Wisdom Engine

The creation and transfer of Bitcoin is based on an open-source cryptographic protocol (essentially, a software program that is free to download, with users having access to the source code and ability to modify it), and utilises a peer-to-peer computer network made up of its users’ machines (Bitcoin network) to validate transactions by solving complex mathematical equations.[[1]](#_ftn1)

The Bitcoin white paper (Wright, 2008, p. 1) references a system that provides “small casual payments,” allowing for the dissemination of transactions across the internet. Understanding both micropayments and the nature of sending small casual payments across the internet necessitates describing and analysing micropayments and referencing Bitcoin and blockchain technology in the same context. In this analysis, the term micropayments will be used to describe transactions that may be made efficiently—for under 50 US cents. In such a functional specification, the cost of systems, including M-Pesa (Mbiti & Weil, 2013), will be demonstrated as too large to be incorporated into usage of micropayment solutions.

Pseudonymity and Privacy: Blockchain systems, including Bitcoin, often provide a level of pseudonymity, where users are identified by cryptographic addresses instead of their real-world identities. While such pseudonymity offers privacy benefits, it can also pose challenges in implementing AML controls. For example, linking specific transactions to real-world entities becomes difficult, making tracing illicit activities and identifying money laundering patterns challenging (De Filippi, 2016).

It is well known that Bitcoin solves the byzantine distribution problems through a probabilistic risk algorithm. In this scenario, it is proven that Bitcoin is safe as long as 50% of the miners respect the rules of the system. The system is economically incentivised. Any company that has gained 51% of the hash rate quickly lost controlling share of the network. Time and again we see that the so-called experts in Bitcoin have failed to understand the primary controls that govern the system. It is not cryptography, it is economic incentives.

“According to the Satoshi’s whitepaper, nodes were miners. The hijacking of the word seems to have placed unneeded importance on these validating nodes. But what would Bitcoin look like without these ‘nodes’, and how centralized would mining be, with the removal of the blocksize limit?”

Technological developments and the advent of the Internet, and now electronic peer to peer cash have led to new paradigms in international as well as local commercial activity. These developments have reduced the certainty of contractual negotiations leaving a commonly held belief that the law of offer and acceptance does not readily apply to such transactions when conducted online (Rasch, 2006). Some in the Digital currency world go as far as to exclaim, “crypto is law” or even “code is law” and forget [[1]](https://medium.com/@adam_selene/1-5-bitcoin-and-the-connection-to-contracting-9d8e714c7d2a#_ftn1) that the law does not end at the border of an electronic contract [[2]](https://medium.com/@adam_selene/1-5-bitcoin-and-the-connection-to-contracting-9d8e714c7d2a#_ftn2).

When contrasting contractual principles, it is clear that unless a contract is required to be in writing (Columbia Law Review, Apr., 1929 Pp. 497–504; Columbia Law Review, Jun., 1907, pp. 446–449; McKendrick, E, 2005, p 184), that little additional uncertainty could be created where the contract is completed electronically. In fact, electronic evidence must hold greater weight than verbal evidence (Lord Justice Auld, Sept 2001, Cpt 11). What is not clear is the extent of the weight attached to the various forms of electronic evidence. The strength of a digital signature algorithm and the security surrounding the mechanisms used to sign an electronic document will respectively influence the weight associated with any piece of electronic evidence. The nature and form of the signature will also influence the weight that the court attaches to it. Attached signatures would clearly be simpler to attribute and hence hold a greater evidentiary weight.

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

When contrasting contractual principles, it is clear that where a contract is not required to be in writing (Columbia Law Review, Apr., 1929 Pp. 497–504; Columbia Law Review, Jun., 1907, pp. 446–449; McKendrick, E, 2005, p 184), that little additional uncertainty could be created where the contract is completed electronically. In fact, it is clear that electronic evidence must hold greater weight than verbal evidence (Lord Justice Auld, Sept 2001, Cpt 11). What is not clear is the extent of the weight attached to the various forms of electronic evidence. The strength of a digital signature algorithm and the security surrounding the mechanisms used to sign an electronic document will respectively influence the weight associated with any piece of electronic evidence.

