willing to work within a regulatory framework. The
people opposing me seek a system that allows drug markets and crime.

What is interesting is that the same individuals and practically everyone opposing me seek to create a
system that allows illegal activities to occur with impunity. I’m seeking a system that works within the
justice system and law. Which one seems more likely to be the fraud?

Note: A previous version of the post was formerly published on CoinGeek here .
PII in the Bitcoin World
By Craig Wright | 01 Aug 2019 | Alternative Coins & Systems
PII stands for personally identifiable information. Right now, I see and hear many people talking about just
how easy it would be to take and use PII. That it would sell for cents in the dollar.

WELL, WHO CARES!

I mean, honestly, if all you do to manage the security of your finances is hide your head in the sand and leave
trust to obscurity, then you deserve all that such an approach brings with it. I may seem uncaring and I may
come across as cruel here, but really, it is a simple process to actually protect your information.

WHY?

The most commonly missed issue in security is WHY . We commonly fail to investigate the cause and need.
PII is not about privacy, it is about stopping unauthorised applications and changes to your credit file. In
other words, it is all about stopping people doing things such as applying for a credit card or a home loan in
your name — the main issue involving a credit card.

As such, the issue is not whether a criminal can buy your information, but rather if they can steal money
from you.

So why are we looking at PII as the issue?

The big issue (as is common) is awareness (or rather a lack thereof). There are real controls that stop the
problem and which are not ones that can fail catastrophically as obscurity does. We are talking about things
such as credit monitoring.

I will first say, I am simply a client of Veda. I pay them money, and they provide a service. I have not been
approached to talk about their product. I am plugging it as I use it and like the service. It is a security
solution to PII.

I use MyCreditFile , a service by Veda ( http://www.mycreditfile.com.au/personal/ ).

For a dollar a week, I have any changes to my credit file reported to me. I can stop applications cold. I have
had three attempts to apply for loans under my name, and I do not hide any information (privacy is dead).
Each time I have been notified. I have lost nothing but the time to send an email with a dispute notification.

It is that simple. There are similar agencies in the US, the UK, etc. SO I have to ask, WHY? Why care about PII.
Like many security solutions, they address a problem that is a symptom and do not offer solutions at all.
It is about time we address the cause and implement solutions that actually solve the problem. Here, we are
talking about a simple solution to PII theft.

Next…

I used to use Quicken, and I would load my statements into it and check what I have spent. I scan my
receipts, and I reconcile my accounts. Not only is doing so good from a point of view of managing my
accounts, I also know when something has occurred, and I can lodge a hold within days.

We only win when we actually find controls that solve the problem and not ones that look at the symptoms.
Why Law Matters
By Craig Wright | 02 Aug 2019 | Alternative Coins & Systems
At present, we are seeing the final desperate efforts of a bunch of conmen and felons who seek to maintain
the criminal empire that they have built using cryptocurrency. They promote false news and ‘sybil’d’
accounts, and people lap it up thinking that they will get rich quick in the Ponzi scheme that has been
promoted as crypto and Bitcoin.

But all of it will end soon.

Law is slow… but effective.

It’s easy to create false documents and say that hearsay is related to reality, but within the week, one of the
false-news proponents will have to finally stop running and displaying their cowardice and submit a defence
to the court or lose. The others will follow in due time.

Meanwhile, we continue to build and scale. Not in some new way, but in the way I originally envisioned
when I created Bitcoin.

You see, the lie of collectivist decentralisation is not a distributed system, but rather a false equivocation
where people try to make you ignore reality. It is a system where they believe that you will not fall for the
tragedy of the commons and that they will pull the technical wool over your eyes. The reality is simple: no
matter how many character attacks are put against me, the technology I am creating wins. When a patent
is filed, there is no place for ad hominem . When I submit peer-reviewed academic papers and have them
accepted, it is done without knowledge of who I am.

A Thought Experiment on Decentralisation

I have already created systems and technology that would allow every individual person to seek to mine
Bitcoin or an alternate cryptocurrency in a truly equal manner without any access to an ASIC. Which is a
radically different system than Bitcoin. In the simple thought experiment, I will demonstrate the problems
that people cover up when they’re lying to you about the so-called decentralised nature of Bitcoin and with
the false claim that it brings democracy to money or any other lie of the sort.

Let us assume a well-connected world using Bitcoin or another cryptocurrency. In other words, we do
everything that people say is ideal. We shall explore their ideas, and I will demonstrate why they are so
flawed and explain the lies they are so desperately trying to hide.

Let us first assume a world where 1 billion people run 1 billion nodes in order to mine cryptocurrency in a
truly distributed and decentralised system where every person is equal.

Let us now assume, as some want to, that a five-second block time can be created. We can assume (falsely)
that doing so shall allow for the true distribution of rewards. I say so as a larger block time will just extend all
the times and calculations and limit the rate at which you could win a block reward. From here, you shall
see that a “fully distributed” Bitcoin is not going to result in a feasible system and will make it less feasible
for the collectivist idea of Bitcoin.

As such, we have six blocks every minute, which gives us (6*60*24) or 8,640 blocks a day.

At the same rate, we have 3.153 million blocks discovered every year.

Given 1 billion people using our system, we can reasonably expect that people will each on average win the
block reward every 317 years. Give or take.

If we assume a minimal transaction size within blocks, say, all the transactions to be of only 1 KB in total size
for any of the transactions, and we assume there is one transaction a day as settlement for each person on
earth, which is effectively under a percent of real transaction levels, we will have a requirement on average
for around 12 MB per second being used continuously.

It is for every node globally, from the richest to the poorest household. More importantly, it would have to
handle transactional peaks that would be expected to account for at least 500 MB per second. Which does
not allow for home users.

So, what, hundreds of coins? Really… it changes crypto to barter and a system that is based on the whims of
a sock puppet.

Putting everything in the favour of the so-called distributed network and Bitcoin being distributed with
equality and opposition to government as a goal, we start to see that every single person on earth is going
to need to have the same computers on high-end networking equipment. If you can’t already see that
doing so is untenable, I suggest you start thinking through to the true results and scale them to true global
commerce.

More importantly, such a system would not work as a flood network. An epidemic giant network would
need to be managed and constructed in a manner that allowed propagation to occur in a controlled and
directed way. If not, the network traffic required would be between 100 and 10,000 times larger.

Who would invest in a system that allows one to earn only once in a hundred years across an entire family?

Here lies what nobody wants you to know in the exchange and Ponzi schemes that have become the face
of crypto. Money-laundering systems, Ponzis, and drug sales and systems based on fraud require the lie that
everyone is equal.
My version of Bitcoin, the one I launched in January 2009 to the world, is one that ends in competitive data
centres with miners and server farms. It was how I designed Bitcoin, and it is the only way that it actually
works.

My system is one that allows for nearly instantaneous global commerce, electronic cash, and an honest
record or ledger. It is transparent. Unlike Lightning and other ill-advised attempts at creating a new version
of Liberty Reserve using the technology in Bitcoin or even another e-gold, Bitcoin is not designed to lose
records. It was designed specifically to promote transparency and honesty. But people will attack and claw
at what they see as their criminal empires and the way that they had made their ill-gotten gains, and they
will fight to maintain them. To do so, they will push and promote the lie that Bitcoin is about taking down
government and business and that it’s about an anonymous drug money. All of the lies will end very soon.

I will be using court and law, because they are part of how a civilised society works. We have entered a time
of fake news. A place where false documents are promoted as truth. Even things that are quoted from me
are twisted, which I did expect, though, for I see my former quotes as Satoshi twisted out of all context, and
even the minimal amount of verification that is required to check them against what I really said is ignored.

But the lazy cowards are coming to the end of their time. In court and under the provisions of evidence law,
I get to step in and walk you through the creation of Bitcoin. Not in the way that people who want a system
to collapse government say was proof, but through the use of evidence laws.

In doing so, I get to pull apart all of the lies.

I get to systematically destroy the false reputations of all those who have corrupted my creation and turned
the derivations of Bitcoin such as BTC into a continuous and falsified system designed to promote fraud
and Ponzis. And that’s what will happen. All the media attacks get to be pulled apart. All of the false
documents and hearsay that the fake accounts are using and the shills are promoting gets shown to be all it
is: nothing.

I did not ask to come out into the media as Satoshi. I did not attempt to conform to be what people falsely
claimed to promote myself as. I simply refused to deny I was Satoshi because doing so would be a lie. I
created Bitcoin. Not the system that has been created upon it and the changes into the vast of a broken
system that people call BTC, but the Bitcoin of the white paper I released in 2008.

There is no Satoshi group.

There is me.

I’m going to tear apart all of your legends in court. Every one of your so-called possible Satoshis. You see, I
can disprove a negative because I am the creator of Bitcoin. And yes, you’re going to continue with your ad
hominems for some time still, but only for some time. Because once the slowly grinding process of law
starts to engage, you’re going to see what it means. The history that you think you can pull and alter will
remain, and all your lies will be exposed.

No blockchain is uncensorable. Bitcoin can be seized. In the coming year, you’re going to learn just how
fragile the house of cards that is a criminal system built upon Bitcoin or any other cryptocurrency really is.

Meanwhile, I’m aiming to complete my 1,400th white paper that will lead to more patents — with at least
one resulting from every paper.

When things come due, and taxable events occur, I will pay my tax. One thing few people understand is that
there is no tax on bitcoin that has not moved. In 2020, when things do, the amount of tax I am legally
obliged to pay will be paid. Not more, not less. Unlike many people in the Bitcoin and associated copy-coin
industry, I have no intention of hiding my taxable income or capital gains from the government and not
paying tax. There will be amounts to be paid in both the UK with the HMRC and Australia with the
Australian Taxation Office. Whether you like the fact that I pay tax or not is irrelevant. I do. I also work to
minimise the amount I need to pay to one which is legally required.

Bitcoin is not anarchist, and it is not anonymous in nature. The failure of all prior crypto systems and digital-
money systems has resulted from their endless quest to enable drug sales, money laundering, and people
smuggling. Bitcoin has a blockchain that acts as an immutable evidence system. Bitcoin has it so that none
of the same things will work successfully in the long term. It’s not friendly to people evading tax, and it
doesn’t help any of the standard crimes that people think Bitcoin is about.

Bitcoin doesn’t scale in any way that will be legally allowed outside of
how I created it.
I choose to face my opponents, as slimy and cowardly as they are, in court, for it is the place where their lies
and falsehoods will start to come apart. Some will squirm more and do more to get away than others. But
some of them are already at the end of their legal tether. If you trust Twitter and other equally dismal
sources of news, you are going to find yourself in a bad place. You see, the problem with gutter-level social
media is that it doesn’t give you actionable information. It provides lies and innuendo. And the problem
then is that if you place reliance on them, in time you will find that they lead to a dead end.
The Imbalance of Payments
By Craig Wright | 05 Aug 2019 | Alternative Coins & Systems
It has commonly come to be believed that what is generally associated with the fallacy known as the
“balance of trade” exists and represents a real effect. Although propagated, the myth is one that needs to be
relegated to the dustbin of history or, at the least, assigned to the flat-earth society.

To explain the misunderstood concept more clearly, it is best to simplify it and not confound the issue with
the added miasma of obscure relationships that create a society or nation. To do so, I would start with a
household balance of trade, that is, the income and expenses for a household. If we take a common family
group of two working adults and two children under the working age, we see two sources of income and
four direct-expense sources (which we can think of as the states).

Each adult has an income from an employer and possibly some smaller amount coming from a hobby or
side occupation. Let’s assume that partner A works at a department store and has a hobby income C, and
partner B is an engineer. In our instance, there are three sources of favourable trade balances: partner A’s
employer, partner B’s employer, and any person who purchases from partner A’s hobby side business.

Each of them poses what is commonly deemed a “favourable balance of trade” as a commonly misapplied
term. Partner A and Partner B each have a positive balance with their respective employer. But, partner A’s
hobby income breaks even. Which means it is a balanced trade source.

Partner A in our scenario has the responsibility (they are not pooling their income) for food and school fees.
Partner B has the responsibility the rent and entertainment. Each partner supplies the children with a small
sum each month. We will for simplicity assume that our family is rather ascetic and wants for little. We will
also assume that 50% of the expenses for food go to the same store that partner A works at and that the
other 50% go to the grocer.

In our scenario, we have a favourable balance of trade with the department store. Here we see the following
equation:

(partner A’s income) — 0.5(food expenses) = positive trade balance with the department store

We see a positive balance of trade as partner A is unable to spend the entirety of his income — by the fact
that it is split across several parties — at the department store where partner A is employed. Partner A
receives the amount of (partner A’s income) from the department store, but spends 0.5(food expenses) at
the same store.

We then see a negative balance of trade for partner A’s dealings with the grocer and partner B’s dealings
with the landlord. In each instance, we can represent the scenario mathematically in the following way:

0.5(food expenses) = negative balance of trade with grocer

Rent expenses = negative balance of trade with the landlord

In each example, we have a negative balance of trade. Let us presume that partner B earns 150% as an
engineer of what she could earn as an estate agent working for the landlord. Partner B could sacrifice some
of her time employed as an engineer and work for the real-estate agent (the landlord). Let us assume that
partner B works 40 hours a week and that 40% of her income is assigned to the rent.

Here, we see that 16 hours of partner B’s time is associated with working to pay the rent (40% times 40
hours). An option exists where partner B (we presume she is talented and can be either an estate agent or
an engineer — as she wishes) can work for her landlord part-time by sacrificing some of the time spent
working as an engineer.

Working for the landlord, she earns 66.67% of her earnings as an engineer (the reverse of 150% as noted
previously). It means that she must, by needs, work a longer time to generate the same income. In other
words, in order to earn and then pay for the same value of rent, she must work longer hours. As the income
from the landlord corresponds to only 66.67% of her earnings as an engineer, she must work 1.5 times as
long for the landlord. That is:

(required work effort for landlord) = 1.5 x (required work effort as engineer)

As partner B works 16 hours directly for the payment of rent, we can express the previous equation as
follows:

(required work effort for landlord) = 1.5 x (required work effort as engineer) = 1.5 x 16 = 24 hours

In our case, partner B is still working 24 hours (40–16) as an engineer, but needs to work an additional 8
hours overall (resulting from the 24 hours of work at the landlord — as opposed to the 16 hours of work as an
engineer instead).

So we have two scenarios already: partner B can engage in the most efficient source of trade (working as an
engineer), or she can seek to minimise deficiencies in the “balance of trade.” As partner B is working in her
optimal trade position and creating several “unfavourable trade balances,” partner B is better off. She needs
to work only 40 hours to have the same standard of living that she would have if she was working 48 hours
with a “more favourable trade balance.”

The scenario is the same if you substitute companies, states, or nations for the partners. We could also
argue in our example that the children form an unfavourable trade balance, which could be removed by
removing the children. Such is the nature of the anti-trade and protectionist argument.

The argument of course begs the question: why do governments perpetrate such a lie?

The answer lies in inflation. Most people have little understanding of the economy, and few people seem to
want to spend any time explaining it in simple terms.

Inflation — the Hidden Tax

What is inflation, and why does it occur? The answer is far simpler than many like to say. There are many
complex reasons that can be used to explain inflation, but simply and completely, inflation is the result of an
expansion in the money supply. There is only ever one cause for an expansion of the money supply: more
money .

The creation of money is a monopoly of the government. In modern Western nations, the reserve-banking
system (as it exists with the US Federal Reserve or the Australian Reserve Bank) means government
institutions. Such is the case even (as in the US) where the reserve-banking function is “nominally” of private
concern. In all instances, policy is either set or, at the least, influenced by the government.

Even in the event where government was independent of policy (which occurs in no existing context), the
additional money manufactured through inflation goes to the government. It is in effect an indirect and
hidden tax.
If the inflation rate is set at 5% for a year and the total money supply for the economy is $1,000,000 (low, I
know) at the end of the year, the total money supply will now be $1,050,000. In other words, the
government has printed an additional $50,000 that did not previously exist. As the gold standard does no
longer exist and as it is no more expensive to print a $10 note than it is to print a $100 note, there is no cost
to the government in doing so.

So at the end of the day, we have an economy with 1.05 times the supply of money, but no additional
productivity. Productivity is a function of companies and individuals. In contravention to what governments
(right or left or centre) would have you believe, they do nothing to aid productivity other than not hindering
it. That is, they can stay out of the way. It is a reduction of a negative effect at best and never a positive one.

So what does the extra money supply mean?

Without an increase in productivity, additional money has a negative effect. There is the same amount of
goods and services in society, there simply is more money competing for the same goods and services.

To demonstrate the scenario, imagine that the government uses the $50,000 they have created to pay its
people. To now purchase the same amount of goods, there is more money available. As such, if you want to
have the same goods, you can pay more for them (as can others). The increase in demand (added money)
causes prices to rise. Hence the effect of inflation is an increase in prices. Price rises are the effect of inflation
and not, as often argued, the cause. The lie is perpetrated to keep people in the dark about one of the most
insidious taxes.

As there are no new sources of productivity, the overall market will shift to consume the entirety of the new
volume of money. As such, a product that formerly cost $1 will now cost $1.05. The salary of $50,000 will
increase to $50,250. The end result may seem to have no change in values, or is there?

The reality that is frequently ignored is that there is an addition of money in a fixed location as the created
money goes to the government. The created $50,000 is not distributed to all members of the nation; it is
assigned to a single party.

The effect is that price rises will occur, but value will be impacted upon the individual. There will be a lag in
pay rises and other effects (which the government can later use to justify the next round of inflation).
So, what is the result?
The sole result is a hidden tax. In effect, the item that cost $100 prior to the injection of more money by the
government now costs $105. As such, each $100 a person earns can now buy a pre-inflationary amount of
$95.24. That is, $4.76 has been lost (or at least reallocated to the government). As the government has the
newly printed money to distribute, it comes in the form of a hidden means to taking money — in effect, a
tax.

What it all comes to is that a 5% inflation is in reality a 4.76% hidden tax.

The Gini Inequality Flaw
By Craig Wright | 12 Aug 2019 | Economics
I have the Gini index touted as a constant error in the statements that I make that the US is not an unfair
society. It is better to aim for a society where people eat than to strive for one where all individuals are
equally poor and destitute.

The Gini index is one of the most flawed statistical lies used in the pursuit of socialism as a goal. It makes so
many false assumptions — it is not funny. It does not class people by age and gender, and does not account
for differences in the distribution of age over time.

It does not measure actual wealth, and confuses income and wealth.

It compares what it calls a measure of wealth (falsely) in different classes of populations.

To expound further, the Gini index is not as you tout a measure of inequality, but one of income distribution
without regard to age and other factors. It fails as a measure of inequality for many reasons, mainly as it
does not measure wealth. Inequality is a measure of having more wealth at a point in one’s life than another
over a generalised population.

A person the age of 20 cannot be compared directly with another the age of 50. The same person at the age
of 20 does not have the wealth and resources of the other at the age of 50 as one tends to accumulate
wealth as one ages (being that one starts with little and it accumulates over time).

The wealth distributions of males — being that the decision to exit the workforce or not is in itself a
determining factor for wealth, and also many Third World countries do not have large working populations
of females with independent incomes — at the age of 45 would be a far superior measure of inequality than
the Gini coefficient as it is used, yet which, of course, also has its problems (though there are far fewer issues
here than with the Gini coefficient).
The age distributions in Third World and socialist countries (commonly the same, though not always) are far
flatter than in the Western “capitalist” (nominally) countries. In other words, a worker in, say, Kenya will see
little increment in her earned income from the age of 20 to the age of 50. The distribution of her income
over her lifetime remains relatively static.

In contrast, the income and earning capacity of a worker in the US, even an unskilled one, will change
significantly during her career.

A worker in the US earns little when being a student. The rate increases as she gains in experience and
increases in productivity. The earning capacity generally peaks around the age of 45–55, and then starts to
decline, until it finally returns to a low amount for most people in retirement when savings are used to
supplement their income. A worker in the US commonly earns 4–5 times the starting wage at some point in
her career.

Many socialist societies have no age-based income differentials, and the earning capacity is based more on
class, rank, and party affiliations/positions — a truly unequal system.

As the Gini coefficient does not account for age- and sex-based differences in its calculation, it fails even as a
true measure of income variance. That is, it fails without even looking at the fact that income inequality is
not a measure of inequality in itself in any event.

We start in Western countries earning less, moving into higher-wage brackets, before falling to near
nothing again. If you take a measure of the “inequality” rank to age and sex classifications, you find an R² of
over 0.90 or a correlation to age and NOT inequality using the Gini coefficient.

Now, taking into account that First World countries generally have people living longer than ones in Third
World countries, we start to see that there is an inherent bias in the Gini index, in addition to the afore-noted
errors. In countries where people have a longer period of retirement, the Gini presents a situation where a
country is classed as “unequal” for simply having people who live on their accumulated wealth.

Then, the socialist ideal here is not to actually analyse data, but to blindly accept the dogma as blinded
sheep.
How Keynes Failed To Comprehend Say’s Law
By Craig Wright | 16 Aug 2019 | Economics
John M Keynes tried to make Say’s law into the fundamental issue defining macroeconomics.

I believe that economics everywhere up to recent times has been dominated, much more than has been
understood, by the doctrines associated with the name of J.-B. Say. It is true that his ‘law of markets’ has
been long abandoned by most economists; but they have not extricated themselves from his basic
assumptions and particularly from his fallacy that demand is created by supply. Say was implicitly assuming
that the economic system was always operating up to its full capacity, so that a new activity was always in
substitution for, and never in addition to, some other activity. Nearly all subsequent economic theory has
depended on, in the sense that it has required, this same assumption. Yet a theory so based is clearly
incompetent to tackle the problems of unemployment and of the trade cycle. [1]

In his attempt to “return to the doctrines of Montesquieu” [1, 4], Keynes completely botched the analysis
and meaning of Say’s law.

Keynes suggested that Say’s law meant that “supply creates its own demand” [2]. Basically, the infamous
error that has led to so much misery in the twentieth century comes from Keynes’ unfounded belief that
Say’s law would lead to all produced goods being purchased and consumed. The resulting analysis derived
from this irrational fallacy was that Say’s law could not explain the business cycle [2] and also made an
assumption of “full employment” — a point still maintained by Keynesians even today [5].

There is, of course, a major flaw in their logic. The circumstances that lead to high levels of unemployment
do not forbid production and a resultant consumption from occurring.

A new equilibrium will come from the altered supply and demand structure.

Kates [6] extrapolated Say’s law in relation to unemployment more eloquently than Keynes ever could: “The
classical position was that involuntary unemployment was not only possible, but occurred often, and with
serious consequences for the unemployed.”

But what is Say’s law, and why was Keynes so wrong?

Say’s [3] law of markets was defined in his grand work: “A product is no sooner created, than it, from that
instant, affords a market for other products to the full extent of its own value.”

Simply put, the statement means that a producer in the selling of a product becomes a consumer and
purchaser. The revenue obtained through the production of a good that is traded successfully creates a
market in the distribution of free or disposable income. The producer does not create wealth and goods
simply to collect the means of the transaction, money, but for another end; the producer creates wealth in
order to consume. To do so, the producer becomes a buyer and a consumer, and thus creates demand.
The simple answer here is that production is the cause of consumption. Without sales, one cannot make
purchases. In other words, you need to not only produce in order to buy and consume, but to sell. To sell,
you need to produce items and services that people want, and you need to do so in an economically sound
manner.

In other words, you also need to make a profit. Marx may have thought of profit as theft from the worker,
but without profit, there is no reason to produce. Worse, a loss means that the available capital is actually
decreased and the ability to consume is further diminished. So profit is an essential part of the exchange
process.

We see from Say’s law that improved production leads naturally to greater levels of consumer spending, or:

The supply of X creates the demand for Y.

Here, supply means not just production, but the production of goods that consumers actually wish to buy.
Which are goods that are sold.
Economic growth starts when productivity increases. New goods create new markets and a new
equilibrium.
Logically, it is simple to see that spending for the production of goods and services must come before the
spending of capital in order to consume.

Keynes’ hypothesis and greatest fallacy lay in a failure to understand Say’s law. He understood it to mean
that recessions were caused by failure of demand.

Say had proposed that recessions were caused by failure in the structure of supply and demand.

What it meant was fairly simple: recession follows production errors. When a producer fails to determine
just what a consumer really wants, he continues to make and stockpile goods that cannot be sold at a profit
(if at all). It was a common situation in the USSR where goods were estimated to be worth less than the
value of the materials used in their manufacture.

As the stockpile increases, producers cut back on production, income (the profit margin) shrinks, and there
is less capital available to buy consumption goods. The end result is that consumer spending eventually
drops to precipitously low levels.

Keynes did not want to fix capitalism; he wanted to build his own tower. Unfortunately for us all, it is a tower
of cards that has repeatedly fallen over in the wind of change due to having been built on a foundation of
logical flaws and grossly misrepresenting errors.

References

[1] Keynes, John M. (1939): The General Theory, French Ed., Preface.

[2] Keynes, John M. (1936): The General Theory of Employment, Interest and Money (London: Macmillan), pp.
25–26.

[3] Say, Jean-Baptiste (1832): A Treatise on Political Economy, p. 134.

[4] Devletoglou, Nicos E. (1969): The Economic Philosophy of Montesquieu, Kyklos, Blackwell Publishing, vol.
22(3), pages 530–41.

[5] http://www.slate.com/id/9593

[6] Kates, Steven (1998): Say’s Law and the Keynesian Revolution (Northampton, Mass.: Edward Elgar), p. 18.
Good Title Is Not a Key
By Craig Wright | 20 Aug 2019 | Alternative Coins & Systems
Anarchist anti-government and anti-law promoters of Bitcoin will tell you that if you don’t have your keys,
you don’t have your bitcoin. Unfortunately for them, keys are not law. Private keys make access to funds
difficult. They don’t prove ownership of property rights, which never was the intention of Bitcoin. I’ve been
writing on electronic contracts in matters of law and code for nearly 20 years now, and one thing I’ve always
noticed is that the code side of the argument always says that non-repudiation will be possible. Let me
make it clear: non-repudiation cannot exist in law.

It does not matter what you do and code. It does not matter what you do in mathematics. Non-repudiation
does not exist. The law includes aspects of error, intoxication, theft, duress, and many more things that
preclude the ability to stop people repudiating an action. It, by nature, includes signing a contract with a
digital key. And it includes, as a subset, transferring bitcoin or having access to a key.

Going back to 2008, people have been trying to change Bitcoin to incorporate the pipe dream of non-
repudiation. They see a system that acts outside of the real world. The reality is, Bitcoin will never act outside
of the real world. Nothing will. Every single thing that exists will be tied to the real world in some way, and if
you don’t like it, then you’re going to have to learn to live with it.

Let’s simplify the scenario for people.

You can get a digital key that allows you to unlock a home or a car or even to make a device run. Losing the
key may cost you money and require that someone come in and ‘rekey’ the house or the car, but it does not
change property rights. If someone steals your private key that allows accessing and driving your car, he
doesn’t own your car, and through actions of tracing and recovery, you are able to use the legal system to
recover the asset.

Bitcoin is no different.
The error made by people who look at Bitcoin and say that it is a code-based rather than a law-based
system lies in considering the economic costs of recovery, which they don’t understand isn’t a legal aspect,
but rather involves a decision-based choice of the owner of the property. Bitcoin is recoverable. When in
2008, 2009, and 2010 I explained how Bitcoin would end in server farms and was not the anarchist system
where everyone would run a node, nor could it be, the point I was getting at is that a professional corporate
system comes with costs and benefits.

One of them is recovery.

There is an old aspect of law known as tracing, which allows for the recovery of assets. Bitcoin miners and
exchanges of corporations both forming reciprocal agreements and implementing the international
recovery of assets may endure a long and expensive process, but it is one that is well-defined within law.

The same misconception was common with homeowners who thought that the loss of an original
promissory note would stop the mortgage holder or lender from enforcing the note. A promissory note is
written evidence of a debt owed by one party to another and the terms of the repayment. In some ways,
Bitcoin is a record that shows evidence in a ledger of the transfer of an asset.

With numerous tracing and recovery cases that have been enacted on intangible properties such as carbon
credits, there is nothing particularly difficult in a court issuing an order to recover bitcoin or any other crypto
asset. Bitcoin miners are analogous in some ways to a distributed clearinghouse, and may even be
analogised along the lines of the US Federal Reserve — the difference being that miners may come and go
by choice. The value of bitcoin requires that it is able to be transferred for other assets. The push to make
Bitcoin more private and to create confidential transactions that hide the source and destination of a
transfer changes it from Bitcoin to some other system and, as it happened with all of the ones that have
come and gone before, removes the legal aspect of the coin and hence all value.
More than anything else, the biggest difference in Bitcoin with the ledger has been the introduction of a
legal process and the alignment to existing laws. When I created Bitcoin, I created something that would
work within the law. That is the difference: other digital currencies have sought to act outside the law, and
have chased monetary value in illicit and illegal activity.

Tracing
Mondex and DigiCash have both been involved in tracing, and more recently, Liberty Reserve US Dollars and
Euros were involved in tracing activity. For the most part in the UK, tracing law relies on FIFO or first in first
out. When a coin is mixed, it can be recovered using a principal of recovery on the order that they are
inputted. In law, fungibility differs from the way the term is used in general parlance and even economics.
Money is fungible when it is received without notice of fault for valid exchange of goods and services. A gift
can never be fungible. Ownership and possession are not the same thing.

The concept that is counted consistently of “no keys, not your bitcoin” is meaningless drivel.

Very soon, you’re going to see just how foolish this idea is. A decade ago, I didn’t have the power or the
resources to step in and do what is necessary to steward Bitcoin to where it needs to be. I do now. For those
like James Donald who believe that they can create a system that is censorship resistant as he used to say,
one that allows them to implement all of their stupid wacky ideas, you’re very likely to see why I covered
something off in my 2008 thesis on payment processes and intermediaries.

Peer-to-peer processing networks have aided the growth of auction intermediaries such as eBay. [1]
Payment card providers, P2P systems, and other entities that act as a mechanism to facilitate commercial
transactions [2] also have the capability to stop illicit transactions and act as revelatory enforcement points.
A commercial site distributing child pornography from Nigeria cannot be run profitably without an
economical method of receiving consideration. If the site operators cannot reliably receive payment, they
will quickly shut down. As the financial gatekeepers, payment intermediaries can be used to prevent illicit
activity over the Internet. Either through proactive actions or upon the receipt of court orders and Internet
payment intermediary could be used as an aid to curtail undesirable activities occurring across the Internet.

There’s a simple reason why James wanted untraceable payment systems: he supports freedom through
child pornography and paedophilia . I’m not the first person to write up the topic and the ills that have been
promoted by people falsely claiming Bitcoin is government resistant.

Jim likes to argue that freedom of speech includes child pornography. The truth is that the same people are
simply criminals seeking to create a system outside of government control for as long as they can.

The Lightning Network is not how Bitcoin was designed . The same overlay network designed to lose logs
and records dates to before I launched Bitcoin in 2008. It is the proposal of cypherpunks, and radically
differs from the concept of Bitcoin. It is the erroneous idea and mistaken view of law that has been
promoted using the flawed ideas of Nick Szabo. I say flawed because there is very little in them of value and
the legal scholarship is truly abysmal.

Freezing Injunctions and Third Parties

A third party (such as a miner, exchange, or wallet provider) which knowingly assists in the disposal of the
assets, including bitcoin and other ‘cryptocurrencies,’ whilst subject to the freezing order, may be subject to
proceedings for contempt of court and held liable to a fine, the seizure of assets, or imprisonment for up to
two years.

Potential Liabilities of Third Parties such as Miners or Exchanges

A miner or another third party which acts to process a Bitcoin transaction knowing it to be covered by the
terms of the freezing order and thus willingly assisting in the breach of such an order is liable for contempt
of court, punishable by fine of assets or imprisonment. The contempt could constitute an unlawful means
on the basis of which a tortuous claim for conspiracy could be further brought.

The Bitcoin alert system allowed a court to issue a freezing order with minimal interference to the system.
The ability to stop processing individual addresses was being developed in 2010 and, as such, is provably
part of the Bitcoin infrastructure, which may be placed as a requirement against miners. Unfortunately for
many at the time, it was not what they saw to be ‘Bitcoin.’ Then, Bitcoin is my creation, and it was never for
the ‘community’ to decide.

If you want something other than Bitcoin — then make it as bit gold.

Bitcoin miners and exchanges should take the notification of a freezing order extremely seriously. A failure
to comply with a freezing order exposes a Bitcoin miner to the risk of contempt of court, which could lead
to a fine, imprisonment of its employees, and the seizure of its assets.

Sequestration
A writs of sequestration can be issued under the context of a penalty imposed for contempt of court or in
relation to breach of a judgement , order, or undertaking. The power of the court provides a collection of
specific procedural rules that in the UK are incorporated in CPR 81 (elating to writs of sequestration). They
enable the property of the defendant to be seized and retained until they comply with their obligations and
clear their contempt.

In the context of Bitcoin miners, procedural rules would include the ability to issue orders against the miner
allocating property to the state. That is, where a judgement has been obtained, say for the seizure of bitcoin
associated with a drug deal or people smuggling, for instance, if the miners decide not to block transactions
associated with the same bitcoin or even reallocate them under preset of crime legislation to the
government, the Bitcoin miners will be in contempt of court.

Actions known as worldwide freezing orders exist under financial law. Judgements can be issued in multiple
jurisdictions including the UK, Europe, China, and the USA simultaneously or close to simultaneously. Before
the issue of such an order, an injunction can be put in place. Unlike James Donald, I never feared the
government when it came to Bitcoin, because I made a system that works within the law. Shortly, people
are going to start to notice the difference between what I created and what groups like Bitcoin Core are
attempting to do. The reality is, Bitcoin always moves toward specialised data centres. I knew it would the
case when I created Bitcoin, and I discussed the scenario in depth with many people. Unfortunately, they
have the flawed idea that Bitcoin can ever run as a distributed system where every single user is equal. It
cannot, and in fact, to do anything along those lines requires a system radically different from Bitcoin.

Where the contemnor (such as a miner) is a company, a writ of sequestration may be issued against the
property of any director or other officer of the company (CPR 81.20(3)).

Such an order may be made in respect of assets that are outside the jurisdiction ( Touton Far East PTE Ltd v
Shri Lal Mahal Ltd and others [2017] EWHC 621 (Comm) ) applying Vis Trading Co Ltd v Nazarov [2015] EWHC
3327 (QB).

Provisions of the Supreme People’s Court (25th June, 2018) have been issued on Several Issues Regarding
the Establishment of International Commercial Courts . They detail the functions and powers of the two
new courts which shall be established in Shenzhen and Xi’An, and follow the move to increase infrastructure
connectivity and the development of the Belt and Road initiative . As an enabling technology, Bitcoin will be
able to be adjudicated within such regions. Consequently, a UK or European judgement can be enforced in
China and the USA from an order in the UK.

Many of the early cypherpunks wanted a system acting outside of government. Because of the false
writings of many early Bitcoiners, there has been the narrative that government cannot interact with the
blockchain. Which is wrong. It is incredibly erroneous. Databases have been created for decades based on
write once read many (WORM) media. There are settings in Oracle that allow immutability. To change such
a system, you simply update the system. The flaw here lies in the fact that code is subservient to law.

All code operates in association with the real world.

In the real world, there is a person at the end of every keyboard. And courts can order people to do acts.
Bitcoin cannot work anonymously. It was designed this way. It’s what took me so long to make it work. And
because there is no way to run Bitcoin without the system ending on specialised servers, in data centres,
there is no way to stop the interaction of government with the system. As noted, a corporate miner who
chooses to act in violation of a court order will be in contempt. Simply put, the miners that invest hundreds
of millions of dollars and then thumb their nose at government will quickly find the government taking
their multi-hundred million-dollar investment away from them. It is a system that becomes more and more
aligned with the law over time.

You see, the survival of the fittest miner comes with the one that stays within the law. Every time a miner is
fined, every time a miner breaches a worldwide freezing order and axe to process a block including a
transaction that other miners will reject, they will lose money, and over time, they will go out of business.
The system is designed so that those who choose to support criminals will slowly and inevitably be driven
away from the market. Such is the Bitcoin that I created in 2008 and released in 2009.

Luckily, we are now at the point where it no longer matters what the hat brigade tout as their false version
of Bitcoin.

https://www.blockchain.com/en/pools

At the time of writing, 74.1% of the BTC hash rate is located within the jurisdiction of China. Many of the
major exchanges and places where people store bitcoin are located in the USA. Consequently, it would be
strategic to seek multiple freezing orders in the UK, China, and the USA for any significant bitcoin holding
that is sought.

As governments and regulators start to awaken and flex, we should see the false narrative that has come to
infect Bitcoin (that it is a censorship-proof system outside the law) fall away. James A. Donald may have
started such an attack on Bitcoin in order to maintain his illicit activities, but others including Amir Taaki
(AKA Genjix and one of the founding members of the Syrian Electronic Army) have taken it to an extreme
using Bitcoin to fund terrorism through the trafficking of minors.

But, Bitcoin is an immutable evidence trail. Unlike e-gold and eCash, Bitcoin leaves an audit trail. It is why it
will survive where other digital currencies have failed — it works within law.
The Myth of Anti-Competitive Pricing
By Craig Wright | 30 Aug 2019 | Economics

Introduction
Posner (1968: 1563–4) upholds the position where diverse markets act outside the whims of individual players.
The distinction lies in an argument where parties in the pricing model of oligopolists interact in a manner
that shows a level of dependence between them. The result is argued to be a collusive pricing model.

Posner’s argument in effect comes down to the assertion that oligopoly can be demonstrated where firms
interact based on the pricing expectations of other firms (Goodwin, 2014). In this article, we demonstrate that
the neoclassical model of perfect competition is a straw man designed not to further economics but rather
ensure political control. We will demonstrate that all firms interact with a level of specialisation towards a
product that is differentiated based on the subjective whims of clients and consumers (DiLorenzo, 1992).
Further, all firms pre-empt and react on the price expectations of their competitors (Robinson, 1969). The
result is that perfect competition cannot exist and the idea of which is created as a straw man requiring
action through government intervention.

The Straw Man of Perfect Competition

The neoclassical model of perfect competition provides for many firms offering a standard product the
consequence of little price control being allowed (Pindyck, 2015). In this model, firms act as price takers and
face a horizontal demand curve (Maneschi, 1998). It is a model of extreme competition where products are
completely undifferentiated and consumers switch based on price considerations alone. The model is reliant
on perfect information, and consumers can change providers at will without transaction costs. Any firm that
increases price does so at a loss of customers and market share in the same meme (Koller, 1971).

Monopolistic competition contrasts the scenario with an environment of many competing firms that are
differentiated through product branding (Yahua & Round, 2011). Here, the organisation possesses some
control over price and faces a downward-sloping demand curve. Transactional costs and entry costs in the
same model are low, and it is relatively easy for new organisations to enter and compete. Some consider the
model to be inefficient with the consumers’ choice and subjective taste preferences being downplayed as an
overall economic cost (von Stackelberg, 2011).

In the model of oligopoly competition, we have a few large firms offering standardised or marginally
differentiated products (Wallard, 1956). The model is based on mutual interdependence, and often extends to
collusive behaviour even where such behaviour is criminal or at least illegal. It is described as a de facto
monopoly. The argument against an oligopoly lies in the existence of overpriced products that are
underproduced, which is deemed to be inefficient. One of the main reasons for the argued existence of an
oligopolistic environment comes from the existence of barriers to enter or compete. Such barriers could stem
from government-controlled licensing or access to resources (Sowell, 1998).

The extreme model is known as a pure monopoly. A pure monopoly exists in an environment where the
organisation can sell a unique product and no substitutes exist (Robinson, 1969). Some reasons that have
been touted for the existence of monopolies include ownership of resources, patents, or the requirement for
economies of scale to produce efficiently. In a monopoly version of the industry and the economy, goods are
produced at a higher price relative to perfect competition but in lower quantity.

Such arguments have been used as a justification for the destruction of many successful industries.
Rockefeller with Standard Oil was split up into many small industries not because they managed to increase
prices to what would be considered monopoly levels, but rather because of being able to reduce prices
beyond what their competitors could offer. Standard Oil grew through competition to a stage where in 1890,
it supplied 88% of the refined oil distribution throughout the USA (Folsom, 1988).

The Sherman Antitrust Act of 1890 was introduced as a response to the increasingly efficient organisations
that started to develop around the turn of the late 19th century. Contrary to the standard rhetoric around
monopolies, Standard Oil reduced the cost of petroleum significantly. It was not the ability to increase fees
that made enemies and political attacks against such large organisations, rather it was their ability to deliver
better-quality products to many consumers at a rate far more efficient than the previous mean value of the
industry.

The other problem at the time was that the dividends of such highly successful industries were reinvested
into other new industries (Hayek, 1974). The primary families controlling Standard Oil reinvested most of their
dividends into railroads, gas and electric-lighting businesses, steel, copper, and corn products. Some of such
investments allowed for research that increased the productivity of both the steel and the corn industries
(Folsom, 1988).

It was not the consumer that led the attacks that ended with the breakup of industries or Standard Oil. But
rather people such as the journalist Ida Tarbell whose work against monopolies manipulated reality to create
the corrupting influence and control that would lead to higher prices such industry consolidations necessarily
resulted in. The truth, though, was that the same journalist’s father was an oil producer who had gone
bankrupt when Standard Oil had introduced cost-saving measures that would reduce the price of kerosene
from over USD0.30 to a market rate of under USD0.08 in an 18-month period (Folsom, 1988, p8). The reality
was not one of predatory pricing or monopolies and oligarchies but rather effective business and the
introduction of new technology that allowed for the growth of a large industry whilst opening opportunities
to new businesses.

The issue of oligarchy is not one of business collusion but rather a political sleight of hand designed to
undermine the effectiveness of large industries that act along the desires of the consumer (Hayek, 1974). For
all the bad press detailing how predatory pricing can be used to collapse businesses and attack competition,
econometric studies have demonstrated that there has never been a successful case of a monopoly existing
without government intervention, nor has there been any recorded case where predatory pricing has aided
in the creation of monopoly or oligarchy power to business (DiLorenzo, 2013; Koller, 1971). It is more likely that
the entire realm of oligopoly and monopoly exists only to fuel the anti-trust legislation and the incredibly
large payouts associated with it. As we see from Goto (2011), it is not an economic feature but rather one of the
political economy.

Substitutes
Theories of oligopoly and monopoly pricing derived using identifiable criteria. They argue that a perfectly
elastic demand curve is a feature of purely competitive markets. In doing so, they create a straw man. Pure
competition is upheld as an ideal to be achieved, even at the cost of free competition. It is defined as the state
in which the demand curve for each participant in the market reacts perfectly elastically. It is a scenario
where no organisation could influence the price of its product, allowing instead a ‘fair price’ to be universally
determined. In such an idealised system, the straw man of an idealised market where no participant can
achieve influence over its market is deemed to be ideal.

Such a fallacious model allows for the state-based interaction in markets. Any influence on the determination
of price by any organisation is a monopoly or an oligopolistic intervention requiring the protection of the state
in the political rhetoric. It is a fallacy to think a perfectly elastic demand curve could exist. The market is not a
single product at a single time. Products fill separate roles for individuals consuming them. The consequence
is that we can see that any market interaction is purely subjective. More importantly, any interaction of the
consumer or any decision of the producer leads to differentiations within the demand curve. Small increases
in supply lead to a small lowering of price, and vice versa. The individual organisation maintains a perceptible
influence on the total supply, even if such influence is small. Unlike the econometric models that assume
infinitely negligible steps and increments, any inclusions within a real market are measurable. In the
subjective world of human interaction in markets, all inclusions form discrete quantised steps rather than the
idealised continuous model.

The assumption of a perfect market is a fallacy. Even in highly competitive markets such as the wheat market,
the ideal is at best almost perfectly elastic and cannot ever be better. Pure competition, as a result, cannot
exist (Robinson, J., p. 21). The Lindt chocolate factory acts in a competitive market where they can individually
impact some of their own demand curve. An analysis of such firms demonstrates that all organisations have
falling demand curves, and hence it is not perfect competition against monopoly but rather the natural state
of the market. The entire argument for oligopoly and monopoly models stems from the inelastic-versus-
elastic demand-curve argument. The dichotomy of monopoly price versus competitive price has been shown
to be untenable already, and thus is argued to not be an economic factor but rather one of political control
(Willard, 1956).

Coming back to Posner (1968: 1563–4), we see the argument of artificial differentiation. The creation of
differentiated products and branding differs from the inclusion of identical products commonly promoted
through the Chamberlin-Robinson monopolistic-competition analysis. Such differentiation is argued to be a
means for a producer to create a unique industry as a micro-monopoly, although no rational argument is
provided as to the grouping of producers or products. Here, the consumer is said to be duped. The
consumer’s subjective choice is relegated to the nefarious machinations of scheming capitalists. The effect is
that any differentiation is artificial and that there is no real need for a multifarious market that seeks to
provide for many consumers.

There is a discussion within the literature as to the degrees of oligopoly and monopoly. Such forms of strategy
analysis go as far as to compare business to warfare in a false dichotomy. The reality is binary. Either a firm is
independent or it is acting jointly. A firm that is acting jointly, whether partially or in full, is part of a cartel. A
firm that is independent is not part of a cartel. No other alternative can exist. We demonstrate above that
perfect elasticity cannot exist, and hence any differentiation discussing firm size or differentiation strategies
can be demonstrated to be irrelevant. It is a question of economic history, not economic scrutiny. The real
firm, not the hypothetical, has a model of expectations concerning how many of its products it can sell at a
set price to a consumer (Golgan, 2011). This real-world client is not interested in what consumer demand may
be in hypothetical but non-existent scenarios. Such models include expected changes to revenue, should
alternate prices be set to market, and any firm, not just a monopoly or oligopoly, will take the reactions of its
competitors into account when pricing customer demand for a product. A firm that ignores such strategic
decisions will go out of business.

The argument made by Posner (1968) is hence true for any oligopoly firm, where firms are interdependent in
the pricing and part of an anticipated reaction, whereas only in the extended case the same is true for the
market in general. As we argued above, no perfect competition can exist, which is placed as a straw man —
not for economics’ but for politic’s sake. We can hence say that any firm’s estimated demand curve will be
built strategically based upon the expected actions that are to be taken by the rival firms of the company. The
idea can be further extended considering all firms offer goods that have substitutes.

The introduction of the terms “consumer sovereignty” and “individual sovereignty” is an example of the slow
introduction of little terms into economics (Hutt, 1940). Sovereignty is a quality of political power that one can
express and enforce. It is associated with violence through the state. In economic terms, no person can be
sovereign over the actions and exchanges completed by other parties. Further, no individual or firm can
coerce consumers or producers into trades without state intervention. The maximisation of utility that is
subjectively bestowed through a trade is based on the individual psychic valuation subjectively held by each
party at a time. The introduction and inclusion of oligarchy and monopoly systems into the general realm of
economics excluding state intervention for the existence of such a system is a state justification for
intervention.

To treat it as a reductio ab absurdum , we can start with the proverbial case of Robinson Crusoe and Friday
(Hutt, 1940). Each party is a bilateral monopolist. Without external intervention in such a reduced market, we
see the concept of consumer sovereignty leading to a scenario where state intervention by force would be
necessary. Neither Crusoe nor Friday acts in the interest of the other party in their oligopoly model, and yet
the Robinson Crusoe economy also acts as the classical microeconomic toy economy. The incorporation of
the false dichotomy of an “ethical ideal against which the activities of the free market are to be judged” (Hutt,
1940) with the alternative state of moral treason is simply an untenable position used as a rhetorical device for
the political control of an industry and not as a means to aid the economy.

There exist only two ways for prices to be set for goods. One lies in a free market through a process of
voluntary exchange, the other in intervention involving some form of violence and force designed to
manipulate the market into an alternate position (Smith, 1776). The alternate position is clear: any affected
interaction in a free market changes the position from voluntary engagement to forced dictates. Robinson
Crusoe and Friday are not bilateral monopolists requiring state intervention, but rather present the simplest
form of trade. Even where either party can provide an overall advantage for every task, they still maintain a
comparative advantage specialising in their best effort and leaving the other party to trade (Maneschi, 1998).

In the case study of Standard Oil, the introduction of a sympathetic competitive beeswax, Vaseline, plastics,
and high-grade fuel products that were used in machines allowed the organisation to increase the
profitability. Previously, competing refineries in the production of kerosene created heavy waste dumps and
dumped petroleum products into neighbouring rivers. Rockefeller’s introduction of new technologies turned
waste products in the kerosene industry into a more profitable business line than kerosene’s itself. Not only
did it benefit the consumer directly through lowered pricing, it also led to the increased environmental
controls that we see today (Schumpter, 1994).

Conclusion
For the last 150 years, we’ve seen a steady and unrelenting attack against free-market capitalism using the
fear-based rhetorical tactics of oligarchy and monopoly control. Authors such as Posner (1968) haven’t braced
such rhetoric in their drive for increased intervention in markets. In this paper, we have demonstrated that no
oligopolistic control exists without government intervention and that the large profits generated by firms
such as Standard Oil derive from more effective pricing models and consumer demand. The fallacy of perfect
competition has been used as a foil on which to skewer the free market, allowing governments to grasp
additional political power and control. Every organisation, no matter how differentiated, anticipates the prices
of their competitors, and reacts accordingly. The position that doing so presents a measure of oligarchy can
thus be seen through the lens of political control that is expressed upon modern markets.

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17. Willard, D. A. Competition of the Few Among the Many. Quarterly Journal of Economics, pp. 327–45.
August, 1956.

18. Yahua, Zhang & Round, David, K. Price wars and price collusion in China’s airline markets. In: International
Journal of Industrial Organisation, 29(4) pp. 361–72 (2011).
Bitcoin Is Anything BUT Anonymous
By Craig Wright | 01 Sep 2019 | Bitcoin & Blockchain Tech
In section 9 of the Bitcoin white paper, I defined the notion of a new privacy model.

In my paper, I start by saying how the traditional privacy model works and detail it in an image. In the
traditional banking model, many parties distribute PII or, as it is more commonly known, personally
identifiable information — a topic I’ve written about many times over the last decade or two.

The traditional model involves the parties sharing their identities with each other and others such as
correspondence banks, credit companies, and even processing groups. The same intermediaries, whether
they are trusted third parties or counter-parties to the transaction, all end up knowing the details of the
individuals involved in an exchange. In the Bitcoin white paper, I’ve mentioned both identities and the
ability to keep public keys anonymous outside of those who require knowledge of the transaction. It is not
anonymity, it is privacy. It is keeping details away from the public; not those who were involved in the
exchange and certainly not those who are required by law to monitor exchanges.

The traditional banking model of privacy.

Importantly, where keys are not reused and where every transaction is split into multiple payment amounts
and coins, we allow even for the ability to monitor meta data in a manner similar to how a tickertape or
stock exchange would aggregate data; everything can be audited without the public knowing all of the
information about a transaction. Rather, private information and even transactional data no longer need to
be kept isolated from viewing.

One of the key aspects of cybercrime in the past two decades where we have seen rising prevalence is the
one of identity theft. In the traditional privacy model, where identity theft is directly linked to cyber
criminals’ ability to steal money, transfer assets, and defraud third parties, the necessity to protect identities
is paramount. The consequence is a rise in the theft of credit card numbers or other personally identifiable
information that criminal groups use to defraud those within society who seek to act within the law.

More importantly, we have to trust information that is gathered through intermediaries and government as
to the nature of the economy. We cannot view the transactional flows because to do so would involve
releasing information that would leave those people involved in trade vulnerable.

In the new privacy model created with Bitcoin, transactions are no longer private. In order to stop the main
problem with digital currencies, double spending, it has been necessary to create a system that announces
all transactions publicly and which can be viewed and analysed at will. Privacy can be maintained, but it is
no longer associated with the transaction.

The parties to a transaction can calculate new keys that can simultaneously associate their identities and
act to identify and authorise parties within organisations, even for purposes of taxation. In the Bitcoin
privacy model, identities are firewalled from the transactions and the public, but are not removed. In fact,
commercial exchanges and contracting cannot occur without knowledge of the other party.
The privacy model in Bitcoin.

When I created Bitcoin and wrote the white paper, I intentionally addressed identities in section 9 as we
were discussing the parties in a peer-to-peer exchange system. Bitcoin does not remove the need for all
third parties. Anyone who thinks so should have a read of Coase’s seminal contribution to economics in his
theory of the firm. I would further recommend a reader interested in the topic do further research into
Knight’s risk-sharing and agency theories of the firm. Markets do not operate in a costless way. All
transactions come with a variety of costs, and at times intermediaries will minimise the costs associated
with exchanges even when associated with a system such as Bitcoin. Bitcoin’s seminal achievement is the
introduction of a methodology that allows for a new type of transaction, ones that are smaller than would
ever be possible using a third party or intermediary.

The exchange of information for under one US cent has never been economically viable in the past without
resorting to hidden costs as we see it in the current social media, such as in the form of Facebook or Twitter.
While such systems purport to be free, they in reality sell identity.

Many people who have been attracted to Bitcoin falsely assume that perfect decentralisation can be
achieved. They parade models of perfect competition with an incomplete understanding of the price
system. In such near religious revelations of the price system, they assume all competition is good and also
costs less without considering transactional frictional fees. In the debate between mercantilists and free-
trade advocates in the call for laissez-faire, debates surrounding competition and the organisation of
organisations and firms have devolved into ones of religious fervour. Whilst the debate around the scope of
government and the role of the economy and the extent to which we should interfere with it is of interest,
the Smithian call towards merely preserving a limited role for the state has changed to one that neglects
the cost associated with an unordered system and chaos.

Smith (1776) moved us from a centralised control of the economy into a concept of moderated competition.
It differs from extreme decentralisation and the chaotic resource allocations that result from such a system.
The irony that few point out is that a system that acts without rules slowly divulges into one of extremely
centralised control as those who are most efficient at a point in time gather more resources and use them
to take further resources from the competitors. It is but a very restricted form of maximising competition
where the actors in the system seek merely to maximise utility or wealth with a complete disregard to the
decisions and needs of others. One could say that it is an often parodied dog-eat-dog system. The
appropriate name of such a system is ‘perfect decentralisation.’

In a system of perfect decentralisation, only power and the ability to guide, manipulate, or control markets
through any means have weight. It is a system where no parameters of the system remain in the control of
any actors or institutions and where all authority in any role is misallocated, away from anything other than
price.

Coase investigated the scenario when looking at the development of firms in his theory known as the
transaction cost approach to the theory of the firm.

Why would a set of individuals engage in the costly managing of the

exchange of services through a firm, if they could individually
achieve more?
Importantly, one aspect that is overlooked is the informational cost.

Williamson (1991) provided reasoning to detail transactional costs and the development of firms as a
consequence of the fact that “the governance costs of internal organisation exceed those of market
organisation.”

In his microeconomic model of organisations, profit maximisation or efficiency leads to the substitution of
firms for markets. Similarly, there are times where intermediaries such as banks and credit organisations
remain more efficient and develop to replace impersonal markets. Even with Bitcoin, the efficiencies gained
in removing intermediaries from small and previously unavailable transactions do not scale to a complete
removal of all intermediaries. Nor would any system ever be able to do such a task.

It was Marx’s ideal to see complete and pure decentralisation. Marx saw all individuals in a communist world
able to act without the firm. Each person would engage in a series of tasks that would allow them to do
everything from growing their own food to producing their own tools. It is a common socialist mantra, and
was taken up by 20th-century luminaries, including Gandhi. Unfortunately, such a romanticised ideal of the
world does not work. As Adam Smith (1776) demonstrated, there are efficiency advantages in specialisation,
and some of the gains of specialisation come in the creation of organisational intermediaries. One example
is the one of project management. Those who act to pull together distant or misallocated resources and to
efficiently budget them in a specialised manner themselves become specialists.

The model used to allocate identity and privacy within Bitcoin is one that maximises informational
efficiency. Identity both has value and comes with its cost. Parties involved in transactional exchanges
where identity is involved have to act to secure the information associated with the exchange. The cost,
liability, and risk associated with its disclosure, theft, and fraud increase the cost to intermediaries, and lower
the efficiency of trade and exchange.

Such costs have acted to mitigate the ability to exchange information of small value or even to engage in
trade at the level of micropayments. As Bitcoin scales, such costs will decrease, and the ability to exchange
previously unthought of items and services will start to evolve.

The new privacy model in Bitcoin does not remove identity. It does, though, alter the need to use identity in
a manner that lowers the security of participants and the trade and which increases the risk of disclosure. In
allowing exchanges that do not involve trust based on personally identifiable information and easily copied
authorisations, Bitcoin creates new forms of exchange and opportunities.

In exchanges, those involved in trade using the new privacy model of Bitcoin maintain identities. Where
Alice and Bob seek to engage in a peer exchange, they may now do so whilst only having to store the
minimal identity required for the transaction. In small transactions, the risk can be low enough and
reputation itself can be of high enough value that the parties will need minimal identification to exchange.

The scripting system within Bitcoin is sufficient to allow even larger exchanges to occur. With the ability to
add separate identities and signatories to a transaction, arbitration and escrow can be implemented
automatically. In other words, the scripting and contract capabilities that exist within Bitcoin allow the
parties to a transaction to determine the method of dispute resolution before they execute in accord. They
can do so during the negotiation phase of an agreement.

Such possibilities are achieved through the ability to create unlock scripts that are constructed with a nearly
unbounded range of input options and values where if both parties seek to use either mediation or
arbitration services, they can do so whilst still maintaining full privacy and even engage in arbitration and
mediation practices that do not require the disclosure of personal information. The process can be
extended to allow the automation of advanced court systems. For instance, the Singapore State Courts’
Community Justice and Tribunals System launched an “ e-Mediation” service that could be automated
allowing parties to select the system without having to resort to courts as a first resort.

In such a way, disputes between parties to a Bitcoin-based contract could be solved quickly and with
minimal hassle. As such, the disputants would not even be required to attend court, and could file
documents online. Extending the scenario further, we could see a world where international trade and
commerce could be conducted with distributed jurisdictional options linked to blockchain-based
technology and contracting. It would provide much needed governance from within the technology
delivered through Bitcoin. Using registered digital certificates for the parties and a mediator, arbitrator, or
national court, Bitcoin could be used to integrate smart contracts and DFA (deterministic finite automata)
hierarchically allowing for a range of both novel and traditional dispute-resolution procedures that can be
appealed and processed within the existing legislative context.

With the recent Court of Appeal decision in Golden Ocean Group v. Salgaocar Mining Industries [2012] , the
courts confirmed that a series of ongoing electronic communications should be held to be writing and
signed documentation per the Statute of Frauds (1677). Combined with cases such as WS Tankship II BV v
The Kwangju Bank Ltd [2011] , we argue that the use of smart contracts can be extended to encompass
many areas of law traditionally only determined in paper and formal dispute resolution. Lastly, we
demonstrate that the data-protection provisos of GDPR, that allow for an individual’s right to request
specific personal data be erased in certain circumstances or to have data corrected, are easily managed
without the permanence of records on blockchain posing a problem.

Well-constructed systems for the private association of keys that are hierarchically determined from an
identity key that is never used within the blockchain itself will allow individuals and corporations to interact
using new key pairs for every transaction whilst simultaneously being able to provably exchange identity
with other people in Bitcoin’s new privacy model.

References
1. Coase, R . The Nature of the Firm. Economica . 4 (16): 386–405. Blackwell Publishing (1937).
https://www.jstor.org/stable/2626876
2. Smith, A. An Inquiry into the Nature and Causes of the Wealth of Nations. 1 (1 ed.). W. Strahan, London
(1776).
3. Williamson, O. E. Comparative Economic Organization: The Analysis of Discrete Structural Alternatives.
Administrative Science Quarterly, vol. 36, №2, pp. 269–296 (Jun, 1991).
https://www.jstor.org/stable/2393356
Human Rights and Property
By Craig Wright | 03 Sep 2019 | Bitcoin & Blockchain Tech
The most fundamental of human rights is the right to hold property. There are many who would argue
the same, but the reality is: to be free, we need to be able to control our lives. To choose how we wish
to live and not be beholden to others, we need to ensure that we follow a path that we control
ourselves. To do so and to live our lives freely, we need to be able to control our property and ensure
the security and integrity of such rights.

Freedom lies at the core of what Bitcoin, the blockchain is about. My team and I have been working for
several years now on solutions to the issue of property. In the coming months, we will be releasing
several papers and solutions to what we see is the problem with the state of the financial system,
property, and risk transfer.

The primary concern as we see it is the volume of information people can find about ourselves. Our
lives are not private, and they are becoming less and less private over time. The lack of privacy is not
about protecting criminal acts but rather empowering individuals to live the life they want to live.

We have been working on redeemable contracts. Our solution is the creation of a form of tradable,
secure property rights that have been abstracted from the individual and the use.

An example would be the property title for a house. Just because you live in a house does not mean
people need to know that you own it. In time, our solution will allow you to separate the ownership,
occupation, and use of any property. In the example, we divide the ownership of the house into shares
that are tradable and that link over the blockchain to redeemable contracts that are encrypted and
stored in a distributed manner across the Metanet .

The solution will include a secure voting system and a revenue-distribution system. It will allow a
homeowner to pay rent on their home at market rates. The rent will be distributed to the property
under the shares. Where the homeowner owns 100% of the house, the money will be pseudonymously
returned to them.

If they need to raise capital, as an owner of shares in their property, they can sell them on a tradable
market. The purchaser of the shares will then retain dividend rights under the lease terms. We will be
releasing details of the system in the coming months.

As such, the homeowner can separate the property rights from the residential rights and reside in a
property that they own while not publicly releasing the fact that they own the property. Further, a
property owner can reduce the risk of owning a property by sharing the ownership. They could, for
instance, exchange 30% of the shares in their home for shares in other properties. In the event that
they owned 100% of their home, the rental income from the other properties would pay for their rent
repayments without interest while at the same time allowing them to diversify and reduce the risk of
what is arguably the largest investment they will have in their life.

The system will be able to be scaled, and will be distributed. It will allow people in repressive countries
to move funds, save capital, and invest for their future and the future of their children. Most
importantly, those of us who live frugally and don’t want people to know what we have can invest and
save without being ostracised and without having to worry about the property we own being taken
from us.

In any transfer, a record will be kept. The record will include predation by governments in such
countries that do not respect property rights or the rights of the individual.

Our work is far from over. In the coming months, we will be publishing a series of papers documenting
the research we have been conducting. There is a reason we had been building supercomputers
instead of merely mining on Bitcoin. Going forward, it is important that we create a world where
people, as long as they don’t impact on the rights of others, can live their lives as they choose.
Such a world involves ensuring that we have the right to save and control our futures without fearing
predation. The right to a future without loss caused by theft. The right to live silently if we so choose.
The right to invest and make a better world and not be held in contempt for doing so.

The results of the research are what Bitcoin, the blockchain is about: a free system to transfer and
maintain property.
Rights and Tracing
By Craig Wright | 05 Sep 2019 | Alternative Coins & Systems
Identification of ownership rights in Bitcoin and assets on the Bitcoin blockchain through payments and
mixtures would be an exercise in tracing. Lord Millett in Foskett v McKeown gave the reasoning for using
tracing rules rather than following in such a scenario when he said:

Following is the process of following the same asset as it moves from hand to hand. Tracing is a process of
identifying a new asset as a substitute for the old.

[2001] 1 AC 102, 127 (Lord Millett)

It will be easy to show the false narrative created from Bitcoin Core (BTC) when court orders start requiring
the seizure of coins in the next 12 months. Many money launderers, people smugglers, drug dealers, and
others will find that the promise of money which cannot be taken by government is not one that Bitcoin
delivers. It isn’t one that was ever given when I was posting as Satoshi. Rather, it is a narrative that has taken
hold as those fleeing the sinking ship of Liberty Reserve and e-gold and others have piled on and sought to
change Bitcoin into something that it was never designed to be.

Freezing Assets
One possible scenario includes the ability for a court to order a particular UTXO or address to be frozen,
which could be achieved without knowledge of the real person or parties behind a theft or fraud, and would
allow asset freezing prior to a transactional process that could occur on the blockchain. Such a process
would require an order issued on and implemented by the miners and exchanges of the Bitcoin protocol.

The classic argument that was designed to fool regulators and law enforcement and which has been
promoted by those in BTC camps is that they are a decentralised system of nodes and all nodes need to
vote on the protocol. It is exactly the system that James Donald wanted, which is exactly the opposite of the
system I created, and it is one that cannot be implemented with the blockchain, no matter what you do.

The jurisdiction of the English courts to grant freezing injunctions in respect of overseas assets is derived
from section 37(1) of the SCA 1981, and was recognised in Derby v Weldon (Derby & Co Ltd v Weldon (№6)
[1990], 1 W.L.R. 1139).

Nodes
What people fail to understand is that home users are not nodes. I posted about it two years ago —
explaining what I created and how I listed the required steps in the white paper . It was one of many posts
I’ve written. But the simple truth here is that Bitcoin is a proof-of-work system. Nodes act only when they
are validating a transaction AND providing a proof-of-work demonstrating that they did so correctly. It is an
important point. A node demonstrates that it is verifying transactions through a costly signalling method,
the creation of a hash. In biological terms, the hash is the equivalent of a peacock’s tail.

https://medium.com/@adam_selene/nodes-e3bb49364b3a

Some users will say that they don’t need to comply. And in a way, it is true. If they’re not a miner, there is
nothing for them to do; they are not part of the validation network of Bitcoin. When the first court order
comes through and alters the BTC blockchain, a few people will think that wearing hats and running around
saying that they refused to comply will matter. The end will be that miners and exchanges either comply or
get shut down and participants either choose to rejoin the main network or find that they no longer have
any assets. Because it’s only the main network that gives value.

When in August of 2010 I said the following, I was hinting at the possibility of introducing such orders. In
part, I started coding it with the alert key.

[Aug 11, 2010:] Imagine someone stole something from you. You can’t get it back, but if you could, if it had a
kill switch that could be remote triggered, would you do it? Would it be a good thing for thieves to know
that everything you own has a kill switch and if they steal it, it’ll be useless to them, although you still lose it
too? If they give it back, you can re-activate it.

Imagine if gold turned to lead when stolen. If the thief gives it back, it turns to gold again. [With Bitcoin,] the
money is never truly burned. You have the option to release it at any time forever.

A freezing order is simple enough. Fighting to get a restitution order is difficult. It’s costly, and very few
people will ever try outside of government. It will occur when we’re talking about seized funds and proceeds
of crime. But the thing to imagine here is a world where blackmail or cybercrime creates a scenario where
the victim can quickly freeze bitcoin or require the rightful implementation. The thief will want to give back
the bitcoin because there will be a record. If they don’t return it and they spend it on an exchange knowing
that it’s already subject to a freezing order, AML and KYC laws will link their identity indelibly in a manner
that can be used as evidence in a court.

So the thief has a choice: they can return the money and bask in the hope of anonymity being that the
money hasn’t been spent, or they can seek to try and wash it, knowing that the value of the money will be
covered under tracing rules that are based on FIFO (first-in, first-out) principles, which destroys the ability
for them to use the money.

Freezing Injunctions and Third Parties

A third party that knowingly assists in the disposal of the assets subject to a freezing order may be subject
to proceedings for contempt of court and held liable to a fine, the seizure of assets, or imprisonment of up
to two years.

Nodes can be forced to change through court orders. And remember, only miners are nodes. If a user
decides that they don’t want to comply and will not update their software, they no longer act as part of the
Bitcoin network. They do not connect to other users, they cannot extend the network, and they are unable
to participate within the Bitcoin network. They don’t connect to other users who disagree, rather they end
up as a series of isolated systems — all of which run their own network. The method used in Bitcoin to
consolidate different chains is the proof-of-work mechanism. Without it, no consistent chain exists.

In 2020, we will start to see a lot of large addresses that have been associated with the proceeds of crime
starting to be seized. Exchanges who refuse to act on orders will be shut down and the assets seized. Miners
who refuse to act on court orders will be shut down and the assets seized. The result will be a consensus of
miners, exchanges, and businesses that are willing to act within the regulatory and legal framework that
already exists. The good thing about Bitcoin is that it is simpler and not more difficult to control. We will
start to see the lies in the mythology surrounding Bitcoin being torn down in the coming months and years.

The ideal first target is Bitcoin Core. The narrative started with BTC, and it will end with BTC. As miners are
forced to act on court orders, those within the BTCand BCH communities will start to see that they are on a
system that cannot escape government control. The limiting factor is the international nature of Bitcoin. As
such, only laws that apply across multiple borders will be enforced. But again, money laundering, people
smuggling, and proceeds of crime from hard drugs are all something that people will find Bitcoin is
unfriendly to.

Bitcoin Core (BTC) is based on the jurisdiction covered by law. The developers live in jurisdictions that are
subject to freezing orders. It is time for people within the Bitcoin Core community to start realising that BTC
is subject to government and regulatory oversight. That if the developers seek to act outside the law, they
will be subject to the law.
Satoshi’s Vision: The Art of Bitcoin
| 12 Sep 2019 | Alternative Coins & Systems
By Craig Wright
The book Satoshi’s Vision: The Art of Bitcoin is the product of a compilation of a selected number of
Craig’s blog posts published on Medium and craigwright.net .

The content is for the most part taken as it was in the original posts, with the aim of creating, in one
book, one story that is larger than the sum of its parts. As such, some parts have been reedited and
repurposed to meet the book’s end of providing clarity to the reader.

You can buy a copy of the book here .

Author’s note: We shall not be responsible for any errors, omissions, or claims for damages, including
exemplary damages, arising out of use (or inability to use) or with regard to the accuracy or sufficiency of
the
information contained in the publication.

The opinions expressed by Howson Books, it’s editors, or affiliates shall not, in the book or elsewhere,
reflect the opinion expressed by Craig Wright.
Neither Howson Books nor the book’s authors or editors shall guarantee the accuracy or completeness
of any information published.

Nothing in the book constitutes legal, financial, or other professional

advice. Information contained in the book is current as of the date of publication to the best of our
knowledge.
Satoshi; or, The Solution to Nakamoto’s Dilemma
By Craig Wright | 27 Sep 2019 | Bitcoin & Blockchain Tech
Tominaga Nakamoto (1715–46) was a Japanese philosopher trained in the Osaka merchant academy called
the Kaitokudō. His research and writings on metaphysics and cosmology in the study of nature described
how the subjects were unreliable. He wrote on history, detailing how it would be the proper subject of study
from which to gain insight into the present. Unlike many of his contemporaries, he challenged the view that
language and text could serve as objective sources of data, maintaining that they could not be used in
making universal statements. When taken in its cultural context, language is fluid and changes as people
alter meanings of words.

He demonstrated how history was relative and fundamentally unreliable. The distortion in the written word
over time became a central issue and area of study that Nakamoto used in his thesis that history was
unstable. The constant change and variation to history is in effect an unchanging alteration to the protocol of
how we as humans communicate. It is both language and the full meaning of words that we see change.
Instability when coupled with human ambition and desire leads people to manipulate language. The making
of myths can be seen in the Bitcoin white paper. People have argued that miners could make rules and lead
us to a system without government, even though the white paper makes it clear that miners enforce the
rules — the difficulty here being that an enforcer is not a creator.

Nakamoto delivered the thesis that true history was altered time and time again by those seeking to
constitute what they saw was pure origin based on their own philosophy. The reconstruction through a series
of overlays and changes leads to something radically different. The only stable part of history that Nakamoto
noted was one of self-promotion and bragging. The one thing that never changes in human nature is the
matter of contradictions and deceiving ways. But a system without the ability to change without a record of
the change always leads to the truth. And a predicate can always be formed in a way that does not allow
rhetorical dishonesty.

The writings of Nakamoto are rarely studied today, which they considered “the way of truthfulness” ( makoto
no michi ). He sought methods to create moral relationships and to endow trust amongst humans [1, 2].

The name Satoshi signifies wise or intelligent history . The word and name simultaneously means clever or
order , and implies a wise ancestry and a history that is connected. It is also the name of the Pokémon trainer,
and has a few side connotations that I always loved. And it is also the name of one of the key characters in
The House of Morgan . Primarily, it was always the juxtaposition that I liked.

Both Nakamoto and Sorai supported a common current of analysis affirming the Tokugawa system of
government and rule. Known as hoken , the Tokugawa, whilst still a ward lordship, constructed a
decentralised system of government. He compared it to the imperial centralised regimes that existed in
China. In particular, he criticised the disproportionately unforgiving and legalistic examination systems
needed for a promotion within the Chinese government and its associated bureaucracy. It was his hypothesis
that they stifled both intellectual life and the development within society across China at the time. He noted
that it differed radically from many of the earlier periods of China, where a more decentralised governorship
had led to growth and a profound expansion.

Bitcoin is a system that creates an ordered and structured history, one where changes can occur; but within
the system, if exchange occurs, the nature of the change is recorded. In Bitcoin, we have the answer to
Nakamoto’s history and his dilemma and problem. Satoshi, the system of wise ancestry, is a system of blocks
ordered throughout time. It is a system that records all the problems and mitigates them, because the
answers are available to audit.

References

1. Nakamoto, T (1738). Jottings of an Old Man ( Okina no fumi ).

2. Nakamoto, T (1770s–1780s). Random jottings of an old man ( Okina-gusa ). Collection of Japanese essays (
Nihon zuihitsu taisei ), 3rd series, vols. 11–13. Nihon Zuihitsu Taisei Kankokai, Tokyo (1927–1931).
Simplified Payment Verification
By Craig Wright | 09 Oct 2019 | Bitcoin & Blockchain Tech
In the Bitcoin white paper, I specified how it is possible to verify payments without running a full network
node. The distinct specifications and definitions are important: Section 5 of the white paper defines nodes in
Bitcoin; more critically, to be a node, you need to be mining transactions. SPV or simplified payment
verification is a critical aspect of scaling Bitcoin. I thought it was rather clear and obvious when I released
the white paper, but it seems that people have overlooked or misunderstood all of the different aspects. The
truth of the matter is, nobody realised how simple SPV could be. It is critical because you cannot scale the
blockchain without SPV, and more importantly, SPV is the peer aspect of Bitcoin. Right now, derivative
systems that have forked away from Bitcoin, such as BTC, are not peer-to-peer at all.

By definition, ‘peer-to-peer’ refers to the direct exchange between individuals or other parties. As such, a
consumer, Alice, who wishes to purchase goods from a merchant, Bob, would send a transaction directly to
Bob. Bob can validate it and send it to the blockchain for clearing and settlement. The process is peer-to-
peer. The miners or nodes in the network act as a distributed intermediary. No one intermediary needs to
be directly trusted, which differs greatly from any of the current systems. Winston Churchill supported the
reintroduction of the gold standard, although at a mispriced level, as it stopped the knaves in Parliament
from altering values for political concerns. A distributed system enables a method that will stop such knaves
seeking to alter the monetary supply yet not turn them into trusted third parties.

Users in the system are only required to maintain a copy of the block header to which they can compare
transactions. At present, the block header is under 50 MB in size. Many image files can exceed such levels. A
decade from now, the growth will only be linear. So, we have a system that scales by Moore’s law
exponentially yet takes a linear amount of resources. There are a few systems that could not keep block
headers in memory today.

Network nodes or miners would provide users with the longest proof-of-work chain. A user could
implement a Bayesian system to ensure that they had the longest chain. Rather than checking with one
miner, they would query multiple random nodes. In doing so, it is possible to ensure very simply and
without much bandwidth that they have the longest path.

Verification is reliable in the system as long as the honest nodes control the network. It is important to note
that network miners act within the law. A network node involves investment. Today, even small miners
invest hundreds of millions of dollars in their systems. More importantly, miners are geographically located
and cannot easily move, making them subject to the provisions of law, where a dishonest miner would be
liable to losses. Bitcoin was never designed as a system that acts outside of the real world. In fact, the reason
that the word honest is mentioned 15 times in the white paper is that it relates directly to acts such as the
U.K.’s Fraud Act 2006 .

The result is that once Bitcoin achieves any level of scale, it comes under the purview of law. Game
theoretically, the game to a miner inclusion and acting as an attacker is minimised by the losses that miners
will face. I had written in an early draft of the white paper that transactions would only be vulnerable to
reversal. It is so because Bitcoin is not designed to be a system that acts outside of the controls of law. It is a
system that supports honest trading and allows the capture and sequestration of transactions that can be
shown to be associated with criminal activity.

An attacker that can overpower the network can work with a network node only for as long as they can
continue to overpower the network. Which is something that would be quickly noticed. Existing miners
would be able to determine ‘double spends’ within seconds. At worst, an attacking miner who built a chain
six blocks deep would on average be determined after an hour or so, when all would be rejected outright.
The myth that Bitcoin acts outside the law has been propagated by those seeking to create criminal
systems, but it is a false and malicious lie and one that is easily discredited. As governments, regulators, and
law enforcement start to wake up and see the true design of Bitcoin, they will start to understand that it is a
system that is friendly to law. It assists in the tracing of transactions, and provides a high level of privacy for
the small cash like transfers whilst also being able to immutably record money laundering and crimes.

A Customer SPV Wallet

The SPV user should maintain a copy of the transaction that they have received. Transactions are minimal
in size, and do not take up much room. When a user is paid, they should maintain a copy of the transaction
that has been sent to them, so that they can both validate it against the Merkle tree of a particular block and
simplify the payment to the next peer.

If we assume that Alice has been paid using an input transaction in a block of sufficient depth that is
associated with Tx3 in the following image, she can now save such information in the block path to simplify
verification when she spends her money.

Extending the scenario, we can see that Alice can save each of the input transactions for the money she
wishes to spend on her own computer. They are each treated as digital coins. By signing them or fulfilling
the other conditions of the output script, Alice can now transfer her coins to a new output in order to pay
Bob.

Alice sends Bob a copy of both Tx1 and Tx2, the inputs to Tx3 that she is spending in the transaction below, in
order to pay Bob. By also sending the Merkle path, Bob can very quickly validate the hash of each
transaction and ensure that it follows to the block header and validates. Bob can trust the input transactions
if they exist in the blockchain. He can, of course, choose to validate the input transactions again himself. He
has just received a copy of both Tx1 and Tx2 from Alice.

In order to validate a transaction and ensure it exists within the Merkle path and validates to the block
header, Bob simply needs to take the hash of each transaction that acts as an input to his payment
transaction that Alice is giving him. To do so, Bob calculates the hash of both transactions:

Hash(Tx1); and

Hash(Tx2).

With both values, and with the Merkle path Alice has just supplied, Bob can simply and very quickly
calculate the full blockchain header value and ensure that the path in the blockchain header is correct. If the
hash and Merkle tree that he has in the headers he has saved match, Bob knows with certainty that Alice
has given him a valid transaction. He knows that the existence of the transaction in the blockchain has been
validated by the Bitcoin miners and that there is now proof-of-work defining the existence of the
transaction in the chain.
The SPV system is shown schematically in the diagram below:

Customer SPV wallet

Note that Alice does not maintain merely her private keys in the system. She will save the Merkle path and
the input transactions that she is seeking to use. Alice does not need to maintain access to the blockchain
to be able to spend her money. As Alice knows that she is the only party able to spend her coins, she can
even act to make a transaction that is valid while she is still not connected to the blockchain in any way.
Alice does not need to worry about the validity of any change transaction or output, because Bob cannot
alter them. If Bob seeks to alter the transaction so that the change is not incorporated, the entire
transaction will be invalid. The result is that Bob either submits the payment he has received from Alice to
the blockchain for settlement, with the change to be paid to Alice, or he does not receive payment, in which
case Alice does not need to worry about her change at all.

Note the following features of a customer’s SPV wallet:

1. TXs – Pre-loaded full transaction data containing Alice’s available unspent transaction outputs (UTXOs).
Full transaction data alongside a Merkle path constitutes a Merkle proof that the transaction Alice is
spending is valid. Hashing the full transaction will give the TXID, which is required as part of the input data
for the new transaction.

Note that providing the TXID alone would be insufficient as Bob must be able to verify that the TXID is
indeed the hash of the transaction. Bob can only do so if Alice provides him with the full transaction data;
hence, she must store it.

If Alice does not store such information, Bob will need to check it on the blockchain, which will add delays
to the process. Bob, of course, can charge a fee for non-SPV transactions where he must go to a miner and
download the complete transaction, and miners can do the same to merchants who require a speedy
response to a selected query.

2. Private/Public keys – The wallet must have access to a set of private keys to sign TX outputs and public
keys to specify change addresses when conducting transactions.

3. Merkle paths – The Merkle path of each of the transactions containing the TXs. The Merkle paths will be
used by the merchant’s point of sale wallet in verifying that the TXs are valid. Note that the Merkle proof
provided by the wallet does not prevent a ‘double spend’ but acts as a fail-fast mechanism against spam
attacks.

4. Minimal processing – The SPV wallet is required to sign the unspent transactions in order to spend them.
Doing so requires the offline wallet to be able to implement ECDSA signatures, or in other words possess
enough processing power required to perform elliptic curve point multiplication and compute hash
functions.

5. Block headers (optional) – The customer wallet may wish to include block headers to verify that
payments to point of sale SPV wallets have been processed. Doing so would also require storing the TXIDs
and Merkle paths after interaction with a point of sale wallet.

Maintaining Privacy; Ensuring Scalability

As the merchant, Bob sends the transactions to the blockchain, and not Alice; she has more privacy than if
she sent it herself. Bob and Alice are already exchanging, and so Bob knows of Alice (he may need to send
her goods). As Bob sends the transactions, and as he is likely to be a merchant with many transactions, his
IP address is made public, not Alice’s. Alice does not need to attract attention using Tor; she can exchange
knowing that only Bob sees her exchange (here, Bob and Alice can use an encrypted channel). So, Alice
reveals far less and can maintain her privacy in the world at large.

Chain analysis and recording IP addresses will not reveal Alice’s exchange. Bob holds a record, but it is not
public.

In coming posts, I will start to detail how such a solution can be achieved and how it helps scale Bitcoin. In
fact, Bitcoin can neither be peer-to-peer nor scale without the implementation of SPV.

Bob can quickly check the validity of any coin that Alice is using to pay him. He can check whether it’s in the
UTXO set as an unspent transaction, and he can quickly validate the input location in the blockchain as Alice
has handed him the path. The deeper the coin is, the more the proof of work is that is needed to change the
path and hence the more secure it is for Bob to accept it. If Alice simply spends her pay and receives coins
after being validated for an hour or so, it is still very secure. Bob does not need to download the entire
blockchain. Even if he ran his own node, it would gain him nothing. Only miners change the blockchain. As
Bob has received Alice’s input coin, he can check that it is valid and that she has correctly formulated the
output coin to Bob, which is all he needs to validate the payment itself. Next, if Alice hands the Merkle path
associated with her coin to Bob, she can now be assured that Bob can quickly validate it by hashing the
input transaction and checking its location on the hash headers, by validating the Merkle path she has
given him.

Such was always the methodology I envisioned to exchange transactions on Bitcoin and to allow peers to
act without third parties. Without it, by implementing a requirement that all systems run as a full network
node, the simplicity of the system is lost, and the system is no longer able to scale. By running SPV, users
can quickly and simply validate their own transactions, and they can do so by storing a minimal amount of
information.

I shall continue detailing the processes involved with SPV in following posts, and explain how Bitcoin can be
scaled not to a few individuals but to millions of transactions a second.
Taxing Times…
| 15 Oct 2019 | Alternative Coins & Systems
By Craig Wright
One of the key aspects of Bitcoin is that it is set in stone; the protocol does not change. Many have been
misled to believe that Bitcoin would be a system of nodes voting on a protocol, which could not be
further from the truth. Nodes do not vote to change the protocol. This is not written in the white paper
at all. The section that is misrepresented concerns honest nodes voting on the ordering of transactions.
There is no mechanism for users or the community to change the protocol. And such a mechanism was
never designed or intended.

The nature of what is intended is for commercial systems to come to a distributed agreement or
consensus as to the ordering of transactions. It allows a group of honest miners or nodes to consider the
ordering of transactions and to quickly and efficiently act on dishonest behaviour such as double
spending.

In the Bitcoin white paper, I wrote that miners could enforce rules. The precise wording is important.
Enforcement is a police or regulatory function, and does not involve the creation of rules. It is also
important in another way; Bitcoin is not a system based on one-person-one-vote, but rather a game-
theoretic system to order transactions. As a system for democracy, Bitcoin is horrible. It is a system that
allows control of the minority by the majority. It is a system that allows those with wealth to dictate to all
others. Those who invest the most get to vote more.

As a solution for the honest ordering of transactions, where the higher investor has more to lose, and law
enables a large investor to lose large amounts of money if they act dishonestly, Bitcoin works incredibly
well. The issue is that some people tout Bitcoin as a solution for things that it is not designed to fix.
Bitcoin is not a parliament. No blockchain-based proof-of-work system will be. Having said so, the
scripting engine in Bitcoin allows other things to be built, that can enable voting. The ordering of votes
could be important. Such is what Bitcoin delivers.

If Bitcoin is fixed, what does this mean for forks?

In a recent IRS release , a query was answered in relation to a concept added to protocols outside
Bitcoin, such as BTC. One of the questions follows below:

Q21. One of my cryptocurrencies went through a hard fork but I did not receive any new cryptocurrency.
Do I have income?

A21. A hard fork occurs when a cryptocurrency undergoes a protocol change resulting in a permanent
diversion from the legacy distributed ledger. This may result in the creation of a new cryptocurrency on
a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. If
your cryptocurrency went through a hard fork, but you did not receive any new cryptocurrency, whether
through an airdrop (a distribution of cryptocurrency to multiple taxpayers’ distributed ledger addresses)
or some other kind of transfer, you don’t have taxable income.

Bitcoin is a system that acts within the law. The concept of hard forks or even soft forks is not one that is
part of Bitcoin. It has been added to the airdrop called BTC, or, CoreCoin.

Core will tell you it doesn’t matter what I said as Satoshi. I’m sorry, but it does. Bitcoin Core (BTC) is the
protocol change resulting in a permanent diversion from the legacy distributed ledger in any reasonable
interpretation.

The most important word in the sentence is legacy . The legacy system is one that is analogous to the
original. Bitcoin Core differs from my original vision of Bitcoin in every way. Core does not implement
Simplified Payment Verification (SPV), and has failed to comprehend what SPV is. More importantly, BTC
is not peer-to-peer in any reasonable manner. Some attempts have been made to implement a peer-to-
peer version of exchange in BTC, such as with BIP-70, but plans are afoot to remove it altogether.
The simple fact is, the myriad protocol changes implemented by Core into BTC make it anything but the
legacy. The implementation of BTC is widely misrepresented as the original. This will change. Those
seeking to convert law and justice in order to create a system that promotes bucket shops and criminal
activity are about to find how it ends. Bitcoin doesn’t avoid tax. Rather, systems such as taxation help
stabilise Bitcoin. The IRS has made it clear that a fork from the original legacy protocol is income.
Consequently, changes to the stable protocol that was set in stone form an airdrop that must be sold to
pay for the income if you wish to keep the new airdrop coin. Unfortunately for many, the scenario is
being falsely misconstrued. BSV is a ticker symbol. It may be a new ticker symbol, but it represents the
legacy protocol. Here lies also the reason why we have laws against bucket shops and unregulated
financial exchanges. The quasi criminal groups seek to act outside the law and regulation and promote
the false idea that Bitcoin was ever developed for such a purpose.

Segregated Witness activated with several major changes to Bitcoin. Such included the implementation
of TXID depreciations and the removal of the necessity of signatures and signed transactions. The entire
nature of what they’re seeking is antithetical to a peer-to-peer system. Nodes are not the peers in
Bitcoin; individuals are.

What does this mean for taxation?

Effectively, it means that any BTC you had in 2017 became an airdrop. The reason for it is that a ticker
symbol is not an indicator of a legacy item. In August 2017, the original goal of Bitcoin as a peer-to-peer
cash system, in the way that I had originally envisioned it, was kept. Today, it continues through the
node implementation called the Bitcoin SV Node. The system has the ticker symbol on the bucket-shop
exchanges of BSV. Do not let it fool you. The reason I say so is that in August 2017, as we fought to
maintain the original legacy version of Bitcoin, a massive deception was run against uninformed
investors. It was the false promotion and deceptive naming of the new airdrop coin as Bitcoin. Let me
make it clear: BTC is not in any way close to the concept of what Bitcoin was designed to be. It is an
airdrop, and is dissimilar from the legacy.

It is important to consider, it doesn’t matter what you’ve read; it matters what will end up in court. And
what you will find is that legacy is strictly defined in courts. So, the question is: what is closer to the
original? Unfortunately, there have been many changes implemented in what Core falsely calls Bitcoin
and a deception against the market.

The system that is closest to the original, the system that embraces the white paper and does not
change, that seeks to be set in stone is the one which is the legacy. The block size is not a part of it,
which is something that can be dictated by nodes, miners and voted on based on economic incentives.
Users have no say here, nor should they. Users of the system transmit transactions between each other
in a peer-to-peer manner — using Bitcoin. You don’t need to like the US dollar to use it, and in time it
won’t matter whether you like Bitcoin.

So, despite the really bad advice many people are giving, if you held your BTC following the creation of a
new version of Bitcoin Core in August 2017, you will find that the ticker symbol is not an indicator of the
legacy. The result will be a tax debt. Interestingly, due to the deception that people have used to
promote BTC as if it was still Bitcoin and not the airdrop that it is, many people are going to find that
they are in financial difficulties because of Core.

The entire value of any BTC that you maintained after August 2017 is income in the USA. It’s very simple:
the legacy coin is the one that fought to maintain the original system, and it is not BTC.

So, let’s put it simply: if you had 100 BTC in August 2017, you received an airdrop income of around
$4,500 per Bitcoin Core at the time. The original Bitcoin remains untaxed until you move it. But just
owning and accepting those hundred BTC requires that you pay for the income from the $450,000 value
that has been falsely attributed to the name Bitcoin and that uses the ticker symbol BTC. Remember, we
are not talking about capital gains, it is income.

You may not want to believe what I say matters, and Core will try and tell you that what Satoshi said
wouldn’t matter anymore. I’m not sorry to tell you, they’re wrong.
Bitcoin Fights Corruption
By Craig Wright | 23 Oct 2019 | Bitcoin & Blockchain Tech
The battle for Bitcoin is very simple, and it goes right back to the days before I launched it. My vision lies in a
system that will utterly destroy crime. I designed Bitcoin not to avoid government, but to act within law. It is
a system that will bring down activist criminal groups and more mainstream traditional criminals for what
they are. As we saw with the collapse of Silk Road and — just the other day — the arrest of hundreds of people
involved with child porn rings, Bitcoin enables the tracing of criminal activity, allowing law enforcement to
shut such activities down.

If you believe Bitcoin is a system that takes down government and brings about anarchy, you have been
sorely deluded. The design of Bitcoin is one that allows individual users — across simplified payment
verification (SPV) — to act as peers. It is a system that allows individuals to have privacy. It is a system that
artfully removes any trace of anonymity in the manner that some people seem to understand it:

If you purchase drugs using Bitcoin, you will be recorded forever.

If you buy child porn using Bitcoin, your heinous crime will be found out.
If you create ransomware based on Bitcoin, eventually your money will be seized.

In time, governments will understand the true power of Bitcoin. It is not something for the 1 or 2 per cent of
outcasts that seek to parasitically benefit from the hard work of others.

Bitcoin is a system designed to ensure that the scenarios of ‘free’ web offerings and tokens developed
within the 1990s end with investors having rights against the people who conned them. It is a system where
any ICO, which is really just a new name for a web IPO of the 1990s or a pink sheet scam of the previous era,
is recorded. In the ‘80s and ‘90s, all of the scams allowed the conmen creating them and saying that they
were innovation to get away by destroying records. Bitcoin brings an end to this, and makes the creators of
such tokens accountable.

The creation of yet another token is not innovation, and it never will be. It is not the ability to invest in a
token that allows the creation of wealth, it is the creation of an industry and goods and services and a
company that delivers what it promises that do so. The creation of a simple token to democratise finance is
the same catchcry we heard around hundreds of false investment systems in the 1990s, and it is the same
con job today. The difference is, in the 1990s people could delete logs and get away with it; today you can be
tracked down a decade later.

Honest Money
I created Bitcoin to be honest money. I had envisioned a system that would act to record information,
secure data, and allow people to transact through micropayments in a way that has never occurred before.
Bitcoin was never about decentralisation for decentralisation’s sake. The call for decentralisation doesn’t
even make sense. It’s a religious catchword of a cult based on people saying that government is bad and
calling to expel society.

Bitcoin is a system designed to encourage long-term gains rather than short-term misguidance, that we
have seen develop as people seek zero-sum games to rip off others. Bitcoin is a system designed to create
real capitalism — the way it was meant to be and the way it used to be. Not the form based on fast profits
and milking companies, but one built to create long-term value.

Bitcoin is a system of stewardship. It is a system where people improve the land they work on so that they
can leave something better for their children. Not one where you take money now, but one where you
create a business — designed not to last months or years or even decades, but generations.
People have become disillusioned with what we call capitalism. But what we call capitalism today is moving
more towards the system of mercantilism that Adam Smith wrote against. It is the system that cherry-picks
misplaced ideas, ones that are taken out of their context, ignoring moral sentiments and the reasons we
develop companies. When Henry Ford created his company, he paid people more than the base wage. He
did so because it served to have people engaged and to have them love the company they worked for.
Today, we have layoffs for no better reason than quarterly gains. Yet, how can you create passion in the
industry and company you seek to grow when you cannot have the people that are part of your company
see the entire reason for your existence as a mission to improve the world.

And if your business is not based on passion, if you don’t wake up desiring to work harder to leave the world
a better place, why have you even bothered waking up? I created Bitcoin to give reason. It allows people to
have more purpose than they have from merely collecting likes. It opens up global markets through global
micropayments, where people in Third World countries can earn small payments with low fees, enabling
them and helping them to help themselves. It opens up new opportunities as people can create new
systems that no one ever thought could exist, dreams that I cannot even imagine, because we have a world
full of people and the creativity they carry with them.

Bitcoin, in creating a system that captures what people do, allows us to form trust. Bitcoin is not about
destroying trust. Bitcoin is about creating trust. If you know that you do not need to fear the person you’re
dealing with; if you know that when they commit a crime, they will be captured, that if they defraud you,
your money will be taken and returned to you, that if they seek to steal your money, they will lose all that
they sought to gain…

…then we can build a world based on trust.

The Vision
My vision is simple; I do not see Bitcoin as a system that enables criminals to do what they do, I see it as one
that undermines everything they do. I see it as a system that empowers the honest people in our society. I
see Bitcoin as a system that empowers the creators and developers within our society. It is a system that
helps those who act not to create short-term gains, but who work as stewards to develop something to
make a better world, a world that our children and our children’s children will want to be a part of.

Bitcoin is not about destroying government. Bitcoin is about destroying corruption. With records and
transparency, police and officials cannot commit crime, and they cannot subvert the system that they are
meant to support. With records and transparency, Bitcoin enables government that helps the people and
undermines that which subverts trust and breeds corruption.

Those, such as James A Donald, who argued with me in 2008 about Bitcoin and centralisation, who seek —
as it has been shown he does — a world with paedophilia and child porn will be disappointed to learn that
Bitcoin cannot be subverted in such a manner. Bitcoin will never be anonymous, and it will never support
such activities.

Those who seek a world that enables dark web drug sites, criminal exchanges, and terrorism will never
benefit from Bitcoin. Those who need to know now understand, and they are learning more every day. In
the coming years, people will start to see the power of Bitcoin. It is not an asset that cannot be seized by
government. It is not an asset that enables crime.

Bitcoin and any derivative, including BTC, is simple to seize, and there is no way around it. In the coming
months, we will see both Bitcoin leading to the tracing of crime and the seizure of criminal proceeds. We
will see BTC taken away from the criminals.

You will see it not because their keys have been compromised. You will see it because the system was
designed to allow such proceedings to occur. Miners enforce the rules, and the rules include the enacting of
proceeds of crime legislation and seizing coins when ordered to do so. No UASF hat-based attack means
anything. If you don’t like Bitcoin, if you don’t like the fact that it’s designed to stop crime, if you don’t like
the fact that it is honest and will enable a free society…

…then you are not the reason I created Bitcoin for.

Merkle Trees and SPV
By Craig Wright | 02 Nov 2019 | Bitcoin & Blockchain Tech

Merkle Trees
By now, it should be well understood that Bitcoin utilises the concept of a Merkle tree to its advantage; by
way of background, we provide an explanation in this post. The following aids as a technical description and
definition of similar concepts used more generally in Bitcoin and specifically within SPV; read the necessary
background information here .

Such techniques form an important component in implementing SPV in an efficient and secure manner,
allowing us to scale and effectively implement a verification solution that provides true peer-to-peer
transactioning.

Simplified Payment Verification (SPV)

I’ll start by describing the base of any SPV system. In order to do so, we shall provide an overview of SPV
verification techniques for ease of reference.

In what follows, we consider Alice (a customer) and Bob (a merchant) who wish to transact at the point of
sale of some goods. We examine how the interaction takes place using simplified payment verification
(SPV) using the traditional method, as outlined in the Nakamoto white paper ( Bitcoin: A Peer-to-Peer
Electronic Cash System , Craig Wright, [2008]). The same interaction is described later in respect of an
illustrative embodiment of the present invention, in the section entitled Overview of the Invention . In both
cases, we consider the role of three blockchain transactions ( Tx s). Two transactions have spendable outputs
(UTXOs) owned by Alice:

Tx 1– a transaction with a spendable output (vout-1)

Tx 2– a transaction with a spendable output (vout-0)

The transactions Tx 1, Tx 2 will be referred to herein as input transactions , as a concise way of saying that
they are transactions comprising outputs that are being spent by the inputs of some subsequent
transaction, that is, a Tx 3.

The third blockchain transaction is the payment transaction:

Tx 3 – a transaction using vout-0 and vout-1 as its two inputs and one output paying to Bob. There are
only two inputs and one output for simpler demonstration of the invention.

The three transactions, along with the Merkle paths which can be used to relate them to blocks (headers),
are shown schematically in the following figure.
The basic concept of SPV has existed since I released the Bitcoin white paper, and the rudimentary concept,
though not fully developed, was a part of the original Bitcoin protocol. In essence, SPV makes use of two
properties of the Bitcoin blockchain:

1. Merkle proofs that can be used to easily verify that a given transaction is included in a Merkle tree and
represented by a Merkle root; and
2. Block headers that represent blocks of transactions by including the Merkle root of a Merkle tree of
transactions.

By combining the two properties, a lightweight Bitcoin client need only maintain a copy of the block
headers for the entire blockchain—rather than blocks in full—to verify that a transaction has been processed
by the network. To verify that a given transaction has been processed and included in a block, an SPV client
requires only:

a full list of up-to-date block headers; and

the Merkle path for the transaction in question.

It follows from property 1 that the SPV user can verify that the given transaction is part of a Merkle tree—
represented by a Merkle root—simply by performing a Merkle-path authentication proof as explained in the
section above. It then follows from property 2 that the transaction is also part of a block in the blockchain if
the SPV client has a valid block header that includes the Merkle root. Performing the same type of
payment verification in Bitcoin will be referred to herein as performing an SPV check .

The SPV mechanism as specified by Nakamoto informs the existing method of SPV-client implementation,
including at the point of sale. Importantly, the state of the art in SPV implementation is based on the
paradigm whereby a user verifies that a payment has been received by confirming (to a suitable depth on
the blockchain, e.g., 6 blocks) that it has been included in a block. In effect, it is a post-broadcast check on a
transaction to verify that it has been mined.

In contrast, the present invention requires that the necessary SPV check be performed on a transaction’s
inputs prior to its broadcast . The shift in emphasis greatly reduces the burden and traffic on the network in
dealing with invalid transactions.

A second important paradigm in the existing SPV system is that an SPV client must query full nodes on the
network to obtain the Merkle path required for the SPV check. It can be seen in the Bitcoin implementation
where it has been noted that “the SPV client knows the Merkle root and associated transaction information,
and requests the respective Merkle branch from a full node”.

SPV checks that remove such burden on the network, by stipulating the lightweight Bitcoin client where
users keep, maintain, or at least have access to their own copies of Merkle paths pertinent to the unspent
transaction outputs owned by them, allow Bitcoin to scale.

In the following, I will detail the traditional understanding of the method used in implementing SPV (at the
point of transaction):

[1] MESSAGE: Bob to Alice

Bob (merchant) sends Alice (customer) his public-key address. His message may also include the
amount that is to be paid, in addition to any other spending conditions provided as the hash of Bob’s
chosen redeem script.
Alice also communicates the transaction ID TxID 3 of the payment transaction Tx 3 to Bob (not shown).

[2] The P2P network mediates the exchange between Alice and Bob:

[2.i] MESSAGE: Alice to P2P network

Alice broadcasts Tx 3 to the network.

[2.ii] MESSAGE: Bob to P2P network

Bob queries the network to check whether Tx 3 is accepted for mining into the blockchain.
Bob sends continuous queries [2.ii], until he is satisfied the payment is deemed valid by the network.
Note that he may begin querying before [2.i] has occurred.
If Bob is satisfied, he may treat the transaction as complete without either party waiting for the next
block to be mined.

[3] SPV CHECK (MESSAGE): Bob to P2P network

Bob waits for the next block to be mined, and downloads new block headers as they are broadcast on
the network.
Bob sends an ‘SPV check’ request to the network, for the Merkle path corresponding to Tx 3, that links
it to the Merkle root in a recently mined block.
If the network can provide Bob with the Merkle path, he can compute the Merkle proof himself using
his SPV wallet and check the payment Tx 3 has been processed.

It should be noted that [2.i], [2.ii], and [3] are mediated by the P2P network and thus contribute to traffic on
the network. It should also be noted that in the existing SPV paradigm, the necessary SPV check [3] is
performed:

after the payment ( Tx 3) is submitted;

on the payment ( Tx 3) itself; and
with the help of other network peers who provide Merkle paths.

In following blog posts and by linking back to my prior post on SPV, I shall contrast the existing paradigm
and the errors that have been made in the understanding of how SPV was designed with how SPV can be
implemented efficiently and effectively.
A Fundamental Misunderstanding
By Craig Wright | 05 Nov 2019 | Bitcoin & Blockchain Tech
A few weeks ago, at CC Forum in London, Bobby Lee asked me to review his new product called Ballet. In
effect, it’s a paper wallet printed on a piece of metal. Like many others, Bobby has fundamentally
misunderstood the nature of Bitcoin. In the white paper, I wrote that:

a new key pair should be used for each transaction to keep them from being linked to a common owner.

Bobby was very enthusiastic about his product, which is a good thing whenever you’re developing
something, but it’s also important to understand the system and the market you’re developing for. In the
1990s, a company called Mondex released a form of cryptocurrency based on prepaid smart cards. Unlike
the Ballet system Bobby has released, the Mondex system was quite secure. It allowed amounts to be
transferred on and off the card, and protected keys very well. Having analysed both physical and IT security
systems for several decades, I can estimate the cost of counterfeiting and of taking a key and reapplying the
protective coating. The cost at bulk would be between two and four US dollars for each card. As such, cards
could be issued where the private keys have been extracted. It would allow an attacker to sell the card
knowing that at a future time, they would be able to recoup any “investment” where on average each card
they give out returns more than four dollars. But, the cost of the card makes it infeasible that it will be used
for anything under $20. More importantly, it results in the user having to entrust the company developing
the product with never saving the keys.

A FATF Report from the ’90s {[1]; at 15–16} noted that a couple of variations of electronic cash had emerged.
Such where illustratively dubbed net-around money and walk-around money . Net-around money involves
personal computers (and smart phones), and is designed to be used primarily with connection to online
purchases. DigiCash’s digital coins (eCash) represented an early example of net-around money . Walk-
around money is a system principally designed to be utilised in face-to-face trades. Mondex cards are an
example of walk-around money [1].

Ballet acts in a form that tries to be both and satisfies neither use case.

Money laundering
I’m starting to come to the belief that individuals seeking to create such products are actively engaged in
creating solutions for the purpose and market of money laundering. In effect, it would be the only market
for such a product. But, the product fails for the same market, too. The product is neither secure, nor does it
present a valid use of Bitcoin; importantly, to be used, individuals will need to record all of the payments to
the card. In theory, any removal of funds from the card will be associated with the destruction of the card.
But the reality is that the key can be extracted for as little as two US dollars. After such an extraction, the key
can be given to another party through the card — where they don’t have adequate control of the key.

The type of system is already covered under anti-money laundering (AML) rules. The introduction of Mondex
in the 1990s presented a much more secure version of such a system, one that allowed users to put and
take money on and off an individual card non-destructively, which led to the introduction of laws covering
the use of such products 20 years ago.

I seek to try and believe that people are not doing such things maliciously and that they’re doing them out
of ignorance. Either way, the mere development of such a product demonstrates a fundamental
misunderstanding and incomprehension as to the nature of Bitcoin.

Bitcoin for Micropayments and Use

Bitcoin is designed to be an electronic cash system. It uses digital coins that are based on a template, which
is saved on each transaction to the blockchain. The privacy section of the white paper specifies the use of
multiple keys. In fact, a key should not be used more than once. Although the same may not be the case in
the real world, the number of users per key should be minimised. Bitcoin, then, is designed to be used on-
chain. The entire security proposition of Bitcoin stems from the ability to transfer to keys that you control.
The system designed by Bobby, Ballet, is one that leads to plausible deniability for every criminal in the
system. It enables people to deny theft at each level of an exchange. The product has below-zero security,
and is not even worth the metal it’s on when used in exchange to 3rd parties. The only reason for such a
product lies in being an expensive paper wallet. As such, it still doesn’t justify the cost. If heated or treated
with high levels of UV, the product degrades and the keys are lost.

Unfortunately, many people have misunderstood the nature of Bitcoin in believing it to be some sort of
digital gold. Such belief is misplaced. Bitcoin can act as the foundation layer for many systems, but natively,
it is not designed to be digital gold. Importantly, the concept of any large address being treated as an
account can be used to demonstrate a fundamental misunderstanding and the sheer ignorance as to the
nature of Bitcoin.

My recommendation is not to use the product if the cost of the product is more than two US cents and
even then to ensure that any amounts stored on it never exceed $0.50. Beyond such levels, it becomes
insecure at any use. Even at such levels in quantity, it becomes vulnerable.

Primarily, I recommend against such products, as they are designed to mislead people as to the nature of
Bitcoin. Users receiving such a product may be falsely informed and misled into believing that Bitcoin
would be a digital-account system rather than a system of electronic coins. It would teach people that an
individual key should be protected in the manner of PGP. But doing so is contrary to the nature of Bitcoin.
In Bitcoin, a new key pair should be used for each transaction. Importantly, no coin should ever be bigger
than 100 units, that is, 100 bitcoin. Individuals holding large amounts in such a manner are failing to
understand Bitcoin and the coin-based nature of the product. Unfortunately, even people who have acted
for me in the past have fallen for the same misunderstanding, but I am doing my utmost to correct the
error.

References
[1] See TOWARD ELECTRONIC MONEY, at 3. For example, in the 1990s, two companies developed a hybrid
system designed to allow electronic cash to be moved from a smart card to the hard drive of a computer
and vice versa.

See also FATF SECRETARIATE, FATF-VIII MONEY LAUNDERING TYPOLOGIES EXERCISE PUBLIC REPORT,
Feb 5, 1997, at 15.
See also U.S. DEP’T OF THE TREASURY, TOWARD ELECTRONIC MONEY AND BANKING: THE ROLE OF
GOVERNMENT 5 (Sep 19, 1996).

See generally Symposium, The Electronic Future of Cash , 46 AM. U. L. REV. 961–1335 (1997).

[2] Sarah J. Hughes, A Call for International Legal Standards for Emerging Retail Electronic Payment
Systems , 15 ANN. REV. BANK. L. p. 213, 197, 207 (1996).
Digital Gold
By Craig Wright| 08 Nov 2019 | Alternative Coins & Systems
It is interesting that a meme of digital gold has popped up around BTC over the last few years. The
complete lack of understanding of how Bitcoin works from the Bitcoin Core team has led to such a
narrative. In particular, the promotion of Nick Szabo’s failed concept of bit gold has crept into Bitcoin
Core. In his comment where he says that using a new key for every transaction is utterly stupid, Mr
Szabo, unfortunately for him, has demonstrated just how little he seems to understand about Bitcoin. It
is written in my white paper:

As an additional firewall, a new key pair should be used for each transaction to keep them from being
linked to a common owner. Some linking is still unavoidable with multi-input transactions, which
necessarily reveal that their inputs were owned by the same owner. The risk is that if the owner of a key
is revealed, linking could reveal other transactions that belonged to the same owner.

The section is an important aspect to consider. It provides the key to making Bitcoin private. If you
imagine every individual holds a single key, Bitcoin becomes very simple to trace without any need for
search warrants or even a requirement for it to be private. When a single key is used, every transaction
can be followed and linked by any person on the blockchain. Alternatively, if you split your coins into
many parts in the manner that I’ve recommended many times, it becomes nearly infeasible for anyone
viewing the public chain to comprehend what happened. If you imagine splitting a single coin into 100
pieces, and every time you transact and get a new coin, you split the coin and remix the pieces, and the
person you’re sending coins to does the same, tracing becomes exponentially hard as the graph
problem moves towards an NP-hard analysis.

Bitcoin’s privacy model was one of removing identities from the public view. When you start reusing
“addresses” or coin templates or keys, you enable the owner of a key to be linked and thus the
modelling and mapping of every single transaction that the individual is involved with. In other words,
you would allow for not just the tracing in the manner law enforcement works, but public tracing. You
would remove all the privacy features of Bitcoin.

