History of Bitcoin

Where did Bitcoin come from? Even though it is only five years old it already has a unique story.

The idea for Bitcoin came from a developer named Satoshi Nakamoto. That was the name on the original paper that laid out the technical aspects of the new project – but it was a pseudonym. The real identity of Satoshi Nakamoto is still unknown.

The original paper was written in October 2008. The nine-page paper briefly touches on each of the major aspects of the system that Satoshi envisioned, as well as naming this new “Peer-to-Peer Electronic Cash System” with the moniker that it uses today: Bitcoin.

After the paper was published, Satoshi created the first software program to begin mining (the process of creating Bitcoin). In January 2009, Satoshi mined the first set of Bitcoin, named the Genesis block. Shortly after, he announced the project to a group of cryptography experts, many of whom were a part of the “cypherpunk” movement. Satoshi developed many of the ideas of Bitcoin from previous cypherpunk works. Initially, this group of computer experts approached Bitcoin as an interesting hobby, discussing how the system may or may not work, and how governments may react to it.

It wasn’t until the beginning of 2010 that Bitcoin was used for real-world transactions. By this time, a larger community of developers had reviewed the code – along with Satoshi – and released version 0.2, improving the client. The first Bitcoin transaction for a physical good occurred on May 21, 2010, when a Bitcoin user named Laszlo purchased a pizza worth $25 – for 10,000 Bitcoins! This transaction spawned the famous “Bitcoin Pizza Index,” which continually updates the price of that first pizza (as of the writing of this book, worth over $1.2 million).

The Bitcoin community slowly grew over 2010. Mt. Gox, the largest Bitcoin exchange, was founded, and made it easier to buy and sell Bitcoin. The price eventually reached parity with the US Dollar in February 2011, and soon after began rising rapidly.

This rapid rise was primarily a result of increased media attention. Several new sites began covering Bitcoin, and average internet users began buying them. Also, news of “The Silk Road” began to emerge. This hidden website allowed users to buy and sell illegal merchandise – mostly drugs – using Bitcoin for security and anonymity.

This newfound attention, and scrutiny, drove the price higher still, reaching a high point of $31 in June 2011. But this rapid price increase would soon deflate. The largest exchange, Mt. Gox, had their database compromised by hackers. This led to some large-scale thefts of Bitcoin totaling in the hundreds of thousands of dollars, which shook confidence in the new currency. The price dropped dramatically, and many wrote off Bitcoin as a failure.

But Bitcoin wasn’t finished, and it slowly began to build more users and followers over the next year. By the end of 2012, there were more users than ever before, and more businesses began accepting Bitcoin as payment for goods and services

2013 was truly the breakthrough year for Bitcoin. Starting the year around $13, the price began rapidly increasing as Bitcoin received more news coverage than ever before. Well-known internet brands began accepting Bitcoin, such as Wordpress and Reddit. New users came into the market quickly, and because it isn’t easy to obtain new Bitcoins, the demand outstripped supply and prices rose further. By April 10 th, the price was a staggering $266 per Bitcoin.

That price soon collapsed when Mt. Gox again had technical problems, this time due to a long lag time for placing orders. New buyers panicked when the price began dropping, and the flood of sell orders dropped the price down to $55 in a few days.

After this last bubble, the price has slowly increased and remained much more stable. This is likely due to the increased acceptance of Bitcoin from merchants, and the new services that continue to pop up to make obtaining and trading Bitcoin easier.

As of the writing of this book (June 2013), the total number of Bitcoin transactions has nearly reached eighteen million, and the market cap (number of Bitcoins times price) is over $1 billion. It isn’t known exactly how many people use Bitcoin, but estimates are typically between 100k and 200k, and growing rapidly.

In absolute numbers, the United States has the most Bitcoin users, but per capita, Scandinavian countries have the most users. The most rapidly growing adopters of Bitcoin are now – at least temporarily – the Chinese, after several reports on Bitcoin hit their mainstream media. Because of the necessity for having a computer and internet infrastructure, we have yet to see developing countries use Bitcoin frequently