Blog > Bitcoin & Blockchain Tech

From the Bygone Days of Yore — Part 1

By Craig Wright | 03 Jun 2019 | Bitcoin & Blockchain Tech

In today’s post, I will go back to 2012: Panopticrypt had been running since 2011, and I was ready to start moving some of my research into the mainstream. I’ll detail Strassan PL in a later post, as it was fairly separate to Hotwire and related companies. In September of the same year, I started moving forward with consolidating assets that I had in a number of overseas companies and intellectual property that I was developing within Australia. I used a number of law firms back then as I do now. Problems generally occur when you put all your eggs in one basket for services. I don’t have all the records that I used to have, and it’s been quite some years, but we have been digging through old records because of the existing cases.

I called people together that I had known in late 2012. Steven McLaughlin was a friend that I’d come to know through Charles Sturt University. I had been both a postgraduate student and a lecturer, and Steven had taken some of my courses. Some of the other people at the meetings in 2012 included Jamie Wilson, Robert Urquhart, Dave Kleiman over a video link, and my lawyers who were dialed in, too.

Steve was one of these silly buggers who would get up and go surfing in Bondi early in the morning. He is one of the reasons I originally had breakfasts over on Monday on the beach or at least across from it and quite a few drinking sessions at the Bondi Icebergs Club. Essentially, I invited people I knew and thought I could trust as a result.

I told them I was forming a group of new companies to use some of my intellectual property and assets in creating what I hoped would become a global financial conglomerate one day. At the time, I still believed in some form of consensus in the organisation and thought that they could lead people without having to just tell them what would happen. The people I selected were not suited to the roles. The primary meeting to start it all happened in my house in Gordon. All I can say is that it was an eye-opener. Following it, I’m much harder, a different person.

Steve taught me that when you had people who were existing friends, you shouldn’t leave anything nebulous. I brought Steve into the group to run IT security and set up systems. My intention was to have a number of related companies that would promote Bitcoin in many ways. One of the things I’ve talked about is the ability for Bitcoin to be used as an immutable evidence trail. I proposed part of it in the company group structure, and wanted to build it. Hotwire would have been the head company of the group, and everything else would have had its individual area attached to it.

We’d sat around and talked about all of it in October 2012, discussing how a variety of different ideas would be brought to fruition.

All started under the umbrella of the companies that I had at the time. I told the people there that they would be given shareholdings and a wage. All of them were interested except one who left early in the process. I wanted to leverage the capabilities of Bitcoin not just as money but in a number of different ways. Many of the same ideas are now forming the basis of patents that I am creating with my team at nChain.

Steve had the role of integrating firewalls and IDS, and I wanted him to be able to use and leverage Bitcoin. I wanted Bitcoin used as a means of proving the probity and integrity of firewall, IDS, and authentication logs.

All of the intellectual property originated with me.

All of the capital used to fund everything came from my personal accounts in Australia and ones held overseas.

Ones in the gaming industry will remember a part of why Bitcoin was created. There is a day called Black Friday in the gaming industry. The US government started sanctioning and closing gaming operations. Some of them were my clients. All of the companies I dealt with such as Lasseter’s Online were licensed and legal within their jurisdiction. Which did not stop them from being shut down. Those that weren’t shut down were shut out of the international payment system. It was a means of controlling what was a legal industry. Restricting the ability to stop legal trade enacted in a to the US extraterritorial company was not something I agreed with, and I still don’t.

Steve was there in 2012 as I talked about creating a new set of companies.

I gave him an offer. He could become part of the company group, be brought in with a salary and a shareholding, but what I needed was something to be created. I had asked for an implementation of syslog that would save directly onto the blockchain. There was a multilayer concept here. The hash would be stored in Bitcoin transactions, and then a second-layer chain in the form of something like Namecoin would hold the full but encrypted records. In such a way, we could have an immutable access and storage table for all of the logs and an immutable marker within Bitcoin itself even in the early days. Steve chose not to do so. He chose to build a system based on existing ideas and products and existing databases, and told me that it would be a better, more saleable concept. We could offer IDS as a service.

I told him every man and their dogs would do so and that I didn’t want to be involved in such a sort of service business. I reiterated what I needed from him.

The system I envisioned would use the blockchain as a means of controlling sensors. When I told people that I wanted a blockchain-based system, I meant exactly what I said.

I had set up a Hadoop database, and had started implementing SSH and IPsec integrations using Bitcoin keys. Steve had started working on a solution to a problem associated with a customer he was working for, the New South Wales ambulance. Steve had built a good extension of IDS based on the open-source snort project in October 2012. He continued with the project while working on the solution for the New South Wales ambulance, and told me that he could get a system built to the specifications that I’d asked for. The important aspect of it to me was a system that used the blockchain to send and receive from sensors. It would log all access to and from the root console directly into the blockchain. I had about zero interest in taking an existing product and finding a better management interface. You cannot take a business of such sort and scale it. You can’t create a patent on a process and a better front-end like that.

