Cryptocurrency, the Jews, and the Fundamental Question of Trust

Over the past 12 years, a very specific and tiny group of coders and systems theorists, some of them teenagers, have methodically demolished social theory, political organization, power theory, epistemology, and economics, shattering the walls of your reality while you were still learning how to tweet.

Twelve years, of course, is 12 years after the anonymous coder styling himself Satoshi Nakamoto published “Bitcoin: A Peer-to-Peer Electronic Cash System,” then vanished, without a trace.

In his white paper, Satoshi created something called the “blockchain.” On a technical level, we know that the blockchain is the answer to something called the consensus problem, which has haunted coders for decades. What that means to us is still undefined—from his correspondence and published papers, it isn’t even clear that Satoshi knew. But like quantum physics or Gödel’s theorems, the problem and Satoshi’s solution speak to something deeply human, which his devotees usually feel more than they can explain. A decade after its creation, blockchain is shrouded in a weird, Kabbalistic mysticism.

Bitcoin, Satoshi’s application of his idea to currency, is certainly a threat to the world order. But far deeper than an alternate currency, Bitcoin is the proof of a solution to a problem that in some form or another has haunted every arena of human affairs for 2.5 million years. It is the crystallization of an understanding that will come, over the next century, to dominate every field of human interaction. And it began, as usual, with the Jews.

The fundamental question of the consensus problem is how separate individuals who may not trust or even know one another can still agree on something. Here is one way of putting it:

You and your colleagues want to meet up for dinner. You all have different preferences for cuisines, but you’d all rather meet somewhere than not at all. You are all separated from each other but in the vicinity of two different options. The idea is to come up with a solution for how to meet that takes as little time as possible—to arrive at a consensus about where to eat.

The same problem can be posed in a million different variations: The original way of putting it, formulated by computer nerds in the ‘80s, was in terms of Byzantine generals, separated by mountains, trying to launch a coordinated attack on an ancient city. The question is the same: How can the generals, with independent wills but common interests, agree on a shared plan to benefit them all?

Those two examples frame the consensus problem around a problem in the future, but it doesn’t have to be. Here’s another example of a consensus problem:

I’m going to interview a friend of mine. We want to keep some kind of account of the conversation, maybe for publication. We’d both prefer to record the most personally flattering version of the conversation.

Most people would just find a mutual friend, some trusted third party, to write out the events of the conversation as it happens. If I try to backtrack on what I said, my friend can just point to the record, keeping us both accountable. This is a centralized solution to the consensus problem: We are both beholden to the power of the third party and his or her record of the conversation, putting that record at the center of the system.

A boss could tell you and your colleagues where to go for dinner, a king could tell the generals when to attack, and our mutual friend could tell us what we said. Most people are content with these centralized answers. The whole world is run on centralized systems, from banks to courts.

But the Jews will shake their heads, muttering to themselves about trusting third parties. They will tell you that trusting someone else with the account of the conversation is all very well and good, until that “mutual friend” starts crossing things out.

They will grouse about how there should be a solution to the consensus problem that doesn’t rely on a center.

For millennia, this is all “decentralization” meant—agitated daydreams about a world without hierarchies of power, like the kind Dostoevsky mocks in Demons. Except in 2008, Satoshi Nakamoto found a way of phrasing the consensus problem where a decentralized answer was possible, a corner of the world where, under his perfect circumstances, power hierarchies didn’t have to exist. And like a hole in a dam, all the world’s centralized systems found themselves exposed to the possibility of a flood of biblical proportions.

When you and I make a transaction, we don’t barter directly: The currency we use is the middleman that makes our trade possible. The consensus problem of how you and I agree on the relative worth of the objects we’re exchanging has a centralized solution: currency. Ergo, whoever manages the currency is our center. If we can get rid of them, we have the decentralized solution; if we have that, we have the tools to decentralize any system. But let’s not get ahead of ourselves.

