The History Of Bitcoin And Evolution: Money From Barter To Bitcoin
In 2008, the history of bitcoin began, which was the first cryptocurrency. But, for new traders, a few questions are necessary to clear up for better understanding.
- What exactly does Bitcoin do?
- Is it a form of digital money?
- How fast are the transactions?
- What are its real-life applications?
- How did it originate?
These are some of the burning questions that people have who are new to the cryptocurrency, and bitcoin field. In this article, we will define bitcoin and explain a brief history of Bitcoin. So, we will start with the bitcoin definition first.
What Is Bitcoin (Explained)
Bitcoin is a decentralized digital currency that was invented in 2008 by Satoshi Nakamoto. The name Satoshi Nakamoto is just a fictional name. The individual or the team behind Bitcoin is yet unknown 11 years after its discovery.
As it is decentralized, the transactions happen on a peer-to-peer basis on a network known as the blockchain. There is no mediator involved in these transactions: thus no central government or banks can intervene.
Bitcoin is a digital currency, and as such, there is no physical form. It exists electronically. To store, access, and transfer bitcoin, you need a bitcoin wallet and an address.
Some Characteristics Of Bitcoin
Mainly, characteristics indicate some special qualities or identity. Based on these qualities, traders pick this popular digital coin as a trading asset.
Bitcoin is the first decentralized cryptocurrency. Bitcoin created to provide a currency which cannot be influenced by any government, central authority, or banks.
Its price is driven by supply and demand, or any major events of it. The central authority cannot simply decide to issue more bitcoin into the market.
• Limited Supply:
Satoshi Nakamoto set the total bitcoin supply to 21 million. The supply ensures that the bitcoin value will never go to zero. Moreover, it will always be worth something. About 85% of the bitcoin has already mined by miners.
Bitcoin transactions are pseudonymous, i.e. the bitcoin address is public. So, all the transactional information store on that public address. But the identity of the owner of the address is unknown.
If the address is someway linked to you, your anonymity will be compromised. Even, you can counter this by using multiple wallets that each has a unique address.
Bitcoin transactions are transparent, which is different from the other mentioned characteristics. Every bitcoin transaction is stored in a public ledger known as the blockchain.
Information such as the receiver and sender address, amount sent, and fees involved are stored in the blockchain forever.
In general, new Bitcoins creates by mining. Mining is the process of verifying and securing every transaction and adding them into the blockchain by solving complex mathematical problems.
In return for their effort, they get rewards with newly created bitcoins and transaction fees.
• Fast And Cheap:
Bitcoin transactions appear on the network instantly and take a few minutes to confirm on the blockchain. There are 1990s cryptocurrencies now, but when bitcoin was the only cryptocurrency, it was the benchmark to compare against. Compared to bank transfers, it is fast.
The same applies to transaction fees. Millions of dollars of bitcoin can be transferred, incurring just a few cents as fees. However, in a bank transfer, it would cost thousands of dollars.
• Global Transactions:
Crypto transactions are not limited to a particular location and country. You can send bitcoin between two addresses located anywhere in the world.
The time and fees don’t vary with the location as it is a boundary-less digital currency.
Bitcoin and other cryptocurrencies are far secured than conventional forms of transactions. Bitcoin transactions are secured by cryptography that makes stealing extremely hard.
The cryptographic keys are long sequences of numbers that impossible to decipher.
The Brief History Of Bitcoin
Bitcoin and other cryptocurrencies are considered as the future of money. For mass adoption and making bitcoin as common as fiat currency, we need to understand its past.
- How bitcoin became what it is today?
- What led to its inception?
- Were there other cryptocurrencies similar to it?
In this section, we will take a look at the history of bitcoin and how it has evolved.
1. Pre-Bitcoin Era
Even before the cryptocurrencies, there existed digital coins. Bitcoin may be the first cryptocurrency, but it is not the first digital currency. There have been attempts to create a digital currency since the 1990s.
The demand for a currency that had no physical form and the transactions be instantaneous were paramount. But the main problem that arose was the issue of double-spending. It is the risk imposed by digital currencies that they can be used more than once and thus counterfeiting it.
Therefore, a need to verify the transactions were needed that would ensure there would be no double-spending of these digital currencies.
The first concept of cryptocurrency was introduced by computer engineer Wei Dai in 1998. He named this digital currency “B-money”. In his paper, he stated the aim to make B-money “an anonymous, distributed electronic cash system”.
Dai also outlined B-money as
A scheme for a group of untraceable digital pseudonyms to pay each other with money, and to enforce contracts amongst themselves without outside help.
