The majority of people in the world only know about Bitcoin through what they read, see, or hear from the media, and most of them will only have become aware of it since it started making headlines in these same outlets in the late 2010s. However, the history of Bitcoin, from its roots in the 1990s to the financial behemoth it is today, can tell us much about its properties, its use case, and its potential. To find out more, let’s dive into a quick history of Bitcoin.
Cypherpunks and Frankenstein
Bitcoin can trace its heritage back to the early 1990s when three talented computer scientists, Eric Hughes, Timothy C. May and John Gilmore, came together to discuss the issues of privacy in technology. The group came to be known as the cypherpunks, a contraction of the word ‘cipher’, referring to cryptographic algorithms, and ‘cyberpunk’.
In addition to regular meetups, the cypherpunks started using a mailing list called Metzdowd to discuss mathematics, computer science, cryptography, economics and philosophy. This collective was populated by hackers, hobbyists and other visionaries who were keen to develop the emerging technology that was the internet and push it to its limits. Sensing an opportunity to use it to preserve and increase fundamental human rights, freedoms, and privacies, the cypherpunk movement grew along with internet adoption.
Between them, the cypherpunks developed a range of privacy-focused digital currencies between the late 1980s and early 2000s. Some examples include DigiCash by David Chaum, B-money by Wei Dai, E-Gold by Douglas Jackson and Barry Downey, and Bit Gold by Nick Szabo. An email anti-spam protocol called HashCash was also developed by Adam Back, a version of which would come to feature heavily in Bitcon’s eventual creation.
The principles behind these currencies were the same - to create a form of money that didn’t need a third party in order to process transactions and that allowed the senders and recipients to remain, at minimum, pseudonymous. All these projects failed, usually for technical or legal reasons, but they did not die out completely. Various elements of these early projects went into the creation of Bitcoin, and still exist as part of its protocol today. In many ways Bitcoin is a Frankenstein’s monster of these earlier attempts, with some key changes and additions.
Satoshi Nakamoto Emerges
In 2007, a person or group of people working under the pseudonym Satoshi Nakamoto began combining certain elements of prior digital cash efforts with more recently developed technologies to create what would become Bitcoin. The Bitcoin whitepaper, which described the system and how it would work, was posted to the Metzdowd list on October 31, 2008. One cypherpunk in particular, Hal Finney, appreciated the potential in the project and helped Satoshi Nakamoto get the code to a state of readiness where it could finally be launched.
On January 3, 2009, the Bitcoin blockchain went live - and it has never gone down since. Finney memorialised this event eight days afterwards with a symbolic tweet:
With Bitcoin running, Nakamoto, Finney and a few other developers who had found out about it worked on editing the code and refining the protocol. Nakamoto bowed out of Bitcoin development in 2010 saying it was “in good hands” with the developers working on it and saying that he/they wanted to move on to other projects.
The Bitcoin addresses belonging to Satoshi Nakamoto, which are filled with bitcoin mined in the very early weeks and months of the protocol, are said to number around 1 million. However, they have never been touched, and indeed no one has heard anything from Satoshi Nakamoto since his last communication on December 12, 2010.
Bitcoin’s Early Use Cases
As Satoshi was preparing his exit, an important development occurred in the Bitcoin ecosystem - on May 10, 2010, Bitcoin trader Laszlo Hanyecz spent 10,000 bitcoins on two Papa John’s pizzas to become the first person ever to buy something with bitcoin. This transaction is now celebrated every year on Bitcoin Pizza Day, with each anniversary typically upping the value of those two pizzas. The 10-year anniversary saw the order valued at $96 million!
Aside from the odd pizza order, Bitcoin had no real world use case until American libertarian Ross Ulbricht used the pseudonymous nature of its transactions to mask the identities of buyers and sellers on a purpose-made online narcotics marketplace called Silk Road. Silk Road launched in February 2011 and did hundreds of millions of dollars worth of transactions until it was shut down by the FBI in October 2013, by which time Bitcoin had become synonymous with crime - a label it is still finding hard to shake to this day.
By the time of Silk Road’s closure, Bitcoin had already hit $100 in value, and many thought that its demise would be the death knell for the cryptocurrency. They couldn’t have been more wrong - helped by the 2013 Cyprus financial crisis, which saw thousands of Cypriots buy bitcoin to circumnavigate sudden restrictions on their bank accounts, it had soared to over $1,000 by the end of 2013.
Mt. Gox Hack Stuns the Community
Any euphoria over Bitcoin’s price evaporated in February 2014 when the Tokyo-based Mt. Gox, at the time the biggest Bitcoin exchange in the world, revealed that it had been hacked and that 750,000 bitcoins had been stolen. This was the first large-scale hack ever to hit the Bitcoin ecosystem, and, although 100,000 bitcoins were recovered, it still remains the largest in terms of the amount of bitcoins stolen. Its ramifications have also been enormous - only in 2022 did the District Court of Tokyo finally sign off on a reimbursement plan for impacted users.
The Bitcoin price took two years to recover from the events of this era, but this didn’t mean Bitcoin wasn’t growing - by February 2015 it was accepted by over 100,000 retailers worldwide including Microsoft, Dell, Wikipedia, Twitch, Greenpeace, Expedia, and PayPal.
The Bitcoin price rebounded and reached $20,000 in December 2017, at which time authorities suddenly became interested and engaged in a clampdown on the unregulated sector, a clampdown that has increased in strength with every passing year since.
Bitcoin also experienced something in 2017 that nobody could have predicted. A group of supporters who didn’t agree with a planned protocol upgrade which would increase Bitcoin’s transactional capacity conducted a ‘fork’, creating an offshoot of Bitcoin based off the same code, which they called Bitcoin Cash. This was a momentous event at the time, although Bitcoin has been forked over 100 times since, and none of them has ever even come close to overtaking Bitcoin in popularity, price, or adoption.
Coronavirus Strengthens Bitcoin’s Principles
Bitcoin suffered another downturn in fortunes after its 2017 price explosion, dropping as low as $3,750 in March 2020 along with the coronavirus-led market implosion, but this merely precipitated another huge rally. The rampant money printing by central banks worldwide to cope with the impact of the coronavirus scared private and institutional investors alike into reconsidering their earlier dismissals of Bitcoin. Many began to realise that it was a much more attractive option than easily debased fiat currencies given its fixed supply of 21 million and its strictly controlled release rate.
This new level of support led Bitcoin to hit $69,000 in November 2021, helped by El Salvador becoming the first country in the world to adopt Bitcoin as legal tender and despite China banning all cryptocurrency related activities. Other global issues, such as the Canadian trucker protests of February 2022 and the Russian invasion of Ukraine, only helped increase awareness of Bitcoin’s decentralised nature, with several long term critics changing their opinions almost overnight as they saw the benefits of a monetary system not governed by a single person or entity.
Bitcoin’s Bright Future
Today, Bitcoin has more institutional backers and investors than ever before, with companies such as Tesla holding billions of dollars worth, and Bitcoin’s reputation as a form of digital gold is finally eroding the old notions of criminal use.
Bitcoin has come a long way since Satoshi Nakamoto pressed ‘upload’ on the Metzdowd cypherpunk mailing list on October 31, 2008, and with more countries discussing formal adoption, more institutions allowing their clients to trade it, and the blockchain more secure than ever, the future is very bright indeed.
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