Looking down memory lane, it is safe to describe the history of Bitcoin as rocky. This article will cover the full scope of Bitcoin's journey till now, both the highs and lows.
In hindsight, the present look of Bitcoin can provide an understanding of its tumultuous nature. We all saw Bitcoin peak at around $67,000 in November 2021, only to tank to well below $35,000 in January 2022. However, amidst the chaos of its price action, many traders see a profit-making opportunity in Bitcoin’s volatility and preferably trade it for this very reason.
You may wonder who invented the ingenious Cryptocurrency, how it was received by the public, and what major events shaped its price action to date. Let’s go through the entire voyage together in this article.
Evolution of Ideas Before Bitcoin
Bitcoin as we know it didn’t reach its final form until 2009. Bitcoin’s many failed attempts define the scope and operating principle of the now blossoming digital currency. This piece will not be complete without considering Bitcoin’s developing years.
Pioneers of Cryptocurrency Concept
Wayback in 1982, a computer scientist David Chaum, introduced the idea of e-Cash. This concept was inspired by the brewing privacy issue of the digital world in the ’80s. Chaum suggested a cryptographic system where online payments would be automatic and anonymous. The details were published in a paper called “Blind signatures for untraceable payments”.
Chaum attempted to implement the concept in 1990 with DigiCash. DigiCash was a company established in Amsterdam, with the objectives of providing a secure online currency, much like Bitcoin. Many investors were impressed with his idea, including employees who were devoted to the cause. Sadly, the idea didn’t float and the company went bankrupt before it could survive a decade.
Nevertheless, the brilliance of his idea replicated itself with many others advocating for online transaction privacy springing up shortly after.
In 1997, Adam Bank founded hashcash, which incorporated a proof-of-work system very synonymous with Bitcoin. In fact, today, hashcash forms a vital piece of Bitcoin’s mining algorithm.
The year 1998 saw the publication of two papers containing cryptocurrency concepts which served as a blueprint for Bitcoin’s blockchain system as we know it.
Wei Dai proposed ‘B-money’, an electronic currency with a proof-of-work system, in which complex mathematical computations generate the currency and transaction details are shared on an open network.
In the same vein, Nick Szabo suggested “Bit Gold”, a pseudo-currency that applies the same principle with Bitcoin. His essay detailed an alternative currency that operates independently of a central bank and uses mathematical problems to hash transactions. You’d agree that this has a striking resemblance to the technology used by Bitcoin today.
Additionally, Szabo’s idea of smart contracts serves as the foundation for Ethereum blockchain.
Unfortunately, both proposals failed to become more than mere concepts.
What are Proof-of-Work Systems
Proof-of-work is one of the most notable early inventions that make up the backbone of Bitcoin’s Blockchain. Therefore, it’s important for us to look into it for those hearing about it for the first time.
We all know the Blockchain to be a record replicated on several participants (miners) computers on a peer-to-peer network. But the big question is, what’s the assurance that one of these participants won’t manipulate this data for their selfish ends?
Proof-of-Work integrates another category of participants on the network, charged with the duty of verifying that the necessary computations were carried out by miners to hash a transaction and add it to the next block on the blockchain accordingly. This confirmation is done by checking that the appropriate amount of processing power is used by a designated computer claiming to solve hashes.
The Emergence of Bitcoin
After decades of trials and errors, Bitcoin finally surfaced in August 2008. It was introduced with a publication that shared the vision of other cryptocurrency concepts before it: independence from a centralized body, unique digital keys, proof-of-work and the use of mathematical computations to encrypt transactions on an open ledger.
The aforementioned paper was penned under the pseudonym, Satoshi Nakamoto. The identity of this mysterious author remains unknown to date. Nakamoto’s ambition was to create a global alternative currency and transaction method that would be warmly welcomed and combat the rise of inflation.
Despite the identity of Nakamoto remaining unknown, many speculators suspect Szabo (a cryptographer and one of the pioneers of the crypto idea), due to the wild similarities between his proposal and defunct Bit Gold, and the reality of Bitcoin today. Additionally, researchers have called attention to the similarities between the linguistic style of Szabo’s and Nakamoto’s whitepaper.
However, Szabo has shot down the speculations by clearly refusing to be behind the mask of Nakamoto, leaving everybody to their suspicions and theories.