In order to create a Bitcoin vending machine, we need to think about risk. This is not a desire for perfect security, but “good enough”. To start, we allow 0-conf. This is not as risky as many falsely tout. A 0-conf transaction, that is a transaction that has not been included into a block and confirmed by a miner is secure enough for most purposes.

In a fair exchange protocol two parties either both honour an exchange (such as a contract), or neither of them do. It is known that deterministic fair exchange is impossible without a trusted third party (Even and Yacobi 1980). However, under the Bitcoin protocol, a validated blockchain acts as a trusted third party.

“Evidence is hearsay where a statement in court repeats a statement made out of court in order to prove the truth of the content of the out-of-court statement.”[[1]](file:///D:/Data/Publishing/Book%20-%201%202007%20-%20CHFI/Appendix%20B/#_ftn1_3105) An example of hearsay evidence would apply where a suspect has sent an e-mail purporting to have committed a crime. Law enforcement officials would still need other evidence (such as a confession) to prove this fact.

Bitcoin is money, but it is also a ledger, a commodity and a token. It is all these things and more. The issue is not which one of these we need to define Bitcoin, but, which one defines Bitcoin in a particular use.

There are people who try and tell you that Bitcoin is not about incentives or economics. The structure of Bitcoin is one that allows competition to determine a stable monetary system. Miners (nodes) have skin in the game unlike developers, and thus, are in competition for the block reward and transaction fees. The result is they will seek to maintain the protocol and not to debase and alter the currency.

Bitcoin is pseudonymous as it is about honest money. Private has to be traceable. It is not drug money, it is not money for bucket shops and it is not money for crime.

Bitcoin is pseudonymous by design. This allows for privacy and excludes anonymity. Privacy is important; it is required to have a working legal system, and Bitcoin, in fact the entire concept of “blockchains” is a system built on law. In contracts, you have an exchange, and that requires the ability to prove consideration and the ability to record and recover the contract across time and space.