When I spoke to him, Steve repeatedly told me he understood what I wanted.

The reason I had Hadoop was to create an indexed and searchable set of global encryption logs that would work across distributed servers. Effectively, every single intrusion log globally would be immutably saved and could even be searched with the right authority. Yet simultaneously, the concept was to have it in a pseudonymous manner that allowed no attribution outside of knowledge from authorised parties.

By May 2013, Steve had developed a system that was quite good for the time but only incrementally better. It didn’t link into a distributed database, it didn’t save logins immutably in the blockchain, it had no basis in economic security, and it was not related in any way to the work I wanted to do. Back then, very few people understood Bitcoin at all, so I can’t blame too much. Unfortunately, they had too many things going on at once and as such could not follow and micromanage everyone to see that they had really understood what I wanted. So in May 2013, Steve came to me with the dev environment that enabled the management of multiple firewalls and sensors using a cloud-based web interface. I told him it was absolutely unrelated to anything I wanted. He told me it was what the customers wanted. I told him I had no interest in creating a consulting company to sell IDS; what I wanted was to create something that we could sell globally. Nothing even logged against Bitcoin at all.

I didn’t want to be in IDS and such a security company.

Autonomous agents could do so much more linked to Bitcoin.

Robert Urquhart was a forensic analyst I worked with from time to time. The thing is, you can work with people on a small scale, and they can be good at a job, but it can also be an error to move them further than they should be. I liked Robert, but he was not good for the role. A part of what I wanted of the solution was a full forensic database. Definitive proof of all changes to a system, logged and recorded immutably. Steve, Robert, and myself met to discuss it a few times, but the end result was that Steve handed me the product he thought would be good, not what I asked for.

One of the things I wanted to be able to do was to secure the system. To do so, we could have a system that matched its configuration against a record and a blockchain, and any change could be instantly audited. All critical files would be recorded using a tripwire-type system, but instead of having a disc that needed to be checked, the hash value would be stored in the UTXO set of Bitcoin.

A specialist wallet would be able to report instantly any system change or an authorised login. Bitcoin needed value for such a scenario to work; it needs to be cash, but once it is, it can also be so much more.

Steve wanted an idea’s consulting company, I wanted a technical solution that provided security using Bitcoin. I didn’t want to be told that it wasn’t possible, that it was hard, or that customers wouldn’t want it. So Steve and I had a fight. We had been friends for years, and it was the end of it. Steve thought that he deserved something for his effort. He thought that he put a lot of time into it (mostly while working for the New South Wales ambulance organisation and setting it up for them) and that doing so alone meant he should have shareholdings and a say in the company I was forming.

We had a bit of a yelling match.

I never used anything that Steve had proposed. I never wanted it.

I wanted a system that worked in a way that no other system had worked before. I wanted to ensure that when the King’s Wi-Fi was being hacked, the generals could not delete the logs. Steve did not want to work on such a system, and I said, ‘if that’s the case, I hope you have a great life building your solution.’ He then sued me.

The matter went to arbitration as I am hard-headed and won’t back down. He would not work on building the system that I needed and said I would give shares for. We didn’t have a partnership because I don’t have partnerships. He argued that he had done a lot of work and thus he should be paid. I argued that he had never had a contract with me, that I had made an offer that he had not accepted. And such was the point; if you alter an offer, you don’t have a contract, you have an alternative offer.

Steve believed that because he had helped think of a name for the company, doing so gave him the right to it. Unfortunately, thinking up a name doesn’t mean much at all.

Trust

I hired Jamie because I needed someone to run the finances in an increasingly complex organisation. We were negotiating multi-million-dollar contracts, and I believed that I was able to trust the people involved. All I would do in many of the cases was to simply send the one-page signature page.

Doing so turned out to be very problematic later on. Jamie disappeared for weeks in 2013 without telling us any real details. We then found he had been in New York making a deal. What I do know is that the deal was to sell the assets and company. I have no idea who the deal was going to be made with, although I do know it was with people in New York. Jamie had come to an agreement to sell my bitcoin and my intellectual property, and all he needed to do was get me to sign. 

Not a hope in hell.

If I’d seen it coming, and I should have, things would have been different. Jamie was CFO, Chief Financial Officer. He arranged the creation of contracts, and had signed off on the accounts. So it should have been no surprise that he had set them up in such a way to include Easter eggs, backdoors, and about everything I can imagine and worse.

He appeared in the office after his trip to God knows where in New York to meet God knows who and to sell my intellectual property, assets, and bitcoin, and I told them where to shove it. It wasn’t something I handled well. You see, the problem with even corporate keys and access is that there are levels of trust within organisations. Oh, I have learnt my lesson, but at the time I had even given him all the corporate keys, tax access under my name, and about everything else. So Jamie knew all about the assets of bitcoin, and Jamie needed the money.