Early Bitcoin Transactions
Besides writing the whitepaper, Nakamoto is also responsible for setting the wheels in motion by mining the first blockchain of Bitcoin, famously called The Genesis Block, on January 3, 2009. This block contained a note that referenced an article published by The Times, which may be perceived as a call out to the shortcomings of the existing financial system.
Days later, on January 12, Nakamoto initialized the Bitcoin software and sent 10 Bitcoins to Hal Finney, the computer programmer accredited with developing the first reusable proof-of-work system. Another iteration of the Bitcoin software was also downloaded by Finney on the same day, and he received the corresponding amount of BTC sent by Nakamoto, making the first-ever bitcoin transaction.
In October of the same year, Bitcoin’s first exchange rate was established at $1 for 1, 309.03 BTC. Before the year wrapped up, Nakamoto launched another version of the Bitcoin software.
However, Bitcoin didn’t see its first commercial use case till May 22, 2010, when a Florida-based programmer Laszlo Hayecz purchased two pizzas at a local pizza restaurant (Papa John’s) for 10,000 Bitcoins. Although, this wasn’t a direct transaction between Laszlo and the pizza place. Since Bitcoin wasn’t worth much back then, valued at $25 (a fraction of a penny), he was eager to give his Bitcoin to anyone in the BitcoinTalk community who would purchase his pizzas. This transaction attracted interest in Bitcoin as a tradable asset and eventually led to new investors pushing the value above one penny.
During the same year, Bitcoin saw its first successful mining pool by Slush. Mining pools are activities involving the contribution of different parties' resources (mostly computing resources) to generate new units of Bitcoin. And later that year, Bitcoin’s market capital broke the one million dollar threshold for the first time.
However, it wasn’t a smooth ride to the top. The Bitcoin network was compromised in October when a hacker found a leak in the security system and made several counterfeit transactions generating 184 billion BTC. The leak was swiftly resolved along with the false transactions, restoring the system's integrity.
The Disappearance of Sakoshi Nakamoto
After mining over one million Bitcoins in 2010, Nakamoto passed on control and public keys to the repository for Bitcoin’s code to Gavin Andresen and announced him as the new lead developer of Bitcoin’s client software. During Andresen’s stint as a lead software developer, he created the ‘Bitcoin Foundation’ in 2012 (a community for fostering the growth of bitcoin currency) before later bailing on his position in 2014 to focus primarily on the Foundation.
Before resigning from this role, one of his most notable doings was his agenda to fully decentralize the control of Bitcoin, which stirred some fuss at the time.
Bitcoins Adoption into the Industry
Bitcoin’s first welcome as an accepted payment means started in the black markets. Silk Road, a marketplace providing anonymous and secure trading activity, adopted Bitcoin as its only payment method. Before its closure in October 2013 by the FBI, this black market exchanged over 9.9 million BTC throughout its few years of service. This led to negative remarks concerning the functionality of Bitcoin in the global community, and it soon gained a reputation as a currency for criminal transactions.
The boost from the black markets significantly pushed the price of Bitcoin in 2011. It started the year at $0.30, made a massive surge to $31.50 on the 8th of June, before dropping all the way down to $5.27 at the end of the year.
Bitcoin Software Upgrades
Major upgrades to Bitcoin’s software interface and database management occurred in November 2011. The changes resulted in a reduced blockchain synchronization time and a drastic drop in transaction fees to accommodate small transactions on the blockchain. The software was renamed Bitcoin core after this upgrade.
Again, it picked up traction in 2012, but failed to reach the previous year's high, peaking at $16.41 on the 17th of August, then slumped 57% in the next few days. Price later finished at $13.30 for the year.
In November 2012, Bitcoin obtained its first global recognition when WordPress announced a partnership with BitPay, accepting Bitcoin as a payment method for upgrades.
In 2013, Bitcoin made whooping gains of over 6,000%, shooting up to $770 by November, but not without some staggering challenges.
The BTC Blockchain Split
Not unlikely, a fork developed after the Bitcoin software upgrade to version 0.8.2 in March 2013. A fork is a misalignment of blockchain history, which occurs when all parties on the network do not add blocks to the ledger using the same rules. It can sometimes cause alternate or multiple blockchains on the network. Forks are expected irregularities whenever new features are added to the blockchain.
The blockchain experienced a momentary separation into two independent chains in March 2013. This split was due to the demarcation between computers running on the new Bitcoin software and those yet to upgrade. This fork persisted for six hours. Mt. Gox (a major bitcoin exchange at the time) seized the exchange of Bitcoin during the short split time. This led to an impulsive price drop from $48 to $37. The issue was later resolved when all users reverted back to the older Bitcoin software version (0.7). After a few hours, the price retreated to its initial mark.
