How Nakamoto’s Psychological Framing of Bitcoin Deceived the World

When Satoshi Nakamoto unveiled Bitcoin in 2008, his choice of vocabulary, specifically terms like 'cash' and 'coins', was a masterstroke of psychological framing. By using these labels, he hijacked the universal assumption that his creation was an alternative to traditional money. Because we instinctively recognize money as a valuable resource, an asset held for the future benefits it guarantees, Nakamoto’s terminology successfully laundered his creation into a familiar financial promise.

However, if we actually examine his creation, we see something entirely different. What we find is not a resource that provides future benefits, but receipts for past energy expenditure.

Nakamoto's system consists of software and a protocol that connects computers into a peer-to-peer network that maintains a database recording which numbers are assigned to which cryptographic keys. Participants obtain these numbers by using specializad devices that repeatedly guess so-called hashes until a guess happens to meet a target defined by the protocol. This process expends energy, secures the database, allows the reassignment of numbers, and prevents their duplication.

Yet nowhere in this process is a resource created that can provide future benefits. All that is produced are numbers representing energy spent in the past. This is not an asset but a receipt acknowledging the performance of computational work.

To understand this, we must first examine the term cash that Nakamoto used and how cash provides future benefits. Cash refers to banks. Banks issue cash based on the account balances recorded in their systems, and those balances originate from the issuance of loans. Every bank balance corresponds to someone's debt to the banking system.

What makes these balances, and consequently cash, an asset to their holders is the fact that those who owe banks must obtain them in order to meet their loan obligations. Billions of individuals who have taken out mortgages or auto loans need them to prevent the foreclosure of their homes, land, and vehicles. Hundreds of millions of businesses need them to avoid frozen accounts, seizure of assets, lawsuits, and bankruptcy. Governments need them to repay their bonds and avoid sovereign default. Banks themselves need them to close unpaid loans and avoid capital impairment and bankruptcy.

By holding cash or a bank balance, you possess leverage over others. You own something that bank debtors and banks need in order to avoid real-world consequences. This is why they are willing to work for you or offer you products and services in exchange for it. Governments allow you to use it to meet tax obligations, and banks give you access to foreclosure auctions where the property of defaulted debtors is sold.

In short, you possess a resource that provides future benefits, and this is what we call an asset. The larger the number assigned to your balance, the greater the stored potential for future benefits, because more underlying obligations require debtors and banks to preserve proportionally more of their property and capital by providing proportionally more value to the holder.

Nakamoto's protocol does not assign numbers to keys to represent the amount of an obligation, as banks do. This is why no resource providing future benefits is created for those who hold these keys. Instead of an asset, holders receive receipts for past work, with a larger number meaning nothing at all because whether you have a million or 0.000001 assigned to your key, the system stores zero potential to deliver future benefits to you.

Another term Nakamoto used in his paper was coin. With this term he implied that the user acquires a good. A good is an asset because it provides future benefits through practical use. Goods may be digital, such as an MP3 file, a PDF document, or software, or they may be physical, such as gold, oil, a collectible item, or a painting.

Nothing of that kind exists in Nakamoto's system. If the protocol assigns the number "10" to a cryptographic key, the holder does not possess ten separate digital or physical goods.

Finally, Nakamoto also spoke about "commerce on the Internet" and about "trusted third parties" that "process electronic payments." With this language he implied that his creation resembles electronic money such as the kind issued by PayPal. However, that money qualifies as an asset because the issuer has an obligation to redeem it for bank money.

A holder of 10 units in a PayPal account can demand redemption in bank funds, which represents a direct future benefit. In Bitcoin's case, however, if the protocol assigns "10" to a cryptographic key, no such claim exists. The holder cannot demand ten units of bank money from the issuer. Nakamoto has no obligation toward the holder, and no future benefit can be realized.

So, what Nakamoto did in his paper was use terms that refer to resources providing future benefits while offering nothing more than receipts for past energy expenditure. He deceived the world through vocabulary. Whether this was done intentionally or out of ignorance about what cash and e-money actually mean remains unknown.

Regardless, the public embraced the system and began trading Nakamoto's receipts as if they were assets. The subsequent market craze, which pushed prices to extreme levels, created the impression that the system represented something historically important, a revolution that everyone had to join.

In the end, however, the system functions as a mechanism through which a classic investment scheme operates. Because there is no underlying asset, the benefits available to participants can arise only from the arrival of new participants. History has already shown how such schemes inevitably end.