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This is a chapter from the book Token Economy (Third Edition) by Shermin Voshmgir. Paper & audio formats are available on Amazon and other bookstores. Find copyright information at the end of the page.

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Bitcoin was created to provide a P2P electronic cash system that resolves the double-spending problem over the Internet in the absence of traditional financial intermediaries. The proposed solution was a coordination mechanism (Proof-of-Work) that allows untrusted Internet actors to collectively maintain a public ledger of transactions by rewarding them with newly minted Bitcoin tokens. While its original vision emphasized decentralization and autonomy, practical realities have introduced new financial intermediaries and power structures, challenging its foundational principles. This chapter builds on the technological details explained in the first part of the book and will analyze to what extent the token design reflects this purpose and how the network and its stakeholders have evolved over time.

On November 1, 2008, the pseudonymous Satoshi Nakamoto published the Bitcoin white paper on a financial cryptography mailing list. It proposed combining P2P networks with economic anti-spam mechanisms and digital signatures to create a fault-tolerant, attack-resistant P2P electronic cash system that resolved the double-spending problem over the Internet without relying on traditional financial intermediaries. The white paper sparked immediate interest and discussion. Two weeks later, Satoshi distributed a preliminary source code to selected mailing list participants, who began improving it.

On January 3, 2009, the "genesis block" was mined by Satoshi Nakamoto, marking the official start of the Bitcoin network. The genesis block contained a special message in its first transaction: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." This was a reference to a headline from “The Times” newspaper on that day. A few days later, version 0.1 of the source code was publicly released by Satoshi, inviting broader participation in the network’s development and use. Bitcoin’s launch coincided with the global financial crisis, which, combined with its groundbreaking Proof-of-Work innovation and the mystery surrounding Satoshi Nakamoto’s identity, fueled widespread interest.

Initially, it was uncertain whether the economic assumptions underpinning Proof-of-Work would withstand manipulation attempts. However, the network proved resilient, and interest and economic traction grew. While the protocol underwent improvements, conflicting political ideologies and economic interests among participants began to influence the decision-making process over network upgrades, complicating the protocol’s evolution. Bitcoin’s open-source protocol catalyzed innovation far beyond its network, sparking a renaissance in P2P network research and development and laying the groundwork for what is now referred to as "Web3" or "crypto." Satoshi Nakamoto’s online presence abruptly ended in 2010, leaving the Bitcoin community to steer its evolution. While the reasons for Nakamoto’s disappearance remain unknown, the vibrant ecosystem that followed has revolutionized money, finance, and Internet infrastructure.

Political Principles

The true motivations behind Bitcoin's creation remain speculative, as Satoshi Nakamoto’s identity is unknown. Insights can only be drawn from the purpose of the cryptography mailing list where Bitcoin’s ideas were first discussed. The purpose of that mailing list was to explore technical aspects, social implications, and political dimensions of cryptosystems, such as cryptography export controls. The discussions there suggest that Satoshi’s motivations were primarily engineering-driven rather than purely dogmatic. However, many contributors to Bitcoin’s evolution brought their own political ideologies, often rooted in the cypherpunk movement, which emphasizes internet privacy and anarchy, and the libertarian movement, which advocates Austrian economics as an alternative monetary framework. Today, the Bitcoin community encompasses a broad political spectrum, with varying degrees of libertarianism, privacy orientation, and adherence to dogmas when it comes to interpreting the original intentions of Satoshi. Bitcoin's foundational principles were grounded in practicality rather than ideological rigidity. Many trade-offs—such as sacrificing perfect privacy and enabling irreversible transactions—were made to address immediate challenges like achieving distributed consensus. Over time, the Bitcoin community layered its own interpretations and dogmas onto these initial design choices, creating a broader narrative that continues to evolve.

• Disintermediation, decentralization & censorship resistance: A key principle of Bitcoin was collective maintenance of the network to prevent state-based censorship. Historical failures of private electronic money systems like “e-gold,” which relied on centralized coordination and were shut down under banking and anti-money laundering regulations, likely inspired this approach.
• Open source, public & permissionless infrastructure: Bitcoin’s design as open-source software enabled distributed control over its evolution. Satoshi envisioned a system where anyone with the requisite skills could publicly contribute to protocol development, use the network for payments, or operate mining nodes without requiring permission from any authority.
• Irreversible transactions: While “immutability” has become a core belief among many Bitcoin enthusiasts, it was not part of Bitcoin’s original design philosophy. Instead, Satoshi emphasized transaction irreversibility as a practical decision to maintain clear consensus among anonymous network participants. Making Bitcoin transactions irreversible was a highly contentious topic among early Bitcoin developers. The trade-offs were clear to everyone involved. Creating a robust distributed consensus mechanism in the absence of trusted intermediaries was already a difficult task, which is why the original developers ultimately decided to accept this trade-off, but it was not intended as a long-term design feature.
• Privacy was an essential political principle for Bitcoin but conflicted with the need to publicly broadcast transactions to achieve consensus and prevent double spending. While public broadcasting compromises privacy, Satoshi proposed mitigating this by keeping public keys anonymous and using a new key pair for each transaction, but this workaround had limitations. Satoshi acknowledged these limitations in the white paper and seemed to assume that more robust privacy features would be implemented before Bitcoin gained widespread adoption. At the time, solving the double-spending problem took precedence over sustainable privacy measures.

Functional Design

In order to replace the functions of a central bank for issuing money and the function of private banks for managing accounts, verifying and mediating money transfers, the designers of Bitcoin needed to find distributed ways to issue money and verify who owns what to validate transactions—in the absence of intermediaries—while avoiding the double-spending problem. They resolved this with a series of functional design choices:

• Ledger management & chain of blocks: Private ledger management was replaced with public ledger management, ensuring that every network participant has access to an up-to-date and synchronized record of all historical Bitcoin transactions. This record of transactions was designed as a unique data structure, containing cryptographically linked blocks of Bitcoin transactions, guaranteeing the integrity of transaction records.
• Money could not be represented by a digital file but as a chain of digital signatures recorded on the collectively managed record of transactions. Ownership was designed to be verified using cryptographic keys, with each transaction transferring control to a new Bitcoin address. This eliminated the need for private banks to track balances or ownership of money.
• Identification of token holders & digital signatures:  Instead of a bank issuing bank account numbers and passwords, decentralized Public Key Infrastructure (PKI) was proposed so users could autonomously generate Bitcoin addresses and cryptographic key pairs (private and public keys) via mathematical algorithms using wallet software, with which they could sign any Bitcoin transactions that other node operators could independently verify.
• Peer-to-peer distributed timestamping & Proof-of-Work: The biggest functional challenge was how to verify the order of transactions in a distributed system, ensuring that the same unit of currency could not be spent multiple times by the same person. Satoshi’s solution was to generate a computational proof of the chronological order of transactions through the coordination mechanism Proof-of-Work. The aim was to record a public history of transactions that quickly becomes computationally infeasible for an attacker to change if honest nodes control a majority of computing power. This method was expected to provide a robust mechanism that required little coordination among participating network nodes.
• Block reward, distributed minting & security: The block reward in the form of newly minted Bitcoins serves two purposes: (i) incentivizing participation for network services and (ii) issuing newly minted Bitcoins in a peer-to-peer way without the need for a centralized issuer. Since the race for creating a new block requires significant computational effort, the design of a block reward makes manipulation among untrusted network actors prohibitively expensive.