Nearly 25 years after receiving my PhD in Finance from the University of Chicago, I finally heard from the Prize Committee for the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel — popularly known as the Nobel Prize in Economic Sciences. No, I was not awarded the prize — I was not expecting to. The committee has invited me to nominate someone for the 2016 Prize. I feel honored. Frankly, this is as close as I am going to get to the Nobel Prize. The names of a few deserving candidates quickly flashed through my mind. The names that most people in the Economics profession would agree with, Paul Romer who is at NYU, Doug Diamond at the University of Chicago, Steve Ross at MIT — the usual suspects — for their influential work in 1970s and ’80s. In all likelihood, they will receive the highly coveted prize sooner or later.
I then started thinking whose ideas are likely to have a disruptive influence in the twenty first century. The name of the inventor of Bitcoin suddenly jumped up in my consciousness and I have not been able to get it out of my mind since then, Satoshi Nakamoto.
Who is Satoshi Nakamoto? We don’t really know.
Where does he work and which country does he live in? We don’t know.
Which scholarly journals in the field of Economics or Finance has he published his research in? Not in any of the reputed journals that one would look for — American Economic Review, Journal of Political Economy, Journal of Finance, Econometrica.
Has he published anything? Yes, a nine-page white paper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System” that he posted on the Internet on May 24, 2009.
So, “why does he deserve the Nobel Prize in Economics?” I am sure the Nobel Committee who entrusted me — among a few hundred others, to suggest nominees for the Prize — would want to know. Am I being somewhat whimsical in nominating a complete outsider, Satoshi Nakamoto, for Economics Prize just as perhaps Romain Rolland was when he nominated, Sigmund Freud for the Nobel Prize in 1936 – not in Medicine but – in Literature.
No, in fact, I am completely serious in suggesting Satoshi Nakamoto for the Prize. The invention of bitcoin — a digital currency — is nothing short of revolutionary. Many physical currencies have been used historically — from beads, sea-shells to precious metals such as gold or silver, to even consumables such as cigarettes in times of hyperinflations, to sports cards. Paper money, or what is formally known as Fiat currencies, are what are now ubiquitous all over the world with different regions and countries issuing their own currencies for facilitating trade and exchange.
Bitcoin, the currency, sometimes referred to as Digital Gold, on the other hand is digital and exists purely as a mathematical object. It offers many advantages over both physical and paper currencies. It is secure, relying on almost unbreakable cryptographic code, can be divided into millions of smaller sub-units, and can be transferred securely and nearly instantaneously from one person to any other person in the world with access to internet bypassing governments, central banks and financial intermediaries such as Visa, Mastercard, Paypal or commercial banks eliminating time delays and transactions costs.
But beyond demonstrating the possibility of creating a reliable digital currency, Satoshi Nakamoto’s Bitcoin Protocol has spawned exciting innovations in the FinTech space by showing how many financial contracts — not just currencies — can be digitized, securely verified and stored, and transferred instantaneously from one party to another. The implications of this are immense. This will likely create an open, decentralized, public infrastructure for moving both money — as Stellar.org is trying to create – as well as other smart contracts — as Ethereum.org is attempting to foster — as easily as email but with security and nearly zero transactions costs. The cover and a lead story in the October 31, 2015 issue of the Economist magazine explain this well and in some detail.
Not only will Satoshi Nakamoto’s contribution change the way we think about money, it is likely to upend the role central banks play in conducting monetary policy, destroy high-cost money transfer services such as Western Union, eliminate the 2-4% transactions tax imposed by intermediaries such as Visa, MasterCard and Paypal, eliminate the time-consuming and expensive notary and escrow services and indeed transform the landscape of legal contracts completely. Many industries such as Banking, Finance, Law will see a big upheaval. The consumers will be big beneficiaries and indeed the poor and marginal sections of the society will reap the benefits of financial and social inclusion in the coming decades. I can barely think of another innovation in Economic and Finance in the last several decades whose influence surpasses the welfare increases that will be engendered by Satoshi Nakamoto’s brilliant, path-breaking invention. That is why I am nominating him for the Nobel Prize in Economics.
Suppose that the Nobel Committee is convinced that Satoshi Nakamoto deserves the Prize. Now the problem it will face is how to contact him to announce that he has won the Prize. The usual protocol is that the committee obtains the awardee’s telephone number and calls the person to announce that he or she has won. But in this case, no one really knows who is, where he lives or what his phone number is. But that does not mean he does not exist. He does. He exists online. He can be informed by contacting him online just the same way people have communicated with him in the past and he has anonymously communicated with the computer science and cryptography community. If he accepts the award, he can verifiably communicate his acceptance.
He will most likely not appear in person — and reveal his true identity given that he has chosen to remain anonymous all his life — to accept the award in Stockholm, Sweden in the formal ceremony in December. I would be happy to go and accept the Prize on his behalf. What about the acceptance speech? That won’t be any problem either. He can write his speech, digitally sign it and send it to me securely. I would, of course, rehearse and deliver it on his behalf at the Prize ceremony.
Finally, there is the issue of the Prize money. No, I am not hoping to get the money just because I accept the award on his behalf and deliver his acceptance speech. The Nobel committee can easily buy bitcoins for the award money from any reputed online Bitcoin exchange and transfer it to him instantaneously. A very early bitcoin transaction suggests that the bitcoin address 1HLoD9E4SDFFPDiYfNYnkBLQ85Y51J3Zb1 likely belongs to him. Of course, he could easily and verifiably let the committee know which address he wants the money to be transferred to.
Satoshi Nakamoto already is in possession of several hundred million U.S. dollars worth of bitcoins so the additional prize money may not mean much to him. Only if he wants, the committee could also transfer the prize money to my bitcoin address, 165sAHBpLHujHbHx2zSjC898oXEz25Awtj
Mr Nakamoto and I will settle later.