With the potential to completely reshape a range of industries, Bitcoin (and cryptocurrency in general) is one of the most polarizing inventions in recent history.
The king of crypto, Bitcoin, was launched in 2009 and has increased in value dramatically since then, albeit in volatile fashion. The crypto has grown to be valued at over $60,000 USD at the end of 2021.
Is this new technology the answer to the faults of the current financial system? Or is it simply a huge, over-hyped bubble? Currently, this question can not accurately be answered. However, to understand Bitcoin and its potential, it’s important to understand its history.
What is Bitcoin?
Bitcoin is a digital currency that runs on a peer to peer network, which is built on blockchain technology. Bitcoin’s blockchain is a public, distributed ledger. This means that every and any transaction is recorded on the Bitcoin network which is publicly accessible by anyone with an internet connection.
This level of transparency is one of Bitcoin’s biggest advantages.
A Bitcoin (BTC) is a unit of the digital currency, which can be broken down into 1/1,000,000, making the smallest unit equal to 0.000000001 BTC. This is known as a satoshi (named after the anonymous creator).
There will only ever be 21 million Bitcoins made, the last of which is expected to be mined around 2140.
How Are Bitcoins Created?
Currently, there are just over 18,800 000 Bitcoins in existence. Bitcoins are created by a process known as “Bitcoin mining” and distributed in the form of Bitcoin block rewards.
The bitcoin mining process sees every transaction on the Bitcoin network checked and verified by the distributed network. This is done through a complex process where specialized computers compete to solve algorithms. The computer that successfully solves the algorithm and confirms the Bitcoin transactions within a block on the blockchain is then rewarded with Bitcoins for its work. This is a very simple and brief explanation of how new Bitcoins are created.
Currently, the reward for Bitcoin mining is 6.25 BTC for each successful block mined, and this happens about every 10 minutes.
Every 4 years, the reward rate is halved, in an event called “the halving.” This gradual decrease of issuing new Bitcoin is why it will be about another 120 years until all Bitcoins have been mined.
Satoshi Nakamoto and the Start of a New Currency
Satoshi Nakamoto is the presumed pseudonym for the anonymous Bitcoin creator. While there’s much speculation around the identity of Bitcoin’s creator, no one knows for sure who invented the world’s first, highly adopted cryptocurrency.
Cryptography has been around long before Bitcoin, and many people have been playing with similar ideas for some time.
In 1992, Cynthia Dwork and Moni Naor proposed that solutions to computational puzzles could be used as a form of value. Since then, a range of ideas and systems for cryptocurrencies have been proposed. Bitcoin seems to have taken from these ideas and combined them to form the blockchain-based currency we see today.
On the 18th of August 2008, “Bitcoin.org” was registered and on the October 31st of the same year, “Satoshi Nakamoto” posted a paper in a cryptography mailing list. The paper was titled Bitcoin: A Peer-to-Peer Electronic Cash System, and detailed a peer-to-peer “system for electronic transactions without relying on trust”.
On January 3rd, 2009, Satoshi Nakamoto mined the genesis block of Bitcoin, launching the network. Embedded in the coinbase of this block was the text:
“The Times Jan/03/2009 Chancellor on brink of second bailout for banks.”
The first transaction on the blockchain network was 10 Bitcoins, sent to Hal Finney, one of the first supporters, adopters, and contributors to Bitcoin, on January 12th, 2009..
A Hedge Against Banking
The text embedded in the coinbase of the genesis block gives a clear indication of Satoshi Nakamoto’s motive to create a new currency. The message is a headline from an article in the January 3, 2009 edition of The [London] Times. The article detailed the British government’s failure to stimulate the economy following the 2007–08 financial crisis.
A huge driver for Bitcoins creation was Nakamoto’s concern about “too-big-to-fail” financial institutions. Nakomoto wanted Bitcoin to be able to provide individuals a way to have full control over their finances, without a corporate middleman.
This is what is meant when Bitcoin is described as “trustless”. Traditionally, parties sending money have relied on a middleman, usually a bank, to facilitate the transaction.
With Bitcoin and blockchain technology, both sending and receiving parties don’t need to trust each other to make a transaction with Bitcoin. The protocols, or the code, of Bitcoin allow the system to work and achieve consensus without a third party.
Without having to trust the entity with which you are transacting, true peer-to-peer transactions can take place.
Bitcoin Price History
Bitcoin’s price has had a bumpy ride, to say the least. For the first couple of years, the crypto had very little value, as it was mainly used as a novelty between the few, select early adopters.
Since about 2011, however, Bitcoin investors began to experience the volatility Bitcoin would become renowned for.
Bitcoin in 2011
The value of Bitcoin fluctuated wildly in early 2011. The price jumped from $1 to an all-time high of $32 around June, gaining 3200 percent over three months! There was then a steep decline that brought the price down below $2 by November, but things started looking up for the digital currency again as soon as next year when it had reached $4.80 on May 15th and $13 by Aug 15th.
Bitcoin in 2013
2013 proved to be a decisive year for Bitcoin’s price. The digital currency began the year trading at $13.40 and underwent two dramatic price rises. In early April 2013, the price reached $220, shooting up over 300 percent before crashing down again to trade below 70 dollars by mid-April.
