Bitcoin - A Brief History

Bitcoin is the first cryptocurrency that has lasted for more than 7 years and received any sort of mass adoption, but it took some time to get to this point. Before Bitcoin, there were a number of cryptocurrencies that reached some level of popularity. It all started back in 1980 when cryptographer David Chaum first developed the idea of a currency backed by a proof-of-work computer algorithm as opposed to a central bank. Chaum later went on to found DigiCash which had a briefly successful yet ultimately failed run at becoming the world’s first mass adopted cryptocurrency. US based e-gold was possibly the most notable of the Pre-Bitcoin cryptocurrencies, although technologically it was significantly different from Bitcoin due to a centralized owner and non-fixed supply.
In August 2008, Neal Kin, Vladimir Oksman and Charles Bry filed a patent application for an encryption technology. The domain name Bitcoin.org was also registered in the same month using anonymousspeech.com which allowed for anonymous domain name registrations.

The big day came on October 31st 2008, Satoshi Nakamoto (a pseudonym with the true identity still unconfirmed) published a white paper named “Bitcoin: A Peer-to-Peer Electronic Cash System”. The paper outlined various uses for the coin in addition to providing information about blockchain technology and how the coin would be mined using computer algorithms. The original white paper used Bitcoin as an example of a deflationary currency and one that governments or other central lenders could not artificially increase the money supply of, therefore devaluing a certain currency. The whitepaper also outlined issues with banks as trusted lenders, and how the blockchain’s irreversible transaction design could reduce risk of fraud for merchants. 

From January 2009 onwards, activists began mining the coin and the first Bitcoin blocks were created. Nakamoto and other cryptography enthusiasts began exchanging the coin for services with one another and in October 2009, the first official exchange rate was established for the coin of US$1 = 1,309.03 BTC. The original exchange rate was based on how much electricity it would cost to mine 1 Bitcoin.
The first real world transaction took place in May 2010 when enthusiast Laszlo Hanyecz bought two pizzas in Jacksonville, Florida for 10,000 BTC. Today 10,000BTC is worth over $40 million. A few months later in August, the first major Bitcoin hacking incident occured, the hacker exploited a vulnerability in the Bitcoin verification system and generated 184 billion Bitcoins. This led to the first major dip in the value of Bitcoin as a currency. This then led to government investigations of potential money laundering using Bitcoin. The early scares didn’t last long though and In November 2010, Bitcoin reached a market capitalization of $1 million for the first time. 

In January 2011, Bitcoin received a reasonable amount of mainstream coverage for the first time. Silk Road, an underground dark net website dealing in illicit goods such as illegal drugs and stolen credit cards was launched on the back of sending and receiving payments in Bitcoin. At its peak, it was estimated that up to 50% of Bitcoin transactions were ones that occured on Silk Road. The perceived anonymity of Bitcoin made it a favorite among Silk Road users. In February, Bitcoin reaches a market price of $1 for the first time and by July the coin had jumped to a value of $31. 

2012 was somewhat of an uneventful year, although real world adoption continued with hosting platform Wordpress accepting the coin in November of that year. By March 2013, the market capitalization had reached $1 billion and Bitcoin exchange Coinbase reported over $1 million of Bitcoin transactions in a single month. In June, the DEA reported 11.02 Bitcoins as an asset during a drug seizure, the first time a government agency recognized Bitcoin as having inherent value. Drugs continued to make headlines as Silk Road owner Ross William Albricht was arrested in October, the FBI seized 26,000 Bitcoins from Silk Road servers during the arrest. Brighter news came the next month when the world’s first Bitcoin ATM opened in Vancouver and China arrived on the scene when Chinese market activity overtook the US for the first time. By November of 2013, the price of 1 Bitcoin reached $1,000 for the first time. 

December of 2013 came with China’s central bank ruling that Bitcoin was not a currency and barred financial institution from accepting Bitcoins as a form of payment. In February 2014, Japanese based exchange Mt. Gox suspended Bitcoin withdrawals, citing technical issues. Within just a few weeks, the exchange had filed for bankruptcy amid claims of poor management and lack of security protocols. Roughly $740 million worth of Bitcoin, or 7% of the overall amount in circulation was lost in the incident. This issue led to the value of Bitcoin dropping 36% over the course of the month. 

In June, TeraExchange LLC received approval from the U.S.Commodity Futures Trading Commission. This marked the first time that a U.S. agency approved a Bitcoin exchange. Computer manufacturer Dell began accepting Bitcoin as a means of payment at this time, the largest company to do so up to that point. AirBaltic also became the world’s first airline to accept Bitcoin payments. In December, tech giant Microsoft began accepting payments in Bitcoin. 

Coinbase, now one of the largest cryptocurrency exchange platforms received $75 million in a funding round, with the New York Stock Exchange being a minor investor. Further real world scaling continued and by August 2015, over 160,000 companies were accepting Bitcoin as a means of payment. December brought news of the potential identity of the notorious Satoshi Nakamoto figure. Wired magazine claimed the Australian Craig Wright was indeed Nakamoto. This led to a series of events that eventually resulted in a confirmation that Wright was indeed NOT Nakamoto. 

July 2016 marked the second “halving day” in Bitcoin’s history, where the reward for mining 1 block was halved to 12.5 Bitcoins per block. This was part of Bitcoin’s original design to gradually decrease the supply of new coins available. The next halving is due to occur in 2020, with the total supply available to the market around the year 2140. At the time of writing, Bitcoin trades for around $4,000 per coin on exchanges