Inside the Mind of the Man Who Could Be Bitcoin’s Creator

Internet, Everywhere (FEE) – Many observers think Nick Szabo is the pseudonymous Satoshi Nakamoto, creator of Bitcoin. Szabo, you see, is a coding wizard who had already created an earlier digital currency called “bitgold.” Could bitgold have been a practice run?

What’s more interesting is that Szabo has written extensively on the history of law. In particular, he writes about Anglo-Saxon emergent law, which collided eventually with the “master-servant” law of Justinian’s Rome. And Szabo argues that what we have today in the United States is but the shrinking vestige of common law operating within a growing body of Byzantine statutes.

All this might sound esoteric, but it has profound implications for cryptocurrencies, smart contracts, digital property titles, dispute resolution, and other potential applications of the blockchain at the heart of bitcoin — especially if Szabo is, in fact, the developer who set about writing source code for peer-to-peer law.

Szabo wrote in 2006,

Here’s my paper on private jurisdiction in English history. Franchise jurisdiction played a crucial but unheralded role in the history of English law and politics. Some private jurisdictions existed in Anglo-Saxon times but they grew in importance in the Norman and Angevin periods, and in the corporate form remained an important part of the British Empire until the 20th century.

A franchise, such as a corporation, a jurisdiction, or a right to collect certain tolls or taxes, was a kind of property: an “incorporeal hereditament.” English property law was very flexible; as a result franchise jurisdictions came in a wide variety of forms.

One can see how Szabo would have appreciated that flexibility as a developer.

Of course, some of these aspects of the common law (law by many) are still with us, but they have been overtaken in many quarters by edict (law by one) or especially by statute (law by few).

So what happened?

The Anglo-Norman legal idea of jurisdiction as property and peer-to-peer government clashed with ideas derived from the Roman Empire, via the text of Justinian’s legal code and its elaboration in European universities, of sovereignty and totalitarian rule via a master-servant or delegation hierarchy. By the 20th century, the Roman idea of hierarchical jurisdiction had largely won, especially in political science where government is often defined on neo-Roman terms as “sovereign” and “a monopoly of force.”

Indeed, as I wrote in “The End of Politics,”

Once-great empires soon grew up amid the detritus of war. The clan-king became a god-king. The administration of empire required more layers of hierarchy, which meant delegating power to satraps and governors. The emperor would issue commands to subordinates and those commands would be carried out by those on down the chains of command. Patronage relationships became the norm. The order of man lording power over man took on religious dimensions. Values such as loyalty, honor, obedience, and patriotism firmed up the hierarchy, and without such values, the structure could be weakened either from internal dissent or from better organized enemies.

Hierarchy became more elaborate over time as each layer was added, and hierarchy persisted, apparently, as humanity’s dominant social technology.

This militaristic law is so ingrained in our understanding now that it’s difficult for most of us to imagine life outside of it. Our understanding is of wise stewards minding the upper echelons of statecraft, while the rest of us team and hustle in the relatively peaceful interstices the regulatory state provides for us. It’s hard to conceive of alternative forms of governance and law doing better, and when people drop the A word with respect to these alternative forms, people can’t get past their own connotations.

Most of us have been thoroughly inculcated with this Hobbesian rationale. For example, just in debates among classical liberals, there are those convinced that persistent peace requires a final arbiter — one whose final word quashes conflict and whose law is made absolute through enforcement. And when it comes to alternatives, our failure of imagination has given rise to some of the most predatory regimes in history. As Szabo writes,

Our experience with totalitarianism of the 19th and 20th centuries, inspired and enabled by the Roman-derived procedural law and accompanying political structure (and including Napoleon, the Csars, the Kaisers, Communist despots, the Fascists, and the National Socialists), as well as the rise of vast and often oppressive bureaucracies in the “democratic” countries, should cause us to reconsider our commitment to government via master-servant (in modern terms, employer-employee) hierarchy, which is much better suited to military organization than to legal organization.

Indeed, we should reconsider our unreflective commitment to such hierarchies, because law and society are not only possible without them, but could be more robust, peaceful, and prosperous without them. But how do we move beyond those hierarchies?

The person who designed the basic protocols of the blockchain understood the power of “dumb networks” as opposed to Byzantine codes. As Szabo writes,

Fortunately, franchise jurisdiction has left permanent influences on modern governments, including on the republican form of government in general and the United States Constitution, federalism, and procedural rights in particular. It also left a record of a wide variety of forms of law and government that can provide us with alternatives to the vast employee hierarchies wielding coercive powers that have given rise to modern oppression.

Likewise, the inventor of bitcoin is helping us imagine a different sort of world. I wrote the following in part two of “The End of Politics”:

The architecture of the Web has already shown the world what’s possible in terms of upgrading our democratic operating system (DOS). This is true both in the sense that our new social technologies are like our online technologies, and in the sense that our online technologies enable new social technologies to emerge. Little platoons are already emerging on the spine of the blockchain, for example. And just as Lyft and Uber are showing taxi cartels how it’s done (or as Kickstarter is showing the NEA how it’s done, or as Bitcoin is showing the Federal Reserve how it’s done) new parallel governance structures will soon show State hierarchies around the world how it’s done.

