Bitcoin has played a huge role in the cryptoworld so far. It is playing a huge role in the finance world right now. Regardless of the fractions that may be forming within the cryptworld, one thing is undisputed. That is the value that blockchain technology is bringing with it. Bitcoin can be thanked for that.
With it’s popularity ever increasing there was once a stage where hardly anyone knew what it was. Those that had heard of it just thought it was some sort of ponzi or money laundering scheme. Yet that was only a few years ago. Some would still argue that it still is. But with exponential increases in value over time it has become a contender as an elite financial instrument.
We take a look at it’s birth, it’s victories, and it’s roller coaster rides to understand what Bitcoin really is. So regardless of how Bitcoin will do in the future, this serves as a tribute to one of the most disrupting technologies of our time.
Satoshi Nakamoto, who’s identify has been never confirmed, is known to be the pioneer of bitcoin. Releasing his first paper ‘Bitcoin- A Peer to Peer Electronic Cash System’ was posted online in the January of 2009.
Bitcoin had actually gone live earlier, with the first Bitcoin ever mined in August 2008.
Cryptographic or virtual currency wasn’t new by any means in 2008. The work has been attempted by several mathematicians and engineers up to date. Bitcoin however managed to solve several problems that predecessors had faced. Double spending was one these problems that bitcoin solved: essentially bitcoin removed the need of a single, central third party to verify a transaction.
Over the next few months, the community which involved engineers, mathematicians, fans, and entrepreneurs, started to gather around the technology. It wasn’t long before collective thoughts started to quickly improve on the original protocol.
One person from this community, Hal Finney, was a key participant in this community. Known to be the second person, after Satoshi, to have mined the first ever bitcoins.
“When Satoshi announced the first release of the software, I grabbed it right away. I think I was the first person besides Satoshi to run bitcoin.” – Hal Finney on Bitcointalk
Hal saw bitcoin as a fascination. The theory behind it excited him and he know bitcoin would be a fundamental shift in the economy paradigm.
His involvement in the project continued right till the day he passed away in 2014. Although this involvement was greatly appreciated Finney points all credit to the whole community and the players who helped build the foundations. Most of the earlier community were in it for the theory that bitcoin stood upon. The community was in it for what bitcoin really was and not for the profits (profits they couldn’t even fathom).
“And of course the price gyrations of bitcoins are entertaining to me. I have skin in the game. But I came by my bitcoins through luck, with little credit to me. I lived through the crash of 2011.” Hal Finney – Bitcointalk
Given the steady increase in price and demand, bitcoin wasn’t without its flaws. Several bugs in the protocol created issues for the currency and the community. One major one was in August 2010 when a major vulnerability was exploited and over 185 billion bitcoins were generated in one transaction then sent to two addresses on the network. The community swiftly forked the chain to an updated version of bitcoin so that those transactions were made obsolete.
The bitcoin protocol has been a continuous work in progress. Upgrades were made constantly by the community, still are, and can be expected well into the future.
Bitcoin may have had its fair share of flaws. But it was the transaction system that we were using everyday that was truly flawed according to Satoshi.
“Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based mode”- Bitcoin.org
Not only this, but it is apparent that bitcoin’s purpose was deeper than just being a day-to-day currency. The first block created in January 2009 also came with the message “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks“. This refers to the instability caused by fractional-reserve banking, which Satoshi was hoping would cease to exist through the decentralised bitcoin.
But could bitcoin actually compete? After all, it wasn’t competing against other products. It was competing against huge political forces, governments, and existing economies that were being manipulated for personal gains! Hindsight gives us the answers. But significant events occurred in bitcoin’s history that have helped increase it’s usage and popularity.
The simple but famous 10,000 BTC pizza is a good example of this popularity. Worth approximately $40 in bitcoin in 2010, a user on Bitcointalk forum offered to pay for a pizza delivered to him for 10,000 bitcoins.
The 10,000BTC pizza shows the beauty of what bitcoin was designed to be. But we are not used to this deflationary currency- what bitcoin was, in part, designed to be. It almost seems abnormal. Those 10,000BTC are approximately $200,000,000 dollars at the time of writing this article- this is not expected from currency or from what we are used to- indeed a very expensive pizza.
But if some wild predictions do come to fruition, that means the same 10,000 BTC used to purchase the pizza will be equivalent to $1 billion dollars some day. Pretty wild isn’t it? Well people thought $20,000 dollars for bitcoin was wild too.
In contrast though $40USD fiat in the future will only let us buy 1 slice of pizza, maybe even less if you forward few more years. Such is the nature of inflation and a currency that has an eroding value.
The 1000BTC pizza was purchased on May 2010 for 10,000BTC at the time of this article is equivalent to $20,000,000 dollars.