Turbulence from Government Bodies and Agencies
Besides the short-term fork, Bitcoin suffered a lot of disturbances from regulatory bodies and government agencies during this year, yet its price continued to climb.
Within the same year, it became a requirement for bitcoin sellers to register as Money Service Businesses (MSBs) under the US Financial Crimes Enforcement Network regulatory body. On the 15th of May, FinCEN figured out that Mt. Gox was not registered and froze accounts affiliated with this platform.
This followed further action by the US Drug Enforcement Administration seizing 11.02 BTC, in May 2013, and the FBI seizing 30,000 BTC from the Silk Road black market. Tim Draper, a venture capital investor, bought the assets by blind auction.
Before the year closed in November 2013, Bitcoin made incredible highs of $1,163. However, more government interference affected the price when the People’s Bank of China banned Chinese financial institutions from Bitcoin-based transactions. Following this, Baidu, Inc., a Chinese multinational company that offers internet-related services, withdrew the privilege of Bitcoin payments for some services. This will later turn out to be the first of a soon-to-be complete ban of Bitcoin in China.
Bitcoin’s price quickly fell back to its initial starting position at the beginning of 2013 to $770.
The price crash persisted in 2014, ending the year with a net drop for the first time ever.
Price picked up from $314 in 2015, largely due to improvements in Bitcoin’s software, and closed the year at $434
Further Upgrades to Bitcoin Core
Bitcoin version 0.10 was released on February 16 2015. This new release offered documentation containing consensus rules, making it easier for programmers new to the network.
Bitcoin core version 0.11.2, a minor release on November 13 added functionality that placed a time constraint on transaction outputs, rendering them unspendable for a specific period of time. In order words, the benefactor of a Bitcoin transaction is not allowed to access the funds until some amount of time has passed. This setup is used in atomic swaps, which simply put, is an inter-chain transfer of cryptocurrency between two parties over a peer-to-peer network. Both parties' wallets return to their original asset value if one of two does not confirm the completion of a transaction.
Several patch improvements and software updates in 2016 put Bitcoin price on a gradual climb to around $900 at the dawn of the year.
On April 15 2016, Bitcoin core 0.12.1 was released. This version introduced soft forks which improve the scale and flexibility of the blockchain.
Over a hundred developers contributed to the Bitcoin Core 0.13.0 release on August 23, 2016. This release featured database cache memory increases, privacy vulnerability fixes for programmers using the command-line client, as well as several code modernizations.
In October 2016, Bitcoin core rolled out the Segwit soft fork feature on version 0.13.1, adding major improvements to bitcoin block size, expansion of the network's transaction capacity, and further reduced transaction fees.
Price hit the $1000 mark in 2017. On August 24, 2017, Bitcoin’s price had a positive reaction to the activation of Segregated Witness software on the network, rising almost 50%. Price persisted upward in the following months and rose to an all-time high of $19,783.06 on December 17th before bowing out at $13,412.44 at the year’s end. This huge splash got the attention of investors, economists, and financial experts. Soon several cryptocurrency alternatives to Bitcoin sprouted into the market to compete.
2018 was a rough year for Bitcoin. Several security leaks, hacks and thefts on high volume cryptocurrency exchanges weighed down the price of Bitcoin.
Price tanked hard in 2018, slumping to around $4,000 at the close of 2018. Much of the price crash was attributed to the complete ban of Bitcoin in China on the 1st of February 2018. The trading volume of Bitcoin on Chinese exchanges dropped by nearly 90% following this ban.
However, Bitcoin’s price made a significant recovery the following year, with 2019’s high estimated at $12,000.
Steam dwindled in 2020; the price of Bitcoin merely meandered around $9,000 for the most part of that year.
Coronavirus Pandemic Price Rally
While economies were taking a hit during the period of the coronavirus pandemic and panics of inflation terrorized the US dollar, Bitcoin’s price skyrocketed like never before. Bitcoin made a massive 300% increase and ended the year at a 28,768.84 all-time high. This growth was in fact a direct response to inflation fears since Bitcoin was invented as a solution to this very problem.
The year 2021 yielded more price gains of over 100%, peaking at around $61,000 in October. Since then, the price has seemed to find a comfortable spot around $42,000.
Next week we'll look at the latest updates for Bitcoin and the future for the currency.
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