Last Updated on August 27, 2024
Bitcoin has changed the history of money, the history of finance and the history of the world.
It is a revolutionary development that has evolved into a global phenomenon that challenges the status quo of the fiat currency system and forces us to ask the very simple yet profound question, “what is money?”
It is still very early days and the impact of Bitcoin are yet to be fully realised. The future is uncertain and there is still a lot of water to flow under the bridge.
But enough time has passed to be able to say with certainty that Bitcoin is a historical development right up there with the biggest technological changes in the history of mankind.
Bitcoin’s Prehistory
The Bitcoin Whitepaper was published by Satoshi Nakamoto in October 2008.
But this development did not come out of nowhere. Others had been trying to develop a functional digital currency for decades before.
Satoshi built Bitcoin using these prior developments as building blocks and as inspiration.
Some prominent examples include:
- DigiCash: David Chaum invented DigiCash in 1989. While DigiCash was a centralised digital currency, making it quite different to Bitcoin, it did develop cryptographic protocols similar to those later adopted by Bitcoin.
- B-Money: B-Money was a concept created by Wei Dai in 1998. The idea was an anonymous decentralised digital currency where participants would use proof of work to validate and verify transactions.
- Bitgold: The idea of Bitgold was introduced in 2005 by Nick Szabo, which shared many traits with B-Money, and was a decentralised proof of work digital currency.
While neither B-Money not Bitgold were ever implemented, many of their principles were adopted by Bitcoin. DigiCash was actually used but its usage was small, it came under regulatory pressure and it never achieved widespread adoption.
Therefore, Bitcoin really should be seen as a culmination and perfections of previous attempts to develop a digital currency that would function, gain widespread adoption and survive.
Who Created Bitcoin?
Very little is known about the founder of Bitcoin, including whether it is an individual or a group of people.
What is known is that in October 2008, a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published on a cryptography mailing list by someone using the name Satoshi Nakamoto.
Soon after in January 2009, Nakamoto released the first Bitcoin software and mined the genesis block, officially launching Bitcoin.
Nakamoto continued to engage with the emerging Bitcoin community via emails and online forums for the next few years.
But in 2011 he disappeared and his identity has remained a mystery ever since.
How Does Bitcoin Work?
Saifedean Ammous describes Bitcoin as “a ledger of ownership of virtual coins.”
Many people mistakenly think of Bitcoin as being some virtual coin that zips across the internet.
In reality, Bitcoin is a ledger. It is unit of account and a mechanism of recording who owns what.
However, one of the key things that makes Bitcoin unique and special is that the ledger is decentralised.
The entire Bitcoin ledger is publically available to anybody in the world and a global network of miners validate transactions and maintain the security of the ledger.
Therefore there is no need for intermediary such as a bank or a central bank to maintain the ledger.
The process known as “mining” is actually validating transactions and adding them as a block to the blockchain, for which the miner receives a Bitcoin reward.
There are 21 million Bitcoin available to come into existence via mining as a block reward.
The block reward began in 2009 as 50 Bitcoin. Every four years the block reward is cut in half in a process known as the halving. In 2013 the block reward became 25, in 2017 it became 12.5, in 2021 6.25 and in 2025 it will become 3.125.
Once all 21 million Bitcoins are mined there will be no new supply. This finite nature is what places Bitcoin in stark contrast to fiat currency and to other forms of hard money such as gold.
Bitcoin’s Early Days
Bitcoin was initially something that was only known about by a small group of enthusiasts and early adopters who mined Bitcoin and sent it among themselves.
It had no market value in the early days.
A significant moment occured on 22 May 2010 when the first Bitcoin transaction occured.
Laszlo Hanyecz bought two Papa johns pizzas for 10,000 BTC in an event that is still celebrated as Bitcoin Pizza Day.
On 17 July 2010, the first transaction on an exchange occured when 20 BTC were traded on Mt Gox for USD $0.99.
That put the value of 1 BTC at 0.04951.
Mt Gox was the first Bitcoin exchange. It began its life as a platform to trade Magic the Gathering Cards, but quickly become the world’s largest Bitcoin exchange, handling 70-80% of all transactions at its peak.
With the development of an exchange we also get some reliable price data. Bitcoin’s price grew throughout the later part of 2010 and crossed the $1 mark in February 2011.
This was the beginning of the first bull market in Bitcoin as it soon spiked to $32 in June 2011 before price collapsed rapidly in the second half of the year.
Mt Gox had suffered a hack in 2011 but had recovered and continued trading. The run up in price in 2013 had lured the hackers back. In February 2014 Mt. Gox announced that it had lost 850,000 Bitcoin. Their loss equated to USD $450 million and pushed the company into insolvency.
Bitcoin’s second bull market had topped out at $1156 in December 2013. The Mt Gox news triggered a further sell off and Bitcoin went into a bear market that would last until early 2015.
The Bitcoin Blocksize Wars
One of the pivotal moments in the history of Bitcoin came was a conflict fought between 2015 and 2017 known as the blocksize wars, or the Bitcoin civil war.
A Bitcoin block is a batch of transactions which is added to the existing chain of transactions approximately every ten minutes. This is where the term “blockchain” comes from.
Satoshi Nakamoto introduced a block size limit of 1mb.
As Bitcoin became more popular and more transactions were sent, this block size limited the number of transactions that could be sent causing congestion of the network and higher fees.
This is known as the scalability problem.
The community was split into two opposing camps:
- Big blockers
- Small blockers.
Small blockers wanted to keep the block size limit of 1mb. Their argument was that this was necessary in order to make it easy for people to run a Bitcoin node, which was vital to keep Bitcoin decentralised.
