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Just the FAQs: What Does Satoshi Nakamoto Have to Do with Bitcoin, and Why Should You Care?

Dan Tynan

We’re teetering on the brink of World War III in the Ukraine, a cure for the AIDS virus may be at hand and Lindsay Lohan is lurching toward another comeback. But yesterday a far more exciting story was unfolding on the interwebs.

Someone had located Satoshi Nakamoto.

Just the FAQs: What Does Satoshi Nakamoto Have to Do with Bitcoin, and Why Should You Care?

Source: Reuters

Who the heck is Satoshi Nakamoto?
Satoshi Nakamoto is the inventor of Bitcoin, a virtual currency created in 2009 that has generated a fair share of controversy. (For more on what Bitcoin is and does, see this fine post by Yahoo Tech’s Rob Pegoraro.) Based on sophisticated cryptographic algorithms, Bitcoin is popular among people who hate government-run currencies and banks, most notably (but not exclusively) ultra-libertarians and cyber-criminals.

For years Nakamoto toiled in complete obscurity. So complete, in fact, that many questioned whether he was an actual person, someone acting under a pseudonym or an anonymous collective. Nakamoto has never appeared in public and was last heard from in 2009. Until yesterday, that is.

What happened yesterday?
Newsweek published an exposé claiming to have located the math genius behind the currency. According to Newsweek, he’s a 64-year-old retired engineer living in Southern California with his mother. He likes to play with model trains. Given the current market value of Bitcoin, he would also be worth in excess of $400 million.

Along with his name, Newsweek published the city where he lives and photos of him, his house and his car. That was enough to send a gaggle of reporters to Nakamoto’s home yesterday, resulting in a semi-comical chase through the streets of Los Angeles, documented on Twitter by Los Angeles Times reporter Joe Bel Bruno, as Nakamoto drove off with an Associated Press reporter to get some sushi.

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So what’s the big deal?
It’s maybe not so big. This Satoshi Nakamoto, who goes by the first name Dorian, may not be the Satoshi Nakamoto.

The man collared by Newsweek financial reporter Leah McGrath Goodman steadfastly denies he’s the inventor of Bitcoin. In an interview with AP reporter Ryan Nakashima, Nakamoto said he’d never even heard of Bitcoin until three weeks ago, after his son told him he’d been contacted by Newsweek. He repeatedly called it “bitcom” throughout the two-hour interview.

Adding further fuel to the fires of skepticism, a person using the name “Satoshi Nakamoto” logged onto the P2P (peer-to-peer) Foundation forum yesterday to announce that Dorian Nakamoto is not him. The P2P Foundation is where the first paper describing how Bitcoin works was posted in 2009. The administrator of that forum verified that both the paper and the reply yesterday were posted from the same account.

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There are only two possibilities: Either Newsweek got it dead wrong, or this man is Keyser Söze.

It is possible someone smart enough to create a currency with a total market value of $8 billion at press time is also smart enough to play dumb for reporters. But the first option seems more likely.

Why did Newsweek run this story if it was so shaky?
Good question. The whole story seems to hinge on an ambiguous response Nakamoto made to the reporter’s question about Bitcoin.

“I am no longer involved in that and I cannot discuss it,” he says, dismissing all further queries with a swat of his left hand. “It’s been turned over to other people. They are in charge of it now. I no longer have any connection.”

Afterward, Nakamoto told AP he misunderstood the question. He thought it was referring to his background as an engineer, part of which was spent working on classified projects for the U.S. government.

Does it really matter who Nakamoto is?
That’s the question, isn’t it?

Bitcoin is extremely controversial. Its value has fluctuated wildly over time, reaching a high of nearly $1,200 per coin in December. (It is now trading at a bit over $600.)

A major Bitcoin exchange, Mt. Gox in Japan, closed last month after announcing that it had been hacked, costing investors tens of millions of dollars. Another Bitcoin bank, Flexcoin, shut down earlier this week for similar reasons, a loss of $600,000. The 28-year-old American CEO of a Bitcoin bank in Singapore was found dead yesterday, a possible suicide.

Bitcoin was also the currency of choice for Silk Road, an online drug bazaar that was shut down last fall by the feds, re-emerged in a new form and then got hacked last month to the tune of $2.7 million.

Because it’s entirely unregulated, Bitcoin also lacks government protections against losses if a bank collapses. So investors are basically screwed.

The problem is really about perception. Was Bitcoin the uber-hobby of a reclusive engineer living in his mother’s basement? Or is it the product of a team of financial revolutionaries out to topple the world’s banking system? Is it a tool created by black marketeers or the NSA to manipulate the planet’s economy? Conspiracy theories abound, and they all center around the identity of the mysterious Nakamoto.

When it comes to currencies, perception is everything. Would you be more likely to trust Bitcoin knowing it was the work of one person intent on making online transactions more efficient? What if it was the product of a secret cabal that intended to drive up the price via speculation and then dump it, causing massive losses for everyone else?

Others say that, at this stage of the game, it doesn’t matter who invented Bitcoin. What matters is how we deal with it, now that Bitcoin has changed the way we conduct business, on and off the web.

What’s next for Dorian Nakamoto?
After having his life turned upside-down for 24 hours, Nakamoto should be able to go back to a quiet life filled with model trains. Unless, of course, he decides to sue Newsweek (which is standing by its story), or he really is Keyser Söze.

But at least he got a free sushi meal out of it.

Questions, complaints, kudos? Email Dan Tynan at ModFamily1@yahoo.com. You can follow Yahoo Tech on Facebook for all the latest.