Satoshi Nakamoto, pseudonymous inventor of Bitcoin, has been nominated for the Noble Prize in economics. While there is much to be lauded in Bitcoin (and the blockchain underlying it) this is a unique and somewhat problematic nomination, for several reasons.
— Bhagwan Chowdhry (@bhagwanUCLA) November 6, 2015
The invention of bitcoin—a digital currency—is nothing short of revolutionary…. It offers many advantages over both physical and paper currencies. It is secure, relying on almost unbreakable cryptographic code, can be divided into millions of smaller sub-units, and can be transferred securely and nearly instantaneously from one person to any other person in the world with access to internet bypassing governments, central banks and financial intermediaries such as Visa, Mastercard, Paypal or commercial banks eliminating time delays and transactions costs.
But beyond demonstrating the possibility of creating a reliable digital currency, Satoshi Nakamoto’s Bitcoin Protocol has spawned exciting innovations in the FinTech space by showing how many financial contracts—not just currencies—can be digitized, securely verified and stored, and transferred instantaneously from one party to another.
But beyond demonstrating the possibility of creating a reliable digital currency, Satoshi Nakamoto’s Bitcoin Protocol has spawned exciting innovations in the FinTech space by showing how many financial contracts—not just currencies—can be digitized, securely verified and stored, and transferred instantaneously from one party to another. The implications of this are immense. This will likely create an open, decentralized, public infrastructure for moving both money—as Stellar.org is trying to create—as well as other smart contracts—as Ethereum.org is attempting to foster—as easily as email but with security and nearly zero transactions costs.
So far, so good. But why is this a controversial nomination?
First, it is based only on a nine-page white paper, Bitcoin: A Peer-to-Peer Electronic Cash System, that is just six years old having first appeared on the internet in 2009. This is not a many-thousands-times-cited seminal paper published in American Economic Review, Econometrica, et al., nor is this a ‘body of work’ nomination. We are yet to see the scholarly impact of the paper—though it is evidently an ingenious solution to the cryptographic problems that have previously plagued ‘digital cash’, and may go on to become a seminal contribution republished in the most esteemed of journals and cited many times over.
The economic and social implications of cryptocurrencies and blockchains are only just now beginning to be seriously explored by academics, having largely been the realm of computer scientists and cryptographers (as such we have recently started a reading group and research network in Melbourne, Australia). See this panel discussion of ‘cryptoeconomics’ at a recent Blockchain Workshop in London (the next edition in Sydney looks great.)
Second, we don’t know who Satoshi is—but that doesn’t mean there aren’t plenty of theories. Could it be Hal Finney? Or Nick Szabo? Wei Dai? Narayana Kocherlakota? Who knows? My favourite theory is the late Nobel laureate John Nash. Would it be too much to ask for Satoshi to be legendary formative cypherpunk and author of A Declaration of the Independence of Cyberspace John Perry Barlow? (Yes, he’s taken far too much acid, and he probably wouldn’t remember inventing it anyway.) In fact, we don’t even know if Nakamoto exists as a person or as a group entity (though that hasn’t stopped the Nobel Committee before).
Third, a Nakamoto Nobel would be predicated on an actual thing—not only an idea or a theoretical breakthrough, but a protocol that has been instantiated in real life, and that is being used by thousands of individuals in myriad ways—extremely rare in economics! This would be an economics Nobel awarded for the invention of a general purpose technology. In my opinion, given the disruptive impact of GPTs on economic transformation and growth this would also be extremely fitting. But again, it might be too soon to make such pronouncements about the blockchain.
Finally, there is some irony in asking a central bank to anoint the architect of its demise. Put simply, bitcoin looks like it was designed as a weapon intended to damage central banking (e.g. reeling in the ability to control the money supply, interfere in the price of money, and suppress capital movement). But of course, this might not be a bad thing. Quoth the Hayek: “the only way to avoid being driven by continuing inflation into a controlled and directed economy, and therefore ultimately in order to save civilisation, will be to deprive governments of their power over the supply of money.” The point is simply that Swedish central bankers might be loath to award their prize to the harbinger of a denationalised cryptocurrency regime.
So all this points to an extreme unlikelihood of the mythical inventor (or inventors) of Bitcoin being awarded the Nobel for economics any time soon. We may return to Hayek on this point:
I must confess that if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it. One reason was that I feared that such a prize, as I believe is true of the activities of some of the great scientific foundations, would tend to accentuate the swings of scientific fashion.
The ‘libertarian political agenda’ often tacked onto bitcoin and blockchain proponents is profoundly out of fashion in the economics academe, and more so in monetary and central banking circles. Granted, this might be “brilliantly refuted by awarding the prize to one whose views are as unfashionable” as Nakamoto’s are—but I won’t hold my breathe. The final irony is that the blockchain protocol is all about dispersing and disintermediating authority. Hayek and Nakamoto both believed in economics no man ought to possess such authority as that which the Nobel Prize confers. It’s probably a good thing our cryptic cynosure can’t be uncovered.