Bitcoin, along with its associated blockchain technology, is undoubtedly one of the most significant inventions of the 21st century. However, its enigmatic creator has long been the subject of speculation. This article aims to shed some light on the identity of Satoshi Nakamoto, offering an answer to the still open debate.
Bitcoin was created with the genesis block in the blockchain on January 3, 2009. This first block contained the text „The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.“ The newspaper article’s title serves as a timestamp confirming the exact day Bitcoin was created.
1. Who is Satoshi Nakamoto?
The author and creator of blockchain and Bitcoin is a mysterious person named Satoshi Nakamoto. Long-standing speculations about who is behind this pseudonym have been illuminated, not surprisingly, by lawyers.
Several people fit the criteria to have created something like Bitcoin, but almost all denied any connection with Satoshi. Except for two men who claim they were part of a three-member team operating under the collective pseudonym Satoshi Nakamoto.
The main person in the team was said to be Dr. Craig Steven Wright. The second member was the now-deceased Dave Kleinman, and the third being Phil Wilson.
How it all came to light: After Dave Kleinman’s death in April 2013, his brother Ira found many emails exchanged between Craig Wright and Dave Kleinman. These emails suggested that both were members of the team that created Bitcoin.
2. Bitcoin Creators Were Actually Three
In February 2014, Craig Wright wrote an email to Louis Kleinman, the father of the deceased Dave Kleinman, stating:
Explicitly in the email, Craig writes that Bitcoin was created by three creators, two of whom are him, Craig, and Dave Kleinman. Later in court, Craig mentioned the third participant, stating he only knew him by a pseudonym.
Louis Kleinman was then 94 years old, so Dave Kleinman’s brother, Ira Kleinman, took over the matter. Ira Kleinman later sued Craig Wright, demanding half of all the first Bitcoins mined at the beginning of the blockchain, which could only belong to the creator of the blockchain – Satoshi Nakamoto, i.e., the persons behind his pseudonym.
Although Craig Wright in the legal dispute with Ira Kleinman claimed, and still vehemently maintains, that he alone is the creator of Bitcoin, the plaintiff presented several emails and messages between Dave and Craig, where Craig Wright confirmed that Dave Kleinman was his partner and best friend, and that they mined Bitcoins together.
Dave Kleinman’s involvement in the creation of Bitcoin is undeniable based on court documents, and even though Ira Kleinman couldn’t prove Dave Kleinman’s co-ownership of the first mined Bitcoins, the court therefore did not confirm Dave Kleinman’s ownership of these Bitcoins, it is clear that Dave Kleinman participated in the creation of Bitcoin and is an undeniable part of the Satoshi team.
During the trial, Craig repeatedly confirmed that he worked on creating Bitcoin with Dave Kleinman, acknowledging that it was mainly Dave who wrote emails on behalf of Satoshi Nakamoto.
3. Who is the Third Member of the Satoshi Team?
Craig never clearly stated who was the third member of the Satoshi team. Court documents reveal that, according to Craig, the third member of the team was a secret U.S. government security employee, whom he did not know by name, only under a pseudonym, and reportedly lost interest in Bitcoin as early as 2007. This sounds more like Craig politely saying: I know, but I won’t tell.
4. The Emergence of Phil Wilson
Another light was shed on solving the mystery by Phil Wilson, another skilled programmer. According to his website vu.hn, he is the one who solved two fundamental problems of the blockchain: the double-spending problem and the Byzantine Generals‘ problem (we will return to these).
It must be stated that Craig Wright vehemently denies Phil’s participation in the creation of Bitcoin and expresses very harshly towards him.
On his website and in several interviews, Phil explains his version of events in great detail.
Allegedly, Craig and Dave approached him for help sometime in 2008 because Craig and Dave couldn’t solve both fundamental problems related to the future Bitcoin. Initially, Phil couldn’t help them and ended their collaboration.
However, after a few weeks, something occurred to him, and he contacted Craig again, suggesting how both fundamental problems could be solved. Phil then allegedly offered Craig to make it his (Phil’s) project, on which Craig would collaborate, as it was different from the original project Craig had approached him with earlier.
All three, Phil, Craig, and Dave, were still supposed to work in secrecy because Craig originally wanted to create Bitcoin as a payment tool for online casinos, as credit card operators did not want to allow their use in online casinos, and clients had no way to pay online when they wanted to gamble.
Subsequently, Phil allegedly solved both main problems of Bitcoin.
5. The Byzantine Generals‘ Problem
In the Byzantine era, there were many city-states that formed temporary alliances to dominate neighbouring cities. When several generals from cities forming an alliance embarked on a military campaign against another neighbouring city, they faced a major dilemma: the neighbouring city was always very well fortified, so they could only conquer it if they all attacked at once. If even one general withdrew his troops, the defenders would destroy the armies of the other generals, and their cities would be at the mercy of the general who decided not to attack.
Therefore, all the generals had to inform each other whether they would attack the next day or not. Each general, however, only sent the message to the nearest neighbour, who could change it and send it further. Therefore, the generals could never be really sure if they would all attack simultaneously the next day, even if the messages of all generals said so.