Why Is the Meme of Digital Gold Quite Relevant?

With a single address, or even a limited number of addresses that hold large amounts of bitcoin, the
process of finding and seizing assets becomes very simple.

The reason I say the meme of digital gold is very cogent for BTC is that gold has been seized throughout
history. With only a few easily traced keys that are reused over and over, it becomes really easy for law
enforcement to capture BTC. Luckily, the solution is not one that suits their mantra. In previous posts [1],
I have detailed how the function of splitting and dividing coins increases privacy. It does create bigger
transactions, though. Using the technique, the BTC blockchain would handle around 1/100th to 1/10th of
a transaction per second or less. The fees would also exceed the cost of the transaction other than the
largest of transactions. Consequently, it removes the ability to add privacy from Bitcoin Core.
Once you have a few large addresses that act as accounts, Bitcoin becomes easily seizable. As with gold
[2], we can imagine criminals being stopped at airports and having addresses taken. Contrary to what
many people think, it is possible to very quickly require miners to blacklist particular coins, preventing
the targeted individuals from moving them, and to then seize the devices and require the coins to be
handed over. And so it has happened multiple times already. More importantly, where the individual
refuses to hand over the keys, the government would be able to force miners to change the output and
to seize bitcoin in any event.

Bitcoin is not cryptographically secured; it is based on economics. Hash algorithms do not secure
systems, and those who have been telling you so either do not understand what hashing is or seek to
mislead you.

Interestingly, widespread seizures of gold have occurred throughout history. One notable example from
the US follows executive order 6102. Signed in 1933, the presidential order was created to forbid the
hoarding of gold coin, gold bullion, and gold certificates within the continental United States. It was only
repealed by Gerald Ford in 1974. Anyone discovered with gold other than in jewellery or without a valid
reason for the use in trade and commerce would be subject to the legal seizure and likely the melting of
it. Executive orders 6260 and 6261 and the Gold Reserve Act of 1934 continued the trend.

The case of Frederick Campbell presented a notable prosecution. He had held 160 kg of gold with Chase
Bank. When he attempted to remove his money from a safe deposit box, the gold was confiscated, and
he was indicted.
Bitcoin: A Peer-to-Peer Electronic Cash System
Ironically, people have moved completely into the perpendicular, away from what Bitcoin was designed
to be. The title of my white paper clearly defines the nature of Bitcoin. It’s a peer-to-peer electronic cash
system, and unfortunately, Bitcoin Core is neither peer-to-peer nor cash. So it is not Bitcoin.

Cash forms a particular use case within the wider definition of money. Traditionally, cash has included
bank notes and coins. The Committee on the Resumption of Cash Payments of 1819 said:

I find it difficult to explain it, but every gentleman England knows it… It is something which has existed
in this country for 800 years — 300 years before the introduction of gold.

The word cash is defined very clearly in the Oxford English Dictionary:
money; in the form of coin, ready money.

Cash in Bitcoin is digital coin. At no point in human history has anyone ever created a $100 million coin.
Also, Bitcoin is designed not as an account-based system, but it has a series of digital coins. As noted
above, addresses or public keys should not be reused.

From the Bitcoin white paper:

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from
one party to another without the burdens of going through a financial institution.

In removing IP to IP and moving away from the use of SPV, Bitcoin Core have created a new form of
financial institution; rather than giving a coin directly to the party you are engaged and trading with, you
send it to a mining intermediary. That is, Alice sends her coin to a mining node that processes it and
forwards it to Bob. To be peer-to-peer, to act as cash, Alice would send her money to Bob directly. It is
also how Bitcoin was created.

To Conclude…
As such, it is incredibly interesting that Bitcoin Core have followed the mantra of digital gold. A part of
the history of gold is made up of a history of seizure by government, warlords, and many others. So, by
consolidating addresses and keeping the block size small, Bitcoin Core have delivered on their promise:
they are creating digital gold. But they are not creating the value of gold, as it is not something that
people desire because of the history of its use; they are creating a system that has seizable value and
which will allow government to easily crack down on the illicit use that we’ve been seeing.

References
[1] https://medium.com/@craig_10243/bitcoins-privacy-model-7ef7e79caf9f

[2] https://www.nationalcrimeagency.gov.uk/news/gold-seized-by-nca-at-heathrow-as-part-of-
international-cartel-investigation

https://news.sky.com/story/104kg-of-gold-linked-to-drugs-cartel-seized-at-heathrow-airport-11767125
Proof of Assignment
By Craig Wright | 13 Nov 2019 | Alternative Coins & Systems
The Bitcoin blockchain is an immutable audit trail, which does not mean that money cannot be seized or
that illicit images and other material cannot be filtered. Immutability does not require non-assignability. An
immutable object is something that remains unchanging over time, and once a block is sufficiently deep,
any transaction within Bitcoin or any blockchain is unable to be changed. The scenario is analogous to an
Oracle database running an account system in write once read many (WORM) formats. It is used in all
public companies in the US. Such a system does not preclude the correcting of mistakes; it requires that a
mistake is noted and followed.

A record cannot be removed from Bitcoin, but as with all code-based systems, alterations can easily be
made. The secret behind Bitcoin is that the alterations are publicly recorded.

International law contains many provisions for the redemption of funds and the seizure of criminal assets.
Bitcoin does not remove the ability to seize assets, but it does require some level of international
cooperation. A worldwide freezing order and a subsequent action of asset seizure would require
enforcement actions in multiple jurisdictions. The requirement, of course, limits the types of orders and
actions that can be done. Every small government seeking to abuse the rights of their citizens will not be
able to use Bitcoin in order to seize assets. Where crimes are heinous enough in multiple jurisdictions, as are
major drug trafficking, people smuggling, high-level money laundering, and other crimes, we will find that
multiple jurisdictions can act simultaneously.

Governments will retain the right and privilege to seize goods and to assign property. Bitcoin or any
blockchain or cryptocurrency cannot alter the scene. To believe otherwise is to live in a child’s dream. A
Republican democracy requires transparency to be healthy and thrive. Which is what Bitcoin delivers. Every
time property is seized under the laws of the jurisdiction, it is recorded. The scenario is not what any
totalitarian government would desire. It is what a free society needs. In Nazi Germany and Stalinist Russia,
records were kept away from the people; they were maintained in a manner that did not allow people to
know how many property seizures had occurred, how many people had been moved or imprisoned, or
anything that would let people see the full scope of the horror that was occurring.

The ability to hide money outside of the government’s ability to tax only hurts the poorest people in society.
Rich businessmen and corrupt politicians and their ilk thrive in the darkness. There are many legal uses for
tax shelters, but all of them can be constructed using privacy and without anonymity. It is not the rich who
suffer from anonymity, nor is it the corrupt. The people who suffer are those who have the least. In a society
where few can be truly anonymous — and no cryptocurrency can remain truly anonymous without
significant external controls — it is those involved in crime and corruption that benefit the most.

None of us like tax. But you don’t fight it through evasion. Doing so only leads to more taxes, more
complexity, and more government. A simple tax system where everyone needs to pay and which is
transparent allows people to see what is occurring and to debate the benefits and the costs.

Court is the ultimate distributed system. The multitude of lawyers, judges, and lawyers in a common law
judicial system creates a truly distributed and decentralised method of decision. It is true, decisions may not
go your way, but such is the nature of all systems. The only system that can be guaranteed to go your way is
a centralised system where you are the dictator.

An action, taken by government, courts, or individuals using such systems, does not remove information
from the Bitcoin blockchain. It records the change. An assignment, say, involving the recovery of Bitcoin
Core (BTC) or even the seizure of Bitcoin Core (BTC) from a drug dealer or another criminal by a
government does not present a difficulty. The court will issue an order, law enforcement will enforce it in
other jurisdictions, at which point the miners will act to enforce the rules.

Only miners are nodes in the Bitcoin network. And importantly, as is written in the Bitcoin white paper:
Any needed rules and incentives can be enforced with this consensus mechanism.

A change does not remove an entry from the blockchain; a change to an unspent transaction output
(UTXO) is recorded. As such, it becomes public knowledge that the UTXO has been assigned. Any individual
can see the action. What can be less public is the implementation of a freezing order. A set of courts can
issue orders that can remain private. Such will allow the freezing of any coin based on a FIFO ( first-in, first-
out ) methodology. Miners and exchanges would be required to block and reject selected Bitcoin addresses
or keys. Such an action is only temporary. But, the action does not need to be recorded on the Bitcoin
blockchain. It’s preferable for all such actions to be public, and it is likely, given the international nature of
Bitcoin, that court orders issued to freeze assets will of course leak. It would be incredibly difficult to issue
orders to hundreds of parties without the indication of leaking.

Exchanges and Wallet Providers

Whether we’re talking about Blockchain.com, Bitcoin.com, Coinbase, Kraken, OkEx, BitGo, or any of the
multitude of online providers in the Bitcoin and cryptocurrency space, the first thing to note is that a single
one of such wallet services, exchanges, and alternative providers that seeks to counter a validly issued
freezing order will be criminalised and face first contempt and then sequestration, before being shut down
as a criminal operation. The expected lifespan of an organisation allowing bitcoin to be traded following the
issuing of a valid freezing order that is enforced in its jurisdiction would be minutes. The executives of the
organisation would become criminals if they were to oppose the order.

Without infrastructure, Bitcoin and any other cryptocurrency lose all value. To be of use, the transactions
made over a blockchain need to be exchanged without concern of being seized later. They need to follow
monetary law. If they fail to do so, they lose all value.

Monetary tracing follows the FIFO rule. The Bitcoin blockchain allows traceability, and provides a record of
all transactions from a point in time on. Consequently, if a freezing order is issued and made publicly
available, any transactions that follow from the respective coin will also be covered by the freezing order.
Any mixer or even transaction involving individuals that would have had the ability to determine the nature
of the frozen asset will be covered. Bitcoin is a technological solution, and the implementation of orders is
simple.

In 2010, when I implemented the alert key, it was a very early and nascent attempt at a system that would
allow individuals and miners to instantly know of events that would affect them; the centralised nature of a
key belonging to just myself and then later a few developers unfortunately was problematic, and would
have opened avenues for abuse of an attack. At the value of bitcoin at the time, the risk was not significant.
Bitcoin has increased in value greatly, and so the same would no longer be the case.

In the future, governments will be able to issue their own alerts using their own keys, allowing individuals to
monitor data that is put on the blockchain — ensuring that any attempted abuse will be recorded. The ability
to recover money is an essential aspect of money. For Bitcoin to be legal and to work within the real world, it
will need to start addressing AML and KYC laws. For Bitcoin to act within the real world, to be usable, to
grow, and to become a system that is utilised across multiple industries requires that government
intervention is accepted.

It is important to note that Bitcoin was never designed to act outside of the law, nor was it designed to
attack government. A system of transparent exchange cannot be made to favour criminals. Unfortunately,
criminals will always find some gap in knowledge, which they use to advance their abuse. In time,
governments and regulators start to come to understand even the most complex of systems. Bitcoin has
now entered such a phase. Any blockchain falls under the control of monetary exchange laws. Bitcoin is not
anonymous, and no blockchain can be made anonymous. It is antithetical to the nature of how blockchain-
based systems work; they offer transparency, and transparency does not work well in darkness.

In time, we will quite simply find that exchanges and custodial operators that do not follow anti-money
laundering (AML) regulation and new rules such as the final adopted fifth money laundering directive
(MLD5) in the EU will cease to exist.
Validating Nodes; AKA Sybil Systems
There is no such thing as a validating node in Bitcoin. Bitcoin scales using SPV, but even with what some
people in the BTC religion call full validating nodes, only miners matter. In particular, nodes were designed
to preclude Sybil systems. Bitcoin is a proof-of-work system. Nodes are defined in six steps in the white
paper. Any system that does not complete all of the six stages is not a node in Bitcoin. As such, any
Raspberry Pi system is alluding itself. Your Raspberry Pi will never find a proof-of-work. Any such system is
by definition a Sybil.

So, you think you can fork off and avoid a series of court orders. The miners won’t follow you. Any miner
seeking to follow your new chain will be in contempt of court. The mining node operator lies in the hands of
a company with a huge capital investment. Even a pool operator must invest money in systems and
networks. Such an operator is easy to locate, and if they choose to continue mining against the rules, they
will be reminded that law forms a subset of rules and miners exist to enforce, not to create, such rules. One
rule of monetary systems including Bitcoin exists in the implementation of anti-money laundering (AML)
controls.

You can imagine now that it doesn’t matter whether your group of friends doesn’t like a particular action
taken by government. Perhaps you disagree with the court order. Too bad. This is the real world. It doesn’t
matter whether you seek to use Bitcoin Core (BTC), Ethereum (ETH), or some other blockchain-based
system that has copied Bitcoin (BSV); you come under the control of monetary law.

Let us say that you and 50,000 nodes (and there are not 50,000 nodes on Bitcoin; real nodes mine, and the
reality is that there are less than 20 nodes in total on BTC and even fewer on ETH) decide to protest. The
result will be that you will have no effect: Mining is the process used to form consensus within the Bitcoin
network. It involves a proof-of-work algorithm, and does not care about the protests of individuals who do
not have skin in the game.

For you have two options:

1. You can invest a significant amount of money, and we’re talking hundreds of millions of dollars in creating
a new fork of Bitcoin (as it happened with BTC and BCH), and either choose to follow the court order (in
which case, there is no fork) or become an attacker and seek to act against a legally issued order. In the
event that you seek to act outside the law, no exchange or wallet provider will legally be able to touch you.
You will not be able to transfer value to other parties. You will not be able to transfer money for and from
fiat currency. You will not be able to transfer money for goods and services. Basically, you will be a criminal
entity subject to sequestration. That is, your assets will be seized. After they are seized, you won’t be mining
anymore.

2. Accept the order and grumble about it.

Bitcoin is not designed to act as an outlaw money system. I spent well over a decade ensuring that there
were no holes that could lead to the problems DigiCash’s eCash, e-gold, and the myriad of other systems
that had existed in the ‘90s had introduced. In particular, proof-of-work was designed to ensure that the
system would always lead to a number of competing entities that acted to protect their investment. Miners
do not vote in a political system. Miners enforce rules, and rules include law. You may not like it, you may
think blockchain should be different, and yet, it doesn’t matter. It is, in reality, the same as complaining
about water being wet. The blockchain, Bitcoin is designed in such a way that it offers transparency and
acts inside the legal frameworks that protect the majority of people from criminals.

The biggest advance and achievement in Bitcoin lies in the creation of a system that, once scaled, cannot
be made anonymous. And once scaled, it can never be made to unscale and work. There is no way to create
a blockchain that has value and enables transactions and yet allows people to act outside of money
handling laws.

The Lightning Network

The Lightning Network is not a layer on top of Bitcoin. Layers would act within script and transactions. The
Lightning Network is a parasitic external protocol. Having said so, law still applies. In the case of Lightning, it
is simple: anti-money laundering (AML) rules apply on a FIFO or first-in, first-out basis. A government seizure
of coin, a freezing order, and other legal action would simply close down the channel and all connected
parties. The result of using the Lightning Network is losing your money if a single bad actor seeks to act
outside of the blockchain. You see, the Lightning Network is not about privacy; it’s about losing
transactional records. The sole reason for the Lightning Network to exist lies in helping criminals and others
who seek anonymity and not privacy; no blockchain would allow it.

Payment channels are allowable, but the difference between a payment channel and the way the Lightning
Network works lies in whether the people involved in a transaction are known, and whether value transfers
are settled on-chain. The Lightning Network is constructed for middlemen and third parties to engage
within a series of transactions in a manner that allows them to interact without leaving any transactional
records. In other words: a dark transfer of funds — one that is not transparent.

We can take Alice and Bob as the two endpoints in a series of Lightning Network transactions that settle on-
chain. Inbetween, Alice and Mallory exchange value. And Mallory and Charlie exchange value. And then,
Charlie and Bob exchange value, and eventually, the Lightning channel closes. Mallory just happens to be a
people smuggler. She has been using the Lightning channel to reassign funds. Unfortunately for Alice and
Bob, they have just aided and abetted in the proceeds of money laundering. Under existing money rules,
both Alice and Bob are liable to have their money seized. As such, they encounter one of the non-technical
reasons why the Lightning Network will fail. There is also nothing that Alice or Bob can do. They will need to
keep records of all the transactions, and the Lightning Network doesn’t do so.

The CFAA
The final aspect of today’s post is to point the reader to the Computer Fraud and Abuse Act (CFAA; USA). We
have our own version of the CFAA here in the UK, but the US bill has been more widely reported on.

Bitcoin transactions are information. All nodes, which, remember, are miners, are by definition involved in
interstate or foreign commerce and communications. It also makes them, by definition, a protected
computer. To use a node in intentionally seeking to bypass the rules of the system — by propagating
transactions to or from individuals and addresses that have been subject to a freezing order — would be to
knowingly try and access a protected computer to obtain something of value. The rules would allow any
individual who has lost money because of a fork resulting from such a scenario to bring civil action for
damages and even to apply for injunctive relief against each of the violators, who through nodes seek to act
against a valid court order.
Such an action would not be limited to individuals in the US. It would allow people globally to take action
against a node operator. Similar laws apply throughout Europe and in China.

The end result is simple: neither Bitcoin nor any blockchain enables individuals to act outside of the law. The
limits are bounded through transparency, the requirements for enforcement orders to be recognised
internationally, and the fact that there is no global government. There are many things governments do not
agree on. In many cases, a government will not be able to take action outside of its own jurisdiction. Any
government can limit transactions within its own jurisdiction and implement freezing orders. Such a limited
order would be ineffective in Bitcoin against an international party, with the individual being able to move
to a new address, unless they hold their bitcoin in a local wallet that is directly subject to the order.

Here lies the true beauty of Bitcoin. Bitcoin stops major crimes, and allows for funds that are transferred
using it to be seized anywhere in the world, yet simultaneously limits actions taken by restrictive rogue
governments. Even where actions are taken within the law, it is transparently recorded on the blockchain.
You may say, “Not my BTC,” but the reality is, you have no say. If you don’t like the law in a democratic
system, you have the opportunity to vote or even run for parliament. If you don’t like how democracy works,
work to change it.
Transparency and Government
By Craig Wright | 15 Nov 2019 | Alternative Coins & Systems
There is an overwhelming amount of false information around Bitcoin and, in particular, on the topic of
privacy or pseudonymous transfer. Bitcoin is anything but anonymous. Anonymity requires that individuals
do not know anything about the other party that they’re dealing with. Privacy, on the other hand, allows
people to interact and keep identities away from the public. In discussions and posts such as the enclosed ,
we see the false dichotomy presented as a strawman. Bitcoin or any blockchain is completely irrelevant to
the story in the form they are talking about. The question “Will Blockchain Bring Freedom or Tyranny to
China?” is misplaced.

The existence of databases and ledgers precedes Bitcoin. Interestingly enough, distributed databases have
existed for decades. The distributed nature of Bitcoin is such that it allows unrelated entities to compete in
maintaining the ledger. As such, if a single entity becomes bankrupt or goes out of business for some other
reason, it is unnecessary to be concerned about the state of the ledger. In other words, even if individual
parties involved in the management of the system suffer a disaster or catastrophic loss, Bitcoin continues to
operate.

Central systems continue to operate as long as the primary body does not disappear. In the case of
governments, there is no concern. Unless the government currency disappears, or the government is
replaced by another, a centrally controlled system within a single government jurisdiction can continue to
exist.

The problem with central bank currencies is one of seigniorage and alterations in the money supply. Where
we are talking about a fixed government-based stable coin, the existence of a blockchain becomes
irrelevant. It is simpler to use a distributed database.

Bitcoin is not anonymous. And whether we’re talking about Plato’s ‘Ring of Gyges’ or the revisiting story of
‘The Invisible Man’ by HG Wells, it has been clear throughout human history that no man remains moral
without his actions being monitored and viewed. The same applies to both people and the institutions we
create. Governments require transparency to remain honest and aligned with the needs of the people they
represent.

Bitcoin is a transparent system that allows monetary tracing. It is not possible to create a blockchain-based
system that is anonymous. It is importantly so, because anonymity helps breed corruption.

In the YouTube video, the presenter says that gold does not increase in supply by more than 2% in any year.
Which is false. The overall gold supply has not been steady. Some years have seen 8% changes to the total
supply. In particular, the discovery and production of gold in South Africa following 1886 radically changed
the distribution of the global gold supply; the introduction of the South African gold supplies in the period
following 1886 both radically altered the distribution of gold globally and drastically changed the total
available supply. Between 1980 and 1987, the production of gold in the US increased by 407%. Contrary to
the touted position that the gold supply was even, gold has in fact been incredibly volatile in supply and
demand.
Bitcoin was not designed to replicate gold. The false story mirrors what the Bitcoin Core team wishes to
promote, which radically differs from the goals that came with the white paper. Bitcoin is designed to be a
peer-to-peer electronic cash system. Bitcoin, in particular, was designed to allow for micropayments across
the Internet and small casual transactions.

The entire premise of the video treats Bitcoin as a strawman aligned to gold, which stands in glaring
contrast to the actual aims of Bitcoin. To cover some of the numerous errors presented in the video, let us
address and clarify some of the most egregious ones:

Bitcoin can be frozen.

Bitcoin does not compete with banks.
Bitcoin is not designed to act against or outside of government and law.
Bitcoin Core or BTC is not Bitcoin, and is barely related to the original code.
Bitcoin does not separate money from state.

Bitcoin is incredibly simple to freeze, seize, and for governments to intercept. The concept that Bitcoin was
James A Donald’s “decentralised code-is-law” system that would allow crime and the exchange of goods
and services in black markets is simply false.

In 2008, it was James Donald who argued with me in saying, “But the way I understand your proposal, it
does not seem to scale to the required size.”

Where he argued that Bitcoin required monetary value and a very large network, he failed to understand
that Bitcoin was not designed to be a system operating outside of government control. It was always
designed to act within law. Bitcoin does not require hundreds of millions of people all interacting; I created
simplified payment verification (SPV), allowing users to just be users. The problem here, of course, is that
people like James Donald were not seeking a system that operated within the legal system. They dream of
a system that acts outside of government and legislative control. The difficulty in creating Bitcoin lay in
implementing a system that could not be subverted to act outside of legal and legislative controls but
instead operate across international jurisdictional lines, provide monetary tracing, and continue without
moving towards the anonymous monetary system that we have seen develop with all digital currencies
prior to Bitcoin.

James Donald started the false narrative that we see commonly promoted today:

If a small number of entities are issuing new coins, this is more resistant to state attack that with a single
issuer, but the government regularly attacks financial networks, with the financial collapse ensuing from the
most recent attack still under way as I write this.

Ever since I released Bitcoin, people have been seeking to alter it and make it something different. They
have sought Tim May’s anarchist system that followed other, failed attempts at digital money. All of them
have failed as people sought to become anonymous rather than maintain privacy. It is the same people
who have failed to understand that money works in the real world, that there is no such thing as a digital
world outside of the control of law. And it is the same people who fail to understand that they are the
minority, that the majority of people seek the protection of law.

The concept held by a number of anarchists who fail to think or at least are disingenuous and hypocritical in
their ideas that Bitcoin acts outside the government and is a threat is one of the most asinine cult-like
beliefs of the century. Most importantly, it is incredibly simple to utterly discredit in moments.

Today, three court orders in three countries would lead to the immediate seizure or freezing of any Bitcoin
address. For those who have not committed a crime, it is unlikely that such an order would be enacted
across Europe, China, and the USA — the four-day average has been around 70% coverage, with a single
court order being enforced with a reciprocal order in a second country. Extending it to a European
jurisdiction will incorporate the exchanges and the majority of global traffic. If an individual country was to
fork Bitcoin, or if, say, Bitcoin.com decided to ignore the court orders as they had not been enforced in
Japan (which may occur, but increases the cost of enforcement and is simply unnecessary), then they will
end up with a new cryptocurrency that is only viable in the respective country and does not interact with
Bitcoin. In fact, any use of the new currency would breach legal conditions within the USA, China, and
Europe, whereby any exchange accepting it would be criminalised.

The concept that Bitcoin will just create a black market if government tries to stop it is utterly asinine.
Bitcoin can only act, at any scale, when it is acting within the law. Bitcoin was not shut down by China or
Russia or the USA or anywhere else globally, because at no point did it ever break the law. There are
individuals who have broken the law using Bitcoin, which presents a completely different scenario.

Back to the Original Argument

Bitcoin is not anonymous, but little does it matter when we’re talking about China. The mere possession of
an illegal asset can be controlled by making the asset a criminal item, which would instantly remove the
ability to exchange the asset at any scale — making it vulnerable to government seizure. The people
commenting on Bitcoin fail to understand the nature of the system within Bitcoin. Mostly, though, they fail
to understand that Bitcoin is irrelevant when talking about the ability of a government to monitor its own
citizens in a country such as China. It is not Bitcoin that adds surveillance, it is the government, and it will do
so with or without Bitcoin. In fact, the blockchain adds transparency, allowing both the Chinese
government and other governments and even human rights activists to start monitoring how the system is
monitored. Transparency does not create tyranny; anonymity and shade do. It is the fact that everything is
public that allows Bitcoin to not be controlled by tyrannical governments.
Work Is Infinite…
By Craig Wright | 25 Nov 2019 | Economics
Many in Silicon Valley and others like to promote the false concept of artificial intelligence (AI) and,
specifically, how AI and automation will replace people. There is one reason they do so: to confuse people and
allow a few technocrats to maintain control. Machine learning or statistical learning is about the most
unintelligent thing in the universe. What it does is it allows individuals in positions of power to hide behind
algorithms. It allows them to create a system that acts upon their will and say that it is really the will of a
machine. But no machine has values or a will; no machine has a desire.

Whether we talk about Marx or Keynes, the concept of automation leading to too much leisure and thus the
concept of the privileged class needing to lead the masses in accordance with the Fabian socialist ideal are
not new. In Silicon Valley, the same idea has been turned into the techno-communist dystopia as they seek
to pull the wool over our eyes and create a world based on control and selling our information.

In a capitalist society, unemployment occurs when people don’t want to take up a role they should take up, or
when they don’t want to accept that they may not earn as much. The lie that you have been fed concerning
capitalism is that capitalism is about the capitalist. It isn’t.

Capitalism is about the entrepreneur.

The entrepreneur creates new systems, which don’t need to present a massive scientific breakthrough but
can even form something as simple as a business process that allows them to improve society. To do so, they
require capital as investment. Such investment is all too often confused with vulture capital, yet the majority
of capital investment is of a different nature, which includes family resources, banks, or the money that is
used when people buy franchises or start new businesses.

Successful entrepreneurs may become capitalists in time. But the reality is that most people from the middle
class are already capitalists; you become one when you invest money, and even when you hold a savings and
investment plan. What few people understand is that the amount of work is unbounded. There will never be
a shortage of work, nor of goods. It always comes down to a trade-off: Are you willing to work for what is being
offered? Is the work being applied correctly and where it brings the most benefit? Are you wasting effort?

This is where capitalism benefits. It is a system that works with rules and within order. It is a means of
measuring the wants and desires, that change moment by moment, of a non-uniform mass of people and a
means of sorting conflicts between what people want and what is available.
The ability to have zero unemployment exists right now. It doesn’t occur because we allow people to have
free choice. We allow people to have the option not to work. And it is an option because there are always
alternatives. In a society that has a safety net, people choose not to work rather than work. People choose to
stay where they live and near their families rather than move. Such choices are all open to some, but not to
others. For many of the poor people on earth, the option of staying in one place and not taking up migratory
employment is unavailable. And yet, it is because we are spoilt with choice in the West that we choose to live
as if we had no options.

In the West, nobody is restricted from education. You may say otherwise, but the reality is that every hour of
watching reality TV, taking Instagram pictures, or checking Facebook updates is an hour that could be spent
bettering oneself. With the availability of free education, with libraries and, more importantly, online access to
some of the most challenging works in human history for no cost, the only excuse is one that lies with oneself.

Some will argue in terms of privilege. They will tell you that it’s not fair because they come from the minority
of the weak. What we see is a form of self-pity from people who refused to take action to improve themselves.
In every city, jobs exist that nobody wants to do.

Each and every time you decide it would be simpler to sit down and grab a beer and watch television, you
bypass an opportunity to read a great book, to study a technical problem, and to educate yourself further.
Each time you come home from a job you don’t like and slouch about, you make a decision to accept the life
you have. Herein lies also the reason why many people join protest movements. It’s simple, and it allows
them to pretend they’re doing something when they’re really being lazy. It doesn’t require much thought to
hand out leaflets and to join a religion, for much of what people talk about as true problems makes for a
religion.

Those who are part of cult-like movements such as Extinction Rebellion are simplistic fools who would not be
able to get their own life in order and rather than attempting to do so, choose a religion based on hate and
pessimism. For such cults are nothing more than religions. They allow individuals to believe that they are
doing something, when in fact they are nihilistic and destructive. They let people pretend to take up arms for
what they perceive is their true calling, when in fact they are merely tilting at windmills. Mostly, it becomes an
excuse. It’s an excuse to say that they don’t need to change because problems exist outside of them. It’s an
excuse where they can say that it’s not their fault. They can blame others and say that society is wrong rather
than look close to home and decide to fix things themselves first.

Those who are part of movements such as Extinction Rebellion and the Voluntary Human Extinction
Movement simply hate. They hate themselves, and because of they do, they take it out against others. Rather
than learning, building, and creating a better society, they simply desire to tear it down and end it. There is
nothing without humanity that matters. Anthropomorphising the earth as Gaia simply fails to recognise that
the earth is not a living entity and that the earth does not have desire. The reality is that humans and only
humans have developed a conscious desire and ability that allow us to explore and develop; no animal has
ever done so other than us. In time, all life on earth will end unless we develop technology to change it.

If humanity disappeared tomorrow, in time, so will the earth. And at this stage of the universe, at this stage of
the planet, there will not be something else coming to replace us.

There is one thing that has been true throughout the existence of humanity: we create. And in doing so, we
find solutions to all of the problems that exist.

We Are Not in an Era of Decline.

The world is at the start of a golden age. Every year is better. Every day is better. Every single day that passes
leads to less poverty, more vaccinations, healthier lifespans, and more freedom throughout the world. Some
will try and tell you otherwise, but the facts of the matter speak for themselves.

It remains that there is much to do, but there will always be much to do. No matter how much we do, there
will be more to do. Yet, in the last two decades, extreme poverty has been cut in half. Not only that, we have a
larger population, and we have reduced the number of people in poverty. The earth will not collapse with 10
billion people. In fact, if 100 billion people existed today, they would be fed and clothed, and the earth would
not be collapsing. In the past 10,000 years, everything that humanity could want has improved. Access to
clean water, access to healthcare, literally anything you can name has improved. Comparing what you have
to the best of what is available is not the same as comparing what you have now to what was available 20
years, 50 years, or 100 years ago. In the West, the richest of us 100 years ago had less access to many things we
take for granted than an uneducated tradesman does today.

The true answer, the true solution to all our problems is to do what we have been doing for the last 10,000
years: to remain human. To invent new things, to create new things, and to form solutions. The only way we
fail is to accept the nihilistic ideas of those who hate humanity and all that they are and seek a world without
our existence. One where they have destroyed humanity in a mass suicide, so that they can argue that they
won’t be alone. It’s one associated with Extinction Rebellion and all who follow them — those who seek
comfort in a cult because it’s simple. As they are placated and they don’t need to work hard, they don’t need
to take responsibility; they can blame others, and so they blame business and capitalism and government. It
stems from a mentality that lets people focus on the external, and so rather than changing themselves,
rather than learning and educating and developing new solutions, they allow themselves to live in a world
where they can simply blame and hate.

In the press, they say: “If it bleeds, it leads.” In an endless quest for click-bait advertising, we have been
indoctrinated to believe a falsely pessimistic view of society in the world. In 2017, we had the first year of no
crash of any commercial passenger plane at all. Yet, we look at the few isolated instances as if they were the
norm.

“Weird Al” Yankovic summarises it well in his parody song First World Problems , with lines such as, “The
thread count on these cotton sheets has got me itching,” and, “My house is so big, I can’t get Wi-Fi in the
kitchen.”

The reality is quite different to what most people believe. We live in the most prosperous time in human
history, and next year will be better. A decade from now, it will be better again, and our children will live better
lives than we can imagine. The only thing to be gloomy about, the only thing to despair of is that some people
slow such growth down to a trickle and limit the rate of change in society.

It is the entrepreneurs in society who create change. Although change is disruptive, and in the short term, it
seems to cause problems, it is such change that leads us out of poverty and into a world of plenty.
Statement of Dec 27, 2019
By Craig Wright | 27 Dec 2019
| Bitcoin & Blockchain Tech
Recently, we have received many questions and seen much public conjecture about what will happen in
January 2020 with bitcoin in my family’s trust. What a family does with its finances should be its own
private business.

But many of the questions being asked arise from fundamental misunderstandings of bitcoin. In fact,
bitcoin is one of the most misunderstood systems ever created. This is in part my fault for not explaining
things many people, as well as I, should have explained much earlier in bitcoin’s life. But, today’s
misconceptions about bitcoin are also the fault of those involved in anarchist systems who sought to try
and change bitcoin and create something that bitcoin was designed never to be.

So what I will say now is the following.

As I’ve explained in court proceedings, I believe I will receive information in January 2020 that will
enable us to identify coins I mined into my companies in 2009 and 2010, but cannot be certain that
information will in fact arrive. I have not said the private keys to those coins would become available, or
if so, actually used, in January 2020.

None of this will be what people expect because people have come to associate bitcoin and the system I
developed with something that it is designed not to be. The process we will be engaged in over the next 12
months will be one that radically changes the perceptions of the industry and demonstrates the true power
of bitcoin. As part of this, we are working to ensure that the fallout from any interaction in the market
involving my family trust’s coins is minimised. We also want to slowly migrate people and node operators
(aka miners) into a sustainable model that will take us not only past the next block reward halving in
April/May 2020, but far beyond 2020. I do not intend to dump my family’s BTC as some people suspect or
want, as this would hurt many people in the industry. Instead, I will work with the family trust to implement
plans to slowly move the interests of the trust into a sustainable model that builds the Bitcoin SV
environment and ensures that the bitcoin that I originally envisioned more than a decade ago (now known
as Bitcoin SV – BSV) continues to grow strongly.

Bitcoin is a protocol and a platform. It’s stable and set in stone in the manner that the Internet was.
Beginning in 2020, people will start to better understand the power of bitcoin and just how fragile the
position taken by the Bitcoin Core developers – and their creation of a different coin in BTC – really was.
Bitcoin was never designed to be anonymous; instead, it is anti-anonymous. Bitcoin was not designed to
oppose governments or banks; instead, it is honest in nature and designed to implement a system that
fights corruption. Governments are not bad when they are honest and subject to the just will of the
people. It is anonymity that allows corruption to flourish. In 2020, people will start to see that truth and the
true nature of bitcoin.
Anarchy and the Foolish Belief in Assassination Markets
By Craig Wright | 06 Jan 2020 | Alternative Coins & Systems
In 2008 and 2009, a group of people mistakenly thought that the world would be better off without banking.
The loosely aligned anarchist group Occupy Wall Street protested for many months, before falling apart due
to a lack of coordination. One of the main problems with anarchy is a lack of leadership. Occupy Wall Street
debated for months over a slogan and a goal. Unable to even determine a purpose, the group fell apart and
ended up achieving nothing. The other alternative form of such a system lies in the introduction of a strong
man; the “paramour” that always follows an anarchist group and does not fall apart is the totalitarian leader.
What the anarchist fails to understand is that such a system either is totally useless or ends in what the
anarchist despises the most.

In today’s post, I will use one of the more critical foundations of Western culture in explaining the origin of law
and why anarchy fails. Aeschylus was a Greek playwright who authored three tragedies that are often
grouped under the name of the Oresteia . To start, I will examine aspects of Aeschylus’ works in order to detail
issues with the philosophy of law and jurisprudence. The plays collectively presented in the Oresteia
demonstrate how vital law and lawbreaking can be.

I shall leave it to the reader to thoroughly research the plays. In them, revenge is presented as a part of the
natural law. In particular, it presents divine law or natural justice in a manner that is so tangled and mixed up
that no definite decision of right and wrong, however just, or unjust, may be made — even by the gods. The
consequence is that Athena attempts to solve the dilemma through the invention of a new institution: the
court of law.

Those who oppose all forms of government will often claim that laws coerce men, and it is argued that
coercion diminishes the freedom of the individuals in society. While it may be true that fear of the
consequences that come from not following the law and its sanctions prevents people from doing many
things, the same cannot in itself be seen as evil. At the beginning of the first play, Agamemnon, Clytemnestra,
and Orestes live in anarchy, a lawless condition. Although there are kings and royalty, the condition that we
see as government does not yet exist; it is a world where might makes right and revenge is extracted through
poison or blade. The only laws are ones of revenge, and it can be said that no law even exists against murder
for such individuals. They are free to kill and make restitution for any ill that they perceive.

The question we must ask is, would society be better, if no laws existed against even this?

Any individual in such a society exists without legal protection, and may, in turn, be killed by others. Some
argue that they could live by strength. But, all of us have moments of weakness. The strongest of us can be
brought low by a bacterial infection or a virus. So as we reflect, we can start to see that men are freer in a civil
society where law exists, compared to the lawless condition that once existed.

Life, as we see it in our civil societies of today, is far more secure than that of an unregulated state of nature.

As is the case with many things, it is moderation that creates the ideal society. The best society is not the one
with the most laws, nor does it lie in the other extreme of no law (anarchy).

You may be told that anarchy is a system without government but with law, which is a straw man that is
easily knocked over. If a community comes together to vote and create law, it has a government by definition.
If law exists without sanctions, it is ineffectual and neglected. The argument presented by totalitarian leaders
throughout history, from Lenin to Stalin to Mao, and by all those in between and before them, has been one
of false freedom. Mankind consists not of angels, and we do not act in a manner that allows us to form large
societies without rules that we can all come to agree upon. They all come with compromise and trade-offs.
Then, there is the fallacy that assassination markets would keep us honest.

The creation of a market as religion becomes perverse. Markets provide many useful services, but a market
itself is neither virtuous nor good. The founding fathers of the US discovered the same idea when they
attempted to make a republic based on virtue. They found that people were not naturally virtuous as a crowd
and that emotion could carry us to deeds we would later prefer not to have done.

From here, I will skip forward to Plato’s Euthyphro . Plato does not tell us what a law is and how a law differs
from a decree. He does not tell us who was empowered to make a law, nor by which standard of justice we
decide which acts are just or unjust and how they are measured. He does not tell us how the law would be
applied in a particular case or go into the difference between common law and equity. In particular,
Euthyphro is concerned with conflicting laws and requirements of honour. In the Oresteia , we see how civil
law supersedes the natural law of retaliation. We have not eliminated the conflict between demands of
justice and piety, but rather see that conflicting interests must be balanced in the creation of a working
society.

But the rub is, a society is made up of many people who have differing views and perspectives. No society can
be created nor stand together without a way of allowing individuals to interact and maintain what is justly
theirs, which in itself is even a subject of law. For what is property? How does property transfer from one party
to another, and when have terms been breached? In all events, what may seem fair to some will be unjust to
others.

It lies here that we can see the need to control the baser instincts that come from our animal natures.

Here also lies a significant aspect leading to the creation of blockchain-based systems. In creating Bitcoin, I
needed to find something that would not, as all other peer-to-peer networks had, devolve into an anarchist
‘free-for-all’ (and hence corruption). I designed Bitcoin to be a system that could not be subverted by those
seeking to avoid the law. It is not a system that cannot be followed or traced; it is a system that protects
privacy and destroys anonymity.

Assassination markets do not create societies. They create corrupt systems and kleptocracies.

It is not politicians nor wealthy businessmen that become the target of such a system. In places without the
rule of law, ones in anarchy, it is not the people who have a choice of removing politicians and corrupt
individuals, it is corrupt individuals who remove troublesome people in their populace. The cost of removing
those higher in society is significant. And contrary to common assertion, very little coordination occurs,
meaning that the reality of the scenario is one where those with money are able to focus on a target. In
assassination markets, it is the corrupt who lead.

Most people do not seek to rule through fear. They seek simple lives, that they can live with their families, and
when faced with threats against their families, they choose the option that will give them life. We see the
scenario in anarchist states now, and we saw it in totalitarian regimes in the past. The mistake made by many
people promoting anarchy through anonymity lies in the failure to comprehend that anonymity favours the
corrupt. In seeking power, those without limits will always defeat those with limits in a limitless system. The
virtuous always have self-imposed limits. We do not introduce laws into our societies to curtail the freedoms
that we seek, but rather to limit the power of the corrupt.

Many of the problems we see now come from a lack of understanding of the past. More than two and a half
millennia ago, the Greek and Roman societies faced similar conundrums. It is not a problem that they alone
needed to solve. In not educating our population about the past, we are doomed to repeat it, as George
Santayana said:

Those who cannot learn from history are doomed to repeat it. Those who do not remember their past are
condemned to repeat their mistakes.

Timothy May rarely thought through the consequences of the systems he promoted. Though he was skilled
in some areas, his education was lacking in others. None of the cypherpunks would think through the
scenario and take what anonymity means to its end. For instance, imagine a real estate developer seeking to
remove a curmudgeonly old man so they could build a property. The old man does not wish to move at the
price being offered. Maybe his family would take the money. Such a scenario moves the cost to a perverse
Coasean transaction fee. If a property developer can make more money in executing a troublesome property
owner in order to take what they own, it becomes profitable in such a market to do so. It is not virtuous, but
then virtue was considered in a religious diatribe of markets solving all ills.

All such systems provide is fear. Ones such as the corrupt and terrorists thrive on fear.

Luckily, Bitcoin is not a system that cannot be intercepted and brought under the rule of law. In the coming
year, people are going to understand the real power of Bitcoin. The lie that is promoted, that Bitcoin would be
distributed and thus untouchable will be crushed forever. Bitcoin can be seized very quickly. Any blockchain,
in fact, may be seized. The nature of Bitcoin and its proof-of-work system is one that forms competitive
corporations. It is not one of individuals acting equally, and it was never intended to be so. Bitcoin is
distributed as the system is robust and secure as such. It is not designed to be a socialist system or collectivist
in nature.
On Civil Disobedience
By Craig Wright | 08 Jan 2020 | Bitcoin & Blockchain Tech
I believe in law. To me, it holds the convictions of all that is valuable. Having said so, all systems of law require
bounds. As societies develop, such bounds are tested and change. Here lies one of the reasons why the
concepts of “Code is law” or even “Code as law” are each fundamentally flawed. It is only with law that we
can challenge society and the boundaries that are set. It is because of law that civil disobedience allows
people to see the flaws in society and for people to rectify them. It is not just the common law but equity,
too, working together, that create the balance in the scales that measure life and ensure justice to the
greatest extent possible. For it is never possible to achieve perfection. For what is perfect now would not be
perfect a generation, three generations, or further down the track.

As with all things, the reason behind something, the why is important. With lawbreaking in the form of civil
disobedience, there are reasons why it is important. It matters not so that some individuals benefit at the
expense of others, but so that we can challenge the laws and seek to redress the inequitable aspects of
society.

It is not crimes against property, it is crimes against the unjust, the unfair, and the inequitable that we must
challenge.

What is important to remember here is that the challenge only matters when it is done with courage. It is
not anonymity that changes the system. It is the ability to stand up for what we believe in.
Henry D Thoreau wrote a letter to RW Emerson on 23rd February, 1848, and extended the concepts
presented the next year into an essay titled On the Duty of Civil Disobedience .

Many people say that they are opposed to government when in reality they are opposed to an overreaching
interventionist government. We need to start setting definitions, before we make arguments. Individuals
are important to society; without individuals and without the ability to be treated separately, we become
just a number. It is through removing individualism that corrupt and totalitarian governments take away
our rights. Whether we’re talking about Stalinist Russia or the mistreatment and persecution and then
genocide of the Jews in Nazi Germany, when people removed individualism from the equation, they
removed our humanity. Thoreau was correct when he argued individuals should never allow government to
overrule or atrophy individual conscience. Republics work when they are based on the virtue of individuals.
If we wish to be a just society, we have to stand for what is right.

It is not important that we believe what others stand for, but we stand for their right to oppose what they
see as being immoral and unjust. Doing so does not mean that we allow them to interfere with the property
rights or rights to life and liberty of other people. It does not mean we allow them to be anonymous. For us
not to be an agent of injustice, we cannot be anonymous and we must be in the light. It is in the dark dank
places, places created through anonymous activity where corruption breeds.

It is when through silence or inaction we create a state of acquiescence and fail to raise objections, knowing
that what is occurring in front of us offends us, that we are in the wrong and fail to meet the standards of
virtue and justice.

Government is a machine or tool. When the machine is not working, it starts to produce injustice. The
people act to regulate the machine. Such resistance changes the machine to create a more just society.
Such is the nature of courageous and open civil disobedience. It is the promotion of just rules through
democratic and republican societies. We the people are the state. Civil disobedience is not revolution, it is
polite and orderly disobedient. It works within the accepted social forms. It does not destroy, but it
educates.

To be effective, civil disobedience requires that we are open and honest and do not hide behind the mask of
anonymity, which is the shield of cowards and the corrupt.

All government is man-made. It is created through the people that promote the policies and laws enacted
by the government, and can be changed by the people within society. In the Tao Te Ching ,Laozi sums it up
eloquently, reminding us: “The best rulers are scarcely known by their subjects.”

Martin Luther King Jr. sums up a modern version of interacting to oppose injustice in his eloquent
autobiography:

Fascinated by the idea of refusing to cooperate with an evil system, I was so deeply moved that I reread the
work several times. I became convinced that noncooperation with evil is as much a moral obligation as is
cooperation with good. No other person has been more eloquent and passionate in getting this idea across
than Henry David Thoreau. As a result of his writings and personal witness, we are the heirs of a legacy of
creative protest. The teachings of Thoreau came alive in our civil rights movement; indeed, they are more
alive than ever before. Whether expressed in a sit-in at lunch counters, a freedom ride into Mississippi, a
peaceful protest in Albany, Georgia, a bus boycott in Montgomery, Alabama, these are outgrowths of
Thoreau’s insistence that evil must be resisted and that no moral man can patiently adjust to injustice.

Modern-day slavery comes from the corrupting influence of those who say, we can have everything now.
That we can create without work, we don’t need to save, and we can live on the income of tomorrow.
Whether it is 5% or under equity-based loans in housing, hire purchases designed to have people buy more
than they need, or the concept that it’s other people’s problem because we haven’t educated ourselves, we
haven’t updated our skills, and the government is there with its safety net to catch us when we fall, no
matter how little we do and how much risk we take, the modern-day slave trade is bringing people into a
debt spiral that they need never fall into in the first place.

Encouraging degrees that are unlikely to lead to jobs yet cost immense amounts of money, ones involving
populist and post-modernist anti-human ideas rather than mathematics, engineering, the ability to write in
a format that attracts the interest of other people, science, and more that would lead to productive work,
forms an entry to modern-day slavery.

Encouraging people to buy houses they cannot afford using loans that cost them more than they can ever
earn, based on a promise of speculative gain, is the manifestation of modern-day slavery.

Promoting a myriad of cryptocurrencies that have all been copied from ideas spawned 20 years ago,
without true value, without use, without scale, without the ability to dynamically and radically alter society,
based simply on a promise of riches that will happen quickly, without work and without effort, so too is
modern-day slavery.

Bitcoin needs to be regulated, and it is already covered by law; it has been from before the inception of the
white paper and the code. Before I wrote the first line of code, laws existed throughout the Western world
covering Bitcoin in every aspect of its existence to be.

Laws cover money to protect the individual. They stop the unscrupulous promoter selling lies and
advocating anarchy, corruption, and fraudulent schemes designed to tell you how rich you will get by
buying bitcoin or some other cryptocurrency — without working. But even government, as slow and
lumbering as a system based on the minds of many people that are loosely connected through slow
bureaucratic systems can be, is starting to awaken. In 2020, we will start to see what happens when
Leviathan moves.

With Bitcoin, the world becomes more transparent. As the people start to see what has been hidden from
them, when they start to see the Internet that is not free but works on selling our souls, they will start to
awaken, and as they do, change is about to occur. Bitcoin is not designed to allow anonymous drug
markets, it is designed to utterly destroy them. If people want to fight to change laws, they need to do so
with courage and face the consequences of what will occur. Bitcoin doesn’t merely stop drug markets, it will
stop corruption. In increasing the cost, the economic cost of crime, in making corruption more difficult to
hide, in making cybercrime, political bribes, and all forms of large-scale monetary payments more difficult to
hide, Bitcoin makes a more honest world.

I shall conclude my epistle with the words of the esteemed Cambridge University history lecturer Dr John
Emerich Edward Dalberg-Acton, who is more commonly known as 1st Lord Acton:

[T]he time has come for the extinction of servitude. The same problem has sooner or later been forced on
many governments, and all have bestowed on it their greatest legislative skill, lest in healing the evils of
forced but certain labour, they should produce incurable evils of another kind. They attempted at least to
moderate the effects of sudden unconditional change, to save those whom they despoiled from ruin, and
those whom they liberated from destitution. But in the United States no such design seems to have
presided over the work of emancipation. It has been an act of war, not of statesmanship or humanity. They
have treated the slave-owner as an enemy, and have used the slave as an instrument for his destruction.

Banks are not an evil, and Bitcoin does not replace banking. The US government promoted policies that led
to the collapse in 2008. In allowing people to take out loans that exceeded the value of equity in their
property, government did not help people to get a foot on the property ladder, it helped corrupt bankers to
take the little that the same people had. There is value in saving. Having to save 20% before you have a
home loan granted is a chore and an effort, but it is a necessary one. It was not banking that was at fault, it
was the policies designed to appease a small class of people in a vain attempt at delivering short-term
political wins. It can be difficult for people to save, but it is also essential. Wishing away the problems in
society does not solve the problems in society. Saving a deposit for a home is no different than having to cut
down the calories you consume and exercise more; it is a necessary chore, a hygiene factor, and for people
to successfully build a future, they must learn that virtue and vigilance are not always easy. The false
promises of easy riches generally end in pain and tears.
We are corrupted through power, and ultimate power lies in anonymity and the ability to hide. The most
insidious and devious of such powers is to move money and funds without a means for them to be traced.
Whether it is corrupt government, corrupt officials, mercenary soldiers, warlords, tyrants, or even dishonest
corporate CEOs and others within companies committing fraud, the ability to hide money and pay people
surreptitiously has been the most corrupting influence in our society for as long as money has existed.

With Bitcoin, we have a means to enable privacy and utterly destroy anonymity. Bitcoin does not stop
government seizing criminal funds, it makes it easier to separate that which is easily determined and to be
associated with crime and to capture the perpetrators and seize their money. At the same time, when
implemented correctly, Bitcoin is the most private monetary system available. It is not being implemented
as such right now, but it will be implemented as such again. I designed Bitcoin to be private and not
anonymous. The distinction is important. A pseudonym allows an individual to hide from the gaze of many
in the public, but it does not remove the individual completely. With Bitcoin, we do not remove the ability
to capture criminals, we remove the ability for the corrupt to hide their money.
Mistakes Also Come when You Listen to Others…
By Craig Wright | 15 Jan 2020 | Alternative Coins & Systems
Many of the multitudes of problems surrounding the implementation of Bitcoin come from my failure to
explain things to people. In part, I did not realise the difference in individuals who might want to jump on
board with Bitcoin in the early days. Bitcoin implements what is known as traceable pseudonymity [1]. In
particular, the proof-of-work algorithm in Bitcoin acts to associate nodes (miners) and their facilities. One of
the problems that have come about stems from the line in my paper referencing proof-of-work and
explaining that an alteration of the database (blockchain) “quickly becomes computationally impractical for
an attacker to change if honest nodes control a majority of CPU power”.

The erroneous understanding of the white paper has led to many problems. Firstly, a node is defined in the
white paper as what is now commonly defined as a miner. A separate layer sits above such supernode peers,
running an SPV connection. Miners do not secure the network using hash power. Here lies a critical
difference; hash power presents a limited subset of what nodes must achieve in order to be a part of the
network.

The steps to run the network are as follows:

1) New transactions are broadcast to all nodes.

2) Each node collects new transactions into a block.

3) Each node works on finding a difficult proof-of-work for its block.

4) When a node finds a proof-of-work, it broadcasts the block to all nodes.

5) Nodes accept the block only if all transactions in it are valid and not already spent.

6) Nodes express their acceptance of the block by working on creating the next block in the chain, using the
hash of the accepted block as the previous hash.

Hash power presents a limited aspect of the process. Hash power involves each node working on a difficult
proof-of-work that is associated with an individual block. It is not the most important and critical aspect of
Bitcoin. One of the aspects expressed by people who oppose my vision of Bitcoin and ones who have sought
to change it since I first started talking about it in 2008 comes from the fact that they seek a system that
cannot be controlled through law and legal processes. The white paper explains that it is impractical for an
attacker to change the blockchain, which is not the same as saying that the blockchain cannot be changed.
Importantly, the blockchain can be changed when honest nodes agree on the changes. Nodes (miners) who
are subject to a court order could, for instance, write a change to the blockchain and reallocate the proceeds
of crime to another address when it comes to either freezing or seizing bitcoin.

The possibility of doing so is not something that people associated with Bitcoin Core want governments to
know. I developed a distributed proof-of-work system as the core or giant node of Bitcoin as it will always
aggregate into large corporate entities as such. That is, Bitcoin always ends with competing organisations
that hold information in data centres. The economic nature of Bitcoin is such that even if a proof-of-work
system could be developed that was ultimately ASIC-proof, it would always lead to the formation of large
corporate entities that would compete to validate transactions into blocks.

In the USA, under the Computer Fraud and Abuse Act (CFAA), we can easily show how “51% attacks” and
other consensus attacks violate criminal law. Similar laws apply in most other countries. The CFAA is
“principally a criminal statute prohibiting ‘fraud and related activity in connection with computers’” [2].

Under the CFAA, a malfeasor would be acting criminally (is committing a crime) where they “knowingly
cause… the transmission of a program, information, code, or command, and as a result of such conduct,
intentionally cause[] damage without authorization, to a protected computer” [18 U.S.C. § 1030(a)(5)(A)
(emphasis added)].

Any conspiracy to commit or an “attempt to commit” such an act would be equally classified as a crime [18
U.S.C. § 1030(b)].

In order to criminally violate the CFAA, a node that is defined as an attacker, such as one instigating a “51%
attack”, would need to satisfy the following:
(1) knowingly
(2) [sending or broadcasting] a transmission
(3) of some […] information, code, or command [that]
(4) intentionally
(5) causes damage without authorization,
(6) to a protected computer

[18 U.S.C. § 1030(a)(5)(A)].

In presenting the white paper, I believed the scenario would be obvious. But, I never anticipated people
taking over my creation and turning it into an anti-government, anti-bank, anarchist system. I did not
anticipate that they would go so far as to even attempt to do so, for indeed their attempt has so far luckily
proved unsuccessful. Where they have been successful lay in the social engineering of false narratives around
Bitcoin.

Changing Records
Nodes don’t change records, which doesn’t mean that transactions cannot be seized by government. Bitcoin
is a form of write once read many database or what is known as a WORM storage system. When I was at
BDO, I used to talk about such a system quite a lot, as under the Sarbanes-Oxley Act, section 302 and 404,
many financial and other public entities are required to store their records on the same form of system. It
does not mean that you cannot change records that are written in error. When a financial database is
connected to something like an Oracle system in WORM mode, any error needs to be reversed. To do so, the
original record remains unaltered, while a new record, showing what has changed and why something has
changed, is created.

Bitcoin is analogous to the same form of system. In the advent that a valid court order was issued, such as
one resulting in the seizure of the proceeds of crime, miners would need to enforce the change. It remains
within the consensus mechanism of Bitcoin. Nodes are pseudonymous. It is only the largest nodes that need
to be contacted to enforce such a change. Other miners then follow the majority. In such a scenario, a group
of miners seeking to oppose a set of validly issued court orders would then be intentionally violating the
terms of the CFAA.

Interestingly, the US Act (CFAA) provides a private right of action [CFAA violations. Id., § 1030(g) citing § 1030(c)
(4)(A)(i)(I)].

Other nodes, users of the network, whether merchants or simply SPV users, and the providers of other
services who suffer because of attacks of such nature may take private actions under the CFAA against nodes
(miners) that act in a manner causing the corresponding loss.

Mistakes
Some of the things I allowed in the early days came from not understanding the people I was dealing with.
More, I didn’t explain things terribly well. I thought it would be clear and obvious that attacking the network
would be an action that would be punishable by law. Bitcoin was designed to work within existing legislative
boundaries and frameworks. My biggest error was assuming that people would understand it so. The people
who took control of Bitcoin Core have had different agendas, and one such agenda includes an anarchist
view where government is not involved. The error they make is to assume that Bitcoin can ever be made to
run on millions of nodes that all connect outside of the reach of government. Most of the work that went into
the building of Bitcoin lay in architecting a system that could not be subverted in such a manner.

Bitcoin is not secure because of hash power. Bitcoin is secured as the message digests or hashes from each
block are publicly available. The public record can be disputed and viewed by all parties involved in the
system — not just the nodes (miners), but all other users and even government officials and external auditors.
It’s time for government and law enforcement to start understanding that Bitcoin is not a system designed to
act as a distributed ‘free-for-all’. It doesn’t mirror an uncontrollable mass of anonymous nodes, it forms a
global supernode of highly interconnected commercial nodes (mining systems) that act to protect the
transactions within the network. Such nodes are pseudonymous, but if they attack the network, there is
enough information to trace them back and for law enforcement and private individuals to take action.

Bitcoin is not a cypherpunk creation. The references to timestamping and other systems are not cypherpunk
in nature, and the system is designed to be extremely resilient to such attacks. My biggest mistake was
believing that people would understand that Bitcoin would not subvert the government but rather act
within the law.

References
[1] A. Michael Froomkin, Flood Control on the Information Ocean: Living With Anonymity, Digital Cash, and
Distributed Databases, 15 J.L. & Com. 395 (1996).

[2] LivePerson, Inc. v. 24/7 Customer, Inc. , 83 F. Supp. 3d 501, 511 (S.D.N.Y. 2015).
How Digital Signatures Work
By Craig Wright | 21 Jan 2020 | Alternative Coins & Systems
Way back in 2006, I wrote a legal paper as part of my work with Northumbria University and my
postgraduate law studies on the topic of digital signatures and the Electronic Communications Act 2000
(ECA). And I’ve found it surprising how misunderstood the topic of digital signatures in technology really is.
The people involved with systems like Bitcoin who have taken it from what I developed to form a criminal and
anarchist system, or at least the failed attempt to try and do so, present a large part of such failure. Some of it
actually even links to people like Mr Antonopoulos, who attempted to mislead courts into believing the so-
called Dread Pirate Roberts defence in the case of Silk Road. In writing today’s post, I’ll explain the error in its
false narrative. There is no such thing as handing keys over and saying they’re someone else’s, which is not
how digital signatures work. Apart from Mr Antonopoulos not having a clue about how Bitcoin is designed, he
has even less of a clue about how laws around digital signatures work.

Basically, it is well-understood that such lowlifes hate me, and it’s really easy to understand why they do as I
am pulling apart their house of cards that is built upon the lie that Bitcoin is designed to promote anarchy
and crime.

So, to pull apart another false myth that no one outside of the Bitcoin community (and ‘altcoin’ community, if
it matters) even thinks about, I will look at electronic signatures based on a document I wrote in 2006.

What Is an “Electronic Signature”

Compliance with the EU Directive on Electronic Signatures [1] was accomplished by the UK Parliament
through the passing on 8th March, 2002, of the Electronic Signatures Regulations 2002 (ESR). Such
regulations removed much of the uncertainty surrounding the existing provisions in UK law concerning
electronic signatures and including the Electronic Communications Act 2000 (ECA) by putting into practice
the concept of “advanced electronic signatures” [2].

The designation of advanced electronic signatures was directly extracted from the EU Directive on Electronic
Signatures [3]. Article 3 of the Regulations, Supervision of certification-service-providers , implements the
requirements of Article 3 of the Directive regarding the registering, recording, publishing, and supervision of
certificate service providers (CSPs) by the Secretary of State. Article 4 of the Regulations implements the
liability provisions in Article 6 of the Directive on qualified CSPs. Strict data protection principles included in
the Directive regarding CSPs are implemented in Article 5 of the Regulations.

The basic provisions of the ECA regarding electronic signatures are thus expanded in the ESR, which have
successfully implemented the EC’s framework for digital signatures and a developed PKI [4] into UK law. The
Electronic Signatures Regulations 2002 defined a basic and an advanced electronic signature as follows:

Basic electronic signatures are defined broadly to include all types of electronic signature. They are defined in
paragraph 2 of the Regulations as “data in electronic form which are attached to or logically associated with
other electronic data and which serve as a method of authentication”.

Advanced electronic signatures are defined in the same act to include an advanced form of electronic
signature and meet the ensuing requirements provided. As such, an advanced electronic signature is:

1. uniquely linked to the signatory;

2. capable of identifying the signatory;
3. created using means that the signatory can maintain under his sole control; and
4. linked to the data to which it relates in such a manner that any subsequent change of that data is
detectable.

It is envisioned that an advanced electronic signature will rely on the application of a personal digital
certificate provided by a certificate service provider (CSP). It is believed that such a digital signature,
supported by an eligible certificate issued by an accredited certification authority (CA), will provide for
certainty and non-repudiation to a recipient allowing for the trust in the data integrity and authenticity of the
sender’s signature and message content.

A digitised electronic signature is not the same as a digital certificate. A digital signature is associated with a
unique numerical code and value. The code, when associated with the correct cryptographic algorithm,
allows one to verify the authenticity of the author of a digitally signed document with an extremely low
probability of error [5].

An electronic signature can include a printed name, an e-mail address, and a scanned signature. On the
other hand, a digital signature itself presents the unique numerical value based on the entire written
document that is being signed. The ECA did not define electronic signatures in a manner consistent with
Directive 1999/93/EC [6], which allowed an aspect of uncertainty.

In defining “Electronic signatures and related certificates” in section 7 of the ECA, little clarity was expressed
on the difference to a digitised electronic signature and how it is not the same as a digital certificate.

The ESR was passed to clear up such uncertainty and provide compliance with the 1999 Directive. The
Regulations have brought the UK legislation in line with the EC Directive, while helping to fix the eventual
value of a digital certificate. The legislation has the effect of enabling the courts to treat the electronic
signature as an equivalent to a manuscript signature. It directly mirrors the provisions of Art. 5(1) [7], which
grants that such signatures:

(a) satisfy the legal requirements of a signature in relation to data in electronic form in the same manner as a
hand-written signature satisfies those requirements in relation to paper-based [8] data; and

(b) are admissible as evidence in legal proceedings.

The definition of electronic signatures by the ESR in purely functional terms still will not allow the
substitution, through an electronically signed document, of a manuscript involving a physical signing of the
same document. The Electronic Communications Act 2000 has the effect of ensuring that the UK courts
treat electronic signatures as producing the same evidential effects as physical signatures [9]. It does not
adapt the electronic manuscript to a signed physical writing [10].

Formal requirements, such as ones existing for the dispossession of real property, prevent certain
transactions from being carried out through electronic communications. The uncertainty around the formal
requirements associated with digital contracting was corrected through the addition of further legislation,
namely the introduction of the Land Registration Act 2002.

It remains uncertain whether the courts will amend their characterisation of individual signatures or keep it
as delineated by Denning LJ in Goodman v. J Eban Ltd [11].

A certificated advanced electronic signature as defined by the ESR will likely show evidence of all features
requisite in such a case, excluding the prerequisite for handwriting. It will make obvious that the document
has received the individual endorsement of the signing party. There remains the difficulty of deciding
whether a personal signature is by nature of form or of function.

Issues with Electronic Contracting

Electronic networks such as the Internet are primarily communication channels. Although there is much
uncertainty surrounding such forms of communication, it should be remembered that there are
fundamentally few real differences between new communication formats such as the Internet and older
electronic measures such as phone lines. Just as in the past where a variety of different communication
protocols could use a single carrier line such as a voice phone line [12], electronic mediums such as the
Internet are a collection of protocols — each with its own and often separate issues.

The major uncertainty with electronic contracts stems from the facts of the individual dispute.
Fundamentally, they concern the offer, acceptance, and consideration to fill the requirements of creation of a
contract. In case the offeror may stipulate the method of acceptance [13], it is prudent for the contracting
parties to agree on the form of acceptance prior to the conclusion of the contractual negotiations.
Another important issue that surrounds Internet contracting comes with the general rule of law associated
with the acceptance of an offer, which must be “communicated” to the offeror [14]. Under normal
circumstances, the offeror must receive the acceptance before a contract will come into existence. Disputes
as to the form, which may be alleviated to some extent by the ECA, do little to define the instance of
communication.

What Does It Mean for Digital Signatures?

Bitcoin was primarily designed as a low-value cash system. Other overlay systems can be built on top of
Bitcoin, enabling the legal construction of identity mapping and the ability to legally transfer large amounts
of money. When we’re talking about small-value transactions, it is unnecessary to include identity
information or to have a means for the consumer to recover the payment. All that said, none of it covers the
requirements of a digital signature. Ross Ulbricht was not prosecuted on Bitcoin transactions alone. He
certainly wasn’t transmitting identifiable public information in his digital signatures. He was arrested on good
old digital forensics.

The low-life scumbag that is Ross Ulbricht is not the freedom-loving Gandhi-esque figure that people try to
paint him as. But the reality does not stop them from creating a false narrative of how digital signatures work.
You see, to prove someone’s identity with a digital signature, you need to first have a registered key.

You can’t use a digital signature to prove your identity; you prove your identity and then you have a digital
signature to support it. The order here is important. Even if you register a key, it does nothing to prove
anything prior to the registration of the key, which is not a marker of identity, but the registration of the key is.
Bitcoin, then, can be integrated into the PKI or public key infrastructure system.

The first thing to know about using a digital signature for the purpose of determining an identity is that it
must be uniquely linked to the signatory. If you can anonymously transfer keys without registration, they
cannot legally be used as a means of identifying an individual. Keys must offer the capability to identify the
signatory, which is possible to achieve in Bitcoin, but again, even with deterministic or hierarchical keys, they
must be linked to a registered base key. Importantly, too, it needs to be maintained in a way that the
signatory can do so under his or her sole control.

It’s interesting that the so-called experts fail to understand the most basic aspects of law concerning digital
signatures. That they understand very little about the implementation of digital signatures. Some of the so-
called lawyers in the ‘crypto’ media and Twitter sphere seem to not understand the simple fact. It makes you
wonder whether they are merely incompetent or have an agenda.

If you wanted to use a digital signature associated with your Bitcoin wallet as a means of signing transactions
with your identity, the process is not too difficult. The creation of a linked set of keys is possible so that you can
remain pseudonymous on the blockchain and yet have your identity linked. The hashing function of payment
addresses in Bitcoin also increases privacy. In order to link an identity to Bitcoin, you need to register the key
formally. The key is only viable as a digital signature and identity reference after it has been registered. In
other words, you can’t sign a document, register a key that can be transferred, and then say that the previous
signature was definitively proven. It’s a shame how little people seem to understand about such a simple
concept.

Notes
[1] Directive 1999/93/EC.

[2] S 2; Statutory Instrument 2002 №318; The Electronic Signatures Regulations 2002.

[3] Appendices I and II of the Directive are directly adopted in the Regulations.

[4] PKI stands for public key infrastructure .

[5] Lim (2002); Reed (2004); van de Graaf (1987); Vaughan (1997).

[6] Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community
framework for electronic signatures [OJ No. L13, 19.1.00, p. 12].

[7] Art. 5(1), Directive 1999/93/EC.

[8] The distinction of a “paper document” is significant. The legal notion of a manuscript or document is
particularly extensive. It has been extended to books of accounts (Hill v. R. [1945] KB 329), photographs of
headstones and houses (Lyell v. Kennedy (No 3) (1884) 27 Ch D 1), and diagrams and plans (Hayes v. Brown
[1920] 1 KB 250; J. H. Tucker & Co.Ltd. v. Board Of Trade [1955] 2 All ER 522).

[9] Leroux (2004).

[10] Reed (2000).

[11] Goodman v J Eban Ltd [1954] 1 QB 550; Lord Evershed MR at 55 also supports such assessment. Denning
LJ at 56: “In modern English usage when a document is required to be “signed by” someone that means that
he must write his name with his own hand upon it”.

[12] POTS (plain old telephone system) was used for the carriage of telex, facsimile, data transfer, and EDI-
based communications. See also Hallberg (2005), p. 84.

[13] Eliason v Henshaw (1819) & Manchester Diocesan Council for Education v Commercial and General
Investments (1970).

[14] McKendrick [1] (2005), pp. 43–44.

Open Source
By Craig Wright | 24 Jan 2020 | Bitcoin & Blockchain Tech
The real need for open-source software has been hijacked by a political agenda. I did not create Bitcoin as
open-source software because I believed that software should be free. Rather, as one of the most highly
qualified security professionals at the time, I understood the basic rules of cryptography lay in open
algorithms. As a result, I created Bitcoin in a way that it would be secure.

Beginning with Auguste Kerckhoffs in 1883, a principal of open analysis has been formed in the cryptographic
analysis of protocols and the maintenance of secrets. Kerckhoffs’ law is that a well-designed cryptographic
system should be constructed so that only the key needs to be secret. There should be no secrecy in the
algorithm. The alternative lies in proprietary software or what is otherwise known as security by obscurity. In
general terms, it is snake oil. Without public review, vulnerabilities in the security of software products allow
attackers to subvert and compromise the system.

Unfortunately, many with agendas have subverted the need for open-source software and claimed that it
was related to free software. There is a major difference between software that is free and software that is
open source. Open source refers to the ability to analyse source code and ensure the integrity of the system
in recent years. Those with political agendas have engaged in the truly Orwellian attempt to subvert the
nature of such a system in an attack on copyright and property rights in general.

If an author decides to release software freely, that is, as freeware, doing so remains his or her right. But, it is
essential that security software can be analysed and vulnerabilities found quickly. In the past, I worked for
several organisations, including antivirus organisations, that would employ me or contract me to reverse-
engineer both packers and malicious code. Source code itself cannot be fully hidden. So in not releasing code,
you slow down yet do not deter the analysis of the system vulnerabilities. In so doing, you asymmetrically
incentivise the attacker. The honest analysis of code works best when the code is openly available.

When code is released as part of a proprietary system, without access to the source code, the result is a
system that is fragile. It requires more secrets to be kept. Bitcoin is an open protocol. To be analysed and for
people to build on top of it, the primary system requires openness. Openness does not make it non-
commercial. Rather, it allows commercial organisations to build.

Kerckhoffs’ principal does not specify open-source software because it came about before the
implementation of software at all. Rather, it requires that algorithms are public and can be analysed. Having
said so, in order to make security independent of the secrecy of keys, we need to allow peer review.
Cryptography is hard. Bitcoin itself is hard. And nearly every cryptographic system that has ever been created
is insecure and has a vulnerability. To solve the dilemma, we require the cryptographic community to analyse
systems and find vulnerabilities. Without easy access to review code, we only find those who are incentivised
to maliciously attack the code. Removing source code does not stop such individuals and organisations, it
only makes it more difficult for the honest analyst. The fewer secrets a system has, the more secure it can be.

Bitcoin is not designed to deliver free software, it is designed to be an open protocol that any organisation
can build upon and create commercial applications on top of. Its design required the use of open-source
software. Bitcoin is anything but anti-capitalist. It works with law, and it doesn’t enable the anti-government,
anarchist view of a collapsed society.
Myths of Decentralisation…
| 06 Feb 2020 | Alternative Coins & Systems
By Craig Wright
There is a completely false narrative that you do not hold bitcoin and that they are an intangible
distributed across many machines around the Internet. It is utterly wrong. Individuals hold their own
bitcoin. Bitcoin is merely a digital token, and the digital token is never distributed on the blockchain
itself. The blockchain acts as a transaction record and log, recording the control and movement of the
tokens and allowing the nodes to verify and control the property rights associated with each of the
tokens under the rules of the system, which incorporates law.

Property and Bitcoin

Bitcoin is falsely called a distributed or decentralised cryptocurrency because of the ledger. Yet, it
presents a misleading understanding and description of Bitcoin. Bitcoin is a peer-to-peer token
exchange system that can be used as a form of digital cash. As with all token systems, a token can
represent any value and reference any agreed property or item.

Bitcoin is not distributed across a ledger. Bitcoin is held by the individual controlling it, who generally
would also but doesn’t need to be the owner. Your bitcoin is not held in the ledger. Your bitcoin is held in
your wallet or related application. The ownership of any set of tokens remains with an individual or
group (including a company), and is not distributed.

The ledger in Bitcoin is distributed. The ledger is a transaction log, detailing the movement of the
reported control of the tokens. An issue with digital property has been that it can be replicated and
distributed with little cost. Peer-to-peer copyright violations have been the result of digital files being
easily copied. Bitcoin facilitates the transfer of digital tokens over a peer network. It is not the sending to
the miners to distribute the tokens; it is the exchange between one peer and another. The ledger was
implemented in order to determine the correct version of the file or token. If additional transfers occur,
all of them are ignored as the ledger maintains a list of what was seen first.

Bitcoin is a set of individual and indivisible tokens. It does not consist of an account, and they cannot be
fractional tokens. Bitcoin is constructed in a manner that does not allow fractions of tokens to be
transmitted. People get confused because they see a mere right to transfer. The right to transfer is
attached to the ownership of the tokens. But, the ownership of the token is the same as any ownership
of a digital right. In some ways, the scenario is analogous to the recent case of Armstrong DLW Gmbh v
Winnington Networks Ltd [1], where the courts extended the notion of carbon trading units to be
property even though they’re not things in action [2]. Bitcoin is simpler in the sense that it can be taken
as a chose (thing) in action if you understand that it is a tokenised form of intangible digital property.
More importantly, the peer-to-peer exchange in Bitcoin represents the transfer or exchange.

Every single token in the Bitcoin system has been allocated (issued). It was done so in January 2009
upon the launch of the system. There are no more tokens as the system has been created with a
complete issue upon its launch. The tokens created on issue are allocated algorithmically to a set of
commercial nodes that act to validate and publish a ledger of the transactions according to a set of
defined rules. The rules are published, in part, in the white paper and in code comments associated with
the original code. Explanations were given in 2009 and 2010, expanding on the definition. The white
paper acts as the equivalent of the software’s EULA [3].

As I explained in the release documents associated with the code, Bitcoin does not use any encryption .
Encrypted files can be controlled using a key that may not be distributed. The loss of the key results in
an inability to access the file. The same is not true when it comes to digital signatures. Digital signature
algorithms do not stop access to files. All transactions in Bitcoin are conducted in clear text.

Peer-to-Peer
Unfortunately, the term peer-to-peer is something that many people do not understand. Peer-to-peer
networking has been a concept in computer science for decades. It involves the creation of layered
networks, and allows for the differentiation of nodes. In Bitcoin, there are multiple peer-to-peer
networks. The ledger acts as a peer network where highly connected commercial systems that are
designed to end in data centres compete to earn fees through the validation and transmission of
transactions. Such peers I defined in section 5 of the white paper. Such are systems that act
commercially, to make a profit validating and logging transactions.

Bitcoin is an electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s
completely decentralised with no server or central authority.

Users, on the other hand, were catered by having a limited system referred to as simplified payment
verification (SPV). Nodes therein communicate directly. The original client was set to use IP-to-IP
connectivity, to allow peers to communicate directly. Each peer exchanges information with another
peer whom they are negotiating an exchange with, at which point the communication path does not
need a widely distributed network. As I explained in my code, the peer-to-peer network defined in
section 5 of my white paper was created to prevent double-spending.

The exchange of tokens is simple. Many digital money systems have been created that allow for a simple
exchange of tokens, but all of them have required a single entity to ensure that double-spending cannot
occur. It creates a problem as the failure of the entity maintaining the system leads to a complete
collapse of the token system. Bitcoin used a distributed peer-to-peer system acting as a network giant
node to simulate the central trusted intermediary without losing out to the typical fragility of a single
entity. All companies eventually fail. History has demonstrated it. Bitcoin allows nodes to come and go in
a loosely structured mutualised association as it allows any member or node to fail without impacting
the system. The prime failure of all PKI-based systems lies in the fragility caused when a single entity is
compromised or enters bankruptcy. Bitcoin removes such fragility.

Bitcoin does not replace banking or banks. Bitcoin presents not a political statement, and the false
assertion that code is law has long been discredited [4].

The idea that blockchain-based systems such as Bitcoin or even Ethereum are decentralised and thus
outside of the scope of law is purely the manifestation of con artists and criminals. Bitcoin or any
derivative system do not decentralise ownership. The ownership is not defined through the ledger.
Property rights in Bitcoin exist because of law. The ledger is merely a time-ordering and logging system.
When I created Bitcoin, I took the system associated with the second reference of the white paper,
incorporating the systems that had led to it dating from 1991 on, and changed it to form an analogous
time-ordering system that was more resilient than the one that had been presented by Massias et al [5].
Blockchain defined in 1999 as the original time-chain system.

The image above stems from research dating back to 1991. The authors of the paper referenced in the
Bitcoin white paper created what everyone sees as the concept of the blockchain. The distinction is that
they did not believe it would be possible to form a distributed network of validation nodes.
Consequently, they fell back to a single trusted entity and sought to minimise risk by publishing a set of
rounds, or what we would call blocks now, on a daily basis in a newspaper. It was only the block header
that was required to be published. The chain of headers represents the overall structure within the
blockchain. The distinction in Bitcoin comes with a competitive system that is used to replace a single
PKI-based timestamp authority with a competitive group.

The competitive group is structured as a parallelised quorum. All information is maintained publicly and
auditable, allowing a defecting or attacking system to be detected quickly. Once detected, the honest
nodes can isolate the attacker and use computer crime legislation including the US federal CFAA laws to
ensure that the offending node is brought to justice. Even if an attacker gains temporary access to the
network, the attacker will not have any rights under law.

In the paper, users seek to timestamp documents. Users in the Bitcoin system seek to have transactions
notarised and logged. The Bitcoin nodes defined in section 5 of the white paper act as a distributed
notary service. In ordering transactions, we can reject any attempt to use the same information twice.
Here lies an important property as Bitcoin allows us to remove the notion of artificial scarcity that many
have argued is the reason for intellectual property law. Property rights are designed to enable
controlling access to scarce resources. Authors such as Harris [6] have gone as far as saying that
intellectual property rights are designed to create artificial scarcity in a manner that mirrors the rights
to intangible objects.

Property
The word ‘property’ reflects its semantically correct root by identifying the condition of a particular
resource as being ‘proper’ to a particular person [7].

Bitcoin is a system that allows intangible property to be assigned individually or to a particular person.
As with all property, the transfer of bitcoin may be invalid, and theft remains possible. As with tangible
property, bitcoin that has been stolen or otherwise illegally transferred is now taken out of the control of
the true owner.

Fox [7] described the manner in which a transaction and token within bitcoin differs from a pure
intangible. Even though represented digitally, the existence of a single valid token at any point in time
allows bitcoin to be treated as a tangible document which is capable of being possessed. As such:

The presumption of title from possession does, however, have some limited relevance when the chose in
action is a documentary intangible, such as a share warrant transferable by simple delivery, a bill of
exchange payable to bearer, or a bearer bond. If, for instance, P1, the original owner of a share warrant,
were to have the warrant stolen from him by P2, then P2’s possession of the warrant would confer on
him a relative title to the document as against any third party, P3, who tried to interfere with his
possession. As between P1 and P2, however, P1’s subsisting legal ownership would give him the stronger
title. P1’s ownership of the warrant document would continue until the person in possession negotiated
it to a bona fide purchaser without notice of the possessor’s defect in title. The basic distinction is
between actions where the claimant depends on possession of the tangible document and those where
he is suing on the intangible claim embodied in the document.

Bitcoin does not exist nebulously in a distributed global ledger. It exists as individual tokens. As such, the
tokens that form the basis of any transaction in Bitcoin are analogous to what Prof Goode has defined as
documentary intangibles [8].

If we define the system to default to assert that the first transaction that is recorded is the only one that
maintains property rights, we can create a digital token system that allows individuals to exchange
value, incorporating digital systems that are not encrypted and can be easily copied, and associate the
rights of ownership with a single copy. It is not the representation that is scarce within Bitcoin, but the
nature of adding a form of digital rivalry changes the form of intangible property that would normally be
non-rivalrous in nature to mirror the form of tangible property. In British Tobacco UK Ltd v Health
Secretary [9], it has been argued that:

One of the key features of intellectual property, unlike corporeal property, is that infringement of
intellectual property rights does not exhaust the property itself. If A takes possession of B’s land, or
borrows his car, B is deprived of the use of his land or his car, at least temporarily. But if A works B’s
invention, that does not prevent [B] from working it too, although it may affect the profitability of
exploiting it. Likewise if A marks his goods with a sign that is confusingly similar to B’s registered trade
mark, that will not prevent B from continuing to use his own registered mark. In addition, registered
trade marks, like other intellectual property rights but unlike land or chattels, do not exist in nature.
They are the products of legislative intervention.

Before Bitcoin, intellectual property was maintained in a manner where it was artificially scarce. The
creation of Bitcoin presented the means necessary for a technical solution to the artificial-scarcity
problem. Although the particular transactions may be copied, and even the token at a point in time is
subject to copying, the res or rights that provide and define ownership can now be separated such that
digital items can be treated as if they were tangible property.

References and Notes

[1] [2012] EWHC 10 (Ch); [2013] Ch 156.

[2] Ibid. at para 61.

[3] End-user license agreement.

[4] Tim Wu: When Code Isn’t Law . 89 Va. L. Rev. 679 (2003).
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/844 .

[5] Massias, H. Avila, X. S. Quisquater, J.-J.: Design of a Secure Timestamping Service with Minimal Trust
Requirements . In: 20th Symposium on Information Theory in the Benelux, May 1999.

[6] Harris, J.W.: Property and Justice . pp 12, 24 (1996).

[7] Gray, K. Gray, S. F.: THE IDEA OF PROPERTY IN LAND . In: Susan Bright and John K Dewar (eds), Land
Law: Themes and Perspectives, 15–51. Oxford University Press (1998).

[8] Fox, D.: Relativity of title at law and in equity. 65 C.L.G. 330, 362 (2006). Available at:
https://doi.org/10.1017/S0008197306007148 .

[9] McKendrick, E.: Goode on Commercial Law . paras 2.56–2.58. 5th Edition (2016).

[10] [2016] EWCA Civ 1182; [2017] 3 W.L.R. 225, [31].

Forking and Passing Off…
By Craig Wright | 13 Feb 2020 | Alternative Coins & Systems
If you consider what most cryptocurrency proponents [2] are trying to do, you will see an attempt to exclude
governments and rights and create a system that cannot be controlled outside the dictation of technocratic
developers. Many criminal groups want such a scenario. Unfortunately for them, Bitcoin was designed to
provide the opposite outcome.

“Forking” a software branch is allowed under the MIT License. Both Litecoin (LTC) and Ethereum (ETH)
present “forked” codebases, derived from Bitcoin. CoreCoin , BTC, differs in the sense that it both copied the
database [3] and sought to pass off the new system as the old or original.

To give an analogy, the Bitcoin software that was released as an implementation is an open-source software
under the MIT License. Linux and OpenOffice are each open-source products. If I was to write a novel using
Linux as the operating system and OpenOffice as the editing platform, the software remains open-source,
but the product of my work does not. In other words, I retain the copyright in the works I create using the
open-source software. Bitcoin is a distributed registry. Tokens are not distributed as they reside in individual
wallets, that are controlled by individuals around the world that use the Bitcoin system. The tokens are
distributed in a peer-to-peer manner, from individual to individual. The registry of the movement is a
separate peer-to-peer network, that acts within the hybrid system that is Bitcoin. The registry [4] presents
the distributed ledger. And the distributed ledger is a database.

As the sole creator of Bitcoin, I own full rights to the Bitcoin registry. People can fork my software and make
alternative versions. But, they have no rights to change the protocol using the underlying database. I was
explicit when I said so by putting forward reasons not to fork the database. Yet, both Bitcoin Core (Core) and
Bitcoin ABC (ABC), global partnerships under law, have sought to use my database without authority.
Rather than seeking licences, they have sought to attack my character and impugned me. This year, I am
taking charge and control of my system [5]. Those involved with the copied systems that are passing
themselves off as Bitcoin, namely BTC or CoreCoin and BCH or BCash , are hereby put on notice. Please
trust me when I say that I’m far nicer before the lawyers get involved.

As the creator of Bitcoin, I have what is known as database rights in the European Union and the UK. As a
part of distributed global partnerships, senior partners within Core or ABC reside within Europe and the UK,
presenting the opportunity to incorporate them in the matter without any jurisdictional challenges. They
come under British law [6].

We have started actions to ensure that our trust and related companies become British. That is, we seek to
move them into the British residence status. At present, they exist outside of European jurisdictions, across
several low-tax regions, including a country that I am a citizen of: Antigua. We have actively selected the UK,
knowing that we will be paying tax in the country I have decided to live in, and are in the process of
reporting assets we own in the structure to the British government. I have explained many times, Bitcoin is
not a system that allows you to avoid government [7]. If such is your goal, you should avoid any blockchain,
because blockchains are all traceable.

Database Rights
Bitcoin has been falsely taken to be a system that issues [8] new coins (bitcoin) approximately every 10
minutes, as a payment to nodes for the validation of transactions within the network [9]. Such a perspective
would see Bitcoin to come with an ongoing issuance, which is incorrect. The system within Bitcoin was
launched with the full issue of all tokens. At its creation, Bitcoin was formulated as a system with a set
number of individual tokens, defined as approximately 21 million bitcoin where each bitcoin is an arbitrary
verbal representation of 100 million individual and indivisible tokens.

Bitcoin is a distributed database [10] with database rights governed by the Copyright, Designs and Patents
Act 1988 (CDPA) and the Copyright and Rights in Databases Regulations 1997 (Databases Regulations 1997).
As such, the distributed database [11] exists as personal property. The distributed database defined by
Bitcoin may correspond to a “property right (“database right”) [that] subsists […] in a database if there has
been a substantial investment in obtaining, verifying or presenting the contents of the database [12]”.

Bitcoin has an issuer. In January 2009, as director of companies I created in multiple jurisdictions, I issued 21
million bitcoin, where each individual bitcoin is an indivisible set of 100 million tokens. To distribute the
tokens (and note the word distribute as it is on the original, unilateral contractual offer [13], presented to
nodes that act as agents to my network), I set up a contractual arrangement where nodes (which many
people call miners today) act within a set of common rules that I defined. If you don’t like the rules, you are
free to create a new cryptocurrency as such involved with Litecoin and Ethereum and others have done. If
you negotiate with me, arrangements can be made allowing the continuance of selected copies of my
network, with a set of restrictions. In other words, I am willing to license [14] the Bitcoin database. I will do so
on my terms. While the terms are rather generous right now, I would prefer others as I have been talked
into doing something far more generous than I would desire. I would prefer to take things through court,
because I will win as those who are currently challenging me do not know what is about to happen. It is
time you learn who created Bitcoin, and it is me.

As the creator of Bitcoin, I maintain the sui generis rights to any copy of the database created from Genesis
in January 2009. I shall not be relinquishing the ownership. I will be licensing it, and have already engaged
in a process so that the original Bitcoin protocol, that I created, known as Bitcoin SV today, will continue no
matter what happens to me.

The structure will follow the unilateral contract that I initially presented on the Bitcoin website I set up in
2008. As long as the rules of Bitcoin, the basic protocol does not change, I am bound under a unilateral
contract to the nodes, acting as agents within the system. When an illegal copy of the Bitcoin database has
not been validly licensed through my companies, the same rules no longer apply. The issue of outstanding
tokens may be a promissory condition between developers and others, but it is not something that binds
me. And I’m the only one who matters in the scenario. You see, you are trespassing on my property and
against property laws.

Databases Regulations 1997

The distributed ledger in Bitcoin is “a collection of independent works, data or other materials which are
arranged in a systematic or methodical way and are individually accessible by electronic or other means”
[15]. The database right protects the collated information itself. Under the same regulation, the initial owner
of the database right is the maker of the database [16]. Bitcoin and any blockchain-based system would be
covered for the publication period of at least 15 years. Retrospectively, Bitcoin itself, the database was
published formally in mid-January 2009.

The operators of Bitcoin nodes are engaged for a fee to provide a service, collating and ordering validated
transactions following the process defined in the Bitcoin white paper:

The steps to run the network are as follows:

1) New transactions are broadcast to all nodes.
2) Each node collects new transactions into a block.
3) Each node works on finding a difficult proof-of-work for its block.
4) When a node finds a proof-of-work, it broadcasts the block to all nodes.
5) Nodes accept the block only if all transactions in it are valid and not already spent.
6) Nodes express their acceptance of the block by working on creating the next block in the chain, using the
hash of the accepted block as the previous hash.

Node operators are commercial entities who can come and go at will, and provide a pure service. Node
operators are paid at a predetermined rate, based on a combination of a decreasing subsidy and the
collection of fees from users of the network. The subsidy is issued as payment, given from the initial
issuance of bitcoin. The initial issuance meant 21 million bitcoin, in the number of tokens defined. The
tokens are paid as consideration for the effort of validating transactions to the nodes.

The subsidy was predefined and algorithmically constructed upon the initial release of the system. The fee is
determined by the amount of use, coupled with the competitive commercial market, with users able to set
lower fees and nodes able to reject transactions that do not meet a minimum level of fees. Consequently,
nodes may be seen as agents of the Bitcoin network with no individual property rights. The maker of any
blockchain system is the person who takes the initiative of obtaining, verifying, and presenting the contents
of the database and assumes the risk of investing in the process. Bitcoin or any related blockchain structure
is a system of issued tokens that are distributed under a set of predefined rules, to node operators who act
as agents under the initial rules, set by the creator of the system. Such agents are remunerated on an ad-
hoc basis to provide a validated audit of all transactions of the network, checking for double spends , or, the
digital equivalent of cheque fraud.

Access to view the distributed database known as a blockchain is provided, through a published dataset, for
the purposes of checking and validating transactions. Systematic extraction, and reutilisation, of any section
of the blockchain in a copied or forked version of software would lead to a breach [17]. Such a breach would
occur in a scenario where a radically altered protocol was launched in what is called by the community a
hard or soft fork , that leads to a separation of protocols and competing systems on an exchange. In such a
scenario, the rules set by the creator of the system would determine what would be a breach. In the case of
Bitcoin, the rules of the system are set in stone [18]. Protocol alterations [19], such as the introduction of
Segregated Witness (SegWit) and the additions to operating codes (opcodes) in BTC and BCH, would hence
present clear breaches of the database rights associated with Bitcoin.

In the instance where a group has copied Bitcoin or a similar system, the owner can take action to prevent
the extraction or reutilisation of the database. Where a software fork is used not to attempt to pass it off as
the original, as would be the case with Bitcoin copies or forked or derivative systems like Ethereum and
Litecoin, no database rights are breached as a new database is formed utilising the forked software. Where
altered protocols such as of BTC involve copying the database from Bitcoin and releasing a system
competing to the original, database rights could be expressed and enforced by the creator of the original
protocol.

The scenario around Bitcoin differs from Ethereum’s in the sense that the creator of Ethereum forked the
system and had not intended for the fork of the Bitcoin system to have a set protocol. When Ethereum and
Ethereum Classic separated, Ethereum Classic continued to use a copy of the original Ethereum blockchain.
Here, the creator of the system changed the protocol. Consequently, the protocol rights resided with the
new version of Ethereum, leaving Ethereum Classic in breach of the database rights owned by the original
creator of Ethereum.

Bitcoin Core, on the other hand, is unrelated to the original creator of Bitcoin, and Bitcoin was designed to
have a stable protocol, one that did not change. Hence, the alterations of the Bitcoin protocol in 2017 within
BTC and in 2018 within BCH, as they formed copies of the protocol based on the original Bitcoin database,
presented breaches of the database rights of the creator of Bitcoin.

The structure of Bitcoin is designed such that the public database is available as such and lent out for the
purposes of teaching and research, covered under the Databases Regulations reg 12(2) and (3). The Bitcoin
blockchain is not given away under public access rights, but rather is provided on terms that will be
returned and distributed by the nodes under a set of predefined rules. The distribution and return of the
database is delivered for the purposes of validating and auditing the system, allowing the commercial
exchange of the tokens. The amount exchanged to nodes covers the mere cost of establishment, and
facilitates the commercial realisation of the database.

Licensing and End-User License Agreements

The Bitcoin software was released under the MIT License such that it provided for the rights to copy the
software but not the database. The licence included both standard use and a provision for nodes to be paid
as agents of the network:

To support the network by running a node, select:

Options->Generate Coins
and keep the program open or minimized. It runs at idle priority when no other programs are using the
CPU. Your computer will be solving a very difficult computational problem that is used to lock in blocks of
transactions. The time to generate a block varies each time, but may take days or months, depending on
the speed of your computer and the competition on the network. It’s not a computation that has to start
over from the beginning if you stop and restart it. A solution might be found at any given moment it’s
running . As a reward for supporting the network, you receive coins when you successfully generate a block .
[20]

The end-user license agreement associated with Bitcoin forms a contractual arrangement, that acts as the
agency, between the operator of the node, who acts as a paid contractual agent with the task to validate
and collect information forming a distributed database, and the issuer of the system. The operator of the
node is both a transaction agent and the transaction facilitator, that acts as a contractual agent for the
token issuer and initial distributer [21]. The complex task of maintaining the distributed database (the
blockchain ledger), transaction processing and propagation, and the distribution function becomes
streamlined when outsourced to a distributed set of agents that provide such services, self-audit, and
enforce the rules of the system.

The unilateral offer presented in the Bitcoin EULA [22] acts to provide an agreement comparable to the one
inferred by the justices in Carlill v Carbolic Smoke Ball Company [23]. The licence entails the payment of a
reward for supporting the network , where the contracting agent is provided consideration in the form of
coins , that are digital tokens exhibiting properties that are “definable, identifiable by third parties, capable
in its nature of assumption by third parties, and have some degree of permanence or stability” [24]. The
coins are issued when the agent, through the node, successfully generates a block. Where a company’s
website presents claims about a product, and the consumer (or node operator and agent) acts upon the
claims, the owners of the website are contractually bound to fulfil their promise.

The original Bitcoin website [25] was provided for and described a system where “Users hold the crypto keys
to their own money and transact directly with each other, with the help of the network to check for double-
spending”.

The Bitcoin white paper (Wright, 2008) is linked and referenced on the Bitcoin website, and defines the
steps required to operate as a node or agent of the network — once again:

The steps to run the network are as follows:

1) New transactions are broadcast to all nodes.
2) Each node collects new transactions into a block.
3) Each node works on finding a difficult proof-of-work for its block.
4) When a node finds a proof-of-work, it broadcasts the block to all nodes.
5) Nodes accept the block only if all transactions in it are valid and not already spent.
6) Nodes express their acceptance of the block by working on creating the next block in the chain, using the
hash of the accepted block as the previous hash.

The defined process provides users of the system with extended utility, where nodes maintain transactional
data allowing an individual who is not online to connect to the commercial nodes and exchange
transactions using a distributed middleman. Whereas such use of the network is not truly peer-to-peer, it
provides a “useful alternative if both users can’t be online at the same time or the recipient can’t receive
incoming connections” [26].

The Computer Misuse Act 1990 [27] in the UK incorporates the misuse of access to public databases. Such an
infringement was tested in Ryanair Ltd v PR Aviation BV (C-30/14) [28]. Ryanair litigated claiming an
infringement of database rights that are defined in the Database Directive (96/9/EC), alongside claims of a
breach of website terms and conditions. Articles 6, 8, and 15 of the Database Directive do not preclude the
introduction of digitally distributed contractual limitations on the use of a database. What follows is that the
author of a database may lay down contractual limitations on its use by third parties, even when it is not
protected by copyright or the sui generis right.

In the UK, a website operator may try to bring forward a claim of trespass to chattels, a common law tort. An
operator may also seek to rely on the Computer Misuse Act 1990, which prohibits unauthorised access to, or
modification of, computer material.

Peer-to-Peer
Bitcoin is commonly touted in the press to be a completely decentralised system with no point of
ownership. A commonly used quote is cherry-picked out of context to lead to a false view:

Bitcoin is an electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s
completely decentralized with no server or central authority. [29]

The original Bitcoin website [30] explained the system differently and in more detail:

Users hold the crypto keys to their own money and transact directly with each other, with the help of the
network to check for double-spending.

The same idea was further explained on other sites, such as the P2P Foundation website:

One of the fundamental building blocks for such a system is digital signatures. A digital coin contains the
public key of its owner. To transfer it, the owner signs the coin together with the public key of the next
owner. Anyone can check the signatures to verify the chain of ownership. It works well to secure ownership,
but leaves one big problem unsolved: double-spending. Any owner could try to re-spend an already spent
coin by signing it again to another owner. The usual solution is for a trusted company with a central
database to check for double-spending, but that just gets back to the trust model. In its central position, the
company can override the users, and the fees needed to support the company make micropayments
impractical.

Bitcoin’s solution is to use a peer-to-peer network to check for double-spending. In a nutshell, the network
works like a distributed timestamp server, stamping the first transaction to spend a coin. It takes advantage
of the nature of information being easy to spread but hard to stifle. For details on how it works, see the
design paper at http://www.bitcoin.org/bitcoin.pdf . [31]

In effect, Bitcoin is a combined hybrid system that uses multiple peer-to-peer networks that are
interconnected. Users can exchange transactions in a completely peer-based manner, with individuals
exchanging directly. At the same time, a separate peer network, based on commercial nodes acting as
agents for the network, enables the development of a distributed database based on a unilateral contract.

Summary of Issues
In cases such as prevalent with Ethereum, where the contractual agreement incorporates updates and
alterations that are conducted by the original creator and developer of the protocol, the altered protocol
presents the valid system and database, altered by the owner of the database.

Conversely, Bitcoin is created under a fixed contractual promise binding the system and limiting the
amount of change. It is required that transaction types created at the start of the system remain valid
throughout the life of the system, and the owner of the database is contractually bound to maintain the
same structure. Where another party copies and utilises the database in a manner of what is commonly
called a Bitcoin fork , for example, the version of the protocol that differs from the original is unauthorised
and in breach of the Databases Regulations 1997 [32] and the Computer Misuse Act 1990 [33].

Finally…
It takes time to implement legal redress. It has been a while since Bitcoin was copied and BTC first
attempted to pass off as the original system, in a breach of copyright associated with the database created
by agents funded under my unilateral contract from 2009 until the SegWit fork, and I apologise for the
tardiness, yet if people had not been criminally breaching certain Acts, it would all not be necessary now.
2020 is looking to be a fine year.

For some of us… Yet, not the anarchist community.

Notes
[1] One of the major issues stems from the false understanding of Bitcoin. People are applying the notions
associated with e-gold and DigiCash and treating Bitcoin as if it had the same ends and goals. Many in the
industry seek to purposely spread false information as they have other agendas.

If we are to do things correctly, we need to demonstrate what Bitcoin is truly about as you start to
understand the differences between Bitcoin and the copies. As with demonstrating the distinctions
between Bitcoin and the copied system, BTC, there are simple technical evaluations that can be done to
prove things.

[2] Bitcoin is not a community project. It allows corporate groups to earn money through mining (which
means running a node) or the provision of other services. Node operators act commercially, and should be
funding their own development on top of the protocol, which requires a stable protocol. At no point have I
abandoned Bitcoin, which itself is demonstrable through the history of companies whose teams had from
2009 onwards been solely working on the project.

[3] The distributed ledger is a database, but it does not stand under the MIT License.

[4] Such miners or nodes choose to selectively order transactions, under an arrangement defined in the
white paper and early code.

[5] Flogas Britain Ltd v Calor Gas Ltd [2013] EWHC 3060 (Ch) would seem to be relevant here.

[6] The Databases Regulations 1997, under section 18, provides for people who are habitually resident at the
time the material act occurs. Again, the first notable of such acts occurred in 2017, with BTC, and another in
2018, with BCH. I now reside, and have been resident for all material times since 2015, in the UK. The act also
notes that the material time, when spanning over an extended period, covers a substantial part of the
period. The legislation covers the initial creator, and allows entities that exist overseas to move into the
European Union. I have maintained companies in the UK for far longer. Ownership of rights was moved into
a company in the UK in 2012. It was done so as part of the trust structure that I had constructed. The same
entity was valid up until I moved to the UK myself. As the databases were created over an extended period,
in all forms, we follow a substantial period under section 18 part (4) of the Act.

[7] Database rights last 15 years, so here lies not so much an issue. In terms of the passing off, we currently
are 2 1/2 years in. In the UK, the Limitation Act 1980 gives us six years, so we are within time, but it is always
better not to wait until the last minute.

[8] Bitcoin was created in 2009 with all 21 million bitcoin issued. The system was constructed so that nodes
(aka miners — note that only miners are nodes) are paid to validate transactions. At no point do they own the
database. The scenario mirrors one of cloud servers that allow access to load records in a SQL database. The
miners have been paid in full for their efforts. They are not the owners of the network, nor are they the
creators of the database; they are independent entities who are paid to validate transactions and load them
into the database. Hence, they can come and go at will.

[9] Nodes and miners are thus subcontracting in accordance with the initially constructed set of rules that I
created . That is, they are following a set of rules and acting as my agents . If you look at section 15 of the
Databases Regulations 1997, the maker of the database is the first owner of the database right in it — not the
subsequent members. As such, miners do not have rights and are merely agents.

[10] People need to move away from the concept of “Bitcoin is decentralised” as a political goal. The registry
is distributed, but the property rights remain mine (through trusts and companies I created and the
structure I set up to enforce such rules). The code is law mentality is a lie (and was discredited by Prof Tim
Wu in 2001), and was never a part of Bitcoin. Although people seek to make it the primary reason for what
Bitcoin is all about, at no point has such been the case, nor can it be without radically altering the system as
they are trying to do.

[11] Section 16 of the Act provides that a person infringes in the right of the database if, without the consent
of the owner of the right, he extracts or re-utilises all or essential parts of the contents of the database. The
scenario occurred after 2017. Until then, although there were people amongst Bitcoin Core trying to change
Bitcoin, the system had still been related to the original chain. At the point of change in 2017, with a system
radically altered from Bitcoin as defined in the white paper, the act of infringing my rights had begun.

[12] See https://www.legislation.gov.uk/uksi/1997/3032/regulation/13/made . Retrieved on Feb 13, 2020.

[13] See https://web.archive.org/web/20090131115053/http://bitcoin.org/ . Retrieved on Feb 13, 2020.

Note: “Total circulation will be 21,000,000 coins. It’ll be distributed to network nodes when they make blocks,
with the amount cut in half every 4 years.”

[14] The issue is not whether someone copies, but whether they use it in a way that is not allowable. The
miners are paid to do a service. There is no ownership of the database by the miners. Some like to look at
the code is law mantra, not at how Bitcoin is actually created.

[15] See CDPA 1988 s.3A(1).

[16] See Databases Regulations 1997 reg. 14(1) a. (2).

Under the regulations here in the UK, the first owner of the database right is the maker of the database or
his or her employer. At the time, I was acting through my trust entities and companies and my rights vest in
myself. The database in Bitcoin is continuously published, and the protection lasts 15 years from the end of
the publication. BTC forked off a few years ago, and took the same database. A database is protected if there
has been a substantial investment in obtaining, verifying, and presenting the contents of the database,
which is what miners do. Nodes verify and present the database.

Under the Databases Regulations 1997, the protections offered to a database holder include the ability to
decide how it can be taken and used. The scope includes the extraction and reutilisation of any substantial
part of the database, where reutilisation, specifically, includes making the contents of the database
available to the public by any means (reg 12(1)).

The database is not covered under copyright or open-source provisions. The database for Bitcoin has not
been released under the MIT License, and is not covered by the copyright. The database associated with
Bitcoin is presumptively associated with myself and the rights vest in myself (reg 22), or rather my trust and
associated companies.

The database in Bitcoin has been released and published for a single purpose. The purpose is defined as the
validation of rights associated with individuals using the system. It is there to be publicly audited. There are
no rights to take the database and use it for other means, such as ones associated with BTC.

The database is allowed to be copied and even published under the Regulations.

[17] See Databases Regulations 1997 reg. 16(2).

Database rights provide 15 years worth of protection. Under the Databases Regulations 1997, the protection
starts from when the database was first compiled. The split occurred well within the given time frame. The
database right protects certain collections of data of independent works, or other materials that are
systematically arranged and individually accessible. The Bitcoin distributed ledger is derived in such a
manner. The database right differs from copyright in the sense that it protects the collected information,
rather than simply the form in which it is presented. No formality is required to attract the protection
through database rights other than the database itself as a qualifying database (reg 13(1)).

[18] Note, I also explained that forking the database was not something that was warranted, but few seemed
to listen.

[19] The argument that locking the protocol stops them from making changes is exactly the point. They can
make a new system, as people did with LTC. 1000s of other knockoffs present the same. The difference is,
the people behind them did not try to defraud investors. As the cracks appear, the BTC and BCH supporters
are starting to prove my point, too.

[20] See https://github.com/trottier/original-bitcoin/blob/master/readme.txt . Retrieved on Feb 13, 2020.

[21] Lim, 2002.

[22] End-user license agreement.

[23] Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256.

[24] Foskett v McKeown [2001] 1 A.C. 102, HL.

[25] See https://web.archive.org/web/20090303195936/http://bitcoin.org/ . Retrieved on Feb 13, 2020.

[26] See https://web.archive.org/web/20090303195936/http://bitcoin.org/ . Retrieved on Feb 13, 2020.

[27] See http://www.legislation.gov.uk/ukpga/1990/18/contents . Retrieved on Feb 13, 2020.

[28] EU:C:2015:10; [2015] 2 All E.R. (Comm) 455.

[29] See https://github.com/trottier/original-bitcoin/blob/master/readme.txt . Retrieved on Feb 13, 2020.

[30] See https://web.archive.org/web/20090131115053/http://bitcoin.org/ . Retrieved on Feb 13, 2020.

[31] See https://p2pfoundation.ning.com/forum/topics/bitcoin-open-source . Retrieved on Feb 13, 2020.

[32] The Copyright and Rights in Databases Regulations 1997, UK.

[33] The Computer Misuse Act 1990, in the UK, is sometimes simply referred to as the CMA 1990.

Background Reading
1. Bainbridge, D. (2000). Introduction to Computer Law. Longman/Pearson Education: Harlow.

2. Beatson, J. (2002). Anson’s Law of Contract. 28th edn, Oxford: Oxford University Press, UK.

3. Beale, H.G. Bishop, W.D. Furmston, M.P. (2001). Contract, Cases and Materials. 4th Edition, London:
Butterworths, UK.

4. Brown, I. Chandler, A. (2005). Chandler Blackstone’s Q&A Law of Contract. 5th edn, Oxford: Oxford
University Press, UK.

5. Brownsword, R. (2000). Contract Law: Themes for the Twenty-First Century. 1st edn, London: Butterworths,
UK.

6. Cavazos, E. A. Morin, G. (1994). When Acceptance Becomes Effective: The Mailbox Rule, The Mailbox Rule
Revisited, The E-mailbox Rule. In: Cyberspace and the Law, ch 3, MIT Press, USA.

7. Department of Communications, Republic of South Africa (1999). Discussion Paper on Electronic

Commerce Policy. Retrieved from http://www.polity.org.za/html/govdocs/discuss/ecomm.html?
rebookmark=1 on 14 Jul, 2006.

8. Dunn, G. (2001). On-Line Contract Formation — Contracting Issues for Businesses on the Net. Retrieved
from http://www.dunn.com/papers/paper_14.shtml on 15 Jul, 2006.

9. Durtschi, C. Hillison, W. Pacini, C. (2002). Web-Based Contracts: You Could Be Burned!. In: Journal of
Corporate Accounting & Finance, vol 13, issue 5, pp 11–18.

10. Fischer, S. Hurley, A. (1995). Trade and Commerce — International Trade. In: Halsbury’s Laws of Australia,
vol 27, title 420.

11. Furmston, M.P. (1946). Cheshire, Fifoot & Furmston’s Law of Contract. London: Butterworths, UK.
12. Gkoutzinis, A. (2003). Online Financial Services in the European Internal Market and the Implementation
of the E-Commerce Directive in the UK. Queen Mary, University of London, 18th BILETA Conference:
Controlling Information in the Online Environment.

13. Lim, Y. F. (2002). Cyberspace Law, Commentaries and Materials. Oxford University Press, UK.

14. McKendrick [1], E. (2005). Contract Law. 6th ed, Palgrave MacMillan Law Masters, UK.

15. McKendrick [2], E. (2005). Contract: Text and Materials. 2nd ed, Oxford: Oxford University Press, UK.

16. Neumann, P. G. (2005). Illustrative Risks to the Public in the Use of Computer Systems and Related
Technology. SRI International EL243, Menlo Park CA.

17. Poole, J. (2005). Casebook on Contract Law. 7th ed, Oxford: Oxford University Press, UK.

18. Rasch, M. (2006). E-mail privacy in the workplace. Security Focus. Retrieved from
http://www.securityfocus.com/comments/columns/412/33856/threaded#33856 on 2 Aug, 2006.