In the United States, the center of all transactions is the Federal Reserve. The currency you and I transact with exists courtesy of the Fed, which could decide to print a trillion dollars tomorrow and make all our money worthless through inflation. As a society, we accept this risk because the Federal Reserve does a few helpful things: It (1) prints money, (2) regulates the supply of that money, and (3) verifies it to make sure it’s hard to counterfeit.

What a group of coders realized was that with the new cryptographic logic of the internet, free from physical concerns, printing a token online just meant writing a few lines of code. Regulating the supply of those tokens took a few more complicated lines of code. And Satoshi finished it off by introducing a kind of serial number onto each token, making each one irreplicable.

In theory, national banks are now useless. The system of person-to-person exchange is centerless. The first great centralized system has fallen.

Popular attention to blockchain technology is mostly paid to currency because it’s thrilling and terrifying. Our nation began as a revolution against taxes. Bitcoin probes the necessity and, indeed, the legitimacy of national governments to regulate interpersonal exchange. People in the United States could finance activist groups in China without either party being taxed, or even identified, since neither has to go through a government entity in order to transact with the other. Cryptocurrencies have a Jewish anarchist flavor, like the code for Bitcoin should really be written in Esperanto.

And yet … Bitcoin has no interest rates and no tangible reminders of its existence, and its value is psychological if not necessarily “real,” making it ridiculously volatile; it’s also abominably slow. Bitcoin is a provocative question, a social protest that will hopefully touch off a debate about the limits of government power. Treating it as an actual economic viability, I believe, misses the point. Gutenberg’s printing press was all well and good as a marvel of woodworking.

The way we got to cryptocurrencies in the first place, which people tend to forget, was through the solving of the consensus problem. So now that we understand the consensus problem, we must turn our attention to how Satoshi cracked it.

The way we phrased the consensus problem was how perfect strangers could agree on a single plan that was in each of their best interests.

But, thought Satoshi, what if that was the wrong way to put it? He essentially argued that the problem was, by nature, impossible to solve. The way we phrased it before had us trying to jam two people’s agendas into one, insisting on the existence of a definite, singular “plan.”

But we don’t actually need the strangers to agree on a single plan, or even a single vision of reality, in order for our system to be a success. Essentially, all we need to solve the consensus problem is an unhackable communication mechanism, which does nothing more than let two strangers discuss their agendas with one another, aligning their interests when they want to and, if they like, remaining separate the rest of the time.

Let’s return to the interview example. My friend and I could each write down what we believed the other person said. If it’s in both of our interests to sell the account to a newspaper, then we’ll find a way to compromise between our two accounts and agree on a common record that consists of the whole thing, part of it, or just selected snippets. Regardless, we will have come to a consensus, which is all we need.

If an outside observer asked to see “the real record,” or the “truth” of the matter, she would have to clarify what she meant. Whose record? Both records? An amalgamation, maybe, of only the parts of the two records that matched each other? For my friend and I have come to a consensus, a state of total willingness to accept the existence of a superficial common ground between our two otherwise totally incompatible souls and understandings of reality, rather than to a compromise, a state of mutual amputation of parts of our souls in order to briefly but totally unify.

This is hard to stomach for a Western culture long steeped in centralized religion. Religions are supposed to have leaders that hand down positions. For Jews and students of the Talmud, of course, these are familiar concepts. The Talmud, the most authoritative text on Jewish law after the even more cryptic Torah, has painfully few conclusions on what the truth of the law is in any given circumstance. You cannot ask why “Judaism” tells you to say the Shema. What is “Judaism”? For that matter, what is a “Jew”?

Both are the debates about what they are, the relentless questioning and argument. From summits of handed-down “truth” that denies the human soul and its ability to reason for itself, our understanding of truth and reality must progress to the net product of clashing human understandings of reality, froth on the waves of anarchic human interaction. Lo Bashamayim Hi!

This is the understanding of the world that powers Bitcoin, an old Jewish philosophy written for the 21st century by a coder named Satoshi Nakamoto.

Who, by the way, was probably Jewish.