Bitcoin faces a similar problem. If someone could change the information recorded in the blockchain, then with this change, someone other than the original owner could become the owner of the Bitcoins. If ownership had to be verified by some central authority, then this authority or its employees could manipulate the ownership of Bitcoins as they wished.
Phil introduced an elegant solution to this problem: All data would be recorded in a chain of blocks, where each new link would be „signed“ using the data of all previous links in the chain. If someone changed just one piece of information somewhere in the chain, everyone would immediately notice, because the result of the „signature“ would be different from the original chain.
Thus, the blockchain was created, whose current copy is held by each market participant, so no one can change any piece of information. Such a solution is truly „peer to peer“, i.e., without the need for a single verification authority. Each participant is a verification authority unto themselves.
In this way, each general can look at all the messages of all generals and verify that they have not been changed because each general has a copy of all messages and all copies of all messages at neighbouring generals must be the same. If they are not, the general will not attack because he knows the messages have been changed.
6. The Double-Spending Problem
The double-spending problem lies in the fact that if two participants mine a new Bitcoin at the same time, each could verify the transfer of some other specific Bitcoin in favour of two different people, so it could be spent twice, even though it only exists once.
Phil introduced another elegant solution to this problem: if two participants mine a new block of Bitcoins at the same time, only one of them will remain and be recorded in the blockchain, namely the one based on which someone mines yet another block of Bitcoins. Thus, the version of the blockchain that is the longest at that moment will win.
This solution is very beautiful and simple. Phil also mentions a discussion on his website where he provided proof that this method works and cannot be hacked. The fifteen-year existence of Bitcoin has proven this solution right. No Bitcoin has been spent twice, although many have certainly tried.
7. Phil Wilson Unable to Verify His Participation in the Satoshi Team
Phil states on his website why he cannot offer any proof that he was part of the Satoshi team.
When the FBI caught the operator of the online marketplace Silk Road, Ross Ulbricht, in October 2013, they accused him of terrorism because he allowed trading in drugs, weapons, and even contract killings on his marketplace. Silk Road transactions were made using Bitcoins. Ross Ulbricht was sentenced to triple life imprisonment.
Phil was reportedly afraid that as a co-creator of Bitcoin, he could be held partly responsible for everything that happened on Silk Road and other illegal marketplaces. Therefore, he allegedly deleted all data linking him to the Bitcoin project, including several thousand Bitcoins he had mined throughout his life.
For the same reason, Craig Wright refused to prove that as the creator of Bitcoin, he could transfer the first mined Bitcoins, those written at the beginning of the blockchain. If he did so, it would be indisputable proof that he holds the keys to the wallet containing those Bitcoins that could only be mined by the creator of Bitcoin, operating under the pseudonym Satoshi Nakamoto. But Craig also fears that he could be legally responsible for the use of Bitcoins in illegal activities as their creator and therefore publicly refused to make this transfer, although the entire community ridiculed him and originally considered him a fraudster.
However, unlike Phil, Craig has proven that he can sign emails with Satoshi Nakamoto’s secret key. The use of this key proves that Craig could have written emails signed by Satoshi Nakamoto, which would not be possible if he were not part of the Satoshi team.
8. Proof of Phil Wilson’s Participation Through Stylometry
There are many emails on the internet that are undoubtedly written by a person under the pseudonym Satoshi Nakamoto. Likewise, the author of the Bitcoin Whitepaper is the same person.
Therefore, it is possible to compare the texts of these emails and the Whitepaper with texts that are clearly written by Phil Wilson, Craig Wright, or another alleged member of the Satoshi team. These texts can be subjected to stylometric analysis, which will determine whether the authors of two texts are the same person or different people.
The author of these lines conducted a stylometric analysis of Satoshi’s emails, Satoshi’s Whitepaper, and compared them with the analysis of texts from Phil Wilson, Craig Wright, as well as other authors considered as possible members of the Satoshi team.
The result obtained through the Naive Bayes algorithm, in which the use of the 50 most common words in Satoshi’s texts was compared, yielded the following result:
| 1 | Whitepaper | -13 852 |
| 2 | Phil Wilson | -14 306 |
| 3 | Gavin Andresen | -14 415 |
| 4 | Bram Cohen | -14 489 |
| 5 | Craig Wright | -15 089 |
| 6 | Ian Grigg | -15 320 |
| 7 | Nick Szabo | -15 394 |
From the table, it is clear that the most likely author of the Whitepaper and Satoshi’s emails is Phil Wilson. The values corresponding to their texts are closest to each other.
We also conducted an analysis using a special program for stylometric text analysis called Stylo, created by authors Maciej Eder, Jan Rybicki, Mike Kestemont, Steffen Pielstroem, which is available for download. It is one of the best and most standard programs used for stylometric analysis.
The result is also unequivocal:
The texts of Satoshi and Phil Wilson are closest, so the probability that they are the same author is very high.
Stylometric analysis proves that even if Phil Wilson was not the author of the Whitepaper and Satoshi’s emails, then Craig Wright certainly is not.