19. Reed, C. (2004). Internet Law Text and Materials. 2nd ed, Cambridge University Press, UK.

20. Schu, R. (1997). Consumer Protection and Private International Law in Internet Contracts. In: International
Journal of Law and Information Technology, 5 Int J L & IT 192.

21. Smith, J.C. (2000). Smith & Thomas: A Casebook on Contract. 11th ed, London: Sweet & Maxwell, UK.

22. Stone, R. (2005). The Modern Law of Contract. 6th ed, London: Cavendish.

23. Treitel, G.H. (2003). The Law of Contract. 11th ed, London: Sweet & Maxwell.

24. Vaughan, J. Sewards, T. Kelso, R. (1997). The Law of Internet Commercial Transactions. Centre for
International Research on Communication and Information Technologies, Australia.

Relevant Cases
1. Adams v. Lindsell , 1 Barnewall and Alderson 681, In the King’s Bench (1818).
2. Apple Corps Limited v Apple Computer, Inc . [2004] EWHC 768.
3. Brinkibon Ltd v Stahag Stahl (1983) 2 AC 34 (House of Lords, UK).
4. Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256.
5. Debenhams Retail Plc v Customs and Excise Commissioners [2004] EWHC 1540.
6. Daulia v Four Millbank Nominees Ltd [1978] 2 All E R 557.
7. Eliason v Henshaw , 17 US 225, 4 Wheat. 225 (1819).
8. Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 (Court of Appeal, United Kingdom).
9. Fisher v Bell [1961] 1 QB 394.
10. Household Fire Insurance Co v Grant [1879] 4 Ex D 216.
11. Hyde v Wrench (1840) 3 Beav 334.
12. Manchester Diocesan Council for Education v Commercial & General Investments [1970] 1 WLR 241.
13. MARK WILLIAMS and another(1) vs. AMERICA ONLINE , INC. 2001 WL 135825 (Mass. Super., February 8,
2001).
14. Partridge v Crittenden [1968] 2 All ER 421.
15. Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd. [1953] 2 QB 795.
16. Roscorla v Thomas (1842) 3 QB 234.
17. Thornton v Shoe Lane Parking [1971] 1 All ER 686.

Other Statues and Regulations

1. Directive 2000/31/EC on Electronic Commerce OJ 2000 L 178/1 and Council Directive 94/44/EC on
Certain Aspects of the Sale of Consumer Goods and Associated Guarantees OJ I 171 7.7.99.
2. Resolution adopted by the General Assembly [on the report of the Sixth Committee (A/51/628)]; 51/162
Model Law on Electronic Commerce adopted by the United Nations Commission on International
Trade Law.
3. Germany: case RGZ 144, 292.
4. Sale of Goods (United Nations Convention) Act 1994.
5. The Electronic Commerce Directive (00/31/EC) and the Electronic Commerce (EC Directive)
Regulations 2002 (SI 2002 №2013) [Includes The Electronic Commerce Directive (00/31/EC) and the
Electronic Commerce (EC Directive) Regulations 2002 (SI 2002 №2013); On 21 August, 2002, the
Electronic Commerce (EC Directive) Regulations 2002 (SI 2002 №2013) transposed into UK law the
majority of the provisions of the Electronic Commerce Directive (2000/31/EC)].
6. Uniform Electronic Transactions Act, 1999, USA.
7. UNCITRAL Model Law on Electronic Commerce with Guide to Enactment 1996; with additional article 5
bis as adopted in 1998 (United Nations Model Law on Electronic Commerce).
8. US: Restatement (Second) of Contracts, S 56, and the United States Framework for Global Electronic
Commerce (1997).
Cryptography and Bitcoin
By Craig Wright | 20 Feb 2020 | Alternative Coins & Systems
Cryptography can be used to limit access, and may be restrictive. When a file is encrypted, it can only be
accessed with the key. As such, it can act outside of state control and allow individuals to transmit illegal
information rather than merely protect privacy. The aims of the individual and what they’re doing using
cryptography dictate how the outcomes of any action involving encryption apply. In modern banking,
encryption is essential to ensure the security of systems and that they cannot be intercepted. Trusted third
parties are required to hold certain access to data that is being encrypted, to ensure that anti-money
laundering (AML) provisions are not being breached. Bitcoin differs insofar as it allows individuals to hold
and maintain identity data without having to encrypt transaction logs and exchanges.

Bitcoin is not encrypted. All transactions are conducted, exchanged, and validated in clear text. Although it
uses digital signature algorithms, no encryption is used at any point. A hash presents not a cryptographic
algorithm, it is a secure method of producing an index to a file, one that can be used to validate integrity.
File integrity allows individuals to ensure that nothing has been changed, in a manner analogous to a
checksum — but with far more security and accuracy.

The old versus the new privacy model.

Consequently, as Bitcoin presents clear text, there is nothing that can be used to stop alterations on the
blockchain. What people do not understand about an immutable ledger is that you can make changes by
adding new records. Doing so does not remove the old records. It only adds additional records. The same
form of accounting is legally mandated across all public companies in the US.

The traditional banking model required that all transactions would be exchanged with counterparties and
trusted third parties. Any breach of the firewall isolating the trusted third party and the public led to a
catastrophic breach of security. Bitcoin differs as transactions are maintained openly. Identity systems can
be constructed within Bitcoin, by, for example, using either traditional PKI-based systems that are linked to
the blockchain itself or more advanced key-distribution methodologies, ones we have been working on and
patenting. But at no point did Bitcoin alleviate the need for identity management.

There is a belief that Bitcoin does not require identities or the recording of customer details under customer
due diligence rules, which is false. Any time you transmit funds in excess of USD10,000 [1], you fall under
requirements of US law. Any time you set up business relationships involving transactions worth more than
EUR15,000 [2], there are requirements to ensure that customer due diligence has been conducted. Some
people think that Bitcoin would be immune to such regulations. They are, sadly, deluded. When I created
Bitcoin, I sought to produce a platform that would act within law and simplify many of the processes
associated with the need to transmit information to payment intermediaries who would be required to hold
large databases that could be easily compromised. Bitcoin distributes such information so that it can be
maintained by individuals both on- and off-chain, creating a far more secure system as the cost of attacking
increases with information being distributed to the edges of the graph.

The issue I saw with the traditional banking model or ones involving trusted third parties stems from the
security problems associated with organisations such as Target, that allowed millions of individual records
to be leaked. In the white paper, a solution is described where access to information can be limited to solely
the individuals engaging in an exchange.

The use of the word anonymous in the white paper reflects the definition of it presented in Black’s Law
Dictionary :

ANONYMOUS

Nameless; wanting a name or names. A publication, withholding the name of the author, is said to be
anonymous. Cases are sometimes reported anonymously, t. e., without giving the names of the parties.
Abbreviated to “Anon.”

The Black’s Law definition of anonymous implies not that under its realm, identity does not exist. Rather,
using hierarchical methodologies [3], it is possible to leverage the homomorphic properties of ECDSA. A
jointly calculable value can be safely added to each key, allowing a registered identity key to remain outside
of the public exchange yet be provably linked to the identity of the individual engaging in commerce across
Bitcoin.

Under Bitcoin’s new privacy model, the individual parties hold the identities of each other, and are, in other
words, able to fully determine who they are dealing with. The public, on the other hand, may see that
exchanges of information are being recorded on the blockchain, yet does not have the bits required to link
information and transactions to the individual parties. Derivative implementations of Bitcoin such as in the
form of systems like BTC, under Bitcoin Core, have completely broken the privacy model of Bitcoin, in an
attempt to create an anonymous system that will facilitate crime using dark web servers. Yet, the built-in
traceability associated with Bitcoin precludes such a scenario.

As was noted in my white paper for Bitcoin, “As an additional firewall, a new key pair should be used for
each transaction to keep them from being linked to a common owner”. Doing so does not preclude the use
of identity-mapped keys. ECDSA was selected because of its additive properties. It allows individuals to keep
a base identity key and continue to transact with one another in a way where they can maintain complete
privacy from the public, yet all of the requirements of a trusted third party and identity management are
being fulfilled. In such a system, businesses and individuals can conduct customer due diligence and
maintain all of the records securely, without them ever being leaked to the public. Here, identity
information can be maintained by the owner, the individual transacting.

As a system that is not encrypted, Bitcoin precludes nodes or exchanges from interfering with actions from
courts and government — at no point was Bitcoin ever intended for such purposes. To be free, it is essential
that individuals transacting in an open market are protected from criminals and associated deeds.

Because Bitcoin is not encrypted and all transactions are publicly broadcast, every transaction on Bitcoin
can be followed. If law enforcement were to obtain a freezing order, it could be applied to both an individual
key and any transaction that branches from the key. New means of tracing and following provide a level of
granularity that, while maintaining the privacy of honest individuals, has not been available to law
enforcement in the past. Without the use of encryption on-chain, Bitcoin precludes any interference with
such a process. If a court order was granted against an individual key, normal tracing operations and the
proceeds of crime legislation could be enforced. The requirements to maintain complete identity records
around individuals transacting in coins (bitcoin) beyond certain amounts, corresponding to the above,
ensure that individuals who do not maintain adequate documentation do not, as such, have the right to
claim the tokens or bitcoin they hold as their own.

When bitcoin has not been used as money, and when it has been sourced without conducting adequate
due diligence, as was the case in Armstrong DLW GMBH v Winnington Networks Ltd ( Armstrong ) [4],
merely owning keys, while having bitcoin registered on the distributed registry that is the blockchain, is
insufficient to prove ownership of coins. The Armstrong case was one of inadequate due diligence. It
involved carbon credits or EU Allowances (EUAs), which are registered as digital tokens on a distributed
registry or ledger. The registry used to distribute carbon credits is one that facilitates the trade of tokens “as
commodities”, where “carbon credits are ultimately entirely “virtual”, making them vulnerable to the
possibility of double counting and other forms of forgery”.

In part, I modelled the system that would come with Bitcoin upon the idea of EU Allowances. One reason for
doing so was that I had planted a large forestry program, and from 2005 sought to register carbon credits
and trade them, based on the timber I had been planting. The system was inefficient but based on a
distributed network of registries, with each individual European member state holding its own registry, that
needed to be updated across all other member states. In effect, each member state may be seen as being
analogous to a Bitcoin node.

Following the problems with the system, and subsequent problems in being able to register and
authenticate transactions, I decided to build my own system, a system that would enable the complete
tracing of a virtual token without “double counting”, or, as it is called in the Bitcoin white paper, “double
spending”. In the fullness of time, in its complete implementation, Bitcoin is a system that significantly
limits insider trading, tax evasion, money laundering, and cybercrime.

Today, a single registry, the EU ETS Union Registry for the EUAs, is provided by the European Commission
under Regulation No 389/2013. It was the response to several successful hacking attacks, in 2010 and 2011, on
various national registries that had documented emissions. The attacks had led to the temporary
suspension of the registries maintained in each member state, pending the implementation of minimum
security requirements. The Regulation sets out various technical security requirements, bringing the
Registry in line with the security standards used in the financial sector. Using Bitcoin, registries could be
secured in a manner that would not allow them to be attacked as they were between 2010 and 2011.

The Armstrong case was held for the claimant and against Winnington Networks Ltd’s defence of a bona
fide purchase without notice. The defence was defeated through the knowledge that Winnington Networks
Ltd had not engaged in complete and adequate due diligence or maintained customer records, which
meant they had not acted in good faith. As with Bitcoin, the registry does not present proof of ownership. It
is a record of possession. For ownership to be perfected, the exchange of tokens using Bitcoin needs to
involve the sale to a bona fide purchaser, without notice of who has followed the chain of ownership, that is
recorded on the ledger and can be verified using identity and customer due diligence methodologies. For
small transactions, the scenario is not onerous at all. Any time large transactions are carried out, it is
necessary to ensure all requirements around due diligence are followed.

It should be clear that owning keys does not equate to owning bitcoin. Keys in Bitcoin present a means of
controlling access and updating the ledger, yet not ownership of the tokens themselves. Ownership of the
tokens follows standard property rights, and if you don’t do your due diligence, it doesn’t matter that you
have your keys; you may not own your bitcoin.

Notes
[1] See https://www.ecfr.gov/cgi-bin/text-idx?
SID=f7495bb4cb9f4181f1505d475bb7fb22&mc=true&node=se31.3.1010_1100&rgn=div8 (retrieved on Feb 20,
2020).

[2] See https://www.lawsociety.org.uk/support-services/advice/articles/customer-due-diligence/ (retrieved on

Feb 20, 2020):

Under regulation 27 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the
Payer) Regulations 2017 (MLR 2017) you must carry out CDD measures when:

establishing a business relationship

carrying out an occasional transaction that amounts to 15,000€ or more
you suspect money laundering or terrorist financing
you doubt the accuracy or adequacy of documents or information previously obtained for CDD

If you’re required to carry out CDD measures, you must:

 verify your client’s identity based on a reliable independent source (such as a passport)
identify where there’s a beneficial owner who is not the client and take reasonable measures to verify
their identity and to understand the ownership and control structure of a legal person, trust, company,
foundation or similar legal arrangement
assess, and where appropriate obtain information on, the purpose and intended nature of the business
relationship or transaction

[3] See https://patentimages.storage.googleapis.com/e9/d4/1a/644d344019a178/EP3268914B1.pdf (retrieved

on Feb 20, 2020).

[4] Armstrong DLW GmbH v Winnington Networks Ltd [2012] EWHC 10 (Ch). Jan 11, 2012.
On Decentralisation
By Craig Wright | 21 Feb 2020 | Alternative Coins & Systems
In a recent statement by SEC Commissioner Peirce, it was explained:

A second area of concern is the lack of a bright-line test for whether a token is a security at the end of three
years. To avoid the securities classification at the end of the safe harbor period, the network would have to
be decentralized , which means it is not controlled and is not reasonably likely to be controlled, or
unilaterally changed, by any single person, group of persons, or entities under common control .
Alternatively, the network could be functional, which means holders can use the tokens in a manner
consistent with the utility of the network.

You should note that the only decentralised system that fulfils the described condition is Bitcoin, as defined
by BSV. The definition, “not controlled or not able to be controlled or unilaterally changed by any group of
persons”, in effect means that the protocol is set in stone and stable. Too many developers seem to be
obsessed with technical change. Bitcoin is not merely a technical system, but one that acts both in
economically powerful ways and within the law. When I made it clear that Bitcoin’s core design was set in
stone for the rest of its lifetime [1], it wasn’t because of technical issues. Every group behind every single
competing system, including CoreCoin (BTC), has ignored this simple fact, and demonstrated that their
developers are capable of altering the system they are trying to create. Whether we are talking about
changes by “Bitcoin” Core designed to increase anonymity and encourage illicit transactions (creating a
system radically distinct from Bitcoin) or the changes continuously being conducted by the Ethereum
group, we see alterations in their systems by small groups of developers.

Ethereum developers have unilaterally changed the core protocol their system deploys, and is continuing to
do so. “Bitcoin” Core has radically changed the protocol, and is engaged in moving their system towards
supporting the Lightning Network, as a means to increase its value in illicit trade where records can be
destroyed. “Bitcoin” ABC are continuously engaged in the process of modifying the core protocol. The
definition provided by SEC Commissioner Peirce is purely established upon the condition and nature of a
stable protocol. Every single system currently in existence other than Bitcoin (BSV) is, by the same
definition, not decentralised .

In a very simple manner, we can see that the nature of being decentralised, as defined by regulators
including SEC Commissioner Peirce, implies that my original surmised position was correct. To be at all
decentralised, the protocol requires stability. To function within regulation, the protocol must be stable and
set in stone .

Disingenuous developers who attempt to fraudulently mislead government regulators into believing that
Bitcoin or any derivative blockchain system is decentralised while acting to change the basic protocol of the
system are in reality anything but decentralised. “Bitcoin” Core says that they are a decentralised developer
group. They earn income; donations form income as developer groups are not charities. In the case of Core,
and any related or analogous group, they offer a support website, hold meetings, and allow access to source
code and other aspects of development efforts through a hierarchical partnership structure. What few such
groups seem to understand is that the failure to make a direct profit from the association does not preclude
the existence of a partnership.

A common law partnership is a form of association where all members or partners are equally liable for the
consequences and actions stemming from other partners. Some partners may have special or privileged
positions. If we look at the BTC Core website, we see many such instances, including ones of specially
named individuals. The partnership differs radically from a corporation. Corporations provide shareholders
and members with limited liability. Partnerships can be constructed as limited liability partnerships, which
differ from common law partnerships, where all members are jointly and equally liable for the actions of
other partners.

Under such conditions and provisions, with the ability to change and alter the protocol at will, in other
words, the ability to radically change the original base protocol, as it has been done by Core, the token
implementation presents a security. Many think that the lack of a dividend would preclude something from
being classified as a security. But, as a counterexample, nearly 50% of Fortune 500 companies in the USA do
not give out dividends, and even Facebook does not provide dividends to its shareholders.

Where a developer group or cartel that is managed between developers and selected nodes is capable of
changing the core design of a blockchain-based system, it cannot be considered, in any way or form, as one
that is decentralised. Changing the protocol limits the ability for other individuals to build on top of the
protocol. The protocol developers, and giving them inside information, may act to stifle innovation from
other parties. Through changing the protocol, such individuals may exhibit control over the entire system as
software-development times for commercial applications are not instantaneous. In changing the core
protocol design, developers of the system are able to withhold information about the proposed changes
and implement alterations that result in the selective lockout of competing groups.

Such changes would allow core development teams to ensure that they always favour aligned interests,
through the insider exchange of information concerning the changes of the protocol and carried
alterations. In doing so, core development teams can ensure that some changes are always implemented
that will break or disable the functionality of competitive products that they seek to disincentivise. But with
a stable core protocol and design, the original creator of the system must compete equally with all new
entries. For as long as the protocol is stable, I do not gain a competitive advantage and other protocol
developers do not gain a competitive advantage over new entrants. Where new entrants form part of the
market and present competitive offerings, they can compete fairly. Conversely, when development groups
are able to alter the protocol, they can do so in a manner that increases the costs to competitive groups and,
through economic disincentivisation, locks them out of the system.

The developers can alter the system with advanced knowledge. Competitors would need to rush to have
functional products, or may even find their systems incompatible following the change.

When I created Bitcoin, I implemented a robust scripting system that would allow for the creation of an
unbounded range of templates — not merely the two I initially released.

The creation of a decentralised protocol exists not merely in the creation of a set of decentralised or
distributed nodes. The primary aspect of the protocol and Bitcoin being decentralised lies in the inability for
people involved in the system to change the protocol. Bitcoin has been constructed in a manner that
precludes the core protocol from being changed. Where changes do occur, you will find that they involve
separate systems, with separate developer groups seeking control and attempting to capture network
share by passing off their systems as the original through unlicensed copies of the database, fooling the
unwary. The reason I am not the central trusted authority in Bitcoin is that the system was and is set in
stone . Where developers can change the protocol, the same developers are a trusted party. Once you allow
development groups free reign to change protocol settings, once the core protocol is not set in stone, it
cannot be considered decentralised in any manner.

Ironically for everyone else out there, it is shown that Bitcoin (BSV) is the only decentralised network in
existence.

[1] See https://bitcointalk.org/index.php?topic=195.msg1611#msg1611 (accessed on Feb 21, 2020).

Binance: The Untrusted Intermediary
By Craig Wright | 02 Mar 2020 | Alternative Coins & Systems
Today, as I have done in the past, I set up a number of accounts with Binance based only on the verification of
email addresses. As was the case with Liberty Reserve, which would then, in 2013, be shut down in accordance
with anti-money laundering (AML) regulations, Binance requires a name, a date of birth, and an email
address. None of it is verified at all. Binance provides you with a 24-hour withdrawal period giving you an
allowance of up to 2 BTC in the time frame. I was previously able to, in one day, set up over 100 such accounts,
none of which involved real names or addresses. Had I had more time, I could have set up more.

Doing so allowed me to take up to USD20,000 a day out of Binance, after washing it through various
cryptocurrencies. With 100 accounts, it is possible to wash USD2 million a day through Binance without being
noticed. For such services of money laundering, Binance will take a small commission.

Liberty Reserve founder Arthur Budovsky ran a digital currency empire built expressly to facilitate money
laundering on a massive scale for criminals around the globe.

— Manhattan U.S. Attorney Preet Bharara on Liberty Reserve in 2014.

In deceiving and fraudulently promoting his money laundering service, the operator of the criminal shadow
banking facility, Changpeng Zhao (CZ), promotes the idea of a non-existent concept; he tells the foolish
people investing in his platform, and those seeking to benefit from wash trades with criminals as they avoid
tax, that they are on a “decentralized exchange” or “DEX”.

The future look for Binance.com.

The reality is, a DEX is no different than the distributed laundering operation created by Liberty Reserve. CZ
attempts to obfuscate the true nature of his system by calling it a distributed exchange. What they are really
doing is running multiple servers in a manner that is designed to bypass regulatory controls. They have learnt
from many of the mistakes of Liberty Reserve, but like all foolish criminals, CZ is greedy and wants more. As
with all of such budding crime lords, so comes his downfall.

The Binance name has evolved to be more than just a company or just one centralized exchange. There are a
number of regulated fiat-crypto exchanges using the Binance brand and technology, including Binance
Singapore, Binance.US, Binance Jersey, etc. All of these are independently operated and fully compliant with
their local regulations. There is, of course, the Binance.com global centralized exchange. And there is also a
Binance DEX running on top of Binance Chain that’s maintained by a group of community developers.

At Binance, we strive to provide you with different choices and different levels of privacy. We don’t live in a
perfect world. There are different compromises with each of the choices. It is important to understand the
choices in front of us and the world we live in. I hope this article helps with that understanding.
We believe privacy is a fundamental right and are supportive of privacy driven initiatives.

As always, if you have any questions about Binance, feel free to tweet at me, and I will do my best to answer
you. We strive to maintain open communication with our community.

Binance and CZ argue that they are seeking privacy. The reality is, they are seeking anonymity and the
facilitation of crime. They want people who are not criminals, too, for without the innocent dupe, there would
be no way to wash and launder money clean. In effect, Binance has become a giant commercial mixer. It
takes a combination of clean money from foolish gamblers and those seeking to avoid tax and mix it with
hardcore criminal funds. It is thus that CZ is attempting to create a digital currency empire, built with the
express goal of facilitating crime. He seeks to enable money laundering on such massive scale that criminals
around the world can operate with impunity.

For the same end, he lives out of a suitcase and changes his location every week. Such efforts to evade
prosecution have meant taking his operations offshore and moving from country to country as he flees the
encroaching regulation and runs away from it like a scurrying rat. He flees the inevitable, and for his brazen
violations of global criminal regulations, he will eventually pay the piper. The problem is that many fools will
have been caught in his web. When his criminal enterprise, an enterprise that is blazingly flaunting its efforts
to facilitate crime, is finally closed, many innocent and foolish parties will be hurt.

The majority of money made through Binance comes from the proceeds of credit card theft, identity fraud,
laundering money associated with extortion, and Ponzi investment schemes. Without Binance, many online
cyberthieves, such as CryptoLocker coders, would not be able to sell their ill-gotten gains.

The primary reason that Binance exists lies in enabling account holders to convert their cash into digital
currencies, wash it, and extract it without leaving a trace or trail. It would be simple to move from 100
manually activated accounts into an automated system where thousands of accounts could process not
millions but tens of millions of US dollars daily.

Many of Binance’s clients are honest, which is what cyber criminals need. If it wasn’t for the fools seeking to
get rich instantly with promises of Lamborghinis and unearned wealth, then there would not be enough
volume to hide criminal funds. The volume of Binance’s malfeasance is underestimated. It was estimated that
around USD1 billion had been washed through Binance last year. In reality, Binance alone accounts for
money laundering in the order of USD2.1 billion or more annually. It is facilitated with a combination of over-
the-counter trades, off-platform swaps, and illegal over-the-counter cryptocurrency brokers that are tied to
terrorism and arms dealings.

Bitcoin Is Property
All cryptocurrencies are property, and are subject to law as property.

When you purchase coins (bitcoin) from Binance, and it is mixed with the criminal funds that have flowed
through the same digital laundry, you are not buying bitcoin that you can own and call your own. There is a
principle in law called the nemo dat rule, or, nemo dat quod non habet . It is the basic principle that a person
who does not hold good title cannot confer it to another. Bitcoin is a divisible token and not an account. There
are rules for mixing, which will apply to an extent, but when laundered through a criminal facility such as
Binance, the ownership of the tokens can still be tracked and allocated to the original holders of the property
rights.

So, when you buy from a criminal enterprise that is driven from one country to another time and time again
as it flees the inevitable end, remember: you may not even own what you have purchased. The proceeds of
crime are not something that you may hold good title to.

AML — Know Your Customer

Binance loves to say how it complies with know your customer (KYC) regulations, which is an absolute lie.

Binance is far less distributed than Liberty Reserve, and is, instead, controlled by a single mind. As much as
they want to tell people that they have a blockchain and they are decentralised, multiple entities that are run
by the same controlling mind are by definition centralised. Bitcoin was designed with a fixed and set protocol.
If the protocol can be changed by individuals or developer groups (aka common law partnerships), then it is
not in any way decentralised. Binance is not a decentralised exchange. It is a group of entities that form a
collective criminal cartel. It is a criminal cartel run by one want-to-be mastermind, CZ. A man who skips
jurisdictions faster than some people change their socks, fleeing the inevitable.

Like it or not, Bitcoin acts within law. No system of rules in society acts outside of law. Welcome to Bitcoin; it is
not a system that allows for dark web markets and crime, but rather one that economically disincentivises
them, by increasing the cost and adding a permanent record, allowing every malfeasor to be tracked.
Ledgers and Design
By Craig Wright | 18 Mar 2020 | Alternative Coins & Systems
Bookkeeping and accounting journals used within double-entry bookkeeping require write once read
many (WORM) tables. Any accounting is posted entry is required to be write-only, with the database being
set to ensure the read-only nature of posted entries. Accountants have used such a ledger format and
posted journal entries using the same method for over 800 years now. Traditionally, accounting records
would be maintained using a double-entry ledger written on paper. With a paper record, any alterations
would require the creation of a completely new ledger with the new entry and all of the updated values,
which was difficult to do in many cases, or an easily detected scenario where someone had intentionally
changed values in the ledger, which would then require extensive changes throughout all of the journals.

Some things changed with the advent of computerised ledger systems. Accounting databases became
easy to copy and easy to alter. Although high-end specialist accounting systems, including Oracle-based
solutions, allow organisations to ensure that such scenarios are not possible, many fraudulent organisations
have found simple ways of bypassing controls using technology. Bitcoin can solve all of the prevalent issues.

In a general-ledger system based on paper journals, a controller maintained access to a general ledger that
summarised all of the specialised journals held by different clicks within an organisation. Where errors
occurred, companies would need to rectify the errors and ensure that the accounting records were correct.
As with Bitcoin, a paper-based journal was not updated by removing or reversing an entry, but by creating a
new entry in the registry or journal, correcting the error that had occurred in the system. Such a change
would be visible, and the errors would be available for auditors to review.

Journals present a chronological record of all transactions. The Bitcoin blockchain may be grouped
following an initial transaction or unspent transaction output (UTXO), allowing each transaction to run in
parallel and form some journal specific to a transaction type or source. The same method allows for the
creation of sub ledgers by account and the creation of a private yet secure accounting platform, built on top
of Bitcoin.

Bitcoin nodes (aka miners) maintain the ledger for a fee. They act as agents for the network, and follow and
enforce a set of rules. Some people like to say that Bitcoin miners cannot alter the database. Whilst Bitcoin
nodes do not delete entries, it is possible to append records and for honest miners to reassign records and
registry entries. Note, Bitcoin is not encrypted but presents clear text, which means that alterations to the
database structure are possible. An attacker who cannot make such a change would be rejected by SPV
nodes on the network and present good evidence demonstrating the attack. Nodes are subject to legal
actions, as are any exchanges where coins are sold. The myth that third parties cannot seize or freeze coins
is not one that finds any ground in reality.

A false narrative that no third-party seizure was possible in Bitcoin developed following Silk Road. A widely
distributed source of the fallacy stems from a poorly researched Stanford undergraduate project [1]:

No Third-Party Seizure

Since there are multiple redundant copies of the transactions database, no one can seize bitcoins. The most
someone can do is force the user, by other means, to send the the bitcoins to someone else. This means that
governments can’t freeze someone’s wealth, and thus users of Bitcoins will have complete freedom to do
anything they want with their money.

Bitcoin does not stop your money from being seized. Bitcoin prevents dishonest third parties from cheating.
Governments can easily place freezing orders against coins (bitcoin). Under proceeds of crime legislation,
everything that a coin is mixed with will be tainted. In effect, if you put your money in a mixer, then it will be
tainted money. Unless you return the tainted tokens that you have received, you will find that they can be
taken from you. Bitcoin works using isolated UTXOs. As a result, somebody cannot send you tokens that are
mixed with your own without your knowledge. When receiving bitcoin for payment, you can record the sale
and the identity information of the person you have received the coins from. You can demonstrate that the
sale and transfer of the bitcoin was done in good faith ( bona fide ) and without knowledge (of a recent illicit
activity).

When I implemented the alert key into Bitcoin, I created a mechanism that allowed people to simply report
stolen bitcoin, and other proceeds of crime. It greatly enhanced the ability of Bitcoin to act within a legal
framework and protect the users of the system. Right now, the removal of the mechanism of the alert key
has increased the difficulty and amount of research required by individuals to find tainted bitcoin. Having
said so, all the sources of tainted bitcoin that you should be aware of are available online, in different
locations. The cost without the alert key is just far greater.

The Alert Key

Removing the alert key does not remove the legal requirement to validate the source of funds. Customer
due diligence (CDD), know your customer (KYC), and anti-money laundering (AML) laws apply even in the
absence of a simplified system that would allow for the reporting of proceeds of crime and stolen coins.

The Bitcoin alert key was not added merely because of the vulnerability that had been announced a week
earlier. I had been working on the alert key since July 2010. The patch to the vulnerability was announced on
15th August, 2010, and indeed, the alert system would be good for the notification of vulnerabilities. But here
lies not the reason that Bitcoin had an alert system. The patch was created rather expeditiously, in response
to the overflow bug and as a temporary disabling of certain prescription operators. My implementation of
script had a lot of vulnerabilities at the time.

I avoided talking about such things because the inevitable tinfoil-hat brigade started talking about
government shutting down Bitcoin. Government could always shut down Bitcoin. It still can. The US
government can simply mandate banking restrictions in the same manner that they did on Black Friday
across the gambling industry. Bitcoin could be isolated very quickly. By example, there are no exchanges
operating as legal entities in China any more. All of them operate in jurisdictions that are controlled by the
US. The US government would seize and control any Chinese, European, or American exchange as quickly
as it desires. Even if Chinese miners decided to boycott an order requiring them to freeze funds, they would
not be able to.

Any associated funds flowing to any exchange at any point following a freezing order will effectively be
burnt. They may sell for fractions of a penny in the dollar, but even so, it is unlikely. The consequence is that
Chinese miners or any others that sought to avoid a court order would find themselves earning around
1/1000 of the revenue of the miners that are following the court order. Very quickly, honest compliant miners
would win. The cost would not decrease for the dishonest minor who seeks to breach the rules.

The alert key would protect users. In quickly being alerted and notified of assets that are frozen, individuals
would not receive stolen funds or be deceived into believing that such had value.

“Send to address” would block an innocent user without notice from accidentally sending to a Bitcoin
address that is covered by a freezing order. The system would allow individuals to engage in commerce and
trade from different unblocked addresses, without violating court orders.

By August 2010, I was already rather disillusioned with many of the people involved with the Bitcoin project I
had started. I had also become more sarcastic at the time. I had planned to implement further changes. And
if it wasn’t for all the craziness and people seeking to create dark web websites that would use Bitcoin, I
would have at the time. The thing is, it is still incredibly easy to mandate and do. My full version of a
regulated Bitcoin system would have been far easier than what’s coming now. If it wasn’t for all the fools out
there thinking that government is going to invade them and steal their bitcoin, things could have worked
without anywhere near as much friction as shall be coming.

One thing I learned the hard way is that everything that should be simple becomes incredibly difficult with
the “BTC community”. Many people have lived in the tinfoil-hat version of the world:

No Taxes
There is no way for a third party to intercept transactions of Bitcoins, and therefore there is no viable way to
implement a Bitcoin taxation system. The only way to pay a tax would be, if someone voluntarily sends a
percentage of the amount being sent as tax. [1]

The student who created the report failed to analyse or understand Bitcoin to any extent. Rather, without
seeking to understand the basis of accounting systems or how double-entry bookkeeping works, they
falsely reported that Bitcoin was a system that gave users complete freedom to effectively do anything they
wanted with their money, even if it was illegal. They went on to say that there was no way to intercept
Bitcoin transactions and that there would thus be no way to implement a taxation system on Bitcoin. Right
now, there are many forms of cash-based transactions that are not intercepted by government, and yet
government manages to tax both businesses and individuals. In other words, even if bitcoin could not be
seized or intercepted, the scenario does not preclude taxation. It is unfortunately such naïveté that has
formed the basis of misconceptions around what Bitcoin is and how individuals act.

Taxes has existed on gold, and tax has existed in the cash economy. You do not get to opt out of the taxation
system because you use Bitcoin. Nobody will ever own all their assets because of Bitcoin and a blockchain,
and even if they did, it would be irrelevant. If you don’t pay your taxes, you go to prison, whether you use
Bitcoin or not. If you fail to pay your tax, assets can be sequestered and taken from you. There is no system
that changes the scenario; neither Bitcoin nor anything on a blockchain will ever alter the rules. At no point
did I say Bitcoin would stop tax. The childish notion that Bitcoin could remove government or even help
people avoid tax has no basis in reality. It has nothing to do with whether you think tax should be voluntary,
it is a fact of life.

Employers and others will simply report you. They will maintain your identity in the way I envisioned Bitcoin
to work, which is the way I presented in the white paper. Privacy will be maintained as individuals and
organisations save identity data. Your employer will still gain deductions from your employment payment
or salary, and they will report them to the government. More, they will report them with a fully auditable
and traceable record. So, rather than removing tax, the introduction of a blockchain-based payment system
will simplify the facilitation of tax without fraud or evasion.

No Risk of “Charge-backs”

Once Bitcoins are sent, the transaction cannot be reversed. Since the ownership address of Bitcoins will be
changed to the new owner, once it is changed, it is impossible to revert. Since only the new owner has the
associated private key, only he/she can change ownership of the coins. This ensures that there is no risk
involved when receiving Bitcoins. [1]

Non-reversal does not mean that bitcoin cannot be seized or taken from you. You do not own bitcoin
because it’s on the blockchain, you own bitcoin which are stored in your wallet as indivisible tokens. Each
bitcoin is made up of 100 million satoshi. There are no fractional satoshi. Each satoshi is an indivisible
isolated token. The registered movement of control or possession of tokens simplifies micropayments. It
does not do anything to remove the need to track ownership and larger values. Nobody is going to bring up
the effort of reporting, following or tracing, and recovering five dollars’ worth of bitcoin. In small amounts,
bitcoin acts as cash. For all of the BTC camp who want digital gold, the thing to remember is that gold has
nothing to do with avoiding the law. If you buy and sell USD10,000 worth of gold, you do not own it unless
you show ownership records. The purchase requires that you maintain information about the exchange. The
same applies to bitcoin.

One of the most fundamental errors made with bitcoin stems from a failure to distinguish between a right
and its record. The blockchain itself is a registration system. As such, the blockchain acts to maintain records
of rights. The blockchain does not represent the rights themselves. Individuals hold bitcoin tokens in their
wallet. Blockchain as a register is distinct from the rights to property itself. The recording of a transfer on
the blockchain is distinct from the rights to the tokens being recorded. As a register, each blockchain-based
system and even uses within the blockchain will function differently; it will depend on the form of the token
whether it is fungible or linked such as in the case of a coloured coin.

Bitcoin is property and not a mere bearer instrument. Identity was always incorporated into the system
presented in my white paper. For small transactions or casual exchanges, as would be carried out with cash,
there is no requirement to legally mandate the capture of identity. In the event that an exchange passes
certain threshold levels, there are requirements for the exchange to be fully documented and the identities
of each party to be known. Know your customer (KYC) legislation exists in most Western nations and many
others. You don’t get away from it because you use bitcoin. The error people make lies in believing that they
own bitcoin merely because they hold it. You own bitcoin when you can prove, accordingly, the source of
funds and how it was paid for. To own bitcoin, you require good title.

Bitcoin will not be reversed for small casual payments. I was very clear about the scenario in the white
paper, where I said financial institutions or payment intermediaries who need to mediate disputes add
costs. Here lies the weakness of the trust model, which is not that there is trust involved. As I said:

The cost of mediation increases transaction costs, limiting the minimum practical transaction size and
cutting off the possibility for small casual transactions.

Bitcoin reduces the minimum practical size of micropayments, allowing them to be securely transacted
between parties over the Internet. You do not remove the cost of mediation on large cryptocurrency
exchanges. You do not remove the cost of mediation when using bitcoin worth over $10,000 (with the
amount depending on the country you are in). The part of the same sentence that people cherry-pick is the
following:

The cost of mediation increases transaction costs, limiting the minimum practical transaction size and
cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to
make non-reversible payments for nonreversible services [emphasis added].

“Nonreversible services” are limited in scope. They involve small casual transactions. Blockchains do not stop
courts from issuing orders such as a proceeds of crime order requiring changes to be implemented.

The big lie that is promulgated is that non-mining nodes would do anything at all, ever.

Non-mining nodes are simply slow, useless systems that act as ‘sibyls’ on the network, with people who lie
about them to deceive regulators and defraud investors. They serve no purpose.

The lie of the ‘user-activated soft fork’ (UASF) node was told with the sole purpose of misleading regulators.
You cannot simply fork Bitcoin towards a UASF protocol, while a freezing order would apply to both the un-
forked protocol and everything to do with the forked protocol. The asset that you fork off with your non-
mining nodes is still controlled by miners and exchanges. Any exchange that decides to use or list the new
asset will be criminalised. Any coins following the frozen coin can indeed be followed and, under property
rights, seized.

You see, it is not just a matter of you having bitcoin; if you don’t have good title to the bitcoin, and you don’t
maintain all the identities concerning how you got it, someone can come knocking on your door and
require that you give it up or, equally, give up the value in cash that corresponds to the amount of bitcoin
you refused to hand over. Failure to do so can be covered under contempt of court orders and more.

Bitcoins Cannot be Stolen

Bitcoins’ ownership address can only be changed by the owner. No one can steal Bitcoins unless they have
physical access to a user’s computer, and they send the bitcoins to their account. Unlike convential <sic>
currency systems, where only a few authentication details are required to gain access to finances, this
system requires physical access, which makes it much harder to steal. [1]

It was stupid to think so when it was first said, and it remains stupid to think so now. Bitcoin can be
recovered. The reason bitcoin won’t be stolen in large quantities, even though it has been in the past, is that
it can be recovered from the thief.
When I said, “Imagine if gold turned to lead when stolen”, Bitcoin was still in the alpha phase. The alert key
was not complete; code that would enable nodes to follow court orders and alert on freezing orders was still
on the drawing board. Identity systems had not been created.

They have now. The system, in its entirety, is possible now.

And once it is possible, it is possible everywhere. As governments understand Bitcoin and regulators see
what they can do, it won’t matter that you want to make it what you call a privacy coin; you will come under
regulations. In the future, when criminals steal your bitcoin, it will be recovered. When pay money or tokens
or other things based on the Bitcoin blockchain or a related system are extorted, they will be returned. As
proceeds of crime orders go through, nodes and merchants are all alerted such that you have instant
knowledge of the keys that you should not transact on. And so it will start happening, throughout the year.
It won’t matter whether you’re on Ethereum, Monero, Zcash, the Lightning Network, or any other system.

Bitcoin is not encrypted. Consequently, if you want to look at ‘code is law’, know that governments can force
a change of code. Know that court orders can force a patch of code. Know that Bitcoin was designed to be a
commercial system:

The current system where every user is a network node is not the intended configuration for large scale.
That would be like every Usenet user runs their own NNTP server. The design supports letting users just be
users. The more burden it is to run a node, the fewer nodes there will be. Those few nodes will be big server
farms. The rest will be client nodes that only do transactions and don’t generate. [2]

It does not matter if you believe in proof-of-stake or other alternative consensus methodologies, any
blockchain-based system will consolidate, always. As Bitcoin scales, the burden of running a node increases.
As Bitcoin increases in value, the burden of running a node increases. The only way to stop the burden
existing on a node is to keep things small — not the node, the network. The network involves the payment
system, the exchange system, everything. As I surmised, Bitcoin has now passed the threshold.

Users were always supposed to use simplified payment verification (SPV). Nodes were always meant to be
processing systems that ended up in data centres. Exchanges come under money handling rules. They
always did. The distinction now is that the volumes surrounding Bitcoin or ‘cryptocurrencies’ — and I hate to
use the term ‘cryptocurrency’, because bitcoin is nothing like it — have hit a tipping point. We will start to
see the implementation of stricter money handling rules and criminal organisations such as Binance being
charged for their crimes.
The promise of Bitcoin lay never in removing government. The promise of Bitcoin lay in micropayments and
a system that delivered an honest ledger. People should look up the word honest in the dictionary:

Meaning of honest in English

honest

adjective

UK /ˈɒn.ɪst/ US /ˈɑː.nɪst/

telling the truth or able to be trusted and not likely to steal, cheat, or lie:

She’s completely honest.

I’d like you to give me an honest answer/your honest opinion.

He had an honest face (= he looked like he could be trusted).

To be honest (with you), I don’t think it will be possible. [3]

Honest nodes, or the operators of nodes that are honest, don’t involve stealing. Like it or not, nodes enforce
the rules. Rather than merely relying on the Cambridge Dictionary , we can go to Black’s Law Dictionary :

What is RULE, n?

1. An established standard, guide, or regulation; a principle or regulation set up by authority, prescribing or

directing action or forbearance; as, the rules of a legislative body, of a company, court, public office, of the
law, of ethics. 2. A regulation made by a court of justice or public office with reference to the conduct of
business therein. 3. An order made by a court, at the instance of one of the parties to a suit, com- manding a
ministerial officer, or the opposite party, to do some act, or to show cause why some act should not be
done. It is usually upon some interlocutory matter, and has not the force or solemnity of a decree or
judgment. 4. “Rule” sometimes means a rule of law. Thus, we speak of the rule against perpetuities ; the rule
In Shelley’s Case, etc. [4]

Like it or not, Bitcoin acts within law. No system of rules in society, in fact, acts outside of law. Welcome to
Bitcoin; as I’ve said before, it is not a system that allows for dark web markets and crime, but rather one that
economically disincentivises them, by increasing the cost and adding a permanent record, allowing every
malfeasor to be tracked.

Notes
[1] See: https://cs.stanford.edu/people/eroberts/cs201/projects/2010-
11/DigitalCurrencies/advantages/index.html (accessed 18 March, 2020).

[2] See: https://bitcointalk.org/index.php?topic=532.msg6306#msg6306 (accessed 18 March, 2020).

[3] See: https://dictionary.cambridge.org/dictionary/english/honest (accessed 18 March, 2020).

[4] See: https://thelawdictionary.org/rule-n/ (accessed 18 March, 2020).

Satoshi and the Byzantine Generals
By Craig Wright | 24 Mar 2020 | Bitcoin & Blockchain Tech
Before I launched Bitcoin, I had been discussing how the proposed system would work. [1]

Many people have failed to read my white paper and assumed that Bitcoin is a voting system that allows
rules by consensus where every individual has a vote. The white paper says:

If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate
many IPs. Proof-of-work is essentially one-CPU-one-vote.

It does not say “one-computer-one-vote”, as each CPU does not represent an individual. It doesn’t represent
nodes running as users on the network. The confusion stems from a radically misaligned understanding of
the Byzantine generals problem.

Bitcoin does not give every ‘user node’ on the network a vote. Bitcoin nodes are generals. Generals form a
small group of individuals who are easily detected and whose actions are easily attributed. Generals are not
privates. For each general in the network, there will potentially be millions of privates. In other words, for
each node on the network, there will potentially be millions of users. The only way to become a node on the
Bitcoin network is to solve block puzzles. It is not the attempt to solve block puzzles, it is to actively solve
block puzzles. If you are a Raspberry Pi user, and you never solve block puzzles, you are not a node on the
Bitcoin network. Bitcoin and the forks of Bitcoin (the BTC, BCH, and other systems) [2] are all controlled
through the actions of at most 10 miners, which are the nodes. Where a miner has multiple access and
egress points, they maintain their existence as a single node.

So, where you have a miner running multiple ingress and egress points, they are but a single node. I
explained in the early years of Bitcoin:

The current system where every user is a network node is not the intended configuration for large scale.
That would be like every Usenet user runs their own NNTP server. The design supports letting users just be
users. The more burden it is to run a node, the fewer nodes there will be. Those few nodes will be big server
farms. The rest will be client nodes that only do transactions and don’t generate. [3]

To ensure that there is no misunderstanding of what I said, note that it is the creation of server farms that
will service the network. As such, a group of commercial nodes, that may have ingress and egress points
feeding an internal distributed node structure and could even be globally decentralised across the world, is
owned by a corporation and acting as a single node. In time, they will be the future processing facilities for
banks and commercial activities around the world. There may only be 100 miners globally, that is, 100 nodes,
but they may have millions of machines:

At equilibrium size, many nodes will be server farms with one or two network nodes that feed the rest of the
farm over a LAN. [4]

And so it comes that miners, or nodes, are generals. Users can utilise the network using simplified payment
verification (SPV) and maintain the ability to verify and validate transactions over the network. They only
require the header to each block. Luckily, nobody understood what I said, leaving me free to patent the only
way we can scale Bitcoin:

The design outlines a lightweight client that does not need the full block chain. In the design PDF it’s called
Simplified Payment Verification. The lightweight client can send and receive transactions, it just can’t
generate blocks. It does not need to trust a node to verify payments, it can still verify them itself. [4]

What Is a General?
If we go back and look at the original Chinese generals problem, you will start to see that what matters is
not the number of computers but rather the pooled computer power controlled by a single entity that
needs to coordinate with other entities. Each general controls an army in the consensus and distribution
problem. The flaw in the understanding that many people have lies in treating each general as an equal, as if
they each had one vote. But the generals do not have a single vote. Each general votes based on the size of
their army. It is not a case of needing, say, three out of five generals to prove that they are loyal in the
scenario and problem, but rather one of pooling and proving the relative strength of each general.

For instance, one general may control 100,000 men, while four others may control 40,000 each. Here, there
is a total of 260,000 men in the combined army. If the general with 100,000 men gains support from one of
the other generals, the two form the controlling force. Here, two generals can have more combined power
than the other three and win. What we see is not a consensus based solely on the number of individuals. It
lies not in running up individual IP addresses or having individuals vote. If such were the case and the three
generals opposed the general with 100,000 men, then the three generals would win, even with a smaller
force. The solution here is not based on democratic voting, it is based upon demonstrated resources.

Bitcoin, in fact, any blockchain-based system, is anti the vote by the masses. There is no way to create rules
by consensus across individuals in any blockchain. Bitcoin was never designed as a demagoguery, it is
designed as a commercial system where the nodes, the generals, are visible and the amount of resources
they invest and the level of their effectiveness may be publicly validated.

The entire purpose of solving the Byzantine generals problem lies in finding a solution for reliable
computing systems. It is not about voting, democracy, or the creation of rules by consensus. If people
bothered reading any of the source material in our post-wiki world, they would understand that the
problem concerned ensuring that computer systems could be created on a distributed basis in a manner
that would enable them to handle malfunctions. Bitcoin is distributed to enable reliability. There is no
distributed consensus dictating the rule of the system. In fact, such a myth covers the deception promoted
by a few disingenuous developers, who are running a partnership they seek to hide through fraudulent
claims that they are decentralised. Groups such as Bitcoin Core and Bitcoin ABC — neither of which has
anything to do with Bitcoin anymore — are intentionally deceiving investors, while acting as central issuing
parties and controllers over the network.

We imagine that several divisions of the Byzantine army are camped outside an enemy city, each division
commanded by its own general. The generals can communicate with one another only by messenger. After
observing the enemy, they must decide upon a common plan of action. However, some of the generals may
be traitors, trying to prevent the loyal generals from reaching agreement. [5]

When Leslie Lamport defined the original problem, that I sought to solve through Bitcoin, he simplified the
scenario by not explaining the fractions of the army maintained by each general. In distributed
computation problems, where a variety of components function on a problem that is distributed across
multiple nodes, it is not essential that each node is equal. Likewise, in the Byzantine generals problem, each
general may not have the same size of division in the army. Lamport simplified the problem by treating
each general as commanding an equal number of troops. Such is one specific version of the problem, that is
far simpler to solve. With Bitcoin, we cope with a more difficult version of the problem; we do not even
know, in advance, how many troops each general commands, nor the strength of the troops. We solve such
a problem in a game-theoretic manner: we test the capabilities of each general and the strength of the
division they control.

Each general would be capable of lying about their individual strength.

In a distributed computation problem, reliable computing solutions are not about the number of systems
but rather the individual capabilities of each system. The scenario is not based on one-computer-one-CPU.
Each computer will have a different number of CPUs.
Leslie Lamport failed to understand that game-theoretic signalling systems provide the solution. Bitcoin
mining is analogous to the peacock’s tail. The more resources, the longer the tail, each general can afford to
waste while remaining alive, the more they may demonstrate fitness. Voting as defined by Lamport [5] is not
the vote by individual but the effectiveness of components. When Leslie Lamport released his paper in 1982,
the majority of distributed reliable systems would have utilised the same or similar chips. It was not
foreseen that a distributed computation problem would grow towards the scale that exists upon the
Internet today, and so the more complex version of the Byzantine generals problem, that I would go on to
solve in Bitcoin, had never even been attempted in his solutions.

Proof-of-work is not proof of how many people agree. Rather, it reflects how much total computation is
expended:

After two hours, one attack time should be hashed by a chain of 12 proofs-of-work. Every general, just by
verifying the difficulty of the proof-of-work chain, can estimate how much parallel CPU power per hour was
expended on it and see that it must have required the majority of the computers to produce that much
proof-of-work in the allotted time. They had to all have seen it because the proof-of-work is proof that they
worked on it. If the CPU power exhibited by the proof-of-work chain is sufficient to crack the password, they
can safely attack at the agreed time. [1]

The proof-of-work chain was developed to ensure synchronisation across a global distributed database. The
synchronisation between nodes (miners) allows for the simultaneous solution to the “global view problem”,
which users would otherwise face running SPV.

In my original communications to the Cryptography Mailing List [1], I did not portray the problem as
Lamport’s simplified version of it, with each general having the same size of division as another. I said that a
majority of CPU power was needed, which is not the same as an equal number of generals. It is the majority
of CPU power. In Bitcoin, nodes are generals. They are miners. The users are not nodes on the Bitcoin
network, and do not create validated blocks. There is no two-step process in Bitcoin where users verify the
actions of miners, as would wrongly be implied by some:
Without a consensus method, ‘non-mining nodes’ have no say. It is irrelevant whether you like it or not;
Bitcoin, any blockchain-based system does not create rules by consensus, but it allows the vote exclusively
made by such nodes that solve blocks, ones with skin in the game.

Notes
[1] See: https://www.metzdowd.com/pipermail/cryptography/2008-November/014849.html (accessed 20
March, 2020).

[2] Note that Bitcoin does not ‘fork’ into alternative systems. The BTC and BCH systems are passing off as
Bitcoin in order to defraud investors. The only version of Bitcoin is BSV, which was launched in 2009.

[3] See: https://bitcointalk.org/index.php?topic=532.msg6306#msg6306 (accessed 20 March, 2020).

[4] See: https://bitcointalk.org/index.php?topic=286.msg2947#msg2947 (accessed 20 March, 2020).

[5] See: http://lamport.azurewebsites.net/pubs/byz.pdf (accessed 20 March, 2020).

The Property Flaw of Lightning
By Craig Wright | 26 Mar 2020 | Alternative Coins & Systems
Segregated Witness (SegWit) was said to be introduced to stop purported errors caused by malleability. The
truth of the matter is that it was introduced as a means of producing the Lightning Network (short:
Lightning) protocol and changing Bitcoin from a property-based token system to an account-based one.
Bitcoin is based on individual indivisible property tokens, known as a satoshi. There are 100 million individual
tokens for every nominal coin, known as bitcoin. Because of the form of the register in Bitcoin, it is possible to
fully possess civil property — even though bitcoin is intangible and digital. Unlike any other virtual system
before, whether in the form of digital cash or mere files, Bitcoin allows a digital file to act as if it was a corporal
thing, which provides the ability to possess bitcoin.

The tokens in Bitcoin are not stored on the blockchain, they are registered there. That is, tokens are
exchanged between users and eventually registered on the blockchain, which acts as a distributed clearing
house and registry or ledger. All changes are journaled, although multiple changes can apply before being
written to the ledger. Where an individual or group exchanges Bitcoin tokens (bitcoin), property rights are
also exchanged, but until it is registered on the blockchain, a risk remains that one party could ‘double-spend’
and take away the tokens from another.

Bitcoin allows possession, and acts as property as the owner or proprietor of the tokens may exercise power to
exclude others. Unlike other digital property, bitcoin can be subject to bailment [1].

The scenario can be achieved by simply sending the coins to the bailee or through the use of a smart
contract such as in the form of an escrow agreement. Tokens may be locked in trust subject to the execution
of a contract or act, upon which the tokens may be either delivered to the beneficial owner (the bailor [2]) or,
should the bailee fail in his or her duty, seized by the bailee.

Bitcoin as indivisible property is a problem for systems like the Lightning Network. You see, the reason for
Segregated Witness, which I have hinted at, stems from the fact that you cannot remove the base peg value
that is used in a Lightning transaction without destroying the entire channel. Such is also why they made
malleability out to be a major security flaw within Bitcoin. It isn’t; malleability is only a security flaw in
Lightning-based payment channels, which were never a part of Bitcoin. You see, Lightning is about creating a
system that is not built on individual tokens, but rather balances, because they are treated very differently
under law. Yet, the Lightning Network cannot work without Bitcoin tokens as the initial seed base. Here lies
the greatest flaw of the system. There is no way in a blockchain to remove the property rights associated with
bitcoin. Each bitcoin comprises indivisible tokens, which, in turn, present certain legal obligations.

Nemo Dat Quod Non Habet

Nemo dat quod non habet , or, to simplify the Latin phrase, the nemo dat rule, presents the legal principle
that “no one gives what they don’t have”.

Bitcoin tokens are property. Following the purchase of bitcoin where you haven’t met customer due diligence
(CDD) and know your customer (KYC) requirements and recorded the identity of the person you’re
attempting to buy from, you face a scenario where good title does not pass. If stolen bitcoin are passed into a
Lightning channel, the purchaser in the Lightning channel does not gain good title. Equivalently, the civil rule
of nemo plus iuris ad alium transferre potest quam ipse habet , or, “one cannot transfer to another more
rights than he has”, means that it does not matter whether you send bitcoin to a Lightning channel; if the
bitcoin are stolen, they cannot be transferred.

Under the Theft Act 1968 in the UK, ““Property” includes money and all other property, real or personal,
including things in action and other intangible property”. The definition clearly includes bitcoin.

The consequence is that stolen bitcoin remain property, and if, say, they go into a Lightning channel, it would
be possible to issue a freezing order, which we have seen in the UK and Ireland multiple times already,
stopping any movement of the coins. Theft is a global crime. There are very few countries that do not see
theft as a major indictable offence. Certainly, every country that runs bitcoin exchanges and miners will allow
action against thieves and the recovery of property.

Things get more interesting when you consider that there are crimes around the world for the handling and
possession of stolen goods. Bitcoin, as I have said, is a series of tokens. Miners are paid with tokens. For the
Lightning Network to work, transactions need to be validated and put onto the blockchain by miners.
Whenever they are not, or where transactions ‘rollback’ such as in the form of changes that come with
malleability, the Lightning Network completely fails.

There is a section of the Theft Act 1968 in the UK that provides legislation analogous to legislation in China,
the USA, and many other countries concerning the handling of stolen goods:

Handling stolen goods.

(1)A person handles stolen goods if (otherwise than in the course of the stealing) knowing or believing them
to be stolen goods he dishonestly receives the goods, or dishonestly undertakes or assists in their retention,
removal, disposal or realisation by or for the benefit of another person, or if he arranges to do so.

(2)A person guilty of handling stolen goods shall on conviction on indictment be liable to imprisonment for
a term not exceeding fourteen years. [4]

Upon the issue of a freezing order, commercial network nodes are under an obligation not to transact in
frozen bitcoin, as they would be upon a proceeds of crime order associated with the coins. Worldwide
freezing orders can be issued against many types of assets. Bitcoin miners globally would be restricted from
processing frozen bitcoin. But, it goes further: if a Bitcoin miner receives tokens that are stolen, they are
handling stolen goods. The Bitcoin miner is likely to have an investment of $100 million or more that can be
seized. You see, criminal actors are targeted. When police and other law enforcement officers find a large
criminal cartel that is simple to issue an order against, they will sequester goods and arrest the individuals
involved. The same $100 million data centre, consider it proceeds of crime.

The biggest flaw in systems where people build on top of Bitcoin without understanding it comes with the
fact that the coins are property. Property rights follow even when coins are redistributed. If you move a
Bitcoin token through 1,000 addresses, the original owner maintains ownership. When you have BTC1.0, you
really have 100 million individual and indivisible tokens, known as satoshi. If you take the BTC1.0 and send it to
a miner and onto the Lightning Network with a small nominal fee of 1,000,000 satoshi, transferring
99,000,000 satoshi or BTC0.99, and it turns out that there is a freezing order, proceeds of crime order, or some
other notification that alerts to the theft of the tokens, the miner receiving the BTC0.01 fee is handling stolen
goods.

The privacy model in Bitcoin.

An exchange that handles stolen goods is liable, and will have to pay damages. Bitcoin is not a system
without identity; section 10 of my white paper notes identities, which are firewalled from the public network.
In other words, individuals on the network are required, by law, to do their own customer due diligence (CDD)
and meet the requirements.
When a court issues a proceeds of crime order against bitcoin and the bitcoin are put into a Lightning
channel, both the miner who allows the transfer and the Lightning hubs become liable for the handling of
the stolen goods.

Stolen property remains the property of the individual whom it was stolen from. If a miner validly transfers
bitcoin into a Lightning channel before being alerted to the theft, the bitcoin will be the subject of a recovery
or other court order and shall be returned to the individual. Every single individual in the Lightning Network
who engaged in the passing of the original stolen bitcoin would be committing a crime. Luckily, the
Lightning Network is a highly centralised payment intermediary system, so very few people will be affected.

The scenario requires a reallocation of the tokens. You see, there are very few miners in the Bitcoin network or
any of the other networks, such as the BTC and BCH systems. In fact, there are less than 100 nodes on the
BTC network. Nodes are miners; a ‘node’ that has never mined a block is not a node. The definition of nodes is
given in section 5 of my white paper. If you don’t create and verify blocks, you are not a node; you do nothing.
The consequence is that Bitcoin is not distributed because millions of people run nodes, it’s distributed
because nobody can change the rules.

The false narrative is that ‘non-mining nodes’ would do anything. They don’t; they follow what miners or real
nodes do. They can verify their own transactions and nothing more.

The end result is that Bitcoin miners (and exchanges) will follow court orders. If you want to argue that code is
law, remember that the court can order code to be patched. When I introduced the alert key in 2010, it would
have allowed a simple manner to stop proceeds of crime and stolen bitcoin being taken. The “hacks” like
Cryptsy and embezzlement cases like Mt. Gox would not be viable. It is troubling that such ways have gone on
for so long, but 2020 marks the year that law comes to Bitcoin — and all the copies.

As such, and as it is explained in the Bitcoin white paper, honest miners form the 51%, who enforce rules and
follow court orders.

Notes
[1] See: https://thelawdictionary.org/bailment/ (accessed 26th March, 2020).

[2] The bailor is the party who bails or delivers goods to another, in the contract of bailment. McGee v. French,
49 S. C. 454, 27 S. E. 487. The bailee is the person to whom goods are bailed, that is, the party to whom
personal property (which would include bitcoin) is delivered under a contract of bailment. Phelps v. People, 72
N. Y. 357: McGee v. French, 49 S. C. 454, 27 S. E. 487.

[3] See: https://www.legislation.gov.uk/ukpga/1968/60/crossheading/definition-of-theft?view=plain (accessed

26th March, 2020).

[4] See: http://www.legislation.gov.uk/ukpga/1968/60/section/22 (accessed 26th March, 2020).

Satoshi NEVER Posted on Bitcointalk
By Craig Wright | 31 Mar 2020 | Alternative Coins & Systems
It is a myth that all the posts on Bitcointalk (bitcointalk.org) from my account (Satoshi) are in fact mine and
have not been edited or changed and that the login on the website belongs to me. Satoshi (I) never used
Bitcointalk. My final post, in fact, links to a domain that does not exist.

The images presented are all verifiable early versions of parts that would form the original Bitcoin website.
You will not see any of the associated links any more.

As you encounter a link to one of my (supposed) final posts on Bitcointalk, what you see may seem
innocuous. To the casual observer, it will look as if it’s a link to a post I made, yet, the supposed author never
made it. I can say, in other words, the creator of Bitcoin didn’t make the post, because Satoshi didn’t. You
see, the original forum was created as a subsite of the bitcoin.org website. It wasn’t a separate domain. It’s
not too difficult to check what I’m saying. The Wayback Machine is not perfect, far from it, and it can be
gamed, but the first time the Bitcointalk domain was checked happened to be in July 2011 (
https://web.archive.org/web/*/https://bitcointalk.org/ ). At the time, the website had not been created yet (
https://web.archive.org/web/20110710034118/https://bitcointalk.org/ ;
https://web.archive.org/web/20110710034118/https://bitcointalk.org ). You will notice that the forum looks
familiar very shortly afterwards.

What people are failing to understand is that Bitcointalk was only registered in mid-2011:
https://www.whois.com/whois/bitcointalk.org .

It’s funny that nobody talks about it; well, I guess it’s not so funny for them. There are plenty of people who
remember the original website. Then again, most of the same people don’t want my version of Bitcoin, and
think that they can do better. If you do your research properly, you’ll find that bitcoin.org had a forum that
linked to SourceForge and one on the website that ran within the system. It didn’t run on a separate server
outside of bitcoin.org. It matters as the account on Bitcointalk does not belong to Satoshi.

I had stopped posting long before Bitcointalk was created. The database was taken across in part. A new
user signed up on 5th May, 2011, and helped with things. The person behind the new user was called
Gregory Maxwell.

Martti and a few others migrated the web pages. But not everything corresponds 100%. You see, when you
control the database, you can edit what other people have said. There are a couple of posts that have been
changed from the original. The secret of such people lies in making very minor changes, ones they don’t
think other people will notice.
I liked a white Bitcoin logo on black. I thought it looked very good. It is a shame I would listen to other
people; if I hadn’t, I wouldn’t have left, and the website would not have been taken over. But, who knows
how things would have ended?

The migration was done in multiple steps. First came the move from the original subsite:

https://web.archive.org/web/20110401171747/http://www.bitcoin.org/smf/index.php ; to a GitHub repository:

https://web.archive.org/web/20110923151638/http://www.bitcoin.org/smf/index.php .

It was then moved onto a completely new server:

https://web.archive.org/web/20110713083033/http://forum.bitcoin.org/ .

Then, the server was replicated on Bitcointalk. There is nothing stopping the current administrators of
Bitcointalk from posting as satoshi , which would prove nothing, because it isn’t my account and it never
was. Satoshi (I) never posted on Bitcointalk.

Robots.txt and other controls allow you to stop certain aspects of the website being archived and to alter
what is put onto the Wayback Machine.

If you go back in time, so to speak, you will notice that certain web pages won’t show, such as with:

https://web.archive.org/web/*/http://forum.bitcoin.org/index.php?action=profile;u=3;sa=showPosts ; or

https://web.archive.org/web/2011*/http://www.bitcoin.org/smf/index.php?action=profile;u=3;sa=showPosts .

The reason is simple: not everyone wanted my version of Bitcoin. Not everything I said remains, and some of
it has, subtly, been changed. What I find strange, though, is how few people investigate the truth. Very few
seem to want to go further as they go back and find that it is me; I’m not the anarchist they want, nor have I
ever been anything like one. You see, I didn’t want WikiLeaks to use Bitcoin because I didn’t like what they
stood for.

Bitcoin was never designed to act outside of the law. Although Bitcoin was hijacked, although my domain
was taken from me and people decided to try and make my invention into a system that would aid Silk
Road and drug trafficking, what we will discover in time is that Bitcoin is an evidence trail. It is the worst
possible thing that criminals would want to use.
The History of Freezing in Bitcoin
By Craig Wright | 22 Apr 2020 | Bitcoin & Blockchain Tech
The solution to problems with crime and money laundering always existed within Bitcoin. In the white paper
itself, it is explained many times that attackers could be controlled by honest nodes. When I launched
Bitcoin, I had not yet completed implementing the system of the alert key, and I still had not fully determined
how it would best work. It was always envisioned. When I said that there was a strategy to protect systems
based on simplified payment verification (SPV) using alerts from nodes, I was not limiting the nature of alerts
to the same one possible form of attack. The difficulty in the implementation, at the time, lay in determining
which nodes should be trusted. It involved not the core approach of proofs, but rather one of determining the
voting strategies of nodes. Remember here, of course, that nodes are miners.

In 2010, I introduced the alert key to Bitcoin. It was not a concept that was particularly new. An alert
mechanism is noted within the Bitcoin white paper: the best way for nodes to alert each other to events is to
use the same protocol that is used to distribute blocks and transactions. There were problems with the alert
key that was issued in 2010. Primarily, it did not link into individual nodes; at the time, nodes were very small.
But from the inception of Bitcoin, I have explained that nodes will be large.

I’ve covered the concept many times in my blog, and I was very clear when I said that Bitcoin would end in
data centres. I’d had the same argument with the paedophile James Donald, in 2008, before I realised what
sort of lowlife scum he was. The reason, of course, people like him want Bitcoin to be a completely
decentralised system that is not associated with commercial data centres stems from the desire to engage in
illicit activity. Yet, Bitcoin, at scale, is designed to specifically avoid catering for such people. And Bitcoin has
already exceeded the scale that will stop such a form of use outside the control of government. You see,
Bitcoin was never about an anarchist peer system. Bitcoin uses a peer network for nodes to gain resilience
and increase security. They present distinctly different uses.

The use of the term decentralised in 2008 was radically different than what people try and say it is about now.
The decentralisation of systems is not new, and it is not about avoiding government. Very simply, it is a means
to increase reliability and survivability in complex systems. If you read the second reference in my white
paper, you will see a centralised blockchain solution dating back to the late 1990s. The solution extended the
third reference in the white paper, which had been published in 1991. The authors did not believe that it
would be possible to have a decentralised or distributed version of a timestamp server, which is what Bitcoin
achieves.

Bitcoin is not democratic. The rules of Bitcoin were set upon the creation of Bitcoin. There is no cryptographic
protection that is associated with how many coins (bitcoin) you have. It is not about centralisation or any
other wacky, false analogy by anarchists and criminals. Bitcoin is simply a peer-to-peer cash system that
enables micropayments. The system is designed to work with low transaction costs, and it is the first system
ever created that will allow the introduction of micropayments.

Bitcoin doesn’t stop people censoring transactions. Bitcoin doesn’t stop governments from issuing orders
against nodes. Remember here, nodes are miners. The mantra of ‘your keys your bitcoin’ is utterly wrong. The
ledger is not where your bitcoin is held. Bitcoin is simply an arbitrary denomination of a certain number of
indivisible tokens: a bitcoin is a designation for 100 million indivisible and fungible digital tokens — no more
and no less. The property you own is not the keys or the addresses, it is simply the chattel property rights
associated with each individual token. Each token is held in a set contained in an unspent transaction output
(UTXO). Each UTXO is the equivalent of an envelope holding a defined number of tokens. Possession is not
ownership. More importantly, although the keys are used to assign tokens from each UTXO-based envelope
to another, the keys are not the bitcoin itself.
The alert key would and did allow the freezing of bitcoin. It does not require every single person running
Bitcoin to hold, validate, or accept the alert key. The process is not a new idea; rather, it stems from my
introduction of the key. In discussions with people such as Mike Hearn, I failed to adequately describe all the
mechanisms that would be involved.

Mike understood very well that Bitcoin would end up in a few selected, corporate data centres. Not because
of ASICs, as he thought, but in fact because CPU power in Bitcoin is not simply the hash rate. It is the overall
processing of blocks and transactions. As Bitcoin ‘halves’, the subsidy will become less and less important
compared to the collection of fees. Bitcoin is only valuable when it is competitive. Very shortly, people will
start to understand that Bitcoin is not a good system for illicit activity. Anti-money laundering (AML)
directives are already in place that will limit the use of Bitcoin or derivative systems, including the one
associated with BTC, in illicit activity. More importantly, Bitcoin is incredibly simple to freeze.

The freezing of bitcoin was discussed following my departure in April 2011 [1]. It wasn’t just an arbitrary
thought. With the introduction of the alert key and the ability to have nodes freeze bitcoin, people started to
discuss what it all meant. Some complete and utter scumbags, unfortunately, in their attempt to radically
alter Bitcoin towards the system that they sought and create illicit, dark web markets that would not be
traceable, wanted to hide such aspects. But fortunately, or unfortunately, depending on your perspective,
they used Bitcoin. Bitcoin is completely traceable, and can be frozen. As such, it will never be a good system
for illicit markets.

I should have stood up more at the time. In 2011, I was going through several personal difficulties. It has taken
me a while to be able to maintain my composure when dealing with the types of people we find ourselves
dealing with in Bitcoin, especially when it comes to the anarchist and illicit crime bent. It was not merely that
I had a period of difficulty; I have Asperger’s, or, as it is now called, autism spectrum disorder. Dealing with
people at the best of times is difficult for me. So, for good or ill, I was unable to lead the development of the
system I had created in 2011. Some of the early people involved with Bitcoin understood as much, which they
have used to their advantage.

The problem that Mike posed in April 2011 stems from a false dichotomy of avoiding ‘orphans’ and not
realising that the maturity period of 100 blocks in Bitcoin allows for the valid ‘orphaning’ of blocks that violate
a court order.

However, mining can be done anonymously. If the freeze order system were to be abused a group of miners
would emerge that were not motivated by profit but rather by ideals. Whilst they would likely not be able to
mine as fast as the big ASIC using companies, even reaching 5% of the total network hash power would be
enough to allow the coins to be spent, albiet quite slowly. [1]

There are two problems with the comment made by Mike. Bitcoin mining in 2011 could have been
implemented anonymously. It cannot be implemented anonymously, at any decent scale, now. Pool
operators set the rules — not ones who are using a pool. Pool operators are the nodes — not the members.
Any large node is easily detectable. As such, even miners associated with 5% of the hash power will never
become anonymous. They have far too large of a footprint. Such is how Bitcoin was designed.
· More importantly, nodes enforce rules.

· A court order is a rule.

· Honest nodes reject blocks that don’t enforce the rules.

The logic here is very simple: honest nodes will reject blocks created by some arbitrary 5% of nodes by hash
power. There will not be any slow release of coins. If the same small group of arbitrary miners decided to
create a copy of Bitcoin, they would have a copy that is intentionally flaunting the law. The entire replicated
copy of the database that is passing off as Bitcoin’s or a forked version of it would thus be completely illegal
on any regulated exchange. Such a system would be almost completely valueless. More importantly, the true
bitcoin would be frozen. Any attempt to bypass the scenario would result in the orphaning of the respective
miners, putting them on an alternate system.

It is not simply a matter of freezing miners; it is an allocation of property rules. A freezing order issued against
the miners would also alert other entities within the Bitcoin ecosystem, allowing them to protect their own
assets. You see, an exchange that takes any bitcoin that has been forked and may be covered by a theft
recovery or proceeds of crime order would be complicit. Bitcoin is a form of property. The receipt of stolen
property presents a crime. Facilitating the exchange of stolen property or property covered by a proceeds of
crime order presents a crime. Such exchanges would be quickly shut down. It’s not too difficult to do so.

Freezing coins by synchronizing the bulk of hashing power works better than attempting to force co-
operation from every economic actor (exchangers, merchants etc). The latter is almost impossible because
coins can be split and merged in arbitrary ways making it hard to really blacklist a coin. But once an address is
frozen by miners, its value can no longer be merged or split. [1]

Freezing is simple when you start to realise that orphaning blocks is a part of how Bitcoin works. The recovery
of assets is a little more difficult to carry out, but can be integrated just like block size increases [2].

User-activated soft fork (UASF) nodes don’t exist. The only part of Bitcoin that matters for the propagation of
blocks is performed by the nodes. And simply put, nodes are solely and exclusively miners. Any system that
does not mine a block is not a node.

Lots of people have attempted to alter my system. They have failed, and they will continue to fail. All that they
can do is use proof of social media (POSM). Basically, they deceive, and they spread lies. It has taken me a long
time to come to terms here. Being autistic, the concept of lying for such a reason holds a level of difficulty that
I don’t like to address. It is difficult for me to comprehend the actions of some of the other parties. I do now,
but it took a long time.

Some of Mike’s discussions stemmed from an article that had been published concerning money laundering
and Bitcoin [3]. Mike understood that the best approach was the one I had initiated with the alert key. At the
time, it was far from being complete: an alpha software implementation at best. Even with the alert key, in
2011, tracing miners and implementing everything would have been difficult. It certainly would not have been
cost-effective. But the scenario has radically changed. Bitcoin is large enough to be easily controlled now.

There has been a lot of talk about how governments could effectively regulate BitCoin given their mandate to
fight crime. It’s definitely worth discussing that more. Banning BitCoins at the merchant or exchanger level is
a non-starter because coins can be split and merged arbitrarily. Attempting to ban an address across all
economic actors would cause “badness” to ripple outwards transitively eventually causing system collapse.

And unlike the childish ignorance of Theymos [4], bitcoin is a property asset that is easily traceable. There are
rules for following through mixtures in law. As a fungible digital token, bitcoin perfectly aligns with all the
rules of following and tracing. Even if bitcoin is moved through multiple addresses, all it does is taint multiple
UTXOs and move to the legal process of following through a mixture, a legal process that has existed for over
2000 years.

The one true flaw in Mike’s reasoning lay in thinking that a freezing order would only slow and not stop the
movement of bitcoin. One aspect of Bitcoin that I did not go into enough detail about is the block-maturity
rate: a block that has been found by a node is not valid to be spent by the node until it is 100 blocks deep. It
provides other nodes with enough time to orphan any block that contains any frozen bitcoin that have been
moved. Importantly, any node that builds upon a block containing bitcoin associated with a freezing order is
complicit. That is, both the miner who created the block and any node that builds upon it or any such block
will, equally, be liable. Here lies the beauty of how Bitcoin grows at scale. Once its value is enough, the system
always migrates towards data centres. There is no other solution. The result is a small number of commercial
entities that act to secure the network.

Securing the network involves following rules. Court orders are rules. Bitcoin does not act outside of law; it is a
cash-based platform that acts to provide digital cash. Cash is covered by rules. Global laws concerning money
laundering already incorporate checks and balances over the use of different levels of cash. For small
transactions, bitcoin may be used as cash, which can be used in small transactions without resorting to know
your customer (KYC) checks. As the amount of bitcoin hits different thresholds, the various requirements for
funding and cash-based transactions start to apply.

The reason Bitcoin was leaderless or operated without what people call centralised control is simple: I set the
rules in advance. I said that the rules were set in stone. One of the problems a person such as myself, with
Asperger’s, will experience is not understanding how other people don’t want to follow certain rules or that
they will act dishonestly. I thought that by being explicit in saying that the rules were set in stone, individuals
would adhere to the contract and bargain. If they did, I would not be required to act as a leader. The system
would be able to grow without me if people simply followed the rules that I set. It is not a democratic system;
you do not vote as an individual in any blockchain system. It’s designed to ensure that such a scenario cannot
happen. If you don’t understand it, read my white paper.

The Bitcoin protocol was designed as a system that would not change from a well-designed protocol. One of
the aspects of autism is a desire for things not to change. For things to be stable. Such is what I sought in my
creation of Bitcoin. I desired a monetary system that was not subject to arbitrary changes. Such is my creation
of Bitcoin.

What Bitcoin offers which no other system has been able to offer is the ability to handle micropayments. It
was the Holy Grail of all digital payment systems. It is what Google worked on, it is what Facebook has
salivated over the prospects of for over a decade, and it is the Holy Grail of online payment systems. My
Bitcoin protocol delivered it. It delivers a methodology to enable the exchange of value in fractions of a cent.
No system has ever managed to do so before. The system that is passing itself off as Bitcoin, the one now
associated with BTC, does not do so. In fact, the people behind it are not seeking a system that works, they
are seeking a pipe dream of a protocol that can act outside of law and regulatory control. By choosing Bitcoin
as the platform to copy for such ends, they have failed in their desire.

The implementation of freezing within Bitcoin is not new. The discussions of freezing have been a part of
Bitcoin since its inception. Those seeking to tell you otherwise are seeking to rewrite history and deceive.

[1] See: https://web.archive.org/web/20110420062418/http://www.bitcoin.org/smf/index.php?topic=5979.0

(accessed 21st April, 2020).

[2] See: https://bitcointalk.org/index.php?topic=1347.msg15366#msg15366 (accessed 21st April, 2020).

[3] See: https://web.archive.org/web/20110420061353/http://www.bitcoin.org/smf/index.php?topic=5907.0

(accessed 21st April, 2020).

[4] See: https://web.archive.org/web/20110421035241/http://www.bitcoin.org/smf/index.php?

topic=5979.msg87896#msg87896 (accessed 21st April, 2020).
Money Is Time and Energy
By Craig Wright | 04 May 2020 | Alternative Coins & Systems
Many falsely believe that by simply producing more money or redistributing it, we would all suddenly have
more wealth. It can come in multiple formats: it can be in the form of cash or alternative instruments, which
we see more commonly today. Such instruments include debt and loan obligations. For instance, producing
government loans that issue money to businesses creates new money as the entry on the central bank is
produced and then replicated across other banks and financial institutions.

Money is simply a means of mapping obligations. It is a way of sending obligations through time. With
barter, individuals trade goods and services at a point in time. The scenario can be extended using contracts
and simple derivatives such as futures agreements. Here, one individual could trade a cow to be delivered
on the same day as the agreement is concluded with another party accepting an obligation to deliver 10
sacks of barley six months later.

Such forms of agreements are in themselves money. The difference is that they are non-standard. It is
difficult to open trade between multiple parties when every individual has what is in effect a bespoke form
of money. For such reasons, early monetary systems started to standardise. For instance, if barley or some
other grain was the common staple that every person would need to accept at some point, then it could
become a readily traded asset. As arbitrary documentary assets became available, they would be used for
trading. In fact, the first writing and counting systems involved the tracking of commodity assets.

In both early Middle Eastern societies and early Chinese societies, grain stores would be used to collect and
allocate the holdings of farmers, ensuring that individuals do not lose valuable foodstuffs to rodents and
other sources of loss.

Farmers and merchants would be provided with tally sticks, knotted strings, clay tablets, or in fact similar
forms of token. Such tokens would represent the value of grain that had been deposited. At around the
same time, contracts for the future exchange of value and even interest-formed payments were developed.
With the advent of large-scale storage devices and token notes, to designate ownership of the property
being held inside the granary, people quickly started to use the tokens, rather than engaging in direct
barter.

Image source: https://www.harappa.com/category/blog-subject/homes?page=1 .

The ability to hold a simple token that represented a liquid and tradable asset simplified the exchange of
many items, and allowed people to create simple representations of the value of one product against the
value of another. If every item needs to be valued independently against another without a single or at least
small number of reference commodities, the number of possible interactions quickly grows to an
unmanageable quantity. It becomes a factorial calculation.

For instance, if merchant A holds three quantities of three separate items and merchant B maintains
another set of three items that differ from A’s inventory, we already have nine possible interactions if we
limit ourselves to direct exchanges between the items. If we have partial transfers of each of the inventory
items, the scenario becomes even more complex. At the same time, if neither A nor B are trading the
commodity grain, but they can account in the same unit, they may simplify the value of all the goods by a
common ledger unit.

Money has formed as a universal societal contract in nearly all human societies.

Money as a token system represents rights to quantities of goods or services. In the original form, the
amount of money as cash was limited through the ability of one party to directly exchange the required
token for an amount of the commodity held under promise. The amount could be either a percentage of
the item being stored or a direct measurement such as by weight.

Gerahs, bekahs, shekels, and talents, for instance, represented unit weights. The Hebrew bekah was set with
a weight of approximately 6.02 grams, and the shekel with 11.4 grams. The talent relates to 3000 shekels
(each at 11.4 grams), and comes to around 75.5 pounds. In biblical references, such weights refer to weights
of silver. At a time before coinage, silver, as a precious metal, would be weighed out and measured on
scales. Some metals, including copper and silver, would be stretched into sheets or wire, allowing them to
be easily cut to the correct weight.

Originally, such values referred to amounts of grain in storage. Over time, as international trade expanded, it
became simpler to start using rare metals, which could be easily determined and moved across great
distances. As such, trade could open between villages and cities, without the need to transport large
quantities of grain back and forth.

Not all monetary token systems ended up being mapped directly to a set weight of a commodity. As
explained, some tally systems shared the quantity of a stored item. In other words, the holders would be
able to access a percentage of the remaining item at a point in time. For instance, if an individual held 10%
of the tally sticks that were available, they might be able to access 10% of the grain in the stores. The system
was used in some communities as a form of insurance and distribution. If the commodity was lost or
damaged, each rights holder would suffer an equal fate.

Modern fiat money operates similarly to such a system. On one side, we have the amount of issued
promissory rights, and on the other, obligations and goods. Every form of money presents, in effect, a rights
obligation with respect to other products. Some individuals believe that gold maintains value in and of itself,
which is far from accurate. Gold is a marker when used as money for other goods and services. It is not even
a completely stable form of money, as some falsely believe. At best, gold can only become a stable form of
cash: with a need to be able to repay amounts in gold at later times, the amount of bank lending and
borrowing is of course limited.

The amount of money that is available in society at such a point in time balanced against the amount of
goods that are available sets the exchange rate of money. It is not a matter of how much money is available
in total, or the total money supply, it is about the amount of money that can be treated as unavailable and
exchanged money that is unable to be moved or that is held by people who are unwilling to move it. Each
of us has a risk preference for holding money. For instance, if we are incredibly confident and know that we
will have enough money at any point in time, we do not need to hold more money than we require until our
next paycheck. More so, with interest-free periods on many credit cards, many individuals do not have a
requirement for immediate cash at all. The amount of money that is required will vary depending on when
the debts and obligations of each of the individuals and society come due.

When more money is introduced in the form of direct cash or loans, it may not have an immediate impact. If
the amount of goods being sought is limited, then the impact of injecting money could be one of
stimulating growth in the short term. Politically, it is an incredibly attractive option. But, such politics works
in the short term and at the expense of the long term.

In the long term, the total money supply will reference the total amount of goods as we value items and
measure inflation. If the amount of goods is increasing, an increase in the money supply will not be
noticeable. If, for instance, in year one 100 units are produced, in year two 110 units are produced, in year
three 121 units are produced, and so on, the introduction of a 10% increase in the money supply will, all other
things remaining equal, lead to an inflation rate of zero. The problem occurs when the money supply
continues to increase but the amount of goods or services has failed to increase at an equal rate.

In such a scenario, more money can be chasing fewer goods and services.

When it occurs, monetary inflation will start, and can skyrocket if the amount of money continues to be
produced. In the last century, we have undergone a previously unthought of and unheard-of level of
growth. It is what allowed governments to increase the money supply while maintaining low inflation.

The problem occurs when growth stalls: if we continue to increase the money supply and the supply of the
amount of goods and services either fails to grow or even falls, inflationary pressure starts to build.

The amount of free money at any point in time references the amount of free goods and services that are
available: if we produce less and consume our stockpiles, the amount of money available in society will not
have decreased, and may have increased, but the amount of goods and services that are being chased by
the same money will have diminished. If we start with 100 units of money and 100 units of goods, then each
unit of money remains equal to one unit of goods. But if we now have only 50 units of goods and services
available, it will now take two monetary units to purchase one unit of goods. Such is how inflation occurs
and what money references.

Money does not have a set value. It does not matter whether you are talking about token commodity
money, such as gold, or a more esoteric concept of money in the form of fiat money or banknotes: in both
events, the quantity of money gains its value when compared against the quantity of goods.

Even when money was linked to gold, the same simple fact did not change. What gold did was limit the
ability for governments and central banks to expand the monetary supply. Even with gold, banks would be
able to issue fractional reserve notes against an amount of gold that was held. At no point in history has gold
acted as the complete form of money, nor can it do so. Gold, at best, can act as an anchoring point based on
the requirement for banks and other organisations to be able to redeem at a point in time. Here, a bank
that is too deeply in debt or has extended itself too far and is insufficiently capitalised will be constrained.

Gold was never a cash-based system. Although gold coins have existed, they are too expensive and difficult
to transfer in small, daily-use quantities. Gold was used in the settlement and exchange of large-value items.
People would not use gold coins to settle small debts. What needs to be remembered here is that the
amount of gold in circulation was always far more limited than the amount of money in circulation. It has
always been the case, held true at any point in history.

The value of gold lies in the limitations it imposes. Gold formed a system that set a natural bound on the
expansion of the money supply. As much as some individuals and governments would prefer a short-term
expansion, the necessity to maintain a certain capital allocation limited the ability for both banks and
governments to expand monetary financing beyond certain levels. More importantly, gold acted as a
universal standard and measuring stick across multiple countries at a single point and multiple points in
time for a place or set of goods. The problem with gold stems from the inconsistent discovery of new
deposits.

The amount of available gold cannot be adequately predicted, as is the amount of new gold that is injected
into the system unstable. Throughout history, discoveries of new gold have radically changed the amount
of gold available and, consequently, drastically altered the exchange rate of money to goods. None of such
discoveries have been predictable; rather, they have acted as a black swan, radically distorting the global
monetary system.

Money and Bitcoin

Bitcoin doesn’t replace banks. It is an electronic cash system and not a banking system. We have moved
from the system that involved both banks and cash towards one where cash is disappearing, which is
problematic in many ways. Banks don’t replace cash, and Bitcoin doesn’t replace banks. In my white paper, I
explained:
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted
third parties to process electronic payments. While the system works well enough for most transactions, it
still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions
are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation
increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility
for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible
payments for non-reversible services. [Emphasis added]

Cash is not and was never designed for making multibillion dollar payments. They are possible with Bitcoin,
but are not desirable outside of a few criminal activities. And even so, when criminal actors come to
understand the nature of Bitcoin, they will come to understand that Bitcoin is not good for criminal
activities. Bitcoin works best as a system that allows very small transactions and small casual transactions,
such as ones that would be seen over a micropayments application on the Internet. The banking and credit
card models don’t work for accessing small casual services. Bitcoin will.

Irreversible transactions are not about illicit goods. They are about small transactions that can occur online
as if they were carried out in cash. The scenario does not include the sale of illicit goods, such as drugs or
child pornography. In both such cases, the economics are skewed towards tracing the perpetrators and
coin (bitcoin) allowances. On the other hand, where a small transaction occurs for, say, a valid payment of
half a US cent to a web service offering access to a blog, the person who read the page cannot cancel and
remove the payment. The reason here is that the cost of enforcement in taking legal action exceeds the
benefit of any rational action for half a cent.

In my paper, I talked about fraud. Where merchants no longer need to trust customers by means of a credit
card, that can be easily stolen, merchants need no longer “be wary of their customers, hassling them for
more information than they would otherwise need”. Even with Bitcoin, “A certain percentage of fraud is
accepted as unavoidable,” but, values differ. The consumers will go to the occasional website that will scam
them out of a hundredth of a cent, and they will care a lot less. But even such cases will not be widespread,
as the requirements to set up and manage servers will limit the number of criminals who can scam people
based on small amounts of money.

These costs and payment uncertainties can be avoided in person by using physical currency, but no
mechanism exists to make payments over a communications channel without a trusted party.

Here lies the prime reason for Bitcoin. It is not about attacking banks. Very simply, it is a cash-based system
that works over the Internet. It is not about replacing intermediaries or what they call trusted third parties;
the difficulty with trusted parties is that they increase the minimum level of exchange, which is what Bitcoin
solves. Is not digital gold, and it is not an anonymous money source that allows people to buy illicit goods.
The purpose of Bitcoin was very simple and focused: Bitcoin is an ordering and timestamp system that
allows for the creation of digital cash in a manner that is efficient and effective. Unlike monetary systems
based on a trusted third party, Bitcoin can enable transactions that act as cash and that can be as small as a
thousandth of a cent.
How the World Works; or, A Discourse on Fake News
By Craig Wright | 11 May 2020 | Bitcoin & Blockchain Tech

In the Bitcoin and “cryptocurrency” space, and I use the term cryptocurrency loosely as practically none of the other systems has any use as a currency let alone cash system,
Google has finally stepped up. I say “finally” because it has taken many years for them to act on what is a legal requirement, and even now, they are only just doing the bare
minimum.

The other day, there was a purported Forbes article. I say “purported” as it was posted by one of the Forbes contributors. Such are traditionally unpaid bloggers that bring
advertising revenue to Forbes. In effect, Forbes is willing to dilute its brand to gain advertising profit. Here lies part of why I invented Bitcoin. The ad-based model is
destroying the world; it is allowing for such types of flimflam-based, illegal promotion, and it is only now that people are starting to act.

What we are looking at here is an investment fraud. Bitcoin is property, and when it is being used in certain speculative gambling systems, it is being traded on a
commodity market and being pumped and manipulated by people who are basically criminals. It is a huge market, with lots of people ripping many individuals off. It is not
uncommon to find people who are gullible. In doing so, such scumbags perform fake technical analysis designed to promote sales decisions on assets, without any real
evidence or process or basis in reality. Right now, CoreCoin (falsely called Bitcoin), BTC, is not used as cash. It is but a speculative asset.

NASAA: Top Investor Threats. 2012

The offer of securities by an individual without a valid securities license should be a red alert for investors. Con artists also try to bypass stringent state registration
requirements to pitch unregistered investments with a promise of “limited or no risk” and high returns

Part of the problem is that conmen are being paid by conmen, shilling investments without a license or any knowledge of what they are actually selling, while trying to
pitch you into buying and selling investments without explaining the risk. And then, people read the now delusive brand header, and think that a contributor is really a
journalist. Forbes says, “ Opinions expressed by Forbes Contributors are their own. ” The reason for saying so is simple: such people are bloggers without journalistic
training or any responsibility. When you are reading the writings of such contributors, you are not reading articles from journalists. You are reading a private blog that has
no link or real association to and doesn’t undergo validation or editing by Forbes.

Forbes, of course, has real journalists , too.

When you see an article and the small print says Forbes staff , you will also notice that, unlike with contributors, there is no disclaimer distancing Forbes from the expressed
opinion. Forbes staff are journalists. The contributors are amateur bloggers who, until recently, had not even earned a single cent from Forbes and in fact posted to gain
advertising and promotional revenue.

In the past, papers and media outlets would separate journalistic contributions from letters to the editor, which we now call contributions, too. Today, many of the media
outlets allow for the dilution of their brand, selling their proverbial soul to fake news. As in the example above, certain contributors earn money by writing paid, promotional
pieces. They are not news; they are, in themselves, a form of advertising and lobbying effort. Interestingly enough, there are some without any link, which would be
required, revealing the source of their funding.

Not too long ago, Forbes engaged in what it called a shakeup, to add a patina of seeming truth and integrity. Forbes, for instance, has now started paying its contributors at
least USD250 every month—an amount that hardly inspires confidence in journalistic integrity. The fact is, such burnishing of the truth does nothing to create integrity in
journalism. It is merely adding a gloss to a turd that is fake news.

Ponzi Schemes: The premise is simple: pay early investors with money raised from later investors. The only people certain to make money are the promoters who set the
Ponzi in motion.

A Ponzi is what any system that promises money without delivering value happens to be. The promoters of Bitcoin Core (BTC) and other coin spruikers want you to believe
that BTC and all of the other “crypto assets” will continue to appreciate in value indefinitely. They try and tell you that BTC is about to “moon”. They say that it is an asset that
has been increasing in value by millions of per cent and that it will never end. Irrational exuberance always comes to a sudden end. Systems such as the BTC network, which
is intentionally limited in nature, form a poor asset. To work, Bitcoin needs to scale towards the level of millions of transactions a second. As myself and my team have
demonstrated, it can be achieved, and with my original version of Bitcoin, it will be achieved.

BTC, on the other hand, is a speculative good. It has no use; it has merely a false narrative that appeals to dumb criminals who do not understand that Bitcoin is easily traced
and, as government starts to understand it, easily taxed.

Securities and investment fraud applies to commodities and other financial instruments. Promoting ‘cryptocurrencies’ based on puffery and speculation is a form of
securities fraud. It is a deceptive practice designed to induce investors into making sales and transactions for an item that they would not normally buy. The scenario is
different from holding coins (bitcoin) or related assets for use. Using bitcoin as cash is not the same as spruiking it to cause the price to rise. Such fraud also includes stock
manipulation, misstatements, and making claims that cannot be backed up by evidence. It includes front-running and other illegal acts that are rampant on exchanges—
sorry, illegal bucket shops—such as Binance, designed purely as facilities for money laundering and tricking ignorant investors into becoming a digital-money mule.

Long-term conmen and criminals such as John McAfee are long-term promoters of pump-and-dump schemes. They use chat rooms, forums, systems like Telegram, and
anything else they can get to induce misinformed investors to buy assets, causing a sudden spike in the prices of assets that the spruiker holds. The low liquidity of many
‘crypto assets’ makes them analogous to thinly traded stocks. Here, fraudsters promote false information, and talk about pumps and dumps in the price based on nothing
more than the unscientific flimflam that is technical analysis. In other words, without any real information, such fraudsters use YouTube videos and social media to pump a
price and then talk about the squiggly lines and how it will end in a sudden collapse that will then build the price, again. All they are really doing is using the lack of liquidity
to create artificial volatility that they can exploit. Importantly, they generally do the opposite of what they tell their rubes—sorry, investors—to do.

Such kinds of conmen, flimflam artists, and fraudsters have no true insight, but rather employ fake-news media—in light of the public’s lack of awareness between the
journalists who act as staff and the contributors who are really funded by conmen. There is a lot of money in doing so. And some of the money pays bloggers who act as
contributors to sites and magazines that used to be trustworthy, such as Forbes. And I say “used to be” because there is little that distinguishes a journalist among their staff
from the armies of paid shills acting as contributors. Most people do not know the difference. In diluting their brand, they have created a wave of fake news that is
detrimental to us all.

So, Google has started shadow banning certain sites and content on YouTube. Some of the other media have started, too. It is about time, but it is far from enough. Even
Forbes is allowing such people to promote false stories with impunity. The reason for doing so is simple: incentives.

Such contributors pose as journalists. They are anything but journalists. They do not have the training, and they do not have the integrity. Whether it is intentional or not,
the result remains the same. As they are incentivised not by Forbes but by creators of commodity Ponzi schemes and spruikers committing security fraud, the lack of
oversight and review leaves such fake journalists to shill for their criminal bosses. They are effectively bosses because contributors are paid to write such articles. They are
funded by the bucket-shop organisations that call themselves exchanges. They are funded by the criminal spruikers that seek to defraud people of their pensions. They are
the scum that is paid by scum, and they are proud of it in many cases, because they earn a pay cheque as they help others to manipulate people and defraud them of their
hard-earned money.
They say Bitcoin is valuable because it is a system that cannot be censored and that nodes will ensure the integrity of their criminal activities. The truth of the matter is
completely different. Conmen and criminals who embezzled money from their own exchanges, as it occurred when Mt. Gox was reputedly hacked using a malleability
attack, promote lies about the functioning and working and operation of Bitcoin, because if the truth was out there, it would be known that both they and you were duped.
For instance, a common fake-news blog that has been put forward (and likely paid) in the promotion of such false information shows the misinformation about mining
nodes and ‘relay nodes’ and ‘Sybil nodes’, aiming to enable all of the criminal activity to continue.

In the image and post linked below, we see one of the continuing justifications that have been used over and over to say that malleability presents an attack in Bitcoin.
The lie of transaction malleability as an attack.

Transaction malleability only became an issue because of Mt. Gox. The people responsible for the embezzlement of money through the former bucket-shop exchange, that
had been cited many times for money-laundering offences, leading to seizures by the American government, knew that they would not be able to continue, and as the
principle of the organisation found an out, he embezzled the assets of the company. In part, he and others, who worked with him (of whom many are behind Bitcoin Core
even today), created a false tale of how Bitcoin works to deceive those without the knowledge to understand the system. Rather than thinking for themselves or, better still,
taking the time to understand the system, they took the deceits of showing a mesh-based network and, even today, continue to promote them.

The simple truth is, there is no such thing as a ‘relay node’. The sole consensus mechanism in Bitcoin lies in the creating and publishing of valid blocks. I defined it well in
section 5 of my white paper. Both Sybils and honest nodes, miners, must necessarily create blocks. As I demonstrate in the diagram below, the connectivity between Bitcoin
systems is nothing like the one shown in the diagram above. Even now, people do not question any of the matter, because they are paid by the criminals, and when you are
being paid by criminals, it does not pay to think. It pays even less to question.

In the Bitcoin network, each node is seeded starting with at least eight edges.

For simplicity, I have replicated the entire number of Sybils and other ‘nodes’ or actors you may find in the falsified story shown above.
The truth of how Bitcoin works is simple: the sending system, in step 1, transmits to every system it is connected to. If it is a merchant system, including an exchange, it will
be connected to hundreds or thousands of other machines. It will likely be directly connected to every node on the network—not every user, every node. If it is a commercial
system, such as Mt. Gox, in the first hop, every single connected miner or node will receive the unaltered transaction. Large exchanges, such as Coinbase, maintain
connectivity to over 5000 systems at any time. They are economically incentivised to do so. Consequently, the so-called ‘Sybil nodes’ only come to know about the
transaction at the instant that the Bitcoin miners or nodes have been informed of it. All of the Bitcoin nodes (aka miners) are densely connected, forming what is known in
network and graph theory as a giant node. There is no place for ‘relay nodes’ in the system. Bitcoin is not even close to forming a mesh.

To become a mesh, the system would need to be less robust: it would be necessary to ensure that no system was able to connect to more than three or four other systems
and that there was no way to tell which system was mining transactions or not. Bitcoin was not designed in such a way. I was careful in making a system that could not, in
fact, be redesigned to function in such a way.

But, as long as they can get people not to listen to me, they can spread lies saying Bitcoin is an anti-government, anarchist system that allows drug money and money
laundering. But the lies are coming to an end. It does not matter that you attacked me; I will not give up. No matter what the cost, I will not give up. In time, I will make sure
that every criminal involved in the industry is hunted down. I will make sure that every lie is brought to task. I will not give up until every fraudster in the industry promoting
squiggly lines, as if such give them some insight into the system and allowing them to dupe people into losing their investment, is taken to task.

Here Is Why I Am Constantly Attacked

Right now, the strategy being used by my opposition is not to throw mud in hope that it will stick, it is to throw mud on me faster than it can stick and to keep throwing
more and more, hoping that people will not notice. The hope is simply that nobody notices the constant barrage of lies.

Mr Ira Kleiman works in the area of search engine optimisation (SEO). Basically, he has a history of helping to promote some of the things I’ve been talking about before,
allowing uninformed investors to be duped.

Mr Kleiman fails to tell people that he not only contacted but nagged the Australian Taxation Office in an attempt to have them take action. He helped promote stories of a
personal investigation by the (mythical) “criminal investigations unit”.

But such is no news. What you do not know, though, happens to be something I have not disclosed until now. In part, people cannot easily attack or strategise against what
they do not know. So it is always good to keep things close—until they are needed. What Mr Kleiman and Mr Maxwell and all their little cohorts working to help the
criminals have failed to understand is that they do not have all the facts, and as much as they attack me, I can sit and bide my time. One of the key abilities of a high-
functioning individual with Asperger’s like myself is to separate the emotions we have from how we act. Other people may stop, I dig in deeper. I bide my time.

There are two key points people do not really understand at the moment. The first one is that I did not flee Australia in December 2015, which has been misleadingly
reported and regurgitated over and over, like by a dog lapping up vomit.

The visa stamp below documents my entry at Heathrow Airport into the UK, on 25th October, 2015.

I am sure that people such as Mr McCormack will want to run around validating all, and they can. The requirements of my visa were that I had to move and come to the UK
by 24th November, 2015, at the latest. As you can see from the stamp, I had done so on 25 October. So much for a sudden flight to the UK to avoid the law. Of course, if you
think about it for a moment, the UK and Australian governments cover a range of extradition treaties. If I wanted to flee anywhere, it would not be the UK I would flee to.
Then again, many of the people in the industry have been failing to think. I would like you to start thinking: it does not matter whether you like me, it does not matter
whether you like what I say, it does not matter whether you agree with me, but I would like you to have thoughts about it and come up with facts—before you make a
decision.
What people fail to think about is that my ideas have led to over a thousand patent filings. Research and development tax credits and offsets are not available where an
organisation’s aggregated turnover exceeds 20 million Australian dollars. If people had thought for a little bit, they would come to understand that a tax deduction is not
cash in hand. A tax deduction allows you to legitimately sell an appreciating asset (such as bitcoin) without suffering an undue loss. In other words, you could sell 1000
bitcoin, use the tax offset, and gain the full benefit of selling the bitcoin. Unlike most people, I have been claiming and filing and documenting my assets and the assets in
my companies since 2009, which include bitcoin.

I was ignorant enough, in 2013, to believe that with a Bitcoin company employing over 50 people (primarily developers), I would be able to remain secret. Unfortunately,
some of them, including a former accountant and CFO, thought that they could get away with taking money that I owned. They thought that if they forced some of my
companies into liquidation, they could get assets from me at a fire sale. Mr Jamie Wilson, for instance, in October 2013, tried to sell assets of intellectual property and bitcoin
belonging to myself and the company to a group in New York. He also forged my signature multiple times, including in the assignment of certain intellectual property, that
he says I gave to him for free.

Unfortunately for him, Ira Kleiman, and a few other people who have worked for me in the past, we have had the signatures and handwriting analysed, and the contracts
were not changed or created or signed by me. For now, I will leave you hanging on whom the result will fall upon. But I will say that the axe is about to fall hard, and right
now, the axe is in my hand.

Despite what Mr Kleiman and his lawyers will try to tell you, certain things did not need to be released; they were not in the list of documents requested. For instance,
nobody asked me for my personal tax records. If they had done so, they would have seen the letter dated 25th August, 2015, which I am sharing below.

But then, if you are an SEO “expert” with no real experience and who suddenly comes into money and funding from some of my detractors and promises of unearned
wealth, would you not lie to the tax office in a foreign country, where you do not think you will ever get in trouble? Would you not try and promote discontent? Would you
not seek to sow doubt and hope that the person you are attacking does not dodge the blows fast enough? That the shit you throw comes to stick?

And if you wanted to form a strategy where you could shake down someone, would it not be in your best interest to make up stories and inform people from the “Private
Groups & High Wealth Individuals” division of the tax office? You know, such individuals who are tasked with getting that little bit extra out of people with a lot of money. No
criminal prosecutions, but the standard tax shakedown on business owners and other people who are Australian resident individuals who control a net wealth of over
AU$50 million .

And yes, I have removed the names of the compliance officers from the email headers above and below. But you will note that they are a part of the “Private Groups & High
Wealth Individuals” division of the Australian Taxation Office.

And, if you take the time, you will note from the report on a lawyer’s website that I’ve linked here, each and every individual high-net-worth taxpayer within Australia is
reviewed year after year .

When I presented at the Las Vegas conference in November 2015, the one where I made few friends by making Mr Szabo look foolish, I had been here in the UK, in London,
already. The so-called raid on my house was a typical case of what people like Mr Maxwell would do. It’s commonly referred to as swatting .

As explained, I had moved out of my house and moved to London in October 2015. I did fly back and forth to Australia, but I was not living in Australia at the time, and I had
resigned from all the Australian companies from July 2015. Nobody seems to ask how Gizmodo just happened to be stationed and waiting with a full camera crew. Nobody
checks whether the so-called documents were real—I mean the unverified hearsay that is used to sell a click-bait article, where people suddenly believe it must be real.
Such is the world of advertising-based media.

And next comes a highly staged raid on a home I used to live in. A bunch of bottom-dwelling “journalists”—if they can be called so—film everything. Then again, several
people who now purport to never have heard of me and who are or were formally part of Blockstream, of course, wanted me gone. Mr Maxwell has a long history of setting
up swats. More importantly, Ira and others, who wanted my companies destroyed so that they could feast like vultures on the carcase that remained, had a common
interest with people like Mr Maxwell, with his history of helping money launderers and extortionists who would benefit from being paid in bitcoin. One form of extortion that
Mr Maxwell has a long history with involves the organisation that uses malware to encrypt computer drives, before seeking a payment in bitcoin for the decryption key. The
last thing someone like him would want is a person like myself teaching law enforcement how to recover such funds and capture the extortionist.

I guess you could say that Ira Kleiman and a few others have a common interest. It is part of the reason why a lot of the funding for Mr Kleiman comes from the bucket-
shop, securities-fraud-promoting entities that call themselves exchanges. With my pushing of regulation across the industry, none of them want me to be successful.

In December 2015, I was caught off guard. I lived in ignorant bliss, thinking that nobody I did not know had even the inkling of a clue that I was the creator of Bitcoin. I could
not have been further from reality in thinking so. It was simple: all the people knew, and all of them knew that I was a threat. Unfortunately for Mr Kleiman, he is not smart
enough to know when he is being played. So, yes, people have been breaking into my systems and endeavouring to cause problems for a long time now. Some problems
started as early as in January 2014. My stance on Silk Road did not help me either. All such websites on the dark web are completely evil. If I had my way, each of the people
on them, developing them, and owning them, for every day that they were associated with building and promoting such a website, would be in a Thai prison for a lifetime.

You see, there are different strategies, and one of them is, where you have a weak case, do not attack truth, because you will lose. Attack the man.

So, the current attack, which is nothing new, is to say that I have plagiarised everything in my PhD thesis. Along with it comes the effort to call Charles Sturt University a
degree-granting mill. Neither accusation is anywhere near the truth. I will not address everything in the fake-news report that the shills used to try to spread and smear
mud. I will just look at one aspect that they seem to have focused on. In doing so, I may just assuage some of the ignorance surrounding the concept and process of
research.

In a recent hit piece by Mr Gregory Maxwell, that has links to both the McCormack case here in the UK and the Ira Kleiman case, we see that in part he has said:

Sometimes, Wright even forgot to define terms that he stole from the source material, or he introduced an equation without including the intermediate steps necessary for
it to make sense.

You see, one thing that Mr Maxwell, having never gone to university or learned how to research, doesn’t understand is that using common terms is not stealing ideas.
Oxford University defines plagiarism as “presenting someone else’s work or ideas as your own, with or without their consent, by incorporating it into your work without full
acknowledgement”.

Here lies the key concept that he does not seem to understand. Similarly, with many of the patents, where they have accused me of plagiarism, they do not understand that
there is a section on prior art. When I detail something as simple as a Diffie-Hellman key exchange, it is not necessary to spell out the fact that it is a standard process by
linking every bit of prior art and every reference. In similar format, it is not necessary in academic research to explain the origins of something that is commonly used. Then
again, when you paint things in the right manner, without academic or journalistic integrity, as an anonymous coward that Mr Maxwell has been for decades, you can skew
how people think without having to rely on the truth.

In the first example, shown below, Mr Maxwell has pulled out a text from Blanchard & Fabrycky (1981) and commented that I copied the formula without going through the
full derivation. It seems to me that Mr Maxwell fails to understand that calculations of net present values are a common aspect of system engineering, finance,
macroeconomics, and even accounting. The problem in his definition of plagiarism is, he does not understand enough to read academic work. He has developed his own
little concept of plagiarism and detection, colouring sections of common terms. But, if he had completed enough education to understand a term like ‘net present value’,
he would see that I am not claiming to have created the concept of either net present value or mean time between failure.

So no, I’m not attempting to derive the formula for the net present value, but I’m merely putting it down. You may ask, why have I not quoted the text he references? The
simple answer here is that Blanchard & Fabrycky themselves did not derive the present equivalence function or net present value calculation and formula. So, you could ask,
why have they not referenced it?

Are the authors of such an esteemed textbook also plagiarists?

The answer is of course no, and if you understand what the concept means and how a thesis is written, you will quickly come to understand that the reference is not
necessary. It is not necessary to reference the calculation of a net present value in either my thesis or a textbook.
And no, I am not just asserting it. We can pull up literally thousands of websites; all of which utilise the net present value calculation, such as:

Discounted Cash Flow and the Time Value of Money ;

Investopeadia ;
Investopeadia (Interest Factor) ;
Investopeadia and Compound Interest ; or
Wikipedia .

Maybe we could look at textbooks:

Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures, Swaps and Options, Second Edition By Andrew M. Chisholm © 2010 John Wiley & Sons, Ltd.

The simple truth here is that, in the UK, every single Russell Group university has material from every single finance professor using the same words and the same formula.
And sometimes, such as with the particular Cambridge University courseware associated with their MBA, they do not even give you the equation; they just assume it,
mention it, and move on .

