Bitcoin, Cryptocurrencies and Blockchain

7D1t...morE

4 Jan 2024

117

If you don't believe me or understand me, I don't have enough time to convince you, sorry

Satoshi Nakamoto

In the old days, long ago, when money did not yet exist, people used to trade their surplus goods to buy what they needed. But everyone's needs and wants were different, for example, not everyone wanted to trade eggs for apples.

Moreover, when bartering, the value of goods against each other was always a problem, because how many apples were worth how many eggs? These problems were overcome in time with "product money". The salt we now use on our tables was one of those product currencies (salary, which means salary in English, comes from "salt")

In addition to salt, there were many product coins such as mussel shells, whale teeth, cocoa beans, wood and metal, but metals such as gold, silver, nickel and copper replaced the others over time. Because they were rare in nature and could be divided into small pieces.

However, metals were heavy, not always easy to cut, and when they were cut, it was not easy to measure their weight on a scale and value them accordingly. In this period of history, the Lydians came on the scene and turned pieces of metal with a predetermined weight into money.

Years followed years, centuries followed centuries, and gold and silver became the accepted currency in almost every part of the world. During the peak years of the Roman Empire, considered the founder of modern finance, the currency of the West was gold, while the East preferred silver.

The minting of these coins became a symbol of independence for newly established or existing states and empires. Some coins were engraved with the image of their king/monarch, others with a figure or seal symbolizing the state.

The function of central banks today was performed by kings back then; they decided the value of money and how much to print. Adding other metals to gold/silver, which is the equivalent of devaluation today, was also something they decided.

But it was not easy to produce money from precious metals, and it was also difficult to transport them. By the 9th century, the Chinese were using what could be considered the first paper money: a mulberry bark with the emperor's seal on it.

Paper money did not have a value like gold or silver, but the emperor pledged with his own seal that it corresponded to them, in a way assuring the public. The idea of printing paper money against precious metals, which started in China, was carried to Europe by Marco Polo in the 13th century.

In the following years, when paper money started to be printed based on gold, states were looking for solutions to meet their need for gold and silver. These solutions included waging war against countries where these minerals were abundant or, like the Chinese, geographical exploration of far-flung regions.

Although the Chinese had returned empty-handed from their expedition to the African coast and geographical discoveries were banned by the emperor's decree after these expeditions, there was a different situation in the west. The Spaniards had found gold in the new continent of America.

The discovery of America led to the transportation of gold from this continent to Europe and the economic empowerment of Europe. The permanent settlers, led by the British, founded America, modeled economically on Great Britain and politically on the Roman Empire.

In the 1800s, when Britain was the world's superpower, America found both gold and oil within the country. However, oil was not considered very important in those years, but finding gold was extremely critical for a state that used gold as money.

Making good use of the gold and oil it found in its territory, America began to attract many investors, especially from Europe, and also exported the oil it processed and ensured the inflow of gold into the country. This made America stronger and stronger.

World War 1 brought economic devastation for both the winning and the losing countries and plunged all the countries that entered the war into debt. While countries were looking for foreign debt on the one hand, on the other hand, as another solution, they left the gold standard and started to print free money.

In these years, the FED (Federal Reserve Bank of the United States), which was established just before the war, came into play. Since the FED issue is critical, I need to talk a little bit about the FED at this point. Contrary to popular belief, the FED is not a public bank, but a structure established by "private banks".

The biggest shareholders of the FED are the leading banks of America, such as Citibank, J.P.Morgan, Goldman Sachs and Bank of America, and the families that hold these banks. So it's not a conspiracy theory, a group of families really run the world (more on that later)

When the countries that had participated in World War 1 fell into economic crisis, the FED supported them with loans and interest rate cuts, but on the other hand, the US was putting the dollar on the world stage and paving the way for it to become a reserve currency.

With the help of the FED, countries that had given up printing money for nothing fell apart again in the economic crisis of 1929. Since they did not have enough gold in their hands, they went off the gold standard again and started to print money for free in order to put money on the market.

However, with the outbreak of World War II shortly afterwards, the world economy was turned upside down again. America became the boss of the new economic order through institutions such as the IMF and the World Bank, which were established after the war, and through the Marshall Plan.

In return for its $50 billion aid to Europe, the US set all the rules: The currencies of other countries would be indexed to the dollar, while the dollar would remain indexed to gold and not to any other currency. Countries would use $ in foreign trade and the FED would stockpile gold against the $.

Everything went on like this until the Vietnam War, but this 10-year war cost America dearly. Gold stocks melted, current account deficits started to grow very fast. When America couldn't keep its promises to other countries, countries started to run away from the $

America had to find a solution that was not based on gold and make the dollar acceptable to the whole world again. The man who solved this problem was the famous Henry Kissinger. His solution was to sell oil in dollars, which was now much needed due to industrialization and the automobile revolution.