Big blockers advocated an increase to the block size to allow for more and cheaper transactions.
One of the difficulties in the whole debate is that it was unknown why Satoshi chose 1mb and whether he ever intended to increase the block size.
After several failed attempts through Bitcoin XT, Bitcoin Classic and Bitcoin Unlimited the big blockers finally succeeded and hard forked the Bitcoin blockchain, creating Bitcoin Cash.
Bitcoin Cash expanded the block size to 8mb and then later to 32mb.
While Bitcoin Cash is still in existence, its value was only ever a fraction of that of Bitcoin’s and it has consistently fallen in value against Bitcoin since its inception.
Bitcoin Cash itself later was hard forked to form Bitcoin SV and Bitcoin Cash ABC, which has now been renamed to eCash.
The Bitcoin Lightning Network
The Bitcoin Lightning Network is an alternative solution to the scalability issue presented by the 10 minute and 1mb blocks.
It was conceived by Joseph Poon and Thaddeus Dryja in a white paper published in January 2016.
The Lightning Network is a second layer off-chain scaling solution.
How this works is that two parties open up a payment channel between one another. Instead of recording every transaction on the Bitcoin ledger, which can be slow and expensive, lightning transactions are recorded on a ledger unique to that payment channel.
They transact with one another off the main Bitcoin blockchain, hence the term “off-chain.”
It is only when the parties decide to close the payment channel that all the transactions are bundled and recorded on the Bitcoin blockchain as one transaction.
Bitcoin Price History
2011 was the year of the first big spike in the price of Bitcoin as it soared from $1 in April to $32 in June before plummeting to $2 that November.
The second big run was in 2013, with a double top. The initial run went from $13.40 in January to $220 in early April before falling rapidly to $70. It then slowly grinded up to $123 in October before delivering a near 10-bagger in two months, spiking to $1156 in December. Bitcoin then went into a bear market that would last until early 2015.
The next big price move occurred in 2017. Bitcoin moved from around $1000 at the start of the year to reach just over $20,000 by December.
It was this price moves that firmly catapulted Bitcoin and cryptocurrencies in general onto the mainstream radar.
A crypto winter followed the December 2017 peak. This term is given to a two to three year period following a big price spike where cryptocurrencies fall and flatline. This was a great accumulation phase for those who sold at the top at higher prices or a time to lick one’s wounds for those bought high and held on all the way down.
The beginning of the Covid-19 pandemic in early 2020 began a new round of central bank monetary easing, which renewed the appeal of Bitcoin.
After initially selling off due to the pandemic, Bitcoin and the other cryptocurrencies rebounded along with everything else. The prices in 2020 gradually started to rise.
This time it was not just retail investors buying Bitcoin but institutional money was starting to flow into the crypto space. The timing also coincided with Bitcoin’s four year cycle. After big moves in 2013 and 2017 it seemed like Bitcoin was poised to take off in 2021.
Sure enough in December 2020 Bitcoin blasted past it’s all time high. After a brief pause a few choppy moves it reached a new all time high of $64,863 in April 2021.
In June 2021 El Salvador announced that it would make Bitcoin legal tender. This came into effect in September. This was a monumental announcement, as the first nation to adopt Bitcoin as an official currency. This was a significant move because most governments treat Bitcoin as an investment and charge capital gains tax, which severely limits its ability to function as money.
Bitcoin revisited it’s all time highs in November 2021, peaking at just under $69,000. Many predicted that Bitcoin was poised to take off to $100,000 at least.
Instead it turned out to be a double top. Bitcoin descended into a bear market and bottomed in November 2022 at $15,776.
Why Buy Bitcoin
Despite being over a decade old, Bitcoin is still incredibly new. Its revolutionary effects are still to be felt.
In these early days it has been incredibly volatile. That is scary to some and a great opportunity to others.
But as the mainstream wakes up to the real advantages of Bitcoin, there will be benefits for those who are early. Even so, when the speculative mania dies down after a few more cycles, there will still be plenty of valid reasons to buy Bitcoin.
There are nine reasons why you should consider buying Bitcoin:
- Bitcoin is a store of value and protects against inflation
- Bitcoin has limited counterparty risk
- Bitcoin removes wealth from the banking system
- Bitcoin is easy to store
- Bitcoin is liquid
- Central banks continue easy money policies
- Increased institutional buying of Bitcoin
- Portfolio diversification
- The speculative potential of early adoption
How To Buy Bitcoin
Bitcoin can be bought at a range of exchanges.
It used to be pretty slim pickings back in the day but now there are a wide variety of options you can choose from.
Things you might want to consider include:
- Bitcoin only vs Bitcoin and altcoins
- Platform security
- Spreads and liquidity
- User experience
- Fees
- Payment methods
Bitcoin Merchandise
Bitcoin is more than just a revolution in money.
It is a development in the culture and it is just getting started.
Being a Bitcoiner is a thing of pride and what better way to orange pill your friends and family than wearing some Bitcoin merchandise.
Read More: Best Bitcoin Hoodies
Conclusion
Bitcoin is the culmination of many decades of work by theorists in various fields who had the dream of bringing a digital currency to life.
Satoshi Nakamoto finally achieved the feat in 2009 when he introduced Bitcoin to the world.
Since then the Bitcoin network has grown exponentially and it has become a real threat to the status quo of the fiat financial system.
As Bitcoin’s price and the number of users increases, it will continue to be a revolutionary and disruptive force.
Sources
Ammous, Saifedean. The Bitcoin Standard : The Decentralized Alternative to Central Banking Hoboken, New Jersey: John Wiley & Sons, Inc, 2018.
Bier, Jonathan. The Blocksize War, 2021.
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