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

Bitcoin is an open immutable ledger. It is not anonymous, it is private. There is a huge difference, and it only works when it is not anonymous. Privacy requires traceability, in a way that allows you to have a way to access and validate a transaction. To be fungible, money needs to be linked to records — even cash is; we have invoices and audit trails.

``` There are two ways to send money. If the recipient is online, you can enter their IP address and it will connect, get a new public key and send the transaction with comments. If the recipient is not online, it is possible to send to their Bitcoin address, which is a hash of their public key that they give you. They'll receive the transaction the next time they connect and get the block it's in. This method has the disadvantage that no comment information is sent, and a bit of privacy may be lost if the address is used multiple times, but it is a useful alternative if both users can't be online at the same time or the recipient can't receive incoming connections. ```

The first problem to be addressed concerns the nature of lawful money. In the United States, the Stamp Payments Act of 1862[[1]](#_ftn1) was enacted to stop the circulation of private tokens that were in competition with federal postage stamps. It has been argued that the language of the statute may apply to electronic transactions[[2]](#_ftn2) extending the derivation of “note, check, memorandum, token” as money. Even the notion of Bitcoin as an obligation comes into question as we need to define the concept of a third-party issuer. The peer-to-peer nature of the currency means that obligations are derived in a manner unlike that of other monetary sources[[3]](#_ftn3).

Bitcoin is a form of currency[[4]](#_ftn4). The statement in itself is heavily contested[[5]](#_ftn5). A key part of the problems surrounding this classification comes from the polymorphic nature of the system. It is not that Bitcoin is currency, a security or a token, it is that the multifariousness of the system allows it to be used as any of these at any time. As commodity monies such as gold could be utilised in exchange or alternative uses including electronics and jewellery have many use cases, we can also apply this to bitcoin[[6]](#_ftn6). The difficulty is not in determining whether bitcoin has value but rather implementing a framework that captures the particular transaction and allows this to be successfully classified.

Miners can choose to accept no single CTOR block. They can mine and set a rule that the block deserves only to include a transaction where it is unlikely that one will ever meet their high standards (as ABC is of no use as money). Basically, the point is; as a user, no, you have NO rights. Miners do. Users make an offer to a miner. Users make a unilateral offer of a fee to any miner who validates their transactions (and thus includes them in a block). The miners can choose to accept this or leave it for one of the competing miners, who in many cases will take it.

The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime. Because of that, I wanted to design it to support every possible transaction type I could think of. The problem was, each thing required special support code and data fields whether it was used or not, and only covered one special case at a time. It would have been an explosion of special cases. The solution was script, which generalizes the problem so transacting parties can describe their transaction as a predicate that the node network evaluates. The nodes only need to understand the transaction to the extent of evaluating whether the sender’s conditions are met.

Bitcoin is a commodity based on the exchange of a tokenised security issued as a payment to the “miners” or nodes in the system for a right to have an “immutable” entry saved to the ledger. The miners or nodes are paid in multiples of the base unit of Bitcoin that is known as a “satoshi”. This unit is a small indivisible value that is worth a small fraction of a cent on today’s markets.

Using the API (RPC) call to a Bitcoin node, the merchant can use the call gettxout. If it returns anything, then the output is unspent (at least as reported by that node). If nothing is returned, we know that the output either never existed or has already been spent. In an SPV, where we know the transaction path, and we know it existed, the option is that a transaction has not been spent, or a merchant could have a double spend.

The laws of negotiability (Miller v Race, 2) allow us to say that at the instant of delivery, the underlying obligation or debt is satisfied in full, and the recipient of the currency is left with a full legal entitlement to the monies received.

It is interesting how the arguments against commercial mining come down to an outcry against “mining centralisation.” All things in life come from balance. In the commonly used image listed as Fig. 1 below, we see what people like to have as a concept of Bitcoin. Unfortunately, it is also utterly wrong.

One part of the hijacking of Bitcoin stems from the manufacturing of ASIC chips. The purpose of a node is not simply to find a puzzle that gives you the block subsidy. I will say subsidy again here as it is a diminishing incentive and not a reward. The Bitcoin white paper defines the process conducted by nodes in section 5. Nodes do not merely solve a simple hash puzzle — a process that ASIC devices help with — but they order transactions in chronological sequence, verify the integrity of transactions, and ensure the propagation of blocks and transactions.

It is very simple; consensus is provided to the entire network incredibly efficiently in an ultra fast manner due to the formation of a giant component in the network that develops as a result of an ultra connected small-world system. As such, the primary element and aspect required to run a node are network conductivity and propagation.

Continuing with business ideas that can be implemented within Bitcoin using the scripting options of BSV, I will detail the concept of a particular form of the Ricardian contract. There are some who believe that such a contract will be the killer application for blockchain, the thing that supersedes current smart contracts.