So, you see, it is not necessary to derive every equation used and to refer to every possible source. In fact, if I was to do so, I would not be referring to Blanchard & Fabrycky. I
could, indeed, honestly say that I don’t know the source of the original net present value calculation, but I do know that it was published around two centuries before Mr
Maxwell’s cited example. Edmund Halley (1656-1742) was famed for many things, but one of them was a paper that was finally, posthumously published in 1761: Of
Compound Interest . If you read the text, you will find the same formula based on an annual payment that starts in year one but, unlike my reported formula, ends at year T .
In using “n” to represent the years, I was not obscuring the source. The formula remains the same whether I use an n or a T .

I have been informed that a work on Value of Life Annuities in Proportion to Redeemable Annuities was produced by one Johan de Wit (1625–1672), but I have not, at
present, had the fortune to read it.

So, like the author of Expected Net Present Value, Expected Net Future Value, and the Ramsey Rule (Christian Gollier, 2009) from the Toulouse School of Economics or
professors of Purdue University , I have not decided to reference the history of the net present value calculation in a thesis that is on a completely different topic.

What, of course, Mr Maxwell wants you to overlook in his attempt, once again, to discredit me is that my thesis is not about the net present value, and I further do not define
the source of a Poisson process, but I do define more complex equations that derive from them. You see, the knowledge of net present value was not the research in my
thesis; using multiple different sources of quantitative algorithms and compiling them together presents a distinct use that had not been looked at before. But in putting
up a few pages out of context, he hopes to have you not read anything I have written.
So, the research component of my thesis is not a simple net present value calculation but rather quantifying the risk associated with attacks against computer systems.
None of it, of course, would show up outside of my papers, which would be original research and which is what he wants you to believe I have copied, yet the simple answer
is to demonstrate that I have used common formulas in the base derivation of more complex formulas.

I must apologise to Mr Maxwell, for he seems not smart enough to understand net present value calculations without going through each and every one of the steps. As my
thesis was not related to the subject and I was only introducing equations that are common in the industry, I did not think it would be necessary to expound on them
further. Besides, when I initially submitted my thesis for examination, on 17 th December, 2012, it was, summarily, returned to me without much review—because of its
length. I had created a 636-page monster. The first thing that my supervisor, Tanveer Zia, did was to return it to me. Prof Zia and others acted to supervise. The chapter was
presented at a conference, which was published as a book .
My supervisors and later the university advisors and even the markers had full access to material that demonstrated knowledge of net present value calculations. They knew
quite well that I was not saying I had invented them. When cherry-picking, what Mr Maxwell and others are neglecting is that no source is seeking to cite the origin of
everything. To get into such level of detail, I would have to start citing the origin of the term plus . Where did basic algebra come from, where did the sigma symbol come
from, what is the history of interest? No, at a certain point, you do not quote ideas as anything other than given.

Prof Zia reviewed and co-authored the paper, which ended as the chapter. In many iterations of my changing my oversized thesis into one within the university’s limits,
nobody complained—because nobody expects people to reference the source of an idea that you are not claiming to be your own. I say it again: nobody at a university level
would believe that you are saying you are creating net present value calculations by putting it in a thesis. It is simply the use of a common formula. Then, if you have never
been to university, you will not understand it.

Predator prey games, Jean-Jacques Rousseau’s 18th-century concept of a stag hunt, and many other topics that I have covered in my thesis may be covered without going
into the detail of the source. There is a simple reason for doing so: the people evaluating it know that it is not my idea. I am not claiming to have invented a stag hunt; I am
using a standard model. I am not claiming to have invented predator prey games; I am using a standard model. And no, I was not engaging in a thesis covering the history
of game theory, the history of finance, or the history of engineering, so none of the common concepts were referenced.

But What about Some of the Graphs?

Again, you will find some commonalities between diagrams. You could argue that the diagrams are very similar to others, and you would be right in the wrong way.
Because whether you are teaching Consumer Choice Theory at the University of Queensland , or filling out a Wikipedia page , nobody cites terms that are considered to be
common knowledge or references the history of an idea, outside of the historian writing about the origins of an idea. You are of course not taking the ideas of another. In
not referencing every author involved in the creation of consumer choice theory, you are actually finishing a publication. As I explained, not everybody needs to engage in a
historical jaunt every time they want to create a publication.
A Google image search will find over 1 million publications containing the same form of diagram, with some diagrams that are nearly identical to mine, both before and
after my publication, and none of them have a single reference to each other. The reason is simple: none of them nor mine are stealing an idea and passing it off as their
own. None of us are claiming to have invented consumer choice theory. In fact, consumer choice theory is a standard part of intermediate microeconomics.
See:
http://www.uq.edu.au/economics/AJEE/docs/Volume%2010,%20Number%202,%202013/2.%20Teaching%20the%20Two-
Period%20Consumer%20Choice%20Model%20with%20Excel-Solver%20-%20Jose%20Silva%20&%20Angels%20Xabadia.pdf

https://www.semanticscholar.org/paper/TEACHING-THE-TWO-PERIOD-CONSUMER-CHOICE-MODEL-WITH-Silva-Xabadia/3b9be0e4f160e03c90a6402f78625fe3428aa2db

http://sex-drugs-economics.blogspot.com/2016/09/consumer-choice-and-impact-of.html

https://www.researchgate.net/publication/225212458_Are_Students_Really_Rational_The_Development_of_Rational_Thought_and_its_Application_to_Student_Choice

https://www.cambridge.org/core/books/principles-of-conflict-economics/rational-choice-theory/DE2CC822CA14A0DBA1D49033865CFFB1

https://www.researchgate.net/publication/225212458_Are_Students_Really_Rational_The_Development_of_Rational_Thought_and_its_Application_to_Student_Choice
And…
https://www.researchgate.net/publication/225212458_Are_Students_Really_Rational_The_Development_of_Rational_Thought_and_its_Application_to_Student_Choice/figures?
lo=1

So yes, my diagram is a horrible, ugly version of the general methodology of consumer choice theory, the same every single microeconomist uses. My only apology is that I
am not a better artist.

But But But…

As explained, I had to reduce the size of my thesis. In my original section of notes, that was then removed, I had a whole lot of extra material. Some of it included details of
the papers I got calculations from. You could say, they should be in my thesis submission, yet, I was told to take them out. Both of my supervisors and the head of school and
later the reviewers from other universities, such as the University of Melbourne, told me that the section was unnecessary and to be removed.

It also means that once you remove the notes, you remove the references in the notes. You see, in writing a thesis, you do not throw references in that you do not use. So,
when you have a formula, and you say that you are linking to it, you incorporate it. But when it is not a part of the text, you do not throw a reference in there to make your
reference section longer.

Charles Sturt University

Mr Maxwell and others may want to denigrate the universities I have been to and studied at, calling them degree mills. The simple answer is, they are not. I have been to
many institutions of advanced learning, across Australia, Europe, and even the USA, and Charles Sturt University is one of the best that I have been to. There is a reason why I
did so many postgraduate qualifications there. Those of the anarchist bent will, of course, have problems with the university.

Charles Sturt University incorporates the New South Wales School of Policing Studies. Located in New South Wales, Australia, it is where we train our police force. The
attacks against the university and where I was studying had started before I was made public in December 2015. Such a particular hit piece was well-planned. I was
simultaneously enrolled in two postgraduate degrees. The university had allowed it, even though it was generally against policy; I was given an exception. All my lecturers
knew about it, of course, and I was working there. The scenario did not stop people like those associated with limiting Bitcoin from growing and their teams of sock puppets
from sending hundreds of complaints about me to the university. To simplify responding, and to simplify my life at the time, I chose to drop out of one of my master’s
courses, just before I would have graduated. I was not happy about doing so, but it was not worth the fight. At the time, I thought that things would just go back to normal, I
would just be able to work and study, and people would go away.

Of course, I was wrong. My existence is an existential threat to certain people. And I understand now that they are not going to ever want to go away.

But neither will I.

The irony here is that if the same people who seek to cripple Bitcoin had left me alone, I would not have come back. I just wanted to research and study and build. But what
I was building threatened them. What they do not understand is that their attacks, in part, have led me to where I am now, and it is a position I will not go back from.

Things are about to change. Even as I am writing now, and as you read the post, there are things in motion that, as you will see, have already come to occur. Like with my
earlier blog, I do not post everything myself; I write my documents, and hand them off to others. I do not get paid for them either—not by frauds and conmen pumping
Ponzi schemes built upon my creation and not by other marketing firms.

The Problem Is Advertising and Silicon Valley

Software is not eating the world. Anyone who believes so is living in a microbubble outside of reality. Software is changing things, but it is only a part of everything. Yet, if we
allow the current crop of Silicon Valley companies to sell our lives, our privacy, and everything we do to advertising and tracking firms, we will find our freedom eroded to it
no longer exists. I did not create Bitcoin to take down banks or to attack governments; I see the greatest use in micropayments and a methodology of creating a system
where people pay for value. Not where they use click-bait advertising to fund information that is provided by half-rate hacks presenting themselves as journalists and who
are really writing advertising copy posing as truth, but I see a world where the truth itself has value.

The simple answer to how to beat me is to create a system that is better. One that scales. One that will provide micropayments and digital cash the way Bitcoin promised
when I invented it. What I am doing with my company, along with the help of certain other people, is making Bitcoin all it can be. Then again, creating a system that works
is hard. It does not come instantly, and it does not allow scammy promotions and pumping to try to get instant wealth. It requires building something that people use. Not
because of ideologies or some false extropian religion, but rather because it is boring ‘plumbing’ that underlies the systems and that people use on a day-to-day basis.

If we allow our freedom to be eroded, it will be because we have allowed ourselves to ignore the gradual loss.

I cannot make you think, but I can ask you to. When such flimflam men tell you they have knowledge of the system and know which way prices will go, ask yourself why
they are not making lots of money but, instead, are working to promote flimflam. If their system is so good, why are they giving away everything they could earn so that you
can invest your money into the sudden wealth that they have altruistically walked away from? It does not matter whether you like me, it does not matter whether you think
I am honest or dishonest or anything else; I’m not trying to sell you anything. I am simply trying to get you to think. I know it is a hard task for some people. I am not
promising fast-earned wealth; I am simply telling you that such people have no idea outside the Ponzi they are creating to take your money. I know it seems strange in a
world of people seeking to grab everything you own, but think for a moment: would it not be better to investigate the so-called Internet promotions that promise prices will
go up a million times, rather than simply listening to people who are half the time close to being broke themselves?

And so, again: if the price of bitcoin is to go up a million times, where does the money come from? There is not enough cash in the world for bitcoin to increase in price to
the level of USD10 million. And if it is not used, and I mean used by billions of people, there is no reason for the price to hit a hundred thousand dollars. So, if you know that
the game is musical chairs and you are coming in late, why put your money into a pot that someone else is likely to take?
Nodes, Hash Rate, and Signalling
By Craig Wright | 19 May 2020
| Bitcoin & Blockchain Tech
Some people falsely think that the amount of hash rate is a security feature in itself. The error here stems from believing that you can never catch up
from behind. Such thinking is limited, and misses the exponential nature of computational growth. The amount of computation per dollar of
electricity increases exponentially, doubling every 18 months in normal computer systems. In systems such as Bitcoin, that are going through a rapid
development phase, growth happens even faster.

To give an example, the entire hash rate expressed over the life of Bitcoin from its substantiation until the end of 2017 (a period of eight years) could
be recreated by a rogue miner with 50% of the current Bitcoin hash rate in only a matter of weeks. It is worse when you consider that the amount of
potential hash rate available on the network right now more than triples the current Bitcoin hash rate. With advances beyond Moore’s law, Bitcoin is
doubling close to every 12 months in power and capacity. When it comes to price, the total BTC network has remained static for a period of close to 5
to 6 months. Yet, in the same time, computational power based on hashing alone has increased significantly.

Based merely on hash power, a rogue government or other attacker would be able to make more money attacking Bitcoin than the network could
sustain. In fact, by shorting coins (bitcoin), it would be possible to both capture a direct monetary value from an attack and pay to sustain such an
attack. Bitcoin, at USD100,000 each bitcoin and based solely on hash power, could be attacked profitably for around USD10-USD20 million a day,
likely returning 100 times the value. In a broken copy of Bitcoin such as the BTC network, the limited block size would make the same sort of attack
even simpler.

There are reasons why such attacks would not work. Carrying out an attack by purposely shorting an asset in such a manner is illegal in practically
every country on earth. It is not hashing that makes the network secure. It is not hash computation that would stop a 51% miner from re-computing
the blockchain going back two years. The main security structure of Bitcoin lies in the public nature of the blockchain. Bitcoin is secure because the
hashes are publicly and widely distributed. People involved within the network can simply and easily detect any attack.

The network is managed by a system of commercial nodes (the miners). Such entities act as a distributed fiduciary, controlling and ensuring the
integrity of the Bitcoin network. They act as agents, and are paid for their task. They do not own the network or the database. They act on a unilateral
agreement or contract, following a set of rules where they agree to verify transactions and create blocks in return for a payment.

It takes time to respond to an attack. Thus, the first part of the process is made up by the maturity period: blocks that are found by nodes are not able
to be claimed as revenue and spent until they are further 100 blocks old. Such an ageing process allows for any node that is attacking the network to
be determined and isolated, in a manner that will allow the honest nodes to implement controls and ‘freeze out’ the attacker. When I implemented
the alert key, it would allow the majority of network miners to quickly see and respond to an attack and be notified by others acting to protect the
network, allowing them to implement controls.

There is the myth that an entity which does not produce blocks can be considered a node. It was made very clear in my white paper that nodes
create blocks. A full node validates transactions in the blocks produced by other nodes — a validation that is done through the process of creating
blocks. If you are not creating blocks that are accepted by the majority of nodes, you are not validating transactions within Bitcoin. The only full
nodes that exist on Bitcoin are ones that create blocks on a regular basis. Despite the myth, there are under 20 nodes even on the BTC network.

Figure: Distribution of the BTC network, on 21st April, 2020.

Although the distribution varies across time, it is the same five or six miners which continue to control the majority of hash rate. It is not a problem; it
is the method behind the design of Bitcoin. There is no irreversible hash function that cannot be controlled in Bitcoin; there is simply the publication
of such values. What people fail to understand stems from not having read two critical references in my white paper: references two and three. Both
detail the process of designing a secure timestamping service. The authors of the papers created a centralised timestamp server that allowed
external parties to validate the integrity of the chain of hashes through their publication.

[2] H. Massias, X.S. Avila, and J.-J. Quisquater, “Design of a secure timestamping service with minimal trust requirements,” In 20th Symposium on
Information Theory in the Benelux, May 1999.

[3] S. Haber, W.S. Stornetta, “How to time-stamp a digital document,” In Journal of Cryptology, vol 3, no 2, pages 99–111, 1991.

The papers from the 1990s detailed an early concept of what is now called the blockchain. The difference was that the authors did not believe that a
distributed consensus could be formed between each of the nodes. Here, the users of the network differ from the timestamping service, which is
analogous to Bitcoin as the nodes differ from the users of the network. The distinction in Bitcoin is that I managed to find a way of allowing different
individuals on the network to come and go. As such, the system becomes robust. If any individual node fails or is attacked, the other nodes on the
network will simply take over. Unlike the previous attempts at making a ‘time chain’, or an early blockchain in the ‘90s that was used for
timestamping documents, Bitcoin is resilient to the failure of any entity on the network.

The systems released by Massias et al. and others relied on the publication of a series of hashed values that would be released to the public on a daily
basis. To achieve it, they used a system such as a newspaper-based publication system. The number of hashes was thus limited to a level set by the
number of publications each day. The system also limited geographical publication rates. More importantly, the proposed system had no
methodology of allowing more than a single party to act as the primary timestamping source.

The result of the system was one that was non-robust. Survivability studies demonstrate that such forms of in-series failure can lead to a massive
collapse. Although the system was superior to ones released with previous attempts of public-key infrastructure, it still failed to achieve an adequate
level of security or resilience by limiting its use and growth to other systems.

To be resilient, it is necessary for the system to support multiple nodes. Each node must be able to come and go, while the other nodes must be able
to survive the failure of not one but multiple nodes, simultaneously. Such a survivability study leads us towards determining a more resilient overall
system. We create Bitcoin nodes as agents of the network, in a manner that allows Bitcoin to continue no matter how many agents fail. In fact, the
history of Bitcoin is complete with the failure of multiple nodes. Node companies have come and gone throughout Bitcoin’s decade-long lifespan.

In the previous timestamping systems and systems associated with public-key infrastructure, the failure of the critical controlling node has led to the
collapse of the respective system. If the same was to occur in Bitcoin, the entire currency system would collapse. It would mirror the systems
associated with both centralised and decentralised digital currencies of the past. eCash, DigiGold, Mondex, e-gold, Liberty Reserve, Mojo Nation, and
a myriad of other attempts of creating a digital currency all failed when the primary system failed, and so, Bitcoin would need to be resilient to such
failure. Distributed systems like Liberty Reserve and Mojo Nation failed for similar reasons. By creating a system of network agents that would work in
accordance with a defined set of rules, Bitcoin would become resilient in a manner no other system had before.

The critical point is that a base set of rules and a distributed unilateral agreement or contract needs to be formed in a manner that cannot be
changed. The agents are able to enforce rules, but do not create them. The rules of Bitcoin are thus set in stone for the rest of time. As such, there is
no central entity that can fail resulting in the failure of the overall network. Simultaneously, no agent (node) is important enough to permanently
damage the network.

Systems such as Ethereum reintroduce the initial critical point of failure and having a rules body whose failure may affect the rest of the network. The
ability to alter the system and the database that the blockchain runs on is the ability to control the system. Nodes do not control the system. Nodes
do not add new code. In the BTC network and other systems such as Ethereum, a central developer group acting as a partnership sets rules,
changing them upon desire. The same small group or cabal may then introduce changes into the system, which we have seen with the introduction
of Segregated Witness in the BTC network, the copy of Bitcoin commonly referred to as Bitcoin Core. The small group of developers sets rules that
are then required to be run by other nodes.

Such developers use the methodology of what they call a soft fork to implement changes and control the protocol. The process works by embedding
changes that will not activate immediately as code upgrades. It is an innocuous bait-and-switch process that hides radical changes in the network —
by allowing nodes to implement small, gradual changes that hide the overall ability to hijack and control the system.

In doing so, the developers of a system such as Bitcoin Core are able to surreptitiously introduce changes which they then promote as being
introduced by the nodes. Here, a major change is subsumed and introduced through a series of minor changes. The major change is only enacted at
a later time, after many changes have already been enacted, adding the appearance of voting by the nodes. The reality, though, is that nodes are not
given a vote, nor was protocol voting ever a part of Bitcoin. Bitcoin nodes vote on the order of blocks as they see them, but they do not do so through
a conscious process. The phrase ‘voting in Bitcoin’ refers to an automated process conducted by systems that announce the effect of the order of
transactions that occur across the network.

The process allows the network to signal any defectors or systems that are not following an expected transaction order. Nodes following a transaction
order orphan any blocks that are determined as false or would attack the network. We shall go into more detail later here, but it needs to be said that
dishonest nodes include such nodes that support the designer’s node, even if they were not to directly benefit. Yet, a node that builds upon a
dishonest node’s block is benefiting through the malicious and possibly criminal activity of another entity. Such dishonest nodes are subject to a
variety of actions under law.

So, What Does Proof-of-Work Do?

The question becomes, why do we use proof-of-work at all? It is not because proof-of-work is in itself a security mechanism or that hashing alone
secures the network. Neither of such cases are true. Proof-of-work adds a cost to the creation of a block. The creation of a proof-of-work solution
presents an asymmetric signal that allows a small number of entities (commercial nodes) to produce something that is difficult and expensive to
create but, at the same time, simple and inexpensive to verify. Each of the competing nodes may thus quickly validate the work of every other node.
Also, through either statistical auditing or sampling, external parties can validate the actions of the nodes as a whole. Such other parties do not need
to validate the entire blockchain, but can rather rely on the block headers that have been published over the network.

In effect, Bitcoin is a form of signalling game. Unlike most signalling games, Bitcoin does not rely on a two-party player system. Rather, Bitcoin is a
multi-leader multi-follower Stackelberg game. It is also an infinite game, one where each individual node may come and go at will, but the game
itself is left to continue without end. At any point in time, the overall Stackelberg game may be modelled as a simple two-player game. Here, the
attacker may be modelled against the honest nodes. Any node following the attacker may be seen, at the point in time, as forming part of the
attacker, as the only issue to be modelled is the amount of computational power supporting the attack compared against the opposing the attack.
As any attack will be public and may be opposed, what we have is a signalling game with a time limit. The attacker needs to be able to conduct an
attack that is not detected and that allows them to complete a set of transactions that will have matured in an aged block [1].

In a signalling game, the nodes involved in Bitcoin form a strategy based upon the signals issued by other nodes. In the system, the informed player
strategy will be derived based on signals contingent on information. Such information could include verified evidence of attacks, an announcement
following the broadcast of an alert key, or the creation of multiple competing blocks. The information could extend to court orders that, using a
variant of the alert system and with the introduction of advanced digital signatures that would be associated with each individual court, would be
published across the Bitcoin network. Such a signal, of course, requires advanced knowledge, and would not have been achievable in the early days
of Bitcoin. The signalling game in Bitcoin is one where nodes can use the strategies and actions of their opponents in making inferences from
information.

An early implementation of signalling games was proposed by Zahavi (1975)[2], and concerned signalling strategies across animals. In an analogous
manner to peacocks wasting energy in growing tails that have no purpose of survival outside of mating, Bitcoin nodes use proof-of-work to signal
the intention to remain honest. Here, an honest node may be considered more fit. In other words, it is capable of producing valid blocks more
effectively than other nodes. In our model, the external party acting as the equivalent of the tiger in the peacock model corresponds to law
enforcement.

The Handicap Principle

In a manner analogous to how animals communicate fitness through a series of observable, displayed characteristics that in themselves reduce
fitness, Bitcoin nodes actively waste investment to display fitness for purpose. In Bitcoin, the purpose is to display honesty. Nodes compete to say
that they are honest and efficient. As such, each node creates an investment that is effectively at risk. Bitcoin nodes rely on fixed data centres, with
high connectivity, long-term power contracts, and a good deal of expensive equipment. The systems are easy to detect. Unlike with malicious botnet
systems and cyber attackers, it is difficult, if not almost impossible, for a Bitcoin node of any scale to be undetectable.

Whereas early nodes running on a low level of investment could act maliciously, as Bitcoin scales, the cost of acting maliciously increases along with
the investment in the overall network. It becomes more difficult for an attacker to get away with an attack because of the requirements for fixed,
long-term facilities. The scenario leads to an ability to easily take action against a dishonest party. Even in a global system like Bitcoin, it becomes
simple for the honest nodes to act to contain any attack. It is not a system outside of law, but a system that uses law to ensure that an honest system
is created. Ideally, the day-to-day operations of Bitcoin will not require legal interaction; the mere threat of such interaction should limit certain
dealings.

In our analogy of the peacock, Bitcoin nodes expend energy on proof-of-work in the same manner as a peacock expends energy maintaining an
inefficient appendage. In both cases, we reduce the need for signalling between parties by the mitigation of a cheap-talk game . In the case of the
peacock, an unfit animal with a long tail becomes a meal for the local predators. To the tiger, a long peacock tail symbolises lunch. Similarly, a large
mining facility creates a legal target. As Bitcoin nodes (or, miners) scale, government and regulators will target the major players. At present, only
three or four node operators are required to be targeted to enforce court orders and proceeds of crime orders. A node may choose to remain small,
in which case they may simply follow the actions of the larger nodes. A small node is incapable of individually attacking the network with any rate of
success. Larger nodes become scrutinised as they grow bigger.

A large operation attracts scrutiny from both regulators and tax authorities. Proof-of-work removes the condition known as cheap talk. A cheap-talk
game is one where the individual player preferences remain independent of the signals expressed by the other players. In any environment where
nodes can come and go at will and do not need to be officially regulated and monitored, a system that does not have a cost will result in player
defection and the flouting of the rules. Proof-of-work, through the creation of a cost that cannot be easily ignored, incentivises honesty between the
nodes. Bitcoin is not simply distributed to nodes for the blind creation of a hash puzzle, but it is distributed against the successful completion of a
task: the validation and time-ordering of the transactions propagated around the Bitcoin network.

A distributed, blockchain-based system can only work when it is inefficient. If the proof-of-work algorithm were to solve a valuable problem, the
nodes would be able to hedge the cost of cheating and create a scenario where talk is cheap and signalling no longer determines which nodes are
honest.

With Bitcoin, the blockchain and the interactions of the nodes are widely published, and may be reviewed by all users of the system. Consequently, it
becomes simple to expediently determine cheating within the system. A party seeking to attack the network does so under public scrutiny. A further
analogy may be seen in the framed medical degree in a physician’s office; it acts as a signal allowing the medical professional to let his clients know
that he is a qualified member of the medical profession, yet is not perfect, because knowing where the doctor studied does not present proof that
the individual is a good doctor.

In most cases, the medical profession and its regulators do not need to step in. Yet, if the physician misrepresents his credentials, society and the law
impose large penalties upon the individual. As with any person with a degree, the physician is not required to display all his qualifications and
diplomas, but if the individual displays forged degrees, it becomes an actionable offence [3].

Similarly, a node in the Bitcoin network that processes invalid transactions will be very quickly expelled by other nodes who, as part of their agency
arrangement, self-police the network. The arrangement is efficient for each of such nodes, because the discovery of an invalid block increases the
reward for all remaining nodes. It also becomes efficient and effective for the nodes to start criminal actions against nodes that continuously try to
cheat or flout the system. Most countries have laws covering computer attacks and the malicious use of computers. Criminal actions under such laws
are not conducted by the nodes. As the honest nodes can cause significant damage and criminal liabilities against the dishonest node, they add an
asymmetric cost against any dishonest node. A dishonest node, as it is detected attacking the network, must expend money protecting itself
through legal measures, which is a high-cost exercise. An honest node simply needs to report the criminal activity of the dishonest node. The cost
differential is highly skewed towards honesty.

Verifiable Information
Bitcoin extends the signalling games by allowing any participant, whether as a node or a user, to validate and verify the messages of any node on the
network. Such messages present not merely the proof-of-work solution, but correspond to the creation of a valid, time-ordered block, one that fits
within and enforces the rules of the network. A real-world example of a ‘verifiable information game’ may involve a person claiming to have
mastered playing the violin when a violin is known to be in the room and the person knows they could be asked to play.

Grossman (1981) [4] investigated the role of public and private disclosure and the creation of quality products. By creating a system where all
participants can easily verify the actions of others, Bitcoin has incentivised the creation of high-quality blocks. As such, it is a system that supports
honest money and can easily be intercepted to stop money laundering and large-scale crime and fraud.

Upon creation of a block, each node creates and acts on an ex-post, verifiable disclosure. Here, talk is expensive. The creation of a block requires a
large investment in finding the proof-of-work solution, that is easy to verify. It takes fractions of a second to validate the block hash. The validation of
the message within the block can take longer, but will still only require a number of seconds. An attacking block could theoretically use the few
seconds to gain a small yet quantifiable advantage, but it comes at a cost; the investment in creating the proof-of-work around their verified
transactions within a Bitcoin block is expensive, far more expensive than the validation of the transactions and the time-ordering of the block.
Consequently, the Bitcoin node has to expend a lot of money creating an attack that will quickly be verified. With the block maturity set at 100
blocks, making up the large part of a day, nodes cannot profit from the attack. Any investment in creating the proof-of-work solution would be better
put towards honestly validating transactions.

Even a double-spending attempt, a form of attack against the network, would easily be detected. Nodes have a, when compared against the proof-
of-work cost, negligible ex-post verification cost and negligible communication costs. In models such as the private-disclosure signalling games by
Grossman (1981) [4], it becomes very important that the information is publicly verifiable, including the ability for third parties to audit and verify
information. It is not critical that they verify all information but rather that they can verify any particular source of information that is available and
that they are able to easily act upon invalid information, by reporting it in a manner that alerts others to the error.

The block maturity acts as a warranty. Users can start to trust the information within a block as they know that each individual miner that has created
a block has effectively also warranted the accuracy and integrity of the very same block. It is not cheap to simply say that you have found a block.
Even given the header itself, a user acting as a third party may simply download the block header and validate the proof-of-work hash without
validating all of the transactions.

The scenario leads to multiple levels of ex-post verification. A user who merely interacts using simplified payment verification (SPV) need only
validate the block header to be assured that the node has engaged in a suitable manner. In part, each such user knows that they can trust the data
within the blockchain because each node is incentivised to find any errors in a discovered block. In discovering a block solution, each node needs to
validate all of the transactions. They may be hashed and indexed so that even if the order is changed between nodes, or transactions have been
received in some form that varies between nodes because of scenarios such as geographical distancing, the mere hash of the transaction can be
compared by the node to know that the transaction in a block is exactly the same as the one they would have verified, or any different transactions
will be easily extracted and checked.

Any party who seeks to invest can gain entry into the activities associated with running a node. Honest nodes use proof-of-work as a disclosure that
distinguishes them from dishonest individuals within the network. In other words, honest nodes will not be lumped in with dishonest nodes as a part
of the protocol involves the disclosure of the quality of their work. The ability to transmit blocks and act as an honest agent of the network may be
simply distinguished by any individual or third party.

Subsidies and Fees

Bitcoin is designed in a manner that forces it to scale. If the number of transactions that occur on-chain does not increase, the system is designed to
end. In particular, Bitcoin is designed in a manner that leads to commercial entities being formed, which compete to provide a service. Rather than
having a regulatory body having to monitor each of the agents, Bitcoin has created a scenario where the public disclosure of information allows both
the users of the system, the nodes themselves, and third parties to validate the integrity of the system. More importantly, nodes are incentivised to
find and remove dishonest actors. Whenever the proof-of-work discovery rate is decreased, the earnings in the effective zero-sum game that exists in
the set number of blocks being found in a period of time lead to an increased profit when nodes collude to remove dishonest actors.

Equally, the formation of cartels is easily detected. If a large group of nodes seeks to exclude honest players to increase the group’s profitability, all
actions are publicly available to be reviewed and acted upon. The evidence remains available. ‘Orphan chains’ are published widely, and may be used
as evidence of collusion. If a group of honest miners with low hash rates consistently discovers blocks, but finds that the nodes are rejected by a
colluding group, it would be simple to analyse such a rejection and show a systematic series of behaviours that are conducted by the colluding
group and leading to a series of unfair business practices and a breach of the base rules of Bitcoin. As such, large miners need to compete by
continuously improving their operations, or know that they will be forced out. It is not enough for a large Bitcoin node to act in a monopolistic
manner; they must provably be better than their competitors.

Here, the subsidy and the fees come into play. Every four years, the subsidy offered to nodes reduces by half. Bitcoin will not continue to ‘go up’
exponentially; it is a logistic system in value, and will eventually be valued by use. As such, if Bitcoin nodes do not gain through profitable levels of
transactions, they will simply become obsolete. As a result, there is a requirement to scale Bitcoin transactions. Bitcoin competes with alternative
financial systems: its prime benefit is the ability to offer micropayments and other small transactions at a level that has never been achieved before. If
the level of fees increases, the ability to compete with the existing financial system is lost. Consequently, Bitcoin can only succeed through scaling
the total number of transactions.

To do so, nodes need to increase both the level of productivity between other nodes and themselves and the level of transaction processing. There is
a balance between the amount of energy expended on separate tasks: in investing their money, Bitcoin nodes need to choose between solving a
proof-of-work puzzle, validating and ordering transactions, and propagating transactions. As the subsidy diminishes, it becomes more and more
necessary to greatly increase the volume of transactions that are processed. A node that does so must necessarily take investment away from solving
proof-of-work puzzles towards more computational power that is associated with transaction verification and propagation. If nodes fail to do so, that
is, they do not scale in block size, then the fees will increase leading to a scenario where it becomes no longer profitable to use Bitcoin. The only
profitable use of Bitcoin, then, lies in money laundering and criminal activity, where Bitcoin is ineffective.

As Bitcoin scales in price and not block size, it becomes simpler to track and trace funds, and law enforcement will become more involved. Effectively,
the growth of the Bitcoin network leads to a scenario where nodes either professionalise and follow existing laws and regulations or become actively
targeted as a source of criminal money laundering. The game-theoretic make-up of Bitcoin is one that leads to a binary outcome: either Bitcoin
scales massively on-chain, in which case it requires large data centres and commercial operations, or it becomes targeted and is easily shut down
because of criminal activity.

The asymmetric design of Bitcoin was carefully chosen to ensure that the system would become a resilient commercial group of entities that
compete to provide honest transaction processing.

References and Notes

[1] It is important to note that nodes are not paid until a block has matured. To mature, a block must be 100 blocks deep. From a user’s perspective,
the order of blocks and orphans do not matter. If competing forks of the chain develop, transactions from the users of the network will end up in
each set of blocks, and the orphaning of any individual block should not impact the users in any significant manner.

[2] Zahavi, A. (1975). Mate Selection — A Selection for a Handicap . J Theor Biol, 53:205–214 (see:
http://www.eebweb.arizona.edu/Faculty/Dornhaus/courses/materials/papers/other/Zahavi%20sexual%20selection%20handicap%20model%20signal.pdf
; accessed 19th May, 2020)

[3] For further reading on signalling, see: https://econweb.ucsd.edu/~jsobel/Papers/Signalling (accessed 19th May, 2020).

[4] Grossman, S. (1981). The role of warranties and private disclosure about product quality . J Law Econ, 24:461–483.

More Background
Milgrom, P. R. (1981). Good news and bad news: Representation theorems . Bell J Econ, 21:380–391. (see:
https://econpapers.repec.org/article/rjebellje/v_3a12_3ay_3a1981_3ai_3aautumn_3ap_3a380-391.htm ; accessed 19th May, 2020).
A Discourse on Nodes
By Craig Wright | 27 May 2020 | Alternative Coins & Systems
The definition that has propagated around the description of a Bitcoin node has led to a rather cultish ‘quasi-
religion’. I will call it a religious belief as it is clearly one not based on rational thought. Unfortunately, there is a
lot of vested interest and investment associated with promoting a false concept of Bitcoin. There are two
aspects to the Bitcoin network, formed by network nodes and clients. In the distant past, I have tried to
explain difficult concepts in a manner that is as simple as possible, and I have used the term “client nodes”.

In the mathematical discipline of graph theory, there is the concept of a vertex or node. The same concept is
represented in computer science. The mathematical origins of the corresponding part of computer science
linked the two descriptions seamlessly. Nodes of vertices would be connected through edges. The distinction,
here, people do not seem to understand is that the peer-to-peer network of Bitcoin nodes is defined by the
miners. The clients or users of the system are not nodes, as they are not producing blocks. Any ‘node’ that
does not produce a block does not engage with the consensus mechanism of the network in any manner.

In a flooded, near-complete network, the actions of client systems are irrelevant. Client systems do not aid in
the verification or propagation of blocks in any format. At present, there are under 10 nodes that control any
blockchain, blockchain-like, or ‘cryptocurrency’ system in existence. People like to make the assertion that
there are thousands of Bitcoin nodes, which is propagated as an idea throughout the BTC community. The
idea is false. The computational power fluctuates between five groups at any time. At present, only three
groups control the network consensus. Anything past 20 nodes is irrelevant and an anomaly at best. At
present, once you get past 10 nodes, anything else becomes an anomalous rounding error. Every one of the 10
nodes is densely connected. Removing 99.999% of client connectivity would do nothing to the propagation of
transactions. At most, a transmission by a client will be propagated to over 95% of the network in two hops.

If we look at the corresponding original description, on the original website , we can see my badly (alpha)
written explanation, which yet exceeds what many people understand today:

There are two ways to send money. If the recipient is online, you can enter their IP address and it will connect,
get a new public key and send the transaction with comments. If the recipient is not online, it is possible to
send to their Bitcoin address, which is a hash of their public key that they give you. They’ll receive the
transaction the next time they connect and get the block it’s in. This method has the disadvantage that no
comment information is sent, and a bit of privacy may be lost if the address is used multiple times, but it is a
useful alternative if both users can’t be online at the same time or the recipient can’t receive incoming
connections.

The primary network is a peer-to-peer (P2P) network, in the true and most used sense. The definition of a P2P
network is really skewed in the sense that it is referring to a non-server-based system. In other words, it is a
distributed system. The notion of miners refers to the only real nodes in the Bitcoin network. As such, users
would be separate to the actual Bitcoin network. Users interact with the system.

Contrary to the false information that is spread about Bitcoin, users have no say in the network. The
consensus mechanism is purely derived from network nodes creating blocks. So that nodes cannot simply
cheat, there is a maturity period of 100 blocks. The maturity component means that blocks that are created
can be analysed such that, if needed, actions can be taken by the network nodes. Actions could even include
legislative actions or criminal sanctions against dishonest actors. Having said so, there is no connectivity
effect between client systems.

As explained, the primary nodes are all highly connected in a near-complete graph. Here, we see that over
98% of the network CPU power is directly connected. That is, it is connected by a single hop. As such, any
transaction sent by a user to even a single node will be with almost every other network node in one further
hop. Such commercial servers pay for high bandwidth, high-capacity routers, and network equipment. In all
events, the connectivity between network nodes exceeds the connectivity of all client nodes.

Let us look at an example of what occurs when a block is distributed on the network or a transaction is
propagated by nodes (again, note that I am referring to network nodes and not clients any time I say
“nodes”).

If client A sends a transaction to a single network node and seven other clients, at a time T=1, even as it gets
nowhere but to a single network node and many client nodes, the next hop will make any action by any
number of client nodes irrelevant.
After T=1, the transaction will be received by a network node that is incentivised, through commercial means,
to install fast hardware that will validate and propagate the transaction faster than any client can. The
network nodes are also incentivised to get transactions to other network nodes very quickly. As such, when
we come into a time T=2 or the next period, all the network nodes will have received the validated transaction,
that they can now validate, too, before receiving it from any client node.

The result is that the hash of the transaction being received from a client will match that which is already in
memory at each of the network nodes. On the second hop, every single network node will have received the
validated transaction, that it will now revalidate. Any communication from users or clients is then rejected.
Consequently, the only time that any communication from a client system matters at all is when they initially
send a transaction. In other words, any communication between one client system and another is wasted
bandwidth, making no difference to any consensus process on the network.
To contradict the common myth, there is no such thing as a candidate block that is sent across the network.
A candidate block is the node’s own block solution that it is working on. As soon as the valid proof-of-work has
been discovered, it is no longer a candidate block. As only completed blocks are propagated, other nodes do
not decide on the validity of candidate blocks. Effectively, the most efficient method for sending transactions
is to send directly to network nodes. Doing so will reduce wasted bandwidth on the network. It cannot
increase network bandwidth among network nodes as at no point will the nodes not receive the transaction.
Network nodes need only check the initial hash of a transaction, and can reject a second copy immediately—
as soon as a hash has been matched.

James Donald, as he is involved with several nefarious activities such as promoting child pornography, sought
a system different to Bitcoin. Unfortunately, I did not realise his intentions at the time, and it was well after
2008 that I would come to understand what sort of person he was. Having said so, Bitcoin is designed in a
way which cannot be changed towards the system that people like James Donald would like. When James
Donald said that Bitcoin did not seem to scale to the required size, it was because he wanted a system where
users of the network voted. Yet, Bitcoin is not designed in such a manner. In fact, it is designed so that it
cannot be redesigned as such.

When James Donald was saying that the bandwidth would not scale because of the requirement to send
transactions to every single person, he was assuming, in error, that each node on the network must receive
every transaction, having failed to read and understand section 8 of the white paper, on simplified payment
verification (SPV). Most of the ‘nodes’ (here, in the mathematical sense of the ‘edge nodes’ or user/client
systems) on the network require merely the block headers, which are to be distributed to them and
processed. It is only when they receive a transaction that they require any extra information. I pointed the
following out to James, in 2008, but again, I failed to understand that he did not want a system like Bitcoin:

Long before the network gets anywhere near as large as that, it would be safe for users to use Simplified
Payment Verification (section 8) to check for double spending, which only requires having the chain of block
headers, or about 12KB per day. Only people trying to create new coins would need to run network nodes. At
first, most users would run network nodes, but as the network grows beyond a certain point, it would be left
more and more to specialists with server farms of specialized hardware. A server farm would only need to
have one node on the network and the rest of the LAN connects with that one node [emphasis added] .

We have already achieved specialist server farms. Certain mining pools and corporations, as they see value in
not having to build systems that fully scale, simply promote a myth that limits the use of Bitcoin, allowing a
few monopolistic actors to mislead those seeking investment in the system. Although Bitcoin is not based on
a single monopolistic entity, at present, the major mining pools act as a cartel. Without regulations, a scenario
that has come about through the misinformation being spread by people within the community, such
companies have been able to maintain dominance without developing and expanding the system.

Something else people do not understand, in contrast to what was promoted by people like James Donald, is
that Bitcoin is not a system of continuous issue. All coins were issued at the instant I launched Bitcoin in 2009.
The coins are distributed under a unilateral contract. There is a big distinction between distribution and
issuance that people do not seem to grasp. Just under 21 million coins (bitcoin) have existed from the first
discovered block in 2009. There are no new bitcoin being created; they are tokens that already exist and that I
could have decided to keep, in part, for myself—not as a ‘pre-mine’, but as a payment. I did not do so. In the
creation of Bitcoin, I allocated and issued 100% of the created tokens to those who would support the
network.

In effect, the unilateral contract that I created allows agents, under a set of predefined rules or contractual
terms, to come and go at will.

Bitcoin Is a Set of Indivisible, Fungible Tokens

Each normal unit called bitcoin relates to 100 million digital tokens. Each of the tokens can be thought of as a
digital grain of rice. All the tokens have the same quality, and are in themselves indivisible, allowing them to
be fungible. A token is not the same as an unspent transaction output (UTXO). A UTXO may be analogised as
an envelope holding a set of tokens. Imagine each UTXO as a bag or an envelope holding a defined number
of grains of rice. Although the UTXO itself is recorded separately, the contents of the UTXO are completely
fungible, and it is impossible to distinguish between each of the virtualised grains of rice or digital tokens.

As we look at bitcoin as a set of tokens held in envelopes, when a user exchanges them with another user,
such as through the original IP-to-IP protocol, they are simply network clients. They can take the form of an
SPV client or a web client or many other forms, including one of a fat client that self-propagates.

Bitcoin was constructed such that people could send transactions whether they were online or not. The
primary methodology was to connect directly to the individual you were paying and exchange a transaction
with them. Again, I explained it on the original ‘BitCoin’ website :

There are two ways to send money. If the recipient is online, you can enter their IP address and it will connect,
get a new public key and send the transaction with comments. If the recipient is not online, it is possible to
send to their Bitcoin address, which is a hash of their public key that they give you. They’ll receive the
transaction the next time they connect and get the block it’s in. This method has the disadvantage that no
comment information is sent, and a bit of privacy may be lost if the address is used multiple times, but it is a
useful alternative if both users can’t be online at the same time or the recipient can’t receive incoming
connections.

More importantly, I detailed the scenario in the first sentence of my abstract in the white paper. As it says,
payments may be sent “directly from one party to another”. To send a direct payment, you do not connect to
network nodes and hope that they will send it later. You connect directly to the individual you are seeking to
pay. Although it is possible to receive transactions while offline, “[t]his method has the disadvantage that no
comment information is sent, and a bit of privacy may be lost”.

I find it unfortunate that people cannot think for themselves even now. The cult that has promoted Bitcoin in
order to enable the facilitation of crime and money laundering and the creation of Ponzi schemes, designed
to milk the general population, does not seek to educate people; it is rather selling a lie.
So, to recap, I will again say that clients of the network are not nodes. It does not matter whether you are a
merchant who is trying to propagate transactions, a full Bitcoin Core protocol client, or anything in between.
If you are not validating transactions and creating and winning blocks, you are not a node. Full stop .

Some people want to refer to things that are not involved in the consensus process of Bitcoin as nodes. But, it
should be simple: there are nodes, and there are clients. Nodes create blocks. Nodes validate transactions.
Nodes do everything that is explained in section 5 of the white paper. It is very simple: if you are not doing
every single thing referred to in section 5 of the white paper, you (the computer systems) are not a node in
any sense of the word.
So, we should not be trying to come up with arbitrary terms such as ‘transaction nodes’, ‘propagation nodes’,
or ‘transaction-processing nodes’. There is no such thing in the Bitcoin network as a node that does not
create, validate, propagate, and win blocks.

The main properties noted on the original ‘BitCoin’ webpage tell us how double spending is prevented with a
peer-to-peer network. The network of nodes (miners) is a standard broadcast or flood network. It does not
present how users are interacting, of course. There was not really much differentiation in 2009 as it was an
alpha software project. The main part of it being a peer-to-peer network lies in its resilience: the nodes may
come and go at will. There is no requirement to be connected all the time.

Network clients are the users of the network. Being that we are looking at a mandala network, there can be
other forms of networks overlaid on top of Bitcoin. Here, you can have autonomous agents, storage entities,
and even propagation entities. None of them are nodes on the Bitcoin network. A ‘storage and archive node’
may be a node, but it is not a node on the Bitcoin network unless it is part of a mining operation. A storage
and distribution network will have its own nodes. So, a ‘storage node’ is a node on a separate overlay network.
It is not a Bitcoin node in any sense. A ‘storage node’ that is not a miner is not a node on the Bitcoin network,
but is rather a node on a separate network, which may use the Bitcoin system as an index function.

The problem in trying to distinguish between the two networks (of miners and of clients) is that there are not
really two networks in the basic implementation of Bitcoin. Users, network clients, connect to each other.
They form a direct connection, which is not truly a network as such. The nodes or miners are in a veritable
peer-to-peer network. Other networks can be formed. Again, we are looking at what I have referred to as a
mandala network. The other networks are separate, overlay networks—built between the clients of the
network. Each client can form a node in a network separate to Bitcoin and that uses Bitcoin’s blockchain both
as an economic-incentive and coordination system and as an update and index system.

The system can be created as a fully peer-to-peer network as we saw it in systems such as Mojo Nation two
decades ago. The problem with Mojo Nation was the limitation on the economic incentive structure. Bitcoin
clients can be nodes in a separate network; there is no limitation on how many functions a computer system
can be engaged in, so a system can be both a client of one network and a node in a separate one.

Nodes in the Bitcoin network are what I, at first, called network nodes. When I was referring to them as
systems that would end up in data centres, I was not referring to single machines. A node does not need to be
an individual computer. Even now, an individual computer is made of multiple cores and separated into a
variety of highly linked systems. In effect, even a local desktop computer or a laptop really consists of multiple
computers. Having said so, a network node, a node on the Bitcoin network, would be made up of many
systems. It will include the routers, the databases, and all the different equipment, systems, and networks
necessary for handling the creation and propagation of blocks.

Right now, many people have the false idea that the Bitcoin node needs to run the database on the same
machine, which is an asinine and provably illogical concept. The database used from the beginning of Bitcoin
is a separate service. It does not matter whether a service such as a database is on the same or a separate
machine. So, whether it is a single machine or whether it is split into many machines, a node remains a node.

Early on, in trying to explain the concept, I referred to clients as “client nodes”. In graph theory and science,
each of the users could be represented as a node in mathematical terms. The problem with such terminology
is that the same word has other connotations. If we do call it anything, it has to be a ‘client node’, but such a
term leads people to believe that a ‘node’ as a client would have some representation on the Bitcoin network
itself.

My answer to our (so-called) dilemma is very simple…

The Bitcoin network has one form of node. There are separate components that make up a node. The
database, for instance, presents only one aspect of a network node.

A client system is not a Bitcoin node. There can be other node structures and node networks built by using
Bitcoin; such may be nodes of other, overlay networks. They are not and cannot be considered Bitcoin nodes.

It may be a blow to some of you, but your user-activated soft fork (UASF) system is not a node, has no impact
on the Bitcoin protocol, and cannot ever have any impact or relevance within Bitcoin.
The Right to Run a Node
By Craig Wright | 05 Jun 2020 | Alternative Coins & Systems
The problem that exists in the Bitcoin environment today is reminiscent of society at large. For many years
now, we have been falsely preaching a myth of equality where we tell children that “it doesn’t matter” as
long as they participate. We denigrate those who do well, those who work hard, and those who achieve and
sacrifice themselves on the altar of equality. The cult of equality has infiltrated society to an extent where we
now try and teach people from childhood that they are special because they tried really hard. To such ends,
we give prizes to not only the first but the last.

In doing so, we do not prop up those who are failing, but we denigrate success. For each person we award
and celebrate for merely having tried, we disincentive someone who would have not merely tried but
excelled and striven towards the betterment of humanity. And such is the point: there is no right to success.
There is no right to happiness. The US founding fathers talked about the right to the pursuit of happiness,
an idea that belies a concept fundamentally different to one that is being promoted now.

Here lies the false dichotomy we see within Bitcoin and associated systems. We see an attack on the
fundamentals of Bitcoin’s competitive nature by those who say that everyone has a right. But a right to
what exactly?

We shall start with what you have a right to. The system I created with Bitcoin gives every individual the
right to attempt to run a node. I have defined a node many times, and it is clearly explained in the white
paper as a system that not merely propagates blocks and transactions but creates blocks that are accepted
by the consensus group. As such, unless you are creating blocks periodically, at least once a fortnight as a
very minimum level, you are not running a node. To say that you have run a node, within any difficulty
period, means that you must have found a block within the given time frame. There are 2016 blocks
discovered in every difficulty period in the base distribution of Bitcoin.

Consequently, there can never be more than 2016 nodes in any difficulty period. There can be more
candidate nodes, which seek to act as nodes but do not make the cut. The reality, though, is much more
subtle; the distribution will never be equal within Bitcoin. The reality is that over 95% of the block discovery
at any time is associated with 10 to 12 entities (nodes), leaving but 100 blocks up for discovery by other
nodes. We can extend the scenario further: the top 99% of block discovery is consistently associated with
the top 20 or fewer players. In any difficulty period, it remains that only 20 blocks may be discovered outside
of the top 99% of nodes. Consequently, at the very maximum, there will never be more than 50 nodes on the
Bitcoin network.

I can say so categorically, because the definition of a Bitcoin node is very simple: a Bitcoin node creates and
propagates valid blocks. Any system that is not propagating blocks it created is not a node.

The analogy lies in our current generation of helicopter parents, who think their poor little Johnny deserves
a prize because he managed to finish the hundred-metre sprint in only five hours, while stuffing his face
with ice cream. You may consider that you are helping the network because you are running node software.
Yet, if you are not creating blocks in each difficulty period, then you are not helping to propagate blocks;
you are not helping at all. It really does not matter whether you want to help. It is completely irrelevant. You
do not have a right to run a Bitcoin node; you have a right to try to run a Bitcoin node.

The network is not designed to subsidise your desire. It really does not matter whether you want to run a
Bitcoin node more than anything; if you are not investing the time, effort, and capital required, then you are
not in the running whatsoever.

The system on Bitcoin Core (BTC), a name I use loosely as BTC is anything but Bitcoin today, has represented
a philosophy of equality. There are separate meanings of equality. The cult of equality has glossed over all of
them. We ignore the fact that there is a market difference between the meanings of the word. There are
equal opportunities, and there is an equality of outcomes. Such simple differences lead to a completely
different philosophy of life.
To want an equality of outcomes is the position taken by those who seek communism and socialism and
collective rights. It represents a system that disincentivises anyone from taking a risk or building something
great as the outcome will be that they will be treated the same as everyone else. Why would you spend your
time and effort training to be an Olympic athlete when you will not gain any benefit or recognition past the
fat kid who finishes last?

Bitcoin, like life, is not fair in the manner that some people seem to want. Bitcoin is fair in the sense that the
set of rules is defined, and anybody can come into the system and try their hand. It does not mean that they
will succeed. Which is an important part of Bitcoin. Most people who try to join the network and run a node
will fail, which is a good thing. Bitcoin is not there to allow you to run nodes. The purpose of Bitcoin is to
allow the transmission of digital tokens that can be used as cash. The purpose of Bitcoin is to allow it in a
manner that provides an exchange of low cost, so low that micropayments are possible.

Nodes are competitive. Competition is required because without it, there is no incentive to invest in the
system. Any node on the Bitcoin network can be supplanted by another. In other words, just because you
are the dominant corporation today does not mean you will be the dominant corporation tomorrow.

Bitcoin Is NOT about Running a Node

The entire point of Bitcoin was to allow users to be users. If everyone must be able to run a node and to run
data centres and maintain systems required to enable the exchange of small amounts of money, there is no
purpose in having Bitcoin.

A user only needs to keep a copy of the block headers of the longest proof-of-work chain, which he can get
by querying network nodes until he’s convinced he has the longest chain, and obtain the Merkle branch
linking the transaction to the block it’s timestamped in. He can’t check the transaction for himself, but by
linking it to a place in the chain, he can see that a network node has accepted it, and blocks added after it
further confirm the network has accepted it.
There is a reason why Bitcoin transactions are published, while the headers of the blocks can be maintained
with little effort and checked at any time. Simplified payment verification (SPV) users maintain a complete
list of all transaction indexes if they so wish. As such, they can quickly validate changes to the blockchain. In
maintaining a list of block hashes, it is possible to determine when a change was made to the blockchain
and act on it. It is not necessary to maintain the entire blockchain to do so.

In fact, there is no gain in security by doing so. The only difference in having the entire blockchain
downloaded to your machine, against maintaining just the block headers, comes in case the hashing
algorithm in Bitcoin is ever cracked, where you then have the entirety of the chain. But, it is a flawed
scenario. In the event that the hashing algorithm of Bitcoin is found to have no security, it will no longer
matter whether you have a complete copy of the blockchain, as the system itself will have no security.
Consequently, merely maintaining a copy of the block hashes is a complete record at a point in time. Any
changes that occur can be audited and reviewed by those holding such a minimal amount of information.

In the white paper, I explained: “Businesses that receive frequent payments will probably still want to run
their own nodes for more independent security and quicker verification.” The idea did not imply that
businesses would be aiding the network by running a node. Rather, such merchants that run a node that is
not expected to discover blocks are doing it for their own gain. They are not adding any security, nor are
they helping to propagate transactions or blocks across the network. Rather, such systems, which maintain
a complete copy of the UTXO set, are minimising merchants’ own losses when they need to transact very
quickly. It is a service that large merchants who take unconfirmed transactions may want to run to
minimise any losses associated with people trying to commit a fraud.

Rules Are Set in Stone

The ‘longest-chain rule’ does not mean that you can set up a node that changes rules.

While network nodes can verify transactions for themselves, the simplified method can be fooled by an
attacker’s fabricated transactions for as long as the attacker can continue to overpower the network. One
strategy to protect against this would be to accept alerts from network nodes when they detect an invalid
block , prompting the user’s software to download the full block and alerted transactions to confirm the
inconsistency [emphasis added].

When I configured the alert key, it was not a new idea. The alert key was something I had been considering
before I launched the Bitcoin software in 2009. The concept is mentioned in the white paper. Again, by
network nodes we are referring to the nodes defined in section 5, that create blocks. Users do not get to
send alerts; it would be possible to create an alerting system allowing for merchants to update network
nodes. In the future, the scenario can be extended to allow courts and law enforcement to send
notifications to the node operators.

An attacker who manages to overpower the network leaves an easy-to-follow audit trail. Network nodes
were always destined to end in data centres, which is already the case. It is simple to say, it requires an
investment of hundreds of millions of dollars or more to be a node. Such an investment is easy to trace, and
if you attack the network, it is an investment that is easily taken from you. Such is the point of Bitcoin: you
work with the network, or the network works against you. A potential attacker does not gain by attacking
Bitcoin, because they lose their investment.

The Consensus Method of Bitcoin

It is very simple; there is one consensus method in Bitcoin: miners or nodes or transaction-verification
systems or whatever you want to call nodes vote on the enforcement of the rules. They do not create the
rules. They do not alter the rules. They enforce the rules.

Any needed rules and incentives can be enforced with this consensus mechanism [emphasis added] .

No matter how many user systems exist on the network, all propagation comes from commercial systems.
There is the myth that the Bitcoin Core network has 10,000 nodes, which could not be further from the
truth. It is rare to have even 50 nodes on the BTC network. Only 20 of which do anything. In the entire
history of Bitcoin, the only nodes that have done any propagation work are the ones that are creating
blocks. If you investigate the transaction processing of such work, you will discover that every single
transaction that is incorporated into a block is transmitted from the original user to the network nodes, who
send to any remaining network nodes.

At no point do network nodes ever receive Bitcoin transactions from entities that do not create blocks. If
you investigate the propagation of every single transaction on the BTC network, you will see that the
propagation to network nodes happens within two hops.

The first hop is the sending of the transaction from the transacting parties to the network nodes.

The second hop involves a network node transmitting to any remaining network nodes.

There is no point within the Bitcoin network, or any blockchain network, where a transmission involves any
system other than a network node. The network nodes invest in fast Internet connections and fast
machines. They do so because it is the only way that they make money. Those who do not do so go
bankrupt very quickly. What remains is that network nodes on Bitcoin propagate transactions between
themselves faster than a home user or Raspberry Pi ‘node’ can even accept a transaction.

Once a node has received a transaction, it will not receive another transaction that incorporates the same
input values or UTXOs. Consequently, the later transmission of the transaction from a ‘non-network node’ is
irrelevant. In fact, the only time that a ‘non-network node’ can transmit a transaction to a network node is
when the system is attempting to propagate a double-spend. Here, the hash of the transaction will be
different to the existing transaction ID that is maintained on the network node, and the full transaction will
be requested. The network node will then have a copy of the transaction with double-spent inputs. The
network node will neither propagate it, validate it, nor ever add it to a block.

The consensus mechanism in Bitcoin is very simple. It is the propagation of a completed block. Non-nodes,
including all of the Raspberry Pis propagated within the system and sold by a variety of nefarious actors
seeking to mislead and dupe individuals into parting with their money for no good reason, do not engage in
the consensus mechanism of Bitcoin. User-activated soft fork (UASF) systems are not part of the Bitcoin
network in any way, which is simple to determine; the only consensus mechanism in Bitcoin comes from
the propagation of blocks. A system that does not propagate a block has no say.

A system that does not propagate a block cannot be censored by other systems.

The only way to have any say in the ordering of transactions on Bitcoin is to create blocks.
It Is Not about what You Want
So, very simply, it does not matter whether you want to help the network. Bitcoin has a defined set of rules,
and is constructed to always end in a commercial system. When you are talking about BTC and the Core
team, Ethereum, or any of the other coins and systems that attempted to copy Bitcoin without the groups
behind them understanding it or even Bitcoin itself (BSV), the thing to note is that you are only running a
node if you manage to create blocks.

You have no right to run a Bitcoin node. You have the right to attempt to run a node. They are not the same
things. You have no right to happiness; you have the right, in free countries, to engage in the pursuit of
happiness. You have the right to attempt to raise the money and invest the capital in the pursuit of the
creation of a system that will make profit through transaction processing, and such is the nature of Bitcoin.

It does not matter whether you want to help the network by running a node. The only way you can run a
node is to invest enough capital and to create a system that is sufficiently effective and efficient to be
profitable. If you do not end up making blocks, you are still not running a node.

Some people will tell you that you are acting as a node by being part of a pool. Although a mining pool is
itself a node, only the controlling entity matters in the scenario. So, by adding your ASIC to a pool, you may
or may not make some profit, but you are still not part of the Bitcoin network directly. You are part of a pool
that operates as a node. You are contracting to the pool. So, as a pool miner, you are part of a pool, but you
are still not part of the Bitcoin network. You are not processing transactions, and you are not propagating
them. At best, you are an agent of the pool network, and you are investing your time to make the corporate
entity better.
Is Code Really Law?
By Craig Wright | 16 Jun 2020 | Alternative Coins & Systems
Many people within the ‘cryptocurrency communities’ have made a religion of “code is law” , the flawed
methodology of Lawrence Lessig [1]. In his rant-like diatribe, Lessig holds the view of a world that did not
ever exist, and believes that somehow, we will gain true freedom through computational systems, in a world
where code sets rules that cannot be changed. It is a typical mantra of Silicon Valley, a world where general
AI replaces government in a techno-communist utopia. In a supposed world of abundance, machines run
everything with perfectly balanced code. It is not that we cannot create a certain system, but such devotees
hang onto a concept of code that will one day be perfect:

“We’ve learned The DAO code isn’t perfect. And it can’t be. Yet.”

To the same people, Bitcoin and all the derivative systems that come from it present the promise of a world
without government, where rules are made by machines and set in code. Yet, such a concept is fatally
flawed. Such people, who often attack traditional religion, do not even understand that they have formed
nothing but a fragile belief system, built on an easily discredited foundation of mud and shifting sand. For
what they are talking about is not a science or even something to do with engineering, but rather a religion.
Such extropian ideas are but another means to try to find purpose in a finite life—that must necessarily end.
Rather than admit death, they grasp the concept of a virtual world where we can be uploaded and live in
eternity. Even a basic understanding of physics and the universe would reveal that such a world is neither
feasible nor possible.

More critically, their entire set of premises rests on the false assumption that perfect code could be
achieved.

All code is written by humans. Like law, code is but an abstraction in language of something we set
ourselves to achieve. Code can form rules, yet such rules are still written by individuals. Committees do not
write code. Committees do not create a set of rules that will be implemented in any system. Bitcoin was not
written by a committee, nor was it designed by one. It was a system written by one man. In writing Bitcoin, I
have taken the concepts of many people as I read the works of many authors, yet my output remains my
creation. For all those who have made any inroads into my thought process, the process remains mine.

And here lies the dirty little secret that few like to talk about when they promote the concept of ‘code as
law’: somebody writes the code. Somebody loads code into a repository. There is no artificial intelligence or
generalised groupthink that creates and develops any system; when code is loaded into a repository, it
needs to be decided upon. Here, of course, lies the issue that some people choose to use in dissembling
concepts and in the deception across the masses. They seek to tell you that code will free you. They will tell
you that with Bitcoin and blockchain technology, we can get to a world where code will create a system
without law. What they don’t tell you is that law is a system that changes. Over time, based upon a
combination of fixed static, code-like statutes and the interpretation of individuals following the zeitgeist of
the day, courts interpret the actions of individuals.
Bitcoin does not create a democratic system of voting. Neither does any derivative system. It was never the
point of the system to do so. Bitcoin creates a set of static rules, and allows for a commodity-based
monetary system. If the base layer of a token system can change, anything built upon it will fail. Bitcoin is
designed as a base layer that others can build upon.

Proof of stake is not democratic. Such a concept of voting was never something that was incorporated into
blockchain technology, but has rather been something that has become a false and misleading mantra,
designed with the purpose of allowing many forms of illegality to thrive. The simple question to ask is, if
only those who have the most money and power, the incumbents, may vote, is the system democratic?

If a system is controlled by three or four developers who act as gatekeepers for code, is such code
something that others should be running? The dirty little secret that such developers do not want you to
think about is very simple: who created the code, and why? Even if such individuals could create perfect
code, it would only be perfect for a moment in time. Legal concepts, individual rights, all aspects of society
change as we move through time.

Those who follow the pseudo-religion of cyberspace promoted by Lessig and others believe that they shall
live in a world without rules, one that government cannot and should not control. But what is government?
There is no abstract form; the truth is that government is merely a collection of people who express ideas
based on the whims of society. No system is perfect, but to abstract government into the proverbial beast is
to ignore the simple truth that it is merely a collection of people acting on the whims of other people.

Society is the collective concept of many people acting and trading and exchanging and engaging with one
another. Although it seems as if we can treat it as its own entity, it is merely a collection of people. Our
minds are limited. And for such reason, we abstract the whole into something we can understand: bite-
sized pieces that we can digest and come to comprehend.

A world based on the concept of code being inviolable ignores humanity. Law is messy for a reason; the real
world is messy. The real world is difficult, and concepts that seem simple turn out to be complex. It may
seem that we can simplify contractual negotiations, negligence, and other aspects of our legal system and
make something that works in the same way every time. Yet the reality is, life is not so simple. The
interaction between individuals and changes across time cannot be incorporated into a legal contract
without some ability for them to be interpreted later. Yet it is what the proponents of ‘code is law’ seem to
believe. They believe that life can be put into a simple set of contractual rules, written onto a blockchain.
They believe that once it is so done, nothing can ever change it.

Their concept stems from the belief that many nodes distribute the creation and voting of rules between a
plurality of individuals. Interestingly enough, a few individuals with a lot of power seek to promote such a
concept. At present, no blockchain system has more than four or five controlling parties, which set the rules.
Which in itself is antithetical to the nature of Bitcoin. The reason Bitcoin, with the protocol being
unchangeable, was set in stone is that when a system has fixed rules and competing systems need to be
built upon such rules, not only do you get certainty, but there is no power from individuals seeking to
subvert the system and change the rules. That is, small cliques of developers or node operators cannot
change the rules to increase their own short-term profit.

Bitcoin Is Not Encrypted

Other than the fact that Bitcoin is derived through human interaction, the system is clear text. Bitcoin
utilises cryptographic algorithms, but the use of a cryptographic algorithm does not make something
encrypted. The use of pseudonymous names and a digital signature algorithm seems to have led to a lot of
confusion, with many people believing that Bitcoin allows degrees of anonymity or even complete
anonymity at scale for large transactions. They could not be further from the truth. The only reason Bitcoin
maintains privacy and anonymity, at any level, is that the value of a transaction can be so low that nobody
cares. The scenario is analogous to using cash: when you transfer small amounts of cash, or even an
amount worth £100, nobody really cares outside of the people engaged in the transaction. On the other
hand, if you want to transmit £15,000, there are forms to be submitted. The exchange of value using cash is
not anonymous at all levels.
Like with cash, transactions made on Bitcoin are pseudonymous. But pseudonymity does not mean that
transactions made on Bitcoin that are above the levels usually associated with cash can be made
anonymously. Existing laws on the value of funding transactions including cash or digital cash have applied
for many years, and continue to apply equally to digital currencies or ‘cryptocurrencies’. Liberty Reserve
discovered it the hard way. The mantra of decentralisation does not save the system from the required
rules; the application of anti-money laundering (AML) provisions remains in force whether you are using
bitcoin or cash.

As a thought experiment, it is simple to understand that cash is itself a peer-to-peer system—not because of
the mint function but because of the exchange of bills between individuals. Bitcoin allows for a distributed
distribution function. The distribution of clearing and settlement functions such that individuals may
transact on Bitcoin in a manner analogous to using cash. It comes with all the required rules that come with
cash. Most importantly, the implementation of rules is not something that a small group of developers and
businesses gets to set. Bitcoin is not a system based on votes by an anonymous group that controls a
system outside of government and regulatory systems. Miners are easy to detect, and it is simple for a
government to act against a rogue miner. The same principle applies even when it comes to the other
aspects of the Bitcoin ecosystem; exchanges are simple to interact with. There is no such thing as a
decentralized exchange (DEX). The concept of the distributed exchange is but a concept. Every single
exchange performs as a custodial service. Government can easily interact with any blockchain system
because the individuals involved in setting and maintaining and enforcing the rules are always visible.

And here lies the fatal flaw of ‘code is law’ as a mantra, stemming merely from a small group of developers
or businesses seeking to exert control through a false mythology of decentralisation that never existed.
Code does not write itself. More importantly, code can be changed.

Code is no different from contractual language. Writing in computer code does not add clarity; it allows
people to be even more abstract than they would be with common language. A contract formed using
computer languages suffers from all the normal abstractions that come from the creation of any plan
formed by humans; it cannot take into account the future. None of us know the future, and none of us can
plan all the contingencies that may occur. None of us know changes in law, and just because a code-based
contract exists does not make it legal.

The argument in several ‘cryptocurrency communities’ is that Bitcoin and related systems would act as a
distributed consensus involving all parties and that such individuals could act without oversight, without
regulation, and outside the law. Which is where the nature of Bitcoin comes into play. Bitcoin is published in
clear text. In the most ideal world, where everything goes the way of decentralisation and distribution, there
will never be more than a thousand or so Bitcoin miners, and even that is excessive. I have noted in the past
that the 2016 difficulty period sets an absolute limit on the number of nodes that can exist. As the consensus
methodology in Bitcoin lies purely in the distribution of valid blocks and does not involve any so-called
‘nodes’ that do not create blocks, there can never be more than 2000 nodes at any point in time. More
importantly, it is a commercial system. The reality is that even today, only 32 nodes exist on the Bitcoin
network, and even fewer exist on other systems such as Ethereum.

Taking the whole scenario into account, nodes cannot exist without exchanges that are easily controlled by
government and regulators. At the same time, the investment that is required by nodes acts to ensure that
such entities cannot remain anonymous. They are subject to international law, and must act, which is
important as it is only the nodes that set the rules. Without encryption, there is no way for actors in the
system to hide transactions. Bitcoin tokens can always be followed, and if a Bitcoin transaction may be
followed, it may be acted upon. Governments and regulators have required changes to code and forced
large companies to implement controls. Bitcoin is no different. A node that decides to flout government
controls is the dishonest actor mentioned in the Bitcoin white paper. A dishonest node is easy to bankrupt
and remove from the system.

Bitcoin Creates Excludable Assets and Property

The argument against digital property rights in the copyright over digital assets has always been an
argument about bailment. It is an argument about possession and the right for an adversarial owner to
exclude another. In the past, digital copies have not been able to maintain excludability. Here lies the
primary distinction to Bitcoin. We now have a system where the ownership of a digital good may be made
completely exclusionary. That is, one individual can ensure the exclusion of another. The tokens held within
a Bitcoin envelope, an unspent transaction output (UTXO), may be fungible and interchangeable, yet the
possession of such tokens and anything they represent can be limited to a single individual and to the
exclusion of all others.

Bitcoin removes the entire argument surrounding digital property that is made by those who are against
property rights. With the ability to isolate control, Bitcoin removes the arguments made against digital files
and the fact that they can be copied, the argument that they are not truly property. As property, Bitcoin
comes under law, and none of the false arguments against copyright need apply.

References

[1] Lessig, L. (2003). Law Regulating Code Regulating Law. See:

https://dash.harvard.edu/bitstream/handle/1/12912675/Law%20Regulating%20Code%20Regulating%20Law.pdf
(accessed 8th June, 2020).
Techno-Communism and the Desire for Socialism through
Code
By Craig Wright | 22 Jun 2020 | Bitcoin & Blockchain Tech
One of the primary arguments made over and over throughout ‘blockchain communities’ comes with the
concept of being owed a living . Inefficient developers, who through a small amount of moderately hard
work are obviously not earning enough, seek to bypass the entire concept of having to demonstrate that
they produce something.

None of it is new. Well before the developer tax and the idea of ‘pre-mining’, many developers have sought
to ‘get rich quick’, by simply making a broken copy of my original code and convincing people that having a
new blockchain presents a road to riches. Fairly much so is the definition of a Ponzi scheme or fraud.

But today, I’m going to discuss in detail how the concept of a distributed developer reward presents simply
a form of techno-socialism.

The incentives in Bitcoin do not require that developers be paid. The only party that requires payment and
the only party that can be validly paid is made up of the nodes (aka miners). They present the only party that
is incentivised to create a system that scales, without forming a developer sandbox for a bunch of amateur
cowboys to play in or creating changes that will simply stifle business.

Some people sit there arguing that the scenario will lead to miner centralisation. So what. Bitcoin is not
designed as a system where everyone runs a node. It is simply designed to allow new entrants to attempt
to compete with the incumbents. It simply stops monopolisation. There will never be thousands of Bitcoin
nodes; the system is not designed to allow more than 2000 nodes, and even that is not possible under the
current circumstances. At present, there are 32 nodes in the BTC network, while the all-time maximum
throughout history sits at 98 nodes, having existed in the last five years. If you are not creating blocks, you
are not part of the consensus mechanism—and you are not a node in the Bitcoin or a related system
network (such as BTC).

So, the fact is, Bitcoin operates in the manner I described in 2008. It evolves into a system of commercial
data centres. Corporations compete to validate, settle, and clear transactions and post them in the form of
blocks.

Developers can earn money not with their endless desire to experiment with the protocol and change it,
but rather by working for organisations. They can work for an organisation that creates code and sells it to
miners, or they can work for the node operators (aka miners) themselves.

If developers do not wish to work for another entity, nothing stops them from setting up their own
organisation, from being entrepreneurial and founding a new organisation, with either their own money or
money from capital that they manage to raise.

But here is the problem: such individuals don’t want to be beholden to another party. Mostly, they don’t
want to be beholden to the market. They are hypocritical: they call out as if they wanted capitalism, and yet
the first thing they do is run from any entrepreneurial opportunity that presents itself. Nothing stops them
from forming an organisation designed to create APIs that may be sold to wallets or businesses. Nothing
stops them from creating companies that would sell to individual nodes (miners). But to do so, they need to
place themselves in the judgement of the market. They need to make a product that produces a result that
is demonstrably better than any of the competition’s. They need to be good. Not just now, but continuously.

And here lies the rub: such developers do not seek to work hard and do not seek to create; they’re arguing
that they deserve to be paid because they had been involved with Bitcoin or related systems earlier than
some other person was. That it does not matter that another person is a better coder than them. And that it
does not matter that another person has sunk weekends and long hours of study into understanding the
system and creating something that may be better. Like all socialists, they believe that they are owed a
living.

But isn’t this a communist take-over? Well, not really. Technically, this conforms to Libertarian principles
since all participation in this is system is 100% voluntary. Any party is free to split at any time, just as they are
now. The only difference is that now all parties are incentivized to not split, which is not currently the case.

Their argument is perverted and addressed as a rather rancid strawman. They twist the concept of
libertarian principles, and say that something is “100% voluntary” and hence right, as if something being
voluntary is all that is necessary for it to be right.

The libertarian argument was based not on removing all rules but on not having a government that would
arbitrarily change them. At the same time, such disingenuous individuals seek to change the rules at a
whim. To change the rules for all other people, without a say.

The users do not benefit; a stable system benefits the users. Bitcoin, or any other blockchain system, is not
designed as a system for endless Ponzi schemes and speculative gambling; it is designed to deliver
micropayments and secure token exchanges. Neither are possible if the system is not stable. Yet, they seek
to create a playground, where they can speculate on changes—not because the market needs to use the
system, but because a developer thinks it’s a good idea.

This twisted idea of the market has become a zombie version of itself. Markets are simply testing grounds
for ideas and products. Allowing developers to introduce ideas without cost, where they are not exposed to
risks, is the exact opposite of what a market is most efficient at solving.

When a developer creates a business that creates code and has to struggle to develop a company, it is a
valid use of the market. Yet, it is the very thing that such people want to remove.

So yes, it is just an attempt at a communist takeover. It is removing risk from themselves and putting it onto
everyone else. It is subsidising their own existence, by placing the cost of their income on everyone else. It
serves not in the development of more efficient systems associated with free choice. Rather, it presents the
mandatory introduction of a cabal derived from the technocratic elite—not those who are elite because of
meritocratic competition, but those who promote a means of removing risk and allowing the incumbent
parties to remain funded and in charge.

The ideal means of funding developers is the same as every other means of funding developers,
corporations, and competition. If a developer is better than his peers, he can earn more. If a developer is
entrepreneurial, the individual may be capable of creating a new corporation and creating jobs for many
new people. There are no protocol changes that are necessary to make Bitcoin scale.

When I released Bitcoin, I created a system that was not altruistic. There is no reward necessary for
developers, and to incorporate such a system skews the entire incentive system, adding a group of
technocrats that are not necessary in any manner.

Nodes were not designed to be altruistic; they are commercial entities, and commercial entities compete.
As nodes are commercial entities, they will hire people or pay for better code. Developers who can code
better, faster, more efficiently will present value, just as they do right now when they are competing for jobs
in algorithmic-trading environments. In such areas, individuals who have suitable development skills can
earn £2 million a year.

Since no cryptocurrency can yet support a global adoption scenario, it’s clear that development is still
required in order to achieve the global adoption vision.

Bitcoin supported growth and the ability to scale from its inception. Bitcoin was capable of scaling to a level
exceeding Visa in 2010. The fundamentals of how Bitcoin scaled and the ability to do so had existed prior to
the launch of Bitcoin, publicly, in 2008. No developer needs to add anything to save Bitcoin.

What is true is that the code was highly inefficient. Which, in itself, is not an issue. If every single node
(miner) runs the same code, none of them gain a competitive advantage. By hiring good developers,
companies can develop code that gives them a competitive advantage. They can add value. If a developer
has enough ideas and is entrepreneurial in nature, they can form a corporation that sells to not only one
node operator but many.

The consequence and the result are simple: developers who run projects such as Bitcoin and are not as
good as they claim to be, in publicly touting their projects, end up seeking to capture their positions. It
amounts to rent-seeking.

The incentive system inherent in Bitcoin does not require developers to be paid through a mining tax or
any other convoluted scheme. The incentive system inherent in Bitcoin uses market competition, which is
all that is required.

Communists need not apply.

Cryptocurrency and the Law of the Horse
By Craig Wright | 02 Jul 2020 | Alternative Coins & Systems
In 1996, Judge Easterbrook presented and spoke to the University of Chicago Law School. In his
speech, he reflected the words of the dean of the school, Gerhard Casper, who related that the
University of Chicago did not offer a course on the ‘Law of the Horse’. In doing so, he was noting that
university subjects should be limited to courses such as Law and Economics or Law and Literature and
that they should avoid areas that are overly specific, such as Law and Cyberspace [1].

The law does not need to prescribe legal adaptions for cyberspace. In common law, analogies are used
to relate changes in technology and society, and have been used from the formation of the system. In
a well-studied case, Entores v Miles Far East Corp [2], Lord Denning introduced communications by
telex using the analogy of two people communicating at a distance. He argued that there would be no
contract when two people shouted across the river until the acceptance was heard by the offeror. If,
for instance, a noise occurred at the moment the acceptor was shouting an agreement, the offeror
could not assume a contract as the acceptance had not been heard. Here, he applied a reasoning that
would allow us to apply contracts to all forms of communications which are instantaneous, or virtually
instantaneous. The scenario differs from one of communicating by postal telegram, where there is a
delay in the exchange of a message. Telex was regarded as falling into the category of instantaneous
communication, and Lord Denning held that the acceptance by telex took place where it was received,
rather than where it was sent.

In an exchange using digital token systems, the same logic would apply. Again, it depends; it is not a
matter of law, but of fact. In an exchange of Bitcoin transactions, the nature of the transaction and
how it was transferred determine the time and location of acceptance. For instance, in a peer-to-peer
exchange where a buyer and seller directly exchange a Bitcoin transaction using the original IP-to-IP
protocol, the transaction would be said to be instantaneous and, as such, would occur at the location
where the recipient resides. Conversely, a Bitcoin transaction sent directly to the blockchain and a
recipient’s published address would mirror the condition of the postal acceptance rule .

In the same way that we do not need a course limited to the law for any individual aspect of
cyberspace, we do not require new laws for ‘cryptocurrency’ or digital tokens. Individuals and legal
entities exchange and transact, suffer torts and criminal actions, and continue to interact as they did
prior to the invention of computers. Although technologists would have us believe that new laws
needed to be created, many aspects of contractual exchange, monetary finance, and trade have
changed little other than in speed and certainty. When Judge Easterbrook noted that cyberspace was
being represented in the way that some would represent the ‘Law of the Horse’, he could have been
presenting at a conference for ‘cryptocurrency’ advocates.

Just as any course on the ‘Law of the Horse’ would be shallow and without unifying principles, the
‘Law of Cryptocurrency’ naturally presents a shallow and unfulfilling endeavour. Easterbrook noted
that even if a course covered every individual case involving people who were kicked or injured by
horses, it would still fail to convey the law of torts. At the same time, it would offer but a glancing
introduction to the law of contracts and property. Only by discussing and learning the law of property,
the law of contract, and financial law can we hope to understand the broader rules surrounding
commercial exchanges and the interactions of people in day-to-day life. There is no need for special
laws concerning ‘property in cyberspace’. Similarly, there is no need to incorporate courses on
‘property in cryptocurrency and digital tokens’.

Intellectual property law, contract law, tort law, and criminal law all form a solid basis and foundation
for the concepts of ‘cryptocurrency law’. Machines do not program themselves. Smart contracts are
merely automated exchanges that have been determined between individuals. In systems like Bitcoin,
there is no encryption and hence nothing to stop the legal alteration and reallocation of contractual
exchange. There is nothing new under the sun, which is particularly true of Bitcoin and all its imitators.
There is no need for new law, but there is a need to ensure judges and legislators understand the facts
surrounding Bitcoin and other blockchain systems.

For all the detractors such as Lawrence Lessig in the 1990s, there is no need to throw the baby out
with the bathwater. The push for specialised individualised law is not a call for improving
understanding and removing uncertainties; it is merely a poorly disguised attempt to undermine the
existing legal system. When Lessig and others tell us that “code regulates behaviour in cyberspace” [3],
individuals like himself fail to point out that all code is defined by humans. Computer code is merely a
form of language. It is not one that is easily understood by most people, but it is a form of
communication nonetheless. In using the supposition that code would form a system of its own, Lessig
sought to create changes in society by surreptitiously undermining many of the foundations of
freedom and law. His response took Easterbrook’s thesis and twisted it into a mouldy strawman.

Code is not law. The simple point, which cannot be buried, yet which is eternally missed in such claims,
is that all code is written by people.

The claim promoted by Lessig that is now propagated throughout parts of what people call the
“cryptocurrency community” is very simple: a system created by people should be above and beyond
the law for the simple fact that the creators may remain unknown. The English common law has long
dealt with the situation, and unlawful contracts do not become lawful merely because the parties who
initiated them do not have a means to stop them. An error in computer code does not dictate the
intent of the individuals. And the critical point is, for any meeting of the minds, the intention needs to
be accounted for.

The distinction between real space and cyberspace does not exist. An individual transacting over the
Internet or another electronic methodology remains an individual. No matter how many sock puppets
we use, we do not fundamentally change the method we use to communicate and transact. When
Easterbrook opined that it would be unreasonable to isolate studies of cyberspace law, he was well
ahead of his time. As a technologist and legal scholar, I hope not to be the dilettante he wrote of. It is
thereby necessary to develop a deep understanding of all aspects of both law and technology, which is
not something that can be achieved through a merged course. Focusing on the law around Bitcoin and
blockchain technology and cyberspace in general, my greatest understanding has come from courses
that have nothing to do with technology. For the most part, I have learnt the least from such courses
that spread the least and attempt to encompass everything in an electronic ‘law of horses’.

The Internet exists as a distributed consensus system, if you understand the intricacies involved with
the creation of routing exchanges or even the Domain Name System (DNS). For all the bluster, even
China must necessarily become part of the international consensus and follow the standards of the
Internet to become a part of the system and to connect to other nodes.

Bitcoin does not differ here. The consensus lies not in the code but between individuals who exhibit
and express intent. When I added to the Bitcoin white paper, “Any needed rules and incentives can be
enforced with this consensus mechanism”, I concluded the introduction to my technology not by
saying that computer nodes would form their own intent, but rather, the individuals running them
could engage in constructive consensus and, through it, might create a system that worked within
existing rules.

There is nothing automated that leaves code to become a replacement for law in the white paper, nor
is there any such thing in the technology it describes. A small number of commercial individuals,
through companies or corporations, follow the rules, ensuring that they are maintained. There is
nothing in any of my writings saying that Bitcoin was democratic—with the users determining the
future of the system through code. More importantly, such a system could not exist. For all the
mythology and religious hype, we do not have artificial intelligence, and we are not close to achieving
anything like it. We may automate systems, but we do not create systems that think. For all the rules
that they may apply, no machine has any inkling of thought or understanding. Consequently, code
cannot be law, because code is merely a language abstracted onto a page, even if the page is created
through binary electronic signals.

The question to ask remains simple: why would individuals seek to promote a false idea such as of
code being its own law, or why would they seek to say that the Internet, cyberspace, and now
‘cryptocurrencies’ remained outside and were not addressed by the law?

And when you think about it, logically, it can easily be seen that the answer is that such individuals
seek to abstract the truth and to twist the facts and to hide the simple reality that systems such as
Bitcoin involve people and not intelligent machines, that cyberspace is merely a concept we create in
our minds to incorporate the idea of a new realm, when we are really only exchanging through a new
technology—just as those using a telex machine were exchanging through a new technology. When
you see it all, you start to realise that certain individuals have agendas that would never be accepted if
they were to promote them openly.

Many such agendas would never see the light of day. Rather than saying that they seek a world where
they can engage in paedophilia and the exchange of child pornography, rather than saying that they
want a world where they can exploit people through the illicit sale of drugs and other, illegal material,
rather than saying that they want to subvert the law and override democracy, we have people
engaging in a series of lies, telling you that code is law.

But the truth is simple and will always remain simple.

Only humans exhibit and express intention, and only humans can contract or create the necessary
conditions to commit a crime. It will never be the case that computer code exists outside of the minds
of individuals. Code is simply a form of language, an abstraction designed to transfer ideas that always
and necessarily originate through the human mind. When any individual tries to tell you that code is
law, they simply seek to say that they, as a technocrat, have more rights than you do. They seek to tell
you that what they can create must necessarily override the dictates and constraints of society.
Through subversion and subtle lies, they will promote the concept that cyberspace and even
‘cryptocurrency’ are new and must be treated as something different under the law. It is not because it
is new, it is simply because there are things we, as a society, find abhorrent, yet individuals who don’t
find such things abhorrent seek to make them mainstream.

Shares and other security instruments have been dematerialised and exchanged on computer
databases for decades. The difficulty in exchanging securitised items, financial instruments, and digital
tokens is not resolved just because we have a blockchain. The cost of exchanging shares using
electronic clearing houses remains low. It is not the exchange of such digital items and property that
was ever in need of reform, but the cost associated with such exchanges was always related to anti-
money laundering (AML) and know your customer (KYC) regulations. Being able to exchange using a
blockchain does not remove the necessity to ensure that insider trading and share frauds are
mitigated. It is not the blockchain that reduces such things but the systems we would need to build
around it. Lastly, it is not that code is law; it is simply that code is a language that can capture any
exchange and help reduce their cost. For code to be useful and effective, it needs to follow law and not
attempt to subvert it.

References

[1] Easterbrook, F. H. (1996). Cyberspace and the Law of the Horse . 1996 University of Chicago Legal
Forum 207. See: https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?
referer=&httpsredir=1&article=2147&context=journal_articles (accessed 22nd June, 2020).

[2] [1955] 2 QB 327.

[3] Lessig, L. (1999). The Law of the Horse: What Cyberlaw Might Teach . 113 Harv. L. Rev. 501. 113 (2): 501–
549. doi:10.2307/1342331. JSTOR 1342331.
What Is Censorship Resistance?
By Craig Wright | 10 Jul 2020 | Bitcoin & Blockchain Tech
Bitcoin has nothing to do with ‘censorship resistance’, and it never did. The entire term is rather asinine. The
only people who truly want ‘censorship resistance’ and money of any size are generally criminals. The simple
reality is that Bitcoin gains pseudonymity when it is used as a cash-based system. Like with cash, as the level
or total value of a transaction increases, so do the ease in tracking and the number of requirements for the
registration of transfers and anti-money laundering (AML) reporting. Simply put, nobody cares when you
pay for a coffee using a £50 note, but you’re breaking the law if you purchase just about anything with
US$20,000 in cash without filling out the required forms.

The one thing that’s missing, but that’ll soon be developed, is a reliable e-cash, a method whereby on the
internet you can transfer funds from A to B, without A knowing B or B knowing A, the way I can take a 20
Dollar bill and hand it over to you…

Milton Friedman, 1999

A rather insidious myth has been developed and propagated around Bitcoin. From January 2011, a report by
the Electronic Frontier Foundation (EFF) [1] was coupled with the emergence of Silk Road to promote
Bitcoin as ‘censorship-resistant’ and ‘permissionless’—terms that are empty jargon and have nothing to do
with the nature of Bitcoin.

The purpose of Bitcoin has nothing to do with creating a system that can operate outside of anti-money
laundering (AML) rules; it was designed as cash for micropayments. More importantly, the empty phrase
describing Bitcoin as ‘permissionless’ is vacuous and without much meaning. You cannot simply do
whatever you want with Bitcoin. Nobody allows you to change the code. The entire purpose of a protocol
that is set in stone is that you cannot change the protocol.

The only reason Bitcoin may be considered ‘permissionless’ is that nothing is allowed. With the Internet, you
can build a new web page. If, on the other hand, you build a web page that violates the laws surrounding
information in your local jurisdiction or where it is being hosted, the web page will be taken down. In
Bitcoin, information may not be removed from the blockchain, but it won’t be served and disseminated if it
is known to be illegal.

The EFF’s commentary on Bitcoin from January 2011 fell short of even a rudimentary understanding of the
basic nature of Bitcoin.

For a start, Bitcoin was not an attempt, as it had occurred many times before, to create a digital currency; it
was an attempt, and a successful one, at making a form of electronic cash. In particular, I developed a
system that could act as a micropayment platform. A system that would allow transactions to occur in the
form of a commodity cash payment for amounts as low as fractions of a cent.

I’ve noted many times that Bitcoin is not encrypted. The entire blockchain is public and in the form of clear
text. The only nodes on the network are such facilities or entities that fulfil every aspect of section 5 of the
white paper. That is, such nodes that have become known as miners. In the last 12 months, there have not
been more than 32 Bitcoin miners, whether on the original version of Bitcoin (the BSV network) or on any of
the copies that are passing off as Bitcoin (such as the BTC network). More importantly, there are never more
than four entities that would be needed to meet a court order of any kind. In other words, a court order
against four Bitcoin nodes (miners) may result in a transaction being required to be frozen and then
reallocated.

Since the introduction of the Sarbanes-Oxley Act of 2002, every single US public company has been
required, by law, to have an immutable database for its accounting records. The Act required that
organisations maintain a write once read many (WORM) database for all accounting entries and for many
other electronic activities. It is the same form of database that Bitcoin uses. The error that many individuals
untrained in accounting maintain is that a WORM system means you cannot alter values. They believe in
yet another myth that is erroneous. You can, of course, change entries in Bitcoin. It does not require that
you go back and change the entire blockchain, but rather, like with entries in a corporate database, you add
an erratum entry to correct an error. Here, the original mistake and the correction are maintained
immutably. We can thus create the foundation for avoiding scenarios such as the Enron scandal, while
maintaining good accounting practice.

For the last decade, people with agendas and many who are funded by money launderers, child
pornographers, drug dealers, and tax evaders have sought to change the narrative and turn Bitcoin into a
criminal system. Bitcoin is a terrible system for criminals. All the government needs to start to understand is
how easy Bitcoin is to monitor and control. They need to open their eyes and start to see that Bitcoin
operates independently in civil environments, but allows for the integration of criminal actions such as
those started by the Financial Action Task Force (FATF). The Liberty Reserve prosecution involved law
enforcement from 42 countries. At most, action to control Bitcoin addresses and transactions would require
valid court orders in no more than four countries, and likely two.

The EFF started promoting a false idea of Bitcoin in 2011—not so that people would understand Bitcoin, but
so that they could promote their own flaky ideas. They took money that was invested and donated, and
used it to twist and manipulate the message about Bitcoin and to create a system that would allow
criminals to process money. The only true power they have is the power to change perception through
methodology and lies. Bitcoin is a technology that is scumbag-resistant, though not scumbag-proof;
people, in their attempt to change Bitcoin into something else, have managed to subvert the message
around Bitcoin, passing off copies as something that would be related to Bitcoin in some way. It is
scumbag-resistant as I spent a lot of time ensuring that there is no technical way to make the system run as
a mesh outside of the existing system, where users connect to a small, resilient hub of nodes. Such nodes
have a fiduciary duty, and are paid to process transactions.

As explained, at any time, there are rarely more than 10 nodes on the network that matter, and from a point
of view of legal action, there have never been more than five.

Bitcoin is not a response to the current financial system. It is a response to the flawed and poisonous system
that is being developed by companies in Silicon Valley. It is a response to the advertising-based economy
where for fractions of a cent in profit, hundreds of dollars’ worth of tracking information, advertising that is
forced down our throats, and eternal monitoring occur.

The myth that Bitcoin is designed to be ‘censorship-resistant’ is just that. Bitcoin is electronic cash. As with
cash, the use of electronic coins (bitcoin) remains private and is unlikely to be traced for small amounts. As it
scales, the use of bitcoin or cash needs to be reported and monitored.

The System Is Based on Economics

The differential of the use of bitcoin as cash under existing limits imposed by regulations, when compared
to its use in large transactions, is simple; it lies in the cost involved with taking action. It does not take an
own hashing and server farm or an own miner, as a government, to implement changes such as in the form
of freezing bitcoin or even reassigning keys; it requires the ability to act against corporate entities. Which is,
of course, what is overlooked. It is not possible to be a node on the Bitcoin network without a significant
investment that is easily detected.Bitcoin users may remain pseudonymous at low levels of transactions,
but no Bitcoin node (aka miner) can escape detection. The matter presents not a flaw; it is the implication
of how Bitcoin is designed. Some of the criminals that have been involved with Bitcoin don’t like it. They
have sought to change it, yet adding extra layers such as the Lightning Network just makes it easier to
intercept.

As with everything in life, there are economic limits; using Bitcoin comes with limitations. If you use Bitcoin
as cash, it can be seen to be cash. If you use Bitcoin as a monetary system in an attempt to bypass money
handling, fraud, and criminal law, you will find that the system allows that you be tracked and traced and
caught. Bitcoin presents an immutable ledger, an immutable ledger holding evidence of all activities
performed using the Bitcoin protocol.
Some people try to tell you that ‘censorship resistance’ means that you cannot freeze funds. Again, such
people are in error. When I introduced the alert key, fulfilling some of the aspects of what I said could be
done in the white paper, I allowed nodes to freeze unspent transaction outputs (UTXOs) and transactions.
There will never be a blockchain-based system that is legal and allows for the transfer of funds outside of
money handling laws. Bitcoin is not a first, as bitcoin can be frozen and seized.

And here is where economics comes into play. The cost of taking action dictates the lower bound on the
amount people to go after. If somebody steals 50 pounds’ worth of bitcoin, it is not worth taking legal action
to recover the coins on the blockchain. There are better ways of having such value recovered. Conversely,
where there are criminal sanctions against drug lords and money launderers, large addresses—holding, at
times, billions of US dollars—are simple to target. They can be accessed, frozen, and assigned—and there is
nothing that can be done to stop it. The concept of splitting bitcoin onto a new system to capture the same
value and to avoid a court order will not work. Bitcoin does not have value if it cannot be exchanged and
used. Exchanges that bypass money handling regulation will simply be shut down. Without use, there is no
value in the system.

There is a reason why you will never find a quote from me about ‘censorship resistance’ from the time
where I was acting under the pseudonym Satoshi: none exists. No single such quote had ever been
formulated by me, because it would have nothing to do with Bitcoin. When I released the alert key, I
released a methodology and a proof of concept that were extremely easy to implement. Freezing funds on
Bitcoin does not require changes on exchanges or end-user devices. The consensus methodology utilised
within Bitcoin is completely and utterly based on the exchange of blocks. It does not matter whether you
think you are a ‘relay node’; there is no such thing within Bitcoin. If you’re not creating blocks, you’re not
part of the consensus.

In creating blocks within Bitcoin, you provide your location. Bitcoin is not friendly to the Tor network where
nodes and block propagation are involved. If you try to run a Bitcoin-mining operation over Tor, you will find
yourself going broke very quickly. Users can be pseudonymous, Bitcoin nodes cannot.

There Is No Encryption Used in Bitcoin

The bit that some people fail to comprehend stems from a false belief that Bitcoin is like encryption. There is
no encryption used in Bitcoin; the exchange of all transactions occurs in clear text. Although Bitcoin uses
cryptographic algorithms, it does not encrypt data.

Here lies a concept that is important to understand. Governments and law enforcement cannot access files
that are encrypted using strong encryption and well-chosen keys.

Governments and law enforcement cannot seize bitcoin and alter keys that are used to transact without
leaving an immutable record of the change.Bitcoin is not designed to stop government from freezing
bitcoin, and it is not ‘censorship-resistant’. Bitcoin is public. What Bitcoin does is work within the rule of law.
Any court action or government and law-enforcement move to freeze and seize bitcoin will be public. When
such actions are performed against criminals, few people will see them as a problem. If a totalitarian,
controlling government decides to do so, a record is left immutably—for all time and for all people in the
world to see. It is thus how Bitcoin counters bad actors. It allows change, but change through sunshine.
Bitcoin does not stop people from freezing transactions, it stops them from using illicit money at scale.

The thing with strong encryption is that even governments cannot decrypt a file without the key.

Bitcoin is not encrypted. Transactions sent on the Bitcoin network are propagated and recorded as clear
text. As they are clear text, all UTXOs can be seen, monitored, traced, and acted upon. As the source of all
transactions, the input transaction, remains clear text and is easily viewed, it is simple to apply existing rules
of following and tracing money and enact court orders for freezing and later seizing bitcoin.

The Consensus Methodology

If every single user on the Bitcoin network decided that a court order from a government for freezing a
Bitcoin transaction was invalid, they would have no impact whatsoever. The implementation of a blacklist or
transaction-freezing code on the largest five Bitcoin nodes would ‘orphan’ any blocks containing
transactions covered by the freezing order.

Bitcoin is not and has never been about ‘censorship resistance’. I added the alert key to be able to freeze and
reverse transactions, if needed. All that matters in Bitcoin is a public record of any transaction that is
reversed. Without encryption, the way Bitcoin was designed, there is nothing that anybody can do to stop
such actions from occurring.

Some people will tell you that I can’t be the creator of Bitcoin because of their arguments about ‘censorship
resistance’. Such arguments never came from the creator of Bitcoin. I created a micropayment system, an
electronic cash-based system, a system that could act to reduce the size of transactions towards
micropayments at levels below one cent.

If you go back to 2009 and 2010, you will start to see that the narrative was different.

If you don’t want to record transactions that are captured in oppressive governments, you don’t want
Bitcoin. I say so because it is not by allowing everything that we get freedom; it is by propagating the truth
that we gain freedom. Oppressive governments and restrictive law-enforcement bodies do not want a
system like Bitcoin, that records every time they seize money. They want a system like Zcash, that keeps the
world secret, so that they can keep their secrets.

Notes

[1] Note that I find the EFF slightly less offensive, only slightly, than used toilet paper sitting in the middle of
one’s bed.
Keys ≠ Identity
By Craig Wright | 08 Aug 2020 | Bitcoin & Blockchain Tech
In mathematics and logic, there are many functions that act only one-way. Bitcoin is based on many such
functions. For instance, a cryptographically secure hash function, based on an indexed value that is returned
from the hash function yet cannot be linked the other way, enables an individual to verify the existence of
some data. In doing so, we demonstrate knowledge of some informational secret, through an algorithmic
process.

For a digital signature, the mere use of an algorithm is insufficient. Even now, many misunderstandings
surrounding the construction of electronic signatures continue to confound people. In the UK, electronic
signature laws were introduced in 2002 [1], providing some level of clarity. Such regulations have been
further clarified with the introduction of new laws in 2016 [2], that were designed to update and enhance the
ones previously issued.

Throughout the time, people within the ‘cryptocurrency community’ have failed to understand the
requirements associated with digital signatures. Like many parts of Bitcoin, digital signatures present a
one-way function. You cannot attribute identity because of a key. Advanced electronic signatures require
that identity be verified and stored prior to the use of a key. They are not transferable. The ill-formed
attempt at creating the Silk Road ‘Dread Pirate Roberts’ defence failed because those involved did not
understand some very simple concepts. Your keys in Bitcoin do not provide proof of ownership or identity.
At best, keys may be associated with possession. In the realm of English law, there are many laws associated
with the subject of possession, but possession, contrary to popular dogma, is not the same as ownership,
and it does not guarantee an individual’s identity.

Why Do Signatures Exist?

Electronic signature legislation has been created to enable a means for people to easily provide authenticity
of the person using a signature algorithm. In some cases, they can provide evidence of integrity around the
exchange of data or messages.

Chris Reed [3] describes the nature of a signature along the lines of the case of Goodman v. J. Eban Limited
[4]. Here, the use of a rubber stamp by a solicitor was considered sufficient as the solicitor had the intention
of authenticating the document as his own. What is being ignored in discussions around ‘cryptocurrency’ is
the fact that the mere use of a digital signature algorithm does not create a signature. As with Goodman v.
J. Eban Limited , it is clear that a signature does not need to be in the form of a natural person, but it is
required that the signature links to the person’s identity in some manner [5].

It is not necessary for a signature to reference the name of an individual [6]. As in Morton v. Copeland (1855)
[7], a signature is not the writing of a person’s Christian name and surname but some mark which identifies
it as resulting from the act of the party. For a digital signature algorithm to link the key to an individual and
hence the act, there needs to be some way to register and control the signature key. Where such is not the
case, it is not possible to say that the individual engaged in the act, and some other extrinsic evidence
would need to be provided. Such evidence is not evidence of possessing a key at a later point in time, but it
is the ability to introduce extrinsic evidence that proves the control of the key at the time the signature was
reportedly made.

As explained by Reed [3], for it to be valid, it is necessary to, in accordance with the time of signing, evidence
aspects of a digital signature including:

the identity of the signatory;

an intention to sign; and
an intention to adopt a document.

The consequence here is that a signature cannot be completely anonymous. Yet, it does not preclude
pseudonymous exchange. More importantly, many exchanges occur under the limit [8] for requiring the
use of a signature. Extrinsic evidence linked to identity may of course be used in attributing a digital
signature key to an individual [9].

Such extrinsic evidence would not be valid unless it could be demonstrated that it was available at the time
of signing. For instance, if Alice owned a digital signature key between 2010 and 2017 and then sold it or
otherwise gave it to Bob in 2018, and he maintained it from that point on, Bob would not be able to use the
signature key to authenticate a transaction prior to his receiving it.

Such aspects of the law are erroneously used by those seeking to say that a digital signature key can
disapprove an individual’s identity. The argument was used by Mr Antonopoulos as a proposed defence in
the Silk Road case, saying that the keys had been transferred. But it missed the necessity of extrinsic
evidence supporting the claim. If Mr Ross Ulbricht wished to use such a claim, it would require him to
provide extrinsic evidence of the other person’s identity and the exchange of keys. In other words, the
Dread Pirate Roberts defence would require evidence that would be adduced through the accused proving
that he was not the holder of the keys. It is a difficult barrier to cross in the Silk Road case.

In his case, Ross Ulbricht would have needed to find another individual, one who could act as a signatory
from the initiation of the use of the original keys. He would then need to prove that the same individual had
never provided copies of the keys to him before the later date, which he argued was when he purchased
the site.

If we take the hypothesis and assume that there is extrinsic evidence of Alice having keys to Silk Road in
2010, it still does not preclude Ross from having the same keys. Alice would need to provide evidence that
she had sole control, that Ross could not have had control of the keys. There are technical solutions that
would allow such evidence. There are hardware solutions that do not allow keys to be removed from a
device. If Alice could provide evidence detailing her control of such a hardware device and that she
maintained control of the device for the entire time, up until she gave it to Ross, it would be good evidence
that a key was not under his control at any point. Yet, no such evidence exists. It doesn’t exist because their
fanciful tale was mere puffery, in a vain attempt to get out of a criminal conviction.

The Crux of the Argument

The mistake that many people make is to assume that, because a digital signature algorithm may be used
to validate and authenticate a document, a key may be used to authenticate an identity. Such scenarios
present distinct and different outcomes. For a digital signature algorithm to validate a document, the key
must necessarily be maintained securely.
In Lemayne v. Stanley [10], it was held that a seal, which is what a digital signature on a document is, may be
used as a signature—which is not always the case [11]:

“For anyone may put a seal; no particular evidence arises from that seal: common seals are alike, and one
man’s may be like another’s; no certainty or guard therefor arises from thence.” [12]

Where an individual seeks to say that a digital signature key was compromised, they would be required to
provide evidence of such a compromise. Cryptography does not remove the legal ability to repudiate a
document; it merely changes the nature of evidence that must be provided. It is a key aspect that is
misunderstood by many cryptographers. There is no algorithm that will allow you to remove repudiation,
and hence there is no system for non-repudiation that can ever be created. If you understand the legal
bounds of and evidential requirements for repudiation, you will understand that it is not an issue of
technology.

It is possible, within Bitcoin, to link and authenticate a key in accordance with a hierarchy of keys. It allows
for the ability to digitally sign a document when required, coupled with the ability to maintain privacy—
even on an open and public ledger. Some of the patent innovations [13] we have filed for and that have been
granted with nChain provide such an ability.

As explained, the flaw in understanding digital signatures and advanced electronic signatures, as can be
implemented using Bitcoin, is exposed by understanding that keys do not provide an individual’s identity,
or that they do not prove ownership. A key can be used as evidence, but it is not sufficient in many cases to
offer proof without additional evidence. In the case of a transfer of electronic coins (bitcoin), a transaction
for a small amount of money in the order of less than £500 would not require additional evidence. It is very
unlikely that anyone would take things to court based merely on one such transaction. For an amount over
£500, on the other hand, the necessity to provide further evidence may be a requirement. In some US
states, the sale of personal property goods and items requires documentation for any exchange of value of
over US$5,000. Know your customer (KYC), customer due diligence (CDD), and anti-money laundering (AML)
rules also apply.

The Key to Identity

You do not own your bitcoin because you have a key. Just as you do not own the money in your bank
account because you have a password. You own bitcoin when you have validly obtained it. The laws of
property and exchange are not new. The mere possession of a key does not give ownership. In the same
way that having a copy of a house key does not provide you with ownership of a house, a key does not
provide you with ownership of bitcoin.

It needs to be remembered: Bitcoin is not encrypted. There is no encryption in the Bitcoin blockchain. All
transactions are made in the form of clear text. You can change transactions in databases, and the same can
be done on Bitcoin. It is not achieved by changing the blockchain, but by changing the pointers. It is
common practice to do so, and anyone who understands accounting will know that it is best practice when
updating records. It mirrors the process used in correcting paper ledgers. You do not change all of the
ledgers; you add an erratum entry.

The mere possession of a key will never in itself be evidence of identity or ownership. When we are talking
about small amounts of bitcoin, amounts that are used in normal commercial activities, possession outside
of other evidence will be sufficient. When seeking to prove contracts, the identity of individuals, and other
aspects of commerce, the possession of a key is insufficient to act as evidence alone.

Certification Authorities
In public key infrastructure (PKI), the use of certification authorities links keys to individuals’ identities.
Bitcoin does not remove the need to link their identities in large transactions. As I have explained before,
individuals’ identities are firewalled from the blockchain. The model does not mean that an individual’s
identity is not required, but rather that it can be isolated and, using deterministic key structures, provided in
a manner that maintains privacy.

References and Notes

[1] Electronic Signatures Regulations 2002/318.

[2] Revoked by Electronic Identification and Trust Services for Electronic Transactions Regulations 2016/696
Pt 3 reg.4(1) (July 22, 2016: revocation has effect subject to transitional provisions specified in SI 2016/696
reg.4(2))

[3] Reed, C.: What is a Signature? 2000 (3). The Journal of Information, Law and Technology (JILT).
<http://elj.warwick.ac.uk/jilt/00-3/reed.html/>. New citation as at 1/1/04:
http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2000_3/reed/ , last accessed 2020/08/07.

[4] [1954] 1 QB 550.

[5] Reed (2000); Redding, in re (1850) 14 Jur 1052, 2 Rob. Ecc. 339, where the testator executed a will in the
assumed name of the man with whom she was cohabiting and two years later erased that signature and re-
signed in her real name. The court held that probate could be granted in the first name because the second
signature, while not itself valid as execution, was not intended to revoke the will but merely to clarify her
identity. See also Hill v. Hill [1947] Ch 231 (initials); Cook, In the Estate of (Deceased). Murison v. Cook and
Another [1960] 1 All ER 689 (holograph will validly signed ‘your loving mother’); Rhodes v. Peterson (1972) SLT
98 (‘Mum’ a valid signature under Scots law).

[6] Baker v. Dening (1838) 8 A&E 94.

[7] Morton v. Copeland (1855) 16 CB 517, 535 per Maule J.

[8] The Statute of Frauds (1677) remains in effect in many common law countries. The Act requires that
certain exchanges, such as contracts over a defined amount of money, are done in writing and with a valid
signature. https://www.legislation.gov.uk/aep/Cha2/29/3/contents , last accessed 2020/08/07.

[9] See Baker v. Dening (1838) 8 A&E 94; Field, in re 3 Curt 752; Clarke, in re 27 LJPM&A 18; Redding, in re (1850)
14 Jur 1052, 2 Rob. Ecc. 339; Hill v. Hill [1947] Ch 231; Cook, in the Estate of (Deceased). Murison v. Cook and
Another [1960] 1 All ER 689.

[10] (1681) 3 Lev. 1 per North, Wyndham and Charlton JJ.

[11] Per Reed (2000); Grayson v. Atkinson (1752) 2 Ves. Sen. 454, 459 per Hardwicke LC, reversing his previous
opinion in Gryle v. Gryle (1741) 2 Atk. 176. See also Smith v. Evans (1754) 1 Wils. 313; Ellis v. Smith (1754) 1 Ves.
Jun. 11 at p. 13 per Willes CJ and p. 15 per Sir John Strange MR.

[12] Gryle v. Gryle (1741) 2 Atk. 176; see also Wright v. Wakeford (1811) 17 Ves. Jun. 454.