In the text of the Whitepaper, there are two spaces after every period at the end of a sentence. The same is written on Phil Wilson’s website, apparently learned in a fiction writing course. However, we could not find two spaces after every period in any text of the mentioned authors published before the creation of Bitcoin. If such a text were found and belonged to either Phil Wilson, Craig Wright, or Dave Kleinman, the likelihood of their authorship of the Bitcoin Whitepaper would be very high.
9. Craig Wright Stepping Out of Satoshi Nakamoto’s Shadow
Shortly after Satoshi Nakamoto’s withdrawal from the development of Bitcoin, the Bitcoin development was taken over by a community of enthusiasts with the necessary knowledge.
Bitcoin gained immense popularity, and its value „blew the lid off.“
However, this caused Bitcoin transactions to be very slow. The original Bitcoin blockchain had only a small memory space for storing transactions, which were used to transfer Bitcoins, and that was 1 MB. Therefore, every 10 minutes, when a new block of Bitcoins was mined, only very few transactions could be recorded in this block and thus verified. The transfer – the transaction with Bitcoins – is completed only after verification and recording in the blockchain. Some transfers, therefore, took 3-4 hours.
Craig Wright, under his own name, proposed that the blockchain be modified and that the space for storing transactions be increased, which would allow Bitcoin transfers to be made in real-time, immediately.
However, the community of developers decided that the blockchain would not be changed.
Craig Wright was disappointed, even infuriated, by the developers‘ decision. He created his own version of Bitcoin and called it Bitcoin Satoshi Vision (BSV). Another group of developers also created their version and called it Bitcoin Cash. Both these new versions were created by branching the original blockchain, while the original version of the blockchain with the original Bitcoins still existed.
Today, with hindsight, we can say with certainty that the creation of BSV was indeed the right step. BSV allowed very cheap recording and verification of transfers of thousands of transactions with the creation of each new block (which happens about once every 10 minutes). BSV also allowed the use of smart contracts, just like the competing blockchain based on the virtual currency Ethereum.
However, Craig began to appear very arrogantly in public, proclaiming himself the sole creator of Bitcoin and the only true Satoshi. He very harshly lectured everyone about his truth and his views. This caused a lot of resentment in the community, and BSV was quickly delisted from all major cryptocurrency exchanges.
Time, however, passed and showed that Craig Wright was right. In 2017, developers implemented a change to the Bitcoin blockchain in the change labeled SegWit (Segregated Witness – separate witness). As a result of this change, Bitcoin and its blockchain also include both advantages that BSV had: (i) the speed of transaction recording and (ii) the possibility of using Smart Contracts.
Today, Craig Wright is a valid member of the professional community, his opinions are considered important, not because he is the creator of Bitcoin, but because his knowledge and suggestions are very good.
10. Craig Wright and the Gray Zone Litigation
Craig is involved in several very interesting lawsuits. Probably the most important of them is the one in which he is suing the community of Bitcoin blockchain developers through his company Tulip Trading Limited.
In 2020, someone stole Craig’s key, which is needed to dispose of about 111,000 BTC. These are not the BTCs originally mined by Satoshi Nakamoto, but the Bitcoins that Craig bought with another virtual currency, obtained from a certain online casino for his services. The key was encrypted, so the thief does not know how to handle these BTC, or does not want to and is waiting for an opportunity.
In the lawsuit, Craig argues that the developer community responsible for the development of the blockchain owes a fiduciary duty to the owners of Bitcoins. So they have a responsibility to look after the interests of Craig and other Bitcoin owners. So, in other words, they have to ensure that nobody can steal these from Craig or other owners of Bitcoins, and if someone has stolen them, the developers have to ensure that possession of these stolen but still owned Bitcoins is returned to Craig.
The Supreme Court in Great Britain accepted the action for further proceedings, on the grounds that the developers appear to have fiduciary duties, which will need to be verified in the court proceedings.
This lawsuit is already inspiring legislators not only in Great Britain to legislate the position of blockchain developers and their obligations in relation to owners of virtual currency.
If Craig is successful in the dispute, then it will be clear that possession and ownership of virtual currency are two separate things, so the possibility of ownership of virtual currency will be judicially confirmed. Ownership will then not be tied to the possession of the relevant passwords or keys, as is the case today. And the owner will be able to claim both the return of the disposition and possession of the virtual currency, as well as damages if someone violates their fiduciary or other legal duties.
The second effect will be the obligation or at least the necessity to register the ownership of virtual currency outside the blockchain, which will be able to be checked by state authorities with unprecedented consequences, for example tax ones.
11. A final word
The development of blockchain and virtual currencies is definitely not over, and some legal issues related to virtual currencies will need to be resolved before it jumps to the next level. In particular, issues of ownership, possession, and liability of third parties associated with the development of blockchains and virtual currencies.
Trading virtual currencies is likely to be more similar to trading commodities. It is possible that one day they will completely replace money as we know it. Well, that will be another story.
Published on: 03.01.2024
JUDr. Mag. Ján Čarnogurský
(the author is an Attorney-at-Law in Slovakia)