In a fair exchange protocol, two parties either both honour an exchange (such as a contract), or neither of them do. It is known that deterministic fair exchange is impossible without a trusted third party (Even and Yacobi 1980). But under the Bitcoin protocol, a validated blockchain acts as a trusted third party.

The Bitcoin Wiki (2014) includes a page on ‘Atomic cross-chain trading’ which describes a protocol where two parties own coins in different cryptocurrencies and want to exchange them without having to trust a third party or centralised exchange. There also exists a BIP (Bitcoin Improvement Proposal), entitled Atomic Cross Chain Transfers (Tiernan, 2014), that describes the method. Others have hinted that by combining secrets, a more symmetric solution is possible. We demonstrate how it can be achieved in Bitcoin.

The only method to maintain decentralisation of power is to set the protocol and lock it. It must be set in stone.

Bitcoin is a simple protocol. As such, the security of the system is protected as miners cannot update the protocol. A miner can choose to not accept a transaction, and can seek to reject blocks with the same transaction at the risk of losing and the orphaning of anything they win. Even if they choose to do so, it merely delays a transaction. A transaction can be replayed a week later, a month later, a year later, a decade later, or whenever the user decides. It is a key strength of Bitcoin. Miners don’t set protocol, rather the protocol is set in stone. If you change the protocol, you move away from Bitcoin. Protocol changes are not forks but rather new competing protocols with a possible airdrop.

The important thing to understand is: law is law. Code (programs and algorithms) in any form is merely evidence. Bitcoin was designed to work within a common-law framework. I studied law to a point where I completed my master’s degree in international commercial law from Northumbria University, UK in 2008. At that point, I was still not a lawyer in any sense. I’m a member of the Society of Legal Scholars now, and I have taught law in the past. Subsequent to my Masters of Law (2012), I did training to be a barrister and training to be a solicitor, although I never completed the practical experience or worked as one. I’m now doing my doctor in law.

When explaining the differences between privacy and anonymity, it can seem simpler to take the short route and not go into the details, as they can lose people. The problem of course is that although you gain in the short term, you spend much more time in the long term fixing up mistakes. I’ve used the word anonymous when I’ve meant private in the past. Most people have. Yet, it is not what Bitcoin is about. Bitcoin leaves an audit trail, and for honest people provides a system that is private but will never be anonymous.

Bitcoin is the most efficient system, and will help us to stamp out dishonesty and fraud. I did not create Bitcoin to make another underground drug currency. E-gold and Liberty Euro (a digital currency offered on Liberty Reserve) both existed and worked well for such a misguided purpose; they do so better than any blockchain ever can. What few people understand is that any system run by an individual or a group has a head that can be targeted. If Hydra has heads that are visible, like those of Monero, they can be cut off and the individuals punished. In time, the pain gets to be enough that those seeking to breach the law and bring destruction move to different pastures.

Bitcoin is not a bearer-bond system. It may be what Blockstream and others are selling, but it’s illegal. Money has a long history in law. When you’re taking other people’s funds, whether from Bitcoin or from non-chattel systems including electronic bank accounts or database entries, a key is not proof. Today, we have many systems based on dematerialised assets. Shares are traded through online databases using tokenised exchanges, and such has been the case since the early 90s. Real-world proof trumps crypto proof. If you sign up for an account with ETRADE and buy 10,000 shares of Apple, and someone attacks the database and ETRADE and changes your ownership record or takes your account and uses it to sell your shares, you have a claim for the shares. It is the same with Bitcoin. One of the problems at the moment is the cypherpunk element seeking to make the possession of a key a right to and proof of ownership. It isn’t.

Bitcoin is practical for smaller transactions than are practical with existing payment methods. Small enough to include what you might call the top of the micropayment range. But it doesn’t claim to be practical for arbitrarily small micropayments.

He demonstrated how history was relative and fundamentally unreliable. The distortion in the written word over time became a central issue and area of study that Nakamoto used in his thesis that history was unstable. The constant change and variation to history is in effect an unchanging alteration to the protocol of how we as humans communicate. It is both language and the full meaning of words that we see change. Instability when coupled with human ambition and desire leads people to manipulate language. The making of myths can be seen in the Bitcoin white paper. People have argued that miners could make rules and lead us to a system without government, even though the white paper makes it clear that miners enforce the rules — the difficulty here being that an enforcer is not a creator.

Bitcoin is an immutable evidence trail. It is not about taking down governments. It’s a peer-to-peer cash system with tracing built-in, so that criminals using Bitcoin should be afraid. We have just seen one of the largest child pornography rings in history being taken down because of Bitcoin. Such is the purpose of my invention — a system unlike e-gold, differing from DigiCash’s eCash, and unrelated to Liberty Reserve.

