There is no doubt that Nick Szabo is one of the founding titans of the crypto sphere. Following his education in computer science at the University of Washington in 1989, Szabo set to work welding legal contract theory with emerging technology protocols.
In 1996, he coined the term “smart contracts” and outlined the methods by which independent actors in cyberspace could pry themselves away from the millennia-old trusted third-party contract system. The new judiciary would be lines of code, capable of independently verifying and enforcing contracts.
Two years later, Szabo proposed a new kind of currency that aped the workings of the global gold market – bit gold. That innovation set a whirlwind of rumor and speculation swirling that continues today. Is it possible that Szabo is the shadowy founder of Bitcoin itself?
Virtually nothing is known for sure about Nick Szabo’s childhood. Szabo is less reclusive than studiously private, like the smart contracts he invented. While he has made the rounds on the lecture circuit and maintains a humble blog with interests ranging from currency to cartography, it is not clear entirely where Szabo is from, where he lives, or what role – if any – he played in the development of Bitcoin. The profile picture on his blog “Unenumerated” is blank. His biography is a collection of quotes praising his essay work.
A New York Times piece published in 2015 on the origins of Bitcoin fingered Szabo as an “American man of Hungarian descent.” Beyond that, however, reporter Nathaniel Popper could only tease one certainty from Szabo – he was not the legendary Bitcoin founder Satoshi Nakamoto.
“As I’ve stated many times before, all this speculation is flattering, but wrong — I am not Satoshi,” Szabo wrote Popper, following their initial interview.
Szabo first really emerged in the crypto lore with his 1996 publication of “Smart Contracts: Building Blocks for Digital Free Markets” in Extropy #16.
The concept of the contract undergirds Western civilization. That’s no exaggeration. The idea of an enforceable agreement between two entities is at the core of the Magna Carta; capitalism; Jean-Jacques Rousseau’s writing; the U.S. Constitution; and every marriage, business deal and agreement in between.
Central to the idea of a contract is enforceability. If the terms of the contract are not met, the contract falls apart and one or both parties experience negative consequences. Traditionally, a trusted third party has handled this. The third party, which is not bound by the contract itself, can serve as arbiter, interpreter, and enforcer, if need be.
Szabo sought to remove the third-party middleman and embed the power of enforcement within the contract itself. His famous analog example was a vending machine. The vending machine acts as a bulky physical smart contract. It sets the contract terms via coins needed and buttons pushed for a desired item. It enforces the contract by only executing the deal if all the right conditions are met. Two quarters, the correct string of numbers and letters, and the vending machine churns out a Coke.
Nick Szabo, Image from CoinDesk
Szabo used the vehicle of cryptography and hash chains to replace the levers and gears in his hypothetical vending machine. Increasingly complex and linked mathematical and logical problems allowed smart contracts to be self=executing. Two parties in cyberspace could make and complete a deal without the involvement of a trusted third party. The judge, jury, and executioner were out of a job.
“In general, digital security protocols, especially advanced cryptography, allow radically enhanced or utterly new kinds of security that were impossible and unthinkable, and indeed seem quite magical, from the perspective of traditional law and paper security,” Szabo wrote in 2007 on his blog. “The raw power of computer to crunch numbers, combined with artful new ways to draw preferences from users and represent them digitally, may also overcome the mental transaction cost barrier to very complex terms and very fine-grained transactions, opening up a potentially large new economic space now crudely occupied by resource allocation algorithms.”
There’s a reason gold has served as the preferred medium of exchange for most of human history. Across the globe – from ancient Mesoamerica to the Hellenic foothills, gold was recognized as a nonreactive substance with intrinsic value. Melted down into ingots or beaten into beads, gold held its value regardless of what a third party thought. For the most part.
Gold Facade, Image by Takaharu Sawa
In 1998, Szabo proposed to take the best parts of the gold market and translate them into digital currency, creating a product he dubbed “bit gold.” A currency without third-party arbitrators could be created via a difficult cryptographic process. Moreover, the currency could be time stamped, assigned to individual owners, and then spent without an intermediary, like a bank or government. This particular feature would indirectly lead to 144,000 Bitcoins being seized by the U.S. government in the 2013 shutdown of notorious online black-market Silk Road.
He elaborated on the proposal in a December 2008 blog entry, copied from a paper he wrote in 2005. A month later, the entity known as Satoshi Nakamoto would release Bitcoin’s source code on SourceForge and mine the first Bitcoin.
“Precious metals and collectibles have an unforgeable scarcity due to the costliness of their creation,” Szabo wrote. “This once provided money the value of which was largely independent of any trusted third party. Precious metals have problems, however. It’s too costly to assay metals repeatedly for common transactions. Thus, a trusted third party (usually associated with a tax collector who accepted the coins as payment) was invoked to stamp a standard amount of the metal into a coin.”
There’s no easy line between bit gold and Bitcoin, but that hasn’t stopped hordes of crypto sleuths from trying to prove a one-to-one connection. Indeed, Szabo’s blog went dark from January 2009 to April 2009, when the earliest Bitcoins were being pulled from the mathematical ground.
His final blog post before that hiatus concerned the need for verified timestamps.
“Thus, for example, one could digitally timestamp a secret digital inventor’s notebook to prove later that the invention existed at that time. (Might be quite useful under the American first-to-invent system),” Szabo wrote.
Szabo continues to update his blog and maintain his Twitter feed. He even has a Facebook page with a grand total of two self-posts. In 2015, he posted a picture of several folks sitting around a table in what looks like a conference room with the caption, “Dinner with the greatest minds in Bitcoin.”
Dinner with the greatest minds in Bitcoin, Image from Facebook
In 2017, he posted a profile picture. The man in the picture has salt-and-pepper hair with a similarly decorated beard. His half-smile seems detached from his dark eyes. Could this be the face of Satoshi Nakamoto, the entity that attained a net worth of nearly $20 billion in 2017?
Szabo denies it, and there are other notable contenders for the title of Bitcoin creator. But even if Szabo did not found Bitcoin directly, he created the tools and the environment for it to flourish with his work in smart contracts and cryptographic currencies. It’s oddly fitting that the man who found a way to make currency universally open and yet relentlessly private has done the same for himself.
- Unenumerated – Nick Szabo’s blog
- Smart Contracts: Building Blocks for Digital Markets
- Szabo’s bit gold proposal