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The History of Bitcoin and Cryptocurrency

Financial Wellness

Reading Time: 6 minutes
By Ian Bin

Welcome to the world of cryptocurrency, a subject that has captivated the interest of investors, tech enthusiasts, and the public alike. In this exploration, we will go back to the beginning and to the evolution of cryptocurrency and Bitcoin, which have challenged our traditional notions of money and finance. As we embark on this journey, we will uncover the milestones and hurdles shaping the cryptocurrency and bitcoin landscape.

Before we delve into the history, familiarize yourself with key terms to enhance your understanding of the subject:

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Cryptocurrencies

Cryptocurrencies are digital tokens. They are a type of digital currency that allows people to make payments directly to each other through an online system.1
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Bitcoin (BTC)

Bitcoin (BTC) is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity, thus removing the need for third-party involvement in financial transactions.2
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Cryptography

Cryptography is like creating secret codes so that messages can only be read by the right person, even if someone else finds the message.
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Mining

Mining in computing is when computers solve complex math puzzles to secure transactions on a network, and as a reward, they get new digital currency. It’s like a race where the fastest computer to solve the puzzle wins.
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Blockchain

Blockchain is a secure digital ledger where transactions are recorded and confirmed by a network of computers through cryptography. Each transaction is added to a “block” and linked to the previous one, creating a chronological “chain” of blocks, hence the name blockchain.

The Inception of Cryptocurrency

The pioneering ideas of David Chaum
Cryptocurrency’s inception can be traced back to 1983 when American cryptographer David Chaum presented a revolutionary concept of anonymous cryptographic electronic money in a conference paper. This early form of currency aimed to be untraceable and operate independently of any centralized authority, like banks. In 1995, building upon his initial ideas, Chaum developed “DigiCash,” a prototype digital currency that necessitated specialized software for withdrawing funds from banks and encrypted keys for initiating transactions with recipients.3
Mining and the double-spending dilemma
In digital currency, successful miners are rewarded with new units of digital currency. Notably, a computer scientist and cryptographer, Nick Szabo, encountered the notorious “double-spending” problem: the risk that a digital currency could be spent twice.2 This issue persisted until the advent of a decentralized system that could prevent double-spending without a central authority.

The Advent of Bitcoin

Satoshi Nakamoto's groundbreaking white paper
In October 2008, Satoshi Nakamoto introduced the world to Bitcoin by publishing the white paper “Bitcoin – A Peer-to-Peer Electronic Cash System.”4 The name “Satoshi Nakamoto” was a pseudonym, meaning a fake name, as the creator of this white paper wanted to remain anonymous for any attention he would have been exposed to. This document laid the groundwork for a decentralized digital currency system that could function without the oversight of central banks or governments.
Mining the genesis block
On January 3, 2009, Nakamoto mined the first block of Bitcoin, known as the “genesis block.” In a symbolic gesture, Nakamoto included a headline from The Times newspaper within the block’s data, referencing the prevailing economic conditions and underscoring the motivation for creating a decentralized currency.4 Later that year, the Bitcoin software was released to the public, and the blockchain—the ledger verifying all Bitcoin transactions—went live.
The first bitcoin transaction
The first transaction occurred for a cryptocurrency on January 12, 2009, when Nakamoto sent 10 Bitcoins to computer scientist Hal Finney.5 Bitcoin had not been traded on any exchange at this early stage, and its value was purely theoretical. Without a market price, ascribing a monetary value to the emerging cryptocurrency was impossible.

Bitcoin's Initial Valuation

The first commercial bitcoin transaction
Bitcoin’s first brush with the world occurred in 2010 when Laszlo Hanyecz famously traded 10,000 bitcoins for two pizzas. This transaction marked the first known commercial use of Bitcoin and set a precedent for its potential as a medium of exchange. At the time of the transaction, those 10,000 bitcoins were worth approximately $41. Today, they would be valued at over $200 million, showcasing the staggering appreciation in Bitcoin’s value over time.6
The price milestones of 2011
In 2011, Bitcoin began to see monetary value assigned to it as it was traded on various exchanges. On February 11, Bitcoin reached a peak of $1.06. The price continued to climb, and due to coverage from Forbes and other media outlets, it rose from $0.86 to $8.89 between April and May of that year.4

Expansion and Evolution

The emergence of altcoins and exchanges
As Bitcoin’s popularity surged, a wave of alternative cryptocurrencies, known as altcoins, began to appear. These new digital currencies sought to improve Bitcoin by offering incredible speed, enhanced anonymity, or other advancements. Around this time, cryptocurrency exchanges emerged, providing platforms where users could buy, sell, and trade cryptocurrencies, thus bridging the gap between the crypto world and the traditional financial system.

