We have not only saved the world, er, saved the banks…
Gordon Brown, former UK Prime Minister
In September 2008, crisis gripped the world.
Many believed the entire financial system was about to collapse. It was a ‘global financial tsunami’; we were ‘on the brink’ and ‘staring into the abyss’.1 Capitulating stock mar- kets, bankruptcies, bank runs – events came thick and fast and, at first, nobody seemed to know quite what to do.
Then, under immense pressure from the world of finance, governments and central banks reacted dramatically. They created money and credit on a scale unprecedented in human history. Banks were bailed out, interest rates were slashed to levels never seen before and the process of creating money electronically known as quantitative easing was begun.
The financial system was saved. Central bankers were hailed as heroes. The idea spread that governments and central banks really can operate an economy. Even those who would normally oppose such interventions seemed to think the right thing had been done.
A few dissenters argued that the few were being bailed out at the expense of the many, that enormous problems in the financial system were simply being deferred when they needed to be faced, and that these problems would only come back on a far greater scale. At the heart of the problem is money itself, they said. The way money is created means that banks and governments have inordinate control over our financial system. They profit hugely by it, while everybody else loses. The system actually creates inequality.
But such dissent was ignored – if, indeed, it was even heard.
‘Only a crisis, real or perceived, produces real change’, said economist Milton Friedman. Here was that opportunity for real change – an opportunity to reform our systems of money, banking and gnance – our entire economies even. Politicians chose not to take it, preferring instead to save a broken system.
But that badly needed change was taking place – secretly, in a remote corner of the internet, far away from the sound and fury of this great financial crisis.
On August 18th 2008, a domain name is registered – bit-coin.org.
Even today, nobody knows who registered it.
Two weeks later, one Satoshi Nakamoto publishes a nine- page white paper outlining a design for ‘Bitcoin: A Peer-To- Peer Electronic Cash System’.2 Nobody takes any notice.
Two months pass. On November 1st 2008, with the stock market now in full-on crash mode, Satoshi mentions his paper on a mailing list for people with an interest in cryptography.
‘I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party’,3 he says.
He is thrown various technical questions, which he answers. Nobody seems persuaded. It does not ‘scale to the required size’, says one. The code ‘can’t work on today’s internet’, says another. Governments will close it down if it takes of, says a third.
‘I believe I’ve worked through all those little details over the last year and a half while coding it, and there were a lot of them’, says Satoshi. ‘I appreciate your questions. I actually did this kind of backwards. I had to write all the code before I could convince myself that I could solve every problem’.4
A week later the Bitcoin project is registered at Source- forge, a website ‘dedicated to making open source projects successful’.5
On Saturday January 3rd 2009, the day UK Chancellor Alistair Darling announces his second bailout of the banks, the first 50 bitcoins are created – or, to use the correct terminology, ‘mined’. A few days later, Satoshi returns to the mailing list and says, ‘Announcing the first release of Bitcoin, a new electronic cash system.’
What had been born was a new form of money – money that could change the world.