[13] Wright, C. S. Savanah, S.: Personal Device Security Using Elliptic Curve Cryptography for Secret Sharing .
International Patent Application Number: EP3257006 (B1). WIPO. 2018/10/03. Espacenet Homepage,
https://worldwide.espacenet.com/patent/search?q=pn%3DSG11201806702XA ;
https://patentimages.storage.googleapis.com/4c/c5/d2/48ad44c210de89/EP3257006B1.pdf , last accessed
2020/08/07.
Jan Van Eyck — A Study in Optics
By Craig Wright | 28 Aug 2020 | Philosophy
When people discuss Renaissance art, they generally look to Florence and the northern Italian peninsula. In
doing so, they bypass the source of the revolution. As one of the pinnacles of late mediaeval artistry and the
creator of a scientifically inspired revolution, Jan van Eyck began an artistic revolution that founded the early
Northern Renaissance. In a stylistic form that differed from the humanist style of the Florentine artists, van
Eyck produced a combination of secular and religious subject matter along the lines of International Gothic
style. From such foundation, his emphasis on realism and his ability to capture the moment through
technical developments in the media revolutionised and refined the techniques utilised by the Early
Netherlandish school. He used advances in the composition of the oil paint based on canola over the more
common mix of egg tempera, and developed new techniques and styles that had not formally been
adopted.

Van Eyck was the first painter of the Northern Renaissance who would sign his canvases. When signing, he
deployed a pun derived from the Greek rendition of his name, which, in the aspirated Greek, could be read:
“as best I can”. In characteristic northern spiritual pretensions that would be common in the period, van
Eyck signified his humility in not being able to produce a work of perfection. Others have taken them to
portray arrogance (Campbell, 1998, p32). Although he remained firmly rooted in Gothic traditions, we may
see an early spark of humanist individualism in his act.

In the Arnolfini Portrait , we start to see the early innovation and development of linear perspective.
Researchers such as Carleton (1982) mathematically analysed the portrait, contending that it exhibited a
technique described as “elliptical perspective”. In it, we see some of the early scientific developments in art
that led towards linear perspective, while we note that the artist had not yet captured a sole perspective
point. A later disciple of van Eyck, Petrus Christus, would take such first experiments in perspective and
develop a system that would allow later Renaissance painters to create the linear perspective techniques
we recognise today. Independently, the Florentine artist Filippo Brunelleschi started utilising a novel
geometric method to capture perspective from around 1413. The growth of commerce and economic
exchange led to an interchange of ideas, and techniques likely interacted, creating the Cambrian explosion
that we recognise as the art scene of the Late Renaissance. The commingling of methods from the
Florentine and Flemish schools may be seen to have occurred in the development of art academies, which
started to become common around the time.

In what we see as an essential component of the Renaissance genius, van Eyck had a career that extended
far beyond one of an artist. He acted as an envoy to the court of Philip, Duke of Burgundy, and in multiple
diplomatic posts. Unfortunately, the records associated with many such commissions have been lost.

In his creations, Jan van Eyck demonstrated an intuitive feeling of perspective. Together with an innate
ability to capture the more aesthetic aspects of a painting, developed through his work on miniatures, he
utilised the skills of an iconographer. We can see an apparent attempt to incorporate the convergence of
parallel lines and the development of perspective in his artwork. Yet the mathematical chaos that derives
from the existence of multiple focus points demonstrates that the artist, at the time, had not wholly solved
the issue of depth.

The progression towards linear realism developed throughout his career. The Madonna of Chancellor Rolin
captures a far more focused vanishing area than did the Arnolfini Portrait . We see a similar development in
the Dresden Triptych and his later The Virgin in a Church . Van Eyck’s handling of perspective increased in
mastery as he progressed in style.
Harbison (1984) demonstrates that van Eyck captures a fictional narrative, utilising an imagined reality that
never existed. Reminiscent of the spiritualist Gothic outlook of the time, the artist created a world that
merely reflects and mirrors one of a more transcendent existence. As with Dante capturing a sublime world
of the secular manifested through the spiritual, late mediaeval psychology, van Eyck expresses the deep
inner thoughts of a people whose time has long gone, and his world is undergoing change.

Van Eyck attempted to capture more than reality. He took what he saw, and rearranged it to reflect a
supernatural devotion that lay solely in the Gothic tradition. His madonna can be seen not as “in the church”
but “as the church” (Panofsky, 1934). Which leads us to wonder whether he would have been able to capture
linear perspective had he lived in a different time. The nature of society is reflected throughout his works.
Even as the artist attempts to break free from the existing constraints and add realism to his works, he is
tied to the Gothic ideal.

Van Eyck pushed the science of his art at the time. At the same time, he was a product of his time; even as
he helped shape the zeitgeist, he was captured and bound within it. In creating realistic objects, the artist
was not seeking to portray the world but instead transcending into the spiritual realm above and beyond it.
In merging realism and symbolism, the artist took to attain a domain that was believed, by some, to exist
more than our world.
The Virgin in the Church demonstrates depth, and a level of perspective that was starting to develop within
the canons, yet systemically reflects the belief structure of the time. In his fictional representation of a
cathedral, van Eyck portrays the Madonna in a larger-than-life form. Symbolically portrayed as the virgin
who personified the church, she stands impossibly large, consuming the vestibule space of the cathedral.
For all the attempts at realism, the artist remained fixed in the mediaeval tradition of altering the size of
individuals based on their position.

It was a combination of techniques developed in isolation and which later merged to form the catalyst of a
revolutionary new style that exploded to mark the Florentine Renaissance. Van Eyck captured the Gothic
spiritual consciousness of his time. He was also captured by it. To go further took the development of new
technology, a revolution, and thought. It was the merging of technologies developed in the north with
humanist philosophy.

The reintroduction of the classical works of Rome and Greece into mediaeval Europe sparked an influential
shift in the cultural paradigms that led to the literary and intellectual legacy that transformed the West. The
mixture of realism developed in the iconic, spiritual, and secular art and paintings of the north, along with
the reactionist view of stoic scepticism, individualism, and classicism, worked to change the course of
European culture forever.

References

Campbell, L. (1998). The Fifteenth Century Netherlandish Schools . London: National Gallery Publications.
ISBN 978-1-8570-9171-7.

Carleton, D. (1982). A Mathematical Analysis of the Perspective of the Arnolfini Portrait and Other Similar
Interior Scenes by Jan van Eyck . In: The Art Bulletin, vol. 64, no. 1, pp. 118–124.
Doi:10.1080/00043079.1982.10787953.

Harbison, C. (1984). Realism and Symbolism in Early Flemish Painting . In: The Art Bulletin , vol. 66, no. 4, pp.
588–602. Doi: 10.2307/3050474. JSTOR Homepage, https://www.jstor.org/stable/3050474 , last accessed
2020/08/28.

Panofsky, E. (1934). Jan van Eyck’s Arnolfini Portrait . In: The Burlington Magazine for Connoisseurs, vol. 64,
no. 372, pp. 117–119, 122–127. Burlington Magazine Publications Ltd. JSTOR Homepage,
https://www.jstor.org/stable/865802 , last accessed 2020/08/28.
On ‘Bullshit’
By Craig Wright | 02 Sep 2020 | Philosophy
Franfurt (2005; originally 1986, in his essay On Bullshit ) assembled a modern philosophical concept that
presents perhaps one of the most critical advances in philosophy and the twentieth century. Cohen (2013),
following his defence of communism and Marxist thought (Cohen 1980), further extends the conception of
bullshit . His essay explicates how false logic and misconceptions have been used to baffle people, including
himself:

I found that material hard to understand, and, because I was naive enough to believe that writings that were
attracting a great deal of respectful, and even reverent, attention could not be loaded with bullshit, I was
inclined to put the blame for finding the Althusserians hard entirely on myself. (Cohen 2013)

Cohen expands on Frankfurt’s philosophy to show that bullshit must fulfil a set of requirements. To be
bullshit, it must be “(a) unclarifiably unclear, (b) rubbish, or (c) irretrievably speculative” (Lewis 2015). From
Lenin’s (1939) reworking of the term imperialism up until contemporary issues with ‘woke’ culture, we see the
introduction of Orwellian doublespeak (Orwell 1984). Communism has been said to have failed. We have
been told that history is at an end (Fukuyama 1995)—which is the selfsame promise that Marx and Engels
promoted in their socialist utopia (Williams 2000). What is promoted as a concept of freedom where the
workingman rises to promote equality for all is a power play. Phillips demonstrates it repeatedly (Phillips
2020a; 2020b)—not in referencing communism, but in removing the foundations of such inconsistent creed.

At a cursory glance, it would be possible to say that such issues remain independent of each other and are
not related to communism. How does ‘woke’ culture reflect Marxist communism? In typical collectivist form,
the Marxist idea of freedom is freedom for an elite who know better and believe that they can rule. It was
Lenin himself who characterised communist equality.

Marx (1946) built a concept of communism based on philosophical bullshit, saying that “the cost of
production of a workman is restricted, almost entirely, to the means of subsistence that he requires for his
maintenance, and for the propagation of his race”. Such manipulation of truth is what we see now in many
universities (Phillips 2020a). It is what is being promoted as being politically correct, when, in fact, it is a racist
system of control, designed to separate and not to build. History has not ended, and the propaganda
promoted by Marx, along with the manner of promoting doublespeak in constructing an equal society,
continues—“but only so long as you shuffle along obediently to the beat of their dreary, robotic drum”
(Phillips 2020a).

References

Cohen, G. 1980. Karl Marx’s Theory of History: A Defense . In: Politics & Society , 9(3), pp. 371–372. Princeton:
Princeton University Press (1978). Available at: https://doi.org/10.1177%2F003232928000900305 , last accessed
2020/09/01.

Cohen, G. A. 2013. Complete Bullshit . In: Otsuka M. (ed.) Finding oneself in the other , pp. 112–132. Princeton,
N.J.: Princeton University Press.

Frankfurt, H. 2005. On Bullshit . Princeton, NJ: Princeton University Press.

Fukuyama, F. 1995. Reflections on the End of History, Five Years Later . In: History and Theory , 34(2), p.27.

Lenin, V. 1939. Imperialism . 1st edn. New York: International Publishers.

Lewis, W. S. 2015. Is There Less Bullshit in For Marx than in Reading Capital? . In: Crisis and Critique , vol 2, issue
2, pp. 143–165. Available at: http://crisiscritique.org/ccnovember/w-lewis.pdf , last accessed 2020/09/01.

Marx, K. Lee, A. Engels, F. 1946. Essentials Of Marx . New York: Rand School Press.

Orwell, G. 1984. Down and Out in Paris and London, 1984, Shooting an Elephant, and Other Essay . 1st ed. New
York: Quality Paperback Book Club.
Phillips, T. 2020a. University Bigots Want To Control Minorities . [online] Thetimes.co.uk. Available at:
https://www.thetimes.co.uk/edition/comment/university-bigots-want-to-control-minorities-j6jq5dfg5 , last
accessed 2020/09/01.

Phillips, T. 2020b. Woke Warriors Threaten Our Sense Of Identity . [online] Thetimes.co.uk. Available at:
https://www.thetimes.co.uk/article/woke-warriors-threaten-our-sense-of-identity-96985xwlr , last accessed
2020/09/01.

Williams H. 2000. The End of History in Hegel and Marx . In: Burns T., Fraser I. (eds) The Hegel-Marx Connection
, pp.198-216. Palgrave Macmillan, London. Available at: https://doi.org/10.1057/9780230595934_9 , last accessed
2020/09/01.
On Talking
By Craig Wright | 04 Sep 2020
| Economics
I have been giving oral presentations for a long time. The methodology I used in learning the necessary skill
has been far from ideal—jumping into fire rarely leaves you without scars. So, I do not know that I have a
feeling about it any more. It has just become part of my life. Reflecting on why will not change anything; it
comes down to just becoming better at what I am doing. Every time I speak, I try to analyse what I said, and
how, and how the audience reacted. And over time, as with every skill, you get better.

Thomas Sowell comes to mind as one of the better speakers whom I remember. I could also call out
Churchill and even numerous others, whom no one would remember, though they should be remembered.
Sowell has given many good speeches on the topic of economics and other aspects of public life. One that
comes to mind is called Morality vs. Sanctimoniousness .

When it comes to cringeworthy, excluding politicians, I will move next to Edward Said. Like many post-
modern authors, he has a belief that truth is personal. It is a rather common belief amongst many post-
modern scholars, and it is one that is highly flawed. Where two individuals have differing opinions, it often
becomes difficult to compare values. At times, some individuals will try to tell you that there is no truth, or
that it is personal. Such an argument is technically and logically unsound. As with many other forms of post-
truth philosophy, it leads to nihilism. There is little that is more excruciating.

[House of Lords; Greggy1900 / CC BY-SA (https://creativecommons.org/licenses/by-sa/4.0)]

I honestly cannot remember everything. I remember bad speeches, and I do recollect how I felt. I gave my
first public speech more than 30 years ago. Since then, I have given academic presentations and
presentations to Parliament, talked to the House of Lords, and much more. I spoke at the invitation of the
Oxford Union, and I do remember it well. Yet, it is not my speech that I remember, it is the room, and the
people that had been there before, and what they had said as it would resound from the past.

Sowell’s speech was vital. The socialist and Marxist concept that effort would matter more than output
needs to be addressed, and he did it with tremendous style and grace. In his speech , he said:

The philospher Pascal said that morality included a duty to think clearly. Clear thinking, in turn, included
not confusing effort with results. If I practice singing as long and as conscientiously as Pavarotti, I will have
as much merit as Pavarotti– but I will still not sing as well as Pavarotti. What other people can judge, in this
case all too easily, is who sings better. That is all they should try to judge. Neither my personal effort nor his
is known to them.

We don’t seem to say it any more, yet it is a message that needs to be repeated over and over again: it is not
the effort that you make; it is the value you create for others. It does not matter how much labour you
expend, but it is the quality of the output and how much other people value it which matters most. Such
sentiment came as I learnt through trial and error, and so it did when it came to speaking. It is not what you
value, nor even how you think you should say something. It matters that you provide something of value to
others. When you do so, when you can do so, then you start to become successful.
Bitcoin’s Model of Capitalism
By Craig Wright | 14 Sep 2020 | Bitcoin & Blockchain Tech
Some people think that Bitcoin is a system designed to act outside of state and society. Others believe that
it is a system designed to control business and to reign power into their particular social agendas. Neither
case captures the reasoning behind Bitcoin. Society matters. Whether we are talking about small groups or
the individual, the truth of the matter does not change, nor does it shift at the level of nations. All businesses
need to remember that they have a responsibility to the communities they are a part of. Such responsibility
does not mean that they have to become the whipping boys of a particular agenda, but that we need to be
conscious of the world and the environment we are living in and to be an active part in ensuring that good
is achieved.

[Adam Smith Statue (Edinburgh): Image by scotlandstudycentre from Pixabay ]

Bitcoin is a financial system, and it is designed to return capitalism to the system that individuals such as
Adam Smith promoted. Capitalism is a system that allows the free action of the baker or the candle maker
or the software developer seeking to trade fairly, without exploitation. It is such a system that allows for
long-term growth—without the exploitation by interest groups, government, greedy individuals, or ‘rent-
seekers’.

In the last 30 to 40 years, we have seen a seismic shift in the nature of how corporations are managed.
Individuals who seek to exploit by making short-term gains at the expense of the business have become the
norm, with companies both in Silicon Valley and at Wall Street fostering unfair business practices.
Businesses and companies are virtual people under the law. And as virtualised persons, companies have
obligations within society. Citizenship gives us rights and privileges, which apply to corporations, too. Yet,
rights and privileges do not come without responsibilities. Corporate citizens need to act as citizens, for they
are part of society.
Corporate actors need to build an environment that is conducive to long-term growth. The situation
requires investor approval. Here, the choice of investors is essential. Where an organisation seeks merely to
benefit from short-term gains and promoting the price of an asset and not to grow across years, the lifespan
of the organisation will be short-lived.

Social responsibility is not the same thing as not making a profit. But few seem to understand that a long-
term path to profitability and sustainable business practice present something different from an increase in
the short-term share price.

Equally, business is not a tool for social activism, and it is not a tool of government. As virtual citizens,
companies also have rights. Corporate citizenship means that the government does not have the right to
dictate how money and profit are spent. Responsible corporations cannot be seen as the lapdog of
whatever social justice platform seeking to redistribute wealth at any particular time. Corporations are not
tools for delivering social change, but, at the same time, they come under all of the other responsibilities of
citizenship. Corporations own property. Property owners have duties and responsibilities. Corporations have
rights, yet, they live in a community, in society, which means that they have both rights and obligations.
Milton Friedman was in error when he said that corporations only had a responsibility to their shareholders.
Corporations are made up of many entities. If a corporation does not treat their personnel and their
suppliers well, they will find a higher turnover, which leads to higher costs. In the long term, short-term
gains reduce profitability.

Whether we are talking about mercantilism or fascism or state capitalism, as has become fashionable in
many Communist countries, where business becomes the lapdog of state and social activist groups, it falls
into the same problems as it does as the lapdog of the ‘rent-seekers’ and financial vampires that inhabit
much of Wall Street and Silicon Valley. Such groups offer promises of short-term benefits as they bleed their
corporate victim dry.

Investors are different from traders; a trader only cares about short-term gains.They will happily make
money by manipulating the price of an asset, shorting the same asset as its price goes down and pumping
it to go up, making money at each change in price. A trader carries a use: speculators are necessary for
markets. But they need to be informed speculators and not merely gamblers. The financial market cannot
function without speculation; it is such individuals who act as market makers and provide liquidity. As with
any ecosystem, be it merely a virtualised analogy of human activities, as with financial markets or with
global ecosystems and the environment, the introduction of what can be adverse at scale can be essential
when limited in scope.

A business is responsible not only to its investors and shareholders, but for many other aspects of society. To
succeed long-term and not merely gain in some pathological prisoner’s dilemma, leading to the benefit of
one costing another in a zero-sum game, a business needs to grow both itself and its environment. It needs
to ensure that suppliers are sound and that they don’t engage in unfair business practices. It needs to
safeguard against fraud and ensure that the employees within the organisation are looked after. Such
provisions do not mean that employees dictate the company policy or strategy or control the organisation.
It means that employees are taken into account. That they have a career path and that they are not
exploited.

A good organisation is one that has not only loyal employees, but personnel who value the mission they are
a part of, who can see their role as more than just a job. In creating a workplace where people can work as a
team, we create an environment that delivers more than a mere job; it can become a calling. It can become
something that people will do because they believe in it—and not because they earn a pay cheque.

Managers and executives in an organisation are not merely there to derive a pump in the share price. They
exist to steward the organisation into the future. The title of the steward presents an important distinction:
stewards are not kings, and I used the word steward very carefully. A steward traditionally acted to maintain
a realm when the lord or king was not around. They did not have the ultimate power, and they could not do
anything they wished. Stewardship is the form of leadership that is needed if we are to take global
corporations successfully into a secure future that people want to be a part of.
Bitcoin is not a system that is designed to deliver ‘permissionless’ development. Nothing in the world is
‘permissionless’, nor can anything be. A world that has no obligations or responsibilities is not a world that
can have growth. The concept of ‘permissionless’ development is purely designed to bypass the
responsibilities of corporate citizenship, or any responsibility whatsoever. It is a system without the
commitment to long-term growth. It is a means to provide access to the wealth created by other people, to
favour a select group that seeks to vampirically benefit based on the efforts of those who work on the long-
term good.

Bitcoin is a system designed to be honest, and it is a system designed to enable sound business practice.
Building a world that we want to live in, that we would like our children to inherit, a world that is fair to all
requires openness and honesty. Bitcoin is not a system that is designed to promote anarchy, and it is not a
system that is favourable to those who break the law. Bitcoin presents a structure of rules that encourage
openness. The candidness that comes with the system does not require a business to act philanthropically.
Still, it allows members of the community to verify such ones that do and to actively make a choice to
support the organisations that they see as best serving the community.

Such is why I created Bitcoin.

Undermining Truth: The Rise of Fake News
By Craig Wright | 21 Sep 2020 | Economics
Truth in advertising is something that many people would call an oxymoron, but with the advent of social
media, we have become even more cynical, and it has become common to see the promotion of more than
questionable content. Di Domenico & Visentin (2020) explore the nature of fake news and problematic
information in their article entitled Fake news or true lies? Reflections about problematic contents in
marketing .

The authors investigate a multidisciplinary study of multiple scientific papers and managerial reports as a
meta-analysis. They use the definition of fake news described by Allcott & Gentzkow (2017, p. 213) as
something that goes beyond mere “bullshit”, whose originators fail to care whether it is true or not (Frankfurt
2005). Here, they are defining fake news as something that is intentionally and verifiably false. Fake news or
“true lies” are not merely the result of poor research, but, more accurately, one of promoted activities which
are intentionally designed to mislead.

The researchers demonstrate that misleading content has been spreading virally at an increasing rate.
Technology is promoting not only access to information, but the ability to create ‘cheap fake’ and ‘deep fake’
counterfeit information. It is noted that it becomes simpler to promote conspiracy theories. The ease at which
companies can now create and spread false information is leading to an information pandemic that could be
more dangerous than viral epidemics. The negative impact of such misleading pseudo-knowledge
undermines the valid trust that responsible organizations have built over the years.

Such reports are valuable. The concept of conscious capitalism (Mackey & Sisodia 2014) is one that requires
trust in organizations. If people are to be part of a process that builds a healthier and more resilient society,
they need to be able to believe and trust in the process. Suppose consumers cannot believe in the
organizations that they seek to invest in or to buy products from. The scenario is likely to end with a race to
the bottom. For a brand to differentiate itself and to expend extra capital on creating a sustainable product,
people need to see the benefits available—and not have them diminished through sham offerings and
counterfeits that are unlikely to provide benefits such as sustainable sourcing. Although it is possible to set up
an exploitative business that is profitable in the short term, consumers will generally reject the offerings,
leaving the company or product, once the consumer comes to understand that they are being exploited, to
fail.

The research delves into a wide meta-analysis of articles on fake news and other problematic information. In
doing so, the paper provides a means to investigate how marketing can increase the awareness of sham
information, amongst both consumers and marketers. We could see that the research is particularly cogent
when it comes to vulnerable consumers. If a business is to be perceived as trustworthy by the communities
they serve, the business needs to be recognised and judged based on true actions; not through the falsely
promoted sham material that is being advertised on many social media platforms. Where organizations
allow fake news and fake promotions, they allow for the erosion of trust in responsible business. Such attrition
in confidence occurs because acting for the long-term creation of profit requires short-term investments that
will not be returned if nefarious actors can undermine them.

Palmer and Hedberg (2013) make a note of the moral and ethical problems associated with marketing to the
vulnerable. In an age of fake news and counterfeit information, it becomes all the more simple for hucksters
to take advantage of outlying aspects of the community and, in doing so, to erode away the waning
confidence that many people have in our capitalist society. But it’s not just society. Individual corporations
need to take charge of the message that is being conveyed about their brand. Failure to control fake news,
while allowing misinformation, significantly erodes brand equity (Berthon & Pitt 2018).

The results are not all negative. Companies, if they maintain substantial brand control and actively and
aggressively fight fake news, can turn marketing threats into an advantage. Organizations such as Unilever
have recently taken a stand against fake news and promotion of hatred on Facebook (Hern 2020). Such
moves form an essential part of ensuring that stakeholders pressure social media companies into adopting
stringent standards to improve the quality of news and information that they distribute. Most offerings
involving criminal activity and fake news are subject to economic forces, and as the cost of providing fake
news increases, the quantity is likely to decrease (Wright 2012). The actions taken by Unilever are laudable,
and others join them in fighting to mitigate false information. In doing so, we promote honest business and
ensure that the susceptible are not exposed. By acting together in opposing fake media, it becomes more
straightforward and less expensive for responsible organizations to maintain their brands.

References

Allcott, H. Gentzkow, M. 2017. Social media and fake news in the 2016 election. Journal of Economic
Perspectives , 31(2), 211–236. doi:10.3386/w23089.

Berthon, P. R. Pitt, L. F. 2018. Brands, truthiness and post-fact: Managing brands in a post-rational world.
Journal of Macromarketing , 38, 218–227. Available at: https://doi.org/10.1177/0276146718755869 , last accessed
2020/09/18.

Di Domenico, G. Visentin, M. 2020. Fake news or true lies? Reflections about problematic contents in
marketing. International Journal Of Market Research , 62(4), 409-417. doi:10.1177/1470785320934719.

Frankfurt, H. 2005. On Bullshit. Princeton, NJ: Princeton University Press.

Hern, A. 2020. Third of advertisers may boycott Facebook in hate speech revolt. Available at:
https://www.theguardian.com/technology/2020/jun/30/third-of-advertisers-may-boycott-facebook-in-hate-
speech-revolt , last accessed 2020/09/18.

Mackey, J. Sisodia, R. 2014. Conscious Capitalism, With a New Preface by the Authors. Boston: Perseus Book
LLC (Ingram).

Palmer, D. Hedberg, T. 2012. The Ethics of Marketing to Vulnerable Populations. Journal Of Business Ethics
, 116(2), 403-413. doi: 10.1007/s10551-012-1476-2.

Wright, C. 2012. Criminal Specialization as a Corollary of Rational Choice. International Conference On

Electronics, Information And Communication Engineering (EICE 2012), 155–159. doi: 10.1115/1.859971.paper29.
The Myth of Bitcoin as a Voting System
By Craig Wright | 29 Sep 2020 | Bitcoin & Blockchain Tech
There lies an error in many people’s fundamental understanding of Bitcoin, and any blockchain system, that
has been propagated by those who seek to hide the power grab they are making—behind a false patina of
democracy. Some of the people associated with Bitcoin Core and Blockstream have been arguing that the
worst decision was voting in Gavin to run the system after myself. Gavin Andresen. There are multiple flaws in
their argument. Firstly, I wasn’t ever voted into the system; I created Bitcoin, and I didn’t give over the control
of the protocol. Next, Gavin was not appointed by vote or by the community. I selected Gavin to manage the
software distribution. His job was to steward the software, to ensure that it had no problems. It was not a role
where he was designated to change the protocol.

What Adam Back and others forget is, they didn’t vote Gavin in.

I appointed him.

The problem wasn’t that Gavin did not understand Bitcoin; the problem is, Gavin wasn’t strong enough to
stand up against the constant barrage from selected groups of people who did not want Bitcoin, people who
wanted an anonymous system enabling the viability of nefarious and illegitimate activity. Bitcoin isn’t
anonymous; it leaves behind an audit trail, which is what people, communities wanted to remove. I didn’t go
so that a community of ‘Bitcoiners’ could vote; there is no voting on the protocol of Bitcoin. I was very clear
about it.

Section 4 of the white paper mentions voting. Unfortunately, it would appear that very few people have read
the white paper. If they do, they come with a biased understanding and do not read the words that are
written. The section talks about the problems of allowing everybody to vote based on an IP address or even a
machine itself. And it goes further, if you think about it: humans can be ‘sybil’d’. Allowing random anonymous
individuals is how click farms work. People can be paid off and can take money to act for others. They can do
so nefariously. Nodes need to be determinable. They can be pseudonymous, but as soon as they have a vote
that matters, as soon as they are one of the larger players, who determine the fate of the blockchain, they
cannot be anonymous any longer. Removing the anonymity of nodes, while allowing them to compete
against a unilateral contract for a reward, is how Bitcoin works.

We shall start by analysing the text associated with what ‘proof-of-workers’ used to achieve. In other words, I
begin by exploring the use of a proof-of-work algorithm to replace newspapers on Usenet:

To implement a distributed timestamp server on a peer-to-peer basis, we will need to use a proof-of-work
system similar to Adam Back’s Hashcash [6], rather than newspaper or Usenet posts.

Proof-of-work and the distribution method replace the publication of block hashes in newspapers. If you read
the references included in the white paper, you will see that the methodology used in creating a timestamp
server involved sending around hashes, or what I called block hashes in Bitcoin, to a newspaper or other
widely read publication. The process deanonymises nodes. It doesn’t create a system that allows nodes to
vote on the protocol. The related function is explained later in the section, and it is described in detail at the
end of the white paper. I shall leave it for last.

I note in the white paper that proof-of-work allows the nodes to determine the majority decision-making. Yet,
proof-of-work presents not the majority democratically, as some will have you think. It is the majority of the
investment. More importantly, the vote that is being taken is a decision on what is and what is not an honest
block. If a node follows the base protocol, they are acting honestly. If they are acting honestly, they are voting
for the honest distribution of transactions and ordering of blocks. If they are working honestly, they are
operating legally and fairly. The majority decision is not based on the majority of users.

The reason many who oppose me seek to misrepresent what a node is defined as derives from the
misrepresentation of a fact. If you start to see that there is only a limited number of nodes, which are all
commercial entities, and that they are defined, in section 5 of the white paper, as entities that create blocks,
you start to see that most individuals using Bitcoin or downloading the software are not nodes and serve no
purpose outside of being a user of the system. Bitcoin isn’t the system that James Donald and others have
sought, that would allow every individual using Bitcoin to be a part of the consensus mechanism; the
consensus mechanism in Bitcoin is limited to the creation of blocks. Very few systems have created blocks in
the history of Bitcoin.

I explained the scenario clearly when I made the comment in the white paper:

If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace
any competing chains.

CPU power, as mentioned, is not the CPU power of all users of Bitcoin; instead, it is the CPU power or
economic investment of the primary nodes, defining the system. They are the entities that create blocks. The
users of the system, who don’t create unions, don’t engage in consensus. They are not nodes.

Gavin wasn’t supposed to set up systems to listen to the community. He was supposed to manage a project
and steward it forward. A steward is carefully selected. Gavin was not ruling Bitcoin; he was to take my idea
and build upon it.

Nodes Enforce Rules

Nodes don’t vote interactively. No operator of a node will sit there watching transactions and deciding
whether one should be included or not. Machines don’t have agencies. Machines aren’t intelligent. Machines
are not getting intelligent. The best computer systems and machines that we have are no more intelligent
than the first mechanical puppet was. In effect, nodes only have one vote: they vote to be honest, or they vote
to be criminals. If they vote to be criminals, they do so in a system that records their crime and their
deceptions in an evidentiary manner. The security of Bitcoin is not cryptographic; it is a combination of game
theory and law and publicised auditable information. Nodes do not vote on changing the protocol. It is
straightforward: nodes vote to enforce the rules. They don’t vote to create the rules; Bitcoin nodes enforce the
rules.

The heart of the battle over the protocol and Bitcoin and other systems, in the continuous endeavour of a few
nefarious individuals who attempt to undermine my credibility, comes down to a relatively straightforward
point: some people don’t want other people to understand Bitcoin. They are of afraid what will happen if
individuals representing the government and regulators understand what Bitcoin is.

Bitcoin isn’t a voting system. You have been informed wrongly here. Bitcoin as a voting system is a system
that allows a few dominant players to decide for the rest of society, in a secret manner, if so it was allowed to
change. If you add anonymity, if you don’t deanonymise miners, you will simply end up with a system of
‘might makes right’. There are people who want such a system. But the secret is, you tell the truth. You let
people know that the answer here lies in not allowing them to vote on anything other than honesty. You
don’t allow them to vote on protocol changes. There are no democratic changes that come from miners, or,
as they are really called, nodes. The only changes in Bitcoin are cosmetic or selectively created, within the
protocol. I set the protocol in stone so that there wouldn’t be any voting on anything other than on honesty. It
is how Bitcoin really works.
Nation and State: Old Wine in New Bottles
By Craig Wright | 06 Oct 2020
| Economics
If you opt to believe Anderson (2016; originally 1991), it becomes necessary to concur with the notion
that ancient great powers, including Ancient India and Ancient China, are merely modern
‘consumerised’ ruminations of a capitalist society. In Imagined Communities, a notion develops, in a
progressive sense, of believing that we are all part of a whole, which is presented as a fresh concept,
one that is only a couple of centuries old. To Anderson, nationalism is an idea that has grown through
and with the modern conception of capitalism. It is sold as a concept that is supported through the
power of the contemporary state.

The argument is that nationalism derives its structure through modern capitalist arrangements. The
promotion of literacy and even newspapers develops into the vehicle of transplanting political and
ideological concepts that extend beyond race and monarchy. If it so were true, we would expect to
exclusively see homogeneous tribes and ancient communities, where racial isolation and xenophobia
endure as the norm. Yet, Boin (2020) demonstrates, the Roman Empire thrived and grew through
periods of immigration. At each opportunity where the Roman Empire opened its doors and increased
the franchise of citizenship, the nation thrived. Conversely, xenophobia resulted in periods of less trade
and agony.

Anderson promotes an idea of old wine in new bottles: the argument that no use of the word
nationalism was recorded before the eighteenth century falls flat when you compare the meaning of
the word to its use. Whether in ancient China, India, Israel, or Rome, the principle that you are bound
to one another without blood ties and ever having met has been a strong influencing factor.
Communities exhibit periods of isolationism and periods of openness across all times—reflective of
modern society. Before World War I, the United States of America had sought to remain isolated. At
other times, they have exercised their hegemonic power.

To ignore such parallels is to merely put one’s head in the sand and promote the concept of
nationalism as something new, or something that derives from capitalism. Nationalism can be seen as
neither modern nor capitalistic; it is an idea as old as history, and no matter which model you put it in,
or how new the definitional label, the wine is old. Against the suggestion that capitalism is the
foundation of nationalism and that such notions are modern, I have but one thing to say:

SPQR ( Senātus Populusque Rōmānus )!

[Image source: https://www.flickr.com/photos/malte_s/5019881858;
https://creativecommons.org/licenses/by/2.0/legalcode]

References

Anderson, B. (2016). [orig. 1991]. Imagined Communities. pp.1-7. London: Verso.

Boin, D. (2020). Ancient Rome Thrived When the Empire Welcomed Immigrants. We Should
Remember What Happened When That Changed. [online] Time, available at:
https://time.com/5850622/rome-immigrants/ , last accessed 2020/08/17.
Scarcity and Incentives
By Craig Wright | 16 Oct 2020 | Economics
When people query why elite athletes such as NBA basketball players are getting paid so much more than
teachers, the argument is one of scarcity: it is not that basketballers get paid more; it is that the NBA selects
an elite of basketball players. Such individuals are rare and hence scarce. The other side of the scissors is
that such individuals are in demand. Whenever scarcity and demand meet, price increases, arising from the
values attributed by the people seeking the good. The range of the teacher’s salary also varies. In part, the
problem with public schools, in general, is that good teachers are not only paid the same as mediocre
teachers, but they gain the same external incentives. The incentivisation to be the best teacher is frequently
not monetary. Still, when we fail to reward and incentivise individuals, it may not merely be because we are
doing so in monetary terms. The incentive to be a better teacher is not limited to one that is based on
financial reward (Wisener & Eva, 2018).

When we compare the scenario of the teacher to the one of the NBA basketball player, we must next look
at how many teachers there are, compared to how many elite athletes there are. It is also simple to argue
that teachers spend many years at university. Elite athletes can train seven days a week, to an intensity that
exceeds the completion of a doctoral degree multiple times over. The consequence is that we reward the
elite few who can sacrifice to such an extent, and succeed. When people can compete and earn based
purely on merit, the few individuals who are most skilled in their roles will generally receive more than
others.

What people are not thinking about when they are making such comparisons is the incentive and value
outside of a pure monetary reward. Many people become teachers because they wish to teach. The motive
lies in bringing up and educating the next generation of society. For many teachers, the motivation to be a
teacher is the reward. Balancing incentives is computationally demanding. The ability to find and report
market prices accurately is the primary strength of the free market. Markets do not make judgements. They
don’t have ethical values; markets are merely tools that reflect the principles of those who act in them. In
taking the small, incremental changes and interactions that everyone completes daily, the invisible hand of
the market (Smith, 1776) comes to form equilibrium prices, based on the standards of society, as they are
reflected within the rules. The rules, of course, can skew how the market works. Legislating for maximum
prices will impact the number of goods produced and lead to shortages. Even though many socialist
nations have tried to plan their economies centrally, the sheer volume of interactions is beyond human
calculation.

Cassar and Meier (2018) provide strong evidence that workers are influenced and incentivised by
nonmonetary aspects of the job. Job satisfaction and productivity are not derived from the size of one’s pay
cheque. Wisener and Eva (2018) focused their study on the incentivisation of medical teachers. Medical
education requires valuable time from physicians and clinicians. Many medical educators volunteer their
time or take significant pay cuts to be able to teach. On a purely monetary basis, doing so would seem
irrational. The motivations of people who engage in such activities cover many diverse roles, and rather
than receiving fiscal benefits, such individuals gain a sense of self-worth and feel valued. It is important to
note that the introduction of monetary rewards can act to disincentivise good performance (Titmuss in
Wilson, 1972; Upton, 1973).

The selection of incentives is as essential to businesses and individuals as it is to society. From an ethical
standpoint, many people have started reacting to the focused shareholder approach promoted by Milton
Friedman (Posner, 2020), which has resulted in an emphasis on short-term gains at the expense of long-
term growth and the building of capital. One of the consequences of such failed incentive structures comes
in the form of excessively large bonus cheques, paid to many CEOs. Many such cheques have been handed
for strategies that are detrimental to the long-term viability of a business. Essential business activity such as
research and development returns value to the company after long periods of time—that may exceed a
decade. Such departments become easy targets in a drive to cut costs, allowing executives to increase the
corporate bottom line in the short term and boost executive salaries.
There is no simple answer that covers all aspects of life. People have an ingrained sense of fairness, but it is
very rarely attuned to an accurate focus on what is truly right and wrong. But the common-sense approach
to how people interact works more often than not (Gwartney et al., 1985). Creating successful incentive
structures is difficult, and one can rarely be legislated for from above. One of the hardest lessons may be
that not everybody is motivated by money. Although it may otherwise make for more straightforward
reporting on the news, the reality is that people seek meaning and fulfilment. In creating a system where
people work and provide, whilst gaining a sense of dignity, it needs to be remembered that different people
will end up with different outcomes. To merely hate and envy others who have more does little to improve
our lot or to incentivise productive behaviour.

References

Cassar, L. Meier, S. (2018). Nonmonetary Incentives and the Implications of Work as a Source of Meaning. In:
Journal of Economic Perspectives , 32(3), pp. 215–238. doi: 10.1257/jep.32.3.215

Gwartney, J. Stroup, R. Clark, J. R. (1985). Essentials of Economics (2nd ed.). Academic Press.

Posner, E. (2020). Milton Friedman Was Wrong . [online] The Atlantic website, retrieved from:
https://www.theatlantic.com/ideas/archive/2019/08/milton-friedman-shareholder-wrong/596545/ , last
accessed 2020/08/20.

Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations (1st ed.). W. Strahan and T.
Cadell.

Upton W. E. (1973). Altruism, Attribution and Intrinsic Motivation in the Recruitment of Blood Donors
[dissertation]. Ithica, NY: Cornell University.

Wilson, R. N. (1972). The Gift Relationship: From Human Blood to Social Policy. By Richard M. Titmuss, New
York: Pantheon Books (1971). 339 pp. In: Social Forces , 50 (3), 411-412. https://doi.org/10.1093/sf/50.3.411

Wisener, K. Eva, K. (2018). Incentivizing Medical Teachers. In: Academic Medicine , 93(11S), S52-S59.
https://doi.org/10.1097/acm.0000000000002383

[Image source: https://www.pxfuel.com/en/free-photo-eulem ;

https://creativecommons.org/licenses/by/2.0/legalcode]
Relationship Marketing
By Craig Wright | 27 Oct 2020 | Economics
In the field of service marketing, relationship marketing is gradually experiencing more common
deployment. To some, it would appear as if it were new. But, as Morgan and Hunt (1994) have demonstrated,
relationship marketing and a ‘commitment-trust theory of customer relationships’ have been around for
decades. Christopher, Payne, and Ballantyne (1995) described a similar concept when talking about the
need to integrate quality and customer service in any marketing delivery or product offering.

More recently, authors such as Gummesson (2017) have started explaining the need to extend the scope of
relationship marketing. It is not fragmented and isolated actions, aimed at short-term results, that bring the
best outcomes. Instead, long-term stewardship leads to continuous growth and increased benefits—for
shareholders, customers, and the entire community that people live in. When people plan hardwood
forests, they are not creating something that they will see the harvest of, and yet, they contribute. In many
ways, such a form of stewardship is needed for relationship marketing. Even when it costs an organization
in the short term, building relationships with customers, by ensuring long-term symbiotic relationships,
benefits everybody.

More importantly, research is starting to demonstrate that corporate social responsibility coordinates with
an effective marketing strategy (Luu, 2019). Corporations do not need to choose between profitability and
accountability; corporations can have both. The marketing of an organization’s position forms an essential
component of the strategy, in the sense that it is necessary to market the organization’s strategy and stance
to effectively capitalise on the investment in society. If your clients do not know that you are acting
responsibly, they won’t treat you as if you’re working conscientiously. As Boateng (2019) describes, customer
loyalty needs to be earned, and to earn it, corporations need to signal not only their current position; they
need to signal the long-term stance.

References

Boateng, S. L. (2019). Online relationship marketing and customer loyalty: a signaling theory perspective.
International Journal of Bank Marketing , 37 (1), 226–240. doi: 10.1108/ijbm-01-2018-0009

Christopher, M., Payne, A., Ballantyne, D., & Pelton, L. (1995). Relationship marketing: Bringing quality,
customer service and marketing together. International Business Review , 4 (4), 538–541. doi: 10.1016/0969-
5931(95)90007-1

Gummesson, E. (2017). From relationship marketing to total relationship marketing and beyond. Journal of
Services Marketing , 31 (1), 16–19. doi: 10.1108/jsm-11-2016-0398

Luu, T. T. (2019). CSR and Customer Value Co-creation Behavior: The Moderation Mechanisms of Servant
Leadership and Relationship Marketing Orientation. Journal of Business Ethics , 155 , 379–398. doi:
10.1007/s10551-017-3493-7

Morgan, R. M., & Hunt, S. D. (1994). The Commitment-Trust Theory of Relationship Marketing. Journal of
Marketing , 58 (3), 20–38. doi: 10.2307/1252308

[Image: Hardwood Forest; Image Source:

https://www.flickr.com/photos/wackybadger/7327382958/in/photostream/ ;
https://creativecommons.org/licenses/by-sa/2.0/legalcode]
The Problem with Anthropomorphism and Personification
By Craig Wright | 09 Nov 2020 | Alternative Coins & Systems
I used the word vote in the Bitcoin white paper three times. I used the notion of anthropomorphism in
explaining the concept of proof-of-work. In noting that proof-of-work was “essentially one-CPU-one-vote”, I
was attempting to make the point that any system running the “honest” version of the software presented,
in consequence, a vote for a non-criminal or non-attacker version of Bitcoin.

In an attempt to describe Bitcoin as naturally as possible, I used the rhetorical technique referred to as
personification, classically known as prosopopoeia. Personification is a technique where an author applies
human traits to objects and technologies. It can be used to represent abstract concepts in a more readily
comprehensible form. One example of the regular use of personification is the expression Justice is blind .

In one paragraph of the Bitcoin white paper, I noted that nodes would express their acceptance of valid
blocks by signalling—using the results of proof-of-work:

They vote with their CPU power, expressing their acceptance of valid blocks by working on extending them
and rejecting invalid blocks by refusing to work on them.

The word “they” refers to nodes. In using the word “they”, computer systems or nodes are treated as if they
had agency. The use of the word “they” personifies nodes, treating them as if they were people—with the
ability to make an independent decision. The truth is more nuanced. Nodes do not vote in the sense of how
people vote. The reference in the quote above is made to voting as if it was conducted interactively by the
node operator. Node operators can either run a valid version of the Bitcoin client and enforce the rules, or
they can act to attack the network. Such are the only things that are voted for in Bitcoin. The node operator
does not choose anything beyond running the software and enforcing the rules, or acting to attack the
network.

The particular use of the term vote relates to decisions made by honest operators compared to ones made
by those who are attacking the system using invalid computers known, in computer science terms, as
‘Sybils’.

Some alternative blockchain structures, such as in the form of proof of stake, are effectively based on a
technical scheme that is equivalent to one of bearer shares. In a system such as one of bearer shares, or
proof of stake, it is possible to obscure the identity of the node operator, easily. By holding multiple shares
or stakes, an attacker can split their operations across numerous virtual operators, in a manner that would
allow an operator to pretend to act as an alternative system, or to be made up of multiple entities when
they are one. Doing so would allow an attacker to hide their attacks.

If you think about the system explained in the Bitcoin white paper and consider what would make an
excellent democratic system, you will start to understand that Bitcoin is not about democratising finance
and decentralising society as some people claim. The last thing you want in a democratic society is to have
voting based on the level of investment made by each node. In considering the paragraph below, you start
to see that proof-of-work is about displaying investment capital. Importantly, if you gave societal control and
power to Bitcoin operators, you would not be giving either to the people, but instead take it away from
them and give it to a small number of wealthy investors.

Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain,
which has the greatest proof-of-work effort invested in it. If a majority of CPU power is controlled by honest
nodes, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an
attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with
and surpass the work of the honest nodes.

As explained in the paragraph, Bitcoin is not itself about “one-CPU-one-vote”. Bitcoin and proof-of-work are
not about ‘one-person-one-vote’. In fact, no blockchain is about democratic voting. Information can be
securely recorded on the blockchain, which is not the same as saying that nodes vote democratically. The
voting by nodes is a form of plutocracy. What keeps the system honest is that there are only two choices:
follow the rules or become an attacker. Voting by wealthy individuals or corporations only would be
problematic if it were not for the fact that Bitcoin publishes all the evidence associated with an attack for
use by any individual. As a result, if a system attacks the network, the operator forfeits the capital they have
invested in their nodes. So, the idea is not to allow any level of voting on the protocol. Nodes act to confirm
and enforce the original protocol. Some people will tell you otherwise; they seek to change the scenario,
because they can gain power and wealth in doing so. In understanding that Bitcoin does not allow such a
change, and that they are trying to replace Bitcoin with something else, you can start to see their tactics.

Once you are running a Bitcoin node, the entire process is automated. There are no further decisions about
which blocks you will accept. The node software automates the process based on the rules I created when I
launched Bitcoin. There is no voting process associated with changing the rules. The separation of systems,
into commercial nodes or miners and clients, is a part of how the entire system works. The rules are set in
stone, that is, they do not change. Bitcoin is defined by a standardised protocol that is designed to be stable.
Nodes and clients support the design of the network and the protocol. Bitcoin miners are the central nodes,
acting within the Bitcoin system. They are the only nodes that have any say on the order of transactions. The
other entities, acting from peer to peer, or user to user, are simplified payment verification (SPV) clients.

SPV lightweight clients do not make any decisions on how the network operates. At the same time,
widespread deployment of SPV locks in the protocol. Users only need to validate their own transactions. The
network nodes or miners ensure that no double-spending frauds occur. Client systems can confirm such
activity on the network. Evidence of any such attempt alone would be legally admissible in a court of law,
and presents a criminal fraud in common law countries such as the USA and the UK.

If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate
many IPs.

A protocol can also be viewed or perceived as a contract. When I released Bitcoin, I could have kept some of
the bitcoin that I issued for myself. I decided to form a system where I gave all the bitcoin I created up as
payment to the nodes. There is no reason for me to do so other than it being my personal choice. Other
nodes, in other protocols, could be created and act differently than they would within Bitcoin. If I were to
change the protocol, if any developer sought to modify the protocol, we would be changing the contract in
doing so. Altering the agreement or commitment, the foundational contract, which began with the white
paper, would be legal had it been announced before the launch of the system. With Bitcoin, I created a
contract that said that the agreement was fixed. The contract and protocol in Bitcoin are binding not only
nodes and users; they are binding the creator of Bitcoin: me.

[Image: Personification of autumn Vatican Museum ; Dix-tuin, CC BY-SA 3.0

https://creativecommons.org/licenses/by-sa/3.0 , Wikimedia Commons]
The Myth of Complete Knowledge
By Craig Wright | 17 Nov 2020 | Economics
The journal articles written by Jones (2003) and Cairney (2012) seem very different at face value, but we can
see the same point of view in both. Jones analyses specific challenges to rationality that appeared in the
1950s, addressing the nature of homo economicus , and the bounds that exist on human action, using topics
such as behavioral choice, cognitive psychology, and organizational theory. Cairney links the subject of
complexity theory, a paradigm that has become common in scientific discourse on public policy,
demonstrating the inappropriateness of many forms of top-down control. The link between their research is
straightforward: if we cannot expect to act with complete rationality, then we cannot assume to be able to
centrally plan economies.

Jones (2003) proposes that no matter how complex the world becomes, we can still form three basic tenets
for how we can operate through politics and government: we should do no harm and not mislead others, or
society, we should aim to allow individual and organizational movements and interactions without friction or
corruption, and we should not require people to acquire knowledge outside of their area of expertise or
attention in a manner that would create inefficiencies. Both authors express a path to either hope and
salvation or, if we make the wrong choices, the collapse of good government, leaving us with the darkest
page in history. There is no guarantee of good government, nor an easy path to designing institutions that
will be operating flawlessly over time.

The world is a messy place, and with any theory, it is essential to ensure that it solves real policy problems.
Complexity theory demonstrates that where “the behavior of complex systems is difficult (or impossible) to
predict” (Cairney, 2012), small differences in input lead to radically different outcomes. Yet Jones (2003) notes
that “bounded rationality and behavioral choice lead to predictions about policy outcomes that imply that
organizational outputs will be disjointed and episodic regardless of the input stream and cost structure of the
organization”.

Both authors remind us of the difficulty of deciding for other people with the limited information we can
possess. In a convoluted world that complexity theory, beyond simple calculation, demonstrates to exist, and
which is subject to the constraints of complexity, we can still form some basic tenets on how to live and
interact in society and how to be stewarded towards a future that we would all accept. Even where every
action comes with unintended consequences, we can establish a few guiding principles that ensure we do
not merely give up and act as if we were living in a nihilistic existence. The secret would seem to be to create
balance through stewardship, rather than a governing body that shall rule.

References

Cairney, P. (2012). Complexity Theory in Political Science and Public Policy. Political Studies Review , 10 (3),
346–358. https://doi.org/10.1111/j.1478-9302.2012.00270.x

Jones, B. D. (2003). Bounded Rationality and Political Science: Lessons from Public Administration and Public
Policy. Journal of Public Administration Research and Theory , 13 (4), 395–412.
https://doi.org/10.1093/jpart/mug028

[Image: knowledge by Norbert Kucsera from the Noun Project; Image Source:
https://thenounproject.com/term/knowledge/1896949/ ;
https://creativecommons.org/licenses/by/3.0/us/legalcode]
Bitcoin Was Never Designed To Be Censorship-Resistant
By Craig Wright | 06 Dec 2020 | Bitcoin & Blockchain Tech
You will never find a statement from me in my persona of Satoshi saying that Bitcoin was designed for
‘censorship resistance’. The reason for it is simple: such is not the purpose or design of Bitcoin.
Unfortunately, several disingenuous actors, including the Electronic Frontier Foundation (EFF), simply took
it upon themselves to change the narrative . Recently, developers of the BTC Core system have started
arguing for further radical changes—differentiating the system more and more from Bitcoin. Using BIP 324,
Jonas Schnelli has attempted to implement encrypted transport layers , that are designed to hide
transactional exchanges from law enforcement and other systems seeking to monitor Bitcoin transactions.

To the same end, the media teams associated with BTC Core are continuing to spread their false
propaganda . In an article on BIP 324, Bitcoin Magazine author Tony Sanak wrote:

“Bitcoin: A Peer-to-Peer Electronic Cash System” is the title of the Bitcoin white paper and, as it suggests,
the P2P layer is a major component of the Bitcoin network but also the one with significant inefficiencies
and existing theoretical attack vectors.

Making false analogies, the publication compares Bitcoin to Napster, so they may support their false claims.

Like developer groups of other systems who have sought to promote crime (as it was the case with the
former Napster network), the BTC Core group seek to conceal the criminal activity on their system. To do so,
they have to gradually change the BTC Core protocol and move further and further away from the Bitcoin
protocol, which they have copied, as they seek to fraudulently pass BTC Core off as Bitcoin. Yet the core
protocol of Bitcoin is remarkably resilient. No matter how actively developer groups have sought to alter the
copied Bitcoin protocol, they have not managed to remove the primary functionality of Bitcoin. As a result,
BTC Core will remain hierarchical in its structure, and the nodes of the system will always be subject to legal
enforcement.

In another move to deceive readers, the author goes on to say: “In the ideal configuration, P2P networks
shouldn’t have any hierarchy (all nodes are equal), and nodes should share the network load uniformly”. Of
course, Bitcoin was not designed in such a way. More importantly, the author is attempting to mislead the
non-technical readers of the article by trying to have them believe that ‘nodes’ that do not mine blocks
were nodes. Section 5 of my white paper is self-explanatory when it comes to the definition of nodes :

1. New transactions are broadcast to all nodes.

2. Each node collects new transactions into a block.
3. Each node works on finding a difficult proof-of-work for its block.
4. When a node finds a proof-of-work, it broadcasts the block to all nodes.
5. Nodes accept the block only if all transactions in it are valid and not already spent.
6. Nodes express their acceptance of the block by working on creating the next block in the chain, using
the hash of the accepted block as the previous hash.

The only consensus mechanism within Bitcoin lies in the competitive creation and distribution of validated
blocks of transactions. Any system that does not create blocks has no impact on the network. Bitcoin is
designed as a small-world system. It is not a mesh. If we have two nodes, A and B, that are not directly
connected, it is essential to remember that each node is highly connected otherwise, with some nodes (aka
miners) having over a thousand connections (or network edges). In other words, in the rare instance that
nodes A and B are not directly connected, as in figure 1, they will not have a single path but many paths to
each other through the network. If we assume that the red intermediary nodes seek to block transactions,
there will always be other transactions, ones that allow node A to get a transaction through to node B. In
figure 1, a small subset of nodes provides direct and simultaneous communications to node A, and connects
through to node B.
Figure 1 : Nodes A and B are not directly connected.

If the nodes in figure 1 that are coloured red attempt to boycott the transaction, there will be no impact. It is
as if they did not exist, but the transaction continues to be propagated. The state is the same as one where
the red nodes in the network diagram only validate and do not create blocks. Where an entity does not
create blocks, it is irrelevant and is not a node. Remember, the only consensus mechanism in Bitcoin lies in
the creation of validated blocks. You cannot obstruct a transaction or a block other than by not creating a
block with the transaction. So, the entire concept of “validation nodes” on Bitcoin is a falsehood.

A more accurate representation of how nodes are connected is presented in figure 2. For any node to not be
connected would be considered improbable. The investment in becoming a node would generally preclude
excluding the construction of adequate network mapping, that will allow the notice to all other nodes. The
hash function in Bitcoin presents a de-anonymisation protocol. Any significant node is incentivised to get
their blocks and transactions distributed as quickly as possible, to all other nodes. Such systems only care
about other nodes; the node owners do not care about so-called “validation systems”.
Figure 2 : Nodes A and B are connected.

In the representation of a subset of the Bitcoin network in figure 2, where we represent the green nodes as
nodes in accordance with section 5 of my white paper and where the red entities are what many people in
the BTC Core community like to call “validation nodes”, we see that the red systems are entirely irrelevant. A
path between all of the nodes (aka miners) exists no matter which “validation node” attempts to say that a
transaction is not valid. In effect, there is no action that a so-called “validation node” can take that would
have any relevance to the Bitcoin network.

So, the circle claims of routing attacks and hijacking Bitcoin have no merit. More critically, the claim that
because Bitcoin is not encrypted, it can be hijacked, is false. The README file in the original Bitcoin source
code contained the following:

Bitcoin does not use any encryption. If you want to do a no-everything build of OpenSSL to exclude
encryption routines, a few patches are required. (OpenSSL v0.9.8h).
Bitcoin was designed not to be encrypted. Bitcoin was designed to operate as a clear-text system.

In the article on BIP 324 , the author writes:

In the ideal configuration, P2P networks shouldn’t have any hierarchy (all nodes are equal), and nodes
should share the network load uniformly. This basic layer of a mesh of interconnected nodes is what helps
Bitcoin to be censorship-resistant .

The problem with such an argument is that Bitcoin is not a mesh, and Bitcoin is not designed to be
“censorship-resistant”.

More critically, Bitcoin was never designed to be a flat network, without hierarchy. Bitcoin was intentionally
designed such that nodes compete, and hence nodes are not equal. When I released Bitcoin, I explained
the nature of the system rather plainly (emphasis added):

1. At first, most users would run network nodes, but as the network grows beyond a certain point, it
would be left more and more to specialists with server farms of specialized hardware . – 2008 ( URL )
2. At equilibrium size, many nodes will be server farms with one or two network nodes that feed the rest
of the farm over a LAN. – 2010 ( URL )
3. The design supports letting users just be users. The more burden it is to run a node, the fewer nodes
there will be. Those few nodes will be big server farms . The rest will be client nodes that only do
transactions and don’t generate. – 2010 ( URL )

Bitcoin was designed with the combination of simplified payment verification (SPV)—for users—and the
ability to act as a node—to earn money, to be paid. Bitcoin, at its base level, is hierarchical. Nodes compete
to create blocks of validated transactions. In their blocks, they seek to include as many transactions as
possible. Also, in 2008, I said that Bitcoin could already scale to the level of Visa back in the same year . With,
on average, 144 blocks a day and 100 GB of transactions, the mean size of a transaction block in 2008 would
have been 695 MB. Next, the distribution of transactions will not be even. The distribution of transactions in
the Visa network follows a Pareto distribution. As a result, we can calculate that it will be necessary for nodes
to be able to handle blocks of up to 11 GB in size. A node would have to handle the most significant possible
block size that comes in any particular period of time. It is in the node’s interest to do so, because the larger
blocks will carry more fees. The node that collects the block with the most fees earns the largest profit. The
hierarchical distribution of nodes was the design of Bitcoin when I created it. The hierarchical structure,
which I demonstrated, remains the formation even now.

In 2008, when I explained that Bitcoin could scale, I specifically said :

Long before the network gets anywhere near as large as that, it would be safe for users to use Simplified
Payment Verification (section 8) to check for double spending, which only requires having the chain of
block headers, or about 12KB per day.

If Bitcoin were designed to remain small and not scale, there would be no need for a binary tree or Merkle
tree structure. Such a structure makes Bitcoin less efficient. The model presented in section 4 of the white
paper, of ordering transactions without a Merkle tree, is more secure and takes less processing and hence is
more efficient where the block size is less than 32 MB. Consequently, the claims that Bitcoin was not
designed to scale are easy to discredit. I always said that Bitcoin was designed to scale, and I always said it
would end in server farms (or data centres).

Fortunately, none of the proposed “privacy” solutions such as through BIP 324 will work. The only manner of
creating consensus in Bitcoin lies in the creation of blocks. Any significantly sized node will lose significant
invested sums if the operators of the node attempt to hide their connectivity. To do so would limit the
ability for them to disseminate blocks and hence to earn money. Here, proof-of-work acts to consolidate
and deanonymise nodes. Nodes are not designed to be private in Bitcoin; only users are. Importantly,
privacy is not the same as anonymity.
Refuting “Conflict can only be resolved when both parties are
prepared to compromise”
By Craig Wright | 16 Dec 2020 | Economics
Humans are naturally inclined to seek compromise (Baume & Novak, 2020, pp. 70–71), which is a well-
studied psychological condition (Radosavljevic, Andelkovic, & Panagopoulos, 2014). Because of the
imperative to belong, many of us simply believe that the truth must lie somewhere between or in the
middle of two arguments (Wendt, 2014, pp. 475–480). Yet, the commonly held belief that compromise can
exist between all positions is held in error. In democracies, for instance, a balance of ideas can be arrived at
through a consensus-based process. Truth and science are not democratic processes. In 1610, Galileo wrote
a treatise noting that an explanation of the solar system placing the sun in the centre, rather than relying on
the prevailing method of calculating a convoluted path of mixed planetary convolutions, allowed for a
simple near-circular product that made an analysis of planetary positions far simpler. Galileo was compelled
under torture to repudiate his assertions that the earth circled the sun, instead of the converse. E pur si
muove , or, “still it moves”, is reported (Hawking, 2002, p. 396) to be Galileo’s final recalcitrance on the same
point.

Just as choosing to believe that the world is flat and that the sun circles the earth would be erroneous if
many people argued it, assuming that the interest is somewhere in the middle or the golden mean remains
equally false. Truth is not determined by popular belief. Although none of us can achieve any result that
perfects truth, we can get close. Both philosophical logic and modern scientific analysis allow us to look at a
variety of separate premises and to find answers that come closer and closer to the truth. Science is a
method. It does not answer all questions; more importantly, it merely approximates the reality we seek to
explain. Yet again, over time, as we improve our techniques and gain more evidence, the scientific method
allows us to get closer and closer to the truth. Some, such as Thomas Kuhn, have argued along similar lines,
believing that science changes in paradigm shifts (1962/1970). A system as proposed by Kuhn would allow
science to exist within a reality based on compromise. But, Kuhn’s concept of science was self-refuting, and
has been repudiated by his own statements. One example would include relativity. Kuhn argued that
structures such as relativistic physics had been introduced through a process of generational change, but
the evidence stands against him. It was not paradigm changes and the shift of generational weight that
brought in support for Einstein’s theory of relativity; it was the weight of evidence when experimental results
demonstrated the theory to be sound (Rovelli, 2019).

It has become popular to argue that no truth exists, or rather, that we each have an individual truth (Marsh &
Furlong, 2002). In a world without truth, it is argued that we cannot deal without compromise. And it has
been argued that those who fail to compromise or to meet in the middle are obstinate and recalcitrant,
seeking not the best for society (Gutmann & Thompson, 2014), but to promote themselves. Such a position
would seem to put diversity above all else. Should we consider blind obeisance to conciliation and harmony
at all costs? Where, through little more than a lamentably flawed argument to the contrary, the path to
appeasement overrides knowledge and science and all of the values that have created the only enduring
golden age in human history, should we compromise? We live in a time of unrivalled prosperity, freedom,
and growth; all of it comes with conflict.

A more critical question that is begged through the promise of avoiding conflict at any cost lies in deciding
whether a conflict is an ultimate evil that must be avoided no matter what the consequence. It was such a
position that was held by Prime Minister Chamberlain in the 1930s. When Chamberlain flew to negotiate
with Hitler in Berchtesgaden, the creation of the Munich Agreement was a direct result of seeking
compromise above all else (McDonough, 1998). If Neville Chamberlain had opposed the German expansion
into the Rhineland, World War II would have been abated (Phillips, 2019). With all that occurred, and with
the knowledge of the atrocities that occurred, and of the spiralling nature of what could have remained a
small but containable conflict, some would revisit the actions of Chamberlain and then, later, Churchill
(Bech, 1989). After World War II, appeasement became a dirty word (Lord Strang in Lanyi, 1963). It seems we
have forgotten the past, and, in deviating from the lessons of history, seek to make a compromise at any
cost, even when it is far from what can be considered respectable.
The argument that conflict may only be resolved if both parties are prepared to compromise is one that
contains a logically flawed premise. The idea is itself an absolute, yet it is an unquestionable view proposed
by some (Golding, 1979) that acts in opposition to the nature of absolute truth. The juxtaposition of an
unequivocal statement refuting the existence of absolutes is logically inconsistent. As Pauli put it, it is not
right; “it is not even wrong” (Peierls, 1960).

As was introduced above, another word for unilateral compromise is appeasement . Placation is not
something that leads to security, but is instead a slow corruption that eats at the heart of powerful nations
and makes them weak. It is not merely nations but corporations and even individuals that lose out through
compromise and appeasement. We may not always know the truth, but truth does not compromise. If
Galileo, in the full understanding and knowledge of the penalty for heretics, and with a sense that he could
face retribution, had not written his treatise, much of the growth attributed to modern society may have
stalled. There is a distinction between being stubborn and standing for what is right. We should all be open
to new evidence. We should be available for reviewing and testing our knowledge. It is not a compromise to
admit that evidence shows us when we are wrong. It is also not a compromise to change our position after
being presented with better evidence than we initially had. It is not a compromise to make a win-win deal
that is demonstrated to be economically rational. To compromise is merely to give up one’s position based
on appeasement. It is the cowardice that leads to seeking peace in the immediate time frame in abeyance
of all consideration of what may come.

When one party is willing to compromise, it is the unreasonable person who wins. It takes two people to
debate a position, yet it only requires one to compromise. As in the situation of Chamberlain, when one
party remains immovable, and the other is willing to compromise, there is no meeting in the middle.
Compromise is not based on fact. It is not based on evidence. A willingness to re-evaluate a position
through an analysis of fact is rational and laudable, which is not the same as to compromise. There are times
when it would seem a compromise could achieve gains. Yet such gains lie not in the compromise, but are
instead the result of trading positions and negotiating a settlement that favours all parties. There are
scenarios where win-win outcomes are possible, yet to believe that all conflict should be avoided and that
compromise is always necessary is to fall into the fallacy of the golden mean (Lambdin, 2006). Whether we
call it argument from middle ground , the continuum fallacy , or the fallacy of gray , the argument to
moderation or argumentum ad temperantiam is the trap that has been set and that we in the West, in our
pluralistic civilisation, have fallen into—without knowing our plight (Bukovsky, 1990). As we face intransient
opponents who are recalcitrant and firm in their conviction even when faced with evidence refuting their
position, our way of life is slowly eroded. Each time we compromise and seemingly appease those with ideas
that would once be considered abhorrent, such that we now allow for diversity, we erode the very
foundations of liberal society. It is possible to have liberal views and allow freedom while still ensuring that
we are open to being convinced of another path. But, being persuaded must necessitate evidence, and not
mere compromise.

Perchance, diversity has gone too far. It seems compromise at all expense in exchange for truth is not a fair
trade. Those who argue we must change the meaning and use of language, and who ignore literary
hermeneutics in exchange for a post-modern reinterpretation of what they seek to say people had said, are
not seeking to compromise. Those whose fundamentalist ideals and religious dogma oppose Western
values and freedom, yet cry “oppression” whenever their atrocities are stopped, cannot be compromised
with and cannot negotiate. For, where a party will not accept evidence and will not openly discuss
alternatives based on fact, we end merely in appeasement. Compromise does not resolve conflict; it only
kicks the can down the road, and as it does, so increases the eventual force of the antagonism that must
necessarily ensue.

References

Baume, S., & Novak, S. (Eds.). (2020). Compromises in Democracy . Palgrave Macmillan.

Beck, R. J. (1989). Munich’s Lessons Reconsidered. International Security , 14 (2), 161–191. doi:10.2307/2538858

Golding, M. P. (1979). The nature of compromise: A preliminary inquiry. Nomos , 21 , 3–25.

Gutmann, A., & Thompson, D. F. (2014). The Spirit of Compromise: Why Governing Demands It and
Campaigning Undermines It – Updated Edition . Princeton University Press.

Hawking, S. (2002). On the Shoulders of Giants (pp. 396–398). Running Press.

Kuhn, T. (1970). The Structure of Scientific Revolutions (2nd ed.). University of Chicago Press. (Original work
published 1962)

Lambdin, C. (2006). Fallacy. Skeptic [Altadena, CA], 12(4), 10.

Lanyi, G. (1963). The Problem of Appeasement. World Politics, 15 (2), 316–328. doi:10.2307/2009378

Marsh, D., & Furlong, P. (2002). A Skin Not a Sweater: Ontology and Epistemology in Political Science. Theory
and Methods in Political Science , 2 , 17–41.

McDonough, F. (1998). Neville Chamberlain, appeasement, and the British road to war . Manchester
University Press.

Peierls, R. E. (1960). Wolfgang Ernst Pauli, 1900–1958. Biographical Memoirs of Fellows of the Royal Society ,
5 , 174–192. doi : 10.1098/rsbm.1960.0014

Phillips, A. (2019). Fighting Churchill, Appeasing Hitler: How a British Civil Servant Helped Cause the Second
World War . Biteback Publishing.

Radosavljevic, D., Andelkovic, A., & Panagopoulos, A. (2014). Compromise as Necessary Concept of
Organization and Management. No. 10 Int’l J. Econ. & L. , 4 , 95.

Rovelli, C. (2019). The dangers of non-empirical confirmation (Dardashti, R., Dawid, R., & Thebault, K., Eds.).
Why Trust a Theory? – Epistemology of Fundamental Physics , Cambridge University Press.

Bukovsky, V. K. (1990). The Wind Returns. Letters by Russian Traveler (Russian edition, Буковский В. К. И
возвращается ветер. Письма русского путешественника ). Moscow, Russia.

Wendt, F. (Ed.). (2014). Compromising on Justice . Routledge.

[Image: Galileo Galilei: Galileo Galilei at his trial at the Inquisi ; see page for author, CC BY 4.0
https://creativecommons.org/licenses/by/4.0 , Wikimedia Commons]

Thesis statement:

Compromise is merely appeasement, and does not take evidence into account. It is a fallacy of the golden
mean, and allows the recalcitrant fundamentalist to ignore evidence and fact entirely. To compromise is not
to alter one’s position based on new evidence, but is instead to seek appeasement at any cost.
Bitcoin and Tax
By Craig Wright | 31 Dec 2020 | Bitcoin & Blockchain Tech
There is a common myth that Bitcoin will allow individuals to avoid paying tax. It could not be further from
the truth, and in today’s post, I will demonstrate how easy it will be for governments and tax authorities to
ensure compliance. In particular, the traceability of all payments in Bitcoin provides a scenario where any
individual that attempts to falsify tax records, or to underpay tax illegally, could be quickly determined, and
payment of owed taxes can be automated.

Firstly, it is essential to note that the structure of the keys associated with Bitcoin unspent transaction
output (UTXO) sets can be attributed to an identified individual or corporation. The Bitcoin white paper
talked about the necessity of firewalling identity from the chain. Doing so does not remove the ability to
identify individuals, but it is rather done in a manner that is not public.

Firstly, any anti-money laundering (AML) rules, in line with know your customer (KYC) rules, allow for all
quantities of money larger than around US$200 to be associated with an individual. When you put money in
and take money out of an exchange, it must be attributed to an identified individual. Under the European
provisions detailed in the Fifth Money Laundering Directive (5MLD) [1], custodian wallet providers are
required to engage in anti-money laundering activities for all but small casual amounts of money that are
transferred. Every exchange is a custodian wallet provider. There are no exceptions to the rule. Exchanges
hold your money under a custodial arrangement. Consequently, when the regulations come into full effect,
in January 2021, it will be necessary for all exchanges and custodial wallets, for exchanges within the United
Kingdom and Europe of more than €150, to report customer identity information.

Businesses are required to maintain information concerning their customers. The only businesses that will
not require detailed information on cryptocurrency and digital cash exchanges and transactions will be
ones involving the original use of Bitcoin, as a digital cash system, and small transactions. From here, there
is complete traceability of all money involved in the Bitcoin ecosystem.

From a tax office perspective, they now have a powerful tool in ensuring compliance. Where businesses
have not adequately ensured accounting controls around digital currency transactions are kept in place,
they will need to report all of their income or face criminal sanctions, in the worst case, and, at least, fines for
non-compliance. The reason for such a scenario is that tax authorities can now match all of the transactions
leaving the client. A business will need to transfer the value to pay bills. When they do so, other clients will
also report information. Such information will be traceable from the customer, across the company, to the
next-hop supplier, and beyond. Here, tax authorities have valuable tools that will allow the monitoring of
business activity.

The assumption that organisations do not need to pay tax is made in error. The reason is straightforward:
some organisations will always comply and pay their fair amount of tax. They will not seek to unfairly gain a
competitive advantage by cheating. As a result, the tax authority will always be able to match the incoming
transactions and the outgoing transactions for each of the businesses in a country. Any transactions that do
not match will eventually be caught. In other words, a single compliant organisation will be able to unravel
an entire criminal economy that tries to avoid its obligations.

It works in such a way: every transaction leading to a compliant organisation can be instantly matched and
checked. If the tax office finds that there is a mismatch between any incoming and outgoing transactions,
they have a complete record that can be followed.

Alice runs a compliant business. She reports all of her taxes and obligations. To do so, she records the
identity of all her suppliers and customers. She uses the blockchain such as through the use of a blockchain-
enabled general ledger system. As long as Alice records relevant information about all of her customers, she
can supply a complete hash list of all of the incoming and outgoing transactions relating to her business,
which have been recorded in the ledger. Alice can publish a list of all transactions, and transaction
identifications (TXIDs), that have either been received by the organisation as income or equity or gone out
as disbursements or payments.
As the tax authority will have been collecting information from every company, they will now be able to
wholly match all of the incoming and outgoing values. If all of the individual companies and people in the
system are compliant, the tax authority never gains any information other than the hash [2].

If Bob is not a compliant company, by reporting only some of his income and outgoings or inflating results,
when he deals with Alice, Alice will report all of the transactions with Bob. If Bob doesn’t report all of his
transactions with Alice, in an attempt to underpay tax, the tax authorities now have a list of hashes from
Bob and Alice, where the difference can quickly be analysed. The tax authority will now go to Alice and ask
for additional information. They will do so because Alice has provided them with a hash payment she has
received or made that has not been recorded twice. All entries should be recorded twice. There should be
an entry in the hash for Alice and Bob. If Alice provides such information, while Bob doesn’t, there is a
disparity that can quickly be found.

Because the tax authority has received an unmatched set, they will now go to Alice and ask her to provide
her company records for any respective, non-compliant hash set. The assumed scenario could be proven
with an extract of information demonstrating that a particular input hash has never made it to the tax
authority. The same extract of information could become evidential and allow the issuing of court orders.
The information of the input hash can be stored on-chain, giving details of the customer and the sales,
without leaking any information so long as the company or individual is compliant.

The tax authority will only be able to access information concerning the non-compliant entity. Here, they
will prove that they have not received information on a particular transaction and ask Alice for the details of
the transaction. When Alice provides such information, it will link to evidence of Bob’s non-compliance. That
is, Bob will have signed a transaction proving the details of his company and the transfer, whether it’s
receiving money or goods or anything else that has not been reported to the tax authority. Remember, if
the transaction is correctly reported, the information concerning the companies and the goods and
payment will be included in the transaction. It will be completely private, as only the individuals involved will
hold such information.

The logging of information relating to tax returns and lodgements can be automated [3].

The scenario can extend to the incorporation of classification information. For instance, the nature of a meal
can be recorded. Both parties can automatically record the type of capital goods and the use. In the future,
automated accounting systems can be built. Alice and Bob would benefit from using such a system,
because both financial accounting reports and managerial accounting reports can be created using such
information. It is not only paying the required amount of tax.

In the exchange process of simplified payment verification (SPV), when invoices and purchase orders are
created and exchanged between individuals or companies, Bob and Alice exchange information that allows
each party to determine the identity of the other. It mirrors the initial IP-to-IP process developed within
Bitcoin when it was first launched. At the same time, there is no leaking of private information to the public.

So, with the mismatch between values, when the tax authorities ask Alice for information, they will have
definitive proof of the exchange between Alice and Bob. As the recording of all such exchanges is an
automated process, the only way Bob will be able not to meet his tax obligations is to try to defraud the tax
authorities intentionally. But, in doing so, he will be caught. Notably, the information that Alice provides
could even be linked to whistleblower rewards, to speed up the process. If Alice does not hand over the
information, it would be an indication that she is not compliant. So, the options are to either be compliant or
be caught.

References

[1] Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending
Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money
laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU (Text with EEA
relevance) ; PE/72/2017/REV/1; OJ L 156, 19.6.2018, p. 43–74; ELI: http://data.europa.eu/eli/dir/2018/843/oj
[2] Wright, C. S. Savanah, S. (2017). A Method and System for Verifying Integrity of a Digital Asset Using a
Distributed Hash Table and a Peer-to-Peer Distributed Ledger . International Patent Application No.
PCT/IB20 17/052800. Geneva: WIPO.
https://patentimages.storage.googleapis.com/e6/2e/cd/056daf91dbdd04/WO2017195160A1.pdf

[3] Wright, C. S. (2017). Cryptographic Method and System for Secure Extraction of Data from a Blockchain .
International Patent Application No. PCT/IB20 17/050979. Geneva: WIPO.
https://patentimages.storage.googleapis.com/a0/59/46/11cc97e7f31c22/WO2017145048A1.pdf
About Coinbase
By Craig Wright | 04 Jan 2021 | Alternative Coins & Systems
Coinbase is currently facing several lawsuits. One of the lawsuits involves XRP and Ripple. Coinbase will likely
argue that they had no idea. Which would be a lie. Several years ago, senior executives of Coinbase visited
nChain’s offices in London. During the meeting, many issues were discussed, including the nature of Bitcoin,
and how it doesn’t fork and that any changes creating a new chain would result in passing it off as Bitcoin. I
noted, when I had created Bitcoin, the protocol had been set in stone [1].

In our discussions, I pointed out Liberty Reserve and several prior cases. In discussing XRP, I was told that it
was ‘crypto’, so it wouldn’t be a security. Basically, the executives at Coinbase did not care. They were
informed of the nature of XRP and of the action with BTC and its copying of the Bitcoin database and the
creation of a new system. Coinbase, though, doesn’t care about reality. They care about ensuring that their
clients lose money trading. Overall, trading is a zero-sum game. But, some of the fees go to Coinbase.

For every coin that goes up in value, someone loses money. Money is not created out of thin air, as those
promoting the “cryptocurrency” get-rich wagon try to tell you. But, whether the price of XRP or BTC goes up
or down, Coinbase makes money.

In the same meeting, we also discussed USDT.

The outcome would be simple.

Coinbase doesn’t care about anything other than making money. The law is secondary. They intentionally
chose to overlook the law. Coinbase was definitively put on notice, years ago, as to the state of all such
systems. As with many others, pointing out the law, and how it applies to digital currency systems and digital
token systems, was part of where the attacks against my character started.

I had been pointing out the same issue in 2014 and 2015. In 2014, I pointed it out to Ripple, who would ignore
me completely. I discussed the issues concerning Bitcoin with members of Bitcoin Core and Blockstream,
including Adam Back, in 2013 and 2014. So, when certain individuals started attacking me, it wasn’t for any
other reason than to shut me up and have people not listen. The “cryptocurrency” feed wagon has been good
to such people. They have managed to milk unsuspecting dupes of their money for years. Their aim lies not in
creating a system that acts as digital currency or digital cash, but instead in creating an online casino, where
only the casino wins.

Bitcoin was designed as a digital cash system. Yet, Coinbase and others have created an online casino, one
where people gamble money and call it an investment. The promise of Bitcoin was a commodity-based
digital cash system that can be extended into many other uses. But, Coinbase earns more profit promoting a
digital casino. As an exchange, where they buy and sell bitcoin for use, it opens up a completely different
market, but not one that allows Coinbase to maintain custodial control. It is not a market where they make
excessive profits, no matter how much their clients lose. In their original construction, the company was
designed as a broker allowing people to buy and use bitcoin. But, BTC is not bitcoin, and it is not usable as
cash. Instead, BTC is well-suited to be traded and gambled on unregulated exchanges (aka bucket shop
casinos) that promote false information concerning such systems.

Coinbase is portrayed as an organisation of regulatory compliance, which presents a deception. Coinbase

always knew that XRP was a security; they simply sought to deceive the regulators. Coinbase always knew
that following the split in 2017, the BTC network would not be Bitcoin. But, Coinbase was complicit in the
deception.

So, I am more than happy to wait, to see the executives of Coinbase weasel and lie their way into telling
everybody that they had no idea and that they don’t believe it. When they do, I’ll be there, ready to provide
evidence to the contrary. When the executives of Coinbase attempt to give evidence showing that they had
no idea that XRP was a controlled security, I will happily demonstrate their perjury and show how they
intentionally overlooked the issue, amongst many others.
Footnotes

[1] See: https://bitcointalk.org/index.php?topic=195.msg1617#msg1617

Cot Death in the Nanny State
By Craig Wright | 06 Jan 2021 | Economics
When the Covid-19 outbreak first began, Sweden decided to take a more laissez-faire approach to handle
the spread of the virus. The result was a hue and cry of pandemonic proportions. The Independent
(Goddard, 2020) ran a series of articles recording that Sweden had its highest death toll in over a century,
ending with a claim that Sweden was going to end up wholly decimated because of their response. The
Guardian (Reuters, 2020), discussing how Sweden’s economy was going to crash and that the more
draconian measures implemented by Finland and other Nordic neighbours were proving to be viable and
would end the spread of the virus by July, followed suit. The fear that was promoted through toxic social
media led to countries being closed for the first time in history. The reaction and response are made worse
because society has become more risk-averse and untrusting (Neuberger, 2009).

In the ensuing months, for all the fear, it did not seem that Sweden suffered as badly as people had thought.
Sweden was starting to believe that things would go back to normal before Christmas (Moody, 2020), and
the light-handed laissez-faire approach that the government had taken was now delivering lower infection
rates than the approach taken by its Nordic neighbours, many of which were seeing an upsurge in
infections and hospitalisation rates (Waterfield, 2020). But most importantly, though the Swedish economy
was weaker than it had been 12 months earlier, it remained buoyant and in a better condition than the
economies of nearly every other European and Nordic nation. The question we need to ask is whether the
economy is worth risking lives. Did Sweden play fast and loose, or were they taking a calculated risk,
weighing up the alternative costs in concluding that doing nothing could be doing more? Cui bono?

The New York Post (Barone, 2020) responded writing that the lockdown might have been a colossal
mistake. During the American War of Independence, George Washington fought the British whilst a
smallpox epidemic raged (Becker, 2004; Lawler, 2020; Martin, 2003). Of course, at such a period in history,
people were more used to epidemics and plagues. In the modern world, we live in an environment where
many of us believe that we can control nature, that we can stop viruses from spreading and create vaccines
in weeks. If you watch television, you could not come away with any other belief. In creating a coddled
mindset, in believing that all risk needs to be mitigated, we have forgotten that a trade-off requires an
increase in costs for every bit of saving. As we move risk away from one area, we increase it in another.

Unfortunately, there is no way to control nature entirely, or to remove and mitigate all risk. Each time we
move funds away from the allocation and natural equilibrium occurring within a market and society,
consequences arise. The lockdown has merely delayed and did not prevent infections. As the New York Post
put it, as government minimises one risk, it will increase another. And here lies the concern that we need to
address. In an attempt to save lives, how many did we take? How many more people will die from cancer
treatments that they have not had, and how many impoverished nations will be plunged into famine and
later disease and possibly war because of this lockdown?

More importantly, we need to ask what the long-term factors are. We haven’t even begun to see the impact
of the lockdown. The economic costs of bankrupting millions of businesses and funding bailouts for others,
while we have isolated our children and removed their opportunities to be educated and to build a future,
will reverberate for decades. It was already being argued in March of last year (Miltimore, 2020), the cure
could be worse than the disease. As we saw Sweden starting to return to normality and as the US and the
UK are undergoing more lockdowns, and the destruction of a larger component of the economy, maybe we
should rethink our strategy before the nanny state smothers the baby.

References

Barone, M. (2020, Sep 6). It’s now looking like the lockdowns may have been a huge mistake . New York Post.
https://nypost.com/2020/09/06/its-now-looking-like-the-lockdowns-may-have-been-a-huge-mistake/

Becker, A. M. (2004). Smallpox in Washington’s Army: Strategic Implications of the Disease During the
American Revolutionary War. The Journal of Military History , 68 (2), 381–430.
Goddard, E. (2020, Aug 21). Coronavirus: Sweden records highest death toll for 150 years . The Independent.
https://www.independent.co.uk/news/world/europe/sweden-coronavirus-death-toll-record-covid-
a9681436.html

Lawler, A. (2020, Apr 16). How a public health crisis nearly derailed the American Revolution . National
Geographic. https://www.nationalgeographic.com/history/2020/04/george-washington-beat-smallpox-
epidemic-with-controversial-inoculations/

Martin, J. K. (2003). Pox Americana: The Great Smallpox Epidemic of 1775-82 (review). Journal of Social
History , 37(1), 268–270.

Miltimore, J. (2020, Mar 20). Panic Has Led To Government “Cures” That Are Worse Than The Disease, History
Shows . Foundation for Economic Education. https://fee.org/articles/panic-has-led-to-government-cures-
that-are-worse-than-the-disease-history-shows/

Moody, O. (2020, Sep 3). Sweden dreams of a normal Christmas . The Times.
https://www.thetimes.co.uk/article/sweden-dreams-of-a-normal-christmas-08vz7bzmb

Neuberger, Baron. J. (2009). Unkind, risk averse and untrusting: if this is today’s society, can we change it?.
Contemporary social evils ( Joseph Rowntree Foundation ), 115.

Reuters. (2020, Aug 19). Sweden records highest death tally in 150 years in first half of 2020 . The Guardian.
https://www.theguardian.com/world/2020/aug/19/sweden-records-highest-death-tally-in-150-years-in-first-
half-of-2020

Waterfield, B. (2020, Aug 24). Sweden claims fall in coronavirus infection rate is down to immunity . The
Times. https://www.thetimes.co.uk/article/sweden-claims-fall-in-coronavirus-infection-rate-is-down-to-
immunity-nnsm6v7mw

[Image: A symbolic representation of Lockdown ; Sanu N, CC BY-SA 4.0

https://creativecommons.org/licenses/by-sa/4.0 , Wikimedia Commons]
Strategic Advantage and Finding Opportunities
By Craig Wright | 11 Jan 2021 | Alternative Coins & Systems
Size creates its own form of advantage. Walmart leveraged the long-tail effect in the same way that Amazon
has done using the Internet. In the case of Walmart, the rural population, out of a total population of just
under 179.5 million people, consisted of just under 58 million people (United States Census Bureau, 2020),
which statistically formed a Pareto or long-tail distribution. As was noted in preliminary research by
Brynjolfsson, Hu, & Smith (2006), such a strategy has frequently been adopted. Current research focuses on
the effects of the Internet, and how it can bring access to long-tail distributions and create markets. But,
Walmart successfully discovered a long-tail opportunity when it accessed markets that other providers such
as Kmart rejected (Dyer, Godfrey, Jensen, & Bryce, 2020).

The use of the Internet to sell niche products allowed Amazon to undercut Walmart. In selling to
underrepresented markets, the strategy used mirrored the one of the late Walmart founder. In taking the
conservative approach following the death of its founder, Walmart abandoned the strategy that had made
them successful. Many people argue that it is about a strategy of high-margin, low-cost sales (Jindal, Gauri,
Li, & Ma, 2020). Although it is a simple argument to make, it is not accurate. Many other competitive
organisations have followed similar strategies and failed. The primary strategy pursued in creating the
market now held by Walmart came with reliability—combined with the access to a broader range of
individuals that were not being serviced. With Kmart rejecting investment in towns with less than 50,000
individuals, Walmart was able to capture one third of the American population without competition.

The ability to service a large population brings outsized returns. If Walmart had targeted larger
communities, it would have placed them in direct competition with five other major organisations. Even if
Walmart had captured 30% of such markets, they would have captured 30% of 120 million people, or 36
million consumers—rather than the 60 million consumer base that they ended up being able to capture
through a long-tail strategy. With the ability to target double the number of consumers the competition
was able to capture, Walmart was able to leverage the higher value and larger investments and to grow
faster. The capture of a broader overall market through the provision of long-tail-based sales then allowed
Walmart to capture more of the market within the other communities that they had not focused on. And so
they grew further.

So, the promoted strategy seems to be a good alignment to what was implemented by Walmart. But, when
you analyse the subsequent changes in strategy, and how they have allowed competitors such as Amazon
to grow, it becomes possible to see that the underlying strategy of Walmart that made it successful is
different to what is reported in most management journals. Compound growth matters. With size comes
the ability to grow faster and invest more. Organisations can leverage money for research and development
more effectively. Walmart’s benefit came from its size, and its size came from its capture of a market that
had not been targeted. Walmart did not enter a crowded industry. Walmart entered an underserved
industry, that was undeveloped. It leveraged the growth in regional and rural centres so that it could take
other low-cost opportunities. Amazon applied the same strategy in creating a long-tail effect that captured
sales of unique products that would generally not be worth stocking in supermarket stores. The key being
demonstrated here is to offer high value to the widest variety of consumers possible.

It is also where Bitcoin excels. The ability to offer digital cash at a meagre transfer fee, such that online
merchants and others can accept non-reversible transactions and small casual transactions, opens up
opportunities that have not been imagined before. Bitcoin’s ability to operate without the possibility of
transaction reversibility creates a new market. Even though there are many markets associated with
transactions on Bitcoin, and on the blockchain, the level of transactional costs on a network such as
facilitated by PayPal or the traditional banking industry, because of the requirement to mediate disputes, is
excessively high. For low-value transactions, using Bitcoin, such costs can be mitigated entirely. Here lies
the strength of the non-trust-based model deployed through Bitcoin.

Right now, people consider micropayments to consist of exchanges in the range between fifty cents and 5
dollars. For the same reason, people are thinking about the previous business methodologies, like how
Walmart was considering its own entrenched position—before it was facing competition from Amazon and
other Internet-based providers. The difficulty people have is to understand what models will be created.
With the ability to facilitate micropayments as low as a fraction of a cent and, in the future, likely as low as a
hundredth of a cent, per transaction, Bitcoin offers entirely new transactional models, ones that, in practice,
have never existed before. Coase talked about transactional costs and externalities (Farrell, 1987). The
creation of new markets always occurs when transactional friction or, rather, the cost between exchanges is
lowered. It increases the ability to reach stable equilibria, and arbitrage across providers that can offer value.

As Farrell (1987) noted, the introduction of low-cost transactions increases the ability to distribute and widen
the transacting base, which lies at the heart of the argument concerning decentralisation. Whether we are
talking about the ideas of Adam Smith or Friedrich Hayek, distributed markets where individuals can
negotiate safely and securely, with knowledge that they do not need to be concerned about fraud, lower
transaction costs. When such markets are coupled with the ability to offer low-cost transactions at high
speeds, that are finalised whilst simultaneously costing a fraction of a cent, we start to understand that the
fundamental nature of the Internet can change. Doing so allows us to move away from an advertising-
based model and towards the provision of goods and services, and especially information, in a manner that
provides consumers with both what they want and what they need. Google uses the existing Internet
infrastructure with its ad-based model; for such reason, Google, Twitter, and Facebook are broken.
Micropayments on Bitcoin solve the problem.

References

Brynjolfsson, E., Hu, Y. J., & Smith, M. D. (2006). From Niches to Riches: Anatomy of the Long Tail. Sloan
Management Review , 47 (4), 67–71. SSRN: https://ssrn.com/abstract=918142

United States Census Bureau. (1961, June). 1960 Census: Supplementary Reports: Urban and Rural
Population of the United States, by States: 1960 and 1950 . U.S. Federal Statistical System, Bureau of the
Census. https://www.census.gov/library/publications/1961/dec/pc-s1-4.html

Dyer, J. H., Godfrey, P., Jensen, R., & Bryce, D. (2020). Strategic Management: Concepts and Cases (3rd ed.).
Wiley Publications.

Farrell, J. (1987). Information and the Coase Theorem. Journal of Economic Perspectives , 1 (2), 113–129.
https://www.aeaweb.org/articles?id=10.1257/jep.1.2.113

Jindal, R. P., Gauri, D. K., Li, W., & Ma, Y. (2020). Omnichannel battle between Amazon and Walmart: Is the
focus on delivery the best strategy?. Journal of Business Research , 122 , 270–280.
https://doi.org/10.1016/j.jbusres.2020.08.053
A Comment on Social Media, Software Developers, and
Silicon Valley Corporations
By Craig Wright | 25 Jan 2021 | Alternative Coins & Systems
The other day, I responded in a manner that seemed irrationally angry. I did so purposely, to kick the
hornet’s nest—proverbially. Unfortunately, in today’s post-social-media world, it is rationality that suffers. To
get people to listen to you, they need to be stirred into action. The emotive nature of their reaction presents
a state that has come with the intentionally conditioned reflex of people over time. Social-media companies
use it to incite further reactions.

I am proud of the work of many developers in the blockchain space. My satisfaction includes those who do
not like me. The sentiment expressed by the many in the blockchain space, to change the world and make a
system that is open to everyone and to promote financial freedom, is laudable.

When I started Bitcoin, no individual taking part in the project at the time maintained any liability for the
software, as none of them had any influence on the decisions to implement code changes, which is
different to how the project works now. Developers are now acting together for their own benefit, and thus
must realise that they are subject to the risks and consequences associated with established legal systems.

Companies such as Square fund developers as they undertake such projects, increasing the rewards for the
developers that own and control the projects. In turn, such Silicon Valley players gain access to the benefits
of the projects without assuming the risks of controlling and owning the projects. It is my view that when
such projects suffer negative legal judgments, the Silicon Valley companies will have to take up the job of
controlling and owning the projects, exposing themselves to the same sort of liability that they have been
content to leave with the developers.

The truth is, I am not angry at any of the developers in the Bitcoin and BTC space who have been
developing software to help create a financial system that is freer and more open to the world, but the
developers need to understand the system in which they operate. Using my statements, I needed to get
people to start to respond and to question the status quo. To do so, I needed to shake them out of their
malaise. I needed them to start reacting.

Certain corporations take advantage of the passion and integrity offered to them through developers who
want to do something significant to change the world. They twist it to promote their ends, and minimise
the amount of risk that they would face. Such groups use social media to twist the truth and promote an
outcome that allows them to profit at the expense of others. They do so leaving the risk and the
consequences with the developers, who are left high and dry when things eventually go south.
Open Source and Liability
By Craig Wright | 26 Jan 2021 | Alternative Coins & Systems
Several individuals in what is termed the “cryptocurrency space” have started to promote a misleading and
false premise: that open-source software is necessarily free and comes without copyright. And, dangerously
for those involved with any associated projects, there is the false perception that open-source developers do
not have any liability for the software they are developing. Both concepts could not be further from the
truth.

Such mythology is promoted by organisations such as Twitter and Facebook, which use closed source code
internally and open source developed by third parties. In developing software, reliability is associated with
the offering of a product. For companies like Twitter, the undertaking of open-source projects allows them
to distance themselves from liability, handing it to unsuspecting developers. In effect, such large Silicon
Valley companies end up having products developed for them at near to no cost, with the risk and
associated problems lying with third parties. That is, developers without knowledge of the law, or what they
need to know about the development of software and the fiduciary duties that apply.

The law recognises a few business and corporate structures. Everything fits within them in one way or
another. They include:

the individual (including simple business structures);

associations or partnerships;
companies and corporations; and
trusts and foundations.

For all the simplification, the same four groups cover practically every available structure offered by a
software development group.

The Individual
Such a structure occurs when individuals act and control a project by themselves. A simple business
structure falls under such an environment, leaving the individual liable for all risk and damages. Businesses
present the simplest and most common reporting framework, where the taxation liability resides with the
individual.

Associations or Partnerships
The formation of a common-law partnership can occur whenever groups are working together outside of
formalised structures. There are multiple rules for the creation of partnerships, and entire courses are
taught in law schools around partnership law. Generally speaking, partnerships are formed where
corporations have not been developed. Most development groups that we are seeing in the “cryptocurrency
space” are general partnerships.

A general partnership is a form of structure where all of the partners (such as developers who submit) are
part of the system, where they may be personally liable for all the debts. General partners end up with a
strict liability to third parties for any injury or loss that can be attributed to the partnership. In the case of
software development systems, some individuals believe that because we are talking about a group of
software developers, there cannot be any liability. It cannot be further from the truth. Without a corporate
structure, those developing the software and controlling the project maintain joint liability.

Companies and Corporations

Corporations present one of the greatest freedoms ever won against government. Prior to corporations, an
individual going bankrupt or actions by one partner would impact the entire endeavour. Corporations allow
all risk to be minimised and individuals working on a project to maintain a limit to the loss that they can
face.

What many people are failing to see in the open-source movement is that large Silicon Valley corporations
are using individuals to migrate risk away from their companies. Corporations such as Twitter use open-
source software, and tweak it for internal use. They do so without having to pay any costs or assume any
liability. All the liability for potential losses remains with the developers of a project. From the user’s
perspective, corporations such as Twitter gain all the benefits, with none of the overheads.

Trusts and Foundations

Trusts and foundations act as an alternative form to corporations, and are mostly constructed to protect
assets, such as for succession planning and to create charitable foundations and structures for the
continuation of a goal or purpose created by the individual or group initially forming and funding the
foundation.

“Donations”
There have been individuals seeking to raise capital and income to defend themselves against lawsuits that
may be directed towards open-source software groups. When an individual, or a developer, is given money
to pay for their defence in a lawsuit, such money is income. It is not tax-deductible, and the individual needs
to declare it and pay tax at the full rate, the rate they owe for additional income. For instance, if you are a US
citizen and a developer on an open-source project, and you gain funding for a legal case you are facing, you
will need to pay tax on the full amount.

For example, as a US developer, if you are provided with US$100,000 and your top-bracket tax rate is 46%, it
is your legal responsibility to pay US$46,000 to the Internal Revenue Service (IRS). If you face US$160,000
worth of legal fees, none of the cost associated with the legal fees will offset your taxable income in this
instance. The scenario may differ for corporations and other registered entities. As an individual, a partner in
the development group, you cannot claim the cost of a legal defence against your tax. You will owe all the
money that is due to the IRS and have to pay your lawyers.

Even though people talk as if such moneys were donations, donations are only valid for registered
charitable organisations. In all other instances, such money presents not a donation, but taxable income.

If you are given money to develop an open-source platform, it is not yours to spend as you wish.
Simultaneously, it is treated as income under tax rules. It is the same as raising money through ICOs,
presenting taxable events.

What Else Is There?

Of course, the big Silicon Valley companies will tell you that you are free because of open-source projects.
Open-source projects allow them to develop and use external software for less. Twitter, Facebook, Google,
and a swathe of other Silicon Valley companies have lowered the production costs faced by their
companies, managed to hand risk to third parties, and foregone responsibility, whilst getting uninformed
and legally untrained software developers to believe that they were doing good. Here lies one of the big lies
of the Silicon Valley Internet industry. They are taking away their own risk and handing it to uninformed
individuals.

When you become part of an open-source project, make sure that you cover the legal aspects of what you
are doing. Those who tell you that there are no risks associated with being a developer are either ignorant
or lying. There seems to be a lot of promotion along such lines in Silicon Valley. Silicon Valley seems to be
hosting the new former pirates of the world; they lie, they steal, and they misinform.

With systems involving “cryptocurrency”, including BTC Core , the individuals behind the associated website
will try to tell you that they are only an open-source group, and hence there is no liability. You cannot simply
remove liability from your actions by saying you do not have liability. It does not matter what the website
says; if you become part of such a group, you are liable for the actions of the group. Here is why corporate
structures were developed; they limit liability.

Bitcoin Core is a partnership-based software vendor. It owes a duty to its users and those who put money
into the ecosystem they are developing. It has a duty of care and fidelity to provide functioning software.
Likewise, actions such as passing a system off as another can leave each of the developers liable for the
actions of a few malicious individuals. Ignorance is not a defence.

In accordance with the common test provided through Reckitt & Colman Products Ltd v Borden Inc [1990]
1 WLR 491, the development of an alternative system, changing something that was set in stone, and
misrepresenting it as the same product is an act of passing off. In the case of BTC Core, you cannot decide
that a community now owns a project. I did not ever hand the project over. I explained that the project was
based on a protocol that had been set in stone.

So, from a legal point of view, there are hundreds of billions of dollars’ worth of goodwill and reputation that
have been destroyed, which has been done through a misrepresentation. Consequently, as Bitcoin Core
forms not a corporate structure, and is merely run by its members, the developers, it is the developers who
are liable for such actions. The liability is unlimited. And, being that there is no corporate structure, there are
no donations. Here, any money sent as payment is not tax-deductible whatsoever.

Interestingly, such cases do not even require my asserting my personal rights. As with the protection rights
in the case of one company, Champagne and Port, acting to defend their rights against producers such as
those in California which sold sparkling wine as champagne, any individual within the Bitcoin (BSV)
community, or any company or investor in the community, has a right of action. In other words, all
individuals within the Bitcoin community and all the companies within the community which have lost
money have personal rights of redress against the developers of BTC Core.

It is time for the truth about open-source software to come out. It is time for the lies promoted by Twitter
and other companies in the Silicon Valley industries, who have been parasitically reducing risk and cost by
handing both to individuals, to end.
Bitcoin White Paper Statement of Jan 29, 2021
By Craig Wright | 29 Jan 2021 | Alternative Coins & Systems
Last week, I instructed my lawyers to send a series of formal legal letters to a very specific list of people and
organisations who were hosting the Bitcoin white paper on their websites.

This wasn’t done to limit the public availability of the white paper—quite the opposite. I am proud that when I
first posted it online, in 2008, the system described within the white paper generated substantial excitement,
which has only grown since. As far as I’m concerned, the more people who read the white paper— actually
read it —the better. It would go a long way towards furthering people’s understanding of what Bitcoin is, and
what it is not.

The Bitcoin system described in the white paper is not ambiguous. It is not open to interpretation. It is a peer-
to-peer system of electronic cash. Cash means utility and practicality for daily use to make Internet
commerce payments, including for “small casual transactions”, as noted on page 1 of the white paper. Cash
means the network must be able to scale to support a high volume of transactions at high speeds and very
low costs. For it to work, the underlying protocol must be set in stone, and not open to repeated revision by
constantly tinkering developers who do not understand the system they may break. The system described in
the white paper is clearly not one whose primary purpose and promotional message involves the storing of
value or “digital gold” as a reserve asset.

And yet today, organisations use the Bitcoin name and the white paper itself to promote coins and products
which they know to be inconsistent with the system as originally described. Such alternate coins and
products not only fail to live up to the specification set out in the white paper, but still use the Bitcoin name
and the white paper to promote themselves. As the author of the white paper, I feel compelled to exercise
my legal rights and to ensure that it cannot be marketed in such a way—not just so that Bitcoin can live up to
its potential, but so that people are not misled into supporting a different endeavour, having been led to
believe that they were supporting Bitcoin.

In no other context would my acting appear as unusual or noteworthy. In fact, my failure to do so would at
best be questionable and at worst a failure of my duty. Alas, such is the campaign of misinformation and
obfuscation which has emerged over many years.

I do not want to be misunderstood: if a person would like to develop a system of digital gold or of slow,
expensive online transacting, I would encourage them to pursue it, even though my opinion may be that
such a project is ultimately doomed. Innovation is a great thing. It’s why the fixed nature of the protocol is
such an important component of what Bitcoin is: if the protocol is subject to continuous change, how can
meaningful innovation possibly take place using the system? When the Internet protocol was set in stone,
we saw mass Internet adoption and use. Without the certainty that the protocol you are developing on is still
going to be able to support your product a year or 10 years after its launch, innovators will simply choose to go
elsewhere.

What I hoped to achieve by taking action against certain misusers of the white paper was to bring awareness
to the Bitcoin system that is described within it, and to distinguish the system from others using the Bitcoin
name. I believe the white paper speaks for itself. Whether something is ‘Bitcoin’ or not can be easily checked
with reference to the document. If it fails to live up to the system of peer-to-peer electronic cash described
therein, then it is not Bitcoin. Bitcoin SV is the Bitcoin system I described in the white paper. While much of
the world may not see it yet, over time, people will; the technology speaks for itself. My life’s work has been
about creating a micropayment system: one that brings electronic cash to the Internet in the form of small-
value micro- and even nano-transactions.

I know that many people do not agree or do not understand why I have taken such course. To them I say, this
is my personal battle, not that of the many companies and individuals in the Bitcoin ecosystem focusing on
building an honest system, a system that is changing the world for the better.
Nanostrategy
| 29 Jan 2021 | Bitcoin & Blockchain Tech
By Craig Wright
Recently, it has come to my attention that Michael Saylor has been misleading investors to make a
fraudulent gain. He makes the claim that bitcoin cannot be taken. Which is false. He makes the claim
that you cannot freeze Bitcoin transactions, which is also false. When I added the alert key to Bitcoin, it
did not present a change to the protocol. Bitcoin is a financial system, and it doesn’t matter whether
systems on the network ‘want’ a transaction; it only matters whether something can be legally
processed and enforced.

There are less than eight nodes that have any say on the network. All the systems are subject to
regulation. Proof-of-work allows the ultimate proof-of-truth system, because it is the ultimate
deanonymisation strategy. The nodes processing the network can come and go at will, without having
to be indoctrinated or authorised. The nodes don’t need to be licensed by any particular company or
government. They just have to follow the rules, and rules include law.

Saylor makes the false claim that banks will compete to the bottom. He says that if a New York bank
refuses to take your bitcoin, you could go to Singapore , and a bank there would take it. In his
misleading analysis, he is encouraging the avoidance of tax and other financial frauds. He is inciting
people to move criminal proceeds using Bitcoin. In a way, it is a good thing. Because once such criminal
proceeds are in Bitcoin, they can be frozen.

But, for the purpose of today’s post, I will explain that there is no race to the bottom with banking. A
court order involving proceeds of crime and that applies in the USA can be enacted and enforced in
Singapore. So, you move your BTC into a Singaporean bank, and the Singaporean bank hands it over to
the authorities in the USA. Such is the truth of the matter. In fact, a freezing order would allow the
transfer to be stopped before it even gets to Singapore.

Bitcoin is a system that does not even need tracing rules. The ledger is so complete that the rules of
following apply. But, it needs to be noted that if assets were transferred into a foreign bank, the rules of
tracing would apply. You see, tracing presents a change of the asset class. Under tracing law, the asset
that has moved can be traced to the point of another asset. Such an asset may be seized. The law of
following means that the original asset, including the fully traceable bitcoin tokens, can be seized. If you
are told that it cannot happen, you are being lied to.

Bitcoin is not encrypted.

The misleading and fraudulent information that is passed on about Bitcoin is based on the concept of an
encrypted system. But the nature of the ledger of Bitcoin is such that it cannot be encrypted, and as a
result, there is no way possible to stop coins from being traced, frozen, recovered, and seized. The nature
of it was intentional.

So, anyone who tells you that your assets can be moved around the world without paying your taxes,
without the enforcement of court orders involving proceeds of crime, and with utter secrecy is lying to
you if they are telling you that you can do so with Bitcoin. Bitcoin is a completely transparent system.
Bitcoin is the simplest system ever invented to enforce court orders upon. Bitcoin is the simplest and
most open system to allow criminal proceeds to be seized. The blockchain is not friendly to crime, and
within the year, the government will start learning that it is not. And so, any criminal found using Bitcoin
will just have their assets taken.

Then again, it will not be the first time that Michael Saylor will have misled investors. He has been
investigated by the U.S. Securities and Exchange Commission (SEC) multiple times.
A Discussion of the Academies of Art Established in the
Seventeenth and Eighteenth Centuries
By Craig Wright | 16 Feb 2021 | Philosophy
Art academies were principally constructed to instruct and train young artists with a set of codes and
foundational principles. Artists would emulate contemporary forms. In some ways, such principles emulated
academic scholastic forms that sought to perfect existing styles and that avoided innovation. Art looked
back, and attempted to capture the classics. An artist would provide homage to the greats that preceded
them, whilst seeking to elevate their art. It was a system of tradition and conservatism. Following Galileo
and Newton, such artists discovered a God-sized hole in the transcendent. They sought beauty in the
landscape and the classical ideals of the past. They filled the place of God with past heroes and an emergent
otherworldliness that embraced nature.

The primary forms advanced by the academies included historical painting, portraiture, landscapes, and still
life. We see multiple themes displayed in Jacques-Louis David’s Oath of the Horatii (1784). The painting
depicts a classical Roman legend concerning a dispute between two warring cities, Rome and Alba Longa.
In paying homage to Livy (sections 24 to 26), David creates a unique scene depicting the oath to protect
Rome made by three brothers. The painting captures the necessity of duty over personal feelings and
concerns, which we see in the limitation of the women and children who will be left behind. The scene was
not referenced in any of the existing and remaining Roman texts, but has rather been interpreted as part of
the classical story by David (Winkler, 2009).

In it, we see the homage to the strengthening of duty, and the necessity to sacrifice, that was promoted as a
civic duty. The brothers are stern and stoic. The women, although saddened and melancholy, are not
weeping to console each other. We see the Enlightenment adherence to the past, captured and promoted
as a means to educate what remained a mostly illiterate population.

References

Jacques-Louis David, The Oath of the Horatii, 1784, oil on canvas, 330 x 445 cm, Musée du Louvre, Paris

Winkler, Martin M. (2009). The Roman salute: cinema, history, ideology . The Ohio State University Press.

The Departure from the Academies in the Eighteenth Century

The departure from the classics and the fixed path of the academies allowed the artist to explore and
innovate with a greater depth. In a move towards the modern, Joseph Wright used dramatic lighting effects
to capture modern industry. An Iron Forge (1772) captured contemporary industrial life while juxtaposing
the classical images of his forebears. The painting involves a scene that parodies one of earlier religious
iconicity, capturing the nativity scene in the birth of the industrial.

In its spectacle, the iron founder is impossibly close to the forge, displaying pride at the birth of the iron slug.
The use of a water-powered hammer is not new, and presents an ironic tieback to the classical systems of
Rome (Long, 2008). Such water-powered hammers date back over 2000 years, linking the classical to the
modern. When we look closely at the image, we see that the hammer is powered by a wooden wheel, and
not the industrial steam-powered iron turbine. Yet, Wright discards the high-minded theories of the
academies—in delivering a prosaic scene of proletariat effort. Such images were considered undignified by
those trained in the techniques of the academies. Yet, the lighting effects and vivid composition deployed in
the scene demonstrate a sublimely devout grandeur. The enlightened view of the everyday depicts the age
of man; not in the reflection on classical gods, but in the humble origins of everyday life.

At the same time, such artists have moved away from the transcendental and into displaying the heroic
aspects of life. It is finding beauty in an everyday scene. It is taking the commonplace and not, as with
modern art, making it an object of obscenity, seeking parity with beauty, but rather finding the sublime and
the ethereal in the ordinary.

