History of bitcoin
Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.
The United States Treasury has categorized bitcoin as a decentralized virtual currency. Bitcoin is often called the first cryptocurrency, although prior systems existed. Bitcoin is more correctly described as the first decentralized digital currency. One of the first supporters, adopters, and contributors to bitcoin was the electrical engineer and cypherpunk Hal Finney. Finney downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world's first bitcoin transaction on 12 January 2009.
In the early days, Nakamoto is estimated to have mined 1 million bitcoins. Before disappearing from any involvement in bitcoin, Nakamoto in a sense handed over the reins to developer Gavin Andresen, who then became the bitcoin lead developer at the Bitcoin Foundation, the 'anarchic' bitcoin community's closest thing to an official public face.
Nakamoto's involvement with bitcoin does not appear to extend past mid-2010. In April 2011, Nakamoto communicated with a bitcoin contributor, saying that he had "moved on to other things". The identity of Nakamoto remains unknown.
In January 2009, the bitcoin network came into existence with the release of the first open source bitcoin client and the issuance of the first bitcoins, with Satoshi Nakamoto mining the first block of bitcoins ever (known as the genesis block), which had a reward of 50 bitcoins. Embedded in the coinbase of this block was the text:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
This note has been interpreted as both a timestamp and a comment on the instability caused by fractional-reserve banking.
The genesis block is the block number 0, which had a reward of 50 bitcoins.
In October 2012, BitPay reported having over 1,000 merchants accepting bitcoin under its payment processing service.
In February 2013, the bitcoin-based payment processor Coinbase reported selling US$1 million worth of bitcoins in a single month at over $22 per bitcoin. The Internet Archive announced that it was ready to accept donations as bitcoins and that it would mine them itself.
In March 2013, the blockchain temporarily forked into two independent chains with differing rules on how transactions could be accepted. For six hours two bitcoin networks operated at the same time, each with its own version of the transaction history. The core developers called for a temporary halt to transactions, sparking a sharp sell-off. Normal operation was restored when the majority of the network downgraded to version 0.7 of the bitcoin software.
The Mt. Gox exchange briefly halted bitcoin deposits and the exchange rate briefly dipped by 23% to $37 as the event occurred[39][40] before recovering to previous level of approximately $48 in the following hours.
In April 2013, Electronic Frontier Foundation began accepting donations as bitcoins.
In June 2013, Bitcoin Foundation board member Jon Matonis wrote in Forbes that he received a warning letter from the California Department of Financial Institutions accusing the foundation of unlicensed money transmission. Matonis denied that the foundation is engaged in money transmission and said he viewed the case as "an opportunity to educate state regulators."[41]
In late August 2012, an operation titled Bitcoin Savings and Trust was shut down by the owner, leaving around US$5.6 million in bitcoin-based debts; this led to allegations that the operation was a Ponzi scheme.[42] In September 2012, the U.S. Securities and Exchange Commission had reportedly started an investigation on the case.[43]
In late 2014, a joint police operation saw European and American authorities seize bitcoins and close 400 deep web sites including the illicit goods market Silk Road 2.0.[44] Law enforcement activity has resulted in several convictions. In December 2014, Charlie Shrem was sentenced to two years in prison for indirectly helping to send $1 million to the Silk Road drugs site,[45] and in February 2015, its founder, Ross Ulbricht, was convicted on drugs charges and faces a life sentence.[46]
In March 2015, it was announced that the US Marshals Service would auction off approximately 29,656 bitcoins in the seized Silk Road website and wallets, worth around $18 million at current prices.