r/investing Mar 13, 09:05 AM
The Vocabulary Trick: How Bitcoin Fooled the World In 2008 a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was published under the name Satoshi Nakamoto. In it, the author presented a peer-to-peer database that records which numbers are assigned to which cryptographic keys as a payment system. By using terms such as cash, coin, commerce, transaction, and double spending, the paper suggested that the system manages an asset, that is, a resource with economic value that provides future benefits. The implication was that by assigning and reassigning numbers to cryptographic keys, that resource moves from one person to another, with a bigger number meaning more future benefits derived from that resource. However, no such resource exists within the system.
Let us first examine the term cash that Nakamoto used and how cash provides future benefits. Cash refers to banks. Banks issue cash based on the account balances recorded in their systems, and those balances originate from the issuance of loans. Every bank balance corresponds to someone's debt to the banking system. What makes these balances, and consequently cash, an asset to their holders is the fact that those who owe banks must obtain them in order to meet their loan obligations. Billions of individuals who have taken out mortgages or auto loans need them to prevent the foreclosure of their homes, land, and vehicles. Hundreds of millions of businesses need them to avoid bankruptcy. Governments need them to repay their bonds and avoid sovereign default. Banks themselves need them to close unpaid loans and avoid capital impairment and bankruptcy.
By holding cash or a bank balance, you possess leverage over others. You own something that bank debtors need to avoid real-world consequences. This is why they are willing to work for you or offer you products and services in exchange for it. Governments allow you to use it to meet tax obligations, and banks give you access to foreclosure auctions where the property of defaulted debtors is sold. In short, you possess a resource that provides future benefits, which is the definition of an asset. And the bigger the number assigned to your balance, the greater the future benefits derived from that asset, as more underlying obligations require debtors and banks to preserve proportionally more of their property and capital by yielding proportionally more value to the holder.
Nakamoto's protocol assigns numbers to keys after energy was spent to maintain the database. So he does not assign them to express the amount of an obligation like banks do, which is why no resource for future benefits is created for those who hold these keys. Meaning, holders did not get an asset but receipts confirming that energy was spent, with a bigger number only meaning that more computational work was performed in the past.
Another term that Nakamoto used was "coin". With it he implied that the user acquires an object. An object is an asset because it provides future benefits through practical use. Objects may be