America made a deal with Arabia, the biggest oil exporter: Oil would be sold all over the world for $, so countries would have to supply $ and hold reserves in order to buy oil. In return, the US guaranteed the power of the Saudi family.

The petro-dollar standard, which led to the dollar being used as a reserve currency all over the world, and the United States earning huge revenues from world markets even if it did nothing for its own economy, began to put America on the path to superpower.

More importantly, the US no longer had to print or produce gold for the dollar, meaning it could print money for nothing. On the other hand, this forced countries to hold reserves for this free money (welcome to the new world order).

The collapse of the petro-dollar system is synonymous with the collapse of the dollar - the collapse of America. Therefore, it is vital for America that oil is not sold in any currency other than the dollar. Remember what they did to Gaddafi and Saddam who attempted this!

This standard, which started with oil, gradually led to the fact that other energy raw materials, agricultural commodity prices, international transportation and insurance invoices were also dollar-based, in short, America became the boss of the world.

At the head of this whole system is the FED, the union of private banks I mentioned above. Strange as it may sound, the FED also makes money and distributes it among the 12 banks that are its shareholders.

Contrary to popular belief, the FED, one of the two private central banks in the world (the other being the Bank of Japan), is one of the most mysterious and closed organizations of our time. Moreover, unlike other institutions in the US, it cannot be audited, which adds to the mystery.

The Fed, acting as the world central bank, shows us that it is not governments that run the world financial system, but private banks and the families that own them. In order to understand the philosophy of crypto, I need to explain this financial system, i.e. how banks make money.

Most people think of banks as a kind of intermediary institution and think that the money they earn comes from the interest or commission they receive from the people they intermediate. But this income is the tip of the iceberg. The real profit of banks comes from the money they themselves create out of thin air.

And contrary to popular belief, governments do not create money: Banks create it out of thin air as debt. Let me explain how this money, also called dematerialized money, is produced with a simple example. By law, banks are obliged to deposit a portion of the money deposited with them in the Central Bank.

Let's say a person deposits 10TL in a bank. Let the required rate that the bank must deposit with the Central Bank (CB) be 10%. In this case, the bank will deposit 1TL to the Central Bank and keep 9TL for itself. Everything is normal so far.

Person A goes to this bank and asks for a 9TL loan for a new house. The bank gives the loan with a certain interest rate and collateral such as a house or a car that it can seize if necessary, but it generates the loan, that is, the money, electronically at that moment.

Person A sends 9TL to the bank account of Person B, from whom he will buy his house. The bank sends ~1TL (rounded up), 10% of the 9TL to the MB and keeps 8TL in its own reserves. The bank has thus earned 9TL out of thin air from this transaction.

Person C, who wants to buy a car, takes a loan of 8TL from the bank and sends it to Person D's bank account to buy the car. The bank again deposits 10% of this money from D to the MB (again rounded up to 1TL), leaving 7TL in its own reserve.

As a result of just these two transactions, the bank earned 9+8=17TL from people A and B for the 10TL deposited with them, and it still has 7TL to sell. Imagine how many times this transaction is done in daily life! It is no coincidence that banks are among the top earners.

No matter what anyone calls it, "banking" is the only business where you can sell the same thing to many customers and not get arrested. But by 2008, the same thing had been sold to so many people that the system could no longer handle it.

When that point of no return was reached, bankruptcies began and the whole world, especially the US, faced the 2008 crisis. The system in which the central bank was the guarantee of the financial system collapsed, and the credibility of central banks, especially the FED, was lost.

Around that time, on November 1, 2008, someone using the pseudonym Satoshi Nakamoto posted an e-mail to a cryptography mailing group called Cypherpunk with the title "Bitcoin - Peer-to-Peer Electronic Payment System" in Turkish.

In this message, it was clearly written: "I am working on a new electronic cash system that is fully interoperable and does not involve a trusted third party". Satoshi directed readers of the short statement to a link to an article he wrote 2 months ago.

The report described this "digital money" system in clear but simple language, with notations, equations, codes and footnotes. In a later message, Satoshi described the fundamental problems with the traditional banking system, saying

"The fundamental problem with traditional banking systems is the trust required to make them work. The central bank must be trusted not to devalue the currency, but the history of paper currencies is full of examples of this trust being broken".

And he continued: "Banks should be trusted to hold our money and send it electronically, but they set aside very little of it as reserves and lend most of it out in the form of credit bubbles."

And he continued: "Banks should be trusted to hold our money and send it electronically, but they set aside very little of it as reserves and lend most of it in the form of credit bubbles".

The Cypherpunk group, for which Satoshi wrote an email, were self-described crypto-anarchists who believed in the importance of protecting privacy in the digital age and developed "cryptography-based" applications to protect people's anonymity.