We never managed to clean up everything adequately and recover all that had been messed up.

Jamie vanished right before we had a tax lodgement due, and subsequently we ended up with a mess we had to clean up. We ended up with external and internal auditors, and if it hadn’t been for the initial problems that resulted with the Australian Taxation Office, we would have been in a much stronger position.

So the irony is that my companies suffered fairly much all of the problems that I wanted to create solutions to. Too much, too fast, and as I aimed too high too soon, I got burnt. I am still not good with people, but am getting better slowly. Then, that doesn’t say much even now.

And I had some falling outs with a number of staff members and potential associates, but the fact of the matter is, it really doesn’t matter whether you like someone or not; maliciously altering records is wrong.

When you first saw me step before the world in 2016, I was still incredibly angry. People who had at one time been friends of mine had altered my records and added things to my company records to get me in trouble. 2013 had been the year of Silk Road. So the revenge people had taken against me had been to salt my company records such that I ended up with a combination of real and false documents. The alterations had been done to add known illicit addresses into the company records, which I guess had been aimed at causing me a lot of trouble when they had been filed. You see, I filed everything.

FD Commercial Lawyers

The reason that I went to lawyers and had a number of documents validated was to ensure that I locked in tax advice in an enforceable manner. I had filed an application for a private ruling at the same time I had registered Hotwire and some of the other companies in Australia. I had overseas assets that were becoming more valuable. If left in the trust or with companies overseas, I would not have to pay capital gains. I needed to do so so that I could complete my 2013 tax-year filing in July of the same year.

I wanted to make sure that I paid the correct amount of tax and had the companies and group structured correctly. Hence lawyers, accountants, and spreading the wealth.

We stored most of our records online.

All of it will start coming out now. I didn’t even hide my wealth from the tax office, the issue was that I structured it in a manner that legally minimised my tax. Unlike most people, I didn’t hide the amount of bitcoin that I had. I structured corporations to ensure the best means of using it, but hiding it was a different thing and one that I did not do.

The records people seeded included declarations associated with my divorce settlement. I had a lot of bitcoin, and I wanted to use it in my companies, and unlike most people, I approached the tax office and told them about what I was planning. I filed a PBR to ensure that I filed capital-gains tax correctly. I claimed the increase in bitcoin and my tax for the year. I did so after seeking advice from the tax office, after having my lawyers look through it, and after having accountants educated enough to understand that bitcoin was an asset. 

Right from the beginning, we implemented accounting and control systems that would make the average multinational blush with envy.

What I did wrong was to place too much trust in a number of people that were associated with the early system and to think that because I had considered people friends once or because they had worked for me, it would mean I didn’t need to do the normal level of access controls and to monitor everyone quite as much as I should have.

We live and learn.

The Early Days of nChain

For a time, in the early days of nChain, we had a number of similar issues. We had started with a lot of new staff and researchers who were fairly autonomous. It takes time to create a structure and organised groups. In the past, it allowed cliques to form. In particular, a number of researchers wanted to put a lot of time and effort into alternative systems like proof of stake and even Ethereum. Such individuals created a number of patents that would be squashed and intellectual property that probably could have helped Ethereum, which will be buried. The reason is simple: companies are not clubs.

We have a lot of good people and some good leadership within nChain now.

The process has taken a long time, but we’re getting there. I’m very proud of our staff as they are today. So, you can say that I’m a hard bastard, and you’ll be right, but at the same time, whether you like it or not and want to believe it or not, I keep my word for good or ill. 

Trust can be a problem. I have had a lot of people who I had relationships with in the past which didn’t end as well as they should have. I’m not nice, and I don’t negotiate well in emotional terms. I’ve learned the hard way that just because someone is a friend, it doesn’t mean that the same person will be a good business associate or someone to deal with within a company. I’ve learned that some people will go to any lengths out of spite.

When money is involved, people start to act differently. It’s an important thing to note.

I had people in my past who I had trusted and who betrayed me. And then, once it occurs, I discovered the hard way that if you don’t cut it out completely, it’s like cancer and it grows. The first time documents were changed within my companies was to try and cause me pain after the fall of Silk Road. We had a cloud-based storage system, and I never expected people to put backdoors into the Xero accounting system or into the hosted file shares. I should have realised that some of the staff we had would react. Not all, some maintained a position of dignity, but others… And it cost me a lot of time and angst over the years. So few people managed to get their revenge, but the truth of the matter is that they fit themselves more in the long run. Steve was one of the better ones. Then, I should have known better and as soon as any staff member left, we should have purged all access to many systems.

For all the negatives, I worked with some amazing people. Through it, I have managed to strengthen my resolve in seeing the need for controls and how a well-structured organisation with good controls helps those who seek to achieve more than anything else.