References

Joseph Wright of Derby, An Iron Forge, 1772, oil on canvas, 121 x 132 cm, Tate, London

Long, Pamela O. (2008). Hydraulic Engineering and the Study of Antiquity: Rome, 1557–70. Renaissance
Quarterly 61.4, 1098–1138.

Contrasting Ideas through the Changes in the Eighteenth Century

One of the best ways to understand the changes in how people thought and how art diverged across the
eighteenth century is to look at the transformation in art. The divergence is particularly contrasted in two
death scenes, one depicted by David (1787) and the other by Delacroix (1827). Whereas the scene depicted
by David is ordered in a linear arrangement with those listening to the last words of Socrates in the
foreground, as his family leaves the cell in the background, the scene depicted by Delacroix is chaotic: it
represents pandemonium, whilst the potentate sits with composure amongst the carnage.

David (1787) depicted the death scene of Socrates. Socrates was condemned for a belief in an idealised and
absolute truth. He could have defended himself, but instead used the opportunity to promote his ideology,
knowing where things would lead. Socrates could have accepted exile, but instead chose to become a
martyr to truth. In some ways, it is analogous to the sacrifice of Christ, who could have easily avoided his
fate, but chose to stay true to his beliefs no matter the cost. Socrates never wrote, but he was said to recall a
dream when the gods had told him to make music, and in the picture, we see the lyre on Socrates’s bed
while he continues to teach even as his disciple hands him a cup of hemlock. The painting was
commissioned by the Paris Parliament, and was an advancement of neoclassicism. The artist poses Socrates
through grand theatrical gestures that capture the humanist beauty in a reaction against the Rococo.

The Death of Socrates (1787) contrasts greatly to The Death of Sardanapalus (1827, Musée du Louvre, Paris).
Both are deathbed scenes, yet The Death of Socrates shows the heroic, whilst The Death of Sardanapalus
concentrates on the suicide of an ancient Babylonian potentate, acting in despair. Socrates martyrs himself
to truth, whereas Sardanapalus provides a scene of violence and carnage in what would now be construed
as an active murder-suicide. Delacroix displays a scene of senseless and gratuitous violence and carnage.
Whilst adhering to the rules of classical historical painting, Delacroix seeks to shock the viewer. We see the
potentate watching idly, with mild interest, as his harem is slaughtered in front of him.

Whereas David conforms to the humanist ideals, Delacroix starts to move away from classical ideas and
into expressing the depravity that has occurred in the world before him. The use of a restrained pallet by
David produces a scene without passion. The death is calm, and mirrors the wisdom of Socrates. Conversely,
the pallet used by Delacroix is rich, and the crimson of the scene captures the blood that has not been
displayed. The scene depicted by Delacroix uses a minimal palette, to express the carnage more fully—while
simultaneously capturing the beauty and the horror.

References

Jacques-Louis David, The Death of Socrates, 1787, oil on canvas, 129.5 x 196.2 cm, Metropolitan Museum of
Art, New York

Eugene Delacroix, The Death of Sardanapalus, 1827, oil on canvas, 392 x 496 cm, Musée du Louvre, Paris

https://s3.amazonaws.com/res.e-institutes.com/Art/M4_1_Jacques_Louis_David.jpg
https://s3.amazonaws.com/res.e-institutes.com/Art/M4_2_Eugene_Delacroix.jpg
How Bitcoin Won the Race…
By Craig Wright | 31 Mar 2021 | Bitcoin & Blockchain Tech
Many people falsely believe that Bitcoin is a cryptocurrency. Bitcoin is not encrypted. Bitcoin is the first
digital cash system that presents cleartext and is completely traceable.

It is finally time to start explaining why I created Bitcoin. Why I spent nearly 25 years of my life, so far, on a
project. To explain what ‘BlackNet’ was originally designed to be and what I transformed it into. Bitcoin
represents “CryptoCredits”. The cypherpunks wanted to create a darknet market that would be completely
anonymous and encrypted. It would have been a market that would have allowed Silk Road to be operable
without being taken down. A system that would have allowed illicit funds to remain untraceable. One that
was designed to enable assassination markets and the sale of illegally obtained information and national
secrets and one that Tim May personally said could have been used to leak information about the
Manhattan Project, had it been around at the time.

Timothy C. May (1992) argued that it was a race. He had also said, “In any case, it’s too late. The genie’s nearly
completely out of the bottle. National borders are just speed bumps on the information highway”. He was
right. A decade ago, people were still trying to work on the creation of a digital currency system. E-gold, bit
gold, Liberty Dollar, and multiple other systems were attempts to create an anonymous cryptocurrency.
Such was the race.

The race was one of finding and implementing an anonymous digital currency system that would work. It
was a race to create a cryptocurrency that could spread and be implemented across society before an
alternative digital currency could be found. The alternative, which they did not want to see, was Bitcoin. You
see, Bitcoin is not encrypted in any form. Bitcoin presents sheer cleartext, and Bitcoin is completely
traceable. In the past eleven years, Bitcoin, along with the mechanism of blockchain technology, has
formed the universal method of creating digital currencies and digital cash. Every single attempt at creating
a cryptocurrency such as in the form of Tim May’s concept of an encrypted, anonymous digital system has
stopped. The technology behind Bitcoin has become so widely adopted that the race has been lost. Bitcoin
has won. And the reason is that Bitcoin is not even remotely analogous to a cryptocurrency. It is truly digital
cash, but it is completely traceable and always recoverable.

The anarcho-capitalist movement is neither anarchist nor capitalist. When Tim May and others started using
the term in the late 1980s, it was not to represent libertarian or capitalist or conservative thought, but a “a
pastiche of The Communist Manifesto”. Timothy C. May’s Crypto Anarchist Manifesto remains the basis of
the crypto-anarchist movement. Yet few understand that it, the entire concept of “anarcho-capitalism” was
designed in a manner that encapsulated communism and redefined it following the 1980s error of Reagan
and Thatcher and capitalist concepts.

In 1992, Tim knew of the problems. The problems he referenced included “national security concerns, use of
the technology by drug dealers and tax evaders, and fears of societal disintegration”. Tim went on to say
(May, 1992):

Many of these concerns will be valid; crypto anarchy will allow national secrets to be trade freely and will
allow illicit and stolen materials to be traded. An anonymous computerized market will even make possible
abhorrent markets for assassinations and extortion. Various criminal and foreign elements will be active
users of CryptoNet. But this will not halt the spread of crypto anarchy.

Tim was smart enough to call his form of communism “anarcho-capitalism”.

Just as the technology of printing altered and reduced the power of medieval guilds and the social power
structure, so too will cryptologic methods fundamentally alter the nature of corporations and of
government interference in economic transactions. Combined with emerging information markets, crypto
anarchy will create a liquid market for any and all material which can be put into words and pictures. And
just as a seemingly minor invention like barbed wire made possible the fencing-off of vast ranches and
farms, thus altering forever the concepts of land and property rights in the frontier West, so too will the
seemingly minor discovery out of an arcane branch of mathematics come to be the wire clippers which
dismantle the barbed wire around intellectual property. (May, 1992)

You need to look at it all as an integrated whole. Tim’s concept was a world where only information had
value. All property becomes digital. In the words of another Silicon Valley techno control freak, “software is
eating the world”. When you understand that such individuals or that everything would go online, and
everything would be linked technically, through digital records, you start to see the goal. It becomes not
merely intellectual property but all property. If your house record is now linked through digital databases,
and your ownership is an online property record, the ownership of your house has become intellectual
property. The next step of such concepts is to take the clippers to all property. Tim did not just want to free
intellectual property, he wanted to kill the concept of property altogether. Unfortunately, Tim’s ideas have
become widespread within Silicon Valley. They are the concepts of technocrats such as those associated
with Google and Facebook and Twitter.

It is for the same reason that they promote the concept of a universal basic income and it is for the same
reason that they believe they know best. As with the controlling class in Plato’s Republic , the technocratic
leaders of Google and Facebook want to tell you how to live the life they think is best for you. It is the vision
that Tim started.

John Gilmore shared many of the same ideas with Tim. Gilmore is one of the early promoters of the Free
Software Foundation (FSF) and the fifth employee of Sun Microsystems and founder of Cy GNU s Solutions,
a company that was behind many of the early free software and GNU projects. The company is now part of
Red Hat. It may seem altruistic and honourable for somebody to support free software. But, there are always
alternative motives. For example, Gilmore supported free software and benefited through the integration
with commercial hardware platforms.

It was not about making software affordable but about making hardware profitable. Early hardware
platforms required a strong base of software. To compete with Microsoft and Intel, other platforms needed
to increase the range of offerings, which sometimes meant gaining an advantage through a reverse-
engineered recreation of commercial software. Much of it benefited from the work of Tim May and others,
who used the early versions of BlackNet to profit. Tim May worked for Intel, and retired with share options
that enabled him to continue working on his own projects. One such project involved selling corporate
secrets, which included chip designs, software source code, and much more. Some secrets went to Chinese
companies and Chinese government officials, some of it went to other nations, including ones on the
restricted list, and some of it merely became sold for hypocritical profitable gains, as corporate espionage.

Wei Dai (1998) wanted to work on an anonymous form of digital currency. One that could not be cracked or
altered. His first protocol presents what most individuals want Bitcoin to be. A redefined version of the
second protocol is what I used to create Bitcoin:

In the second protocol, the accounts of who has how much money are kept by a subset of the participants
(called servers from now on) instead of everyone. These servers are linked by a Usenet-style broadcast
channel. The format of transaction messages broadcasted on this channel remain the same as in the first
protocol, but the affected participants of each transaction should verify that the message has been received
and successfully processed by a randomly selected subset of the servers.

Wei did not like the second concept. Which is why nobody explored the concepts around the economics of
the system or took it to fruition in creating a working system. Individuals like Tim May sought to create a
system that did not have a small subset of servers. In my case, I created servers that would always end up
aggregating towards competitive commercial systems. I didn’t see bandwidth capacity as a problem (and I
still don’t) [1]:

As the network grows beyond a certain point, it would be left more and more to specialists with server farms
of specialized hardware. A server farm would only need to have one node on the network and the rest of
the LAN connects with that one node .

Bitcoin has already passed the stage where “the number of network nodes consolidates into a smaller
number of professional server farms” [2].

Mining or running a node involves not merely finding a proof-of-work solution, which is an exceedingly
small part of mining. Mining is how transactions are validated, recorded, and journaled. Section 5 of my
white paper defines what is necessary to run a node. The only consensus mechanism within Bitcoin lies in
the creation and broadcast of a valid block, that is, a block that needs to be accepted by other nodes for 100
further blocks in depth. If a node’s block is not accepted for 100 blocks, you do not get paid. Here lies an
aspect of Bitcoin that seems to be ignored by those creating false narratives such as “selfish mining”. They
cherry-pick how the system works, to make room for their scaremongering and “FUD”.

And it does not matter what system the principle is applied to. Even on Ethereum version 2, the system
aggregates to form a small number of professional servers. The sole difference with Ethereum is that proof
of stake removes the deanonymisation process of proof-of-work. Proof-of-work is not a security tool. It
ensures that all the node farms can be attributed and held accountable. Proof of stake allows one individual
using a set of keys to act as if they owned many bearer shares and to devote each bearer share
independently to seemingly multiple individuals. In other words, each of the staked amounts of thirty-two
ETH can be attributed to a different entity—even when they are in fact owned by the same individual. Here,
of course, lies the reason for implementing proof of stake. It is not to create distributed “democratised”
systems, but rather to implement a system that allows groups to secretly control the system while giving
them plausible deniability.

Such a scenario, though, is very simple to legally bypass. Each staking entity would be required to provide
know your customer (KYC) details. In effect, a verification node on Ethereum exceeds the Fifth Money
Laundering Directive (5MLD) requirements for reporting custodial amounts. But, criminals will be criminals.

The Alert Key

The system of the alert key within Bitcoin was an early attempt at creating a system that would allow the
freezing of assets. All of it acts outside of the protocol. The design of Bitcoin, with it ending as a small
number of commercial server farms, is such a one that naturally results in commercial entities that are
subject to court orders and law. Proof-of-work deanonymises the system. Commercial nodes cannot
operate without leaving a trace of who they are. Commercial nodes cannot sell on regulated exchanges to
fund their operations and be anonymous. Bitcoin solves the problem of anonymity. Users may be users, and
exchange small amounts of money, directly, using the client system I created: simplified payment
verification (SPV). Nodes, on the other hand, will always become visible to the world.

I admit, I had not thought through all of the issues when I launched Bitcoin in 2009. At the time, there were
many problems that I, with the limited resources I had, was not able to solve. In the subsequent twelve
years, time and other resources have changed. Some people like to argue that they can simply hive Bitcoin
off into a user activated soft fork (UASF). Which would leave the system with no consensus and hence no
chain. Alternatively, merely changing the proof-of-work algorithm would lead to a different group of nodes
(miners) on exchanges. Such exchanges are all public, and are all easy to control. An exchange cannot
operate if coins (bitcoin) cannot be exchanged for fiat money. Miners need to be able to pay for the bills
attributed to the cost of electricity—not in bitcoin, but in the local currencies. It follows that users have no
say on the protocol.

If the developers implemented a hard fork to change the node structure and protocol, any subsequent
exchange would be violating securities rules and court orders. Ask Liberty Reserve about it.

Imagine if gold turned to lead when stolen. If the thief gives it back, it turns to gold again.

The rest of the year will bring a lot of changes. Bitcoin and its unauthorised copies (BTC, BCH, etc.) will be
shown to have been traceable and ‘seizeable’ from day one. Bitcoin was never “censorship-resistant” in the
way that people make claims about. In fact, it was designed not to be. Allowing the cryptocurrency that a
small group of people wanted would require the system to be encrypted. As noted, Bitcoin is not encrypted
any point. The underlying system, the blockchain only functions through the public dissemination of
information. That is, any blockchain network requires traceability and the ability to change the system.
I have not been working on solutions to any other problem with any other system, but I don’t need to. Once
changes are made to Bitcoin and the unauthorised copies of Bitcoin’s database (BTC, BCH, etc.), law
enforcement globally will understand how much power they have over digital cash based on a blockchain.
Bitcoin is private. It is not anonymous. Like every financial system database, Bitcoin presents a write once
read many (WORM) database. You don’t change a WORM database. You append. It’s not a difficult concept;
read-only accounting systems, including those associated with Oracle, have been doing the same for
decades. Following the Sarbanes-Oxley (SOX) Act of 2002, every single public company in the United States
has utilised WORM database structures on the company’s accounting systems. Changes always need to be
made. Like with Bitcoin, changes are achieved by appending records.

It only works because Bitcoin has a cleartext database structure. The nature of Bitcoin was designed to be
unencrypted, and hence not form a cryptocurrency, ensuring that the system could always be read. If
Bitcoin could be created in a manner that was unable to be widely viewed and validated, it would not be
possible to update the ledger. It is only because the system is distributed across commercial nodes and as
an unencrypted database that it is possible to do so. The nature of the blockchain is one that requires all the
public information to be in cleartext. As such, every variant that calls itself a cryptocurrency, including
Ethereum, can be easily captured.

Bitcoin was never designed to be politically decentralised. Bitcoin was the system Tim May wanted to race
against. It is the system he feared. Bitcoin is not anarcho-capitalist (i.e., communist); it is pure conservative
capitalism.

Decentralisation
The concept of decentralisation that is put forward is the great lie and fraud within the industry. Bitcoin, and
any blockchain network for that matter, is not decentralised in the claimed manner. Bitcoin is robust in
being run by a number of commercial entities. Every single blockchain that can ever exist is maintained by
a small number of entities. BTC is managed by three developers. They control all the commits. Ethereum is
managed by only five developers, who manage nearly all the commits.

2021 is the year of myths disappearing and never returning. All the lies that have been promoted around
Bitcoin, and systems based on blockchains following Bitcoin’s design, will be shown for what they are. Of
course, many people are going to fight me on it. Many people have made money through Ponzi schemes
and defrauding investors for a decade now. Such individuals and companies have lied to corporate
regulators, the police, courts, and just about every other part of society that matters.

2021 is the year that crypto-communism dies. It is a year where such disingenuous technocrats find out that
their scheming and frauds come to an end. The misrepresentations and lies promoting Bitcoin as a system
outside government control will be shown to be hollow and vapid. Bitcoin doesn’t stop the state. Bitcoin
doesn’t take down banks. Bitcoin destroys cypherpunks—and all that they ever stood for.

Footnotes

[1] Wright, C. (2008, Nov 2). Re: Bitcoin P2P e-cash paper . The Cryptography Mailing List. https://www.mail-
archive.com/ [email protected] /msg09964.html

[2] Wright, C. (2010, Aug 5). Re: Flood attack 0.00000001 BC . bitcointalk.org.
https://bitcointalk.org/index.php?topic=287.msg7687#msg7687

References

Dai, W. (1998). b-money . http://www.weidai.com/bmoney.txt

May, T. (1992). The Crypto Anarchist Manifesto . Cypherpunks electronic mailing list, Usenet release.
https://groups.csail.mit.edu/mac/classes/6.805/articles/crypto/cypherpunks/may-crypto-manifesto.html
Offline Addressing
By Craig Wright | 23 Apr 2021 | Alternative Coins & Systems

When I initially launched Bitcoin in 2009, I noted two ways of sending bitcoin [1]:

There are two ways to send money. If the recipient is online, you can enter their IP address and it will connect,
get a new public key and send the transaction with comments. If the recipient is not online, it is possible to
send to their Bitcoin address, which is a hash of their public key that they give you. They’ll receive the
transaction the next time they connect and get the block it’s in. This method has the disadvantage that no
comment information is sent, and a bit of privacy may be lost if the address is used multiple times, but it is a
useful alternative if both users can’t be online at the same time or the recipient can’t receive incoming
connections.

The addressing mechanism was not designed to be the only way of sending money to other users, which has
been deployed very badly. I had explained that reusing public keys was not a good idea. Every single use of
bitcoin should correspond to a new address. Even when a user is offline, the scenario should not be difficult.
As an example, I shall endeavour to take the reader through one possible scenario that solves the problem
very quickly and maintains a high level of security and privacy.

We will start with Alice, who is seeking to purchase goods from Bob. Bob has a website. Even if Bob didn’t
have a website, to send to an address owned by Bob, there must have been some way for Alice and Bob to
exchange information in the past. Alice cannot merely send to a random address, without knowing
information about Bob. So, we have defined that there must be some knowledge of what Bob’s address is.

Rather than using the typical Bitcoin address, in a manner that does little to protect privacy, we will attribute
a public key to Bob and Alice. Such a key could be certified using a certification authority (CA) or distributed
using a web of trust. As long as it is known that Bob and Alice are attributed a particular key, Bob and Alice
can remain pseudonymous and still engage. The communications between Bob and Alice, although publicly
disseminated over the Bitcoin blockchain, will be completely private. We can define the following terms:

P_Alice Alice’s root public key P_Alice = s_A.G

C(P_Alice) A certified certificate of Alice’s key [2]

S_A Alice’s secret key

P_Bob Bob’s root public key P_Bob = s_B.G

C(P_Bob) A certified certificate of Bob’s key [2]

S_B Bob’s secret key

Bob can publish his certified public key on his website. Companies use public keys in SSL/TLS connections to
websites, and Bob could even certify a domain. When connecting to websites, the keys do not change. But,
because Bitcoin entails a public ledger that everyone can view, we don’t want to keep using the same key.
Bob must create an algorithm that allows another individual, such as Alice, to transact with him without using
the same key multiple times.

Bob uses a standard protocol to disseminate information. Such protocols can be distributed on a website or
use information in the same way protocols are defined on the Internet. Here, we will assume that Bob uses a
simple algorithm that has been widely distributed and is used across many Bitcoin wallets in the future. For
such an algorithm, several values are calculated. The calculation of addresses would be automated and simply
require that Bob and Alice know each other’s master public key.

S_AB = P_Alice x s_B = P_Bob x s_A

The secret, S_AB, would be calculated using your own secret key and the other party’s public key. Only Alice
and Bob know how to calculate S_AB. Such a simple protocol makes it possible to create a secure messaging
format that never disseminates the exchanges between the original public-key holders on-chain. Using it
would allow us to create an HMAC [3] of exchanged information such as a purchase order or invoice number.

Hm(i) = HMAC (S_AB, m)

m = Invoice(i)

The message (m) could be any value. It could be the hash of a document or anything else we wish to
exchange. Here, we have used the invoice number “i”. The Elliptic Curve Digital Signature Algorithm (ECDSA),
the elliptic curve algorithm used in Bitcoin, has some interesting properties.

Both Bob and Alice can calculate a derivative address that will be associated with Bob. ECDSA has some
additive properties that allow for the secure summation of keys. We can create a single-use, additive key
function using the shared value Hm(i).

P(i) = Hm(i).G

The value G is the curve multiplier, that all parties know. Both Alice and Bob could calculate P(i) and know the
secret if it was used. But, because of the additive nature of addressing, Alice can now create an offline subkey
that Bob has never used but will be able to generate later.

P_Bob(i) = P(i) + P_Bob

The public key that has been derived, P_Bob(i), can easily be calculated by either Bob or Alice, but no other
party can relate it to Bob or Alice, even though it is publicly available on the blockchain. And even though
Alice can calculate Bob’s new derivative public key that she is sending bitcoin to, she does not have Bob’s
private key s_B, which would be required to unlock the bitcoin and spend it. So, Alice knows where she has
sent the transaction to, and can now inform Bob using email or any other methodology to exchange
information offline.

Using the same existing methodology that is available and was created as the first payment template for
Bitcoin, we can take the hash of the hash of Bob’s public address key as follows:

Address(Bob_i) = Hash256(Hash256(Pub_Bob(i)))

This address function works and is formatted as the original addressing function in Bitcoin. Yet, the system
allows Alice and Bob to create a series of addresses that change over time. For instance, Alice could update an
invoice or other number and create an entirely new set of addressing schemes. The wallet software would
take Bob’s public key and a value such as an invoice number, which is all Alice would need to compute the
output address for Bob.

With Alice’s master public key and the invoice number, even if Bob is offline, he will receive funds from Alice.
There is no way for a third party such as Charlie to attribute the payment address, Address(Bob_i), to either
Bob or Alice using their public keys displayed through a certification authority (CA) or otherwise. Similarly,
even after Bob has spent the bitcoin associated with the address, the public key, P_Bob(i), will not be publicly
linked to the master key, allowing him to remain private.

Many possible protocols could be created on top of Bitcoin. The one described in today’s post is based on the
original protocol and templates that existed in 2009, when I launched Bitcoin. When I say that addressing is
being misused, I’m referring to the reuse of keys. The ability to calculate derivative keys and to automate the
process existed when Bitcoin was launched. None of it entails a new technology. Yet, many new things are
created using old technologies. Right now, the drive to make a system that acts outside of the controls of
Bitcoin has led to many problems. When people stop trying to change the underlying protocol, you can start
seeing how many things can be built. Innovation does not come about by changing foundations; it comes
through building upon them.

References

1. Bitcoin v0.1 Alpha Release [Original Bitcoin website]. (2009, Mar 3). Wayback Machine.
https://web.archive.org/web/20090303195936/http://bitcoin.org/

2. Russell, A. (2019, July 23). What Is a Certificate Authority (CA)? . SSL.com. https://www.ssl.com/faqs/what-is-a-
certificate-
authority/#:~:text=A%20certificate%20authority%20(CA)%2C,the%20issuance%20of%20electronic%20documents

3. HMAC. (2021, January 12). In Wikipedia . https://en.wikipedia.org/w/index.php?title=HMAC&oldid=999850157

The King’s Wi-Fi
By Craig Wright | 05 May 2021 | Bitcoin & Blockchain Tech
The proof-of-work definition that I used in describing how Bitcoin solved the Byzantine generals
problem [1], when questioned by James A. Donald, derives from the SANS testing process, which I’d
been going through in the USA.

I had been involved with SANS training and conferences since 1997. Between then and the time I
dropped off doing courses in 2015, I had gained over thirty certifications. The courses included two
master’s degrees [2]. The areas of study covered information security, programming, and much more. I
took all three of the GSE hands-on exams [3]. I did so while studying for a master’s degree in law, a
master’s degree in statistics, and several other master’s degrees. In the process, the testing
component of the SEC-617 course, which was used in the GSE hands-on lab, involved an exercise where
a number of us needed to work together.

In the exercise, the GSE cohort needed to crack the ‘King’s Wi-Fi’. Using AirSnort, Aircrack-ng,
WEPCrack, etc., we could work together in an aim to break into the network, prior to being
discovered, as a demonstration of a pen testing exercise.

Ironically, one aspect of my writing that has not been picked up on is that my description of how
Bitcoin solved the Byzantine generals problem was taken from the SANS exercises. The requirement
was that the exercise would work in a group; we all needed to configure our machines using wireless
cracking tools to capture the Wi-Fi and attack the wireless network managed by the SANS/GIAC
examiners before the time would run out. So, a few weeks later, when I had returned from the US and
released the white paper, Mr Donald asked me about the problem [1] that Bitcoin solved.

The solution to the problem was not one that was fully provided at the SANS exam. Each of us, as a
cohort doing the GSE test, wanted the same result. There was no issue of trust. Yet, it remained an
issue that was on my mind. At the conference, we could all contact each other using Jabber and other
tools. There were no issues of not trusting one another.

On November 13th, Mr Donald sent me a rather long, rambling message, saying that the Byzantine
generals problem was a classical hard computer science problem, one that would not be solved easily.
James Donald said I could not model the system under attack. I had done so many times. The entire
purpose of my PhD thesis evolved around The Quantification of Information Systems Risk . I used
economic processes in econometrics in the modelling of risk.

I was already getting frustrated with Mr Donald as he called Bitcoin “bitgold”, continuously. Bitcoin
was not bit gold, which did not seem to be something many people wanted to understand, and it
remains something people don’t seem to understand. I had been explaining over and over again that
Bitcoin was not a system where every single person would run a node. I believe I made it very clear
that only a few nodes would exist, but unfortunately, individuals such as Mr Donald kept going on
about anti-government, anti-bank, and other crazy ideas that they wanted to be part of my creation.

The problem that BTC Core, and originally Mr Donald, had was that in my system, a large transaction
can be traced and made subject to orders of proceeds of crime. My goals for Bitcoin were not to design
a system that suited the anarchist concept of a government-free money. My system was designed to
provide micropayments for the web and the Internet generally. It is not 50% of the people running the
system making the decision; nodes are commercial entities that are subject to government control,
regulation, and law. Here lies the constant point of difference between myself and all those seeking to
change Bitcoin from the beginning.

You see, with large commercial nodes as I envisioned them, the nodes can make changes with respect
to the coins. It is a distributed database, and write once read many (WORM) databases are changed all
the time. For public company transactions, every accounting platform used within the United States
follows the same form of system. It is required so that companies cannot change the records. Errors
can be fixed, but the methodology is to append a record. So, when I came back to respond to James
Donald over half a day later, I did so having taken my writings, including those from the recent courses
I had done, and modified them using the context of the information security sessions at the SANS
Institute.

My argument was simple: networks become commercial data centres, and as such, a few nodes
service the rest. I had explained the scenario before I even launched Bitcoin [6]. Importantly, as I
explained in section 8 of my white paper, simplified payment verification (SPV) would be required to
be run, so that users did not need to run server farms. For some calculations, remember that I pointed
out that there would be over 100 GB of bandwidth per day. There are 144 blocks discovered every day.
So, the argument for blocks of 1 MB is very simple: it doesn’t exist.

If we have 144 blocks and an average bandwidth of 100 GB being transmitted in the same day, we have
an average block size of 694 MB. Transactions follow a Pareto distribution. Consequently, to be able to
handle such a level of load, requirements are much higher. In 2004, I completed a master’s degree in
Network Systems Architecture and Design. I understand bandwidth allocation very well. In the past, I
also held Cisco certifications, both in security and networking.

Authors such as Balogh and Medvecký (2012) addressed the problem using simulations. But, we can
calculate it using a Pareto distribution. Measuring in gigabytes, and accounting for a distribution
where we have a long-tail effect with an average of 694 MB, ends up giving us a requirement that each
node can handle block sizes between 5 and 10 GB. Yes, to compete with Visa in 2008 would require
that Bitcoin can handle up to 10 GB in any ten-minute period. So, Bitcoin was not designed to handle
blocks of 1 MB. Doing a little bit of simple maths would help you determine that I had been talking
about large server-farm systems in 2008, before I launched Bitcoin.

But, the problem I’m solving isn’t the one that some people want to talk about. Other people, those of
BTC Core, followed the maligned ideas of James Donald, and sought to create an anarchist system that
allowed the transfer of money for illegal activities. Which is not how Bitcoin works.

You see, when you have large commercial entities, which every proof-of-work blockchain system must
lead to (and, by definition, every proof-of-stake system—whether it is blockchain-based or not), you
end up with a scenario where the systems can be subject to law at scale. Ten years ago, Bitcoin was
not operating at scale. Which made interactions more difficult. But as Bitcoin scales, the ease at which
server farms can be detected grows. The requirement for Bitcoin to be subject to legal action lies in its
scale. Ideally, such scale will come with increased transaction volumes, but it may also be developed
through price and manipulation.

So, we are now entering a time where BTC, too, will become subject to law.

References
1. Bitcoin P2P e-cash paper [Cryptography Mailing List]. (2008, Nov 13). Satoshi Nakamoto Institute.
https://satoshi.nakamotoinstitute.org/emails/cryptography/11/

2. Certified Professional [Craig Wright]. GIAC Certifications. https://www.giac.org/certified-

professional/craig-wright/107335

3. Security Certification: GSE [GIAC Security Expert (GSE) Certification]. GIAC Certifications.
https://www.giac.org/certification/security-expert-gse

4. Bitcoin P2P e-cash paper [comments]. (2008, Nov 13). metzdowd.com.

https://www.metzdowd.com/pipermail/cryptography/2008-November/014847.html

5. Bitcoin P2P e-cash paper [comments]. (2008, Nov 13). metzdowd.com.

https://www.metzdowd.com/pipermail/cryptography/2008-November/014847.html

6. Re: Bitcoin P2P e-cash paper. (2008, Nov 2). The Mail Archive. https://www.mail-archive.com/
[email protected] /msg09964.html

7. Balogh, T. Medvecký, M. (2012). Average Bandwidth Allocation Model of WFQ. Modelling and
Simulation in Engineering , vol. 2012, Article ID 301012, 7 pages. https://doi.org/10.1155/2012/301012
ID 301012, 7 pages.
The Source of Dignity
By Craig Wright | 21 May 2021 | Economics
It is common to see reflections on dignity and many individuals who have never been poor reflect on helping
others. In doing so, many of them talk about dignity. Dignity is a far more straightforward concept than many
people like to believe. It is not achieved through equality, nor is it achieved by merely having a job. Dignity is a
product of being valuable. In a sense, value is not subjective, but something measurable, especially to the
individual involved. To create value, you need to provide more than you take. It would be best if you delivered
something that other people value. Because you rely on other people’s interpretation, such value is no longer
subjective.

Here, we see why it is impossible to give people make-work positions and also give them dignity. For the
same reason, handouts and income-redistribution schemes will never work. When you do valuable work, you
can understand why it is valuable. In an age of subjectivity, people believe that subjective value sets the worth
of what they do. The error lies in the fact that people are social creatures. We are derived from tribal ancestry,
and form hierarchical social groups. As much as many postmodernists would like to disagree, we cannot
escape our genetic foundations.

Humanity does not gain dignity by looking at others’ works, which is merely a path of desire and greed.
Dignity comes from doing a respectable job. It is finding a place in society, with a role that we can fulfil. In a
dynamic system where corporations and technology change rapidly, we can leave many people believing
that they have no place. In many instances, such a belief stems from not being able to move into a new role.
Whether for fear or hubris, many individuals remain stuck in the past.

We are taught that we all need to be equal, yet the only path to equality is a path to the bottom. It is not
possible to raise all people to the level of geniuses. Most people will never be Newton or Einstein or da Vinci,
nor do they need to be. To have dignity, we merely need to do more than we take as valued in society.
Consequently, dignity requires growth. In a growing society, and a growing economy, people can feel that
they are adding value. But, many of the measurements associated with growth are valueless in themselves.
The movement of monetary instruments between financial organisations is not growth. The appreciation in
the price of housing property is not growth. Growth requires the development and creation of new capital,
new products.

Here, of course, lies one of the Marxist attacks on modern society. And I say Marxist because their discredited
and fallacious philosophy is shared across our universities and even with many bureaucrats. Marxism and its
derivatives form a philosophy of envy and wanting to pull others down because you cannot reach their level.

The janitor who does an excellent job keeping the halls clean can lead a life of dignity. It is not the janitor
whose life is undignified, but the writer and socialist commentator, noting that the janitor could be more and
is not getting paid enough or that they are being undervalued, who is undervaluing their work. Markets set
monetary prices. Through the same methodology, markets efficiently allocate and distribute the amount of
value that society places in a role—relative to the number of individuals prepared to perform it. For the same
reason, top sportspeople are paid more than teachers.

It is not that we do not value teachers; it is that there are far more teachers than there are professional
sportspeople. The market pays people at the margin.

Scarcity and Incentives

Teachers may not be happy with their salary. Still, one of the problems associated with set payments to
individuals under government rules is that the market does not associate results with payments. There is little
incentive to be an educated STEM teacher in the UK. Many teachers holding classes in physics, mathematics,
and chemistry in the UK do not have a primary degree or a qualification in the subjects.

A mechanical watch is an intricate collection of many different components. In a well-designed watch, each
intricate part interacts with another forming a system that works smoothly. The smallest and the largest cogs
all work together. Even the smallest cog thus becomes a critical component of the system. When an
individual is part of an integrated system that delivers value, they feel needed, and dignity is created.

Unfortunately, many of the existing top-down control systems have greatly influenced how society assigns
individuals to roles. By interfering with the market, many roles, such as those in education, have been skewed
for political gains, leading to both a lack of dignity for those involved and waste. The result can be wasteful
because it does not deliver outcomes that people find valuable. It is not the delivery of empty university
degrees that makes a country economically strong; it is creating individuals who can innovate and develop
new concepts and the integration of individuals into roles that allow them to live dignified lives.

[Image: Michel Villeneuve , CC BY 2.0 https://creativecommons.org/licenses/by/2.0 , Wikimedia Commons]

Security, the Blockchain, and Hashed Headers…
By Craig Wright | 03 Jun 2021 | Bitcoin & Blockchain Tech
The false mythology has been created and propagated that you need to run a ‘full node’ to secure
blockchain networks. The deception has been promoted by individuals associated with BTC Core seeking to
maintain control of the respective system. Such individuals tell you that you help run the network by
holding blocks. They fail to point out that the consensus mechanism in Bitcoin is entirely based on the
creation and distribution of blocks. Nodes were defined in section 5 of my white paper:

1. New transactions are broadcast to all nodes.

2. Each node collects new transactions into a block.
3. Each node works on finding a difficult proof-of-work for its block.
4. When a node finds a proof-of-work, it broadcasts the block to all nodes.
5. Nodes accept the block only if all transactions in it are valid and not already spent.
6. Nodes express their acceptance of the block by working on creating the next block in the chain, using
the hash of the accepted block as the previous hash.

For systems that are not nodes, there is no need to propagate blocks. All nodes must do it. There is a single
consensus mechanism within Bitcoin: it is the creation of a valid block. It is required that nodes not only
create a block, but maintain it for 100 blocks past the validation of the block. That is, if at time T(0) a node
n(i) discovers a block, the node only receives payment and the block is only considered settled at time
T(100). In other words, the maturity period of 100 blocks is part of the Bitcoin consensus mechanism. It is not
merely discovering a block but building upon all the available blocks that forms consensus within Bitcoin.

Consequently, it can easily be seen that the only way to have any participation in the consensus
methodology is to build a new block. Nodes that have not followed the exact same process to create blocks
do not form part of the consensus. The matter should be simple. Yet, a few dishonest individuals have
sought to promote the concept that Bitcoin and blockchains generally require lots of users running
machines that do nothing. The equivalent scenario may be one where individuals don’t vote in political
elections.

Imagine that Alice and Bob and Charles are voting in an election. Each year, the result will depend on
whether Alice, Bob, and Charles vote for option one or option two. Now, Edgar comes into play. Edgar walks
in and says, “I’m not going to vote.” Edgar now brings in a thousand friends, who all don’t vote. The result
remains entirely based on the decision of Alice, Bob, and Charles. Edgar can say that he has the majority of
people behind him, but none of the individuals vote—so none of them matter in the process. Which is how
Bitcoin works.

There can only be a few nodes that are active within Bitcoin. Bitcoin is distributed as a Pareto system, with a
maximum of 2016 blocks discovered in any difficulty-adjustment period. Consequently, as the system is not
equal, and as it cannot be designed to be equal, there will always be a few large corporations finding
solutions for the majority of blocks. The result is that only somewhere between 25 and 200 nodes will exist at
any time.

But What about the Security of the System?

So, we know that nodes only matter when they are creating blocks. As explained, it is the only consensus
methodology in Bitcoin. The argument against it is that ‘full network nodes’, as they have been falsely
described, are said to be important in holding full copies of blocks. It is argued that only with full copies of
blocks can individuals know whether a change has occurred on the network. The argument can be
demonstrated as false.
Bitcoin utilises a binary tree structure to collapse what could be an incredibly large set of transactions into
an easily searchable path. Such a structure is only necessary when there are many transactions included in
a block. By ‘many’, we are talking about millions of transactions as a minimum—and potentially billions.

In analysing the structure of the block header, the reader will notice that the Merkle root (the highest-level
hash structure and a binary tree algorithm) is contained within the block header.

Image source: https://www.righto.com/2014/09/mining-bitcoin-with-pencil-and-paper.html

The Bitcoin block structure incorporates the binary tree or Merkle root, which is added to the previous block
hash and other information. The information in the block header is concatenated and hashed.
Consequently, if the Merkle root or any information in the block header changes in any way, the entire block
will be invalid.

So, when we consider that the Merkle root captures the information within the entire block, and that if the
order of transactions or any information within them is altered in any way, the entire system is rejected, it
becomes easy to understand that you don’t need to transmit the entire block. A copy of the Merkle root
gives you everything you need to prove the integrity of the block over time. Here lies the purpose of hash
algorithms. And, if SHA-256 is not secure, then it doesn’t matter whether you have the whole block or not.

Next, if your system manifests that you don’t like the contents of the block, you can’t do anything about it
unless your system happens to be a node. As a node operator, you need to be a miner. The consensus
mechanism, as noted before, lies solely and exclusively in the creation of blocks that the other nodes agree
are valid.

So, the irony is that the argument for distributing an entire block to all systems on the Bitcoin network,
rather than using simplified payment verification (SPV), presents a mistrust of the integrity algorithm and
hence a mistrust of the entire system. Logically, if you consider that a change to any transaction in a block
leads to a completely different Merkle root and thus a completely different hash header for the block, it is
easy to understand that holding only the hash header provides you with just as much information about
the integrity of the block over time as does holding the entire block.

References

Bitcoin Full Node Explained. (2019, August 19). hodlhard.io. https://hodlhard.io/bitcoin-basics/bitcoin-full-

node-explained/

Full node. (2020, June 23). en.bitcoin.it. https://en.bitcoin.it/w/index.php?title=Full_node&oldid=67995

Consensus. (2016, May 28). en.bitcoin.it. https://en.bitcoin.it/w/index.php?title=Consensus&oldid=61106

The Anarchist Fallacy
By Craig Wright | 17 Jun 2021 | Economics
A major fallacy of the anarchist idea that we can create a free society using assassination markets derives
from transaction costs and differences in the ability to coordinate and liquidate money. An individual with
copious amounts of wealth can, first of all, hire protection. Such a society does not become good; it merely
becomes a free-for-all that degrades. People hide in fear, and an environment of fear does not bring about
innovation or growth.

The question it begs is, who are undesirables? Those who are wealthy have an income and free capital. The
poor do not. If you take one million people in poverty and realise that it is unlikely that they will even be able
to scrape up a few dollars each, it becomes difficult to see how a majority can have a say. The richest 1% in
such a society would be able to decide to remove all the undesirables at will.

Imagine a society of ten billionaires and one million people earning an average of US$20,000 a year. The
savings of the million individuals would not offset the actions of even one billionaire. If there are homeless
people in a society, the movement would have them killed.

Humans are not hive creatures. Whenever there are revolutions or changes in power, there are leaders who
incite and change the course of history. Even though it is popular to claim the will of the masses, without
leadership, no movement survives. Consequently, the leaders of a movement could easily be the targets.
Here, a wealthy dictator will always maintain control. If an assassination market was constructed, it would
not favour the will of the people but a system of ‘might makes right’.

The will of the people is not concrete, and there is no one individual group that feels the same way across all
subjects. An assassination market is a system without freedom. It creates a Machiavellian society where
individuals control the larger population through fear and secrecy. Such a system is closed, and in a closed
system, leaders become like Stalin, allowing others to steal and redistribute.

Who decides what is undesirable?

In the 1930s, Hitler came to power based on the decisions of the majority. The majority is not always correct.
And, the individual arguing for the sanctity of human life becomes a target in such a system.
The Library Analogy
By Craig Wright | 25 Jun 2021 | Bitcoin & Blockchain Tech
Some people think that storing data on Bitcoin is analogous to a public service. There is an error with this
line of thinking. A better analogy would be to think of storage in Bitcoin as one in a public library. We can
imagine access to files in Bitcoin as access to a physical book in the library. The existence of a library does
nothing to stop people buying the book themselves. In fact, the inclusion of people with the ability to buy
the book improves everybody’s access.

First, I shall explain the library analogy, after which I shall explain how it applies to Bitcoin and related
services.

We will start by imagining a small community of 100 people who have a library with two of every book that
the individuals want to read. Anybody can go to the library for free and access books for a limited amount of
time. They can take notes and study using the books, even if they do not have a lot of money. Alternatively,
some people might want to buy a book for themselves.

If we imagine that up to 5 people may desire any particular book at the same time, we can see that there is
a queueing problem: if there are only two books, and individuals can take either book out for up to a month,
it may take several months before others can get access to a book. If the book presents required reading for
a university course, there could be a problem. Luckily, property rights and capitalism provide a solution.

Some individuals will be richer than others. Such individuals are likely to simply buy the book and unlikely
to use the library. At times, some of the richer members of society, after they have finished with a book, may
even donate books to the library. So, to look at such a scenario, we need to imagine a Pareto distribution of
wealth. It is a scenario we find in every capitalist society.

Now, one of the five people will be rich enough to never need to go to the library and to buy any book they
want, donating whatever they finish reading at the end. The donation increases the stock of library books.
The example also shows us that the queueing problem can be minimised. The richest individual will simply
buy the required books, without ever going to the library. In doing so, we now see that only four people are
queueing for the book.

Next, some individuals will have free cash, but may prioritise other things if they’re able to get the library
book. So, if we now change the lending strategy, allowing individuals to borrow the book for a week at a
time, with requirements to return the book or be charged its value or some other late fee and that they
cannot immediately take the book out again, we see that all of the individuals queueing for the book can
obtain it within two weeks.

Some individuals will, still, change their preferences and buy the book. We can now say that two people
have purchased the book, leaving three who go to the library. As such, we can see that we have a shared
public resource that has been made viable through individuals with more available capital, although
stretched.

At the end of the semester, the rich individual may have a chance of leaving the book to the library. If we
assume a probability of 50%, we can say that on average, 50% of the time, there will be sufficient books from
now on. Next semester, if five people want the book, there are likely to be two individuals who purchase it,
with a 50% chance that there will be three copies at the library. As such, some individuals’ willingness to pay
for goods and services results in an increase in the value of public goods and services, and allows more
people to access them.

How Does It Apply to Bitcoin?

It has been falsely believed and promoted that data will be either free forever or offered as part of a public
service. The inclusion of information on the Bitcoin blockchain is not part of a public service, but a
commercial activity. Some nodes will always provide archive services. Thus, information that has been
placed on the blockchain will always be available. The distinction is again linked to queueing theory.
An operator of a node may have 100 machines in a server farm providing access to the blockchain. Such
machines will provide ready access to UTXO sets and information to ensure that people can access and
spend their money. Equally, of those 100 machines, only five of the 100 machines are likely to offer archive
services. Each company will have made decisions based on the levels of profitability that they expect to
achieve.

Individuals seeking to access information are analogous to individuals going to the library. If they want to
gain access without paying for the service, they will have to queue in the same way that individuals queue
for the book at the library. Some people will not want to wait. Some service providers will want to make sure
that there is ready access to the data. Rather than leaving such decisions to node operators’ whims,
corporations storing data on the blockchain will form contracts with node operators, to make it more
available and allow faster access.

What we will see is the creation of competitive markets. A company that wants fast access will pay each
node, and potentially replicate services, to allow its clients to gain ready access to stored files. The internet
right now is served by companies such as Akamai, providing edge services and cache. Such organisations
allow ready access to information for a large number of providers around the world. Similar services will
develop to ensure that information on the Bitcoin blockchain is readily available.

The investment in allowing access will provide more bandwidth and copies of the complete blockchain and
speed up access to files. Yet, access to files that are not widely replicated will become slower, as the
bandwidth required to serve such files to a large number of customers will be limited. If you require that
people can access a particular file or piece of information without cost, the process of caching it will not
occur, and archives will be slow to respond. They will still exist, but it could take a while to download or
locate information.

Consequently, the growth of the Bitcoin blockchain will mirror other commercial services. Individuals who
form corporations and want their data to be readily available will find more copies and access to be more
straightforward. Over time, some services will invest more than others and mirror the information more
widely. Some archive services will only mirror part of the blockchain, but allow individuals to prove existence
and probity using simplified payment verification (SPV), with the ability to provably tie a transaction and
hash to the blockchain’s history.

[Image: New York City Library. New York 2005 , CC BY 3.0 https://creativecommons.org/licenses/by-
sa/3.0/deed.en , © Jorge Royan / http://www.royan.com.ar]
Collectivism and Protagoras of Abdera
By Craig Wright | 13 Jul 2021 | Economics
Faith Ridler (2021) managed to capture many of the aspects of intellectual dishonesty and bankruptcy in her
article in the Daily Mail titled ‘Father of capitalism’ Adam Smith’s grave is included in Edinburgh council’s
‘ludicrously biased’ dossier of sites linked to slavery and colonialism . The article records the false accusations
made against Adam Smith. In an attempt to tarnish capitalism and promote a socialist and collectivist
agenda, Smith is portrayed as supporting slavery and racist practices. The investigation demonstrates the
sophistic techniques being used by certain political groups that are responding to the Black Lives Matter
movement and how they are trying to supersede truth and promote an anti-capitalist agenda.

Plato employed the figure of Protagoras of Abdera (Cooper, ed., 1997) to demonstrate how truth can be
twisted using false logic and appeal to emotion. Ridler reports that the Slavery and Colonialism Legacy
Review Group has linked several monuments and street names to oppression. Smith is included in the list as
he had “argued that slavery was ubiquitous and inevitable but that it was not as profitable as free labour”. The
statement is accurate. The point being missed is that every culture, and every society, throughout history has
incorporated slavery until it was banned and depressed globally through actions of the British Empire
(Kaufmann & Pape, 1999).

Such changes may seem small. In removing famous figures of the past, it is important to remember the
words of Machiavelli (Barnhart, 2013), specifically, “One change always leaves the way open for the
establishment of others.” The article reminds us that we cannot look upon the past in isolation and that if we
allow small changes to occur, they lead to further changes. Those seeking to use the Black Lives Matter
movement to promote anti-capitalist agendas undermine the enlightenment advances that allow the
individuals making such accusations to use free speech, as they create a society of oppression and fear. The
aim should be to be “the one whose walk is blameless, who does what is righteous, who speaks the truth
from their heart” (Psalm 15:2-3).

References

Barnhart, A. C. (2013). Absens haeres non erit: Being in the right place at the right time. The Machiavellian
Librarian (pp. 173–187). Chandos Publishing.

Cooper, J. M. (ed.). (1997). Plato: Complete Works . Hackett.

Kaufmann, C. D., & Pape, R. A. (1999). Explaining costly international moral action: Britain’s sixty-year
campaign against the Atlantic slave trade. International Organization , 53 (4), 631–668.

Ridler, F. (2021, Mar 6). Adam Smith’s grave included in sites linked to slavery and colonialism . Mail Online.
https://www.dailymail.co.uk/news/article-9332837/Adam-Smiths-grave-included-dossier-sites-linked-slavery-
colonialism.html

[Image: Adam Smith Statue (Edinburgh), by scotlandstudycentre from Pixabay ]

Bitcoin as a Security
By Craig Wright | 25 Jul 2021 | Alternative Coins & Systems
In today’s post, I shall endeavour to explain some of the reasoning behind how I created Bitcoin and why I
released it in the manner I did. Unfortunately, innumerable false myths have been created around Bitcoin
and blockchain technology. They exist to promote concepts that have nothing to do with the system and
that are antithetical to the concepts that I envisioned. For example, few people seem to recognise that even
the widely promoted concept of “censorship resistance” was never a component of Bitcoin’s design. Such
terminology started in 2011, when a journalist and writer associated with the Electronic Frontier Foundation
(EFF) falsely described Bitcoin.

Even the promoted definition of ‘decentralisation’ stands in opposition to what Bitcoin was designed to be.
Bitcoin, or any blockchain or distributed ledger technology for that matter, is issued, maintained, and
controlled not by distributed parties, but by individuals. In the case of Bitcoin, the issue was completed by
myself. Using the same terminology, I said that nodes were given and distribute coins (bitcoin) and not that
they issued the coins. The reason for it is that Bitcoin was issued completely—with all 21 million bitcoin being
created when it was launched. In other words, in January 2009, I owned every single bitcoin that technically
existed.

Technically, every bitcoin that has not been distributed to a miner (aka node) is still my property. Yet, the
situation doesn’t matter to me, both from the point of view of tax laws and from the point of view of security
laws. The reason is that when I issued Bitcoin, the absolute value of all 21 million tokens I owned was
negative. The cost of creating the system exceeded any value made through bitcoin for a long time. But, the
only way I could keep any number of bitcoin that I wanted to keep was to follow the system and the rules
that I had constructed. When I built Bitcoin, the offer to nodes to validate transactions was made under
what law students and lawyers would understand as a unilateral contract.

Since I had constructed Bitcoin with an inbuilt agreement to distribute all of the bitcoin I owned at cost,
there was no tax liability. You see, you only pay tax on profit. So if I have expended money building a system
and then issue all of the assets I have created as part of the contractual arrangement, there is no direct
profit and no tax liability. The unilateral contract that is issued under the rules of Bitcoin binds me. It does so
both through a contractual liability and under the financial regulations associated with the issuance of
assets.

Because I was setting up Australian companies designed to build solutions on top of Bitcoin, the financial
benefits would be indirectly earned—not through the actions of other individuals, but through my own, and
through the actions of the companies I was constructing. I set up multiple companies. Yet, the Australian
Taxation Office (ATO) and I had many disagreements about the nature of what I was doing. The ATO, or at
least a small subset of members in the audit teams, saw the construction of a technology platform that was
given away without a direct methodology to earn money as a hobby.

The nature of how I was going to build wealth was not derived from holding bitcoin but rather through the
construction of applications that would use Bitcoin, which required the token. The company I set up in
January 2009 called Information Defence aided in managing the Bitcoin network by running nodes. The
company ran computers in several locations, which acted as the initial Bitcoin nodes from 2009 and until
2010. I never understood that bitcoin or any derivative could be worth the value at which it is now traded, to
tell you the truth. Even now, billions of dollars remains a figure that is incomprehensible in many ways.

The difficulty I had from July and August 2009 followed the filing of my tax returns. I claimed the transfer of
intellectual property, which included rights to the database and other aspects of Bitcoin, from an overseas
company and associated trust to the Australian company. I paid the GST on both sides of the transactions. I
valued the intellectual property and database at around US$1.3 million. The amount was transferred to two
companies. My accountant applied the required GST amount, with Information Defence having a balanced
amount with the registered trust entity. The resulting argument was based on rather obscure laws,
concerning transfers between hobbies or organisations that are not designed for profit and ones that are
profit-making and hence have to pay GST.

The ATO argued that the wash transaction led to a positive requirement to pay goods and services tax. They
argued that the trust could not claim on the intellectual property (Bitcoin), as no methodology existed for
the entity to make a profit. The transfer to Information Defence, conversely, involved a profit-making entity,
even if it was obscure—the ability to sell bitcoin at the time did not exist. So, when I say “wash transaction”,
I’m saying so because the transfer of assets (being the intellectual property that was the construction of
Bitcoin) was said to be a hobby.

I can be rather irascible. Consequently, when the ATO effectively said that I owed money for a transaction
that led to no taxable outcome, I was rather upset. Unfortunately, I did not handle the situation very well,
which caused me many of my ongoing problems. Few people seem to understand that Information
Defence and Integyrs each had staff. Contrary to the popular opinion that seems to be foating around, I was
not acting alone in 2009. I had people working for me. And no, Dave Kleiman was not one of them. They
were paid under audited accounting records, in Australia.

Luckily, through an insane amount of perseverance, and a great amount of personal cost, in 2012, the ATO,
under the direction of the Administrative Appeals Tribunal, reversed their earlier decision. In March 2013, I
received a judgement in my favour. Unfortunately, the continuous actions and persecution by the same
government department destroyed both companies.

The difficulty that occurred was that Andrew Sommer of Clayton Utz and his team needed to be paid.
Andrew is a partner in an expensive law firm. Although he is an incredibly good tax lawyer, he is also
incredibly expensive. As a consequence, the several million dollars of continued expenditure that had been
invested in defeating the tax office (and I did win) would wipe out all the savings that I had available for the
companies. One part derived directly from the tactics of the ATO. One of the auditors at the ATO issued a
bankruptcy notice against me, and my companies, and investigated my family.

The insolvency proceedings were based upon the false premise that my companies and I owed money to
the ATO for the transaction that I had completed and the deductions I had made in 2009. The methodology
that was used is quite insidious. Many people may not understand that the ATO can issue bankruptcy
notices without the case having been through court, even when it is in dispute. They can request money to
be paid even when it is a disputed amount. Thus, there is an additional component. If an individual or
company is now bankrupt, the tax office can appoint a receiver, who can cancel the court case. In the same
manner, the tax office had hoped to force me into bankruptcy and, from there, to be able to take control of
my companies and appoint a receiver of my assets. In doing so, they would have been able to stop the court
case I eventually won and, thus, divert the course of justice.

Some people may have sensed my slight, residual hostility towards this branch of the government. I’m
working on it.

Having said so, when you win a court case, you don’t get all of your fees back. All of the money that you
invest in having accountants and lawyers go through accounts is not part of the fees that you reclaim from
the opposition. As a consequence of the action, the court case cost me over $1.7 million, which doesn’t
include several other ancillary costs, that come with having to close down businesses or rebuild new
companies. I don’t even want to think about the total cost.

I mentioned that I personally could not allocate any of the bitcoin that I had issued. My inability to allocate
bitcoin stems not from technical issues, as some people try to claim. It is a legal issue, under the unilateral
contract defined through the rules. If I reallocate the amount of bitcoin, or if I change how my system works,
then there is the issue of my being liable, and even if I was pseudonymous, which I wasn’t as much as
people believed, I could be sued. As some people have recently discovered, pseudonymity is not a
protection from lawsuits.

Yet, there was a problem that I had not foreseen. I have rectified it now, and through the creation of
overseas companies in trust, I can no longer be targeted as the issuer of Bitcoin. The system is now past any
limitations that would cause me any other problems. In 2009, that was not the case. The action between
2010 and 2012 by the ATO in seeking to bankrupt me threatened the very existence of Bitcoin. The rights to
the Bitcoin database had been listed in the asset register of an Australian company, at which point the
allocation of intellectual property lay with the Australian tax jurisdiction.

In other words, if the ATO had managed to successfully file for my bankruptcy, the assets I personally held in
trust would have been available for redistribution. It would have provided ownership of the intellectual
property forming the basis of Bitcoin to the Australian government. But, luckily for everyone, in several
industries, the plan by the ATO failed dismally. As a result, the insolvency proceedings were dismissed, and I
won the main tax case with the Administrative Appeals Tribunal.

Between January 2011 and September 2012, I was incredibly focused on the various actions taken against me
by the ATO. People don’t understand how much work can go into a tax case. In total, we had to put
together around 11,000 pages of documents. There were electronic copies and paper copies, although I
don’t have any of them now. In hindsight, I should have kept them, but the reality is that after years of
dealing with lawyers and accountants and the tribunal in court, I wanted nothing to do with any of it.

Silk Road made my life a complete hell. You see, I had been pushing for the development of commercial
applications to ensure that Bitcoin would grow. Yet, the first real application people started using stemmed
from the stupidest concept imaginable: a drug market on a completely and utterly traceable system. Other
idiots started talking about assassination markets. When it all came together by the end of 2010, I had
already been spending a year fighting auditors who didn’t understand anything I was doing regarding
Bitcoin, or any of the related components that I was building.

I could have managed things better had I talked to people. In my defence, I have Asperger’s, but that should
not be an excuse.

I had told the government about Bitcoin, and tried to demonstrate that it was a viable system, one that
would help encourage and enforce regulations and rules across the internet. Unfortunately, concurrently,
the first use of my publicly and widely available system was associated with the sale of illegal weapons,
illegal drugs, and worse. You can guess that such use did not endear me to any of the individuals in the
government, but I was dealing with it. I have been working on my Asperger’s, but I don’t deal with people
who are not exactly what you would call smart very well. I made everything worse. I got into an argument
with several people from different branches of the tax office, and to say that I called them idiots would be an
understatement. I regret it in many ways, because it made my life far more difficult than it should have
been.

I was a lay pastor at this point in my life, and I was also a trustee of the Uniting Church Organisations
(Uniting Financial Services). I’m not a good chaplain or pastor, and before Mark, who ran the various
churches in the Central Coast where I was, retired, he had managed to keep me in check. Mark was the
chaplain for the police and military in the region, and three churches in Tumbi Umbi and Ourimbah. I led
‘Coffee Church’, and I was involved with a few other activities in the region.

I have been involved with the Burnside charity and group from Uniting Church for many years. I was
associated primarily with the people in Port Macquarie, helping them gain experience and putting them
through some vocational and college courses. The other aspect of what the group did, outside of the
primary work of helping single-parent families to cope, was drug rehabilitation. There were many families
affected by drug abuse—in both of the regions where I was involved.

The launch of Silk Road threw me. I had delivered courses for the New South Wales Police Academy, been
contracted and helped in numerous forensic cases in Australia, and helped train the Australian Federal
Police. I was also involved with the drug rehabilitation programmes, that helped people in my community,
as part of the pastoral duties I tried to perform. I left the church in 2011. I didn’t say goodbye, and I didn’t
make sure that the roles I had been assigned to were taken care of. I didn’t resign my position in the Uniting
Financial Services trust; I just walked off. I am ashamed of doing so. I owed a duty, and I abandoned it, I
abandoned people who needed me.

Mark had cancer of some type; I didn’t follow up. That was cruel. I had had cancer in my 20s, and although
Mark was way older than that, I knew he needed support. So at a time when people needed me, I
abandoned everything. Having created Bitcoin and hence the system (Bitcoin) used to build the payment
system for Silk Road, I blamed myself for everything that happened. Between the stress resulting from
trying to keep my companies alive, my failing marriage that fell apart, and the guilt I felt about building a
system used to sell drugs to teenagers, I failed many people. I don’t even know if they understand, because I
never spoke to them again. I didn’t talk to any of the people in my parish who had been friends for years. I
didn’t talk to the people of Burnside who had been helping for years. I didn’t help any of the communities
or talk to them before leaving; I moved house, and I started again.

Yes, it is true, I worked with internet casinos, and developed security solutions and software for them. Yet, all
the operations that I was associated with were legally licensed and managed, and they monitored the
activities of individuals who might have been addicted to gambling. I still don’t see it as a problem. The real
issue comes with illegal operations—acting outside of the law. One reason why I created Bitcoin is directly
linked to the nature of payments and the fact that the traditional internet payment mechanisms using
credit cards didn’t work for small-value transactions. Whilst large-value transactions in Bitcoin, and any
related system, can be reversed, it is economically and computationally unfeasible to do so with small
transactions.

I never envisioned billion-dollar transactions as the use case of Bitcoin, for which it is a rather terrible system
by itself. Instead, I saw the use of micropayments as small as a fraction of a cent and the ability to create
small casual payments for systems such as online-gaming platforms. Such a methodology had value then,
and it has value now. The arguments about reversing transactions that are commonly made are utterly
false. Bitcoin is not encrypted at any point. Hence, the only protection against a court order forcing the
reallocation of bitcoin relates directly to the economic cost of doing such a transaction. Nobody in their
right mind is going to spend hundreds of thousands of dollars fighting a $100 transaction involving a casino,
or any other site for that matter.

As explained, if the ATO had won and forced me into bankruptcy between 2011 and 2012, they would have
taken over control of the Bitcoin blockchain. I still don’t think they understand the details of it, but all they
would have done is close it. Governments are not good at understanding or aiding the development of
innovation and new technology. To say that a government is conservative is an understatement.
Governments move at the speed of cold tar.

The Plan as It Was Originally Envisioned

Bitcoin was never as “super secret” as people like to think. I talked about what I’d been building with people
I knew, and filed claims on my work for years. I started working on the basis of what I saw as the Metanet or
Blacknet and the required token system in 1999. At the time, it was a complete and utter mess, that wasted
lots of money. But I am a tenacious individual, and I don’t believe in pivoting.

By the time I had launched Bitcoin, I’d studied financial services law and international commercial law for
several years. I obtained my master’s degree in Law in 2008, before the launch of Bitcoin, and my
dissertation was based on the system that I had been building. Bitcoin was always designed to be, first and
foremost, a micropayment system that could be extended beyond digital cash to the operation of other
digital assets. Bitcoin was not designed as a “store of value”, and it was not a built-in response to the global
financial crisis. If somebody says it is, they are either an idiot/moron, a conman, or both. Given the state of
the “cryptocurrency industry”, both are the likely outcome.

When I say “cryptocurrency” concerning any blockchain-based system, I am doing so in quotation marks
because Bitcoin and any derivative system are in no way cryptocurrency. Whilst it is commonly misreported
and factually misrepresented, there is no encryption used in Bitcoin. Bitcoin transactions are transacted,
sent, created, and signed without encryption at any point. Bitcoin is anti-encryption. The public nature of
the blockchain precludes any encryption. If you truly understand how my system works, you will come to
understand that it differs significantly from all the previous attempts to make a digital cash system. In the
past, eCash and related money-transfer systems were all based on a model of anonymity, aiming to make it
private through encryption.
I completely turned the model on its head, by not using encryption at any point within Bitcoin. In some of
my early posts, you will note that I talk about building Bitcoin from source code without the encryption
components of OpenSSL.

Why Open Source?

The idea of developing Bitcoin using open source is important and even necessary. Yet, it does not mean
that there are no rights associated with it, and it is important to note that Bitcoin was not released under a
GNU General Public License. The MIT License is incredibly patent-friendly, and it doesn’t cover any of the
associated files such as images or white papers. To cover such files, it would be necessary to use the Creative
Commons license in association with the MIT License, which was never done with Bitcoin.

Bitcoin is a critical system, and it is a security platform. When software is created that needs to be resilient to
attacks, it also needs to be widely tested and verified. Whilst some people can do static testing and black-
box testing and conduct tests based on reverse-engineering the code, none of them are ever as effective as
a complete walk-through using the open protocol. At the same time, Bitcoin is a protocol. To be utilised, it
needs to be treated like TCP/IP for the internet. In other words, it needs to be publicly available. When I
created Bitcoin, I had no idea that it would be worth so much money now. In addition, I constructed it in
such a way that allowed no direct method for me to exploit the amount I owned without actively mining to
regain the bitcoin I had created. Under the terms of the rules and the associated contracts with the node
operators and the people using the system, I was bound to distribute all of the bitcoin I had issued. The
amounts that I was allowed to distribute at any time were all preset, and there was no money for me to
make.

For some reason, Ethereum supporters believe that they need to pre-mine. You don’t. Bitcoin, any system
for that matter, including Ethereum, could have been designed to allocate a set amount of coins and
distribute them to anyone they want at any point, including before creating the genesis block (which is not
mined, and if you understand Bitcoin at all, you will understand that you cannot mine the genesis block of a
blockchain).

The initial database and the formulation of the database are covered under the sui generis rules, which exist
in a sensible country such as the UK. Simply put, many databases are offered under open-source
agreements. For example, Oracle releases MySQL under such an agreement, and the code is provided freely
under open-source arrangements. Yet, anybody who uses MySQL and creates a database does not lose the
right to own the database. Rather, the database rights under copyright and the associated intellectual
property rights are all maintained by the owner, unless otherwise assigned. The rights to the intellectual
property of Bitcoin have never been assigned outside my control.

Why Bitcoin Is Not a Security

The test by the U.S. Securities and Exchange Commission (SEC) that most people rely on is known as the
Howey test ( SEC v. W. J. Howey Co. ), which follows the outcome of prior litigation. It is not the extent of the
law, but it is used as a test because regulators know how the courts will rule. If you find an instance where a
breach seems to match the existing organisation that you are investigating, you do not need to worry about
understanding the complex securities law applying to the company that you are investigating, but rather,
you can follow the preset example. The truth is that any complete application of the Securities Act of 1933
extends far beyond the existing test. Still, regulators are reluctant to take on cases they may lose, and the
legislation is complex.

When I launched Bitcoin, the protocol was set. The way I put it was that the protocol was “set in stone”.
Consequently, there was no requirement for other people to improve or change or modify or update or
screw up the protocol whatsoever. Rather, the intention was that nobody would ever change the protocol.
Not now, not in 2140 when the block subsidy ends, and if it is still going, not in 2222 or beyond. The
continuing distribution was based on a pre-existing issue.

So, in the simple Howey test, Bitcoin fails because I set the protocol such that it did not need to be changed,
and the development and maintenance should have gone to a nonprofit organisation. The Bitcoin
Foundation was formed in 2010, while I was still acting as Satoshi. Most people don’t realise it occurred while
I was there. Then again, many of the current Core developers have different views than I do, and want to
create a system that is friendly to things like Silk Road, as they want to create a system that aids money
laundering, so they will happily lie. Luckily, everything I’m saying can be tested.

So, Bitcoin is not a security because it is firstly a commodity system—defined without an account—and acts,
even though digitally, as a fixed, static standard commodity offer. Ethereum is not. Ethereum is an account-
based system and not a token-based system. Next, there is no requirement to invest money in a common
enterprise, because Bitcoin nodes act competitively. The bitcoin I issued is distributed following my issue in
2009, under a set agreement where no profit ensues. Here, in part, lies one of the major reasons I did not
keep any bitcoin or pre-mine. If I had done so, the result would have been a system where I would have
profited from the efforts of a promoter or third party. Remember, before the launch of Bitcoin, I had studied
international commercial law, specialising in international financial law, and completed my Master of Laws
(LL.M.). I knew what the obligations were. I had also been working as a director at the audit firm BDO, giving
presentations on the very same topic.

As such, bitcoin is a commodity that is exchanged under standard contractual trade conditions. Of course,
as it is also used as money, it can come with different legal protections, but that’s a different issue, for a
different post.

The Issue of Digital Assets Is NOT Decentralised

The only consensus mechanism within Bitcoin exists between the nodes. It is conducted through the
distribution of blocks. When a node finds a valid block and proof-of-work solution, the block is published
and becomes valid when other nodes build upon it, reaching maturity through the addition of 100 further
blocks.

Next, software groups and even the internet are not politically decentralised, as people keep making out, in
the sense of the rather socialist mantra of everybody having complete equality. Bitcoin is not aligned with
such an ideology. And yet, people such as the Core developers want to lie to you and falsely tell you that
Bitcoin is politically decentralised. They do so as they are in control of the BTC code.

The primary difference between users and nodes in the network is that while users can retain privacy and be
pseudonymous, nodes cannot. The proof-of-work mechanism in Bitcoin corresponds to a deanonymisation
strategy. Nodes can’t hide. In the entire Bitcoin network and all the derivative networks, including the BTC
network, there are only around thirty nodes, only four of which matter. So when you look at all the claims
made about decentralised finance (DeFi), about the democratisation of finance and all the claims that DeFi
operates without human intervention, you need to start thinking and not just trust the individuals making
such claims.

There is no such thing as a decentralised finance token built upon Bitcoin. Every token has an issuer. They
are not computers, and they are not anonymous groups. They do not act outside the control of the
government. Remember, as I’ve said, Bitcoin is at no point encrypted. Whilst I may get fed up with
government officials from time to time, because of the actions of individuals in the government, I’m not an
anarchist, and I don’t believe that a world can survive and grow and flourish without an effective
government. When you come to understand Bitcoin, or any blockchain for that matter, you will start to
understand that they are aligned to my mindset. Thus, they will not, in the long term, be used outside
government control.

Just as bitcoin has an issuer in me, every other digital asset has an issuer. And, the requirement for assets
not to be encrypted removes the ability for nefarious actors to create systems that are outside the reach of
government control.

Footnotes

[1] United States Supreme Court SEC v. W. J. Howey Co. (1946), No. 843 Argued: May 2, 1946; Decided: May 27,
1946
The Japanese Processes of Unification and Reunification
By Craig Wright | 05 Aug 2021 | Economics
The opening of trade between Europe and Asia in the 15 th century led to the arrival of Europeans in Japan in
the 16 th century and the introduction of new ideas and technology. In 1543, Europeans started trading and
introduced the arquebus into Japan, which was taken up by several of the daimyo, such as the Oda clan. The
introduction of new ideas and new technology had caused the underlying problems that would be fomented
through and remain from the end of the Ōnin War (1477). The Kaga Rebellion and subsequent period of civil
discord over the 16 th century led to the integration of such new technologies, with Oda Nobunaga going
from an insignificant position of a provincial lord to becoming a significant political force, up until his
assassination. The continuing discord led to the siege of Odawara, where Toyotomi Hideyoshi succeeded in
unifying Japan under his rule and then seeking to expand into the Asian continent.

Oda Nobunaga had nearly brought about the end of the instability that had plagued Japan for nearly a
century. Toyotomi Hideyoshi became Oda’s successor, after rising from the ranks of the ashigaru (peasant
soldiers) and assassinating Oda. His common birth and lack of a noble title excluded him from succeeding in
the role of Sei-i Taishōgun or shogun. The lack of a formidable Japanese navy allowed the Korean Joseon
naval forces to repel the Japanese multiple times. On his death, Toyotomi appointed a counsellor in five
regions to act until his son Hideyori came of age. The five individuals were Tokugawa, Maeda Toshiie, Ukita
Hideie, Uesugi Kagekatsu, and Mōri Terumoto. The death of Maeda in 1599 caused this uneasy peace to
collapse.

In 1592, Hideyoshi attempted the first invasion of Korea, followed by a second one in 1597. Such attempts to
expand Japanese territory into the Asian mainland were expensive, and caused unrest between many of the
feudal lords. Because of such discontent, Tokugawa Ieyasu raised an eastern army that was used to attack the
Toyotomi forces during the Battle of Sekigahara (1600). In the ensuing three years, Ieyasu consolidated
power, forming the Tokugawa shogunate in 1603. Consequently, it can be argued that Hideyoshi’s failed
attempts to extend his power outside of Japan into Korea and the Asian mainland, and his failed naval
endeavors, led to the conditions that allowed the Tokugawa shogunate to consolidate control and unify
Japan.

The scenario differed from the consolidations that came about after the Heian period. Following the
introduction of Confucian and mainland Chinese concepts into Japan during the Heian period (794–1185), the
power controlled and expressed by the imperial court slowly declined. In neglecting government
administration outside of the capital and embracing artistic pursuits that many saw as nobler and in
alignment with contemporary Chinese court ideas, the necessary bureaucracy required to manage the
former nationalisation of land that had occurred through the formation of the ritsuryō state system began to
degenerate. Nobles sought to have tax-exempt private shōen manors, and by the 11 th century, Japan had
devolved into a feudal state where the central government was not able to raise sufficient tax revenue.
Throughout the Heian period, the Japanese missions to the Tang dynasty in China started to decline. Yet,
informal missions of monks and scholars continued to help transmit information between Japan and the
mainland. Such isolationist policies increased the development of native Japanese art forms and poetry.

In 1185, Minamoto no Yoritomo succeeded in consolidating power, and instigated the Kamakura period (1185–
1333). From 1192, the emperor declared Yoritomo Sei-i Taishōgun , and Japan entered a period of military rule
that was not removed until 1868.

By the 15 th century, trade and commerce with China and Korea had increased significantly. Even as Japan
had isolated itself through some periods, China was still considered to be a more worthy opponent, and
Hideyoshi, who was discussed before, maintained dreams of not merely invading Korea but continuing to
invade and conquering all of China. Even as the mainland was isolated politically, it acted to promote the
hopes and dreams of many leaders with desires for more power. Following the Europeans’ expulsion by the
Tokugawa shogunate, China and Korea remained the only countries permitted to trade with Japan outside of
the isolated, highly controlled Dutch trading port on the island of Dejima.
The sending of students and officials to China during the Sui and Tang dynasties, and the subsequent
formation of imperial embassies, allowed Japan to introduce the imperial government’s Chinese model. By
the 10 th century, traditional Japanese clan and family rivalries had fractured the model, disintegrating the
early state’s unified nature. After several attempts to reunify and consolidate power by the Tokugawa
shogunate, Japan was unified under a central government and shogunate. Following the 1593 truce with
Korea, Hideyoshi was granted the title of “King of Japan” by the emperor of the Ming dynasty. Yet, Hideyoshi
saw the title as an affront by the emperor of Japan. The invasions of Korea caused the irreparable economic
cost to the Ming treasury, leaving China weakened and allowing the Manchu forces to eventually destroy the
Ming dynasty. The invasions of Korea instigated the secession of the Qing dynasty in China in 1644.
Consequently, the interactions between Japan and the mainland had profound effects both ways.

[Image: ⼭村才助 (Saisuke Yamamura, 1770-1807), public domain, Wikimedia Commons]

Infinite and Unbounded
By Craig Wright | 14 Sep 2021 | Alternative Coins & Systems
Unfortunately, a major problem stems from a lack of understanding of many common terms today. Turing
completeness does not require an infinite tape, and it was not an infinite tape that Turing mentioned in his
paper; it was an unbounded system. Importantly, you cannot have a Turing machine with an infinite tape
rather than an unbounded tape—by definition. An infinite tape is not related to a problem that can be
computed. When both Church and Turing wrote their papers, the computer they discussed was human.
The individual who was the mathematician doing the problems was termed a computer. So when we are
talking about problems of the same type, we are talking about ones that are computable through a simple
algorithmic process, that may be created and used by a simple process that now runs on a machine.

The first thing you need to remember is that a Turing machine can compute any computable
problem. Not all algorithms can be computed. Saying that you can run a program that never halts is not
creating a Turing machine. It also isn’t an infinite tape; it is an unbounded system. By definition, any
unbounded system is always infinitely smaller than the infinite. If you think about it, a process that is run as
one that is “unbounded” requires a system in our universe that can run through the existence of time.
Admittedly, it would require a very large value for the computation and is mindbogglingly big. Yet, it is
anything but infinite.

The next, and arguably more important, component to remember here is that if another number is to
be computed in our universe, our universe is not infinite; the time to compute the number must be finite.
Unfortunately, computation is an undecidable problem, because a component of mathematics led to what
is known as the halting problem (Turing, 1936; Burkholder, 1987). The computation of values may not halt,
and the halting problem cannot be solved (Boyer & Moore, 1984). For the same reason, it is infeasible to
determine whether any script that can run on a Turing machine will ever end. By its very definition, any
computable number, and hence any value that can be solved algorithmically, must end within finite time.
What people fail to grasp is that Turing machines do not run programs that cannot be computed
algorithmically. Any program that has no algorithmic solution is not a program that is solvable on a Turing
machine. Many of them will either fail or, more importantly, continue indefinitely—without ever coming to a
solution.

Bitcoin is a Turing-complete system even in script. A Turing machine assumes that you have an
unbounded tape. In our instance, it would mean an unbounded script size. Given an arbitrarily long script,
you can run any possible computable algorithm. The fact that the size of the script becomes unwieldy is
irrelevant. Not all Turing machines are efficient. In fact, there is nothing in the foundations of Turing
machines that requires efficiency. Whilst it is possible to run many programs that will take a seemingly
considerable time to complete, the process of optimising them through parallel paths or through
approximation may be sufficient. Conversely, there exists a set of programs that are not only
computationally difficult but infeasible and intractable and that do not come up with more than possible
solutions. Such programs may run indefinitely and never halt on algorithmic systems.

The main reason Bitcoin Core attacks the comment that I have made, of Bitcoin being Turing-
complete, is related to the introduction of limits that were originally temporarily imposed upon Bitcoin and
that have been implemented in more insidious manners within BTC. Whereas I said that Bitcoin would
grow to the point where it would end in data centres, they wished to create a separate system, one that was
more limited. A limited tape is not one that can run any algorithm. In other words, with a limited transaction
size, you can never achieve the same level of computation as you can with an unlimited transaction size. As
Rogers (1959) demonstrated, degrees of computational unsolvability exist, but it does little to remove the
fact that we don’t know, in many cases, whether a program is solvable or not until it is run. Worse still, as
Gaboury (1942) and later Rogers (1958) demonstrated, there is no solution addressing whether we can even
find a solution to many problems.

In computer science, there is a problem known as the omega problem (Dantzig, Fulkerson, &
Johnson, 1954; Hudzik, 1979). The difficulty with designing algorithms lies in not even knowing how to create
algorithms that are provably going to halt. The consequences of the omega problem lead to one of the
difficulties in fixing computer bugs. Omega is irreducible. If we ask the probability of the random
programmers, and whether that algorithm will eventually halt for a given input, we cannot necessarily even
determine whether the question is valid. It is linked to the problem of a theory of everything (TOE) in
physics. We cannot create an axiomatic foundation for mathematics, yet we can find a single underlying
theory of how the universe works. Unfortunately, since we are incapable of determining the mathematical
foundations of computation, seeking to solve the halting problem is merely an empty hole that will take all
we can give whilst remaining empty (Jacobs, 1890).

Turing wrote multiple papers detailing the same topic (Turing, 1936; Turing & Church, 1937) and
related ones, on computability and lambda definitions (Turing, 1937). If you read them, you will see that he is
talking about “‘computable’ numbers” (Turing, 1936, p. 230), which “may be described briefly as the real
numbers whose expressions as a decimal are calculable by finite means”. Pi is not a Turing-computable
value by the same definition. Rather, an approximation of pi, in finite time and space, can be considered
Turing-computable.

There are many good references to the computability of different numerical values, including pi. Nies
(2009) provides an excellent research reference associated with the topic, and others, such as Miller (2003),
provide suitable adjunct works. I could even link it to works created by lesser known authors such as
Khoussainov, Slaman, and Semukhin (2006), yet if I were to do so here, I would be accused of promoting
“technobabble”. It is so because such work, while valid and algorithmically and syntactically interesting, is
highly specialised and even, in some ways, arcane. So, it is, unfortunately, a rabbit hole I won’t be going
down today.

Turing’s paper is premised on Godel’s (1931). Unfortunately, if you do not have the mathematical
background in the form of discrete maths that the authors were writing about, you are likely to make one of
the many errors that people make when it comes to the definition of a Turing machine. For example, Turing
had noted (1936, p.230) that the class of computable numbers was “nevertheless enumerable”. But, he did
not say that the Turing machine itself needed to be enumerable for all else to be true.
Turing was extending the research of Church (1936), who was researching the concept of ‘effective
calculability’. As Turing noted, effective calculability, whilst separately defined, is functionally equivalent to
Turing’s concept of ‘computability’. For the same reason, it has been called the Church-Turing problem.
Each author created a solution, with Church deriving his first.
Hennie (1965) investigated the concept of a single-tape, offline Turing machine. Such a machine and
tape can be used for computation as needed and created in a structured manner, that can be later
produced to validate any single computable number. An example of how such a machine would be
reflected in Bitcoin script would be to create a set of rules and mathematical processes that can compute
any digital number on a tape that may then be processed. As such, we can analogise the tape to the Bitcoin
script. In the same way, you could imagine creating a single transaction as a single tape compiled and
produced offline but used online, within finite time.
Hartmanis (1968) provided a discussion around the complexity of single-tape Turing machines. Whilst
Hartmanis noted that regular sets of sequences are sharply time-bound, various forms of computational
complexity could be used to measure such forms of computation. Simultaneously, it is possible to
determine the different complexity levels for such tapes and compare them to those for multiple-tape
machines. Various forms of computational complexity have thus been derived. So, the question is now not
whether a script presents a Turing-complete system, but whether it is efficient. Of course, a single-tape
computation is inefficient, and it is not one that I would recommend, but it is feasible and possible to
implement.

Shannon (1956) looked at the concept provided by Turing to make a mechanical or electric machine,
and made an error in the description. Unfortunately, Shannon (1956, p. 157) described Turing’s machine as a
system that requires “a control element, a reading and writing head, and an infinite tape”. Yet it was not
Turing who said a Turing machine had to be infinite, but rather Shannon. Others in the ‘50s and ‘60s who
had specialised in computation also used the terminology of ‘infinite’ when they should have said
‘unbounded’ or ‘unlimited’. The distinction between an unimaginably large number and an infinite one
doesn’t matter to most people. To many, an early concept used to simplify discussions in physics and
mathematics was termed ‘effectively infinite’. It is used in a paper by Farmer (1935), where the author notes
that although the system is not infinite, an approximate value may be obtained by assuming that the value
is “effectively infinite”.

Whilst Shannon produced some excellent engineering, he was not a mathematician. The difference
between engineering knowledge and computer science and mathematical foundations provides an
important distinction, as Turing (1936, p. 230) categorically said that it was a machine that can calculate “the
real numbers whose expressions as a decimal are calculable by finite means”. Shannon is an engineer. To an
engineer, the mathematics of the system is less relevant, and the difference between an unbounded
system and the infinite are seemingly meaningless; in each case, they present bigger numbers than you will
ever compute.

Turing noted that the computing machine does not write more than a finite number of symbols
(1936, p. 233). As such, the machine is unbounded, but it is not infinite. It is a significant and important
distinction, which many non-mathematicians failed to comprehend. The value associated with an
unbounded machine is infinitely smaller than any infinite value. Thus, while many engineers have utilised
the concept of an “effectively infinite” system, and others have even said that the value 2^256 is itself infinite
for all purposes, such values remain computable and usable in real terms.

Moreover, values that are effectively infinite at one point in time may prove to be computable at a
later date. The noninclusive sets and concepts of limits, unlimited systems, and infinite systems are
important to note. For example, all existing encryption (outside of one-time pads that have never been
reused) can be said to have an expiry date and eventually be broken. By the limits of how we educate
people today, people fail to understand that there is a vast distinction between a truly infinite system and
one that is practically infinite. Importantly, whilst a value can have an error rate that is negligible and can be
discarded, Lorenz (1961) demonstrated that small variations could have significant or simultaneously
important effects on the outcomes of data-based processes (Lorenz, 1956).

Hopcroft and Ullman (1969, p. 168) investigated tape-bound Turing machines and followed up
Shannon’s error of assuming an infinite working tape, rather than an unbounded one. The assumption of
infinity when talking about a system without mathematical limits is, unfortunately, laziness, and should not
have been made in such a manner. You will note that they discuss the online and offline versions of Turing
machines and that in the case of the offline Turing machine I mentioned before, the tape can be assumed
not to loop. In their paper (1969, p. 169), you will note that the authors have removed the assumption of the
machine halting for every input. Whilst it provides a form of machine, it is not more than a single example,
and people take them for more than they are and make them universal. Note that I’m not talking about a
universal Turing machine here, which is a different thing again.

Suppose you read the paper in full. If you do, you will see that the definition of a nondeterministic
Turing machine that Hopcroft and Ullman (1969, p. 169) presented as a 6-tuple is created using finite states
and finite symbols. Therefore, it is not an infinite machine. The creation of finite values in an unbounded
system means that the tape can be extended when needed. It does not mean that the tape in such a
system is infinite, but rather that any time the end of the tape is being approached, a new tape could be
appended. In the formatting of Bitcoin script-based transactions, it would require extra drive space to store
the transaction that is being unrolled (Dongarra & Hinds, 1979).

Although people use the terms infinite and unbounded interchangeably, they present different
concepts. There is a difference between an unbounded system and an infinite system, as an unbounded
system is necessarily finite. Whilst it has no defined limits, it is by and large definable, which differs from an
infinite system, which by and large is indefinable. In the process noted by Steele (1980), a series of
algorithms are created using unrolled loops. The author thereby extends some of the work of Knuth (1973),
and investigates the creation of serial machines. Other investigations, such as the one by Baker (1978), also
investigated unrolled loops for linear-machine applications.

The way to think about it is: you create a system that is 100 tape units long, and if you need more
space, you add another system of 100 tape units to extend it. You can do so as many times as necessary. It
remains a process that takes place within finite time, bound by finite space, and hence never becomes
infinite. While modern computers are highly parallelised in the way they process information, early
computers ran using serial tapes. Consequently, the move towards register machines in place of serial
machines has led to many people believing that computation must be a one-way function. Or even that the
creation of a system that does not loop cannot in itself present a Turing machine.

One-way finite-state automata are well documented and have been for many years (Greibach, 1978).
Some have also extended their research into investigating one-way functions (Levin, 2003). Others will have
investigated the creation of deterministic one-way Turing machines in what is known as sudden linear
space and how such can be created more efficiently (Kutrib et al., 2015). But, perhaps the most interesting
use of such a system lies in creating what is known as a simplistic universal cellular automaton (Iirgen Albert
& Culik II (1987).

Note here that I have said “in <space> finite”, and I have not said it in a manner that says it is a process
that is “infinite”. The distinction is not mathematical but rather in noting in <space> finite differs from the
English expression infinite . An infeasible problem cannot be solved and has no solution. Yet, an unbounded
problem may be calculated given sufficient time and memory space. My personal interest has been in
probabilistic one-way Turing machines (Santos, 1969; Kaņeps & Freivalds, 1990). In all of them, as Ablayev
(1996) demonstrated, it is possible to discover the lower bounds on the computational complexity for such
systems.

In a paper on parallelised computation, Juille and Pollack (1996) documented methodologies to

create a multiple-tape Turing machine that would be more efficient than the single-tape transaction type
proposed above. Here, rather than using a single transaction, you would run many transactions in parallel
and only require that a single path be promoted as a solution. Thus, you would not use a single transaction
but rather an unbounded number of transactions that are computed as offline Turing machines where you
only leave a single transaction to be recorded on the blockchain, one that has been demonstrated (outside
the blockchain) to find the desired solution and to compute the problem correctly.

McCarthy (1956, p. 177) noted that a system such as a Turing machine in a single Bitcoin transaction
(and no, he wasn’t describing Bitcoin—but general computational machines of the same type) is extremely
inefficient. Consequently, as explained in the paper by Juillé and Pollack (1996), the solution should be found
in parallelised systems that compute many possibilities simultaneously, rather than forming a single
unwieldy transaction tape. Having said so, it remains that a single transaction, and the script that can be
written in a single transaction, is itself Turing-complete, as long as you do not try to limit the size of the
blockchain.

Conclusion
The argument against Bitcoin being Turing-complete is one of transaction and block-size limits. Given such
limits, Bitcoin would not be a Turing-complete system, but Bitcoin wasn’t designed to be limited in such a
manner. Hence, whilst the BTC system is not Turing-complete, Bitcoin is. Arguments surrounding the
concept of a system not being Turing-complete because it cannot loop are false. In a Church-Turing system,
there is no requirement for a computational process or algorithm to loop, even though the length of the
algorithm may be excessively large when loops are not found. Alternatively, many smaller functions can be
run in parallel. As Bitcoin is a predicate system, only the output with a correct answer will be saved on the
Bitcoin blockchain.

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Santos, E. S. (1969). Probabilistic Turing machines and computability. Proceedings of the American
mathematical Society , 22 (3), 704–710.

Shannon, C. E. (1956). A universal Turing machine with two internal states. Automata Studies (AM-34) , 34 ,
157–166.

Steele Jr, G. L. (1980). Destructive Reordering of CDR-Coded Lists.

Turing, A. M. (1936). On computable numbers, with an application to the Entscheidungsproblem.

Proceedings of the London mathematical society , 2 (1), 230–265.

Turing, A. (1936b). Halting problem . London Mathematical Society.

Turing, A. M. (1937). Computability and λ-definability. The Journal of Symbolic Logic , 2 (4), 153–163.

Turing, A. M., & Church, A. (1937). Computability and X-definability. Symbolic Logic , 2 .
Shares 2.0
By Craig Wright | 05 Oct 2021 | Bitcoin & Blockchain Tech
I want you to imagine for a minute a new form of shares that security companies can issue. The security
offering would be one that disincentivises speculative trading. Imagine that day jobbers and speculators are
punished for not holding shares for a set minimum time. The existing form of institutional investors,
including those in hedge funds that rely on arbitrage-based trading, leads to significant changes in how
management operates (Cao et al., 2020).

Using the same idea, value investors would be rewarded. It is known that long-term investments end up
producing higher returns than short-term investments. For any large company, the reinvestment in
research and development always presents the first cut. As Ke and Zhang (2020) demonstrated, high-
frequency trading changes the perception of shares, and leads to differences in management behaviour.
Linton and Mahmoodzadeh (2018) demonstrated how high-frequency trading has radically altered the
beneficial effects of corporate shareholding when investors are engaged in the company’s activities and not
merely seeking to gamble in the short term.

The Alternative
Imagine a share offering including a constitutional provision that some of the money of the sale is returned
to the corporation if a share is not held for a sufficient period of time. As a speculative idea, imagine that:

if the share is traded within one second, 25% of the share is returned to the company;
if the share is traded within one hour, 10% of the share is returned to the company;
if the share is traded within one day, 5% of the share is returned to the company;
if the share is traded after one day and within three months, 1% of the share is returned to the
company; and
for any trade outside any such time frame, the minimal handling fee, which could be 0.01% of the
share, would be exchanged, and no more.

Under such a concept, shareholders who maintain ownership for a longer period of time, and plan not just
to speculate, are rewarded more. There are no known scenarios where somebody planning on maintaining
an investment in a company needs to hold a share for under one second. Equally, even day traders, to close
out their position at the end of the day, don’t need to take one-hour-long ownership or less. More
importantly, it punishes those who merely speculate and don’t care about the company in any manner.

Crashes and Market Failures

Sornette and Von der Becke (2011) provided evidence that high-frequency trading presents one of the major
concerns behind market failures. The rational, long-term investigation into corporate returns is neglected
by introducing speculative gambling, favouring a system where traders seek to be first out of the gate.
Alternatively, if individuals know that they will suffer a loss if they trade too quickly, the same people will
investigate the fundamentals of the corporation in more detail. Throughout the process, long-term
investment will lead to more rational decisions.

Davis, Kumiega, and Van Vliet (2013) demonstrated the depth of ethical problems that derive from allowing
the investment market to become little more than a gambling house. By introducing controls over the
exchange of shares, corporations will be able to focus more on the long term. Unfortunately, many of the
most beneficial aspects of a business’ investment do not produce immediate returns. The scenario has led
to arbitrage-based investors, looking to short-term news and trading based on information provided by
speculative sources, including social media such as Twitter.

As Booker (2019) demonstrated, the ability to speculate in the short term has created new methods of
manipulating traded assets. It has allowed the creation of speculative bubbles that derive from the
anonymous and pseudonymous introduction of information in a manner that is often illegal but in forms
that social media companies such as Twitter allow. Chen et al. (2014) noted the roles of social media as a
source of investment advice many years ago. The wisdom of crowds has been replaced by stockbrokers who
seek to create bubbles they can profit from by manipulating the price.

Such manipulation impacts not merely the investment processes of the company but society as a whole. In
driving money towards finance rather than capital investment, we have created a global world where 50%
of all monetary transactions or more are concerned merely with moving money between corporations—not
with the development of new capital products. Creating a system that allows long-term investment and
punishes those who create speculative bubbles will solve some of the agency problems.

In the past, it was not possible to implement such a system. But, with Bitcoin and the blockchain, we have
the ability to create a new form of shares, one that benefits value investors and those who rationally
investigate the corporation for the long term. Thus, in structuring the corporation, even management
options can be aligned with the long-term creation of wealth. Rather than seeking short-term investments
designed to promote the immediate share value and strike price of options, management will be
incentivised to create long-term investments in improving corporate stakeholder value, employee relations,
and areas such as research and development, that do not fit in with financial modelling using typical figures
such as the internal rate of return (IRR) and net present value (NPV).

In place of windfall-based investment desires, individuals will need to look towards the long term. The
system would necessitate those who invest in shares monitoring them not by the minute, but over the
quarter or a longer period of time. The given examples could easily be changed to favour even longer-term
investments. Structured well, it could incorporate audit functions that would encourage long-term
investment and capital development as opposed to mere speculation.

References
Booker, A. (2019). Collaborative Speculation and Overvaluation: Evidence from Social Media . University of
Arkansas.

Cao, Y., Dong, Y., Lu, Y., & Ma, D. (2020). Does Institutional Ownership Improve Firm Investment Efficiency?.
Emerging Markets Finance and Trade , 56 (12), 2772–2792.

Chen, H., De, P., Hu, Y. J., & Hwang, B. H. (2014). Wisdom of crowds: The value of stock opinions transmitted
through social media. The Review of Financial Studies , 27 (5), 1367–1403.

Davis, M., Kumiega, A., & Van Vliet, B. (2013). Ethics, finance, and automation: A preliminary survey of
problems in high frequency trading. Science and Engineering Ethics , 19 (3), 851–874.

Ke, Y., & Zhang, Y. (2020). Does high-frequency trading reduce market underreaction to earnings news?.
Finance Research Letters , 34 , 101239.

Linton, O., & Mahmoodzadeh, S. (2018). Implications of High-Frequency Trading for Security Markets. Annual
Review of Economics , 10 , 237–259.

Sornette, D., & von der Becke, S. (2011). Crashes and High Frequency Trading. Swiss Finance Institute
Research Paper , (11–63).
Banking Old Wine in New Bottles
By Craig Wright | 29 Oct 2021 | Alternative Coins & Systems
There is this Bitcoin thing that doesn’t need trusted intermediaries. So, what do people do?

Well, you build a series of bucket shop exchanges, the best of which is a joke, like Coinbase, that would
never survive in the real world, and then you have people hold their money in accounts on the same bucket
shop exchanges, acting like old-fashioned banks. You know, trusted intermediaries. And to facilitate low-
cost exchanges, settlements are made daily and offset between the various exchanges, sorry, bucket shops,
settling the amount that each global exchange uses, which is similar to the way SWIFT operates.

The people behind many traditional systems and those behind systems like PayPal, such as Peter Thiel,
don’t want Bitcoin. They want a controlled system that can act as digital gold, because digital gold
facilitates banking in the traditional sense, and they can control it. Where Bitcoin becomes digital gold, we
end up in the same scenario we saw a century ago. Most people never saw gold in their lives. Gold isn’t used
for daily exchanges. It has never been.

The reality is that when you have a system that is expensive to move, it can become useful for interbank
settlements, but not as a cash system for people. It works well for the incumbent system. Certain people
don’t want individuals to get out of a debt-based bank system; they want to lock you in. The result is that
we end up with a new version of the same old system as Bitcoin is subverted—not to deliver new innovative
technology, but to be captured within the existing paradigms.

Gold and Banking

In the age of gold-backed money, people didn’t exchange gold coins. The reality is that gold rarely moved.
Instead, gold would be held in banks and vaults, and the notes referencing ownership would be exchanged.
The gold wouldn’t move. It was rare that gold moved out of central depositories. In the United States, Fort
Knox was famous for holding gold. Such is the paradigm that many in the BTC or cryptocurrency industry
want to create. They don’t want to see Bitcoin; they don’t like my invention. Rather, they want to regress to
a system of digital gold, analogous to the early system that exchanged notes between trusted
intermediaries.

Bitcoin radically changed all of it.

The fundamental distinction that people are not comprehending is that we no longer need intermediaries
to exchange cash-based assets. And, other assets can be created that can be exchanged directly.

In my white paper, I defined a purely peer-to-peer version of electronic cash. It would allow payments to be
sent directly from one party to another, without going through a financial institution or an alternative
system, as people are now creating them. So when you use the Lightning Network, you are using the
alternative financial system that I said you didn’t need. In particular, the methodology being developed for
the deployment of Bitcoin by companies such as Square and Coinbase is designed around the capture of
the market.

When you purchase coins through Square, Coinbase, or any other half-rate bucket shop that doesn’t
deserve to be called an exchange, you are not innovating; you are degrading the technology. What you are
doing is handing over your financial freedom to a bunch of individuals who seek to capture information
about you in the same way that Silicon Valley has always hoped to do. In other words, you are not using
Bitcoin; you are using an ancient form of banking that has been reintegrated into a low-grade Silicon Valley
application. In effect, you are going back to the age of gold without any of the benefits of gold.

The technology that Silicon Valley pundits want you to use incorporates a traditional account-based system,
one that is not secure and can be hacked easily. We have seen many hacks of exchanges over the last ten
years, as they failed to incorporate any of the controls that the modern banking system has implemented.
Some of it is because many of the people using the system do so for money laundering purposes. As a
result, the exchange of bitcoin is not necessary for the system.
Rather, as with gold, or now “digital gold,” as some would want you to believe, the various exchanges can
now operate based on monthly offsets. Coinbase, Square, and the other bucket shops that act as banks
while flouting laws and removing consumer protection turn the financial system into a casino—where they
act as the gatehouse to the virtual Fort Knox. They keep a record of the digital gold. But, as with Fort Knox,
nobody knows what they hold. Fractional-reserve banking started with the same idea.

The reality is that such organisations retain the ability to distribute and use more coins than they truly own.
And the reason for it is that nobody ever needs to move the coins. They stay within an account ledger as
transfers are facilitated using separate notes. When you transfer between bucket shop exchanges, no coin
needs to be transferred. Only settlement needs to occur, which is infrequent. Consequently, the innovation
of Bitcoin, which lies in the purely peer-to-peer electronic cash system that allows online payments to be
sent directly, has been subverted.

What we see in the BTC environment presents a regression to a gold-based bank. In fact, it is a free banking
system where government regulations have not taken hold, and the bank gets to play with your money
outside of controls. You won’t be paying for your coffee with BTC. The BTC network will never scale to allow
you to do so. Rather, you will end up using a Square or Coinbase application that allows you to offset an
entry in their accounts. In effect, you have a bank account denominated in BTC.

In the past, the banking system associated with gold ended up having notes worth far more than the
amount of gold available on earth. In part, this is why the United States moved away from the gold
standard, or, more correctly put, the gold exchange standard . In reality, there was never a gold standard in
use. The system I’m describing was banking offset on promises of gold held in a depository.

It is the same system that people are creating in an effort to replace Bitcoin. Bitcoin threatens people. A lot
of industries will have to change because of the new innovation that Bitcoin brings. As a consequence,
many industries are trying to find ways to turn Bitcoin into something else. They want to make digital gold.
Bitcoin isn’t digital gold.

Bitcoin is cash.
The Tale of Genji
| 15 Nov 2021 | Law & Regulation
By Craig Wright
Having studied theology and mediaeval history before, I come to today’s subject with a particular bias
and worldview. Yet, having done so, I see many analogies between The Tale of Genji by Murasaki Shikibu
and Dante’s The Divine Comedy through a Christian conception and frame [1]. The plot of T he Tale of
Genji instantiates the views held by the Buddhist religion, where we see no consolation for the
sufferings of the world and which aligns closely with some aspects of mediaeval Christian thought.

Whereas Christianity did not have a wheel of rebirth, it did have the resurrection and recreation after
death. In each case, the sufferings in this world remain in this world, and any consolation is to come in
the next.

In the 11 th century, when Murasaki Shikibu composed her work, the author was a female courtier or lady
in the ruling feudal court. Around the end of the first millennium, the literary language deployed within
the court by men was Chinese. Scholarly works written by women were not taken seriously, were often
overlooked, and could get away with detailing personal accounts of the author’s life in the halls of
power. The Tale of Genji was written as a novel, maybe one of the first novels ever. It is written in a prose
form that was not considered worthy of the men in the court at the time. Male nobility writing at the
time would write in poetry for the most part.

The author displays an impressive knowledge and comprehension of the forms of poetic art from both
the Japanese and the Chinese courts of the time. The novel incorporates a little under a thousand waka
or courtly poetic forms throughout its pages.

The novel encapsulates the changing nature of aristocracy in the early Heian period of Japanese life. As
a woman, the writer can capture the manner of dress in daily life and reflect upon society’s moral code
throughout the era. In many ways, there is a Buddhist undercurrent to her work, capturing the transient
nature of life. It captures the profound understanding of human emotion and the darkening of the soul
as beauty fades and what an individual desires slips away. The Japanese world was changing as the old
forms of aristocracy faded and new power structures evolved, causing upheaval and leading many to
think the world was coming to an end or no longer worth living in.

The Hut…

Chōmei’s small hut reflects an image of a changing flowing river. Here, we see the change from the
aristocratic period to a time of tumult and more change. As Japan transitioned from the patrician Heian
era to the Shogunate rule, military rulers captured control of the state. Many former aristocrats rejected
such changes, moving out of the central polity and into the life of a recluse who would see the changes
that occurred as being reflected in the cyclic cosmology of Buddhist mythology.

As the river is never the same, all things change. To Chōmei, the continuous upending was seen as a
reason not to engage in building and creation, but rather to reject society. He saw the building of a
house in the capital as being “particularly vain”. In some ways, we see a philosophy analogous to that of
Locke and Heraclitus. In both cases, it was a philosophy of acceptance, and believing that the transience
and fragility of the world mean that we need to forgo seeking change because it would be beyond what
the author saw as reasoned.

As with Heraclitus, Chōmei saw the flow of the universe as a river: “The current of a flowing river does
not cease, and yet the water is not the same water as before. The foam floats on stagnant pools, now
vanishing, now forming, never stays the same for long. So, too, it is with the people and dwellings of the
world.” The Buddhist ideology of not being attached to the world can be seen in the same writing. We
see a focus on suffering through life and in a 10 ft² hut, alongside an expression of aesthetic values.

Personally, the move towards occlusion and the rejection of life is something that I see as nihilistic. The
author has rejected the world in what he sees as spiritually meaningful, but in reality, it is a rejection of
that which matters most. In doing so, Chōmei says that the path is not on earth, but covers his own fear.
If he is genuinely Buddhist and truly does not see value in the world, he should not be afraid. His
reclusion takes him away from other people, and he becomes isolated and withdrawn. The argument is
that it mirrors Amida Buddha, but I would argue that it is merely a cover for his fear.

The change that is occurring throughout Japanese society is something that he could help guide. Yet, he
seeks to embrace the past and capture something that was, rather than look to the future. Chōmei is in
a state of self-delusion where he seeks to make others believe that he is above the world, where, in
reality, he is merely hiding from it.

Chōmei rejects the formal life that he had been a part of. He rejects the society that he was once proud
to be a part of. As with Nietzsche, we see the concept of active nihilism where one seeks to destroy that
which one no longer believes. It does not mean destroying it for everybody, but rather for oneself. And
so, Chōmei turns away from his former life, and seeks to annihilate all that is outside of his own soul and
to embrace a concept that the world is not real.

He says that he feels no fear, which does not mean that he does not feel fear.

Reference s

[1] Dante, A. (2001). The Inferno (J. Ciardi, Trans.; A. T. MacAllister, Intr.). Duke University Press. (Original
work published in the 14th century)

[Image: Kanō Takanobu, Public domain, Wikimedia Commons]

Taproot: Building a Mixer
By Craig Wright | 17 Nov 2021 | Alternative Coins & Systems
BTC (Core) developers have recently instigated another major change, moving the BTC network
further away from Bitcoin. Some reported of an “upgrade” (Tiwari, 2021). The reality, though, is that it
presents a major change away from the original concept of Bitcoin; the use of a mixer built into the
system degrades the operation of the system entirely. Taproot is said to be something that is designed
to incorporate privacy (Maxwell, 2018). The reality is anything but a change designed for privacy; it is
designed to facilitate the integration of money laundering into the system.

The false belief that some people in the BTC community hold lies in thinking that if you mix the inputs,
the now “untraceable outputs” will no longer be seized, or be outside the area law enforcement can
cover. The idea is that by mixing many inputs into a common pot, the outputs could no longer be
traced. Meagher (2018) builds upon the work of Birks (1992) in detailing the common law and equitable
foundations of tracing and following value. Yet, people make the mistake to think that creating a
mixing pot removes the ability to trace or recover funds. It doesn’t. Rather, the law of tracing can
follow through the pot, and the funds can be taken even from individuals who are not part of the fraud
or crime associated with the recovery.

Identification of ownership rights in Bitcoin and in relation to assets on the Bitcoin blockchain through
payments and mixtures would be an exercise in tracing. Lord Millett in Foskett v McKeown gave the
justification for using tracing rather than following rules in such a scenario when he said:

Following is the process of following the same asset as it moves from hand to hand. Tracing is a
process of identifying a new asset as a substitute for the old.

[2001] 1 AC 102, 127 (Lord Millett)

Bitcoin is an electronic property right in the nature of other digital assets such as carbon credits (
Armstrong DLW GmbH v. Winnington Networks Ltd . [2012] EWHC 10). Each transfer effectively
presents the creation of a new asset. Bitcoin creates a ledger of input and output conditions. The
currently unspent transaction is replaced with a new template when it is transferred to another user.
Generally, a user with an unspent transaction that they control signs digitally (or otherwise authorises
a transaction exchange based on the input transaction conditions) for the transfer to a new output
script. The script transfer can be as simple as the exchange between one public key and another or
much more complex, including programmatic exchanges based on input conditions. In effect, a ledger
is updated to say that one entry has been moved to the control of another party. Only the final unspent
transactions remain as assets. The spent transaction remains in the ledger as evidence of the transfer,
and is no longer property as such.

A tracing exercise references the coin (bitcoin) value associated with the movement from one unspent
transaction output (UTXO) to a new output string that remains of interest. It could be argued that such
a transfer process is analogous to the tracing of payments through incorporeal bank balances.

Traceability on Blockchains
Bitcoin is an immutable evidence system. All transactional history is recorded within the blockchain.
Consequently, inputs and outputs can never be mixed absolutely. Even where multiple inputs and
outputs from multiple parties are processed through systems known as mixers (Gordon, 1994), the
total inputs and outputs will always be represented on the blockchain. The original coin, with any that
it is mixed with, and any fractional outputs are verifiable on the system.

Consequently, it is not possible to completely lose the distinguishing features of an individual bitcoin.
As such, bitcoin differs markedly from ordinary coins and banknotes. Ordinary coins and banknotes fail
to maintain a record of the transactional history as they move from individual to individual. The lack of
such records has proven to add a level of difficulty to the tracing of banknotes and coins, requiring the
claimant to prove the transactional history through extrinsic evidence and artificial rules of
identification. On the blockchain, even though output addressing does not point to identities, and
parties involved may be pseudonymous, the path taken by a coin to be traced may always be followed.

As a result, any coin may be traced at any level of mixing or movement through the system. The
difficulty lies in unscrambling a complex mixture of multiple inputs and outputs. The identification
processes used by courts when analysing mixtures will apply, but could be complicated by the
sophistication of systems used to mix proceeds.

The process of following the transactional history of a coin is complicated by the pseudonymous
nature of the system. The transactional history of Bitcoin itself is traceable, but extrinsic evidence
linking the blockchain to people’s identities in the physical world is required. Bitcoin thus differs from
traditional currencies and bank accounts, under the traditional law of tracing, in the sense that the
plotting of the passage of money from the source to the destination has been simplified. Still, the
identification of the parties involved may increase in complexity.

In cases where an individual has had a private key (or other means to control the movement of a
particular Bitcoin token) stolen, it may not be necessary to identify the real person involved to sue for
the recovery of goods and property.

Commingling: The Taproot Mixer

In monetary terms, when a set of different input values is commingled, it is effectively co-mingled or
mixed until blended. Such mixing is the impact of the changes to the BTC protocol. Yet, the reality is
far different, despite the rhetoric about keeping funds from being traced. The principle goes back to
Roman times, with the laws of confusio and commixtio (Long, n.d.). In the first instance, the mixing of
liquids into a single whole is referenced. The example would be analogous to the mixing of account-
based systems such as Ethereum. Alternatively, as with Bitcoin and derivative systems, including the
BTC network, we can have individualised and separable tokens (such as satoshis), whereby the correct
term would be commixtio , referencing the mixing of solid things such as grain.

Commixtio is most apt as a set of separable tokens is commingled or mixed into a virtualised pot. They
can, of course, be separated. Then, through the separation, the items can be followed, because the
Bitcoin blockchain necessitates that a traceable ledger is always maintained. Such mixing is not a
problem for the law. Suppose ten individuals each put ten tokens into a pot, and it turns out that one
of the individuals has incorporated tokens that are not legally theirs. In such a case, the stolen tokens
are simply taken out of all of the proceeds.

