Features  •  Lifestyle

Hal Finney on Bitcoin: In His Own Words

| Published on August 29, 2014 at 20:25 BST

 

hal finney

Hal Finney was arguably one of the earliest bitcoin pioneers, having been the second person to receive bitcoin after Satoshi Nakamoto himself.

Yet beyond his role in the history of digital currency, Finney was also a cryptographic master, a veteran of bitcoin mining and a voice – sometimes prophetic – within the community at large. By perusing Finney’s post history on the Bitcoin Talk forum, one can see that he foresaw the promise of bitcoin and its meteoric rise at the end of 2013 while the technology was still in its infancy.

CoinDesk collected a number of quotes from Finney’s Bitcoin Talk posts, which, combined, paint a portrait of someone passionate about both the grand and the granular aspects of bitcoin.

For example, in January 2011, Finney noted the more speculative conversation taking place in the community's early days, saying those with bitcoin should think about how they could put that potential wealth to work in a positive way.

As he explained:

“Since we're all rich with bitcoins, or we will be once they're worth a million dollars like everyone expects, we ought to put some of this unearned wealth to good use.”

Looking back, Finney's comments on a host of other subjects ring just as true today.

On mining

As one of the earliest bitcoin miners, Finney brought a unique perspective to the table when discussing the topic.

In late 2010, he discussed the relationship between the profitability of the process and the overall health of the network. He argued for a healthy balance to ensure that network participants remain as concerned about security as they are about making money, saying:

“Mining should not be too profitable (because nothing should be too profitable, the world doesn't leave free money lying around). Therefore the price of Bitcoins can't rise too much above the cost of mining (counting equipment depreciation among the costs of course).”

In January 2011, he offered additional thoughts on the topic, suggesting that the cost of bitcoin mining should be somewhat prohibitive. He voiced concern that a wealthy mining operation could theoretically take over the network, and pointed to the expenses associated with mining as a positive element of the process.

Finney noted:

“Ultimately it's good for the network for mining to be expensive. It makes it that much harder for a well financed attacker to dominate the network.”

On investment

Like many others at the time, Finney was no doubt excited about the prospect that the price of bitcoin – which at the time was a fraction of a penny – might skyrocket.

He speculated in one post from January 2011 that, compared to other investments, bitcoin seemed like a relatively safe bet. As Finney hypothesized:

“It's pretty strange really that we all see a good chance that bitcoins will hit a dollar in the relatively near future. How many investments can be expected to triple in value in that time frame? Is gold going to be $3500 any time soon? Apple stock going to triple? Maybe Facebook, if you could get some. That seems like a pretty sure thing. We are really lucky to be in at the beginning of a possibly explosive new phenomenon. Considering the odds against most money-tripling investments, Bitcoin looks like a good place for a percentage of your portfolio.”

Yet at the same time, Finney was acutely aware of the risk that a speculative bubble could form in the bitcoin market. He cautioned that investors could get whipped up into a frenzy given the returns possible, saying:

“The danger is if people are buying bitcoins in the expectation that the price will go up, and the resulting increased demand is what is driving the price up. That is the definition of a BUBBLE, and as we all know, bubbles burst.”

Finney’s later comments suggest that he saw the price climb to $1,200 in late 2013 – and the subsequent halving that took place in the weeks that followed.

On bitcoin’s future

During his active years in the bitcoin community, Finney often provided unique insights – and criticism, when appropriate – for a number of initiatives, including early generations of wallet clients. It was during those days that many in the community were unsure of where the technology might wind up in terms of utilization.

In a post from December 2010, Finney suggested that the traditional banking system might one day embrace bitcoin. He wrote:

“I see Bitcoin as ultimately becoming a reserve currency for banks, playing much the same role as gold did in the early days of banking. Banks could issue digital cash with greater anonymity and lighter weight, more efficient transactions.”

He added in a separate post from the same month that digital currency “could be used as an inexpensive timestamp service, allowing you to prove that a certain document existed on or before a certain date.” This latter statement foreshadows the use of bitcoin technology for smart contract applications.

Ultimately, Finney was a firm believer in the promise of block chain technology. And, perhaps prophetically, he knew that the market would have to expand greatly in order to function as a viable network on a global scale.

As Finney put it in March 2011:

“The computational power of the network is proportional to difficulty; and it appears that difficulty is proportional to bitcoin price. It follows that unless bitcoins become substantially more valuable than they are today, the Bitcoin network will never be substantially more resistant to attack than it is today. For Bitcoin to succeed and become secure, bitcoins must become vastly more expensive.”

Image via Wired

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