Rise of the Bitcoin
In mid 2010, the infamous Silk Road website, used for peer-to-peer illegal drug elicitation, started accepting bitcoin as payment. People were buying and selling drugs online, anonymously, and bitcoin was helping them do this.
Although Silk Road was shutdown only a few years after and the founders prosecuted, it didn’t impact bitcoin besides a temporary price crash- which rebounded only weeks after.
In fact Wikileaks, a media outlet designed to whistle blow through leaked communications and documents, also started accepting bitcoin in June 2010. With the government on Wikileaks back and Paypal refusing to release donations made to it, bitcoin was an obvious choice for Wikileaks. Something that helps people donate to a cause they wanted to, anonymously, without an intermediary that would potentially freeze their funds, and to top it off with something that is deflationary? Hmm…would it really have been a difficult choice for Wikileaks to adopt bitcoin?
Once news broke, the media speculated widely that bitcoin transaction volumes would drop to near zero, and that bitcoin prices would do the same. After all, bitcoin was for criminals, the narrative went, and now that the greatest criminal use for bitcoins was gone, what was bitcoin good for? – Coindesk
PCWorld was quick to highlight the controversy also. Through an article published by them in late 2010, it had directly linked WikiLeaks to bitcoin. But the article titled “Could the Wikileaks Scandal Lead to New Virtual Currency?” provided some education to the wider community of what bitcoin was capable of.
“That’s what’s on offer from bitcoin, a decentralized virtual currency that could either be the best idea since they figured out how to slice bread, or just another hacker’s daydream. As the Wikileaks debacle continues, it’s being increasingly discussed in various sections of the Web as a possible solution to the PayPal online payments monopoly.” – PCWorld
Because there was no central figure promoting Bitcoin the intentions and underlying tech behind bitcoin continued to be lost- at least to the general population. Only the community that was working on it knew it’s capability.
With all the controversy surrounding bitcoin one would think that it’s image would have been sabotaged completely. But no. As we know till now, bitcoin is stronger than ever. In fact Wikileaks founder Julian Assange recently claimed that his organisation made 50,000 percent return on Bitcoin since investing in it in 2010- and ‘all thanks the government’.
The bitcoin received in 2010 by Wikileaks would have been 1:1 against the US dollar, as the price of bitcoin hit 1USD and would have a market cap of a few million. Two years later the market cap would accelerate quickly to 1USD Billion. By November 2013 the price of Bitcoin hit an all time high of $1000 USD but continued to rise steadily.
But the steady price increases came with their occasional downswings. Some of these caused through extreme circumstances. Mt. Gox, a Tokyo based exchange was one of the most popular exchanges operating between 2010 and 2014. It came to an abrupt end in April 2014 and went into liquidation. By 2015 it was demonstrated that Mt. Gox had stolen over 850,000 bitcoin from customers, worth over $450 million dollars at the time.
During this time however bitcoin managed to rise in popularity regardless. Exchanges weren’t the only place people could buy bitcoin. The first bitcoin ever ATM installed at Waves Coffee House cafe in Vancouver, Canada in 2013. Since then more ATMs started popping up around the globe. Several hundred ATMs exist around the world to date.
From Bitcoin to the ICO boom
In 2011, other cryptocurrencies also started to emerge. It didn’t take long for engineers to figure out that bitcoin could be improved upon rapidly. The tech behind bitcoin, known as a blockchain, could be scaled, and not just as a currency. Some techs were just orphans of bitcoin, emerging from forking the chain. Litecoin is a prime example of a successfully forked chain. One that some would argue outpaced bitcoin itself for the technology.
Other cryptocurrencies emerged with each one trying to be better than bitcoin or offering a different use case. Ethereum was one of the first to offer a platform that allowed blockchain tech to scale. Ethereum allowed others to quickly develop their own cryptocurrency by using the Ethereum platform it self. Moreover it demonstrated that blockchain was much more than just a currency tech.
Anyone with basic programming skills could now create their own crypto. With that came the ICO boom. We saw thousands of cryptocurrencies being formed and unleashed onto the world through Initial Coin Offerings. Some- with some use cases presented- others total and utter scams. Though most were backed by theory only and only the rare cryptocurrency has proven to be a successful working product.
But nothing has come close to bitcoin itself. Some would argue though that the bitcoin tech is already outdated, is too slow, and cannot scale efficiently. However, bitcoin has the first mover advantage going for it and has one of the largest crypto networks. It’s also the most popular.
And so nothing has surpassed the value of bitcoin – yet. Bitcoin’s first mover advantage of two years, put it leaps ahead of others. Will other crypto currencies catch up or even take the throne? Time will only tell, but for now, bitcoin servers as the king, and all other currencies bow to it.