In any instance where a mixer has been used, there are no innocent individuals. Any party that
decides, of their own volition, to use a mixer has foregone any rights to argue when the proceeds of
what they receive are seized. So, if each of the individuals mixing to the virtual pot now takes out ten
mixed coins, on average, the tainted ten coins will taint each of the recipients equally. What ends up
happening is that each of the recipients loses 10% of their coins, even though they had nothing to do
with the tainting activity that would lead to the seizure of coins. Nobody forced people to use a mixer.
Consequently, anybody using the mixer would be deemed not to be innocent.

Such use of Taproot creates a form of ownership in common. Yet, the more traditional way of
transferring bitcoin relies on the rules of accession. Waghorn (2021) documents the common law
methodology used for sorting out mixtures of property. The author provides the remedies by analogy
with sheep. Any group of fungible items, including Bitcoin tokens as individual satoshis, can fall under
the same rules. The BTC (Core) developers seek to create a system that results in confusio or the
creation of a new thing. But, despite the mixing, each individual token within Bitcoin remains
separate. Here lies the reason why Bitcoin was created as a token system where individual tokens are
indivisible.

Despite the rhetoric, Taproot does nothing to protect privacy. On the contrary, the mere use of Taproot
invalidates many transactions. Specifically, it is required that all the individuals inputting and
outputting transactions in the Taproot mixer maintain a complete set of identities and records that
can be used to validate all of the transaction sources. Under existing legislation and the new US
infrastructure bill, any failure to do so could be considered a felony. So, before you start believing the
hype surrounding mixers being incorporated into Bitcoin as a good thing, think it through, and notice
that all the people are doing is building a system designed to make all the users of the system
criminals. Facilitating money laundering is in itself a crime.

References

Birks, P. (1992). Mixing and Tracing: Property and Restitution. Current Legal Problems , 45 (2), 69–98.
https://doi.org/10.1093/clp/45.Part_2.69

Gordon, J. E. (1994). Prosecutors Who Seize Too Much and the Theories They Love: Money Laundering,
Facilitation, and Forefeiture. Duke LJ , 44 , 744.

Long, G. (n.d.). Confusio . penelope.uchicago.edu.

https://penelope.uchicago.edu/Thayer/E/Roman/Texts/secondary/SMIGRA*/Confusio.html

Maxwell, G. (2018, Jan 23). [bitcoin-dev] Taproot: Privacy preserving switchable scripting .
Linuxfoundation.org. https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2018-January/015614.html

Meagher, J. J. (2018). Claims to Traceable Proceeds: Law, Equity and The Control of Assets. Trusts &
Trustees , 24 (7), 722–724.

Tiwari, A. (2021, Nov 13). Bitcoin Taproot upgrade improves the network as BTC price impact may be
limited . Cointelegraph. https://cointelegraph.com/news/bitcoin-taproot-upgrade-improves-the-
network-as-btc-price-impact-may-be-limited

Waghorn, A. (2021). Sorting out mixtures of property at common law. The Modern Law Review , 84 (1),
61–88. https://doi.org/10.1111/1468-2230.12572
Merchants and the Tokugawa Political Order
By Craig Wright | 22 Nov 2021 | Economics
The Tokugawa political order was maintained by a system that some researchers have referred to as
centralized feudalism . The structure had feudal lords with their own domains, but acted as a centralised state
with the shogun at the head. Such a political system differed significantly from the European feudal
structure, where barons held significant power. It would be more closely analogous to the French
authoritarian system implemented by Louis XIV. In constructing Versailles, the French monarch centralised
power in the French kingdom. Analogously, the shogun acted as a de facto ruler at the emperor’s order, but
ran the country as a hereditary military leader [1] .

Tokugawa Ieyasu brought an end to the political disorder, and gained effective control of the entire country.
As he went from being a daimyo to controlling around 250 other daimyo, the Tokugawa house centralised
the system that maintained feudal powers. Such a structure shows further similarities to the French court at
Versailles, whereby such centralised feudalism, known as the sankin kôtai, or alternate attendance system,
involved the lords’ or daimyo’s spending alternate years in the capital [2] . The French system of rule at
Versailles required that the barons or lords spent time in the French capital where Louis XIV could oversee
them. Every other year, each daimyo would be required to live in the city of Edo. At the same time, a hostage
was permanently maintained in the capital. The heir to the daimyo’s estate would be required to live
permanently in the city, which is similar to the requirement of the French lord’s heir having to stay in
Versailles [3] .

Europe
The French state under Louis XIV became very authoritarian, and the implications of the French state’s
centralised structure at the time changed the history of Europe. Analogously, the restructuring under
Tokugawa Ieyasu changed the nature of Japanese history. After 1700, every daimyo was born and raised in
Edo, becoming a native or citizen of the city. It changed trade throughout the country as large numbers of
samurai and their lords moved back and forth every year, commuting between Edo and the various estates
ruled by the daimyo [4] . The moving had massive economic effects as not only the groups’ journeys were
involved, but it was necessary to feed the retinues and support staff of the daimyo in Edo. The daimyo was
required to broker a deal for the rice and other goods needed to continue their support. The richer areas, such
as Osaka, brokered deals and cash payments to cover the expenses of such travels and movements. The
result were large-scale circulations of cash throughout the country [5] .

As explained, the French Bourbon dynasty started with Louis XIV creating an analogous regime with the
provincial lords having to assemble at Versailles. It was not indeed a feudal system as seen from the tenth to
fourteenth centuries in Europe, but rather a system more analogous to the European systems of the period
from 1600 to 1800. As such, it led to a structure that helped to hold together a society that otherwise would
likely have dispersed and been at war. It can also be seen as a system forming an early modern structure of
political control [6] .

Rice and Greedy Merchants

It is a common practice to blame scarcity on merchants. When prices rise, the people buying rice experience
the increased price, and think that it is a direct consequence of the actions of the merchants selling the rice
to them. The Kaitokudō, the Osaka merchant academy during the Tokugawa period, was established along
with the Dojima, which acted as the world’s first well-established futures market [7]. Grain was collected
throughout the country and converted into silver through a clearing house process. In times of scarcity, as
would be the result of poor harvest, the amount of grain collected for redistribution would be less than many
families needed to survive, forcing them into further debt [8].

The consequence meant putting the blame on the merchants, who were seen as profiting at the expense of
the farmer. Yet, it was not the merchant and their perceived greed that would cause the shortage. It was the
development of the Osaka markets and the economic educational process that occurred in the region that
allowed Japan to store grain using forward contracts and sell back the collected produce at a later time.
When merchants lose money storing grain in times of plenty, few consider their losses. Yet equally, when
their planning pays off, few thank the merchants who have effectively saved the nation from starvation.

The merchants are looked down upon and seen as a lone class. It is in error. It is the commercial activity and
the risk-taking of such merchants that have protected the Japanese people in times of famine. It was, in part,
the same system that has allowed Japan to grow from around 12 million people in 1600 to over 30 million
people later in the Tokugawa period [9]. A process of ensuring rice storage during the good times that
integrates with the merchant’s commercial system will enable the government to benefit in times of famine
[10]. The famines that ensue are all avoidable. Efficient commercial practices are being developed in Osaka,
and the integration of them throughout the country will deliver economic benefits to both the government
and the people.

References

[Image: Artist: Utagawa Yoshitora. Title: Comical Warriors: New Year’s Rice Cakes for the Reign of Our Lord (
Dôke musha miyo no wakamochi ). Date: 1847–52]

[1] Vaporis, C. N. (1997). To Edo and back: Alternate attendance and Japanese culture in the early modern
period. Journal of Japanese Studies , 23 (1), 25–67.

[2] Tsukahira, T. G. (1966) Feudal control in Tokugawa Japan: the sankin Kōtai system . Brill.

[3] Jones, Colin. (2003) The Great Nation: France from Louis XV to Napoleon: The New Penguin History of
France . Penguin UK.

[4] Ravina, Mark. (1998). Land and lordship in early modern Japan . Stanford University Press.

[5] Aphornsuvan, T. (2011). Merchant Capital in Tokugawa Japan. Thammasat Review , 14 (1), 77–98.

[6] Bornmann, G. M., & Bornmann, C. M. (2002). Tokugawa Law: How It Contributed to the Economic Success
of Japan. Journal of Kibi International University: School of International and Industrial Studies , 12 , 187–202.

[7] Wakita, S. (2001). Efficiency of the Dojima rice futures market in Tokugawa-period Japan. Journal of
Banking & Finance , 25(3), 535–554.

[8] Hanley, S. B., & Yamamura, K. (2015). Economic and demographic change in preindustrial Japan, 1600-1868
. Princeton University Press.

[9] Farris, W. W. (2006). Japan’s Medieval Population: Famine, Fertility, and Warfare in a Transformative Age .
University of Hawaii Press.

[10] Bassino, J.-P. (2007). Market integration and famines in early modern Japan 1717–1857 . Paragraph 4, 5–45.
Rome and the Indian Ocean: The Classical World in a Global
Context
By Craig Wright | 28 Nov 2021 | Economics
Scholarly Review

De Romanis, F. (2015). Comparative Perspectives on the Pepper Trade. F. De Romanis and M. Maiuro (eds.),
Across the Ocean: Nine Chapters on Indo-Mediterranean Trade ., 127–150. Leiden: Brill.

[Image source: https://www.flickr.com/photos/malte_s/5019881858;

https://creativecommons.org/licenses/by/2.0/legalcode]

De Romanis’ analysis of the Roman pepper trade was published following the compilation of materials
presented at the conference at Columbia University in March 2011. The results of the conference,
culminating in A Tale of Two Worlds: Comparative Perspectives on Indo-Mediterranean Commerce , had led
to a study documenting the Mediterranean pepper trade through the use of an analysis of source evidence
of the sixteenth century and Roman trade documents of the first century. Frederico De Romanis (2015)
begins with a comprehensive analysis of the Portuguese pepper trade in the sixteenth century. Using an
analysis of existing source documents from the period, the author recreates an economic model of the ship
inventories and trade impediments, one that arguably provides an unparalleled analysis of the Indian and
Roman pepper trade.

The author has combined fragmentary evidence of trade tally data obtained from the Muziris papyrus
and compared it to the trade practice of the sixteenth century (De Romanis, 2015). The evidence on the
papyrus is suggestive of goods being exchanged for a rate of 24 or 6 Egyptian drachmae per mina (De
Romanis, 2015). The paper is conservative, preferring to use the lower figure and resulting in a cargo
manifest of up to 554 metric tons of pepper. Pliny ( NH 12.14) is noted to have said that the pepper price of
the first century consisted of four dēnāriī per Roman pound (329 grams). Pliny’s price is close enough in
value to 24 Egyptian drachmae per mina , matching the price presented by Federico Morelli (De Romanis,
2015; Prange, 2011).

The author creates a comparison based on the differing commodities complementing Roman and
Portuguese pepper cargoes, noting that while Portuguese pepper cargoes were supplemented with other
spices, the most voluminous commodity after pepper carried by Roman ships were the leaves of tamāla
(malabathron), that were sourced from the Ganges valley (De Romanis, 2015). Although the author ignores
the differences in ancillary cargoes, it is noted that many commonalities existed between the Roman trade
and the Portuguese trade. The analysis of ships is extended using primary sources such as the Periplus
Maris Erythraei (or Periplus of the Erythraean Sea ), which documents the use of large ships in the merchant
trade with Limyrikê.

The analysis would require that Roman merchant ships of a size equivalent to later Portuguese
galleons existed and were regularly used. De Romanis blends a combination of fictional tales from
Philostratus that noted very large ships with existing scholarship documenting the extensive size of
‘Egyptian’ Indiamen, noting that some of them held an amount of cargo equivalent to several ships in
tonnage. The correction in the reading of the Muziris papyrus noted by De Romanis is argued to result in
something significantly different from the values traded at the time for other commodities, including ivory
(De Romanis, 2015). When then compared using the analysis of trade cargo of the sixteenth century, the
author’s suggested quantities seem sound.

A further assumption would necessitate export levels and consumption rates similar to ones found in
sixteenth-century Europe. Given such conditions, a total merchant navy consisting of only ten to twelve
ships would be required. Such vessels would be engaged in a continual commercial-scale conveyance
dedicated to the pepper trade (Warmington, 2014). De Romanis continues with the argument that Roman
trade in the first century CE followed a path similar if not parallel to that of the Portuguese trade during the
first decades of the sixteenth century (De Romanis, 2015; Goitein, 1954). Noteably, De Romanis demonstrates
how pepper production in the Indian Highlands may be assumed to have followed a similar development
path and production level in both periods (De Romanis, 2015).

The pepper production from the sixteenth century to the eighteenth century was formed through a
predominantly localised system, where each household produced enough for its consumption, and sold any
extra to purchase foodstuffs, treating pepper as currency. The idea is supported by scholarship looking at
the hunter-gatherer peoples and the production that would have existed. It is noted that production is thus
stimulated through external demand (Morrison & Junker, 2002). De Romanis uses the accounts of
Philostratus and Fra Paolino to demonstrate the position that the early modern age involved prodigious
exchanges and trade of pepper that required large seagoing vessels and the forest dwellers of the Western
Ghats (De Romanis, 2015).

Although the construction of such an economic trade system is feasible, some scholars have raised
concerns and provided alternatives (Warmington, 2014). Early scholarship concerning the trade routes with
India and Rome focused on the cotton trade (Mann, 1860). Such cotton trade has been the subject of later
scholarship, too. Yet, the majority of the trade is said to come from areas vastly distinct from India (Wild, J.P.,
Wild, F.C., & Clapham, 2008). Although extensive evidence of trade between India and Rome exists,
determining what produce was exchanged remains difficult (Suresh, 2004). But, as Matthew Fitzpatrick
noted, even if Roman concepts of trade do not match Adam Smith’s notions, they undoubtedly follow an
economic process (Fitzpatrick, 2011). The author’s own scholarship has continued to provide further
evidence supporting his thesis (De Romanis, 2020).

The first-century Periplus of the Erythraean Sea contains reports from its Greek writer saying that the
majority of vessels reached as far as the “Strand” in Southern India, opening the possibility that such trade
was not for pepper but could have involved cotton (McLaughlin, 2010).

Other questions remain unanswered, such as whether sanctions were imposed in Rome or Alexandria.
Additionally, Dutch and Portuguese trading ships were designed to traverse the southern African Capes,
requiring a design that allowed them to survive longer and more rigorous voyages. Consequently, they
present a difference in terms of the trade routes and the design of ships that needs to be explored further.

The chapter provides an excellent introduction to the commercial practices in Rome concerned with
the pepper trade. Although the evidence is insufficient, it helps provide an ideal framework and hypothesis
for further investigation. The argument presented is inferential, but remains tied to unproven premises.
Although warranting significant further investigation, the thesis of the paper remains unproven. Yet, pepper
and aromatics had become necessities for the Roman way of life (Tomber & Simpson, 2008). The author
recognised that because of the secrecy surrounding the trade of goods such as pearls and precious stones,
it has come to be challenging to assess the overall economic impact of both the Roman and the
Portuguese trade with India.

References

De Romanis, F. (2015). Comparative Perspectives on the Pepper Trade. F. De Romanis and M. Maiuro (eds.),
Across the Ocean: Nine Chapters on Indo-Mediterranean Trade ., 127–150. Leiden: Brill.

De Romanis, F. (2020). The Indo-Roman Pepper Trade and the Muziris Papyrus . Oxford University Press.

Fitzpatrick, M. P. (2011). Provincializing Rome: The Indian Ocean trade network and Roman imperialism.
Journal of World History , 22 , 27–54.

Goitein, S. D. (1954). From the Mediterranean to India: Documents on the trade to India, South Arabia, and
East Africa from the eleventh and twelfth centuries. Speculum , 29 (2, Part 1), 181–197.

Mann, J. A. (1860). On the Cotton Trade of India [with Discussion]. Journal of the Royal Asiatic Society of
Great Britain and Ireland , 17 , 346–387.

McLaughlin, R. (2010). Rome and the distant east: Trade routes to the ancient lands of Arabia, India and
China . Bloomsbury Publishing.
Morrison, K. D. & Junker, L. L. (eds.). (2002). Forager-traders in south and southeast Asia: long-term histories .
Cambridge University Press.

Prange, S. R. (2011). ‘Measuring by the bushel’: Reweighing the Indian Ocean pepper trade. Historical
Research , 84 (224), 212–235.

Suresh, S. (2004). Symbols of trade: Roman and pseudo-Roman objects found in India . Delhi: Manohar.

Tomber, R. & Simpson, A. (2008). Indo-Roman trade: From pots to pepper . Duckworth.

Warmington, E. H. (2014). The commerce between the Roman Empire and India . Cambridge University
Press.

Wild, J. P., Wild, F. C., & Clapham, A. J. (2008). Roman cotton revisited. C. Alfaro & L.

Karali (eds), Vestidos, Textiles y Tintes. Purpurae Vestes II. , 143–7.

Art Nouveau
By Craig Wright | 03 Dec 2021 | Philosophy
Art Nouveau captured the accurate naturalism developed in the time following scientific advances such as
those made by Darwin. Geographic variations may be most vividly exposed in reviewing the designs present
in Vienna and Paris. Each retains the motive using materials including glass and metal. In Vienna, Otto
Wagner (1841–1918) and Josef Hoffmann (1870–1956) captured it in symmetrical form and angular
representations, contrasting with the Parisian style, where Hector Guimard (1867-1942) used forms that were
highly stylised and represented an organic flow.

Guimard’s Castel Béranger encapsulates the naturalistic form displayed in the Parisian manifestation of Art
Deco. What we see is the geometry of nature. Stylised organic forms integrate abstraction to project a
naturalistic version of the industrial process and modern materials. We see a morphed version of the classical
Grecian styles as they are merged into both Egyptian elements and the lotus flower.

It is a style that projects modernity and the tensions of the military build-up happening throughout Europe.
In the USSR, we see the metro stations reflecting an ultra-modern view of a futuristic society that never
developed. They compare well with the Chrysler Building, while contrasting with the more naturalistic forms
of Gaudí’s Casa Batlló. Stylistically, there is a combination of primitive African art mixed into the symbolic
nature of Catalonian roots, referencing nature and dragons.

The geographic location and form match the spirit exhibited by the people, with Glasgow best represented
by, “Oh ye, all ye that walk in Willowwood” (Margaret MacDonald MacKintosh, 1903). We see each region
using the modern materials, yet capturing the heart of its mythical past.

Art Deco saw the introduction of speed and power. With trains and automobiles and the telephone, both
transport and communications had changed and revolutionised the world. Combined with the scientific
advances made by Darwin in the nineteenth century and with the psychoanalytical theories of Freud, Art
Deco allowed the artist to create a system that merged nature and society.

Yet, as Europe embraced an organic reality, the United States went more towards the angular. We see the
embellishments of primitive cultures with the Mesoamerican sculptural relief of the Aztec or Mayan ziggurat,
perched on top of the Paramount Building and reflected in the Chrysler Building. There is a strong Greco-
Roman element in the entrance to the Rockefeller Centre. The geometric ornamentation and mosaics
modernise the Romantic and merge it into the Roman, while adding a touch of Egyptian mystic and African
paganism.

Futuristic art movements including Fauvism, Cubism, and Bauhaus were born out of the imagination
inspired by a system that merged the old and the new, the ancient and the future. While Europe embraced
the naturalistic organic flow, as best exhibited in architectural works by Gaudí, the United States can be best
envisioned in Lalique’s ‘Spirit of the Wind’ (1925).

Such a symbol of power and movement simultaneously captures an Egyptian past and moves into the
future, becoming a hood ornament power motion and forward momentum. We see both the spirit of the
wind rushing past the vehicle and the past that was running behind.

The renovation by Gaudí (1904-6) of the urban townhouse Casa Batlló demonstrates the use of modern
materials in the development of an elfin fairyland. The Catalonian nationalist history and eclectic mix of
concepts and materials, integrating stone and wrought iron, wood, and plaster, all crafted to the highest level,
encapsulates a dreamlike state of an organic, living system. The design is one that appears to have been
grown rather than built. The renovation of the formally austere building, designed in 1877 by Emilio Sala
Cortés (Antoni Gaudí’s architectural professor), allowed the student to take a basic building and demonstrate
how he could infuse late aspects and create a work of imagination and creativity.

Villa Savoye by the Swiss architect Le Corbusier and his cousin Pierre Jeanneret (1928-31) represents the
origins of modern architectural design, and encapsulates the international style. The five aspects developed
by Le Corbusier include the replacement of supporting walls with rigid concrete columns, free standing
ground plans with the absence of supporting walls, the free design of the façade, horizontal window designs
that cut the façade across the entire length, lighting all rooms equally, and roof gardens, where a flat roof
serves a domestic purpose.

The work by Gaudí may be seen to encapsulate a fantasy view of organic growth, whereas Le Corbusier
stimulates the aesthetics of an ocean liner and industrialised modernity. In each case, the requirements of
the occupants are superseded by the design principles of the architect. For Gaudí, the end was the design of
an organic, seemingly living structure, whereas for Le Corbusier, it was the embodiment of his five design
principles, dominated by the colour white.

[Image source: Otto Wagner Karlsplatz Stadtbahn Station, Vienna (1894-1902) , © Jorge
Royan / http://www.royan.com.ar]
Understanding Medieval Documents
By Craig Wright | 06 Dec 2021 | Law & Regulation

A translation of the following:

Omnibus sancte matris ecclesie filiis Herebertus de Bolebek salutem. Sciatis quod Alexander de Kenebelle consilio et assensu
meo dedit et concessit deo et ecclesie Sancte Marie de Messendene et canonicis ibidem deo seruientibus in perpetuam
elemosinam duos hammos prati in Hertwella et vj acras terre. Reddendo inde annuatim ipsi et heredibus suis duos denarios ad
Pentecosten. Et prefatus Alexander et heredes sui acquietabunt predicta tenementa de omnibus forinsecis seruiciis
consuetudinibus et exaccionibus. Ut autem hec donacio et confirmacio rata sit et stabilis in perpetuum ego eam presenti carta
mea confirmaui. Testibus Waltero de Hertwelle, Simone de Sancto Claro, Roberto de Bracy, Willelmo de Clouille. Et aliis.

[Cartulary of Missenden, no. 545]

Translation
Through the salvation of all of the holy mother church, know that Herbert de Bolebec [1] does confirm the grant to the church
and Abby of St. Mary Messendene by Alexander Kenebelle [2] of two closes [3] of pasture and 6 acres of land in Hartwell [4].

Alexander Kenebelle gave my consent to the church and the cannons serving God an everlasting frankalmoign [5] with the
Abbey to render [6] 2 pennies (2d.) [7] annually at Pentecost [8] to Alexander and his heirs. The aforementioned Alexander and his
heirs will acquit tenements of all domestic services, customs, and taxes [9]. In order to strengthen (confirm), this donation [10] is
valid, stable, and sound forever; my present charter is confirmed.

Witnesses:

Walter Hartwell Waltero de Hertwelle,

Simon Sinclair Simone de Sancto Claro,

Robert Bracy Roberto de Bracy,

William Clouille Willelmo de Clouille, and

others.

A commentary on the following charter:

British Library, Add Charter 19790:

http://www.bl.uk/manuscripts/Viewer.aspx?ref=add_ch_19790_f001r

P.H. Sawyer, Anglo-Saxon Charters: An Annotated List and Bibliography, Royal Historical Society Guides and Handbooks, 8
(London: Royal Historical Society, 1968), no. 139.

Commentary
In this document of the eighth century, King Offa of Mercia provides a grant of land to an official, Æthelmund, father of Æthelric,
and his family [11]. The document is written in Latin. The terms of the document issue an estate of fifty-five hides (manentes,
assata, or hides) in Westbury near the river Avon [12].The document is believed to be dated between 793 and 796, which would be
the final year possible as King Offa died in that year. Fifty-five hides would be considered very large [13]. As Warren Hollister notes,
a five-hide unit would extend to an obligation of eleven men to the fyrd. This land grant would span multiple counties. An
example of such size would be reflected in an estate of forty hides granted under S1171 to a minister in Barking, that was known
to span 60 mi².

S139 has been tested for being genuine and contemporary with regards to the grant [14]. The document is known to survivors as
a single sheet original with a copy held in Worcester’s early 11th-century cartulary, Liber Wigorniensis. King Offa issued the
document during a synod that is noted to have been held at Clofesho. The dating of between 793 and 796 was established
through an analysis of the witnesses present, and it is believed that the synod occurred in 794 [15]. Details of the copy are
available and discussed by Stephen Baxter [16].

The reference to God as the supreme thundering being would imply an overlap between Christianity and the remaining Norse
gods. The use of terminology to say how money is deceitful indicates the religious tone of the time. The grant of fifty-five hides of
land is made in Westbury and near the river Avon.

The grant removes all tribute to the state other than what is required through the military service and feudal fiefdoms. It further
requires the maintenance of trade routes, including bridges and those required for the maintenance of defences. It is noted that
no individual should be free of such obligation. The witnesses of the Charter are noted to be the entire Council of the Synod [17].

The signatories convene under the grant of the side of the holy cross. This is a form known as Signa, and differs from the
methodology used in the Norman conquest. The individual places a cross against the name, before the representing witnesses,
and they agree to be bound under an oath to God.

It has been noted that there are other documents, such as the charter S146, preserved in the Liber Wigorniensis , that make no
mention of Æthelmund or his descendants. But, given that the grant of sixty hides at Westbury and twenty near Henbury exhibit
a large grant of land, the lack of reference to another servant is no cause for concern.

There is scholarship and documents surrounding the creation of the Council recorded as the third Council of Clovesho, in 794. At
the Council, a new archbishopric was to be created, at Lichfield, and the Mercian Sees were to be subjected to the jurisdiction
that was withdrawn from Canterbury. It is noted that the Archbishop of Lichfield signed as an archbishop. The Council
supposedly served somewhere near London, in Mercia [18].

Translation
Grant from Offa, King of Mercian peoples, to Æthelmund of land in Westbury in the province of huuicciorum .

In the name of the supreme thundering being, who is God, blessed forever, amen.

Through the actions of potent regions and the wealthy men of this earth, the rewards of eternal life unnecessarily purchased
with the deceitful things of this sorrowful world, all of which vanish in a shade.

As such, I, Offa, ascended to be king through the King of kings in order to rescue my soul, freely grant to Æthelmund, as my
devoted servant, fifty-five manentes of workable land in the province of the Huuicciori in the place which is named Westbury
near the river that is called Avon in eternal liberty under the condition that it shall be forever free from all tribute to the state,
small or greater, and from all services, whether to the sovereign or Doyen, except the military service and the making of bridges
and the maintenance of defences, because of the necessity of all of the people that none should be excused from this obligation
and duty.

This charter of regalia was drafted by the complete Council of the Synod in the famed location called Clobeshoas with the names
of the signatories and their sign to God preserved below:

+ I, Offa, by God’s gift, and King, confirm my own insignia of the grant with the sign of the holy cross.

+ I ecgfer, the son of the king, do hereby agree.

+ I, Archbishop Hygeberht…

Etc.

There are multiple names over the two pages, ranging from senior to what would be less senior positions, starting with the King
and including bishops, presbyters, and then people without rank or title, that are listed. See the end of the article for a list.

Document in Latin
In nominee summi tonantis qui est deus Benedictus in secula amen. Regibus potentibus et humius seculi divitibus cum
fallacibus istius lugubri mundi substantiis quae omnia sicut umbra eunanescunt aeternae vitae promia mercanda sunt.

Quapropter ego Offa Rex a rege reguum constitutes terram l.v. Cassatorum in provincial huuicciorum ubi nominator uuestburg
prope flumen qui dictur aben Æthelmundo fideli meo ministro pro ereptione animae meae in libertatem perpetuam sub hac
condicione libens concede ita ut ab omni tribute paruo vel maiore publicalium rerum et a cunctis operibus uel regis uel principis
sit in perpetuum libra preter expeditionalibus causis et pontum structionum et arcium munimentum quid omni populo necesse
et ab eo opera nullum excssatum esse. Scripta est autem haec liberatatis kartula ab universio concilio synosali in loco
celeberrimo qui nuncupatur clobeshoas.

Quorum signa et nmina infra tenentur.

+ Ego Offa rex deid ono proprian donationis libertatem signo sancta crucis confirmio

+ Ego ecgfer filius regis consensi

+ Signum hygeberhti archiepiscopi

Etc…

Footnotes

1. Herebertus de Bolebek

2. Alexander de Kenebelle

3. Hammos: From the OED Close: An enclosed field (now chiefly local, in the English midlands).

Close; c1440 Gesta Romanorum (Add. MS.) lxx. 386 “Thou haste stolne hym [the horse], and putt hym in thi close”. That is, “two
hammos of meadows”.

4. Hertwella

5. OED: A feudal tenure in England by which a religious body could hold land perpetually, in principle without any secular
obligations, in return for the performance of religious duties, most commonly the saying of masses or prayers for the soul of the
donor and his descendants.

6. Yield up or pay

7. Coin money – best seems to be pence

8. Easter

9. Exactions, demands. Alexander and his heirs will discharge all forensic services, customs, and exactions such as taxes.

10. Grant or gift

11. Sawyer, no. 139

12. Westbury-on-Trym, Gloucestershire

13. Hollister, C. Warren. “The Five-Hide Unit and the Old English Military Obligation.” Speculum 36, no. 1 (1961): 61-74. Accessed
March 30, 2021. doi:10.2307/2849844

14. Scharer, Anton. Die angelsächsische Königsurkunde im 7. und 8. Jahrhundert, Veröffentlichungen des Instituts für
Österreichische Geschichtsforschung 26 (Vienna, 1982), pp. 274–5.

15. Cubitt, Catherine. Anglo-Saxon church councils c. 650-c. 850. Leicester University Press, 1995.

16. Baxter, Stephen. “Archbishop Wulfstan and the Administration of God’s property.” In Wulfstan, Archbishop of York: the
proceedings of the second Alcuin conference, pp. 161-205. 2004.

17. Morley, Claude. 1923. “Clovesho – The Councils And The Locality.” Suffolkinstitute.Pdfsrv.Co.Uk.
http://suffolkinstitute.pdfsrv.co.uk/customers/Suffolk%20Institute/2014/01/10/Volume%20XVIII%20Part%202%20(1923)_Clovesho%20-
%20the%20councils%20and%20the%20locality%20Claude%20Morley_91%20to%20106.pdf

18. Bede, ed. Plummer, II, 214; Haddan, Arthur West, William Stubbs and David Wilkins. Councils and Ecclesiastical Documents
(Oxford, 1869-78).

References

Baxter, Stephen. “Archbishop Wulfstan and the Administration of God’s property.” In Wulfstan, Archbishop of York: the
proceedings of the second Alcuin conference , pp. 161-205. 2004.

Cubitt, Catherine. Anglo-Saxon church councils c. 650-c. 850 . Leicester University Press, 1995.

Haddan, Arthur West, William Stubbs and David Wilkins. Councils and Ecclesiastical Documents (Oxford, 1869-78).

Hollister, C. Warren. “The Five-Hide Unit and the Old English Military Obligation.” Speculum 36, no. 1 (1961): 61-74. Accessed March
30, 2021. doi:10.2307/2849844.

Morley, Claude. 1923. “Clovesho – The Councils And The Locality”. Suffolkinstitute.Pdfsrv.Co.Uk .
http://suffolkinstitute.pdfsrv.co.uk/customers/Suffolk%20Institute/2014/01/10/Volume%20XVIII%20Part%202%20(1923)_Clovesho%20-
%20the%20councils%20and%20the%20locality%20Claude%20Morley_91%20to%20106.pdf

P.H. Sawyer, Anglo-Saxon Charters: An Annotated List and Bibliography, Royal Historical Society Guides and Handbooks, 8
(London: Royal Historical Society, 1968), no. 139.

Scharer, Anton. Die angelsächsische Königsurkunde im 7. und 8. Jahrhundert, Veröffentlichungen des Instituts für
Österreichische Geschichtsforschung 26 (Vienna, 1982), pp. 274–5.

Appendix – Names

+ Ego Offa rex Dei dono propriam donationis libertatem signo sanctæ crucis confirmo .

+ Ego Ecgferð filius regis consensi .

+ Signum Hygeberhti archiepiscopi .

+ Signum Æðelheardi archiepiscopi .

+ Signum Ceolulfi . episcopi .

+ Signum Haðoredi . episcopi .

+ Signum Unu’u’ona . episcopi .

+ Signum [C]yneberht . episcopi .

+ Signum [D]eneferði . episcopi .

+ Signum Ceolmundi . episcopi .

+ Signum Coenwalh . episcopi .

+ Signum Uuermundis . episcopi .

+ Signum Alhheardi . episcopi .

+ Signum Ælfhuni episcopi .

+ Signum Uuiohtuni episcopi .

+ Signum Alhmund abbatis .

+ Signum Beonnan abbatis .

+ Signum Uuigmundi abbatis .

+ Signum Utel , abbatis .

+ Brorda .

+ Esne .

+ Heardberht .

+ Ubba .

+ Bynna .

+ Æðelmund .

+ Uuynberht .

+ Lulling .

+ Alhmund

+ Uuigberht .

+ Ceolmund .

+ Eafing .
Understanding Medieval Documents: Part II
By Craig Wright | 13 Dec 2021 | Law & Regulation
A commentary on the following charter:
1. Carta Lucie de Brintona de tota terra quam Godwinus filius Leurich

Carta Hugonis de Gurnay et Mileseint sponse sue de tota tenura

Dominis suis omnibus Hugonis de Gurnay et amicis et hominibus francis et anglis salutem. Sciatis quod ego
et Mileseint sponsa mea et Hugo filius meus concedimus canonicis de Messend’ et carta nostra
confirmauimus et garantizamus totam tenuram suam de Browton’ quam de Roberto Mansello tenebant
cum omnibus appendiciis suis in bosco et plano et cunctis aliis rebus ad feudum illud pertinentibus ad
tenendum de nobis et heredibus nostris et nominatim de uxore mea Mileseint cui in dote uillam illam
dedimus ad tenendum insuper libere et quiete et hereditarie in perpetuam elemosinam per idem seruicium
quod inde Roberto Mansel faciebant. Scilicet reddendo annuatim pro omnibus seruiciis vi marcas ad Pascha
quas canonici vi marcas solebant reddere Roberto ad duos terminos scilicet Pasche Sancti Michaelis sed
amodo reddentur simul ad Pascha et statuent unum canonicorum in ecclesia sua omnibus diebus pro salute
nostra et antecessorum et successorum nostrorum. Et si ad eos de aliquo grauidi negotio nostro breue
nostrum miserimus abbas aut aliquis de canonicis ibit pro nobis ad regem sine ad episcopum infra Angliam
quin etiam ut omnis calumnia et querele heredum predicti Roberti tollantur. Sciant omnes amici nostri
presentes et futuri nos pari assensu et concessione dedisse Stephano heredi predicti Roberti escambias in
socha de Cheneborlay nominatim in Carlinton’ iiii marcatas terre illo in manu mea supradictam Brottone
liberam dimittente et de escambiis mihi et Hugonis filio meo hominem suum faciente. Vt autem de hiis qui
in presenti carta continentur nulla sit in posteris dubietas sigillum meum et sigillum sponse mee Milesent hic
apponuntur. Testibus Nicholas Estoteuilla, Iohanne de Hosdeng, Willelmo de Sancto Luciano, Willelmo de
Bossoncort, Hugone Heusart, Willelmo de Marteneio, Garnero Hosdent, Hugone de Braimoster, Reynardo de
Mereuill, Radulfo de Ogia, Galtero thesaurio de Auesnes, Rogero capellano qui hanc cartam scripsit. Hec facta
sunt apud Gornaium anno dominice incarnacionis MC sexagesimo vii pridie Nonarum Aprilis.

[ Missenden Cartulary , no. 556; some spellings amended]

The charter presents a grant to the Abbey by Hugh de Gurney, his wife, and his son Hugh of their entire
landholding and land in Broughton related to their wedding. The land was held by Robert Mansel. For the
grant, the Abbey was required to pay 6 marks annually, at Easter. In exchange for the transfer of Broughton,
the Gurney family provided Robert Mansel with 4 marks’ worth of land in the soke of Cheneborlay [1] in
Carlton. Following the Norman conquest, the document is from the twelfth century, whereby the interactions
between the French and English can be seen to remain strong.

The people in the deed are Hugh de Gurney, his wife Milicent, and his son (also Hugh). The counterparties are
Robert Mansel and Stephen, Robert’s heir. The documents are also binding on the heirs of the various parties.

The document has many witnesses, including the following people: Nicolas Estoteuilla, John of Hosdeng,
William de Luciano, William Bossoncort, Hugh Heusart, William Marteneio, Garner Hosdent, Hugh
Braimoster, Reynard of Mereuill, Ralph Og, Galtero (the treasurer of Auesnes), and Roger Chaplain, who wrote
the charter. The notification concerns all present and friends. The grantee is noted as Stephen, Robert’s heir.
The grant presents a form of tenure in English law where the church holds lands given to them and their
successors forever on the condition of praying for the donor’s soul and his heirs.

The document was created, since the year of the incarnation of the Lord (Anno Domini), in 1167, in the month
of April. The day is unclear, but it is referred to as a ring (the particular date is listed as “Gornaium”). The
particular payment clause of the grant places it on the day of Saint Michael at Easter [2].

The transfer includes the wood and fields and all parts of the land, including a town. The payment of six
marks is made at every Passover festival. There is a mutual exchange occurring, where land is being bought
and sold and exchanged. The wife of Hugh de Gurney is, through the document, bound by the actions of the
husband. Where the individuals have complaints, it is agreed that they can go to the King of England without
writing to the Bishop.

The feudal obligation contained within the document binds the family in duty [3]. The object of conveyance is
particularised as an exchange of land [4]. The clausulae [5] of the deed incorporates a complaint to a court
where the Bishop and King of England are listed. Generally, it presents not an appeal but causes of first
instance.

The grant is provided in the form of a deed. The habendum notes that a facieban is in place, relating to what
Stenton defines as a form of manorial structure and feudal holding, a northern Dane law that was continued
into Norman England [6]. The habendum clause deals with the property rights and interests and aspects of
ownership given to the parties to a deal.

In the charter, a pro salute, et statuent unum canonicum in ecclesia sua omnibus diebus pro salute nostra et
antecessorum et successorum nostrorum , acts as a form of warranty. It is a charter of lay origin for the
exchange of valuable property. The charter was completed and written by Roger Chaplain [7]. Missenden
Abbey is in Great Missenden, Buckinghamshire. England is 45 miles from Carlton, Bedford.

The witness list for the testing clause of the charter is a resource that allows the historian to understand both
the household and the location of the witnesses at the time [8]. It is also a means of analysing social and
political networks associated with the individuals. It has many individuals present, and as far as Anglo-
Norman charters are concerned, it may be assumed that the individuals were physically together at the time
of signing [9]. Using such information allows us to cross-reference other information concerning the
individuals participating in the deed and exchange [10]. With such information and family records, it becomes
possible to match the names, such as Melisende de Gournay, who was the daughter of Thomas de Marle,
Seigneur de Coucy, and Mélisende de Corbeil, born in 1126, and Hugh de Gournay, IV Baron de Gournay. Both
families were from Normandy France, bringing reference to the charter referring to both the English and the
French.

Footnotes

1. Chamberlain—it is likely in the jurisdiction of Chamberlain, being that the so-called franchise and right to
receive fees from the location matches more with the modern English name of the location.

2. Dutton, M. (2016). A Companion to Aelred of Rievaulx (1110–1167) . Brill.

3. “in manu mea supradictam Brottone liberam dimittente et de escambiis mihi et Hugonis filio meo
hominem suum faciente”

4. “escambias in socha de Cheneborlay nominatim in Carlinton iij marcatas terre illo”

5. “Et si ad eos de aliquo grauidi negotio nostro breue nostrum miserimus abbas aut aliquis de canonicis ibit
pro nobis ad regem sine ad episcopum infra Angliam quin etiam ut omnis calumpnia et quercle heredum
predicti Roberti tollantur.”

6. Stenton, F. M. (1910). Types of Manorial Structure in the Northern Danelaw . Clarendon Press.; see also,
Cheyney, E. P. (1911). Types of Manorial Structure in the Northern Danelaw . Customary Rents, 802–803.

7. Rogero capellano; I am uncertain whether this individual was a chaplain or had the name referencing such.

8. Bates, D. (1997). The Prosopographical Study of Anglo-Norman Royal Charters: Some Problems and
Perspectives. In Family Trees and the Roots of Politics: The Prosopography of Britain and France from the
Tenth to the Twelfth Century, K. S. B. Keats-Rohan (ed.). Woodbridge.

9. Note that the document is not subscribed with Signa.

10. Gurney, D. (1848). The record of the house of Gournay, vol. 2.

References

Bates, D. (1997). The Prosopographical Study of Anglo-Norman Royal Charters: Some Problems and
Perspectives. In Family Trees and the Roots of Politics: The Prosopography of Britain and France from the
Tenth to the Twelfth Century , K. S. B. Keats-Rohan (ed.). Woodbridge.

Dutton, M. (2016). A Companion to Aelred of Rievaulx (1110–1167) . Brill.

Gurney, D. (1848). The record of the house of Gournay , vol. 2.

Stenton, F. M. (1910). Types of Manorial Structure in the Northern Danelaw . Clarendon Press.

[Image source: http://www.bl.uk/manuscripts/Viewer.aspx?ref=add_ch_19790_f001r ]

Marx’s Stolen Theory
By Craig Wright | 20 Dec 2021 | Economics
It was not Marx’s​​ labor theory of value.

As Lutz (2018) argues, it is the position of several French philosophers, aligned with Rousseau, that
developed such an erroneous principle. Saint-Simonian criticisms of property derived from the fallacy
that the labor theory of value must necessarily lead to a condition where no rights can exist in
property. They further rejected the notion of a productive agency.

The claim that is attributed to Marx was, in fact, plagiarised by him. The French Saint-Simonian
doctrine (1825–1832) espoused the notion of: “To each according to his ability, to each ability according
to his works.” Sen and Nussbaum expanded on the same approach, and the writings of Thomas Ismaÿl
Urbain (1812–1884) and Henri Duveyrier (1840–1892) further expanded on the romantic concept of a
pragmatic utopia. Such writers and philosophers had a concept of a society without rules, and ignored
economics, believing that they could create a world without justifying price or rules of allocation. The
underlying thesis of their argument is built on a flawed foundation, that all individuals will aid each
other altruistically and that our human nature means that we will always accept each other. It is the
rare few who act otherwise. On top of this, the authors believed that only physical labour had value.

In a paper concerning the corn laws in England, West (1826) summarises Ricardo’s observation and the
labor theory of value. It had been criticised at the time (Bailey, 1825), and the labor theory of value has
since been thoroughly discredited (Hagendorf, 2008; Ebner, 2005). Earlier, Böhm-Bawerk’s criticism of
the labor theory of value (Hilferding & Paul, 1919) provided criticism of Ricardo, and Marx then
demonstrated how incomplete and contradictory their position was. In particular, Böhm-Bawerk
demonstrated that the Marxist approach was wholly unscientific and that not only did it not provide
any empirical proof, but it intentionally ignored all evidence. Thus, the scientific Marxist approach was
completely unscientific in nature.

In a pamphlet from Karl Marx of the year 1844, titled Estranged Labour , Marx said that we “presuppose
private property, the separation of labour, capital and land, and of wages, profit of capital and rent of
land”, with the argument that “the worker sinks to the level of a commodity and becomes indeed the
most wretched of commodities”. Marx argued that capitalism must end with two classes, “the
property owners and the propertyless workers”. In Marx’s words, the proletariat would always be a
subsistence labourer, and never be able to gain anything in the face of competition from another
proletariat.

To Marx, the church prohibition against usury and money-making money was a foundation of his
polemic against profit. Marx did not understand that profit was a measurement that induced
competition and helped focus the economy on growth. To Marx and Engels, the world was one of the
zero-sum game based on a flawed Malthusian idea of a world without growth. Marx actually claimed
that the worker became poorer the more money he earned and the more wealth he produced.

Marx abandons the capitalist system of division of labour, and argues that any product of thought is
not real work. Marx and Engels thus argue that financial management, risk-taking, strategic alignment,
and other aspects of management are inconsequential and not worthy of investment. In his earlier
pamphlets, Marx said that the ideal society was one where we lived “in log cabins made by our own
hands through the joint labour of our shared wives”, in a format reminiscent of Plato’s Republic .

Marx was a romantic and an adherent of Rousseau. He saw civil society as something inhuman, and
longed for a non-existent society of noble savages living in harmony with the world. Yet, people did
not choose to move to cities because they were exploited in the countryside, but rather because they
could not feed their family.

References
Bailey, S. (1825). A Critical Dissertation on the Nature, Measures, and Causes of Value: Chiefly in
Reference to the Writing of Mr. Ricardo and His Followers (No. 7). R. Hunter.

Ebner, A. (2005). Hayek on Entrepreneurship: Competition, Market Process and Cultural Evolution.
Entrepreneurship, money and coordination , 131–49.

Hagendorf, K. (2008). The labour theory of value: a marginal analysis (MPRA Paper 10202). University
Library of Munich.

Hilferding, R., & Paul, E. (1919). Böhm-Bawerk’s criticism of Marx . Socialist Labour Press.

Lutz, A. (2018). The Saint-Simonians and the Birth of Social Justice in France (GATE WP 1836).
https://ssrn.com/abstract=3305140

Marx, K. (1844). Estranged Labour .

West, E. (1826). Price of Corn and Wages of Labour, with Observations Upon Dr. Smith’s, Mr. Ricardo’s,
and Mr. Malthus’s Doctrines Upon Those Subjects: And an Attempt at an Exposition of the Causes of
the Fluctuation of the Price of Corn During the Last Thirty Years . J. Hatchard and Son.

[Image source: Portrait of Karl Marx (1818–1883) , John Jabez Edwin Mayal, Public domain, Wikimedia
Commons]
Carnivorous Sponges
By Craig Wright | 04 Jan 2022 | Other
A relatively recent paper from O’Hara et al. (2020), describing a scientific survey of the lower bathyal and
abyssal seafloor fauna of eastern Australia, has discovered multiple new species. In this recent exploration,
seventeen new species of carnivorous sponges, belonging to seven of the nine identified genera of
Cladorhizidae, including Abyssocladia, Asbestopluma, Chondrocladia, Cladorhiza, Lycopodina, and
Euchelipluma (Ekins et al. 2020), have been discovered. Cladorhizidae are a family of carnivorous
demosponges (Class Demospongiae) that feed on ocean-dwelling crustaceans and small invertebrates. The
group of creatures is known to have a long lifespan (500–1000 years), and presents the most diverse class in
the phylum Porifera. Such deeply rooted sea sponges are most commonly located on oceanic ridges and
seamount systems.

The most surprising aspect of the find was that over forty specimens were recovered, with several species
being only several millimetres in length. This group of carnivorous sponges was the most commonly
collected family in the expedition. Many of the demospongiae collected in the expedition could not be
identified as describing species, whereby twenty-two operational taxonomic units (OTUs) have been
remarked to be new to science.

Creatures of Class Demospongiae of the most prolific form fall within the phylum Porifera. They include
species of sponges with a soft body covering a hard skeletal mass made of calcium carbonate and
associated mineral compounds from either aragonite or calcite. As with the majority of the class, the newly
discovered specimens are leuconoid in structure, with a combination of mineral silica and protein spongin
forming fibres that differ in form from the glass sponges.

The simple collection of sponges comes from the abysmal depths where there is a 150-fold increase in the
amount of silicon in the water. Many such creatures take the form of glass sponges to create large silicon
structures, whereas others, such as the ones described in this review, have adapted and become a carnivore,
in an attempt to more reliably source food at ocean depths. Some of the species found had been discovered
in prior studies of abysmal depths, but more than half of the sponge specimens collected have never been
seen before. The authors of the paper note that over three quarters of the species collected are new. Many
of the same sponges collected from the abysmal plain and continental slopes had not been fully described.

Such discoveries demonstrate that the Cladorhizidae family of demosponges is incredibly diverse, and
further investigation would likely find even more examples of previously unknown species. Interestingly,
such carnivorous sponges have developed the ability to capture small crustaceans and prey using filaments
or hooks. Such creatures have only been known to science since 1995, but the extended research that has
been done since then has uncovered many more species of such alien-looking creatures, quite often
appearing to come from another world.

With most of the ocean bottom still largely being left unexplored, it remains unknown as to how many new
species will be discovered, or even how many more different forms of carnivorous sponges exist.

References

Borchiellini, C., Degnan, S. M., Le Goff, E., Rocher, C., Vernale, A., Baghdiguian, S., Séjourné, N., et al. (2020).
Staining and Tracking Methods for Studying Sponge Cell Dynamics. Developmental Biology of the Sea
Urchin and Other Marine Invertebrates , 81–97. Humana.

Bowler, J. (2021, Jan 18). Scientists Just Discovered 3 New Kinds Of Carnivorous Sponge In The Deep Ocean
. Sciencealert. https://www.sciencealert.com/did-you-know-there-s-such-a-thing-as-a-carnivorous-sponge-
well-australia-just-found-three-more

Ekins, M., Erpenbeck, D., & Hooper, J. N. A. (2020). Carnivorous sponges from the Australian Bathyal and
Abyssal zones collected during the RV Investigator 2017 Expedition . Magnolia Press.

Elsner, N. O., Malyutina, M. V., Golovan, O. A., Brenke, N., Riehl, T., & Brandt, A. (2015). Deep down: Isopod
biodiversity of the Kuril–Kamchatka abyssal area including a comparison with data of previous expeditions
of the RV Vityaz. Deep Sea Research Part II: Topical Studies in Oceanography , 111 , 210–219.

Ereskovsky, A., & Lavrov, A. (2021). Porifera. Invertebrate Histology , 19–54.

Folkers, M., & Rombouts, T. (2020). Sponges Revealed: A Synthesis of Their Overlooked Ecological Functions
Within Aquatic Ecosystems. YOUMARES 9-The Oceans: Our Research, Our Future , 181.

Schmidt Ocean Institute. (2020, Apr 9). New Species Discovered During Exploration Of Abyssal Deep-Sea
Canyons Off Ningaloo . schmidtocean.org. https://schmidtocean.org/new-species-discovered-during-
exploration-of-abyssal-deep-sea-canyons-off-ningaloo/

O’Hara, T. D., Williams, A., Ahyong, S. T., Alderslade, P., Alvestad, T., Bray, D., Burghardt, I., et al. (2020). The
Lower Bathyal And Abyssal Seafloor Fauna Of Eastern Australia. Marine Biodiversity Records , 13 (1).
doi:10.1186/s41200-020-00194-1

[Image source: NOAA Okeanos Explorer Program, INDEX-SATAL 2010., Public domain, Wikimedia
Commons]
Book Review: Written on the Heart: The Case for Natural Law
By Craig Wright | 14 Jan 2022 | Law & Regulation
In his unambiguously elucidated book, J. Budziszewski successfully presents and defends the tradition of
natural law starting with Aristotle and working through Aquinas, Locke, and Mill, before including Christian
values that amalgamate into heart of natural law, expounding it with profound clarity [1]. The author
manages to capture the primary aspects of contemporary philosophy of law, theology, and political science
in an engaging manner. Using the same process, Budziszewski addresses both pluralism and relativism and
how they are generally linked to tyranny’s defence [2].

Budziszewski delivers a focused intellectual discussion of the evolution of natural law, incorporating each of
the major theorists. Such vindication starts with the politics of the human good and a comprehensive
investigation into moral excellence and the design of government, followed by an investigation into
friendship, justice, and the significance of moral law in the system developed by Aristotle [3]. Such work
would be enhanced by an exploration and analysis of Aristotle’s instructor and contemporary Plato. Of note,
an analysis of Euthyphro, Laws, Apology, and Crito would provide the reader with a further understanding of
the background on the Nicomachean Ethics and the differences in Aristotle’s philosophy [4]. Aristotle’s
concept of excellence could be further enhanced with an analysis and counterpoint provided through an
analysis of the Lives of the Noble Greeks and Romans , including a biography of Solon, by Plutarch [5].

The insight provided through the analysis of Aquinas, including an investigation into the essence of law,
delivers the grand design of natural law. Still, it could be enhanced by a comprehensive analysis of formal
legal scholars such as Cicero [6]. In contrasting Aquinas with Plato, who in Laws never arrives at a formal
definition of law and remains content to compare man to a puppet, drawn by strings and cords, “which
every man ought to grasp and never let go, but to pull with it against all the rest; and this is the sacred and
golden court of reason, called by us the common law of the state…”, Budziszewski could have further
enhanced his already strong argument [7].

In his excellent enunciation of Locke, Budziszewski briefly addresses the work of Hobbes [8]. Here lies the
big opportunity to address Leviathan directly [9]. Given more space, Budziszewski could have detailed the
problems with Hobbes’s view of humanity, covering people’s ability to interact without giving up their
freedoms. Although he notes fallen men, it would be good to expound how we can all be redeemed [10].
The section could be expanded further by looking into the Shakespearean concept of The Merchant of
Venice [11], through which we can see the conflict between the equitable aspects of law and the
development of justice [12]. Such an approach would teach both the limits of monetary economics and the
requirements to limit and alter law under natural law theory [13].

Similarly, an inspection of the works of Montesquieu and of natural justice and the spirit of the laws would
enhance the analysis of Locke [14]. As Waddicor expounds, Montesquieu’s philosophy of natural law formed
the foundations of many of the Federalist papers, and founded the understanding of freedom developed by
Jefferson and the writers of the Constitution of the United States [15]. Although Budziszewski notes
Jefferson and Paine’s interaction in the discussion on Locke, no mention of Blackstone or how Jefferson
desired a civil code is made in the text [16]. Mention of the more liberal thought by Alexander Hamilton
could be made, too, to demonstrate the balance of freedom and how it would relate to a civil code in the
United States [17].

If I could change anything in the book, it would be to incorporate more, not to remove that which is already
there. In extending it, I would first incorporate Aeschylus and the works of the Orestes, to demonstrate the
Hobbesian view of the world outside the approach of natural law that was introduced in this early Western
document and that has become part of the classical canon [18]. The work forms an excellent introduction to
the birth of natural law, which can only be improved with further study into additional areas [19].

Footnotes

1. Budziszewski, Jay. Written on the heart: The case for natural law. InterVarsity Press, 1997.
2. Ibid. p. 40.

3. Ibid. p 15-50.

4. Plato, C. Euthyphro. Kessinger Publishing, 2004.; Plato: Laws 10: Translated with an introduction and
commentary. OUP Oxford, 2008.; Plato, By. Apology. BookRix, 2019. Plato, Plato, and Benjamin Plato. Crito.;
Cambridge University Press, 1927.

5. North, Thomas, George Wyndham, Donato Acciaiuoli, and Simon Goulart. Plutarch’s Lives of the noble
Grecians and Romans. Vol. 1. D. Nutt, 1895.

6. Budziszewski, Written on the heart. 1997. p. 52-94.

7. Plato, The dialogues of Plato. Vol. 4. Scribner, Armstrong, 1873. p. 650a.

8. Budziszewski, Written on the heart. 1997. p. 111.

9. As Mitchell, Joshua. “Hobbes and the Equality of All under the One.” Political theory 21, no. 1 (1993): 78-100.
Notes, there is a flawed version of human psychology that ignores the position of humanity within a society
of humans who choose to deal over a long time and grow in friendly citizenship.

10. Brotea, Julia. “Hobbes, Augustine, and the Christian nature of man in Leviathan.” Leviathan (São Paulo) 7
(2013): 77-91.

11. Shakespeare, William, and M. Lindsay Kaplan. “The merchant of Venice.” In The Merchant of Venice, pp.
25-120. Palgrave Macmillan, New York, 2002.

12. Tan, Seow Hon. “Validity and Obligation in Natural Law Theory: Does Finnis Come Too Close to Positivism.”
Regent UL Rev. 15 (2002): 195.; White, Robert Sommerville. Natural Law in English Renaissance Literature.
Cambridge University Press, 2007.

13. Kish-Goodling, Donna M. “Using The Merchant of Venice in teaching monetary economics.” The Journal
of Economic Education 29, no. 4 (1998): 330-339.

14. de Secondat Montesquieu, Charles, Charles de Secondat baron de Montesquieu, and Melvyn Richter. The
Politcal Theory of Montesquieu. CUP Archive, 1977.

15. Waddicor, Mark H. Montesquieu and the philosophy of natural law. Vol. 37. Taylor & Francis, 1970.

16. Budziszewski, Written on the heart. 1997. p. 132.

17. Waterman, Julian S. “Thomas Jefferson and Blackstone’s Commentaries.” Ill. L. Rev. 27 (1932): 629.;
William, J. H. (1959). Alexander Hamilton: His Spirit Is Alive Today. ABAJ, 45, 155.

18. Lloyd-Jones, Hugh, ed. Oresteia. Univ of California Press, 1993.

19. Gewirtz, Paul. “Aeschylus’ law.” Harvard Law Review 101, no. 5 (1988): 1043-1055.

References

Brotea, Julia. “Hobbes, Augustine, and the Christian nature of man in Leviathan.” Leviathan (São Paulo) 7
(2013): 77-91.

Budziszewski, Jay. Written on the heart: The case for natural law . InterVarsity Press, 1997.

Gewirtz, Paul. “Aeschylus’ law.” Harvard Law Review 101, no. 5 (1988): 1043-1055.

Kish-Goodling, Donna M. “Using The Merchant of Venice in teaching monetary economics.” The Journal of
Economic Education 29, no. 4 (1998): 330-339.

Mitchell, Joshua. “Hobbes and the Equality of All under the One.” Political theory 21, no. 1 (1993): 78-100.
de Secondat Montesquieu, Charles, Charles de Secondat baron de Montesquieu, and Melvyn Richter. The
Politcal Theory of Montesquieu . CUP Archive, 1977.

North, Thomas, George Wyndham, Donato Acciaiuoli, and Simon Goulart. Plutarch’s Lives of the noble
Grecians and Romans . Vol. 1. D. Nutt, 1895.

Plato, C. Euthyphro . Kessinger Publishing, 2004.

Plato: Laws 10: Translated with an introduction and commentary . OUP Oxford, 2008.

Plato. Apology . BookRix, 2019.

Plato, Plato, and Benjamin Plato. Crito . Cambridge University Press, 1927.

Plato, The dialogues of Plato . Vol. 4. Scribner, Armstrong, 1873.

Shakespeare, William, and M. Lindsay Kaplan. “The merchant of Venice.” In The Merchant of Venice , pp. 25-
120. Palgrave Macmillan, New York, 2002.

Tan, Seow Hon. “Validity and Obligation in Natural Law Theory: Does Finnis Come Too Close to Positivism.”
Regent UL Rev. 15 (2002): 195.

Waddicor, Mark H. Montesquieu and the philosophy of natural law . Vol. 37. Taylor & Francis, 1970.

Waterman, Julian S. “Thomas Jefferson and Blackstone’s Commentaries.” Ill. L. Rev. 27 (1932): 629.

White, Robert Sommerville. Natural Law in English Renaissance Literature . Cambridge University Press,
2007.

William , J. H. (1959). Alexander Hamilton: His Spirit Is Alive Today. ABAJ , 45 , 155.

[Image: Saint Thomas Aquinas , Carlo Crivelli, Public domain, Wikimedia Commons]
Book Review: Bowling Alone
By Craig Wright | 17 Jan 2022 | Economics
In his seminal work, Bowling Alone , Robert Putman has managed to capture many of the difficulties facing
society as we change and embrace technology [1]. The author initially released his work as a paper, receiving
extensive criticism, but went on to extend it into a well-researched book. The work extends the notion of
social capital, a concept formerly utilised by writers including Karl Marx and, in its current form, Lydia
Hanifan [2]. Others, including Austrian economists such as von Böhm-Bawerk and Fisher, also worked upon
the concept of social cohesion and capital binding society [3]. Yet, it was Putman who brought this obscure
academic term into the mainstream. ‘Citizenship is not a spectator sport’, but equally, it does not require
exclusively permanent face-to-face interaction; technology has provided alternatives [4].

Smith and Ricardo defined capital as the stock of physical assets [5]. Capital may be extended into
intellectual property and cover other intangibles, but had excluded social values. Karl Marx contended that
capital was primarily a ‘social relation’, mirroring a concept that Veblen later used and the distinction
between finance and capital goods, and noted that capital was based on the ‘accumulated, habitual
knowledge developed through social groups’ [6]. The concept of social relations covering exchanges
between entities of a non-pecuniary nature was frequently used within the German historical school.
Werner Sombart defined capital as ‘the sum of exchange value which serves as the working bases of a
capitalist enterprise’ [7]. So, whereas Putnam’s work is topical today, it is certainly not the beginning of such
a controversial topic.

Putnam’s book investigates the concept of social capital from an American perspective. Unfortunately, the
US-centered approach makes such work far less valuable when investigating other nations. Additionally, it
becomes vital to weigh the alternatives against the costs. In part, Putnam argues that working women have
moved into the paid workforce, and because of it, involvement in social activities is diminishing [8]. The
author notes that there may be differences between self-selection towards full-time roles and full-time
homemakers, but fails to note the role of women in paid employment and how that is itself a reason to be
sanguine [9]. Putnam has overlooked the combination of increased income, better education, and the
ability to provide additional services to families and the enhanced capital that accumulates for family
groups.

Criticism
Ben Fine argues that the theory presented by Putnam is ‘fundamentally flawed’ [10]. The criticism notes that
social capital theory is not social, not ‘capital’, and not a hypothesis that can be scientifically tested. Notably,
the results are impossible to measure and form a circular argument and tautology. Some aspects of the
work are subjective [11]. Putnam argues that the reduction in face-to-face interaction leads to a decrease in
political society [12]. The author takes it as far as to argue that ‘one cannot jumpstart Republican citizen
without direct face-to-face participation’ [13]. Other researchers have noted that such an argument is rather
one-sided and, in particular, that the ‘decline in participation and face-to-face interaction does not
necessarily have negative effects for social or political stability and democracy overall’ [14].

Although the work by Putnam is psychologically attractive, it fails to deliver a rigorous analysis of the
changes that are occurring within society [15]. Crucially, the decline of political participation is measured
against older forms of engagement, that would have been considered new had such work been conducted
earlier. Here, we see a nostalgic look at a form of 1950s American culture that would have little in common
with American culture from earlier periods such as the 1900s. And whereas it may be pleasant to live in unity
(Psalm 133:1), Aquinas reminds us that ‘happiness is secured through virtue; it is a good attained by man’s
own will’ [16]. Although the nostalgic past embraced by Putnam is attractive to some, it comes at a cost, one
that for many may be too high.

The claims made by Putnam concerning the deterioration of political contribution and the attendant
instability of Republican democracy within the United States of America may be mistaken and overstated,
but that does not mean that the unease is of no consequence. Putnam has touched upon a concern that
many Americans feel. The popularity of his work demonstrates a deep-felt longing for social connections
that once were. The question is not whether democracy is collapsing, but rather: how can we form the best
society we can live in?

Footnotes

1. Putnam, Robert D. Bowling alone: The collapse and revival of American community. Simon and Schuster,
2000.

2. Hanifan, Lyda J. “The rural school community center.” The Annals of the American Academy of Political
and Social Science 67, no. 1 (1916): 130-138.; Marx, Karl. “Capital: A critique of political economy. Vol. II.” (1945).

3. Fisher, Irving. “What is capital?.” The Economic Journal 6, no. 24 (1896): 509-534.; von Böhm-Bawerk,
Eugen. Karl Marx and the Close of his System. Ludwig von Mises Institute, 1949.

4. Putnam, Bowling Alone, 2000. p. 341.

5. Ricardo, David. Letters of David Ricardo to John Ramsay McCulloch, 1816-1823. Vol. 10, no. 5-6. American
economic association, 1895.

6. Marx, Karl. Das Kapital: kritik der politischen ökonomie. Vol. 1. O. Meissner, 1890.; Veblen, Thorstein B. The
Place of Science in Modern Civilization and Other Essays, New York: Huebsch, 1919.

7. Sombart, Werner. Das europäische Wirtschaftsleben im Zeitalter des Frühkapitalismus vornehmlich im

16., 17. und 18. Jahrhundert (2v.). Vol. 2. Duncker & Humblot, 1919. p. 129. “Die Summe des Tauschwertes, die
als Arbeitsgrundlage eines kapitalistischen Unternehmens dient.”

8. Putnam, Bowling Alone, 2000. p. 195- 201.

9. Ibid. p. 198.

10. Fine, Ben. “They f** k you up those social capitalists.” Antipode 34, no. 4 (2002): 796-799.

11. Bourdieu, Pierre, and John G. Richardson. “Handbook of Theory and Research for the Sociology of
Education.” The forms of capital 241 (1986): 258.

12. Putnam, Bowling Alone, 2000. P175-179.

13. Ibid. p 341.

14. Stolle, Dietlind, and Marc Hooghe. “Inaccurate, exceptional, one-sided or irrelevant? The debate about
the alleged decline of social capital and civic engagement in Western societies.” British journal of political
science 35, no. 1 (2005) p. 163.

15. Nisbet, Robert. The quest for community. Open Road Media, 2014.

16. Aquinas, Thomas. Summa Contra Gentiles: Book 3: Providence Part I. University of Notre Dame Pess, 1975.

References

Aquinas, Thomas. Summa Contra Gentiles: Book 3: Providence Part I . University of Notre Dame Press, 1975.

Bourdieu, Pierre, and John G. Richardson. “Handbook of Theory and Research for the Sociology of
Education.” The forms of capital 241 (1986): 258.

Fine, Ben. “They f** k you up those social capitalists.” Antipode 34, no. 4 (2002): 796-799.

Fisher, Irving. “What is capital?.” The Economic Journal 6, no. 24 (1896): 509-534.

Hanifan, Lyda J. “The Rural School Community Centre.” The Annals of the American Academy of Political
and Social Science 67, no. 1 (1916): 130-138.
Marx, Karl. “Capital: A critique of political economy. Vol. II.” (1945).

Nisbet, Robert. The quest for community . Open Road Media, 2014.

Putnam, Robert D. Bowling alone: The collapse and revival of American community . Simon and Schuster,
2000.

Ricardo, David. Letters of David Ricardo to John Ramsay McCulloch, 1816-1823 . Vol. 10, no. 5-6. American
economic association, 1895.

Stolle, Dietlind, and Marc Hooghe. “Inaccurate, exceptional, one-sided or irrelevant? The debate about the
alleged decline of social capital and civic engagement in Western societies.” British journal of political
science 35, no. 1 (2005): 149-167.

Veblen, Thorstein B. The Place of Science in Modern Civilization and Other Essays , New York: Huebsch, 1919.

von Böhm-Bawerk, Eugen. Karl Marx and the Close of his System . Ludwig von Mises Institute, 1949.
Equality of the Law
By Craig Wright | 21 Jan 2022 | Alternative Coins & Systems
One of the most fundamental aspects of modern liberal democracy stems from the concept of equality
under the law. Such a concept does not refer to the idea of all people having the same amount of money,
nor does it represent each person having equal ability and capability. Rather, it means that all people,
whether rich, poor, educated, or ignorant, are subject to the same rules and constraints. Yet, such a critical
aspect of modern society is being attacked by those who falsely call themselves Bitcoin developers—
individuals involved with passing systems including the BTC (Core) network off as Bitcoin.

It is bad enough that the deception is promulgated by those who adhere to anarchy and socialism. The
utilisation of false propaganda using a truly neo-Trotskyite methodology would make Orwell’s Big Brother
in 1984 green with envy. And yet, it is far worse when officers of the court promote such lies as told by the
developers supporting the falsely named digital platform associated with BTC. When law firms acting for
digital currency groups falsely promote the concept of cryptocurrency and lie about the concept of nodes
to a court, it not merely presents contempt; it is a complete disregard for the court and society.

Whilst it is necessary for a lawyer to support even those accused of murder and other crimes, it is outside
the lawyer’s role to lie for the client. Being wilfully blind is no excuse. In promoting the fabrication and
falsehood that thousands of nodes would exist on the BTC network, the fraud and the false narrative
continue to be propagated. Yet, it is a concept that is easy to understand and easy to discredit. In section 5
of my white paper, I define the role of nodes and how they operate. Importantly, the only consensus
methodology deployed in any way in any blockchain network lies in the creation and dissemination of
blocks.

The control of the Bitcoin network is distributed between the developers of the network creating the code
and the enforcement through the nodes. As explained in my white paper, “Any needed rules and incentives
can be enforced with this consensus mechanism.” Yet, some individuals have been promoting the lie, fraud,
and fabrication that there were nearly 15,000 nodes on the network. Worse, such falsehood and deception
have been propagated by law firms in court.
Such an act does not merely disregard the law. Rather, it demonstrates a fundamentally deep disrespect
and contempt for the entire court process, let alone judges and Masters, and shows a criminal level of
disrespect for society in general. The definition of nodes in Bitcoin is very simple. As set out in section 5 of my
white paper, nodes create and disseminate blocks. It is this method alone that allows the verification and
transmission of information across the network. As a result, counting the number of nodes is incredibly
simple.

Within any difficulty-adjustment period, the public as a whole can count the number of blocks created by
any particular machine or set of machines. The set of machines matters. For example, in 2008, when I was
debating with James Donald the nature of Bitcoin, I noted that the system would end in a small series of
server farms. Each of the server farms is itself a node [1]. But, people connected to mining pools do not
create blocks, they do not validate transactions, and they don’t act as nodes.

Even a large mining pool with a million clients, if something ever existed at such scale, would be but a
single node. Such a commercial entity would form the server farm I talked about when I was ready to
launch Bitcoin in 2008. Yet, as misleadingly and fraudulently put on both the bitcoin.org and the Bitcoin
Core (or, BTC Core) sites, people are promoting the misleading and deceptive term “full node” [2]. The call
for people to run full nodes is merely a part of the deception.

Running a full instance of the Bitcoin software without creating blocks does nothing to support the
network. It does not propagate blocks. It does not verify transactions. It does not increase the
decentralisation of the network. The only thing that has been promoted and achieved by the false narrative
and absolute lie of Bitcoin having 15,000 nodes is the false idea that governments or regulators would not be
able to address Bitcoin. Bitcoin was not designed for such a purpose. When I said in 2008 that Bitcoin would
end in server farms, I did not say so because I thought server farms could not be regulated.

I made a mistake as I did not understand the lengths, in terms of the level of deception, that people like
Gregory Maxwell and others of Bitcoin Core would go to. I did not understand the deep contempt such
individuals felt for courts, government, and even society when I released Bitcoin. I did not understand the
level of corruption and lies that such individuals would promote, and how utterly toxic any individual could
be, before I released Bitcoin.

If you are ever told that any blockchain network can have more than ten nodes controlling the network,
know that you are being deceived.

There is no way to create a blockchain system that is maintained by thousands of nodes. This aspect of
Bitcoin was by design. I did not want the system that Bitcoin Core and the Ethereum Foundation
fraudulently claim and promote.

Equality under the Law Applies to All Equally

The Core developers seek to act outside of the law. They seek special privileges and rights that do not apply
to most people. In promoting lies and contempt, such individuals seek to avoid paying taxes that other
members of society must pay. They seek special privileges by calling themselves developers supporting
open-source projects. They seek not to be treated the same as other people. They seek not to be treated the
same as companies. In making claims about blockchain and cryptography and how open-source projects
were special, such individuals say they deserve more rights than everyone else.

In the 2005 court case MGM Studios, Inc., v. Grokster, Ltd. , the US Supreme Court correctly determined that
peer-to-peer developers were responsible for the software they created [3]. Yet, in the current world, a
movement has started to say that ‘code is law’ and that cases such as Grokster would no longer apply. In the
past, in typical anarcho-collectivist fashion, Lessig (1999) attempted to make the logically inconsistent
argument that technology in the form of code could replace the legal system. Rather than accepting the
fundamental aspect of contract law that requires the consent of the individuals contracting, Lessig sought
to promote the false concept that machines could be assigned such decisions.

Later, Timothy Wu (2003) completely eviscerated the entire set of Lessig’s poorly drafted arguments. Yet,
the typical collectivist argument is not based on rationality or logic but rather conflicting emotional
responses. Likewise, honesty has never been part of the arguments of the group. We see the same in the
constant falsehoods and lies promoted by Silicon Valley plutocrats like Jack Dorsey. The completely false
narrative around decentralisation, based on the misleading and deceptive claim that there were thousands
of nodes in any system, or even that the purpose of Bitcoin lay in creating thousands of nodes,
demonstrates the level of underlying falsehoods and lies prevalent in the so-called communities within the
blockchain space.

The reason is money.

For example, the billions of dollars generated through NFTs and ICOs mostly have to do with money
laundering. At the same time, the entire ICO debacle was simply a means of allowing a few individuals to
steal wealth from others deceptively. No ICO has ever led to the development of a successful product.
Rather, it is a form of deception that has posed and acted as if it was a means of raising capital. The existing
law allows valid crowd-sourced funding. Small organisations can achieve either $1 million a year in capital
raising or $5 million a year with several additional restrictions. Yet, the ICO market did not follow the rules,
but rather just sought to raise capital without delivering any product.

In other words, it is not money earnt through the creation of wealth, of capital such as goods and services,
but the wealth is taken parasitically from others.

While it is possible to form NFTs that deliver movie tickets, digital rights, the control of files, and much more,
the deception in the industry has precluded such ideas, whereby the typical Silicon Valley mantra of making
money no matter who you deceive has so far won out. And, for individuals such as Jack Dorsey, creating a
system that allows them to deceive the government, avoid tax, and engage in a way where there are no
rules for the plutocrats is something they are more than willing to fund. For the same reason, individuals
such as Dorsey aid in promoting the frauds and deceptions that are rife in the industry.

Individuals such as Dorsey and ones in the open-source communities believe that they can create a system
that gives them more rights than the normal individual. Unfortunately for them, the rule of law means that
they cannot. Open democratic systems require that all individuals are treated equally under law. Under the
law, when presented in court, the lies and the perjury that such individuals, including those of Bitcoin Core,
attempt to present can be exposed. In addition, the deceptions and the criminal activities such individuals
are engaging in will be exposed.
It is not merely individuals such as Gregory Maxwell who help promote lies in crime; it is a rife problem
throughout the “cryptocurrency” community. The idea of “cryptocurrency” itself is a lie; Bitcoin and any
blockchain do not present cryptocurrencies. No blockchain can be encrypted. Moreover, no blockchain
currently presents a currency. The nomenclature deployed within the industry is false itself. I called Bitcoin
an electronic cash system with a purpose and for a reason. It is a digital asset. It is not cryptocurrency.

And, as can be seen in the image above, the typical anarchist reaction is not to build society. On the
contrary, it is an anti-moral sentiment. It is embracing all things bad and wrong and destructive and
corrosive. The arguments by individuals such as Buterin, including that the mere possession of child porn
had no consequences, demonstrate the depravity of such individuals.

Open-source development does not give anyone the right under law to avoid the consequences of their
code or creation. To argue otherwise is to say that a “special” group should receive rights that are not
available to others, that they are MORE equal than others.

The frauds and the deceptions end now.

I shall expose the lies, the misinformation, and the contempt such people have for law, courts, and society in
general as I show that the claims of 15,000 nodes and more are all complete fabrications in a court of law.
From there, I expect criminal actions to follow against some of the parties who started such deceptions.

Footnotes

1. In my 2008 argument with James Donald, I noted the progression of the network over time. “At first, most
users would run network nodes, but as the network grows beyond a certain point, it would be left more and
more to specialists with server farms of specialized hardware.” As I further noted, as the system is developed,
the server farms that are now called mining pools will develop such that “A server farm would only need to
have one node on the network and the rest of the LAN connects with that one node.” Through such a
process, and by simply reading the comments I made even before the release of Bitcoin, it becomes very
clear that the design of the system was not about radical decentralisation and thousands of nodes, but
rather about the competition of commercial systems. Home users do not run data centres.

https://www.mail-archive.com/ [email protected] /msg09964.html

2. The Bitcoin Core description notes that “A full node is a program that fully validates transactions and
blocks. Almost all full nodes also help the network by accepting transactions and blocks from other full
nodes, validating those transactions and blocks, and then relaying them to further full nodes.” Like all the
best lies in frauds, such a deception is partly based on truth. The aspect that is not being disseminated or
told correctly is that only the creation of the block allows verification. Machines that never create a block
also never verify a single Bitcoin transaction. In fact, they cannot. The only way that nodes produce
consensus on the network lies in the creation of a valid block. Without a block, the machine cannot call itself
a Bitcoin node or even a “full node”. The deception that is fraudulently promoted is that merely running the
software would allow you to call yourself a node.

https://bitcoin.org/en/full-node

3. The Supreme Court decided in favour of MGM Studios. Here, it was noted that the developers of a software
product could not merely say that they were open-source or peer-to-peer software developers and expect it
would remove liability for their actions.

MGM Studios, Inc. v. Grokster, Ltd. , 545 U.S. 913 (2005)

References

Lessig, L. (1999). Code and Other Laws of Cyberspace . Basic Books.

Wu, T. (2003). When code isn’t law. Va. L. Rev. , 89 , 679.

Book Review: After Virtue
By Craig Wright | 25 Jan 2022 | Economics
Alasdair MacIntyre’s After Virtue: A Study in Moral Theory provides a cogent and compelling argument for
virtue ethics over Kantian deontological theories and utilitarian values [1]. As a critique of bureaucracy and
management, the book is a scathing and damning indictment on the growth of bureaucratic systems.
MacIntyre demonstrates that many experts are little more than individuals implementing social-control
mechanisms. In his exposé of bureaucracy, MacIntyre exposes the wizard behind the curtain.

As far as the growth of modern government is concerned, much of the underlying premise has been
tendered based upon the proposed hypothesis of knowledge and scientific expertise [2]. As MacIntyre notes,
the system created is one in which bureaucracy and individualism become partners and antagonists in an
environment where the motor is running naturally at home [3]. The system that is developed places
bureaucracies above individuals [4]. As such, bureaucracy is sovereign [5].

In his work, MacIntyre uncovers a profound understanding of system design. Through an analysis of the
Church-Turing thesis, the analysis of organisational predictability and success is demonstrated to be mutually
exclusive [6]. Extending the argument allows the author to demonstrate how the form of totalitarian
government imagined by Aldous Huxley or George Orwell will fail, in its rigidity and inefficiency [7]. The desire
for conformity in such societies will stifle innovation, allowing competing societies to win in the long run.
Here, many aspects of managerial expertise are demonstrated to amount to little more than social-control
mechanisms [8].

Some critics, such as West, have contended that MacIntyre argued that “management embodies emotivism
and is thus inherently amoral and manipulative” [9]. MacIntyre demonstrates that emotivism relies on using
others as means and never as ends [10]. Mintzberg argues that while it is challenging to separate
management and leadership, it is leadership that makes corporations and governments grow [11]. Through it,
we can see that leadership requires an ethical foundation that consists not merely of management or rules
but of a system where the leader sets the tone of the organisation through their actions and by setting an
example [12].

In a thorough analysis of the impacts of innovation on society, MacIntyre demonstrates that it cannot be
feasible to create a system based on predictions or what we believe will be. We cannot know what will be
invented before it is invented. To explain the scenario, the author describes the process of documenting the
wheel. In a mock example first presented by Karl Popper, MacIntyre demonstrates how a Stone Age
bureaucrat would not have been able to document the invention of the wheel, and all its ancillary
technologies, without inventing the wheel [13]. Similarly, the invention of modern computing would not have
occurred before Turing provided the theory underlying nearly all modern computing [14]. Yet, government
and bureaucratic leaders continue to assume that they can predict the future.

Society and bureaucrats cannot tell us what will be next. Instead, all periods of history are ones of invention,
continuous innovation, and change. As MacIntyre demonstrates, the social sciences have lacked predictive
power, yet all too often continue to be presented as hard science [15]. It needs to be remembered that “if then
you have not been faithful in the unrighteous wealth, who will entrust to you the true riches?” (Luke 16:11).
Importantly, it is also essential to remember that “everyone to whom much was given, of him, much will be
required, and from him to whom they entrusted much, they will demand more” (Luke 12:48). We must act
not as bureaucratic managers but as stewards of an organisation we seek to grow.

In an approach akin to Aristotle’s, MacIntyre contends that ethics and politics are inseparable [16]. Likewise, it
seems that bureaucracies have become a haven for irresponsible management [17]. The modern political and
economic system has created a series of cultural institutions based on bureaucratic myths of expertise,
leading to casino capitalism [18]. Yet, it does not need to be the way in which we manage corporations or even
governments. The creation of conscientious capitalism and entrepreneurship based on leadership rather
than bureaucratic dominance shines a light through the end of the tunnel. It provides an alternative to the
dystopian views of Orwellian bureaucracy [19].
Footnotes

1. MacIntyre, Alasdair. After Virtue: A Study in Moral Theory. A&C Black, 2013.

2. Sager, Fritz, and Rosser, Christian. “Weber, Wilson, and Hegel: Theories of modern bureaucracy.” Public
Administration Review 69, no. 6 (2009): 1136-1147.

3. MacIntyre, Alasdair. After virtue. A&C Black, 2013. p. 35.

4. Ibid. p. 228.

5. Ibid. p. 263.

6. MacIntyre, Alasdair. After virtue. A&C Black, 2013. p. 105-06.; Church, Alonzo. “AM Turing, On Computable
Numbers, with an Application to the Entscheidungsproblem.” Journal of Symbolic Logic 2, no. 1 (1937): 42-43.

7. MacIntyre, Alasdair. After virtue. A&C Black, 2013. p. 106.

8. Ibid. p. 74-75, 107.

9. West, Andrew. “After virtue and accounting ethics.” Journal of Business Ethics 148, no. 1 (2018): 21-36.

10. MacIntyre, Alasdair. After virtue. A&C Black, 2013. p. 23-24.

11. Mintzberg, Henry. Managing. Pearson Education, 2009.

12. Knights, David, and O’Leary, Majella. “Leadership, ethics and responsibility to the other.” Journal of Business
Ethics 67, no. 2 (2006): 125-137.

13. MacIntyre, Alasdair. After virtue. A&C Black, 2013. p. 93.

14. Ibid. p. 94,; Turing, Alan M. “Computability and λ-definability.” The Journal of Symbolic Logic 2, no. 4 (1937):
153-163.

15. Ibid. p. 88-106.

16. Ibid. p. 82.; Grant, Alexander, ed. The ethics of Aristotle. Vol. 2. Longmans, Green, 1874.

17. Mintzberg, Henry, and Laasch, Oliver. “Mintzberg on (ir) responsible management.” In Research Handbook
of Responsible Management. Edward Elgar Publishing, 2020.

18. Strange, Susan. Casino capitalism. Manchester University Press, 2015.

19. Whistler, Caroline. “Entrepreneurship and “Conscientious Capitalism”? Economic Solidarity Within the
Banco Palmas Network.” (2006).

References

Church, Alonzo. “AM Turing, On Computable Numbers, with an Application to the Entscheidungsproblem.”
Journal of Symbolic Logic 2, no. 1 (1937): 42-43.

Grant, Alexander, ed. The ethics of Aristotle . Vol. 2. Longmans, Green, 1874.

Knights, David, and Majella O’Leary. “Leadership, ethics and responsibility to the other.” Journal of Business
Ethics 67, no. 2 (2006): 125-137.

MacIntyre, Alasdair. After Virtue: A Study in Moral Theory . A&C Black, 2013.

Mintzberg, Henry, and Laasch, Oliver. “Mintzberg on (ir) responsible management.” In Research Handbook of
Responsible Management . Edward Elgar Publishing, 2020.

Sager, Fritz, and Rosser, Christian. “Weber, Wilson, and Hegel: Theories of modern bureaucracy.” Public
Administration Review 69, no. 6 (2009): 1136-1147.
Strange, Susan. Casino capitalism . Manchester University Press, 2015.

Turing, Alan M. “Computability and λ-definability.” The Journal of Symbolic Logic 2, no. 4 (1937): 153-163.

West, Andrew. “After virtue and accounting ethics.” Journal of Business Ethics 148, no. 1 (2018): 21-36.

Whistler, Caroline. “Entrepreneurship and “Conscientious Capitalism”? Economic Solidarity Within the Banco
Palmas Network.” 2006.

[Image: Crooped of The “School of Athens” . Raphael, Public domain, Wikimedia Commons]
The Closing of Open Society
By Craig Wright | 28 Jan 2022 | Economics
Traditionally, the United Kingdom has been an open society (OS) [1]. In a neoliberal context, an open society
incorporates open education, open access to data, and free speech. Initially described by the French
philosopher Henri Bergson [2], in 1932, the concept of an open society was further defined by Karl Popper [3].
The best way to describe an open society is to contrast it with one that is closed. Bergson noted that a closed
society was analogous to a closed mind with a fixed system of law and religion, one that is not subject to
change through rational decision-making processes. As Popper notes, open societies have evolved past the
tribal state. Open societies oppose the magical or tribal collectivity and collectivism in a system of
individualism that confronts the citizens of such a society with personalised decisions and choices.

The United Kingdom has a long history of open, liberal government. But, as Niblett notes, many ideals
of liberalism are globally under attack, and so it is indeed the case in the United Kingdom [4]. Following
World War II, the United States and the United Kingdom sought to promote liberal values and to implement
a system that would devalue collectivist and tribal activity. For many years, they were successful, leading to
the fall of the USSR and the promotion of freedom as a global goal. Britain acted within a global framework
that ensured “that government who mistreat their population and foment instability forfeit the sovereign
right to rule” [5]. The year 1998 saw the creation of the International Criminal Court, and British Prime Minister
Tony Blair enacted a doctrine of liberal interventionism to promote a world of growing interdependence and
freedom whilst nations were to uphold the “responsibility to protect” those who were weaker.

The United Kingdom voted to leave the European economic community of which it had been a
member since 1973. Faced with growing euro-skepticism and increased problems of internal violence and
partisan politics, many in the United Kingdom have rallied against the nature of the open borders of the
Schengen Area. In a manner analogous to the political situation in the United States, the United Kingdom
has been formed alongside partisan lines [6]. The increased division is leading to a strong probability of
growth of “holism” and the atavistic “longing for the lost unity of tribal life” [7]. The promotion of isolationist
policies and the rejection of trade agreements will likely have a strong negative impact on the economic
outlook for the nation [8]. When coupled with the economic downturn associated with the Covid-19 crisis, the
UK is likely to face a decade of slow growth, leading to further insularization and political division.

The existing threats to open society are manifestly expressed in the closing of borders and the rejection
of free-market economics. When coupled with the promotion of fear, uncertainty, and doubt (FUD) in the
current pandemic, they lead to a worrying state of tribalistic political brinkmanship. The increasing control of
the media and the concentration of communication power through a small number of partisan corporations
have led to the development of strong divisions within society. The traditional working-class voters have lost
faith in the Labour Party, whilst many supporters of the Conservative Party have lost faith in the government
[9]. A troubling rise in minority and ethnic groups and a marked increase in intolerance have created a
potential bonfire.

Romans 12:2 reminds us, “do not be conformed to this world, but be transformed by the renewal of your
mind, that by testing you may discern what is the will of God, what is good and acceptable and perfect”. As
Callinicos remarks, the current move to exclusionism is creating a series of socio-economic restructures,
forming a potential crisis of the long-term survival of the liberal order [10]. It is not for those in society to judge
[11] others when they do not interfere with the rights of those in society. At the same time, citizens need not
become disinterested. The collapse into nationalist groups is likely to coincide with the development of many
smaller nations with closed societal outlooks. In many ways, the collapse into partisan fractionalisation is
problematic and likely to lead to a decline in economic growth and the provision of justice throughout
society. Great Britain’s increasing rejection of liberal ideals and Western Christian societal beliefs is a rejection
of the very forces that, at one stage, had made the British Empire great.

The United Kingdom is sitting between the brink of continuing to develop a liberal order and growth
and the regression to tribalisation. The current decade will be critical. If the United Kingdom fails to adhere to
previously defined liberal values, the collapse into a tribal state may lead to a slow decline and possible further
collapse. Such a scenario would result in destabilisation.

Footnotes

1. Davis, Philip M. 2009. “How the media frames “Open Access””. The Journal of Electronic Publishing 12 (1).

2. Bergson, Henri. “Les deux sources de la morale et de la religion.” Verbum 26, no. 83 (1933): p-107.

3. Popper, Karl R. The open society and its enemies . Routledge & Kegan Paul, 1945.

4. Robin Niblett, “Liberalism in Retreat: The Demise of a Dream,” Foreign Affairs 96, no. 1 (January/February
2017): 17-[ii].

5. Ibid. p. 18.

6. Hobolt, Sara, Thomas J. Leeper, and James Tilley. “Divided by the vote: affective polarization in the wake of
the Brexit referendum.” British Journal of Political Science (2020).

7. Popper, 1945. p. 80.

8. Danziger, James N., Lupo, Lindsey, and Smith, Charles A. Understanding the Political World (13th ed.).
Boston: Pearson, 2020.

9. Ford, Robert, and Goodwin, Matthew. “Britain after Brexit: A nation divided.” Journal of Democracy 28, no. 1
(2017): 17-30.

10. Callinicos, Alex. “Britain and Europe on the Geopolitical Roller-Coaster.” Competition & Change 21, no. 3
(June 2017): 185–98.

11. Matthew 7:1.

References

Bergson, Henri. “Les deux sources de la morale et de la religion.” Verbum 26, no. 83 (1933): p-107.

Callinicos, Alex. “Britain and Europe on the Geopolitical Roller-Coaster.” Competition & Change 21, no. 3 (June
2017): 185–98. https://doi.org/ 10.1177/1024529417700428 .

Danziger, James N., Lupo, Lindsey, and Smith, Charles A. Understanding the Political World (13th ed.).
Boston: Pearson, 2020. ISBN: 9780135215418

Davis, Philip M. 2009. “How the media frames “Open Access””. The Journal of Electronic Publishing 12 (1).
doi:10.3998/3336451.0012.101

Ford, Robert, and Goodwin, Matthew. “Britain after Brexit: A nation divided.” Journal of Democracy 28, no. 1
(2017): 17-30.

Hobolt, Sara, Thomas J. Leeper, and Tilley, James. “Divided by the vote: affective polarization in the wake of the
Brexit referendum.” British Journal of Political Science (2020).

Niblett, Robin. “Liberalism in retreat: the demise of a dream.” Foreign Aff. 96 (2017): 17.

Owen, Erica, and Walter, Stefanie. “Open economy politics and Brexit: insights, puzzles, and ways forward.”
Review of international political economy 24, no. 2 (2017): 179-202.

Popper, Karl R. The open society and its enemies. Routledge & Kegan Paul, 1945.
The Wizard of Blockchain
By Craig Wright | 04 Feb 2022 | Alternative Coins & Systems
There are always arguments over scaling blockchain networks. Most of them end in ad hominem attacks,
and very few address the prime issues that need to be discussed and understood. None of it is new, either.
In 2008, during a rather infuriating argument with James Donald, I gave an explanation concerning block
sizes and how Bitcoin would scale [1]. The reality is much simpler than people make it out to be. There is
nothing to analyse when it comes to the size of transactions or the size of blocks beyond calculating them
using simple algebra.

Bitcoin, or any blockchain system for that matter, including Ethereum, is very simple to estimate
when it comes to scaling. There is no methodology available that would allow sharding and the distribution
of transaction processing amongst many users. The purpose of my saying so lies in explaining something
that people don’t seem to understand. You can ‘shard’ transactions in a single node or miner. Such sharding
is difficult but feasible. The reason is that the node is still retaining and processing all of the transactions and
has not minimised the block size in any manner. Rather, the system is using horizontal scaling running
multiple machines. Such scaling cannot be done across multiple individuals without trust.

When processing many transactions, you will have multiple inputs, and some of them could even be
invalid. It is always essential to consider that there will be attackers and others trying to break the system
and to treat the environment as if it was hostile, because it is. The claims made about nodes are all too often
incorrect and intentionally designed to mislead. Nodes of the BTC network are exclusively mining pools. The
only nodes are the systems that create blocks. The reason for saying so is very simple: the only consensus
mechanism in any blockchain network is associated with the creation of new blocks. By definition, a node
signals acceptance or non-acceptance of all the transactions in the previous block, found by another node,
only by building upon the block or rejecting it.

As Bitcoin scales, the number of inputs to be processed increases geometrically. When you have a
system such as Ethereum, input processing increases even faster. When you distribute shards across
machines, you need to have a mechanism to match each of the input transactions and ensure that they
haven’t been ‘double-spent’ across horizontally distributed systems. When you have 1,000 input
transactions that need to be processed, to ensure that they are not violating any conditions preventing
double-spending, for them to go into an output transaction, it is essential to remember that if 100 nodes are
processing each of them separately, the number of transactions that need to be processed is larger when
you shard them.

At the same time, a single output transaction can have multiple input transactions, which can be
even more complex with transaction chaining. The assumptions that tend to be made when looking at
systems such as Ethereum, and, albeit to a lesser extent, even the BTC network, which doesn’t scale in any
way, are based on the technology used to scale databases where all of the systems are trusted. Systems run
by a single central entity are modelled in the so-called scaling solutions of a system such as Ethereum.
Which does not work. The fundamental nature of a decentralised system means that no system can trust
another system. As soon as trust is introduced, there needs to be a coordination layer similar to how existing
banks and financial systems integrate the centralised control of the settling process today.

As a result, the only method for scaling any blockchain network lies in every single node running
every single transaction. Within the node, the production server farm can horizontally scale and increase the
level of processing, because it is a single trusted entity. Such was always the design of Bitcoin, and related
systems. For example, in 2008, when I said that the network would become big in a few years, I was
referring to a system that could handle 8-gigabyte blocks:

If the network were to get that big, it would take several years, and by then, sending 2 HD movies over the
Internet would probably not seem like a big deal. [2]

When people try to tell you that I had envisioned a small system, with 1MB blocks, I want you to
imagine how you can transfer two HD movies (8GB) in a single block of 1MB. It is a contradiction. Very
simply, it is using social media to hijack the system that I had envisioned. As I also said, defining nodes:

Only people trying to create new coins would need to run network nodes.

The reason for it is very simple: nodes create blocks. In other words, if you’re not creating blocks,
you’re not a node. And if you think you’re doing anything to help the functioning of the network or
consensus, you are deluding yourself. The very few possible nodes are defined in 3 to 4 mining pools that
control the BTC network. In total, at present, there are between twelve and fourteen nodes across the entire
network. As can be seen in the image below, in the past twenty-four hours, only three nodes have created
the blocks needed to control the network. And, two of the three nodes are related companies. As ViaBTC
and AntPool are interconnected corporations that the same people manage, it could be argued further that
only two entities truly control the BTC network.

Developer Groups
When I launched and released the Bitcoin protocol, I explained that the system required to be set in stone
and unchangeable [3]. The idea here is that there are no mechanisms for the users of the system to vote on
how Bitcoin should be, and nor should there really be any. Gold does not change. So, ironically, the
argument around digital gold also does not fit the BTC system. The ability to change the protocol can
always be hijacked. For it to be decentralised, to be a trusted system requires that the system cannot be
changed, and the protocol must remain sound.

Setting the rules in stone does not mean that rules cannot be enforced. The last line of my white
paper categorically says:

They [nodes] vote with their CPU power, expressing their acceptance of valid blocks by working on
extending them and rejecting invalid blocks by refusing to work on them. Any needed rules and incentives
can be enforced with this consensus mechanism. [4]

While many sites, including those associated with the BTC system, in their fraudulent promotion
attribute decentralisation to the false concept that thousands of nodes would exist, the reality is: a network
where four or five commercial entities compete to process blocks in an auditable public system that cannot
be changed is decentralised . The nature of decentralisation was always about the protocol being fixed and
remaining unalterable. While some changes may need to be made to tweak it in the future, for several
reasons, none of them are things that any individual or group can decide. The decisions to add new features
such as SegWit and Taproot to the BTC system, on the other hand, or the radical changes being promoted
for Ethereum, demonstrate how the BTC and Ethereum systems are completely centralised and each in the
control of a small developer group.

Decentralisation simply requires that nobody can change the protocol. When you create something
with nobody in charge, the events require multiple parties, and not a single developer group, to interact for
any enforcement.

Acting as a non-trust-based system requires that Bitcoin cannot be changed at the protocol level . As
soon as developers can change the protocol, they become trusted entities that could implement unknown
features that people don’t understand or want—an example of which would be SegWit.

“But a set protocol cannot be used in developing and innovating…”

There is a misleading claim that innovation will not occur if the Bitcoin protocol is set in stone. That without
changing the system, the ongoing development of new ideas will not occur. Such a claim is not merely
wrong; it is intentionally misleading people into believing something untrue. For example, TCP, the
transport layer in the Internet protocol, was developed and released in 1981 .

All along, TCP has not changed, and the same format that was developed forty years ago can be used
today. Yet, creating new protocols within the protocol, such as HTTP, is a key aspect of how TCP/IP was
designed. The same requirement is why I implemented script and the ability to have new forms of
transactions without changing the protocol in any way. I explained it in the original Bitcoin forum in 2010 .

The design supports a tremendous variety of possible transaction types that I designed years ago. Escrow
transactions, bonded contracts, third party arbitration, multi-party signature, etc. If Bitcoin catches on in a
big way, these are things we’ll want to explore in the future, but they all had to be designed at the
beginning to make sure they would be possible later.

Yet, such functionality was disabled because the people of Bitcoin Core, who wanted a different form
of system, sought not to scale or build Bitcoin, but rather to hijack the protocol and make it into what
people see as BTC today. For this reason, I will say that as in the Wizard of Oz , the BTC (Core) developers are
committing a global fraud by pretending to be a group of individuals with no control of the network where,
in fact, they are a small cadre of individuals who are manipulating a global financial system for the benefit
of themselves and a range of criminal groups.

The group of people funding those associated with BTC includes money launderers, people
traffickers, drug dealers and traffickers, and individuals involved with terrorism. They form the group that is
behind the curtain. They are the proverbial wizards who seek to tell you how different Bitcoin is from what I
designed. The same people say that Bitcoin is decentralised, because they control it. Such individuals would
make George Orwell turn in his grave in creating a system that makes 1984 look backwards. Here, the
Bitcoin Core developers claim black is white; they claim love is hate, and through this, people are deceived
as the people of Bitcoin Core say that they are way smarter and that if you don’t understand them, it’s
because you’re dumb.

The reality is, the wizard is bamboozling you.

Scaling and Blockchains

As I alluded to, scaling Bitcoin, and any blockchain network for that matter, including Ethereum, is very
simple: nodes process more transactions. The idea that individuals would run nodes was never a part of the
system .

Long before the network gets anywhere near as large as that, it would be safe for users to use Simplified
Payment Verification (section 8) to check for double spending, which only requires having the chain of
block headers, or about 12KB per day. Only people trying to create new coins would need to run network
nodes. At first, most users would run network nodes, but as the network grows beyond a certain point, it
would be left more and more to specialists with server farms of specialized hardware . A server farm would
only need to have one node on the network and the rest of the LAN connects with that one node.

As I explained, the network was designed to be run by server farms. It was not designed to be a
home-user system as others (developers, etc.) aim to continue to have people running nodes at home. I was
succinctly making one very simple point: more transactions equal larger blocks. There is no way to get
around such a simple fact. Any person who tells you that it is possible to create a blockchain that does not
scale by having bigger blocks, but by doing something else, or tells you that it can be scaled horizontally
across trusted entities is either intentionally deceiving you or ignorant. There is no other option.

If a blockchain is to scale from 100 transactions to 1 million transactions, it is very simple: the number
of transactions processed will increase by 10,000. To do so, every single node (miner) needs to process 10,000
times as many transactions, store 10,000 times more transactions, and have a block size that is 10,000 times
larger. There is no other possibility. Blockchains work by publicly disseminating information. The security of
a blockchain lies not in having the entire blockchain but rather in publicly disseminating the entire block
header and having any transaction auditable.

Any claim of a ‘private blockchain’ is equally false. The entire security mechanism within Bitcoin and
any system that copies my original design require publicity. Any system that is not publicly disseminating
the block headers has completely removed any form of security from Bitcoin or the copied system. The
simple answer to scaling the blockchain is that blocks get bigger. The simple answer to why it is
decentralised is that decentralisation is a feature of control. Decentralisation requires that no group controls
the network. In other words, no protocol changes can occur on the network.

The people associated with Ethereum, the BTC system, and practically every system outside of Bitcoin
(BSV) continuously seek to change the protocol, add new features, or turn off old features. As soon as some
developer comes up with a plan of any form that is implemented in any blockchain system, the same
blockchain system can be said to be centralised.

Footnotes

1. Note that the linked article includes the original quote still online saying that there were 144 blocks on
a daily basis. It is best practice to ensure that you have capacity to handle multiple times the levels of
data that is to be received at any time, because you can never predict whether data bursts will happen.
Consequently, at the time, to replicate Visa would have required 2GB to 3GB blocks. Today, the same
would require 5GB to 6GB blocks with the changes in the protocol. Integrating other payment forms
such as MasterCard would require 8GB to 10GB blocks.
2. Note that 2 HD movies account for seven to nine gigabytes of information.
3. This does not mean that a developer group can centrally manage and control changes. Rather, it
means nobody, including a plurality of developers, can make changes without the system being
centralised. The only way Bitcoin or any blockchain functions as a decentralised entity or exchange or
process or anything is one where the protocol is set and never to change again. Once it cannot change,
once there are no changes ever made to the protocol (note it is not the same as the software), then the
system can be called decentralised. If, at any time, developers can propose and make changes, the
system is centralised by definition.
4. Note that the acceptance and the voting is purely carried out by nodes which are defined in section 5
of the white paper and commonly called miners or mining pools. There is no methodology for any
system to vote in Bitcoin, or any other blockchain network based on a proof-of-work system, other
than through the creation of blocks. Consequently, the only systems in Bitcoin that can enforce rules
are nodes, and such nodes are miners. Any system that is not mining in creating blocks is not voting or
having any impact on the nature of the system or enforcing rules.
Importantly, any needed rules and incentives can be enforced, which means law and court orders were
always a part of the protocol. The methodologies for doing so may vary, but it is premised on the fact
that only a few large commercial systems will exist. As in the image, we can see it already today.
Despite the false narratives and misleading information, and for that matter downright fraudulent
representation, promoted by criminal groups, in relation to how Bitcoin would work with thousands of
nodes, Bitcoin is a system that, at scale, is designed purposefully to allow interaction through law
enforcement. Even systems copying Bitcoin, such as the BTC system, are subject to it in the same way.
The Closing of Open Society: Part II
By Craig Wright | 09 Feb 2022 | Economics
The Republic of Mozambique (hereafter Mozambique) is a sub-Saharan African nation on the Swahili coast.
The country gained political independence from Portugal on 25th June, 1975 (Marshal, 2019). Following a
period of upheaval, the country entered a period of single-party Marxist domination in alignment with Cuba
and the Soviet Union between 1977 and 1992. Following another period of civil wars and unrest,
Mozambique held elections in 1994, where the ‘Mozambique Liberation Front’ FRELIMO came to power
under Joaquim Chissano. An interesting side note is that the return of refugees from formally
Commonwealth nations to the democratic Republic of Mozambique led to the integration of the country
with the Commonwealth of Nations, making Mozambique the only country that has never been part of the
British Empire to be accepted into the Commonwealth (Satyanand, 2018).

The government of Mozambique presents a unitary dominant-party constitutional republic. Since

reaching independence in 1977, the government has acted under a unicameral legislative assembly. The
opposition party, RENAMO, has contested elections claiming election fraud. Support for such claims has
been provided by international observers, including members of the EU Election Observation Missions
(Forquilha, 2020). Of concern following the series of allegations was the rise of Islamist insurgency groups.
From 2015 on, the Islamic State in Iraq and the Levant (ISIL) forces have conducted an ongoing series of
attacks and terrorist actions within the country. Insurgencies are extensive within the Cabo Delgado
province in the north, with Islamic fundamentalists seeking to obtain a foothold and establish an Islamic
state in the region.

The republic is based upon a formal written constitution with both a prime minister and a president.
The country is of a majority Christian faith, with a small but significant Islamic minority. The president of
Mozambique is the head of state and head of government. A government body exercises executive power
under ministers, with legislative power vested nominally in a combination of both the government and the
assembly of the Republic. Carolini (2017) refers to Mozambique as having a weak democracy.

Yet, the Economist Intelligence Unit provision of a democracy index in 2019 designated the regime in
Mozambique as authoritarian (Democracy Index 2019, 2020). The reason for the reporting of the country’s
authoritarian state lies in the claims of voter fraud and the restrictive political nature of the government. In
particular, the country has had a single-party landscape without significant change since 1977. Other than
the Islamic insurgencies, the country has been stable overall. In the recent period from 2015, the level of
corruption within the country has started to decrease, and the National Assembly (legislature) has started to
exhibit dominance and independence, which is likely to lead to an increase in the involvement of citizens
within the country and provide more democratic oversight (Lorch & Bunk, 2017).

The judiciary is comprised of a Supreme Court, a provincial district, and municipal courts. The country
is divided into ten provinces that act as administrative divisions with separate branches of government.
Control Risks (‘Party and State: Mozambique’s politics and policy ahead of the 2019 elections’, 2017) explains
that the country is transforming. Although the reelection of President Nyusi in 2019 adds to the stability of
the country, it is expected that increasing knowledge and involvement through better access to the
internet and information will lead to significant changes in the coming decade (Forquilha, 2020), even
though overall literacy and access to the internet remain low.

The debt crisis within the country increases the risk to investors and the economy; it also provides
opportunities with the government seeking international investment. Yet, significant levels of corruption
continue to exist. Foreign investment firms must ensure that they maintain strict compliance with
regulations within the country and maintain the image of good corporate citizens. The pressure from the
International Monetary Fund (IMF) has been leading to new legislative frameworks that, over time, are likely
to reduce the levels of fraud within the country but will be stricken with uncertainty in the immediate time
frame—because of entrenched concerns in seeking to maintain their vested interest in state-run
enterprises. Mairoce, Silberberger, and Zweynert (2020) argue that such levels of fraud and the move to
change the structures within the country could lead to the political marginalisation of the government and
increase the chances of a future civil war.

Mozambique is politically stable, but faces many problems in the north. The rise of Islamic activists is
undermining stability, and has led the government to violate human rights in the pursuit of suspected
terrorists. The insurgency has increased extra-jurisdictional executions, torture, and handling of individuals
and civilians who are within the contested regions (‘Mozambique: No justice for victims of three-year
conflict in Cabo Delgado which has killed over 2,000’, 2020). Of particular concern, the detention of
journalists and researchers has been increasing in the last year. The control of the media is highly restrictive,
and includes television and radio. The low level of literacy in the country (Salgado, 2014) limits access to
newspapers and internet reports. Control of the media also limits the ability of the country to interact in a
global environment with increasing requirements for individuals to be able to act online, which in turn
requires literacy. Only 4.8% of the population has access to the internet, which makes it one of the
technically least connected countries in Africa (Evans, 2019).

The low level of internet access, combined with the growing insurgency in the north of the country
and restrictions on the media, decreases the long-term stability of the country, and may lead to further
insurgencies. Of note, the government crackdown on insurgencies and Islamic groups has led to a marked
decrease in injustice. Of immediate concern is the rise of jihadist terror groups, that seek to create a
caliphate and are targeting the majority Christian population to this end (‘Jihadist Group in Mozambique
Announce Goal of Caliphate | Persecution’, 2020).

References
Carolini, G. Y. (2017). Sisyphean dilemmas of development: Contrasting urban infrastructure and fiscal policy
trends in Maputo, Mozambique. International Journal of Urban and Regional Research , 41 (1), 126-144.

Democracy Index 2019 . Eiu.com. (2020). Retrieved 8th Nov. 2020, from
https://www.eiu.com/public/topical_report.aspx?campaignid=democracyindex2019 .

Evans, O. (2019). Digital politics: Internet and democracy in Africa. Journal of Economic Studies , 46 (1), 169-
191. https://doi.org/10.1108/JES-08-2017-0234

Forquilha, S. (2020). Decentralization reforms in Mozambique: The role of institutions in the definition of
results (No. wp-2020-132). World Institute for Development Economic Research (UNU-WIDER).

Jihadist Group in Mozambique Announce Goal of Caliphate | Persecution . Persecution. (2020). Retrieved 8th
Nov. 2020, from https://www.persecution.org/2020/04/14/jihadist-group-mozambique-announce-goal-
caliphate/.

Lorch, J., & Bunk, B. (2017). Using civil society as an authoritarian legitimation strategy: Algeria and
Mozambique in comparative perspective. Democratization , 24 (6), 987-1005.

Mairoce, C., Silberberger, M., & Zweynert, J. (2020). Multinational enterprises, political institutions, and
violence: a case study from Mozambique. Journal of Institutional Economics , 1-19.
https://doi.org/10.1017/S1744137420000314

Marshall, J. (2019). Literacy, Power, and Democracy in Mozambique: the governance of learning from
colonization to the present . Routledge.

Mozambique: No justice for victims of three-year conflict in Cabo Delgado which has killed over 2,000 .
Amnesty.org. (2020). Retrieved 8th Nov. 2020, from
https://www.amnesty.org/en/latest/news/2020/10/mozambique-no-justice-for-victims-of-three-year-conflict-
in-cabo-delgado-which-has-killed-over-2000/.

Party and State: Mozambique’s politics and policy ahead of the 2019 elections . Controlrisks.com. (2017).
Retrieved 8th Nov. 2020, from https://www.controlrisks.com/our-thinking/insights/party-and-state-
mozambiques-politics-and-policy .

Salgado, S. (2014). The internet and democracy building in Lusophone African countries . Ashgate
Publishing, Ltd..

Satyanand, A. (2018). The future of the commonwealth. New Zealand International Review , 43 (1), 19.