Thus, much of today’s cryptocurrencies are based on B-money’s foundation. Dai also insisted on the essence of computational work to add and verify digital transactions.
Also, according to his belief, collective maintenance of these transactions is necessary to make sure no duplicate data exists.
To make the system secure, cryptography would be employed. In return, the bookkeepers will get rewards for their effort.
Furthermore, his suggestion was the use of authorization signatures, also known as public keys for authentication of transactions.
As you can see, all the features proposed by Wei Dai go following the modern-day blockchain and crypto fundamentals. However, B-money was never released, but it was noticed by Satoshi Nakamoto when at the time of developing bitcoin.
Satoshi even credited Wei Dai in his whitepaper for Bitcoin. Like B-money, the other digital currency that existed before bitcoin was Bit Gold.
3. Bit Gold
Like B-money, Bit Gold was also an attempt to create a decentralized digital currency. The man behind Bit Gold was none other than Nick Szabo, who developed this concept in 1998.
Other than the similarities in their name, Bit Gold and Bitcoin had similarities in their structure.
Szabo based Bit gold on a proof-of-work (POW) concept where computing power would be used to solve complex cryptographic problems.
The solution derived is processed on a peer-to-peer network, and a hash chain is created to link the solution to the following one. Thus, validating the blocks of transactions.
It is quite similar to Bitcoin’s transaction processing except for the fact that Bit gold didn’t solve the double-spending problem, which Bitcoin managed to do. The Bit Gold network, due to its reliability on network addresses rather than computing power, made it vulnerable to various attacks.
Bit gold was mainly created due to the shortcomings of the existing financial system, which involved a middleman. The other purpose of bit gold was to use precious metals such as gold, silver, and copper as currencies.
Hence it was given the name Bit gold. It wanted to emulate the properties of gold but at the same time improve the security. Unfortunately, like B-money, bit gold was never launched as it could not solve the double-spending problem with other issues.
However, his contribution was crucial in developing the highly adopted and successful bitcoin that exists today.
Who Started Bitcoin (Birth Of Bitcoin)
As seen in the previous section, B-money and Bit gold laid the foundation for Bitcoin. Bitcoin was developed by Satoshi Nakamoto in 2008, exactly a decade after B-money and bit gold.
Nakamoto consulted Wei Dai with his plan for a decentralized digital currency. Along with Dei, Hal Finney and Nick Szabo approved of this idea of bitcoin.
On 31st October 2008, Satoshi published a whitepaper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System” where he laid out the foundation for the Bitcoin blockchain network.
Many consider this day as a historic day for crypto space as bitcoin is the base upon which other cryptocurrencies were developed. What’s baffling is, even after all these years, the identity of Satoshi is still unknown.
There have been speculations and theories regarding his identity, but that’s about it. It is unlikely that we will ever get to know the true creator of bitcoin as the person behind this name decided to keep his identity private.
Coming back to the whitepaper, Satoshi’s aim was to create an electronic cash system that would operate on a peer-to-peer basis and there would be no middleman to intervene and control the transaction.
In the conventional financial system, a third party existed to verify and prevent double-spending. Satoshi proposed to eliminate the double-spending problem via a peer-to-peer network.
Based on proof-of-work, the transactions would be recorded on the network by hashing them. This is the basic premise of the whitepaper.
Satoshi goes on to give a detailed description of the transaction system, the network, hashing, verification, privacy, rewards, and more in the rest of the whitepaper.
Before the whitepaper, the domain Bitcoin.org was registered on 15th August 2008.
On January 3rd, 2009, the first block of the Bitcoin network was mined by Satoshi Nakamoto himself. This block, block 0, was also known as the genesis block. The initial reward for mining was 50 BTC.
This mining reward decreased by 2 times and this process is known as bitcoin halving. Currently, the block reward is at 12.5 BTC and the next bitcoin halving (6.25 BTC) will take place approximately on May 24th, 2020.
Evolution & Growth Of Bitcoin
The following events outline the chronological evolution of bitcoin in a brief manner. The most important events pertaining to bitcoin are listed here:
Bitcoin v0.1: On January 9th, 2009, Bitcoin 0.1 was released. It had a GUI which was compiled in Microsoft Visual Studio. It had a bitcoin generation system with a total supply of 21 million bitcoins that could be mined by 2040.
First Bitcoin Transaction: The first bitcoin transaction took place between Satoshi Nakamoto and Hal Finney on block 170 on January 12th, 2009. Satoshi transferred 10 bitcoins to Finney in this transaction.
Value of bitcoin compared to dollar: On October 5th, 2009, 1 USD was valued at 1,309.03 BTC. An equation was developed that included the cost of electricity required by the computer to generate the bitcoins.