Among the apps the group wrote were apps for sending anonymous emails, as well as apps for collecting anonymous donations for the assassination of a person chosen by a vote (John Wick?). The Chairman of the Federal Reserve was first in this vote.

Some of the group members asked Satoshi technical questions, others said that this system would not work or that governments would not allow it. Satoshi explained that he had thought of everything and built the system accordingly.

Satoshi, or "Node Number One", installed the software on his computer and created the first 50 bitconi, or blocks (more on that later), which he called the Genesis Block. However, there was no place to use it, because its value was 0.

In an effort to find someone to send the Bitcoin to and test the system, he wrote to the email group again, telling them that the program was ready, only to receive the same suspicious and some cynical responses as before. But one person thought differently: Hal Finney.

Finney had developed PGP, the software that helps people send emails anonymously, which is now in my profile. Intrigued by Satoshi's project, the two got busy and Finney became "node number 2", issuing 50 blocks of bitcoin.

Satoshi and Finney worked on the software, fixed the bugs, and then the software was released. The fact that Finney was known and respected in the group and that he was working with Satoshi increased interest in bitcoin and people started to install the software.

As new people were added, new blocks (bitcoins) were issued, new nodes were added to the network. But bitcoin had no value as a currency, it was still zero. It was necessary to give it a symbolic value and to increase people's interest in it.

Community members agreed on a method of calculation based on the amount of electricity used to mine bitcoins. Accordingly, $1 = 1305.03 bitcoins, in other words, 1 bitcoin was equivalent to 0.08 of 1 cent.

Bitcoin mining had become a hobby or a game for people. The bitcoins mined had little or no monetary value, but the competition was a lot of fun. Back in those days, a software developer named Laszlo Hanyecz discovered something that would give him a leg up in the race.

When Hanyecz wrote an application that used a graphics card processor (GPU) instead of a computer processor (CPU) to mine bitcoins, it attracted a lot of attention and community members began to grow rapidly. Everyone was in a rush to build a "money machine".

However, Satoshi had built the system so ingeniously that it was becoming increasingly difficult to "mine the money". For the first 4 years, the system would produce a constant 50 bitcoins every 10 minutes. In 2012, this number would drop to 25, then decrease by half every 4 years, and by 2140 the supply would be zero. In 2140, a total of 21 million bitcoins would have been produced.

Despite this, some community members mined thousands of bitcoins. But there was no proper value for the bitcoin, and no place to accept it. On May 18, 2010, the aforementioned Hanyecz posted an interesting message.

"I'll pay 10,000 bitcoins for 2 large pizzas, so I can save a few slices for the next day". Although not many people took the message seriously, a member in the UK ordered a pizza from a place close to Hanyecz with a credit card to his address and asked Hanyecz to send him the 10,000 bitcoins.

This first step towards bitcoin becoming real money suddenly increased its value from $0.01 to $0.08, and people became even more interested. Then an astute software developer set up a bitcoin exchange called Mt.Gox so that people could easily buy and sell bitcoins.

As of 2011, 80% of bitcoin exchanges were made on this exchange. The number of people interested in bitcoin grew from hundreds to thousands, and the value of bitcoin reached as high as $30. However, when the exchange was hacked by a group of hackers, the value of bitcoin dropped to cents.

This interest in and potential for bitcoin had whetted the appetite of another shrewd programmer: Tor, an Internet network that could be accessed through special methods, which would allow anything to be bought and sold anonymously and in bitcoins. He soon launched this site, called Silk Road.

Silk Road was both good and bad for bitcoin. Good because its value was increasing and more people knew about it, bad because the most sold thing on Silk Road was drugs. The subsequent shutdown of Silk Road by the FBI did not stop the momentum of bitcoin.

In the meantime, new exchanges were opening to buy and sell bitcoin, and "e-commerce" sites similar to Silk Road were opening to sell illegal goods. The closure of these exchanges or sites caused the price of bitcoin to be constantly fragile, but at the same time its reputation grew.

This fame must have made software developers jealous as well, as there were those who copied the bitcoin software shared as open source, who claimed to have taken the root software and added new features, or who claimed to have closed the vulnerability of the system.

The oldest of these digital currencies, also called altcoins, was NameCoin. Some of these projects were dubious, clearly planned as economic bubbles. As of today, there are around 2500 altcoins, but 66% of the crypto market still belongs to bitcoin.

Bitcoin's rapid rise has attracted the attention of banks, central banks and governments over time, but almost all of them claimed that bitcoin was a bubble, that it would soon disappear and that it was unreliable, and most of them still hold this view.

Despite all these bans and criticisms, bitcoin continued to grow, even opening ATMs in some countries. Moreover, the number of commercial enterprises accepting payment in bitcoin was increasing day by day in different parts of the world.