What might the world look like when this process is further along? It’s hard to predict. But the network architectures show the way.

All of this was my rather roundabout way of saying that we’re already weaving together new law and using it, without permission.

Echoing legal scholar Bruce Benson’s Enterprise of Law, writer and venture fund manager Michael Gibson leaves us with an even brighter glimpse of the future in “The Nakamoto Consensus”:

It turns out there’s only one thing that guarantees production of good laws. The people bound by the laws have to agree to be bound by them. Not hypothetically or tacitly, as in some imaginary will of the people or behind a veil of ignorance. Consent must be real, transparent, and continuous. No law can bind a single person unless that person consents to be bound by that law. All laws must be strictly opt in. Lawmakers could be saints, devils or monkeys on typewriters — doesn’t matter. The opt out–opt in system lets only good laws survive. Bad laws are driven out of production.

Bad laws can only inflict harm and destroy wealth up to the cost to opt out of them. We can underthrow the state one contract at a time.

This single insight — articulated so well by Gibson — is what surely informed Nick Szabo and inspired Satoshi Nakamoto.

But if the “underthrow“ of Leviathan lies ahead, it will be thanks not only to encryption technology but also to understanding the beauty, flexibility, and robustness of emergent law. Smaller jurisdictions created by forking the code or by allowing people to vote with their boats are enough to reduce the costs of exit.

Szabo writes,

The overall goal of Juristopia is to improve the most important functions of government (especially defense and the abatement of public nuisances) while preventing the corruption, oppression, war, genocide, and other abuses that have so often come with police powers and taxation. Those evils have been particularly prone to occur when those powers are bundled into a locus of sovereignty, a la the personal totalitarianism of the Justinian Code, Bodin, and Hobbes or the parliamentary totalitarianism of Bagehot. These traditions of legal procedure, assuming political relationships are a matter of delegation rather than of property, have given us almost all of the worst in Western history: the Caesars, the Tsars, Napoleon, the Kaisers, the communist dictators, Mussolini, Franco, and Hitler among others — based on the profoundly false and destructive assumption, derived from the legal procedure of the Roman Empire, that there must be “one person” who is “responsible” for all politics and law — a person or (for Bagehot) small organization sitting at the top of a vast pyramid of principal-agent, usually boss-employee, relationships.

Although it discards totalitarian political structure and legal procedure, our proposed form of government is based on historically proven legal mechanisms. With the clarity of legal procedure it avoids the vague nonsense that often passes for political philosophy. Much of the political structure of Juristopia is based on highly evolved common law mechanisms such as property and contract, but these are used in the same basic manner as in the common law, rather than as misleading analogies or mere labels.

Let’s hope this process unfolds before the hierarchies grow too authoritarian in response.

Bitcoin Image Source: BTC Keychain, Flickr, Creative Commons

Image Source: BTC Keychain, Flickr, Creative Commons

Whether Nick Szabo is Satoshi Nakamoto I cannot say. But at the very least, Szabo was part of a community from which Nakamoto drew knowledge and inspiration. And that community was built on great ideas that are finally being given expression in ones and zeros.

Written by Max Borders For Foundation for Economic Education. 

2 comments for “Inside the Mind of the Man Who Could Be Bitcoin’s Creator

  1. June 21, 2015 at 11:42 am

    Yes, yes, it’s all fun and games until the power goes out.

    Bitcoin is just value-added electricity. It may be cryptologically clever, and it may be philosophically laudable (if you’re a devotee of Barnum), but you can completely demolish its value by attacking the crumbling transmission infrastructure that supports, transports, stores, and generates it. The failure state of the bitcoin economy is a complete system crash with no insurance, no social buffer, and no avenue of redress. It will never “sort of work”. It will never be negotiable in a crisis.

    Go look into the market for bitcoin mining hardware if you ever want an object lesson in how to scam the pants off people who have significant disposable income and severely limited critical thinking skills.

    p.s. TFC, check your tags for typos.

  2. Rob M
    June 21, 2015 at 3:14 pm

    GB Chew,

    I’d say that in most first-world supermarkets and chain stores, if the power goes out, no transactions will occur. These stores will be crippled. Perhaps you think they should all go back to cash-only transaction and handwritten ledgers, as the current system they depend on to exist is to fragile?

    If the power goes out in the data centers that power a bank or credit card network, you think they are better off then Bitcoin’s network?

    The decentralized nature of Bitcoin allows one to cut out the power in 95% of the world, the 5% of Bitcoin miners remaining will continue to keep the network running flawlessly (for those who do have power) with a ton of security. Yes, an attack is easier at this point, but still difficult and costly. And the net effect of a successful attack might be to prevent current transactions from processing. That’s the worst case scenario, hardly a death blow. The combination of security through math (encryption) and decentralization is pretty powerful.

    Meanwhile, every single bit of Bitcoin you own on your own wallet remains secure, regardless of power outage or attack on network. Totally secure.


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