Bitcoin v0.2: On October 12th, 2009, Bitcoin v 0.2 was released.
First Cryptocurrency exchange: The Bitcoin Market was the first cryptocurrency exchange that operated from February 6th, 2010. Currently, this exchange no longer remains active.
First real-world bitcoin use: On May 22, 2010, Florida programmer Laszlo Hanyecz paid 10000 BTC to pay for 2 pizzas. At that time 10000 BTC was worth $25. In the present-day market, it is valued over $100 Million!
Bitcoinv0.3: Bitcoin v0.3 was released on July 7th, 2010.
Mt. Gox Exchange: On July 17th, 2010, Bitcoin currency exchange market Mt. Gox was established.
Market cap reached $1 million: On Nov 6th, 2010, the bitcoin market cap reaches $1 million for the first time. Bitcoin was valued at $0.5 at that time.
Silk Road marketplace: This was a bitcoin marketplace where illegal substances such as drugs, ammunition, etc. were sold in exchange for bitcoin.
Parity with USD: On February 9th, 2011, Bitcoin reached parity (1 USD = 1BTC) with the US dollar for the first time. And soon after, parity with the Euro was also established in April.
BTC reaches $10: Bitcoin was worth $10 by June 2011 for the first time.
First Bitcoin Halving: On November 28, 2012, block 210,000 was mined and after that, the block reward halved from $50 to $25.
Market cap over $1 billion: The total bitcoin market cap crosses $1 billion on March 28, 2013. Soon after, the Bitcoin surpasses $100 mark.
First Bitcoin ATM: In San Diego, California, the first Bitcoin ATM was unveiled on May 2, 2013.
Bitcoin crosses $1000: Bitcoin rocketed to $1242 on November 13, 2013, after Senate hearings.
Mt. Gox exchange hacked: On February 2014, the largest cryptocurrency exchange of that time was hacked. Approximately, 850,000 BTC was stolen whose current value exceeds $8.5 billion. Bitcoin had a steep decline following this hack.
Steady growth in the price: The following two years (2015-2016) saw steady growth in value for Bitcoin. It neither plummeted nor peaked quickly during these two years.
2017- The Year of Bitcoin: With the advent of 2017, more and more organizations, companies, and stores began adopting bitcoin. There was a drastic increase in Bitcoin trading as well.
More and more exchanges were opened and different countries began to acknowledge bitcoin.
Bitcoin Cash Hard Fork: On August 1, 2017, the bitcoin network split and this event are known as the Bitcoin Cash hard fork. This hard fork was expected to cause a drop in BTC value but by mid-August, Bitcoin surpassed the $4000 mark.
The great bitcoin bull run: Bitcoin gained a lot of momentum and there was no stopping it. As October ended, Bitcoin crossed $6000 and reached $7000 on November. Within a few days, it crossed the $8000 mark.
A minor mishap dropped the bitcoin value from $8000 to $5700 but soon it was back on its track. And this time, there was no stopping it.
As December began, the $10000 mark was surpassed. Within 17 days, Bitcoin reached its ATH (All time high) at $19,655.
A decline in value: Bitcoin never hit $20000 and instead, began to fall in value. When 2017 ended, it was valued at $13,300. Due to numerous factors, bitcoin began to decline and by March, it dropped below $10000.
SEC intervention, ban on crypto ads: The SEC declared an announcement stating all online trading platforms must register with them before serving clients. Meanwhile, Facebook banned all crypto and ICO ads on its platforms causing the BTC to drop further.
Bitcoin Cash Hard Fork: This hard fork split the community in two between Roger Ver and Craig Wright. This caused the Bitcoin to drop further. It bottomed at $3130 and ended the year with $3831.
Return of the Bull Market: Until April 2019, Bitcoin hadn’t crossed the $4000 mark. By the end of April, BTC traded over $5200. And by May, BTC blasted past $860 and on June 22, BTC hit the 5 digit mark surpassing $10000.
So far, bitcoin peaked at $13000, and currently, it sits at $10000. We have to see what the future holds for bitcoin.
Bitcoin is the first decentralized digital currency that forever changed how people perceived money.
It allowed users to transfer money without any third party intervening. This new-found freedom and security caused mass adoption of Bitcoin and its market cap sits at nearly $180 billion.
It’s been 11 years since Bitcoin was launched and a lot of events have transpired that made what Bitcoin is today.
We have discussed the entire history of bitcoin since its inception by Satoshi Nakamoto. Understanding its history is pivotal to shaping the future for bitcoin.