27.01.2021

Blog: History of Bitcoin

Blog: History of Bitcoin

Bitcoin is the oldest and most famous cryptocurrency in the world. The history of Bitcoin is very colorful and involves several exciting events. History helps to understand the present, and knowing Bitcoin’s history is recommended for anyone interested in Bitcoin and other cryptocurrencies. The goal of this text is to introduce Bitcoin and its history.

              
What is Bitcoin?

Before getting acquainted with Bitcoin’s history, it is good to review the basics of bitcoin. Bitcoin is the world’s best-known cryptocurrency utilizing blockchain technology. Bitcoin is based on open source and is free for everyone to use.

The maximum amount of bitcoins is 21 million bitcoins. It is possible to divide one Bitcoin into 100 million smaller units, named after the Bitcoin creator Satoshi Nakamoto as satoshis. New bitcoins are created in the world in a mining process, and unlike traditional currencies, it is not possible to create bitcoins endlessly. Unlike traditional currencies (e.g., the euro and the dollar), Bitcoin is not under any single party’s control.

New bitcoins are created in the world as mining fees in connection with mining. In the Bitcoin blockchain, a new block is mined about every 10 minutes. The mining fee that miners receive for the new block is currently 6.25 bitcoins. The amount of new bitcoins per block gets halved roughly every four years (every 210,000 blocks). The next halving of Bitcoin will take place in 2024. The goal of Bitcoin halving is to prevent inflation and keep the total amount of bitcoins stable.

Bitcoin’s popularity as an investment and payment instrument has grown tremendously in recent years. But how has this situation been reached? It will become clear next when we take a closer look at the history of bitcoin.

The birth of Bitcoin

The story of Bitcoin officially began in 2008, when an unknown person or entity who used the nickname Satoshi Nakamoto started looking for programmers to assist him with a Bitcoin project. However, Satoshi is said to have designed Bitcoin for longer. Satoshi Nakamoto’s goal was to create a fully decentralized, virtual payment system that would leverage a revolutionary technology called a blockchain. Nakamoto created Bitcoin completely independent of third parties such as governments, central banks, and various institutions.

Bitcoin’s official website was registered in August 2008. In October 2008, Satoshi Nakamoto published Bitcoin’s white paper, in which he described to people Bitcoin’s operations and the technology behind it.

The first block of Bitcoin, more commonly known as the genesis block, was mined on January 3, 2009. The day Bitcoin’s genesis block was mined is now generally considered Bitcoin’s birthday. The first Bitcoin transaction was made on January 12, 2009, which was performed between Satoshi Nakamoto and software developer Hal Finney. Satoshi Nakamoto mined himself for most of the earliest blocks in the Bitcoin blockchain. He collected for himself a pot of more than a million bitcoins. At that time, the mining difficulty level was low, and it was possible to mine new bitcoins very quickly.

The early 2010s

Satoshi Nakamoto created Bitcoin at the best possible moment. In 2008 and 2009, the world was shaken by an unprecedented financial crisis. This economic crisis was the result of the reckless monetary policy of central banks. Confidence in traditional banks had collapsed, and people waited for a new kind of currency system. In the first half of the 2010s, Bitcoin's popularity began to grow at a tremendous rate, and it was also possible to do real-world shopping with bitcoin for the first time.

On May 22, 2010, the first real-world purchase was made with bitcoins, when a person named Laszlo Hanyez bought two pizzas with 10,000 bitcoins. This day is now known as Bitcoin Pizza Day. In 2010, numerous new services also began to develop around Bitcoin. The best known of these services was the bitcoin stock exchange called Mt. Gox. The story of Mt. Gox ended in 2014 after being subjected to massive hacking. Mt. Gox's hacking is still one of the most dramatic events in Bitcoin's history today.

A Silk Road marketplace also influenced the spread of Bitcoin's reputation in the first half of 2010. Silk Road was established in 2011 as a marketplace specializing primarily in the sale of drugs. All payments in Silk Road were made in bitcoins. The original Silk Road story finally ended in 2013 when U.S. authorities shut down the service and arrested its founder, Ross Ulbright.

The last sign of Bitcoin founder, Satoshi Nakamoto, was in 2011 when he said that he was moving to other things in an email. Satoshi transferred responsibility for the project to a programmer named Gavin Andersen, who also became the Bitcoin Foundation lead developer. In 2011 the world saw the first bitcoin price bubble when bitcoin's price rose from less than a dollar to 30 dollars and returned after that to two dollars.

Years of Bitcoin growth

The popularity of Bitcoin has grown tremendously since its early years. The use cases of Bitcoin have increased, and more and more investors worldwide have recognized the potential of bitcoin as an investment. Bitcoin has experienced three price bubbles throughout its history; one of them happened at the end of 2013 when bitcoin’s price rose from a hundred dollars to over 1000 dollars in a few months. After that, the bitcoin price was in the downward trend until January 2015, when one bitcoin’s price was less than 200 USD. However, interest in bitcoin and blockchain technology was multiplying.

During 2016, Bitcoin established itself as a phenomenon that couldn’t be unnoticed by banks. Interest in bitcoin was exploding, and this was also reflected in the price of bitcoin. The price of Bitcoin was steadily rising from the beginning of 2015 until 2017. In late 2017, Bitcoin experienced the third price bubble in its history as bitcoin’s price rose to nearly 20,000 USD. As might be expected, the sharp rise in prices also led to an increase in media interest. At the turn of 2017 and 2018, interest in bitcoin was more significant than ever before. The sharp rise in the value of Bitcoin also led to a tightening of Bitcoin regulation. Bitcoin’s regulation was strongly tightened, e.g., In China and South Korea. However, as is always the case with bubbles, the third bubble in Bitcoin’s history ended in a sharp drop in bitcoin’s price.

During its history, Bitcoin has received several different forks, i.e., upgrades. One of bitcoin’s most famous forks happened back in 2017 when Bitcoin’s SegWit update was performed. The SegWit update improved the Bitcoin network’s capacity by changing the way the network secures Bitcoin transactions. The time before the SegWit update also included controversy in the Bitcoin community. The bitcoin community was divided into two different groups. Another group wanted to improve the Bitcoin network’s capacity by increasing the block size of the blockchain. In contrast, the other party wanted to enhance the scalability of Bitcoin through Lightning network technology. In practice, lightning network technology means that smaller bitcoin transactions would be transferred to a completely separate network.

Eventually, the controversy over Bitcoin’s scalability intensified to the point that a group demanding larger block sizes withdrew from the Bitcoin community as its own cryptocurrency before the SegWit update took effect. That cryptocurrency is known today as Bitcoin Cash.

Increasing interest in bitcoin led to new cryptocurrency exchanges at an accelerating pace throughout the 2010s and introducing more bitcoin-linked investment products, such as options and certificates. At the same time, bitcoin has become part of a portfolio of more and more retail investors and institutions. The growing popularity of bitcoin and other cryptocurrencies has also led to an increase in the cryptocurrency market regulation in recent years.

Bitcoin is more popular today than ever before. The growing popularity of bitcoin has also been reflected in bitcoin’s price. Bitcoin’s unique features make it a unique digital currency. Bitcoin is a potential investment and a competitor to the current banking system. Overall, the future of Bitcoin looks very bright at the moment.

Mikko Soon Cryptocurrency specialist
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Last updated: 10.03.2022 15:18
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