But what happened next was even more dramatic. Another rally from October through December saw Bitcoin go from $123.20 to almost $1,200.
Bitcoin in 2015
Bitcoin prices started at $315 in 2015 but saw its lowest price of $177 by mid January. It stabilized during summer and another spike happened on November 27th. This was largely due to a large exchange raising $75 million USD in a series C funding round. By December 15th, Bitcoin reached a high of $465.50
Bitcoin in 2016
Bitcoin had a low of $358.77 on January 15th and a high of $978 on December 28th in 2016.
In 2016, Japan made Bitcoin legal tender on par with fiat money and Dr. Craig S Wright publicly announced that he was Satoshi Nakamoto, however this claim is unvalidated.
One of the first major hacks occurred, with hackers targeting Bitfinex — one of the most popular Bitcoin exchanges. The hack caused 119,756 BTC to be stolen from them which made headlines all around the world including Forbes Magazine.
2016 also saw Bitcoin’s second halving event where the reward was halved from 25 to 12.5 BTC.
Bitcoin in 2017
In 2017, Bitcoin users saw huge gains. Bitcoin’s lowest point was $775.98 on January 11th and the highest value recorded for this year would be $19,343 dollars, which is what it achieved on December 16th.
Between these two dates there were many milestones that made BTC more popular than before. For example, 2017 saw more and more places begin accepting Bitcoin as a payment method, and Japan recognized BTC as a legal mode of payment. There was also a hard fork which saw part of the community split into what is now called “Bitcoin Cash“.
Bitcoin in 2018
Bitcoin experienced a rough year in 2018. The cryptocurrency reached its highest value of $17,135 on January 6th but then continued to follow a downward trend and finally touched bottom at $3,700.
Google and Facebook also announced they would be blocking any advertisements related to cryptocurrencies.
Bitcoin in 2019
The year started at just above $3.7K when Bitcoin fell to $3,383.67 on February 6th; but by mid-2019, it had crossed back over 10k USD!
The hype was fairly short lived and Bitcoin continued to slowly dip as the halving date neared.
Bitcoin in 2020
By early 2020, the market value of 1 BTC had reached $7,195.89 and it seemed like a bullish pattern could be forming as Bitcoin was nearing its halving event on May 12th.
After the halving event, however, the price dropped about 11 percent, stabilizing at about $10,000 USD.
In 2020, the overall economy was heavily impacted by the COVID-19 pandemic. Along with all markets, this caused Bitcoin’s price to plummet. The cryptocurrency started the year at $7,200 and fell to about $5,000. However, the fear in traditional markets spurred a rise in BTC prices, and by Nov. 23, Bitcoin was trading for $18,353.
Bitcoin in 2021
Bitcoin has spent the majority of 2021 climbing and breaking price records. BTC started at a low of around $29,800 in January and has since climbed to a new all-time high of about $68,000 USD as of November.
This is all despite huge amounts of legal threats from the US government, and the digital asset being banned by the Chinese government.
Bitcoin Criticisms
The history of Bitcoin would not be complete without mentioning the huge amounts of criticism that Bitcoin has faced throughout its existence just over a decade ago.
Even today, you don’t have to look far to find the latest “Bitcoin is dead!” article. Over Bitcoin’s history, the digital coin has died over 400 times and faces constant scrutiny from many traditional investors. The “Bitcoin bubble” however, has continued to grow.
Bitcoin Developments
Bitcoin and the narratives which surround the currency have evolved as it is adopted into the mainstream. Originally, Bitcoin was created as a peer-to-peer, decentralized transaction system. However, due to its continued volatility and sometimes high fees, Bitcoin has shifted to become a store of value and is now sometimes referred to as digital gold.
To truly become the world’s currency, accessible and usable by anyone, the problems around transaction speed and fees must be addressed. One such solution is the Lightning Network.
The Lightning Network
The lightning network is one of the largest projects built on top of Bitcoin.
One of the largest problems and criticisms of Bitcoin is the slow transaction speed. To combat this issue, Joseph Poon and Thaddeus Dryja proposed the Lightning Network in 2015.
The lightning network is what is called a layer 2 technology. This technology acts as a sort of secondary layer that can process smaller transactions, off the main blockchain. This decongests the main blockchain and reduces the associated transaction fees.
The lightning network also allows transactions or exchanges between different cryptocurrencies.
While the network is live and functioning, much of the surrounding infrastructure needs to be developed in order for this to be a viable solution.
The Future of Bitcoin
If Bitcoin is to become a global network used for the transfer of value it has quite a way to go.
There’s no denying that the fringe technology has come a long way since its creation. To climb from an unknown cryptography system to one of the most valued assets in the world is quite a feat. However, to fulfil its purpose, many developments must be made and adoption must continue.
It’s also important to recognize that there are many more cryptocurrencies being built and developed every day. Ethereum, for example, has a similar monetary value, but also provides the ability for developers to build their own programs and currencies on the ethereum blockchain, opening this particular cryptocurrency up to a whole range of possibilities currently unavailable to Bitcoin.
Will Bitcoin innovate, adapt and stay at the top of the fast growing crypto landscape, or will a newer crypto become the leading force in this exciting new space? Only time will tell.