The Bitcoin blockchain is an immutable audit trail, which does not mean that money cannot be seized or that illicit images and other material cannot be filtered. Immutability does not require non-assignability. An immutable object is something that remains unchanging over time, and once a block is sufficiently deep, any transaction within Bitcoin or any blockchain is unable to be changed. The scenario is analogous to an Oracle database running an account system in write once read many (WORM) formats. It is used in all public companies in the US. Such a system does not preclude the correcting of mistakes; it requires that a mistake is noted and followed.

Bitcoin is falsely called a distributed or decentralised cryptocurrency because of the ledger. Yet, it presents a misleading understanding and description of Bitcoin. Bitcoin is a peer-to-peer token exchange system that can be used as a form of digital cash. As with all token systems, a token can represent any value and reference any agreed property or item.

Bitcoin is a set of individual and indivisible tokens. It does not consist of an account, and they cannot be fractional tokens. Bitcoin is constructed in a manner that does not allow fractions of tokens to be transmitted. People get confused because they see a mere right to transfer. The right to transfer is attached to the ownership of the tokens. But, the ownership of the token is the same as any ownership of a digital right. In some ways, the scenario is analogous to the recent case of Armstrong DLW Gmbh v Winnington Networks Ltd [1], where the courts extended the notion of carbon trading units to be property even though they’re not things in action [2]. Bitcoin is simpler in the sense that it can be taken as a chose (thing) in action if you understand that it is a tokenised form of intangible digital property. More importantly, the peer-to-peer exchange in Bitcoin represents the transfer or exchange.

“Forking” a software branch is allowed under the MIT License. Both Litecoin (LTC) and Ethereum (ETH) present “forked” codebases, derived from Bitcoin. CoreCoin, BTC, differs in the sense that it both copied the database [3] and sought to pass off the new system as the old or original.

You should note that the only decentralised system that fulfils the described condition is Bitcoin, as defined by BSV. The definition, “not controlled or not able to be controlled or unilaterally changed by any group of persons”, in effect means that the protocol is set in stone and stable. Too many developers seem to be obsessed with technical change. Bitcoin is not merely a technical system, but one that acts both in economically powerful ways and within the law. When I made it clear that Bitcoin’s core design was set in stone for the rest of its lifetime [1], it wasn’t because of technical issues. Every group behind every single competing system, including CoreCoin* (BTC), has ignored this simple fact, and demonstrated that their developers are capable of altering the system they are trying to create. Whether we are talking about changes by “Bitcoin” Core designed to increase anonymity and encourage illicit transactions (creating a system radically distinct from Bitcoin) or the changes continuously being conducted by the Ethereum group, we see alterations in their systems by small groups of developers.

The solution to problems with crime and money laundering always existed within Bitcoin. In the white paper itself, it is explained many times that attackers could be controlled by honest nodes. When I launched Bitcoin, I had not yet completed implementing the system of the alert key, and I still had not fully determined how it would best work. It was always envisioned. When I said that there was a strategy to protect systems based on simplified payment verification (SPV) using alerts from nodes, I was not limiting the nature of alerts to the same one possible form of attack. The difficulty in the implementation, at the time, lay in determining which nodes should be trusted. It involved not the core approach of proofs, but rather one of determining the voting strategies of nodes. Remember here, of course, that nodes are miners.

The law does not need to prescribe legal adaptions for cyberspace. In common law, analogies are used to relate changes in technology and society, and have been used from the formation of the system. In a well-studied case, Entores v Miles Far East Corp [2], Lord Denning introduced communications by telex using the analogy of two people communicating at a distance. He argued that there would be no contract when two people shouted across the river until the acceptance was heard by the offeror. If, for instance, a noise occurred at the moment the acceptor was shouting an agreement, the offeror could not assume a contract as the acceptance had not been heard. Here, he applied a reasoning that would allow us to apply contracts to all forms of communications which are instantaneous, or virtually instantaneous. The scenario differs from one of communicating by postal telegram, where there is a delay in the exchange of a message. Telex was regarded as falling into the category of instantaneous communication, and Lord Denning held that the acceptance by telex took place where it was received, rather than where it was sent.

In an exchange using digital token systems, the same logic would apply. Again, it depends; it is not a matter of law, but of fact. In an exchange of Bitcoin transactions, the nature of the transaction and how it was transferred determine the time and location of acceptance. For instance, in a peer-to-peer exchange where a buyer and seller directly exchange a Bitcoin transaction using the original IP-to-IP protocol, the transaction would be said to be instantaneous and, as such, would occur at the location where the recipient resides. Conversely, a Bitcoin transaction sent directly to the blockchain and a recipient’s published address would mirror the condition of the postal acceptance rule.

I used the word vote in the Bitcoin white paper three times. I used the notion of anthropomorphism in explaining the concept of proof-of-work. In noting that proof-of-work was “essentially one-CPU-one-vote”, I was attempting to make the point that any system running the “honest” version of the software presented, in consequence, a vote for a non-criminal or non-attacker version of Bitcoin.