A Decade On: How the First Bank Run in a Century Gave Birth to Bitcoin


This is fiction, but based on what is publicly known, trying to reconstruct with the help of imagination how events may have unfolded.

The free market is at risk, and with it our freedom too, due to the constant expansion of the state at the expense of private enterprise. So a professor lectures on the teachings of Hayek.

The boom we have now enjoyed for more than a decade will be followed by a collapse, he says, with the cycle each time becoming bigger. Particularly dangerous are banking collapses. He continues. There has been a century since, we are due for one, he tells a gripped room packed with the smartest young men and women, including those of the elite.

Is this cycle inevitable? Someone asks. We don’t know, the professor responds. It has always been thus, but during the last crisis following the unpegging of currencies from gold, which led to double digit inflation in Britain, Hayek made an intriguing suggestion which has never been tried, he says, switching to the next slide with this quote:

“The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process… only competition in a free market can take account of all the circumstances which ought to be taken account of.”

Why has this not been tried? A student asks. Britain attempted it, the professor responds, but in a limited form, allowing only free floating of foreign currency exchanges. Taking the step of actual private money, however, is a paradigm shift, he says. But now, with the rise of the internet, it may be inevitable. Something like e-money will come to be. The professor concludes.

A blond, blue eyed, somewhat handsome, young man, hurriedly takes his bag and rushes out of the lecture hall. His direction, a computer lab. His computer science professor, with others from the department, had engaged in experiments employing reusable proof of work (RPOW), an invention of Hal Finney, a noted cryptographer with the PGP corp.

He had asked his students to use this invention towards making copying files impractical. The task was difficult. Whoever fails last gets an A. Our young man is first in class, looking at the progress he had made so far, but became somewhat frozen, thinking about the previous lecture, wondering whether he could use RPOW towards making it impossible to copy money.

The professor enters, giving an unrelated lecture workshop, so we go to the evening news, when our young man, together with the rest of the country, hears Robert Peston state on BBC breaking news that Northern Rock had sought assistance from the Bank of England for monetary injection. Peston says it doesn’t mean that the bank is bust, nor does it mean that depositors should panic.

In the next morning, our young man walks through queues that were beginning to form outside of Northern Rock. His destination, the British Library. Classes had to wait for another day.

There he studies the history of money, and the banking system, how it all operates, the clearing houses and all the rest. He learns that money does not have any fundamental value and the entire system operates on account book-keeping with intermediaries in charge of reconciliation and verification.

The concept appeared simple to him, after some months of study. He thought there could be an online database that automatically keeps account of all money and its movement. RPOW could act as a clearing house. Simple copy-paste cryptography (which his computer science professor had been teaching) could be employed for user input. Instead of banks, computer nodes that download the software code could act as banks, replicating the entire system.

It should all work, shouldn’t it? But how to code all this, he wondered.

Global events had gotten worse. One of the biggest bank, RBS, was on its knees. Weeks after, Lehman Brothers collapsed. The bust was here, bigger than anyone imagined. Just in time for what our young man was working on.

His university attendance became more and more rare. Even when he attended, he wasn’t quite present, consumed by the code, which was now nearly finished.

He e-mails Hal Finney, asking for his opinion. Hal Finney introduces him to an entire history of cypherpunks, which he was unaware of. So knowing he had an audience, he let them know of his work on Halloween 2008, the day of regeneration.

He took a few months to refine the code. Then, on January the 3rd 2009, on the day Alister Darling was about to bail out the banks for a second time, he publicly launches the bitcoin network.

A new world was born, out of the ashes of the old. From the rubble of destruction, a new liberating invention was launched. Bringing the digital revolution to money itself. Echoing in historical rhyme the enlightenment’s upgrade to paper.


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