Turbulence and Triumph

Bitcoin's price volatility
Bitcoin experienced a tumultuous year in 2013, with its price reaching $1,000 amid federal investigations and software issues. On November 19, Bitcoin’s price spiked to $755, plummeting to $378 on the same day. By November 30, it had climbed to $1,163. However, this was the precursor to a prolonged crash that saw Bitcoin’s value drop to $152 by January 2015.3
Security woes
The collapse of Mt.Gox, a trading site for cryptocurrency also known as the world’s largest Bitcoin exchange, highlighted the security vulnerabilities inherent in the burgeoning cryptocurrency market. Hackers accessed and stole 750,000 bitcoins from Mt.Gox customers and 100,000 from the company itself, roughly $460 million. The exchange declared bankruptcy after losing, valued at approximately $4.4 billion in today’s market.3 The incident has been a cautionary tale, leading to enhanced security measures across cryptocurrency exchanges.

The Progressive Era of Cryptocurrency

Ethereum and the smart contract revolution
Ethereum, a new blockchain project, began gaining traction during this period. Launched in July 2015, Ethereum quickly became the second-largest cryptocurrency by market cap.4 Unlike the Bitcoin protocol, Ethereum enabled additional platforms to launch and operate on its chain, each with its own cryptocurrencies and use cases. Other digital currencies, such as Tezos and Neo, emerged, taking inspiration from Ethereum.
The ICO craze and regulatory response
The rise of Ethereum coincided with the surge of Initial Coin Offerings (ICOs), fundraising platforms that allowed investors to trade stocks or shares in startup ventures similarly to trading cryptocurrencies.4 However, the lack of oversight led to warnings from the U.S. Securities and Exchange Commission (SEC) about the potential for scams.
Bitcoin's steady growth and technological advances
Despite the setbacks, Bitcoin continued to grow, with its price increasing from $434 in January 2016 to $998 by January 2017. In July 2017, a significant software upgrade was approved to support the development of the Lightning Network and improve security.4
Bitcoin's steady growth and technological advances
Despite the setbacks, Bitcoin continued to grow, with its price increasing from $434 in January 2016 to $998 by January 2017. In July 2017, a significant software upgrade was approved to support the development of the Lightning Network and improve security.4

Bitcoin's Resilience and Mainstream Adoption

A rollercoaster of valuations
Bitcoin’s value fluctuated wildly over the following years. After reaching its peak in 2017, Bitcoin’s price plummeted, impacted by stringent financial regulations and recurring security breaches. By the end of 2018, Bitcoin had fallen to around $3,700.3 However, this downturn did not last.
Corporate interest and investment surge
In late 2020, a resurgence in Bitcoin’s value began, signaled by the business intelligence firm MicroStrategy’s announcement that it had purchased $250 million in Bitcoin. Tesla’s acquisition of $1.5 billion in Bitcoin in early 2021 further propelled this bullish period. Bitcoin reached its highest value by November of that year at $69,000.3

Now and Beyond

Present
The crypto market has fallen again since this high, dragged down by macroeconomic concerns resulting from high inflation and rising interest rates. As of January 25, 2024, the current price of Bitcoin is $39,816.20.7 The volatility of digital assets is either attractive or potentially devastating, depending on the person you ask.
Future
A series of innovations, setbacks, and recoveries mark the history of cryptocurrency. From the early days of DigiCash to the latest developments in blockchain technology, the journey of digital currencies has been nothing short of captivating. Each year, the ecosystem evolves, bringing new opportunities and challenges. As society grapples with the implications of decentralized finance and the potential of blockchain, the story of cryptocurrency remains an ongoing narrative of human ingenuity.

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Resources

1 “Bitcoin (BTC) Price, Real-Time Quote & News.” Google Finance, Google,www.google.com/finance/quote/BTC-USD. Accessed 26 Jan. 2024. 
2 “Digital Currencies: Explainer: Education”  Reserve Bank of Australia, scheme=AGLSTERMS.AglsAgent; corporateName=Reserve Bank of Australia, 4 May 2023, www.rba.gov.au/education/resources/explainers/cryptocurrencies.html#. 
3 Frankenfield, Jake. “What Is Bitcoin? How to Mine, Buy, and Use It.” Investopedia, Investopedia, www.investopedia.com/terms/b/bitcoin.asp. Accessed 26 Jan. 2024. 
4 Jones, Evan. “A Brief History of Cryptocurrency – Cryptovantage.”  CryptoVantage, www.cryptovantage.com/guides/a-brief-history-of-cryptocurrency/. Accessed 26 Jan. 2024.  
5 Kaloudis, George. “Celebrating Bitcoin Pizza Day: The Time a Bitcoin User Bought 2 Pizzas for 10,000 BTC.”  CoinDesk Latest Headlines RSS, CoinDesk, 22 May 2023, www.coindesk.com/consensus-magazine/2023/05/22/celebrating-bitcoin-pizza-day-the-time-a-bitcoin-user-bought-2-pizzas-for-10000-btc/.  
6 Marr, Bernard. “A Short History of Bitcoin and Crypto Currency Everyone Should Read.”  Forbes, Forbes Magazine, 12 Oct. 2022, www.forbes.com/sites/bernardmarr/2017/12/06/a-short-history-of-bitcoin-and-crypto-currency-everyone-should-read/.  
7 Pastor, Javier. “This Was the First Bitcoin Transaction.”  Bit2Me Academy, 25 Apr. 2023, academy.bit2me.com/en/la-primera-transaccion-de-bitcoin/.  

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