Criticism focused on different things: From those who claim that bitcoin is a CIA or NSA project, to those who think it would be wrong to consider it as money, to those who say that bitcoin is a ponzi scheme. But many of these critics were unaware of what bitcoin technology was.

If we look at the criticisms at this point; bitcoin has all the characteristics that a currency should have (acceptability, portability, divisibility, stability of value and longevity). However, the stability of its value is a bit problematic for bitcoin.

Although Bitcoin's value doesn't fluctuate as much as it used to, it still doesn't have the stability of traditional currencies, which is one of the most important factors preventing it from becoming widespread as money in everyday life. On the other hand, it has all the functions of a currency (medium of exchange, store of value and accounting).

Bitcoin may be banned, its value may fall, but because it was developed on blockchain technology, it is not going to shut down, disappear or disappear, as some people say. Because there is no central server that can shut it down, there are thousands of nodes distributed around the world.

The real power of Bitcoin comes from its underlying technology, the blockchain. Since this topic is a bit technical, I will try to explain it with an example without going into detail. Suppose you have a grocery store's credit book, but 100 copies of this book are in the hands of 100 different people.

In Bitcoin, each page of this ledger represents a block and each person represents a node/miner. Now imagine that in this ledger, the grocer's uncle records the purchases of the people he gives credit to and fills the first page (the genesis block). Before moving on to the second page, the information on the first page needs to be verified and the page needs to be sealed.

In order to verify the information, a "trace", a fingerprint or a digital signature, unique to that page (block) needs to be found. In bitcoin, this trace is realized through an encryption method called cryptographic hash, but without going into this detail, let's assume that 100 people are looking for this special trace.

But finding this trace is not easy and requires some mathematical calculations on the computer. Let's assume that one person finally finds this trace. If the majority confirms it, the page (block) is sealed and the second page is started. The person (the miner) who finds this trace is rewarded (in bitcoins) depending on the workload.

When the grocer moves to the second page, he adds the imprint from the first page at the beginning of this page and then starts adding the shopping records again. When the page is finished, this page also needs to be sealed so that he can move on to the next page. A process similar to the previous one starts here, and 100 people are looking for the unique print for this page.

When one out of 100 people finds this trace, the others are expected to verify it. If the majority confirms, the page (block) is sealed and closed. It moves on to the next page (block). This is how what we call the "blockchain" continues with additions.

One of the most important aspects of this chain is that the record is not kept and verified by one person, but by many people (in a distributed structure). In other words, there is no bank, brokerage house or person as in the classical banking system, there is no trust in just one person/institution.

On the other hand, if you try to change anything in this chain, even a letter, the traces there will be changed and it will spread to all the blocks in a chain and everyone will know about it instantly. This is why it is almost impossible to hack this system (hacking Bitcoin exchanges has nothing to do with hacking bitcoin).

Blockchain technology and cryptocurrencies have now reached such a level that central banks are no longer playing the 3 monkeys. After 5 years of scrutiny, China's central bank announced in August that it was close to issuing its own digital currencies.

On the other hand, the Central Banks of Sweden, Switzerland, South Africa, Uruguay, Venezuela have announced over time that they are preparing to issue digital currencies or work in this field, similar to China. The FED, on the other hand, says that they are "following the trend carefully" when the issue comes up :)

If we look at Turkey, we have a similar situation in our Central Bank. According to the 11th Development Plan, published in July and covering the period 2019-2023, the Central Bank will introduce a blockchain-based digital central currency.

Regardless of the cryptocurrencies it works on, one thing is clear: Blockchain is the technology of the future. The cover of the Economist magazine from October 2015 sums it up: "IN BLOCKCHAIN WE TRUST", referring to the inscription "IN GOD WE TRUST".

Let's dedicate the last part of this briefing to Satoshi. Using a Japanese name, a German email and a British writing style, this legendary figure suddenly disappeared after his last message on December 12, 2010, and his identity remains unsolved.

There are those who claim that he is not a person but a group, the CIA or the NSA. Over time, there have been people who say I am Satoshi, and there have been ordinary people named Satoshi Nakamoto, whom the media has been hounding as Satoshi.

Like almost everyone else, linguists analyzed Satoshi's messages, recording the smallest details such as which words he used and how he used them, and even the fact that he left 2 spaces after the period at the end of sentences. These details were compared with the messages of software developers who lived in those times.

According to some journalists who have been researching this issue for many years, the strongest candidates were: Hal Finney, Wei Dai and Nick Szabo. And again, according to many, Satoshi, because of his writing style, because he was the developer of bitgold, which is similar to bitcoin, and many other things: Nick Szabo.

On the other hand, people who support crypto and anonymity want Satoshi's privacy to be respected, and when the topic comes up, they give one answer, as if they were prepared in advance: "We are all Satoshi!

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