Just who is Satoshi Nakamoto? The race is on to unmask the pseudonymous inventor of Bitcoin, the virtual currency that has captivated investors with a taste for adventure as its price has soared from pennies to more than $1,000 at its peak.
The hunt for Nakamoto, author of a paper published online in 2008 that set out the design of an anonymous peer-to-peer payment system called Bitcoin, has intensified.
Little wonder. Bitcoin, by the short-lived standards of digital currencies, has been hugely successful, becoming a global phenomenon as the total value of coins in circulation has risen to nearly $7bn. Governments and regulators are divided over how to treat it. The collapse of Mt Gox in Japan this year, once the world’s biggest Bitcoin exchange, where 650,000 coins went missing, has served as a warning to the unwary.
Nakamoto’s real identity may matter little. But the author of the 2008 paper also released the code used to generate Bitcoins. He wanted an alternative to government-controlled currencies that enabled the swift and anonymous transfer of money outside the international banking system.
However, Bitcoin has some unusual characteristics that set it apart from other currencies. The code sets an ultimate limit on the number of coins that can be generated by computers cracking puzzles of increasing difficulty. That encourages hoarding.
Newsweek has already had a stab, asserting that Nakamoto is Dorian Satoshi Nakamoto, a Japanese American with a scientific background who has been hiding in plain sight all along. But denials from him have sent the sleuths elsewhere.
A more plausible candidate has now emerged. Students and researchers at Aston University’s Centre for Forensic Linguistics have conducted a linguistic analysis of the 2008 Bitcoin paper and the writing of 11 people already fingered as likely authors (including Dorian).
In April, they concluded the most likely author of the paper - among their candidates - was Nick Szabo, a blogger on law, finance, economics and cryptography known for his writing on digital contracts and money. Szabo has history. In 2005 he proposed an alternative currency called bit gold, which bears a striking resemblance to Bitcoin.
Not only did the Aston study find a large number of shared linguistic traits in the Bitcoin paper and Szabo’s blog; it also noted that Szabo uses Latex, an open source document preparation system, for his publications. The Bitcoin paper was also drafted using Latex. There are other pointers. In April 2008, just months before the Bitcoin paper was published and code released, he asked for help on his blog to make an experimental version of bit gold. It’s unclear if anyone took up the offer.
This is all conjecture of course. Bit gold could simply have been inspiration for Bitcoin. And the Aston team makes no claims, unlike Newsweek, to having unmasked the real Nakamoto.
What is likely is that whoever wrote the paper, as well as being an expert computer programmer with an academic background, was familiar with the ‘Cypherpunk’ movement, a group of activists, some anonymous, who have advocated using cryptography as a route to social and political change.
Szabo was familiar with that movement, apparently posting under his own name on its mailing list in the 1990s. But many others were too. And that is where Satoshi Nakamoto chose to publish the 2008 paper.
Certainly, Bitcoin’s behaviour is odd for a currency. It behaves more like a scarce commodity, akin to a precious metal. The limited supply of coins means that deflation is in-built (hence the incentive to hoard as the price goes up). It bears the hallmarks of someone who envisaged a virtual currency as a way to create – for free – and trade a limited supply of virtual gold, someone who wanted to keep assets out of fiat currencies that can be debased by politicians and central bankers.
In the depths of a global financial crisis where banks were reeling and the role of reserve currencies such as the dollar was thrown into doubt, Bitcoin’s appeal is clear enough. Its design, though, makes it far too volatile to be trusted as a medium of exchange. Would you want to be paid in coins that were worth $1,000 in December only to tumble to half their value now?
Christopher Adams is the Financial Times' markets editor