Since its early days, Bitcoin has promised a world of change to the way currency is currently perceived and used. Bitcoin has certainly risen in value since those early days, and has given rise to many copycat currencies. But as the history of Bitcoin and Cryptocurrency shows, some have failed, others have survived, but it is Bitcoin that has emerged as the leading cryptocurrency so far. Let’s take a look at how it all began. We will take an in depth look at the first year of Bitcoin’s existence.
2008: Fall of Banks around the world
Back in 2007 & 2008, the financial scenario was pretty bleak. Uncontrolled lending by some of the leading financial institutions across the US and bad investments by banks had lead to their downfall. People, who trusted banks to hold their hard earned savings for them, had to contend with seeing banks make poor lending decisions to home loan borrowers. Bad loans were handed out to people who had no way of repaying them. Banks were able to capture the mortgaged properties to get back the money, until the value of the land dropped. It was then that the bubble had begun to burst.
By this time, banks had already begun to depend on investment bankers like the Lehman Brothers to buy out mortgage backed securities, so that they could transfer the risk. It was when the Wall Street investors lost faith in these subprime mortgage backed securities and pulled out their money, that the financial crisis came to a head. Starting with the fall of the Lehman brothers.
The government came to the rescue of some of these institutions, injecting public money into them to revive them. In the meantime, it was the ordinary person who suffered the most. The person whose salary made its way to the bank each month. With such evident misspending of public money by financial institutions and the government alike, what was the common person to do?
It was in the backdrop of this financial crash that an obscure entity calling itself Satoshi Nakamoto published a whitepaper on October 31, 2008 on Bitcoin: A Peer-to-Peer Electronic Cash System. In this paper, Satoshi proposed that a means of payments without the need for financial institutions could be done through pure computing power. These transactions would be made available on a public ledger to minimise the risk of fraud. It also provided a way for double spending of this currency to be prevented.
Considering the mistrust in traditional ‘third party’ financial institutions and envisaging a way forward for transactions to occur between just the two parties involved, certainly was nothing short of revolutionary.
Satoshi Nakamoto remained anonymous, purporting to be a person living in Japan. However, people assumed it was a group of developers using a pseudonym. Whoever it was had lit the spark that spread like wildfire word of the world’s first cryptocurrency: the Bitcoin.
The Genesis Block
On January 3, 2009, Satoshi Nakamoto established the Genesis Block. This was the term given to the first Bitcoin ever mined. The way Nakamoto did this was by running hashing algorithms on a computer and then storing the results of these algorithms on a ledger.
The ledger remained public, and was known as the blockchain. Therefore, unlike in the case of financial institutions where your money is at risk of being frozen by the bank that stores it, a public ledger that is distributed in nature cannot be seized by any authorities.
The Genesis Block took 6 days to mine and contained 50 Bitcoins.
Random users took interest and mined Bitcoin in response to the Genesis Block’s release. A lot of them did this for the promise of the reward of mining Bitcoin, since the reward was more Bitcoin. At this point, of course, Bitcoin had no real value. It was for the hope of the increase in value of the Bitcoin and the belief in its potential to revolutionise the failing financial infrastructure, that these early miners continued in their efforts.
The first Bitcoin transaction
In January 2009, while the value of Bitcoin was still unknown, the first Bitcoin transaction took place between Satoshi Nakamoto and Hal Finney.
Hal Finney was a developer who had taken interest in Satoshi’s cryptography paper and wanted to promote the rise of this new currency. He downloaded Satoshi’s Bitcoin software and received 10 Bitcoin from Satoshi as a test.
Over the next few days, as Finney himself described this transaction, they continued to exchange emails with each other to report and fix bugs.
2009: The first Bitcoin valuation
The miners certainly did not fail in their enterprise. In October 2009, the exchange rate for Bitcoin was devised by New Liberty Standard. The value was set very simplistically, to take into account the amount of electricity that was used to generate the computing power to mine the cryptocurrency. The value was therefore set at 1,309.03 BTC to $1, or about $0.0007.
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Forward back to the present
It has not been a smooth ride. There have been price crashes too. However, the concept has survived. Investors also get to bask in the glory of profits, even in a bear market! The value of Bitcoin reached its peak in later years to just over $20,000. As we celebrate Bitcoin’s 10th anniversary, it certainly is enlightening to consider all the people and factors that made its meteoric rise possible. Will it continue to show more all time highs? or will it fail? Only time will tell.