[Image: Building of the Municipal Council of Maputo (Maputo City Hall) front view , Teixant, CC BY-SA 3.0
<https://creativecommons.org/licenses/by-sa/3.0>, Wikimedia Commons]
A Rational Argument around Nodes
By Craig Wright | 16 Feb 2022 | Alternative Coins & Systems
There is a strange belief that non-mining systems can be nodes in Bitcoin (and, by extension, on the BTC [1]
network)—without creating blocks. Then there are arguments that they help with ‘routing’ and distributing
transactions. Let us imagine now that there are four mining pools called Alice. I will refer to them as Alice(i)
to represent each of the nodes (miners/pools) as Alice(0), Alice(1), etc. As the BTC network derives many of its
characteristics from Bitcoin, I will not seek to differentiate between the two networks in any depth for this
post. But, I will note that the BTC network is merely a copy being passed off as Bitcoin. Equivalently, we will
allow a set of other systems, that are not mining blocks, to be called Bob(j). A potentially unlimited number
of such systems can connect to the network.

While there may be around 15 to 16 nodes, only four nodes, and sometimes as few as three, control the
BTC network from a mining perspective. It is important to remember that consensus is formed when nodes
build upon a block discovered by another node. Likewise, the only way to reject a block is to not build upon
it. Importantly, for a miner to be paid, it is essential for the block discovered by the miner to be built upon to
the extent or depth of 100 further blocks.

Whilst the scenario is hardly in dispute, there are rather spurious arguments concerning the structure
of nodes. Some authors have gone as far as to argue that attacks on the network could be conducted by
‘isolating nodes’ (Apostolaki et al., 2017). To this end, the authors’ creation of blocks within the network has
led to highly convoluted avoidance strategies (Apostolaki et al., 2018) that are designed to protect systems
such as internet-based networks that operate in a more traditional distributed form of connectivity and that
do not have any relevance to Bitcoin or the nature of the network. The presumption is that an attacker
altering the BGP tables could isolate nodes. The error with such a concept lies in assuming that Bitcoin
nodes are anything other than commercial server farms.

The mining pools operating on the BTC network are the entities that create blocks. The assertion is
simple to verify. The creation of blocks is published, and it is possible for any member of the public to easily
validate the creation of blocks by any entity. As all blocks are displayed, and the payment to miners is
recorded within the hash header, whilst it may be possible to stay private for some time, it becomes
possible to validate the existence of any miner over time. As a result, I will not spend too much time
debating the creation of blocks. Rather, I will focus on some of the spurious side arguments, including how
home nodes would be necessary for routing Bitcoin transactions.

Routing
It has been demonstrated that Bitcoin forms a small-world network in all its forms (Javarone & Wright, 2018).
The same concept includes any copied instantiation of the Bitcoin system, such as the BTC system or even
an altered system such as Litecoin. While some scholars have claimed to have discovered up to 359 mining
nodes (Saad et al., 2021), the reality is that each of the systems would be owned by the same network
operator or company. Here, the original definition of a Bitcoin mining node or farm, as provided in 2008,
must apply, and although there are multiple systems comprising the node, the node is controlled by a
single entity. The node structure of multiple systems also demonstrates the problems with claims that
thousands of nodes would exist.

Researchers such as Park et al. (2019) failed to note that many of the systems they referenced as
nodes were using a version of BTC software that could not process existing transactions or blocks. A system
that will not verify blocks cannot be considered a node. Taking a single entity for a single node no matter
how many servers it runs is analogous to noting that each instance of Bitcoin can be run on a single thread
in the multithreaded processor or CPU. The distribution of servers adds resilience and power, but it is not
changing the nature of control of the node.

Consequently, we can measure the distribution of systems whether they create blocks or not. As Tao
et al. (2021) have done, it becomes possible to measure the degree of connectivity between Bitcoin nodes
(also BTC nodes) and systems that act without creating blocks. Such an analysis makes it possible to
measure the network distance between each node (miner) and between other systems and nodes. What
matters is that connectivity reaches a node that is defined as a miner. The reason is simple: if a system does
not receive a transactional block that is engaged in building more blocks, there will be no consensus within
the BTC network. As such, the nodes commonly referred to as miners must receive a transaction or block.
The only purpose or argument that could be made in favour of other systems would lie in routing.

Mining nodes can, as Baumann, Fabian, and Lischke (2014) have done, be demonstrated to have a
highly connected structure with a very low-degree distribution for the network. Alternatively, the
distribution of nodes that do not create blocks is of a relatively high degree. Mining nodes have an average
of 14,000 connections to other systems. Every mining node is densely connected with other mining nodes
through at least one connection. Every mining node has at least 11,000 edges. Conversely, the so-called
‘routing nodes’ have an average of slightly over eight edges. The ‘routing nodes’ do not even connect to all
mining nodes, let alone exchanges.

In any modelling of connectivity between exchanges, mining nodes, and other commercial entities, it
is noted that there is a very small hop count between systems. On average, every transaction arrives at every
mining node from any exchange on the network in one hop. More importantly, the chances of even
randomly connecting a Raspberry Pi ‘routing node’ and not directly connecting to one of the mining nodes
or interconnected systems are under 1.1% at any particular time.

The scenario is derived from the large number of edges presented by such systems. The mining
systems maintain connectivity across the entire BTC network. Let us now assume Alice(i) to be the set of
mining nodes and, equivalently, Bob(j) to represent an alternative ‘full node’ or ‘routing node’, that is not in
the business of creating blocks. If Bob(j) wishes to send a transaction to Bob(not_j), the chances are that the
first-instance hop will lead to at least one Alice(i) system. After the second hop, every single mining node will
have had the transaction. When it comes to creating a block, note it will never come from Bob(j), by
definition; in a single hop, there is a more than 99.8% probability that every single mining node will have the
block. At the same time, in the same single hop, the transmission will account for over 99.999997% of the
network.

Any mining node will quickly seek to connect to every other mining node and thereby help maintain
the high interconnectivity between the systems. Next, if we look at what happens when any Alice node
releases a block, only a fraction of the home-user Raspberry Pi ‘nodes’ will have the same block in a single
hop, and others, even for that hop, will be slow to process it. Then, as the interconnectivity between all Alice
nodes is high, every single mining node will have received the block before a single Bob node.

If Bob nodes are to be considered to rout anything on the network, it must be noted that an Alice
node will have already received any transactions any Bob nodes make to the Alice node. Once a transaction
has been received, it is not received a second time. Consequently, any activity conducted by a Bob node is
rejected by any consensus-forming node. The simple answer is that no nodes other than those creating
blocks have any relevance in the Bitcoin network (or the BTC network for that matter). Whilst it is possible
that a Bob node may be acting as an exchange or another economic entity that wants to monitor network
activity, they do so for their purposes. They offer no benefit to the security or distribution functions of the
network.

Conclusion
The only purpose of running a ‘node’ that does not create blocks is to monitor and receive transactions
slightly faster and to validate the receipt of your transaction faster. There is no benefit to the network overall.
Yet, there are promotions in the name of Bitcoin as a system that are completely detached from the reality
and design of the system. The idea is simple: to mislead individuals and regulators about the nature and
distribution form of the network. There is no purpose or benefit in having any number of ‘routing nodes’ on
the network. They offer no benefit outside the false information being spread concerning how ‘routing
nodes’ would be essential. They are, in fact, as demonstrated, simply superfluous.

Footnotes

1. Note, BTC is not Bitcoin. It is a ticker symbol associated with a system that is emulating components of
 Bitcoin and being passed off as Bitcoin.

References

Amaral, L. A. N., Scala, A., Barthelemy, M., & Stanley, H. E. (2000). Classes of small-world networks.
Proceedings of the national academy of sciences , 97 (21), 11149-11152. https://doi.org/10.1073/pnas.200327197

Apostolaki, M., Zohar, A., & Vanbever, L. (2017, May). Hijacking bitcoin: Routing attacks on cryptocurrencies.
2017 IEEE symposium on security and privacy (SP) , 375-392.

Apostolaki, M., Marti, G., Müller, J., & Vanbever, L. (2018). SABRE: Protecting bitcoin against routing attacks.
arXiv preprint arXiv:1808.06254

Baumann, A., Fabian, B., & Lischke, M. (2014). Exploring the Bitcoin Network. WEBIST (1) , 2014 , 369-374.

Javarone, M. A., & Wright, C. S. (2018, June). From Bitcoin to Bitcoin Cash: a network analysis. Proceedings of
the 1st Workshop on Cryptocurrencies and Blockchains for Distributed Systems , 77-81.

Park, S., Im, S., Seol, Y., & Paek, J. (2019). Nodes in the bitcoin network: Comparative measurement study and
survey. IEEE Access , 7 , 57009-57022.

Saad, M., Anwar, A., Ravi, S., & Mohaisen, D. (2021, November). Revisiting Nakamoto Consensus in
Asynchronous Networks: A Comprehensive Analysis of Bitcoin Safety and ChainQuality. Proceedings of the
2021 ACM SIGSAC Conference on Computer and Communications Security , 988-1005.

Tao, B., Dai, H. N., Wu, J., Ho, I. W. H., Zheng, Z., & Cheang, C. F. (2021). Complex Network Analysis of the
Bitcoin Transaction Network. IEEE Transactions on Circuits and Systems II: Express Briefs .
Reliving an Ancient Past
By Craig Wright | 21 Feb 2022 | Economics
The People’s Republic of China (PRC) consists of twenty-two provinces, four municipalities, five autonomous
regions, and two special administrative regions, Hong Kong and Macau. The Economist Intelligence Unit
designated China as a highly authoritarian regime in 2019 (“Democracy Index 2019”, 2020). The government
is generally thought of as centralised. Yet, the ability to disseminate policy to local provinces is limited,
leading to a decentralised structure where reports are nominally made to the central party. The President of
China is a ceremonial figurehead, with the Premier acting as the head of government and presiding over
the State Council, which is composed of four deputy premiers. Since 1993, the offices of President, General
Secretary, and Chairman of the Central Military Commission have simultaneously been held by one person
(Darlington, 2018).

China does not act even with the pretence of attempting to be a democracy. The Constitution of the
PRC was first declared in 1954, and was last updated in 2018 (Haibo & Dan, 2019). The document is anything
but static, and has varied dramatically over time (Balme & Pasquino, 2005). The decisions within the country
are made and approved by the party’s Political Bureau or Politburo. In China, personal relationships account
for more than positions, and a leader creates influence through personal loyalties and interactions (Bol &
Kirby, n.d.). The Central Committee is elected every five years by the National Congress of the Chinese
Communist Party. Yet, voting is nominal, and all the individuals are approved in advance of the votes. The
National People’s Congress (NPC) has demonstrated increased independence of late. Formally, the
Congress elects the country’s leaders, but it has been growing in power as the economy expands. Large
provinces such as Sichuan and Guangdong provide most of the tax income for the country. The necessity
for Beijing to ensure the growth of such regions may suggest that the power at the center of the country
could be waning (Kraft, 2017).

China’s court system is not independent (Buckley Ebrey, 2010). The court answers to the National
People’s Congress. The Supreme People’s Court is the highest court, overseeing a multitude of lower-level
courts that exist down to the local level. Public security organisations incorporate investigations and
examinations in a manner that presents a mixture of systems from France and England, mirroring the
history of the country’s occupation by European nations. The unicameral National People’s Congress
consists of 2989 delegates that are selected by the various provinces and regions. Some members are
selected directly by the Armed Forces. Chosen individuals are appointed for five-year terms.

China’s People’s Liberation Army (PLA) plays a critical role in the stability of the country, whereby the
party leaders understand that they only rule with the support of the army. The power of the PLA was
demonstrated extensively during the 1989 Tiananmen Square protests (Nathan, 2019). Simultaneously,
senior military officials and leaders understand the necessity to court the political leadership to obtain pay,
ensuring budgets are in place to modernise the Armed Forces and for general advancement. The PLA is
large and politically powerful, and has agitated for several recent changes within and surrounding China
(Cochran, 2020).

There is little stability that is brought by the economic policies issued through the Chinese
Communist Party. China simultaneously presents a communist society that incorporates open markets in
certain provinces that are incredibly capitalist. Here, economic policy is liberal, whereas the political system
is totalitarian. The disjunct comes when individuals become too wealthy or consequential, in which case the
party acts to remove individuals from companies. Darlington (2018) has analogised the system President Xi
Jinping has introduced to one of bread and circuses. In particular, he notes that the Chinese economic
policy is one that says, ‘You leave us to run the country and we’ll leave you to make as much money as you
can’. Corruption is still widespread within China (“Understanding China’s Political System”, 2013). Xi Jinping
has pledged since 2012 to act to mitigate many of the problems of corruption, but it remains an ongoing
issue. Socialist control, coupled with corrupt practices, makes dealing with China for business purposes
economically challenging.

Recently, China has often been in dispute with India. The larger disputes are well-known, but in total,
China is currently embroiled in at least seventeen territorial disputes (Krishnankutty, 2020). Of note, as many
areas that were held under agreements of freedom of navigation operations have effectively been seized by
China, Chinese interaction has negatively affected the global commons. As Skidmore (2020) explained, the
Chinese Communist Party is facing growing resistance from its periphery. As China seeks to expand its
borders, the growing Han nationalism is excluding many of the other regional peoples that make up the
country.

China has a poor record of delivering liberty and justice. The population of China is free to earn money
if they follow the party line and do not cause problems. As the Chinese economy is growing by over 5% year-
on-year (IMF, 2017), the focus on economic growth is leading to increases in prosperity. Nevertheless, the
illiberal nature of China is aiding in the widening of the deficit and the trade gap between China and the
United States of America, as the US imports more and exports less (Bol & Kirby, n.d.; Buckley Ebrey, 2010;
Hucker & Lieberthal, 2020; Kroeber, 2016). Together, the problems associated with ensuring that growth
continues and expanding the country are leading to increasing levels of instability. The increased pressure
from above is creating a system of “one country, two systems”—isolating and radicalising non-Han ethnic
groups. Simultaneously, brewing trouble with the US and existing trade problems could further increase
internal tensions, within China, and external problems with the USA (Layne, 2018).

References

Balme, S., & Pasquino, P. (2005). Taking Constitution(alism) seriously? Perspectives of constitutional review
and political changes in China. Constitutionalism and Judicial Power in China . Sciences Po.

Bol, P., & Kirby, W. (n.d.). ChinaX: China’s past, present and future. Harvard University.

Buckley Ebrey, P. (2010). The Cambridge Illustrated History of China. Cambridge University Press.

Cochran, E. S. (2020). China’s “Three Warfares”: People’s Liberation Army Influence Operations. International
Bulletin of Political Psychology , 20 (3), 1. Available at: https://commons.erau.edu/ibpp/vol20/iss3/1

Darlington, R. (2018). How would one summarise the current Chinese political system? – NightHawk .
Rogerdarlington.me.uk. Retrieved 8 November 2020, from http://www.rogerdarlington.me.uk/nighthawk/?
p=22697

Democracy Index 2019 . Eiu.com. (2020). Retrieved 8 November 2020, from

https://www.eiu.com/public/topical_report.aspx?campaignid=democracyindex2019

Haibo, Y., & Dan, Z. (2019). The Evolution of Constitutional Review in China: Theory, Norms and Practice. Law
and Modernization , (5), 4. http://en.cnki.com.cn/Article_en/CJFDTotal-FZXY201905004.htm

Hucker, C., & Lieberthal, K. (2020). China. Encyclopedia Britannica.

IMF. (2017). China’s GDP. International Monetary Fund.

Kraft, H. J. S. (2017). Great power dynamics and the waning of ASEAN centrality in regional security. Asian
Politics & Policy , 9 (4), 597-612.

Kroeber, A. (2016). China’s economy: What everyone needs to know. Oxford University Press.

Krishnankutty, P. (2020). Not just US, India — China is involved in 15 other territorial disputes in Asia .
ThePrint. Retrieved 8 November 2020, from https://theprint.in/theprint-essential/not-just-india-tibet-china-
has-17-territorial-disputes-with-its-neighbours-on-land-sea/461115/

Layne, C. (2018). The US–Chinese power shift and the end of the Pax Americana. International Affairs , 94 (1),
89-111. https://doi.org/10.1093/ia/iix249

Nathan, A. J. (2019). The New Tiananmen Papers: Inside the Secret Meeting That Changed China. Foreign
Aff. , 98 , 80.

Skidmore, D. (2020). Trouble on China’s Periphery: The Stability-Instability Paradox . Thediplomat.com.

Retrieved 8 November 2020, from https://thediplomat.com/2020/08/trouble-on-chinas-periphery-the-
stability-instability-paradox/

Understanding China’s Political System . (2013). Everycrsreport.com. Retrieved 8 November 2020, from
https://www.everycrsreport.com/reports/R41007.html

[Image: Flag of the People’s Republic of China , Drawn by User:SKopp, redrawn by User:Denelson83 and
User:Zscout370Recode by cs:User:-xfi- (code), User:Shizhao (colors), Public domain, Wikimedia Commons]
Defining Scaling
| 02 Mar 2022 | Alternative Coins & Systems
By Craig Wright
Numerous arguments abound in regard to scaling blockchain-based systems such as Bitcoin or the BTC
system (Khan, Jung, & Hashmani, 2021; Kusunoki, 2021). When proponents of other, related systems such
as Hyperledger discuss the same topic, the argument clearly revolves around the transaction volume
(Gorenflo et al., 2020). The OED refers to scaling as something that can be measured or graded
according to a scale. In reference to a blockchain-based system, the scale or grade represents the
transaction volume that the system can handle.

Li et al. (2018) discussed methodologies to increase the number of transactions being processed
to around 6400 transactions per second (TPS). The arguments for and against scaling should be simple.
Increasing the scale of the blockchain represents an increase in the number of transactions that can be
processed in any particular time period. By definition, any blockchain presents a system that collects
and processes a set of transactions by building them into a block that a set of paid and funded node
operators process through a competitive process such as proof of work, whereby they subsequently
publish a verification that other nodes may check for validity.

The arguments around scaling on-chain and off-chain are not arguments over scaling. All
transactions are maintained on the blockchain and publicly visible. The use of the network allows client
systems to verify any transaction and validate the block headers, which are published widely. The
security of Bitcoin lies not in the hashing algorithm, as some people suppose, but is rather derived from
the wide publication of the block hashes, that are distributed to individuals who use the system. For the
same reason, the notion of a ‘private blockchain’ is antithetical to the functioning of the technology. If
the information being hashed is not publicised, multiple copies of the blockchain can be run
simultaneously—in the same format that fraudulent accounting records can be maintained in separate
sets of books.

Therefore, the notion of a ‘private blockchain’ cannot exist. By not publishing data, the system is
not a blockchain system. The requirement that the blockchain “works by taking a hash of a block of
items to be timestamped and widely publishing the hash” (Wright, 2009, p. 2) is defined in the original
white paper. Every transaction processed in a system such as Bitcoin is public. It is the same publicity
that some individuals seek to remove. The argument presented by those opposing scaling is touted as
being related to scaling, yet represents an effort to find methodologies of removing the ability to trace
every transaction within Bitcoin.

The direct definition of a Bitcoin node, as set out in the original white paper (Wright, 2008, pp. 3–
4), is exclusively focused on machines that create and validate blocks. They are limited in scope and
number, with only 10 to 15 nodes operating across the entire BTC network and the required 51% control
of the network being held by 3 to 4 nodes at any time. The argument that there would be thousands of
nodes represents a media-based Sybil attack on the network, whereby individuals define systems that
have never created or validated blocks on the Bitcoin network as nodes, despite the fact that such
systems do not fulfil the requirements specified by the network.

The validation of a transaction follows the publishing of a block and the building of new blocks on
top of the old block. A node that has found a block will only be paid, and the block will only be
completely final, when the network has reached a respective depth of 100 blocks. At that point, the
network allows the node operator to spend the transaction fees and subsidy that they have received in
recompense for validating the transactions and ordering them in a block. The creation of blocks
presents a necessary component of any blockchain, and a block must contain all transactions. Leaving
aside spurious arguments about the required block size, moving from 1000 transactions a second to
10,000 transactions a second requires increasing the number of transactions that are processed and
stored.

Increasing the number of transactions is the only method to scale a system. Any arguments in
favour of the ability to process large numbers of transactions need to focus on the ability of nodes to
process and distribute large blocks. By definition, the size of the blockchain will always increase with the
number of transactions, which presents an inevitable function of how blockchains operate.
Consequently, arguments against increasing the block size are not arguments for scaling but rather
arguments against creating a system that can be tracked. What some individuals falsely describe as
layer-2 networks are, in fact, separate networks, designed to allow the exchange of transactions without
leaving a record on the blockchain.

Such an argument disguises the desire to create an anonymous money system outside the reach
of government and other sources that will facilitate criminal activity as a scaling argument. The scaling
argument should be simple. How do nodes obtain a copy of a large database and ensure that it is
updated across all the nodes? When considering such a question, it is important to understand that
there is only a small number of nodes on the network, and that they operate as commercial entities,
competing for a share of revenue that exceeds US$31.5 million per day at the current market rates [1]. It
follows that the top three nodes each earn over US$5 million in revenue per day.

The argument that a commercial operator earning US$5 million in revenue per day cannot invest
in the necessary bandwidth and hard drive space to process even terabytes of information a day is
logically flawed. The transaction fees that come with increased volumes of transactions on the network
would more than fund the purchase of the hardware that would be required to increase the network
bandwidth and provide additional storage.

The only rational conclusion that can be derived from an analysis of the system and the evidence
lies in accepting that individuals involved with the BTC network and other blockchain systems are
misapplying and misrepresenting the terminology of scaling to hide the development of “privacy”
solutions, which are really designed to help hide transactions. In other words, the Orwellian doublespeak
means referring to scaling when the argument should really be about the nature of a blockchain and the
requirement that the system provides complete traceability of all transactions.

Footnotes

[1] BTC @ US$35,000

References

Gorenflo, C., Lee, S., Golab, L., & Keshav, S. (2020). FastFabric: Scaling hyperledger fabric to 20 000
transactions per second. International Journal of Network Management , 30 (5), e2099.

Khan, D., Jung, L. T., & Hashmani, M. A. (2021). Systematic Literature Review of Challenges in Blockchain
Scalability. Applied Sciences , 11 (20), 9372.

Kusunoki, M. (2021). The Myth of “Blockchain is Scalable” and Real Challenges. Blockchain Gaps , 59-66.
Springer, Singapore.

Li, C., Li, P., Zhou, D., Xu, W., Long, F., & Yao, A. (2018). Scaling nakamoto consensus to thousands of
transactions per second. arXiv preprint arXiv:1805.03870 .

Wright, C. S. (2008). Bitcoin: a peer-to-peer electronic cash system. Available at SSRN 3440802 .
The Vision for Bitcoin
By Craig Wright | 08 Mar 2022 | Bitcoin & Blockchain Tech
Over the last decade, I have been dragged into innumerable arguments and debates, going back to those
with James Donald in 2008. They concerned scaling and other aspects of Bitcoin that some people would
have disagreements on. While it is necessary to sort a few individuals out in court, I have no interest in
fighting with people who have separate visions. Quite frankly, if people want to build a system that runs on
Raspberry Pis, in their mum’s basement, I won’t stop them. My goal has always been to build a digital,
electronic cash system that scales and can be used as a micropayment system.

I have no interest in arguing with people who don’t like what I said, and still argue that Bitcoin will end in
data centres. Quite frankly, it has. I’ve noted it many times, but it is very easy to see that nodes, as I define
them in my white paper, are limited in number, with only four nodes controlling even the BTC network. If
you want to bury your head in the sand and believe something else, go for it, and I’m not stopping you. But,
of course, if you misleadingly call systems like the BTC system Bitcoin, it becomes a different issue, one I will
get to later.

I should start by defining the vision for Bitcoin. Like the protocol, it is set in stone. Such a vision will not
change in the next year, decade, or century. The only thing that will change here is that the numbers will
get more favourable to the consumer. After Bitcoin scales to billions of transactions, it will scale further.
Hopefully, it will still get cheaper in the future, too.

The Vision for Bitcoin

The following four points form the base summary and vision for Bitcoin.

I have a vision of a system that scales to billions of transactions a second.

I have a vision of a system open to anyone globally.
I have a vision of a system that costs no more than a thousandth of a cent for a standard transaction
of 250 byte, no matter where you are in the world and no matter what you are doing.
I have a vision of a system that is completely traceable and works within the existing legal structures.

If such is not your vision, it would be better if you had not used it and you should not be using Bitcoin.

Mission Statement
The purpose of Bitcoin is not to take down banks or governments. Bitcoin is a tool. The aim of Bitcoin is to
make a secure, robust electronic cash system that can provide micropayments and the ability to conduct
transactions globally, for values as low as or lower than a thousandth of a US cent. Bitcoin is a competitive
system, one that helps deliver value to the consumer. It is an electronic cash system, and should not be
based on speculative use and gambling. The purpose of the system is to exchange value quickly, easily, and
for very low fees.

Bitcoin will remove all dust limits in the coming year, allowing single-satoshi transactions and lowering the
fee, forcing miners to increase defaults. In so doing, miners will not legally collude in charging a price and
take a risk. For example, if a miner sets a fee for including a transaction at a level too low, it is not a concern.
Yet, if it is too high, the miner will lose profit. As such, the system itself manages levels without external
interaction.

There is no such thing as too large a volume. There is no such thing as spam. There is no such thing as a
system that cannot be seized or frozen using a legally issued court order. And there is no such thing as a
transaction within the law that should not be sent. Very simply, Bitcoin is a system designed to grow with
transactions and allow the transfer of value globally, within milliseconds, without all the existing cost
infrastructures that an expensive system like the Visa network or the Mastercard network brings with it.

Finally, Bitcoin is set in stone. The protocol is fixed. In other words, any transaction made today will work in a
year and a decade or a century from today. If you write a transaction and sign it and hold it off-chain, the
same transaction will remain valid and be processed by a miner without any need for resigning or
alterations as long as the system is functioning. For instance, if Bitcoin is working 200 years from now,
somebody writing a transaction today can expect and have a contractual right to have the transaction sent
to the network and processed by a miner in two centuries from today. The protocol doesn’t change.

A fixed protocol means that developers can build anything they wish to and know that it will continue to
work for not only weeks but decades to come. A fixed protocol means that people can build applications
that incorporate long-lasting systems, including land and property registers. A fixed protocol means that
long-term bonds and loans can be issued and recorded on the blockchain. A fixed protocol means that any
transaction written today will work in ten or twenty or fifty or a hundred years from now—without resigning
or reissuing or even the slightest change to the transaction.

The Goals
The goals of Bitcoin lie not in taking down banks. Bitcoin doesn’t bank the unbanked. Bitcoin is electronic
cash. Electronic cash does not give anybody a home loan, it doesn’t give them a business loan, and it
doesn’t give them a way of raising capital. Rather, Bitcoin presents something more critical and important.
Bitcoin is electronic cash that can be used globally for very low fees. Bitcoin is not focused on helping
individuals move large quantities of money by bypassing the banks because they cannot access a bank
account. Rather, the focus of Bitcoin is on digital cash and, as with cash, a different consumer base.

Bitcoin is for the world, and especially for those who are poor.

Bitcoin will open up opportunities for those who work in global markets where the remittance industry
takes a large percentage of their money. Bitcoin will open up opportunities for those in poverty-stricken
countries without access to banking services. Bitcoin will remove many of the problems associated with no
longer having access to bank accounts and relying on payday lenders and check-cashing services that can
take up to 30% of their already meagre income.

Bitcoin will help developers who can build long-term projects, knowing that their work will not be made
obsolete by a protocol developer implementing a change that would make obsolete everything that has
come before—which we have seen at least twenty times on the BTC and Ethereum networks.

Bitcoin will be completely traceable while protecting privacy. Such technology will aid in reducing
corruption. If large-scale money transfers are linked to organised crime or other forms of corruption, the
ability to trace, freeze, and seize bitcoin will enable the imposition of controls to mitigate money laundering
and ensure that the Travel rule is enforced.

If you don’t want a system that enforces rules, you shouldn’t be using Bitcoin. Bitcoin was designed with the
ability to trace transactions. Bitcoin was also designed to alert the network to invalid transactions and
ensure that frozen coins are not spent. There is no cypherpunk ideology in Bitcoin. Bitcoin was never
released using the Cypherpunks mailing lists, it had nothing to do with cypherpunk systems, and it is not
designed to promote anarchy. On the contrary, it is designed to ensure that anarchy fails.

The Purpose of the Subsidy

The decreasing subsidy used in Bitcoin was designed to bring volume to the system. Miners are not paid for
nothing. Rather, the subsidy has been designed to ensure funding to build an ecosystem based on volume.
If Bitcoin doesn’t scale, it will simply cease to exist. By scale , we are talking about the ability to handle first
millions, then billions of transactions per second. And we are talking about today’s technology—not what
we expect to have in twenty years. In twenty years, it will be larger in scale. Right now, most of the subsidy
has been wasted by most of the people running nodes. Which is a major mistake. In time, such individuals
will understand the extent of the error they have made, but the simple answer is that the subsidy is
designed to allow people to accept more transactions, including some that should be free.

The subsidy is part of a unilateral contract or, rather, a contract offered to the world. When I created Bitcoin,
I offered a contract to the world. The unilateral contract in effect says that anybody mining bitcoin following
the rules of the system will be paid for processing transactions. To make things more cost-effective and
ensure that some free transactions are included, the subsidy was introduced. In effect, miners that ignore
the necessity of including transactions are in breach of contract. Which has consequences.

What I Want to See

I wish to see the majority of people on earth using Bitcoin to transact and to save evidence of the
transactions they make. Thus, I see Bitcoin becoming a global commodity-based transactional system, one
can be used either directly or following the issuing and creation of central bank digital currencies running
on top of Bitcoin. I see the scale of the system somewhere in the order of billions of transactions a second
and the cost of the system somewhere in the order of a thousandth of a US cent per transaction or below.

I see people on the lowest income on earth using Bitcoin. I see those people earning less than two dollars a
day using Bitcoin. I see the people developing solutions aimed at helping those in the world’s poorest
countries using Bitcoin. I see Bitcoin becoming global plumbing connecting all sorts of digital applications
and removing the need to implement advertising-based solutions that create an Orwellian world destroying
freedom, which we have seen being promoted by Silicon Valley-based companies, including Meta.

My vision is simple.

Massive scaling.

Incredibly low fees.

A set protocol that never changes, allowing developers to experiment.

The integration of Bitcoin with legal systems to help minimise criminal activity and corruption.

Those points form my vision for Bitcoin. If you don’t agree with them, you are free to take handouts from
Mastercard and related companies that want to continue taking a percentage of every transaction we see
being conducted using boondoggle solutions like the Lightning Network.

Note, the BTC system is not Bitcoin. Bitcoin was set in stone. The protocol of Bitcoin doesn’t change.
Alterations relating to SegWit and all sorts of other things, including what enables the Lightning Network,
are not Bitcoin. While I have no problem with other systems, including Ethereum, aimed at developing
alternative methodologies, passing something off as something else is a form of deception; individuals
pretending to maintain Bitcoin are deceiving investors and others using the network.
Anti-Trust
By Craig Wright | 23 Mar 2022 | Alternative Coins & Systems
The problem with Ethereum and BTC groups is that they are anticorporate. They call themselves crypto
capitalists (Ortiz, 2020). What that really means is that they are anti-capitalist. They are Marxist through and
through, and believe in the Marxist dream of individualistic manufacture at the household level. They all
have a view of equality that supersedes everything else, and they fail to trust any form of organisation other
than themselves. Even then, they only trust themselves when they are the individual leading the group, if
they trust themselves at all.

Konstantopoulos (2021), in his article on Ethereum rollups, includes a section titled “Miners can be
bribed to censor withdrawals, breaking OR’s safety”. Such anti-trust seems to represent the entire lack of
understanding and anticorporate fear holding back the development of systems like Bitcoin. The simple
response here is: it is unnecessary; the so-called attacks by miners are easy to clarify. Bitcoin is not anti-
government, and blockchain technology was never designed to replace government structures. Herein lies
the false information promoted by those who are socialist or anarchist, who don’t want Bitcoin but its
derivative systems and copycats such as Ethereum.

The resolution is far simpler than people make it out to be. While some authors have researched
systems along the same lines and constantly focused on possible attacks (Moroz et al., 2020), an analysis
thereof demonstrates that the crux of the matter lies not in mathematics, but rather in law and economics.
Crucially, Bitcoin was never designed as a cryptographic solution. In other words, the system is not secure
cryptographically (Konoth et al., 2019); all data sent across Bitcoin is sent in cleartext and never encrypted.
Instead, the system is secured through game theory and economics.

In the instance of double-spending attacks, or rollups in Ethereum, the scenario is exceedingly

simple: if a double-spending attack occurs, it is easy to prove. The receiver has a signed copy of a
transaction. The receiver can take action against the node, which as a large commercial organisation suffers
in any event, or in general terms, outside of criminal aspects, whereby drug systems may help identify an
individual and faciliate action. Moreover, most online sales either are small or don’t suffer from a
requirement to transact within seconds.

The issue with discussing attacks based on miners being bribed is that such an action would be
deceptive—and lead to prosecutions relating to deceptive conduct against those running the nodes. What
people are missing is that the node provides evidence. You don’t need to audit every transaction. Those who
are incentivised to audit a transaction will. The merchant receiving a payment will check whether the
payment indeed comes through. The question that needs to be asked is why every single transaction would
need to be verified on every machine. The system is not made secure by running every transaction
everywhere. The publishing of the hash header is the security mechanism behind Bitcoin. The blockchain
isn’t the same as all transactions, but rather, it is the chain of hashed information in block headers, which is
all that needs to be secured. It is secured by widely sending it to all participants of the network.

Unfortunately, we have people who think in very limited terms, people who cannot think beyond the
concept of a system that is not designed mathematically but works through economic incentives. The cost
of disputes is minimised when disputes can always be resolved, whereby the evidence is always available.
When disputes occur in relation to credit cards, it is often difficult to gain evidence referencing what has
occurred. Conversely, any time a double-spending attack occurs, it is able to be forensically analysed, and
evidence will always exist.

The breakdown of the given scenario (Konstantopoulos, 2021) is easy to analyse. We have the
following individuals: Alice is a user who wishes to bribe the miner or node operator Bob. Charles is
supposed to be the recipient of a transaction. In paying Bob to ‘double-spend’, Alice and Bob are
committing a crime. As soon as the transaction hits the network, Charles, who has been ‘double-spent’ and
thereby lost his money, will also have received evidence of the crime. The scenario, of course, only applies to
small transactions. If large transactions, in the order of thousands or tens of thousands of dollars or more,
are conducted, know your customer (KYC) guidelines apply, and transactions take more than a few minutes
to clear. The question is whether Alice can bribe Bob to perform the double-spending attack with an
amount of, say, five dollars.

Should Bob be willing to accept the payment, the payment amount will be less than five dollars,
because there are no incentives for Alice to cheat and lose all the money. If Bob takes the money, there will
be an evidence trail instantly made available to Charles. Suppose Charles files an action against Bob and
Alice. Here, Bob will be guilty and, as an operator of a corporation in the system, charged not with the small
amount, but rather sanctioned with potentially millions or more.

Tim Wu (2003) addressed the issue of “code is law” two decades ago. The simple answer is that it isn’t.
Code is not law. The desire by certain people within the crypto-anarchist industry, who are trying to falsely
argue that Bitcoin’s design works outside legal frameworks, or that Bitcoin is not economically designed, is
one for a system that is antithetical to the design of Bitcoin. They don’t desire a system that is secure, but
rather try to develop a system that doesn’t require government. There is no encryption in Bitcoin for a good
reason. There can be no encryption in blockchains. The reason is, I designed it not to be encrypted. If Bitcoin
was encrypted, like cryptocurrencies such as eCash, Bitcoin could have been anonymous. It could have
operated without an audit trail. Yet, herein lies part of the reason why systems such as eCash
(Schoenmakers, n.d.) and Mojo Nation failed (Batten et al., 2001). The issue was not around creating
something that could not be recovered, but around creating something that would be acceptable.

In analysing each of the problems that keep coming up around all of the blockchain systems, and
scaling them in particular, the conclusion is deceptively straightforward: scaling happens on-chain. The
system is not cryptographically secure. The system is based on economics and law.

References

Batten, C., Barr, K., Saraf, A., & Trepetin, S. (2001). pStore: A Secure Peer-to-Peer Backup System .

Konoth, R. K., van Wegberg, R., Moonsamy, V., & Bos, H. (2019). Malicious cryptocurrency miners: Status and
Outlook. ArXiv:1901.10794 [Cs] . http://arxiv.org/abs/1901.10794

Konstantopoulos, G. (2021, January 27). (Almost) Everything you need to know about Optimistic Rollup .
Paradigm Research. https://research.paradigm.xyz/rollups

Moroz, D. J., Aronoff, D. J., Narula, N., & Parkes, D. C. (2020). Double-Spend Counterattacks: Threat of
Retaliation in Proof-of-Work Systems. ArXiv:2002.10736 [Cs] . http://arxiv.org/abs/2002.10736

Ortiz, R. J. (2020). Financialization, Climate Change, and the Future of the Capitalist World-Ecology: On Kim
Stanley Robinson’s New York 2140 . Soundings: An Interdisciplinary Journal , 103 (2), 264–285.
https://doi.org/10.5325/soundings.103.2.0264

Schoenmakers, B. (n.d.). Basic Security of the ecash Payment System. State of the Art in Applied
Cryptography, Course on Computer Security and Industrial Cryptography , 1528 , 338–352.
https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.298.4934&rep=rep1&type=pdf

Wu, T. (2003). When Code Isn’t Law. Virginia Law Review , 89 (4), 679–752. https://heinonline.org/HOL/P?
h=hein.journals/valr89&i=697
Twenty Years of a Bank Worker’s Life
By Craig Wright | 08 Apr 2022 | Other
Kumazawa Makoto, “Twenty Years of a Bank Worker’s Life”, on Kawabe Tomomi

Putting his authentic dilemma more specifically in terms of my particular concerns, is it possible to be an
anti-establishment union activist while working as a conscientious loan officer of a major bank? For twenty
years Kawabe searched for an answer to this question… With his contradictory personal characteristics, his life
is the very emblem of an ordinary worker’s existence in Japan’s current system.

The quote is from Kumazawa Makoto’s book titled Portraits Of The Japanese Workplace: Labor Movements,
Workers, and Managers (1996). In the epilogue to the section on ‘Twenty Years of a Bank Worker’s Life’,
Makoto is detailing the life journey of a Japanese bank worker, Kawabe Tomomi. The section covers the later
part of his life, including his final years in the job and all his experiences. The last years fall into the period from
the mid- to late 1970s. It constrasts heavily with the life of the worker, who is used as a case study and shown
to have contradictory ideas. Of note, towards the end of his time at the bank, he becomes a workaholic,
because of the heavy demands of his job (236). Towards the end of 1977, Kawabe is finally promoted to
assistant superintendent and deputy branch manager, to which he says, “Nonsense!”, in his diary (239).

He notes that it is nonsense because he cannot find an explanation as to why he would be promoted, given
that he is ten years behind schedule and a troublesome employee. In 1978, Kawabe ends by resolving to be
the ideal “revolutionary proletarian” (240). He does his job, and he even works hard, though he seems to be
behind all the time. Yet, it is his family that gives him happiness. His wife is warm and gentle, and his son, still
in middle school, enjoys playing tennis and neglecting homework, which in part came about because his
father never had time to check on the progress of the children. Their family remains as an extended unit
demonstrating a bit of a throwback to the past, with his elderly mother helping in the family as much as she
can.

Makiko has a minor heart ailment that needs operations, and she has attacks because of it. Unfortunately, the
family is not able to have her gain access to the required medical aid. Kawabe is a man of profound
contradictions. He believes deeply in the values of socialism and Marxism, and intellectually thinks that such
was the core of his reason for being. He is stuck in a life of student ideas that concern the transformation of
the world into a new system that would be equal. He remains a literary youth at heart, while simultaneously
becoming a cold cynic and working long hours.

In this case study, we see the work of a standard middle-class male with a fairly typical family. He is
ideologically opposed to some of the concepts and capitalist ideas that he has promoted through his
meticulous work (241). He is a member of the union in a country that, as Woodward (1992) noted, maintains a
strong anti-union sentiment among Japanese investors. In a bank, such an attitude would be expected to be
held by its employees (Neary, 2019). Yet, Kawabe (242) would see it as a life staring into the abyss. He exhausts
his nerves to the limit (242), by contradictions that allow him to respond to beautiful concepts and words.

Kawabe is a humanist union activist, who lives and dies of the daily struggle of the white-collar worker. In
1980, following his death, many city banks change their practices to lighten the workload of their workers.

Makoto has taken the diary of Kawabe, which remains with his wife, and built a story of a very human man,
who documented the troubles he saw with his work and life in the period from 1965 to 1978. The story is
particularly useful in understanding the underlying currents of Japanese culture of the time. It is a story told
not from the perspective of an elite view of life, but rather by an ordinary person experiencing the effects of a
country that sought to grow at a rate that could not be sustained without burning people out.

References

Makoto, Kumazawa. (1996). Portraits Of The Japanese Workplace: Labor Movements, Workers, and Managers .
Routledge.

Neary, Ian. (2019). The State and Politics in Japan . John Wiley & Sons.
Woodward, D. P. (1992). Locational Determinants of Japanese Manufacturing Start-Ups in the United States.
Southern Economic Journal , 690-708.
The 51% Attack That Never Was
By Craig Wright | 27 Apr 2022 | Alternative Coins & Systems
There are widespread mythologies concerning supposed attacks against Bitcoin (Bindseil et al., 2022),
including ones that are promoted by people in the industry. The reality, though, is starkly different. Today, I
will start demonstrating the flaws in the arguments that are often made. I will begin with the mythical 51%
attack. I refer to it as a mythical attack as it is described completely erroneously. While there are theoretical
attacks, the reality is: such attacks are the same as in any system run by any network.

In this article, I shall endeavour to explain what a 51% attack is, how it relates to existing systems, and
how, like many aspects of Bitcoin, it is being maligned by industry ‘pundits’ seeking to promote a system
different to Bitcoin in many ways. First, I will say again, Bitcoin is designed as a system that will provide
scalable digital or electronic cash. That is, low-cost, fast transactions, with value. The purpose of Bitcoin lies
not in decentralisation. As I will explain in this article, the purpose of Bitcoin is achieved through some level
of distribution systems. It is for the same reason that in fact, there is no 51% attack.

What Is a 51% Attack?

The argument concerning the 51% attack is derived from the ability of a single node controlling the network
to reorder or delay transactions. In other words, a single node with 51% of the network hash is running the
system without interactions with other companies or players. To put it simply, any time there is a single
node with control of over 50% of the network consensus mechanism, the actor controls the network. Note
that such control is very limited.

There are no differences between the control of a company and the control of the blockchain network
when it comes to the ability to perform certain actions. But, even if a node on Bitcoin gains more than 50%
of the network consensus mechanism, not all actions are possible. For instance, no level of control of the
consensus methodology allows any node to change the protocol. If a node controls 99% of the network
hash power, it cannot steal transactions, and it cannot change a signed transaction.

If a node attempted to “fork” and run a separate protocol, it would be isolated from the network. The
majority of people on the network would not see the other network. The mythology here is that Bitcoin
forks. It doesn’t. People create alternative versions of Bitcoin, and pass them off as Bitcoin. They form a
separate system and pretend and mislead and deceptively tell you that it is truly Bitcoin when what you are
really doing is installing alternative software.

So, the question that remains is, what is a 51% attack?

A 51% attack is any attack carried out by a known entity controlling the network. For instance, if the
Bank of America decided to remove all money from all their client accounts, such actions would present a
form of attack—a 51% attack. In reality, it should be termed a ‘controlling-entity attack’. If Facebook wishes
to ban a user, it can. The distinction being missed is that Bitcoin is not a system run by a single entity. The
BTC network is, but that is a separate issue, which will be addressed in a later post. Developers set the rules.

In the case of the BTC network, where the protocol is flexible and fluid, the developers can set any
rules they wish. The nodes cannot change the structure or protocol of the network. Nodes do not set the
protocol. Yet, where developers rule the network that is passed off as Bitcoin, they can deceive users when it
comes to what they are running, and the system can be changed. In fact, the protocol of the BTC system
has changed on a monthly basis.

Distribution
If two nodes exist on the network and are exactly balanced, the system is already distributed, and neither
holds control. If either party seeks to cheat or delay things, the result will be that the other node will
account for more transactions and take over. Yet, when three or more nodes are controlling the network,
the distribution of power is such that as any one node attempts to suppress transactions or allow people to
‘double-spend’ illegally, they will be instantly blocked.
 While there is a balance between the number of nodes when there are three or more, economic costs
mean that marginal benefits will be negligible at some point. Eventually, they become a cost. For instance,
the cost of sending information between nodes is sufficiently low even when there are ten nodes, so it
should not matter. Conversely, in the case of a thousand or more nodes, the cost of distributing outweighs
the cost benefits of having extra nodes. The system is self-adjusting and, as such, does not require people to
choose how many nodes will be in effect.

The truth is very simple: any network, company, or system run by a single entity is bound by some of
the actions of such entities. Which does not mean that any such actions are unlimited. If, for instance, the
Bank of America or Visa steal your funds, you have the right to take action against them. Part of the
problem lies in evidencing the theft, which is not an issue with Bitcoin. In Bitcoin, the transaction is either
processed or not. When a double-spending attempt occurs, it is the same as a cheque that has been
presented against the same monies twice. In each case, it requires an action that leaves evidence.

When a merchant receives a transaction, they can wait 10 minutes to see if the transaction has been
mined into a block. Equally, by watching the network, the merchant can tell whether the transaction has
been double-spent within milliseconds. If a node receives the transaction, the merchant can use that as
evidence both against the person who double-spent and against the node operator. Next, when there are
only a few nodes (three to four nodes control any blockchain network), checking with each of them that
your transaction has been received can be done quickly and easily.

For instance, if 50% of a blockchain network is run by three nodes (the BTC network, Bitcoin, and
Ethereum follow the same model), then checking with those three main nodes, who are publicly known,
provides assurance. If the nodes allow a double-spending attempt, they should be held liable for any loss.
The process does not require that they are a trusted third party. In conducting a transaction, Alice transmits
information to Bob, whom she is paying. Bob then settles the transaction on the network, by sending it to
the nodes. The original construction of Bitcoin, with IP-to-IP connectivity, is based on such a model.

As Alice is paying Bob, Alice is not the one who should be interested in validating the transaction.
Instead, as with negotiable instruments such as cheques, it is up to Bob to validate the accuracy and validity
of the transaction that he is receiving as payment. To do so, Bob can first check the Merkle proof and the
transaction given to him by Alice. Next, Bob sends the information to the network to ensure no double-
spending attempt occurs. Through such a process, Bob personally validates the accuracy of the transaction
and then uses the network to ensure that nobody has already spent the transaction.

Apart from ensuring that the transaction has not been double-spent, Bob alone can validate the
process. Validating the signature and checking transactions can be done easily and without using the
network. The only question that remains is whether the network has seen the transaction before. The
network cannot change the transaction. The network can either hold the transaction or allow Alice to send
an alternative transaction to be processed. That is what a double-spending effort refers to. It is, in effect, a
form of cheque fraud and deception.

The difference between Bitcoin and other systems is that using Bitcoin, Bob retains evidence that
may be used against both Alice and the node operators. If a node processes the double-spending
transaction, Bob can now record the fact that a deception has been used against him. If there are three
nodes on the network, and Bob has checked with one of the three nodes, a node is obliged to act and
process the transaction Bob provided.

Nodes have been defined in my white paper (Wright, 2008). One part of being a node and being paid
for providing the services to the network involves the requirement to propagate all transactions to all nodes.
In other words, if Bob receives a transaction from Alice and then sends it to the network, the node he sends
it to is obliged to inform Bob if the transaction has been spent before. Suppose there is a double-spending
transaction, or the equivalent of cheque fraud. If Bob now checks with two nodes out of three, Bob is
guaranteed that his transaction will be accepted.

If the same two nodes do not process the transaction, Bob can take action against them. Bob doesn’t
need to trust them; he knows that they will either act in his favour or be shut down. More importantly, if
there is a distribution of three or more nodes, Bob knows that by checking with any two nodes and being
informed by the majority that his transaction has not been seen before, even if the third node chooses to try
to cheat, a double-spending transaction will be rejected.

One misconception associated with Bitcoin, and other systems derived from it, is that the network
operates outside the law. Bitcoin does not remove all trust, nor does it remove all intermediaries. The term
‘trusted third party’ is a financial intermediary specified in English law. Such parties are individuals that have
a fiduciary duty. The control of the network is split between the nodes, which operate the network as agents
of the system, and the developers, who can change the system.

The BTC system differs from Bitcoin in the sense that Bitcoin has a fixed, set protocol. Bitcoin’s
protocol is set in stone. I am not a trusted third party in Bitcoin because the protocol is fixed. In the BTC
network, the Core developers can change the protocol and do so regularly. No consensus methodology
distributes change. Rather, a small group of individuals selects what will be introduced. Here, such
individuals have a fiduciary duty to the network. It is not the nodes but the developers that implement such
changes. Without a fixed protocol, any blockchain network has trusted third parties. The developers are
trusted third parties if they can change the protocol at will.

For the same reason, I said the Bitcoin protocol was set in stone (Wright, 2010). I also specified Bitcoin
as a “global distributed database, with additions to the database by consent of the majority” (Wright, 2009).
Note that the majority is not the majority of users. As explained in the white paper, the majority is purely a
majority by hash power. Crucially, those able to add to the database do not own the database. Those adding
to the database only have the right to read and append, not to change. Once the database has been written
and achieved a depth of 100 blocks, the database is permanent and fixed.

Back to the Myth…

The reality is that a system doesn’t need to be perfect. Innovation can be incremental. Bitcoin was not
designed to replace banks or governments or to overthrow the existing system. Rather, Bitcoin is
incrementally better than any existing system. Concerning the protocol, the fact that the protocol doesn’t
change is key to not having a trusted third party. No methodology exists that allows third parties who are
developers to update the protocol through a global consensus of users.

If the protocol changes in any way, the control of the protocol lies in the hands of a small group of
individuals or a corporation. The control of the network can be monitored. Blocks are broadcast.
Consequently, the large companies that run the Bitcoin network, or any other blockchain system for that
matter, can be audited globally. The system does not require that every single transaction is distributed to
every user. Rather, it requires that individual users retain the evidence they need to prove their case. Here,
the block headers have to be widely disseminated. If the block headers are not disseminated, we are not
talking about a blockchain.

The existing system is a closed ecosystem without evidence. There are no existing methodologies to
audit corporate accounts adequately. If money goes missing from your bank account, proving the existence
of such money can be difficult. It may be necessary to validate transactions across time, and if the bank does
not digitally sign them, you may not have the evidence required. While possible, it is difficult.

Here lies the 51% attack, where a single company can act. It is the existing scenario around the world,
the status quo . Right now, every bank is an individual agent responsible for the actions of employees and
others. They use a form of database that is rather insecure and that can be changed. At the same time,
people with inside information and who work for the organisation perform a range of activities that can
cause problems for the users of the system. In part, this is why we have seen so much fraud and deception
throughout the world.

Bitcoin changes the scenario. The worst-case scenario involves a single controlling entity, which is no
different from any other system today. Yet, Bitcoin still presents an improvement. Even with only one node,
every transaction can be audited, and there is evidence that can be used in court against the node. It is also
impossible to hide a node at scale. There is no anonymity in Bitcoin mining when you have control of the
network.
 Nodes cannot change transactions. Yet, Bitcoin is not about allowing illegal transactions. The concept
of ‘censorship resistance’, when related to violations of anti-money laundering (AML) guidelines, has no
place in Bitcoin. Rather, Bitcoin could always stop transactions flagged by law enforcement. Every single
blockchain can. If somebody tells you that you cannot filter transactions on a blockchain, ignorance or
deception would be two explainations. Some people are ignorant, which is not an excuse. Everyone else is
deceiving you.

So, the worst case in any blockchain system is one analogous to existing corporations, with the
difference that a blockchain provides a perfect record of all changes, which can be used in court. If a double-
spending effort occurs, Bob will have the transaction from Alice, which can be used to take action in court
against the miner. Bitcoin is not a system created by anarchists. It is not a system created to take down
banks. It is not a system that acts outside the law. Rather, Bitcoin is a system designed to work within
existing legal frameworks and reduce fraud.

References

Bindseil, U., Papsdorf, P., & rgen Schaaf, J. (2022). The encrypted threat: Bitcoin’s social cost and regulatory
responses .

Wright, C. S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. SSRN Electronic Journal .
https://doi.org/10.2139/ssrn.3440802

Wright, C. S. (2009, February 18). Bitcoin open source implementation of P2P currency . Permalink Reply by
Satoshi Nakamoto. http://p2pfoundation.ning.com/forum/topics/bitcoin-open-source?
commentId=2003008%3AComment%3A9562

Wright, C. S. (2010, June 17). Transactions and Scripts: DUP HASH160 … EQUALVERIFY CHECKSIG , Re:
Transactions and Scripts: DUP HASH160 … EQUALVERIFY CHECKSIG . bitcointalk.org.
https://bitcointalk.org/index.php?topic=195.msg1611#msg1611
The Scarcity Paradox
By Craig Wright | 03 May 2022
| Bitcoin & Blockchain Tech
There is a good deal of misinformation around scarcity right now. Unfortunately, our education system has
produced a series of partially educated people, who may receive vocational training but are not educated.
As a result, simple concepts such as the diamond-water paradox have escaped people (Douglas, 1927). More
importantly, price is not the same as value. Markets are also not defined by Wall Street. The global casino is
related to Wall Street. The market is related to the use and consumption of commodities and goods and
services.

Speculating does not create value. Rather, speculation presents a gamble on a future price. Some
people make money with it, but to do well, you need a lot of money in the first place. The reason certain
rules exist (such as those managed by the SEC) stems from how people seek to avoid the legal
requirements and run scams. I’ve written about them several times . Several times. In the past, there were
scams involving ICOs. There are no protections, and no great innovations, that an ICO brings with it. They
mirror an offering from the 1990s. It’s called a web IPO.

Web IPOs themselves were just security offerings pretending to be something else. They were
decentralised. They were distributed. They were issued as people were pretending there was no issuer.
There is no distinction when it comes to an ICO. There is no distinction when it comes to NFTs. And no, NFTs
are not an Ethereum invention from 2017. Like many other things in the industry, they are a bastardised
form of one of my inventions . And, yes, it is very easy to prove. The filing date of the patent is in February
2016. So no, NFTs were not invented in 2017 by Ethereum.

There is a limited number of grains of sand. If you distinguish the grains of sand into white sand, black
sand, and sand of other colour, you can individually isolate them and artificially create more scarcity. Yet,
scarcity is not value. The price you pay for something doesn’t always represent the value of the object.
During the 1990s, people paid a lot of money for domains. People thought that they would encapsulate
scarcity. For a time, there was a gold rush in owning and controlling domains. Eventually, the bubble burst
(Lieberman, 2005).

The same is occurring again. People are fooled into believing that through mere scarcity, they will get
rich without working, by owning something that has no true value. Scarcity needs to be put against use.
Scarcity is like one blade of a pair of scissors. Without utility, without use, without some reason, scarcity is
meaningless. Every single grain of sand is unique. That gives it a form of scarcity. Yet, nobody cares. Every
single NFT of a Bored Ape is equally valueless.

There is one thing that NFT art is demonstrating right now. The correct term is kitsch .

NFTs (as they are traded right now) have a purpose: they are a way of letting the world know that you
do not have any understanding of art. It is not a good thing.

When People Get Bored of Bored Apes

ICOs allowed people to manipulate a lot of foolish investors and take money, pretending that they would
perform some capital raise. All of them ended badly. The problem is that none of them have any controls,
and they were merely a means to continue a scam and take money from fools. So there is zero value in a so-
called option of a decentralised non-controlled capital raise. Not one created anything of value. All of them
created fraud.

In time, people will realise that they’re being scammed, and as with ICOs, the current anti-art
promoted as art and NFTs will become worthless. The reason for it is simple: they are not scarce. But also,
they are not valuable. They are not limited, so they can’t seem to be accessed outside the platform. But they
can be; I have several patents on how to do so. Such so-called limited, scarce art is available freely. It is
available to be copied without payment. All you own in the current NFT marketplace is a token that is
anything but scarce.
 When you have multiple blockchains, there is no scarcity. Suppose you can do multiple projects on
multiple systems. There is no scarcity. It shouldn’t be difficult. But even if there was scarcity, so what?
Scarcity is only one aspect of value.

This is where the diamond-water paradox comes into play. Value lies in use. The value of an object lies
not merely in its scarcity but in the ability to engage in the associated employment of goods for some
reason. Many things are scarce, things that nobody cares about. Beanie Babies are scarce. For a time, people
listened to such false claims of scarcity and jumped on board, thinking that they needed to buy them early,
so they would be rich. Then the casino (not the market) ended. The music stopped.

The problem we have now is that people confuse the market and the Wall Street casino. The market
involves Main Street. To be a market, it needs to involve consumption. People are using goods and services.
If we are discussing speculation, then we are not discussing the market. It may be confusing to some,
because speculation leads into the market, but it also leads to a loss for many people.

Like the ICO world, like the world of domain names and Internet IPOs, the promotion of kitsch anti-art
as if it was valuable eventually ends. Yes, you want to be an artist. But that doesn’t make you one. Yes, you
think that you’re creating art. Yes, you managed to get some idiot to pay lots of money for it. Yet, that still
doesn’t make you an artist, and it also doesn’t make it art.

There is a lot of bad art in the world. Right now, my invention—and it is my invention—should be used
not to speculate but to create something that has value. You’re not involved with art if you’re buying and
selling kitsch. Sorry.

References

Douglas, P. H. (1927). Smith’s theory of value and distribution. University Journal of Business , 53–87.

Lieberman, M. B. (2005). Did first-mover advantage survive the dot-com crash. Unpublished Working Paper,
UCLA .
State Power and Ordinary People from the Tokugawa Period
through the 20th Century
By Craig Wright | 23 May 2022 | Economics
Traditionally, the study of history looked at the state and elite forces and people and how they would
change the world from the leading edge of change. Since the Second World War, history has moved
towards the analysis of individual lives and started to look at how the average person of the middle-class has
faced and experienced change. In the periods from the end of the Tokugawa period through to the
twentieth century, we have seen the development of a world that is changing rapidly in every period, yet
one that is often portrayed as changing only in the twentieth century and as static beforehand.

In the Tokugawa period, Japan entered a period of internal peace and political stability. It allowed the
development of economic growth, while simultaneously limiting the freedom of individuals in their lives.
Friday (2012) notes how Tokugawa Iemitsu implemented a system of control over the Daimyo that required
them to reside in Edo every year yet equally created semiautonomous domains that remained tightly under
the control of the shogunate for over 250 years.

While the warrior class or samurai moved from a position of soldiers to one of bureaucrats, the peasant
class was forbidden to engage in nonagricultural activities. This enabled a stable continuing source of
income for those in charge of the country, but equally created underlying tensions. In regions that were
involved with the distribution of grain, such as Okinawa, the rise of merchant classes came about. Sakai
(1964) documented the trade with the Chinese mainland and the development of illegal trade structures
between the Ryukyu Islanders.

Here, we see the underlying tensions that existed throughout the same period. As the government sought
to maintain the illusion of power and control at all levels, small, controlled changes and the introduction of
foreign goods were allowed in a manner that permitted the government to maintain the illusion of power
they held over the country. Such an illusion, of course, was very formidable, and combined with the stability
that followed a period of intense struggles before the rise of the shogunate, many individuals would accept
the domination of an autocratic lord.

The Edo period formed the necessary conditions that enabled the later industrialisation in the Meiji era that
would follow.

The unequal treaties of 1858 that followed the arrival of Commodore Perry, 1853–1854, led to the opening of
the country to the United States, France, Britain, Russia, and the Netherlands. With such changes, the elite
samurai class remained in leadership and wielded power behind the restored Emperor, despite the change
of the shogunate and the nominal head of the country. With such changes came the introduction of
processes that moved the country towards modernisation. Yet, for many people in the country, life didn’t
change terribly much.

For many people, there was a sense of both continuity and change, with the later Edo period being one of
proto-industrialisation. The changes that occurred throughout the country, in the agricultural distribution
and the development of the bureaucracy, enabled many of the changes that would come about soon after
the start of the Meiji. Gordon (2019) documented the transition—and the development of premodern Japan.

The Meiji era served as Japan’s introduction to modernity. The work by Amy Stanley (2020) captures the life
of a woman going through these times, and is a portrait of a woman who, having been born in 1804 and
having moved into the Shogun’s city when she was widowed, was brought up in a village in Japan. Tsuneno
provides a touching tale of a woman who does not fit the model of the nineteenth-century Japanese
woman present in many other tales of literature, considering her three divorces and strong-willed
temperament.

Through the change from the nineteenth to the twentieth century, and the move towards modernity, many
aspects of Japanese life remained unchanged. The government ensured a sense of stability in the transition.
For most people, modernisation was not the dominant feature of daily life, even though their children
started to be educated and people would even be more mobile.

Housing is expensive, and changes only slowly. It was no different during the late nineteenth and early
twentieth centuries. While Tokyo and large cities may have seen the development of Western-style
buildings and construction methodologies, the introduction of brick and concrete would not have been
seen in most homes across the country. Even with certain changes, parts of the capital or other more
industrialised areas would have seen Western-style homes in a particularly Japanese manner. Western
rooms were built for entertainment, but the families continued living in Japanese-style rooms—where they
could interact with their family and friends in a more traditional manner.

People with dirt floors started to install wooden floors and use tatami mats, which improved the health and
welfare of the population. Clothing also changed, with many Western styles being introduced in the cities,
but they were found to be impractical for many Japanese people, and women in the West who wore long
skirts found the Japanese environment difficult. The Japanese lady at home would find cleaning difficult.
Moreover, long skirts make squat toilets difficult to use, and for a long time, little developed outside of elite
circles. Japanese people also take their shoes off when inside, and the general buttoned-up, high shoes and
boots that the Westerners wore would be impractical.

Western ideas can be seen to change some attitudes and aspects of appearance, with men cutting their
hair short and wearing caps and hats. Women stopped teeth blackening, and started to clean their teeth
and whiten them in Western fashion. Other Western items, such as watches, shawls, or umbrellas, became
commonplace, and imported wool was used as a Veblen good that showed wealth.

Western suits and attire were worn by government officials. Many of the elite would use such attire to
demonstrate their position in the modern rising hierarchy of Japan. The same was also true of the military,
who sought to use Western-style uniforms to demonstrate how they were embracing modernity in
Western culture [1].

In the early twentieth century, the government reverted to one that was more autocratic and moved away
from the democratic processes that had started to evolve.

Sugita Teiichi summed many such changes up by saying, “Japan’s choice in the late 1800s came down to
being either a ‘guest at the table’ or ‘meat’ on the table.” The view expressed here is that either Japan would
learn to become like the West or the West would simply make Japan a colony and exploit its people. In the
reorganisation of Japan following the First World War, such a view became more and more ingrained in the
government, and the people saw that they needed to come out of the depression stronger than ever, lest
they would end up, like China, as a plaything of the West [2].

With a history of rule through an autocratic shogunate, it was not too difficult for the people to accept the
return to authority from the democratic processes that had been implemented at the start of the twentieth
century. In particular, the Japanese people saw that they could be powerful, and having conquered Russia
in naval battles and having been victorious against Western powers, the Japanese saw the depression and
problems that originated from Western systems as something they needed to avoid. In seeking a more
modernised version of the Empire and the shogunate, many people sought to abandon the changes that
would lead to democracy and capitalist control.

The changes following the First World War, and the development of nationalistic pride following the defeat
of Western nations, led to many Japanese leaders promoting the concept of Pan-Asianism. In the process,
the Asian population was being taught to feel pride for the nation and to believe that they were being
oppressed by the European powers and that they would thus need to have control by an Asian political elite.

The propaganda efforts in Japan and other nations in the 1930s led to a sense of despondency after the
Second World War. With a sudden defeat, where the Japanese government had gone from promising
victory a few years earlier, and describing the power of the Asian people, to now losing the war, many
Japanese saw themselves in a state of uncertainty. During the same period, the Japanese people saw
themselves as increasingly powerful, which, in seeking industrial products from surrounding nations,
enabled many of the elite and politicians in the country to extend control and become colonial powers in
the form of the Europeans they sought to replace.

The Japanese people moved into a role of change that would lead to the resumption of an autocratic power
structure and control from the top. But even then, when Japan surrendered at World War II, the Japanese
way of life would change only partially. As explained in a previous post , the Japanese worker forms part of a
system that is controlled from above. It is a system where people work hard and dream of something else.
Japan, as it has integrated modern Western society into a proto-industrial mediaeval culture, has become a
land of contrasts. In many ways, it is also what will make it unique in the future.

Footnotes

1. Image: Famous Places in Tokyo: True View of the Post Office at Edobashi , by Kobayashi Ikuhide, 1889
[2000.509] Sharf Collection, Museum of Fine Arts, Boston. Massachusetts Institute of Technology, 2008,
Visualizing Cultures , http://visualizingcultures.mit.edu/throwing_off_asia_01/2000_509_l.html

2. Kita Ikki: An Outline for the Reorganization of Japan

References

Friday, K. (ed.). (2012). Japan Emerging: Premodern History to 1850 . Boulder: Westview Press.

Gordon, A. (2019). A Modern History of Japan from Tokugawa Times to the Present (4 th edition). New York &
Oxford: Oxford University Press.

Sakai, R. K. (1964). The Satsuma-Ryukyu trade and the Tokugawa seclusion policy. The Journal of Asian
Studies , 23 (3), 391-403.

Stanley, A. (2020). Stranger in the Shogun’s City . New York: Simon and Schuster.

[Image: Famous Places in Tokyo: True View of the Post Office at Edobashi , by Kobayashi Ikuhide, 1889
[2000.509] Sharf Collection, Museum of Fine Arts, Boston. Massachusetts Institute of Technology, 2008,
Visualizing Cultures , http://visualizingcultures.mit.edu/throwing_off_asia_01/2000_509_l.html]
Pan-Asianism and the Greater East Asian Co-Prosperity
Sphere
By Craig Wright | 31 May 2022 | Economics
Gordon (2019) documents many of the changes that have occurred throughout the history of Japan,
including the development of Pan-Asianism from 1931 to 1941. Alongside the establishment of the Greater
East Asian Co-Prosperity Sphere, we can see the integration of Western imperial concepts into Japanese
government and systems.

The notion of Pan-Asianism developed as a reaction to the modern Western ideas that had changed Japan
from the start of the Meiji and until the problems of the great depression. The start of Japanese Asianism
developed as Japan sought to find solidarity with other Asian countries, all of which were under pressure
from European nations who sought to expand into the Asian continent.

Tokichi Tarui sought to create a union between Japan and Korea that would enable the development of a
defensive front against European occupation. Such forms of local nationalism and pan-nationalism brought
on more weight after the defeat of the Russian Navy in the Russo-Japanese War (1905). The control of China
and the fragmentation of other Asian nations, including Indochina, or, as it is now, Vietnam and other
countries, led Asian leaders to look for local support.

Tōten Miyazaki sought a Chinese revolution and the possible integration with Imperial Japan. Okakura
Kakuzō argued that the Asian peoples showed solidarity in the aesthetic aspects of life, including beauty. As
a result, they created the movement of “Asia is one”, acting against the encroaching European civilisation.
Okakura saw that Asia had a past consisting of three countries: Japan, China, and India. At the same time, of
course, the major Asian countries were seeking to engulf the smaller Asian powers in an imperialist manner.

The concept of the New Order in East Asia started with a geographically smaller region, that Japan could
control. It followed the concepts aligned with those promoted by intellectuals such as Okakura. To this end,
some of the Japanese leaders sought to promote harmony between Japanese, Chinese, and Manchu
peoples—under Japanese leadership, of course. The original concept was associated with the liberation of
Asia from European colonial powers. With the development of Japanese industry in the 1930s following the
great depression, some people started to see that it could also be a path to gaining resources that would
propel Japan into a modern powerful nation.

The militarist groups of the Japanese government saw that the supply of raw materials could be used to
wage war and expand the Japanese Empire. It expanded in the 1942 Great East Asia movement, where
Japan, Manchuria, and China were all to be integrated for the co-prosperity of Asian countries that would be
free from Western colonialism and white men. The economic aspect was built on the locking of the pound
sterling and the introduction of a “yen block” that would promote Japanese trade in the region, including
Taiwan, Korea, and Manchuria.

The concept extended in 1943 following the Greater East Asia Conference. The heads of the Greater East
Asia Co-Prosperity Sphere had previously attended a meeting known as the Tokyo Conference, which was
ironically held in English, as the different leaders did not want to choose one language from the Asian
region over the others. Dignitaries from Japan, Manchuria, China, Burma, India, the Philippines, and
Thailand had attended the conference with the goal of liberating Asia from Western colonialism and
expelling the white man from their region.

The group of countries issued a joint declaration promoting economic freedom and political cooperation, to
allow them to act against the allied countries. They noted that the West was materialistic and did not
understand the aesthetics of the Asian mind. The Philippines was seen by Japan as a way of feeding the
army, and a source of agricultural products needed by its industrial expansion. In addition, instead of oil,
which the Asian region lacked, the Japanese people tried making ethanol and biofuels from sugar cane and
castor beans in the area.
The surrender of Japan in 1945 saw the collapse of the co-prosperity sphere. Many Asian leaders, such as the
president of Burma, blamed the Japanese military, and the militaristic attitude that had developed in Japan
during the 1930s and early 1940s, and the attempt to form an Asian Confederation for the collapse of the
region. Other nations saw that the Japanese role was not one for the betterment of Asian countries but
rather for the betterment of Japan. As a result, the Japanese government and people failed to gain the
support of the Asian countries they needed, and the nationalist movement in those countries failed to
develop a unity of interest between Japan and their own people.

It was the failure of Japan to understand the goals and interests of the other peoples, in the same way that
the European colonialist had failed to understand Japan, that led to the collapse of this effort. If the
Japanese people had not embraced an authoritarian government and had sought to truly make Asia for
Asiatic peoples, not Asia for Japan, the development of a pan-Asian government may have occurred.

References

Gordon, A. (2019). A Modern History of Japan from Tokugawa Times to the Present (4 th edition). New York &
Oxford: Oxford University Press.

[Image: 中⽂：⼤東亞共榮圈地圖。 , Unknown authorUnknown author, Public domain, via Wikimedia

Commons]
The Rise and Fall of European Neutrality from the United
States
By Craig Wright | 06 Jun 2022 | Economics
In the first days of the republic, Congress and the President sought to rebuild the country and look to ways
of expanding throughout America while not engaging with the European powers. Ramsey noted that
Washington had faced great difficulties in his encounters with Spain [1]. In particular, he found it very
difficult to find amicable solutions to the problems of sovereignty in surrounding territories. One of the most
significant issues involved the free navigation of the Mississippi. Having concluded the war with Great
Britain, the newly founded federal states of America also had negotiations with the Canadian provinces. The
British appointed a Mr Hammond as their first Minister to the United States. At the same time, Mr Thomas
Pinckney was appointed ‘minister plenipotentiary’ to Great Britain from the United States [2]. By April 1793,
war had been declared between Great Britain and France.

George Washington declared neutrality at this point. The popular opinion within the United States
remained against Britain and in favour of France [3]. It was a difficult time for those who supported the
French cause, seeking a more active engagement, while others were dreading a war with Great Britain,
having only recently ended the war of independence. In April 1794, Washington appointed John Jay as
‘envoy extraordinary’ to the court of London [4]. The result was the signing of a treaty with Great Britain. The
appointment and his actions resulted in a great deal of debate back in the United States, with many people
seeking to remain neutral. Yet, over time, their position came to change.

Olivier documented the early travels of the United States Navy in the region of the Ottoman Empire and the
Mediterranean [5]. The author started recording the early interactions between the pirates of Delos and the
surrounding islands [6]. At this point, the United States remained relatively neutral, which would change
over the coming decades. The ongoing engagements with pirates on the shores of Tripoli that involved the
US Navy and Marines would form part of American folklore and a significant aspect of American culture [7].
Hanna documented how not only African pirates had been causing Americans problems, but North
America-born pirates had been acting out of Madagascar [8].

In a treatise on the rise and eventual end of the neutrality act, Lobel noted how neutrality had played a
prominent role in shaping US foreign policy [9]. The policy of the United States was to remain neutral
towards European struggles. Yet, the policy of neutrality to the United States, as can be seen from the
engagements in Tripoli and the actions to stop piracy on the African continent, differed greatly.

Waldo noted that by the time of James Munro, the policy of neutrality towards European powers would not
apply when it came to the American continent [10]. Negotiations with Spain had started to fall apart, and as
was noted, the contest between Spain and “the colonies would become highly interesting to the United
States” [11]. The development of the militia had continued to expand within the country, forming a standing
army used to patrol the borders and expand west. Cherokee lands and other tribal areas were slowly built
into the expanding United States [12]. The policy of defence with respect to national boundaries expanded,
destroying the perceived neutrality of the United States over time [13].

Ray documented how the early American colonists had been unable to expand and started to cause some
of the problems that would lead to the war of independence to develop and expand into new areas held by
indigenous populations [14]. At the time, the British government did not want such an expansion, and did
not seek jurisdictional control over the region [15]. Expansions into French and Spanish territories and those
held by native groups led to the change from policies that initially saw indigenous groups as tribal nations
to policies that excluded external parties such as France, Great Britain, and Spain from negotiations [16].
Early views of how the divisions between the early United States and Indian tribes developed can be seen in
documents such as the American Gazetteer [17].

In a review of the notes taken by Tomes, we can see that by the middle of the nineteenth century, the
American Navy had taken an active role in Asia [18]. By 1810, the United States Navy and Marine had started
developing ways to directly increase the commercial trade with Asia [19]. In voyages from 1806 to 1812, the
United States Navy had started exploring areas as far away as Japan and China [20]. So, whilst it is true that
the United States sought neutrality in European engagement, the United States did not shy away from
action when it came to the Ottoman Empire, Africa, or Asian nations—even as early as the beginning of the
nineteenth century. Consequently, the neutrality act of the United States must be seen in the light of the
supremacy of the European nations and the growth of the Western European empire. Whilst the United
States avoided action involving Europe outside the American continent, it engaged in several activities with
France, Great Britain, and Spain as it sought to control more of the continental landmass.

Footnotes

1. Ramsay, David. The life of George Washington: commander in chief of the armies of the United States, in
the war which established their independence; and first president of the United States . Printed by L.
Hanfard & Sons, for T. Cadell and W. Davies, in the Strand: And Longman, Hurst, Rees, & Orme, Paternoster-
Row., 1807, p. 328.

2. Ibid. p. 330.

3. Ibid. p. 331.

4. Ibid. p 332.

5. Olivier, Guillaume-Antoine. Travels in the Ottoman Empire, Egypt and Persia: Undertaken by Order of the
Government of France, During the First Six Years of the Republic . Vol. 2. TN Longman & O. Rees,
Paternoster-Row; and T. Cadell Jun. and W. Davies, in the Strand, 1801.

6. Ibid. p. 106; 193.

7. Fremont-Barnes, Gregory. The Wars of the Barbary Pirates: To the shores of Tripoli: the rise of the US Navy
and Marines . Bloomsbury Publishing, 2014.

8. Hanna, Mark G. Piracy in Colonial North America. In Oxford Research Encyclopedia of American History .
2020.

9. Lobel, Jules. Rise and Decline of the Neutrality Act: Sovereignty and Congressional War Powers in United
States Foreign Policy, The. Harv. Int’l. LJ 24 (1983): 1.

10. Waldo, Samuel Putnam. The Tour of James Monroe, President of the United States, in the Year 1817 . FD
Bolles & Company, 1818.

11. Ibid. p. 275.

12. Ibid. p. 279 – 281.

13. Whitney, Thomas R. A Defence of the American Policy as Opposed to the Encroachments of Foreign
Influence and Especially to the Interference of the Papacy, Etc . De Witt & Davenport, 1856.

14. Ray, Kristofer. The Indigenous Roots of the American Revolution. In Oxford Research Encyclopedia of
American History . 2020.

15. Ibid.

16. Maldonado, Julie K. Seeking justice in an energy sacrifice zone: Standing on vanishing land in coastal
Louisiana . Routledge, 2018.

17. The American Gazetteer: Exhibiting a Full Account of the Civil Divisions, Rivers, Harbors, Indian Tribes, &c.
of the American Continent: Also of the West-India, and Other Appendant Islands: with a Particular
Description of Louisiana . Thomas & Andrews, 1810.

18. Tomes, Robert. The Americans in Japan: an abridgment of the Government narrative of the US
expedition to Japan, under Commodore Perry . Appletn, 1857.
19. Milburn, William. Oriental Commerce: Containing a Geographical Description of the Principal Places in
the East Indies, China, and Japan, with Their Produce, Manufactures, and Trade, Including the Coasting Or
Country Trade from Port to Port: also the Rise and Progress of the Trade of the Various European Nations
with the Eastern World, Particularly that of the English East India Company from the Discovery of the
Passage Round the Cape of Good Hope to the Present Period: with an Account of the Company’s
Establishments . Vol. 1, 1813.

20. Davies, Benjamin. A New System of Modern Geography: Or, A General Description of the Most
Remarkable Countries Throughout the Known World. Compiled from the Latest Voyages and Travels, and
Containing Many Important Additions to the Geography of the United States . Johnson and Warner, 1813.

[Image: Scene at the Signing of the Constitution of the United States , Howard Chandler Christy, Public
domain, Wikimedia Commons]
The Role of the Researcher
| 15 Jun 2022 | Other
By Craig Wright
As a researcher develops through the doctoral learning process, it is essential to find academic peer
support groups that can aid in providing feedback and support. The development of relationships with
peers and supervisors who can act as mentors enables the student to develop social skills and enhance
their academic identity (Wisker et al., 2003). Interaction with one’s peers and supervisor is vital; through
the interaction with other people, we develop wisdom and sharpen our skills (Proverbs 27:17). Through
interactions with other people, the burgeoning researcher will be challenged, pushing the individual
further and helping them to develop their knowledge and skills in argumentation and rhetoric.

The Development of Scholarly Identity

Coffman et al. (2016) discussed how the development of communities of practice (CoP) would allow the
student in adult education to discover role models that can challenge the student, while offering a safe
environment in which to grow. With feedback from peers, the developing researcher can manage the
emotional pitfalls that occur with rejection and the necessity to change and resubmit work frequently.
The adverse shocks of rejection can lead many emerging scholars to develop a sense of failure and
internalise the negative feedback they receive (Dinham & Scott, 2001).

The development of a scholarly identity is crucial. It is through the development of such an

identity that the nascent researcher can improve upon existing research and contribute to the academic
community. Inouye & McAlpine (2019) noted that the skills gained from working with the peer group in
the academic learning environment and the supervisor and mentor would enable the researcher to
develop in a way allowing them to fit into a community of experts in their given field. In the same
process, the student is transformed into an independent thinker.

The process involved in a bachelor’s or master’s education creates individuals who are often good
course takers. Garcia & Yao (2019) discussed how becoming an independent scholar would involve
learning the necessary skills to be able to both internalize expertise and exhibit competency. A
significant component of the research process involves the dissemination of new knowledge. The
researcher needs to communicate with their peers to disseminate the new knowledge they have
discovered. It becomes necessary for the research student to be comfortable with the changes that
ensue as they develop as a researcher. Equally, the instructor needs to understand their role in creating
an integrated community of emerging scholars.

The Role of Mentorship in Student Development

It is the role of the mentor in leading the emerging scholar through a transformational learning process
that will enable the student to learn from rejection and become stronger for it. Such a process helps the
emerging researcher develop an identity (Coffman et al., 2016) that others will come to respect. In the
interactions with other people, the student learns how to express themselves and disseminate the new
knowledge they have created. By working with the student, the supervisor acts as a mentor, and is not
merely helping the student to understand the positive aspects of research and avoid obvious pitfalls.
Yet, it is also important to note that not all problems will be avoidable. The supervisor can help the
student learn how to handle rejection and other negative aspects of the research process (Lee, 2008).

The development of new skill sets is necessary for the completion of any research degree. When it
comes to a doctoral programme, the research student is expected to not only learn how to gain
knowledge but create and synthesize new knowledge. Here, the researcher needs to learn how to
engage in the socialisation process that, in gathering information that is necessary to conduct their
research (Garcia & Yao, 2019), will both promote their scholarly identity and allow them to engage in
broader discourse. The supervisor-student relationship is a two-way process. The interaction between
the student and the supervisor provides benefits for both individuals. As the student gains new
knowledge and shares it with their supervisor, the supervisor maintains and develops expertise in the
field the student is researching.
 Inouye and McAlpine (2017) demonstrated that a process of reflection and self-reflection was itself
improved when conducted with other people. When communicating with other people, the feedback
given allows the researcher to develop their written and interactive skills while clarifying their ideas and
improving the methodologies used for collaboration with other people. In the dual role of a mentor and
an instructor, the doctoral supervisor can manage the feedback process between the students’ peers
and external parties. In particular, the feedback provided by the supervisor should challenge the doctoral
student, providing learning opportunities. Even where the student is likely to experience negative
emotional responses, the supporting role of a mentor can help reduce the burden that such stress
brings with it.

Publishing the findings of research work is an essential component of academic and scholarly
investigation (Denis et al., 2018). As a component of the research role, a researcher must develop both
research skills and the capacity to communicate their findings. Without such abilities, the researcher will
never be able to contribute to the larger community. The transformation from graduate to scholar to
research professional provides challenges and opportunities that aid the student in transforming their
persona, allowing them to strengthen their research while actively engaging with their research
community and cohort. Developing skills in a friendly environment, under the direction of the research
supervisor, and in conjunction with the student’s peers provides opportunities to learn how to engage
with the wider world while avoiding the negative consequences of failures associated with learning.

Conclusion
The development of the necessary skills to review and criticise one’s own work in a manner that allows
positive development comes from the external feedback provided by research peers and mentors. The
supervisor’s role in managing the developing student is one of aiding transformation and enabling the
student to create a sense of self-identity, one that allows honest self-reflection yet strengthens the
confidence the student has in their work. It can be seen that the doctoral students who develop
relationships and strong support groups are more able to analyse their progress and more positively
accept feedback when compared to those who failed to utilise the provided opportunities. The
development of a CoP can aid the researcher in developing a successful research career.

References

Coffman, K., Putman, P., Adkisson, A., Kriner, B., & Monaghan, C. (2016). Waiting for the expert to arrive:
Using a community of practice to develop the scholarly identity of doctoral students. International
Journal Of Teaching And Learning In Higher Education , 28 (1), 30-37. https://eric.ed.gov/?id=EJ1106332.

Denis, C., Colet, N., & Lison, C. (2018). Doctoral Supervision in North America: Perception and Challenges
of Supervisor and Supervisee. Higher Education Studies , 9 (1), 30. https://doi.org/10.5539/hes.v9n1p30

Dinham, S., & Scott, C. (2001). The Experience of Disseminating the Results of Doctoral Research. Journal
Of Further And Higher Education , 25 (1), 45-55. https://doi.org/10.1080/03098770020030498

Garcia, C., & Yao, C. (2019). The role of an online first-year seminar in higher education doctoral students’
scholarly development. The Internet And Higher Education , 42 , 44-52.
https://doi.org/10.1016/j.iheduc.2019.04.002

Inouye, K., & McAlpine, L. (2019). Developing Academic Identity: A Review of the Literature on Doctoral
Writing and Feedback. International Journal Of Doctoral Studies , 14 , 001-031.
https://doi.org/10.28945/4168

Lee, A. (2008). How are doctoral students supervised? Concepts of doctoral research supervision. Studies
In Higher Education , 33 (3), 267-281. https://doi.org/10.1080/03075070802049202

Wisker, G., Robinson, G., Trafford, V., Warnes, M., & Creighton, E. (2003). From Supervisory Dialogues to
Successful PhDs: Strategies supporting and enabling the learning conversations of staff and students at
postgraduate level. Teaching In Higher Education , 8 (3), 383-397. https://doi.org/10.1080/13562510309400
The Evolution of the Constitution
| 29 Jun 2022 | Law & Regulation
By Craig Wright
Gordon Wood has provided an excellent history of the early birth of the Republic [1]. Wood introduces
the changes that occurred within the United States by using Washington Irving’s short story ‘Rip Van
Winkle’. In demonstrating the changes that had occurred in just one generation, Irving’s story is a rather
cogent tale. Irving noted “that the character of the very people seemed changed. There was a busy,
bustling and disputatious tone about it, instead of the accustomed phlegm and drowsy tranquillity.” [2]
To many, it seems as though the United States was merely intrinsically involved. Still, the true nature of
the changes that had occurred had been incredibly and radically altering society as a whole. The same
thing can be seen in the differences in US foreign policy as the country moved from the Articles of
Confederation to the US Constitution.

In a paper by Robert Clinton, we can see the history of adopting the Constitution of the United States
following the earlier Articles [3]. The evolution of the Constitution occurred gradually between 1776 and
1789 [4]. Over the same period, we see the foreign policy of the United States maturing as it moves from
a system without a formal written constitution towards the Articles of Confederation (1781) and, finally,
the draft of the Constitution (1787). The development in such a short period of time demonstrates the
attitude held by Irving. It was a radically changing world. The nature of sovereignty was fluctuating and
unfixed, so even a concept of foreign affairs could not easily be determined over the short period.

Before the formation of the principles of government defined under the Constitution, some would
argue, as Clinton noted, that sovereignty was going to mean a single sovereign nation, with the states
only providing administrative support [5]. In the early Continental Congress, debates resulted in a lot of
discord. Some sought a loose confederation of states, one that was very different from the notion of a
centralised executive authority. Article IX of the Articles of Confederation provided the Congress with
the sole and exclusive power to make war and peace [6]. As James Madison noted in Federalist No. 42,
the regulation of commerce is unfettered with the Indian tribes and within certain trade with the
surrounding nations. At this point, Article IX imposed import duties on foreigners and granted the right
and power of entering into treaties and alliances. The document left a failure in the ability of Congress to
regulate interstate commerce.

A difficulty that arose because of the lack of interstate commercial control by the Congressional
assembly is associated with the interactions between Great Britain and the various states. Britain
understood the distinctions between trade policies in the states. By discriminating against American
vessels in British ports and imposing different regulations and bounties across different vessels that
made the interpretations of regulations more onerous, Britain used such differences to exploit American
trade [7]. Mayo provides early primary evidence of many of the difficulties faced in raising money to pay
for the forces needed for military operations [8]. One of the primary difficulties that occurred involved
the dissension between states over issues that had a federal impact.

The 1781 Congress sought a partial remedy that would cover some of the financial problems and aid in a
universal foreign policy. Yet, Rhode Island refused to consent, and blocked the amendment using its
veto [9].

The early Congressional Congress formed Committees on Foreign Affairs, a Board of War, and other
divisions that started to form the early permanent executive departments within the Congress. The
difficulty remained where under Article IX, the various states had to implement the rules, and there was
insufficient power under the Confederate government. The early government under the Articles lacked
a separate executive branch, and did not have separate judicial authority. Consequently, it was reliant on
the state courts for the enforcement of federal law and policy [10].

The Madisonian form of republicanism adopted with the Constitution allowed the federal government to
implement many of the same policies that they had sought before 1787, without continuing vetoes from
the states.
One aspect that would change lay in the nature of the statecraft. In an analysis of the work of Thomas
Jefferson, it is possible to see how the foreign policy of the Congressional assembly differed from one of
the United States after the adoption of the Constitution [11]. Prior to the ratification of the Constitution,
the foreign policy of the Confederate states relied heavily upon the individual charisma and statecraft of
people such as Jefferson.

Another interesting way of looking at the differences is to investigate the surrounding nations and
states. Haas looked at the interaction between plantation owners and slaves in the face of the Spanish
regulation of slavery in Louisiana, in the period up to 1803 [12]. An analysis of the history of Louisiana and
the interactions with the United States at the time and following the implementation of the
Congressional powers shows how trade and government interactions varied. Looking at the trade rules
that were reported at the time, it becomes clear that the interactions with Indian nations and areas next
to the United States, but not part of the United States at the time, before and after the signing of the
Constitution were very different [13]. In documenting the history of Louisiana, Martin noted the
differences in how United States agents had been viewed compared to the Spanish planters noted by
Din [14].

The analysis by Dougherty of what he terms ‘collective action’ under the Articles shows the plans
implemented by Ben Franklin that he hoped would form an American Confederation under a creative
partnership [15]. Unfortunately, without the ability to raise money to fund the Federal government,
implementing many of the policies became unfeasible. Hamilton can be demonstrated to have
implemented ideas that were consistent with the modern theory of public goods [16]. Hamilton and
other Federalists understood that a stronger central government could be created through the
Constitution, whereby the weak institutional arrangements that had allowed government policy to be
vetoed, which was the case under the Articles, would no longer be an ongoing problem.

Footnotes

1. Wood, Gordon S. (2009). Empire of Liberty: A History of the Early Republic, 1789-1815 . Oxford University
Press.

2. Ibid. p. 1.

3. Clinton, Robert N. (1989). A Brief History of the Adoption of the United States Constitution. Iowa L. Rev ,
75: 891.

4. Ibid. p. 891.

5. Ibid. p. 892.

6. Ibid. p. 893.

7. Sturmey, Stanley G. (2017). British Shipping and World Competition . Oxford University Press.

8. Mayo, Robert. (1852). Army and Navy Pension Laws and Bounty Land Laws of the United States
Including Sundry Resolutions of Congress, from 1776 to 1852: Executed at the Department of the Interior.
With an Appendix, Containing the Opinions of Attorneys General of the US, with the Decisions, Rules,
and Regulations Adopted by Different Secretaries, Relative to the Execution of those Laws . Compiled by
R. Mayo and F. Moulton. p. VIII.

9. Wood. (2009). Empire of Liberty . Oxford University Press.

10. Ibid.

11. Tucker, Robert W., & Hendrickson, David C. (1990). Empire of Liberty: The Statecraft of Thomas
Jefferson . Oxford University Press, USA.

12. Din, Gilbert C. (1999). Spaniards, Planters, and Slaves: The Spanish Regulation of Slavery in Louisiana,
1763-1803 . Texas A&M University Press.
13. Martin, Francois X. (1829). The History of Louisiana . vol. 2. p. 243.

14. Ibid. p. 320.

15. Dougherty, Keith L. (2006). Collective Action under the Articles of Confederation . Cambridge
University Press. p. 6.

16. Ibid. p. 8.

[Image: Scene at the Signing of the Constitution of the United States , Howard Chandler Christy, Public
domain, Wikimedia Commons]
The Development of Modern Art
By Craig Wright | 05 Jul 2022 | Other
The death and destruction that occurred during World War I led many artists to abstract life and define
something outside of reality. The international competition that had existed between countries would lead
to the clashes in 1914. Such socio-economic changes throughout the early twentieth century changed both
the European and the North American worldview. The changes led to the development of new styles of art,
where individuals experimented with abstract ideas, outside of the reality they were attributing to warm
and unbounded competition. The development of Einstein’s theories, including relativity, psychologically
influenced many of the painters—leading to the development of Cubism beyond the initial period from 1905
to 1910.

Simultaneously, changes in technology that led to automation and the expansion of factory-based systems
also led to the invention of new materials that the artist could use, along with the creation of new somatic
ideas and subject matters. Coupled with Freud and Jung’s dream states, artists started incorporating a
series of dream states into their art. The dream analysis of Freud would find its way into artistic theories
such as that by Breton. The incorporation of treating shell-shocked troops with the idea of the superego,
and the moralising role imported from it, led to the development of surrealism as an alternative to the real.
The surreal extended into shock and what some called ‘compulsive beauty’. The extreme included the work
by Brunel and Dali (1929), who visualised shock and trauma as concepts that would awaken people to their
subconscious.

René Magritte created works during the ‘golden age’ of surrealism. As with the nihilistic protest movement
started with Dada, such works abandoned the tradition of academic art and the value imparted through
traditional Western education. While Dadaism and surrealism shared many similarities, they stood apart in
their methods of opposition to the existing status quo and power structure of society. Artists such as
George Grosz moved from a nihilistic protest associated with the Dada movement towards a focused
expression of disgust, designed to reject the cruelty and decadence which he had perceived as associations
with the capitalist classes and bourgeois.

George Grosz (1893-1959). The Pillars of Society , 1926 (oil on canvas).

In The Pillars of Society , Grosz sought to portray the true faces of the masters of society. In the portrait, we
see the capitalist fat cats supported by both religious figures and the military. In a homage to mediaeval art,
the capitalist leaders hold symbolic attributes, in the same manner that saints would carry relics, to help
identify them. The contrast between Dadaism and surrealism lies in the artist’s focus, with the surrealist
artist seeking a more creative and positive philosophy. The nihilistic attitudes of the Dadaist artists such as
Grosz disregarded the art of the past—while still incorporating some of the ideas. The paradox is that they
are self-destructive. In their condemnation of cultural conformity, they create a new form of conformity.
René Magritte (1898-1967). The Human Condition , 1933.

The surrealist artists, including Magritte, seek to expand monument consciousness. We can see the
symbolism in The Human Condition (1933), where the painting exactly matches the scene outside the
window. Alternatively, as in The Pillars of Society (1926), the artist looks back at a past that never truly existed,
and rejects the existing bourgeois ideas of the Western capitalist society.

Max Ernst. The Eye of Silence , 1943 (oil on canvas).

In extending Freud’s idea of dream interpretation, Max Ernst (1943) created an image of what appears to be
a calm, reflective lake. The brown and red shapes concurrently imply ancient stone movements, rock
formations, foliage, and ancient civilisations. The artist seeks to form new entries that provoke a symbolic
investigation into the human psyche. Such a provocative investigation into the conjoining of organic and
inorganic structures creates a fusion of animate and organic structures with rock and gelatinous mineral
formations.
Andre Masson (1896-1987). Automatic Drawing , 1924.

Simultaneously, we can see the free association techniques that Freud initiated, creating and crafting a
resolution of dream states between the unconscious and the conscious minds in extending reality, in
Masson’s Automatic Drawing (1924). The following work of Salvador Dali, including his Slave Market with the
Disappearing Bust of Voltaire (1940), demonstrated the concept of incorporating the most profound
memories and instincts of the unconscious human mind into art. In adopting such ideas, both Freud and
Jung integrated the unconscious mind into the artistic process.

Salvador Dali (1904-1989). Slave Market with the Disappearing Bust of Voltaire , 1940.

As the surrealist artist sought to realign society, the Dadaist rejected society as something absurd. In Ernst’s
The Elephant Celebes (1921), we see the reinvention of time and society. In this work, Ernst takes a Sudanese
corn bin and transforms it into an abstractly menacing behemoth or leviathan, one that creates Hobbesian
concepts of both government and childish rhymes. The Freudian free association includes a headless figure
of a female, inextricably combined to form a furtive, dreamlike state.
Max Ernst (1891-1976). The Elephant Celebes , 1921 (oil on canvas).

Here, the artists demonstrate the philosophical rejection of noting the absurdities in life.

References

Andre Masson (1896-1987). Automatic Drawing , 1924.

George Grosz (1893-1959). The Pillars of Society , 1926 (oil on canvas).

Luis Bunuel & Salvador Dali. Un Chien Andalou , 1929 (film).

Max Ernst (1891-1976). The Elephant Celebes , 1921 (oil on canvas).

Max Ernst. The Eye of Silence , 1943 (oil on canvas).

René Magritte (1898-1967). The Human Condition , 1933.

Salvador Dali (1904-1989). Slave Market with the Disappearing Bust of Voltaire , 1940.
Directly from One Party to Another…
By Craig Wright | 11 Jul 2022 | Bitcoin & Blockchain Tech
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one
party to another without going through a financial institution.

The Bitcoin white paper is a contract (Caruso, 2018). Whether you’re using Bitcoin or some poor copy of
Bitcoin, such as the BTC Core network, the terms of the document are binding, and include all the nodes and
all of the developers (Tiersma, 1992).

I personally always thought that I had explained it very clearly. Yet, I am autistic and have a pedantically literal
perspective of many things, especially ones that I’ve put out independently and with a lot of care, such as the
white paper. I find it remarkably surprising that we are still arguing about the meaning I put into the
document. So today, I’m going to look at the first sentence of my paper and explain it to people. It seems to
be too complex for people to understand. I’m not sure why.

The first sentence notes that payments can be “ sent directly from one party to another ” (C. S. Wright,
2008). Please think about the meaning of the sentence. You do not make a transaction directly by sending it
through multiple hops. If you send a payment to a node, and then someone else collects from the node, the
node is an intermediary . Although nodes record transactions, they are not supposed to serve as the
methodology primarily used for recording transactions and processing.

Rather, as I’ve said many times, Alice wants to pay Bob. So Alice directly gives Bob a transaction, in exchange
for the goods and services. Bob wants to ensure that Alice cannot ‘double-spend’ the transaction she has
made. The nature of a Bitcoin transaction is similar to the nature of a negotiable instrument such as a cheque
(Aigler, 1924). It forms a type of money, but is more than money when it can be settled as quickly as on the
Bitcoin network. As such, it can be cash.

Once Alice has handed the transaction to Bob (think of it as Alice writing Bob a cheque and handing it to
him), Alice doesn’t care any more. Alice has provided the details of her payment and met her obligation. Bob
has the transaction (the cheque). For Bob to ensure that the transaction becomes valid, he needs to register
ownership with the nodes. The tokens stay with Bob. The record of the transfer is now stored on-chain.

If Alice has not tried to cheat, Bob will have his transaction (received directly from Alice) recorded on the
network, and his ownership can be asserted. Such is the nature of a peer-to-peer transaction. It means direct
communication between parties. It does not mean having multiple entities acting as a virtual server. Rather, a
peer-to-peer transaction means communication between the individuals engaging in an exchange or trade.
Remember, it is electronic cash.

Bob can be notified within a fraction of a second that the transaction is valid. The nodes vote on the ordering
of transactions, and accept whichever transaction they have seen first. In a fraction of a second, the nodes will
return the status of the transaction to Bob. Bob will know either that Alice has given him a valid transaction,
that has not been ‘double-spent’, or that she has cheated within a fraction of a second. For added certainty,
Bob can check again in a few seconds. In any event, it is way quicker than what you will need to do to be able
to purchase a coffee.

If Alice cheats, she will commit cheque fraud [1]. She will have done so while providing evidence of the fraud to
Bob. Such evidence can be used in a court of law, and Alice can be charged with criminal fraud and theft.
Digital signatures provide good evidence, that, if she cheats, will quickly be used in prosecuting Alice.

To break down the meaning of the sentence, I will give you the derivations and meaning of the words.
“Purely” references something entirely or exclusively done in a pure manner. A manner without admixture.
That is, a pure peer-to-peer system that is a purely transferred means to send electronic cash directly must
follow it without exception. When Bitcoin was created, for example, the main way to conduct transactions
was through IP-to-IP exchanges. That is, you did not send them to an address; you sent them to the person’s
computer address. This computer address was their IPv4 or IPv6 network address.
“Electronic cash” references something that is not digital gold. “Electronic” is easy enough to understand, in
my opinion. “Cash” references money in the form of notes or coins. While bank cheques are not cashed as you
get money from an intermediary, banknotes or negotiable instruments are recognised as cash. Negotiable
instruments have been used for hundreds of years. Such instruments are not paid to a particular party, but
can be used again and again, and as they are used, the traditional British law makes them more valuable. I
shall write about such instruments in another post.

Cash is ready money. Grant (2019) notes that “a negotiable instrument is equivalent to cash”. It is something
that is quickly exchanged and settled. When someone hands you a note, and you can quickly verify that it’s
real, you can quickly check whether they have deceived you. A high-quality bank cheque differs from a
personal cheque. When the bearer is paid by bank cheque, it becomes a form of cash. It is a banknote, and
although many countries have legally removed the ability for bank cheques to be transferred between users,
there is a long history of it.

When you search for the meaning of “peer-to-peer”, you cannot simply take what people are saying today.
There is a flaw in the research methodology deployed by many modern universities. Rather than allowing
people to find earlier sources that give better definitions, they require students to include new publications,
which are often Chinese whispers of the original idea.

When I created Bitcoin, I used the terminology that was most highly regarded at the time. Yet, in a paper by
Schollmeier (2002), the concepts of different types of peer-to-peer networks were defined. The author
references ‘“pure” peer-to-peer, or “hybrid” peer-to-peer or client server architecture’. The user component of a
pure peer-to-peer network is one where there are no servers. A purely peer-to-peer system such as Bitcoin
enables users to exchange value directly. Note that “directly” here means that you don’t go through someone
else’s node. By definition, if you are sending something to any party other than the final party, it is not a direct
peer-to-peer exchange.

So, when considering how Bitcoin is constructed, you need to remember that the methodology of how many
people use blockchain networks is wrong and, by definition, not peer-to-peer. If you are sending information
in any way other than directly, it is not purely peer-to-peer. By definition, decentralisation involves pushing
information to the edges. It means not creating a central node network that controls everything. It means not
having a small bunch of developers setting rules and being able to arbitrarily change them. The term
‘decentralisation’ refers to individuals being able to exchange information and minority groups being able to
act independently. It means that a centralised system, as seen with the BTC system or Ethereum, does not
control the network (Calamari, 1961). It means that nodes cannot arbitrarily change rules.

The Bitcoin white paper does not say that the nodes are irrelevant. On the contrary, in the first sentence, it
says that payments can “be sent directly […] without going through a financial institution”. When Alice gives a
transaction and the related tokens to Bob, nothing goes through the nodes. The nodes do not decide
whether the transaction is finalised and should be recorded. Bob does. In the exchange, Bob has received
tokens from Alice in payment or exchange. They could have exchanged purchase orders and invoices offline.
There could be an exchange of goods and services related to the sale. In any case, Bob has now directly
received a payment from Alice.

In the exchange, the nodes operate to do nothing more than accept the reference of a time-ordered
transaction from Bob and record it. There could be other information or documents that Bob has received,
which he might only store the hash of. When Bob sends it to the network, he doesn’t merely send it to one
node. Rather, Bob will send it to all the nodes he can see. In the BTC network, there are fifteen nodes. Of
them, three control 51% of the network.

The nodes are paid a small fee to record Bob’s information. They act under an agency agreement through a
unilateral contract with the issuer. In Bitcoin, I am the issuer and the responsible party in the system. I don’t
shirk such responsibility. I have said so multiple times. Yet, the nodes act as honest agents and record the
information, returning information concerning the validity of the transaction to Bob. Such work is what a
node is paid for.

When the node registers Bob’s transaction, it adds the transaction to a block. The block is not yet valid. Only
one block, from all the miners, will be validated, which is achieved through the proof-of-work process. All
nodes (aka miners) can reference the order of transactions. If a miner disputes the order, there is evidence
that may be used to demonstrate that one of the nodes is acting dishonestly. Such evidence can be
presented in court. Dishonest nodes are effectively committing a computer crime. Such an attack is covered
under various pieces of computer crime legislation around the world. Nodes present a large investment,
which will be lost if they do not act honestly.

The node doesn’t care about the details of the transaction. By default, the node will assume that the owner of
the transaction is the possessor, unless there is some evidence to the contrary. Evidence of ownership can
always be provided through court orders, which can quickly alert the entire network of nodes and operators
of any malfeasance. The concept was noted in my white paper, but I shall cover it another time.

Some people will argue that nodes act as a financial institution. Yet, for small casual payments, a node is not
acting in any way where they could be seen as a trusted intermediary. Here lies an important distinction,
which includes the reference to “small casual transactions” yet which I will also cover on another occasion. In
any event, the recording of information and the provision of notary services differ greatly from what would
present the creation of a financial institution. A financial institution cannot process more micropayments
because of all the controls they need to implement around the system. For large transactions, some of them
will always be required. The difference is that the freezing of assets and blocking of transactions can be
automated. It can be handed over to a notary service, and the nodes can simply accept and enforce the rules
applied across the network.

Nodes do not create rules. Nodes enforce rules, which is something that is documented later in my paper.
But, for now, all that matters is that nodes are a notary in the sense that they are recording transactions and
following a predefined set of rules. Under this form of operation, the nodes are not financial institutions.
Instead, nodes provide a service for the payment of fees. The service simply involves recording transactions
when they are received and rejecting any attempts at sending the same input values more than once.

The inputs in Bitcoin can be spent only once. The double-hash structure doesn’t allow collisions in the
transaction ID (TXID); there will only be one TXID for any input throughout history. There is no capability to
have a TXID occur more than once in the Bitcoin system. When Alice sends a transaction to Bob, she
communicates directly with him. It is up to Alice and Bob to check all the legally required transactional
information, and Bob can validate the information received from Alice, which includes the transactional
information. Collecting information concerning know your customer (KYC) and anti-money laundering (AML)
provisions does not need to fall upon the nodes (Smith & Walker, 2010).

The nodes ensure that transactions occur. It is up to Bob and Alice to ensure that they follow the rules within
their jurisdiction. The system mirrors cash. If Alice hands Bob $11,000 worth of cash, Bob will be obligated to
record the transaction in most jurisdictions. Because of Bitcoin, the relevant information can be privately
stored, in a secure manner, which can be proven forensically, without exposing any sensitive information to
the public. Here lies another aspect covered in my white paper, which will be further explained as I go
through it sentence by sentence.

In summarising the first sentence of the Bitcoin white paper, everything we’ve just covered should be clear
now. Bitcoin is a direct communication system, one that allows Alice to talk directly to Bob and instantly send
online electronic cash—without requiring the nodes. Instead, Bob uses the nodes to validate that Alice has
not cheated him. Bob can send the transaction processing any time he wants, but the transaction is at risk
until he has sent it to the nodes, so the transaction can be recorded. Once Bob sends the transaction, he will
know whether the transaction is valid and that it has not been ‘double-spent’ within a fraction of a second.
With such information, Bob can start providing the services Alice requested.

Nodes operate automatically. They don’t sit there with their operators choosing which transactions will or will
not be accepted. Instead, all the rules are automated and run through a computer system that does not
know who the individual sending transactions happens to be. The scenario does not stop the transaction
from being frozen. The nodes don’t select such action, and the nodes only enforce the rules that they are
given. As such, nodes cannot be promoted as a trusted third party. Such a form of internet payment
intermediary was documented in my 2007 Master of Laws thesis (C. S. Wright, 2008).
I constructed Bitcoin and the nodes that index the system after completing my law degree. The reason for
doing so is that I had studied and analysed English law as it would relate to internet intermediary liability.
From the study, I learned that nodes would not be liable for the actions of the parties if they followed the
rules, implemented required legal changes, and acted as a library in reference to publishing. By enforcing
rules and not creating them, processing transactions as needed, and implementing the ability to freeze
transactions, nodes can build a business that facilitates the payment of transactions, indexing transactions
without allowing double-spending. It is a commercial system. It acts within the law.

The Bitcoin white paper has been available for fourteen years now. Some people had direct access at the
time. Others did not. Eventually, in 2008, it was publicly disseminated. I should not have to be explaining each
point at such a late stage. The terms are simple. They are not complex, and they should be easy to
understand. I should not need to write nearly 3000 words documenting the meaning of the first sentence of
the white paper. But, unfortunately, it seems that I have no option. In today’s Orwellian world of doublespeak
(Orwell, 2021), the meaning of words has radically shifted, and people can’t seem to understand basic English.

Some people will call me angry. Some people will sense my frustration. But, there is a reason for it. I created
Bitcoin as a peer-to-peer electronic cash system. I created a micropayment system that would enable the
poorest people on earth to trade. Yet, it has been twisted into a criminal money laundering system and a
Ponzi scheme. So when you tell me to be happy, I say, I will be happy when my system is being used as my
paper dictates it should.

Footnotes

1. See https://www.met.police.uk/advice/advice-and-information/fa/fraud/business-fraud/mandate-and-
cheque-fraud/

References

Aigler, R. W. (1924). Recognition of New Types of Negotiable Instruments. Columbia Law Review , 24 (6), 563–
593. https://doi.org/10.2307/1113203

Calamari, J. D. (1961). Forging a Good Unilateral Contract or a Series of Good Contracts out of a Bad Bilateral
Contract. Washington University Law Quarterly , 1961 (4), 367–381.

Caruso, D. (2018). Then and Now: Mark Pettit’s Modern Unilateral Contracts in the 1980s and in the Age of
Blockchains Tributes. Boston University Law Review , 98 (6), 1789–1797.

Orwell, G. (2021). 1984 . Antiquarius.

Schollmeier, R. (2002). A definition of peer-to-peer networking for the classification of peer-to-peer

architectures and applications. Proceedings First International Conference on Peer-to-Peer Computing , 101–
102. https://doi.org/10.1109/P2P.2001.990434

Smith, R. G., & Walker, J. (2010). The illegal movement of cash and bearer negotiable instruments: Typologies
and regulatory responses. Trends and Issues in Crime and Criminal Justice [Electronic Resource] , 402 , [1]-6.
https://doi.org/10.3316/informit.846224631430502

Tiersma, P. M. (1992). Reassessing Unilateral Contracts: The Role of Offer, Acceptance and Promise. U.C. Davis
Law Review , 26 (1), 1–86.

Wright, C. S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. SSRN Electronic Journal .
https://doi.org/10.2139/ssrn.3440802

Wright, D. C. S. (2008). The Impact of Internet Intermediary Liability [SSRN Scholarly Paper].
https://doi.org/10.2139/ssrn.2953929