The Concept of Online Currency
When American cryptographer David Chaum released a conference paper explaining an early type of anonymous cryptographic electronic money in 1983, the concept for cryptocurrencies first came to light. The idea was to create a kind of money that could be transferred anonymously and without the need for centralized organizations (like banks). Based on his original concepts, Chaum created the proto-cryptocurrency Digicash in 1995. Before money could be delivered to a destination, it needed certain encryption keys and user software to withdraw money from a bank.
Nick Szabo created Bit Gold, a global payment system that is sometimes seen as a direct forerunner to Bitcoin, in 1998. Participants had to devote computer resources to solving cryptographic challenges, and those that did so were rewarded. It creates something that closely resembles Bitcoin when combined with Chaum’s work.
However, without the aid of a centralized authority, Szabo was unable to resolve the famed double-spending issue (digital data may be copied and pasted). As a result, it took another ten years before an unknown individual or group acting under the alias Satoshi Nakamoto launched the development of Bitcoin and other cryptocurrencies by disseminating a white paper titled “Bitcoin – A Peer to Peer Electronic Cash System.”
Starting in 2008–2010
The Bitcoin white paper, outlining the operation of the Bitcoin blockchain network, was released on October 31, 2008, by Satoshi Nakamoto. When Satoshi bought Bitcoin.org on August 18, 2008, they formally started working on the bitcoin project. While not the focus of this article, it’s important to note that blockchain technology, which at its most basic level entails leveraging cryptographic protocols and constructing immutable data structures, is necessary for the existence of Bitcoin (and all other cryptocurrencies).
The development of Bitcoin was in progress. On January 3, 2009, Satoshi Nakamoto mined the first block of the Bitcoin network. In this first block, they included a headline from The Times, providing a permanent allusion to the economic circumstances—involving bank bailouts and a centralized financial system—that Bitcoin was in part a response against.
The Genesis Block is the current name for this initial block, which led to the mining of 50 bitcoins. During this time, as well as the first several months of its existence, bitcoin had essentially no value. It was the first completely decentralized digital money, nonetheless. In April 2010, six months after bitcoin first became tradable, one BTC was worth little under 14 cents.
Beginning of Market Formation 2010–2014
Bitcoin was proving to have real world value even if its value wasn’t very high yet. It reached a high of $1.06 in February 2011 before falling back to about 87 cents. The price shot up in the spring, partially as a result of a Forbes article on the brand-new “crypto currency.” Bitcoin’s price increased from 86 cents to $8.89 between early April and the end of May.
The price of the money more than quadrupled in a week to roughly $27 on June 1 after Gawker published a report about its popularity in the internet drug trade. The current market value of bitcoins was close to $130 million. By September 2011, however, the price had reverted to a little under $4.77.
One of several forks (i.e., updated versions) of Bitcoin that debuted in October of the same year was Litecoin. With PPCoin, Namecoin, and ten other cryptocurrencies following in the background in the earliest CoinMarketCap database (from May 2013), Litecoin quickly overtook them as the second-largest cryptocurrency by market cap. These cryptocurrencies, some of which split off of Bitcoin and others based on new code, were rapidly termed “altcoins.” They were additionally known as virtual or digital cash.
Around this time, virtual doors for cryptocurrency exchanges began to open. The regular banking system and the cryptocurrency world are connected through a cryptocurrency exchange. Users may trade, sell, and purchase cryptocurrency there.
Bitcoin values increased substantially throughout 2012, and the Bitcoin Foundation was created in September of that year to support the growth and adoption of Bitcoin. Ripple, at the time known as OpenCoin, was also introduced that year, and the project later attracted venture funding.
In 2013, the price of bitcoin fluctuated wildly due to a variety of legal, criminal, regulatory, and software-related challenges. Its price peaked at $755 on November 19 before plummeting to $378 the next day. On November 30, it had risen all the way to $1,163. But this was the start of another long-term decline that culminated in Bitcoin falling down to $152 by January 2015.
Scams dominated the news from 2014 – 2016
Although not intended, the decentralized digital currency’s anonymity and lack of centralized management make it very alluring to criminals. The largest bitcoin exchange in the world at the time, Mt.Gox, failed and filed for bankruptcy in January 2014 after losing 850,000 bitcoin. Although the specific circumstances are unknown, it’s likely that the lost Bitcoins were taken over time, starting in 2011, and then sold for cash on several exchanges (including Mt.Gox), until one day Mt.Gox checked their wallets and discovered they were empty. CEO Mark Karpeles was accused of embezzlement in 2017, but was cleared of all charges in 2019. As a result, it is still unknown where the stolen BTC went.
Even while the attack was not an isolated incident, it served as a lesson learned, and exchange security has significantly improved. Although smaller exchanges are still often breached, larger platforms now offer stronger assurances on their reserve holdings. This includes, for instance, the Secure Asset Fund for Users on Binance, which serves as an emergency fund for cryptocurrency investors.
Crypto traders are encouraged to properly store their bitcoin using a hardware or software wallet rather than an exchange. These kind of wallets were not as widely available during the beginning of the bitcoin era.
The Rise of Bitcoin as a Global Phenomenon 2016–2018
From $434 in January 2016 to $998 in January 2017, the price of bitcoin increased substantially each year. A software update for Bitcoin was authorized in July 2017 with the intention of supporting the growth of the Lightning Network (a layer-two scaling solution) and enhancing security.
In August, a week after the upgrade went into effect, Bitcoin was trading at about $2,700. Bitcoin soared to a record-breaking high of slightly about $20,000 by December 17, 2017.
At the same time, Ethereum, a brand-new blockchain initiative, was creating waves in the cryptocurrency community. Since its inception in July 2015, Ethereum has swiftly risen to the position of second-largest cryptocurrency by market cap. It introduced smart contracts to cryptocurrencies, producing over 200,000 individual projects (and counting) and opening up a wide range of potential use cases. In contrast to the Bitcoin protocol, Ethereum allows for the establishment and operation of new platforms, each with their own coins and use cases, on their own chain. Other emerging digital currencies, such Cardano, Tezos, and Neo (to mention only three), released during this time period, followed this approach closely.
Bust and Recovery 2018–Present
The price of bitcoin was unable to maintain its record high of $19,783. Like Bitcoin, Ethereum was unable to sustain its current level for very long after reaching its own ATH of about $1,400 in January 2018. Due to security issues brought on by semi-regular exchange breaches and financial restrictions, the market as a whole fell, and by the end of 2018, bitcoin was trading at about $3,700.
Prices didn’t stay low for very long, either. Beginning in late 2020, bitcoin had a sort of revival, which was sparked by (“business intelligence company”) MicroStrategy’s August statement that it had purchased bitcoin for $250 million. This started a bull market, which spread to the rest of the market, and prices were further driven up by Tesla’s early 2021 purchase of $1.5 billion in bitcoin. The month of November of that year saw bitcoin achieve its all-time high price of $69,000.
Since this peak, the crypto market has plunged once again, pulled down by macroeconomic worries brought on by soaring inflation, increasing interest rates, and the threat of war.
However, the corresponding decline of the cryptocurrency market in 2021 and 2022 demonstrates how closely tied the industry is to conventional financial markets.
And although the erratic nature of digital assets is both alluring and possibly disastrous, blockchain, the enabling technology, has the ability to transform many facets of our society. Blockchain technology has the potential to be utilized in practically every sector of the economy, whether it’s offering accessible and reasonable financial exchange choices, protecting your personal money so that only you have access to them, or delivering correct data for your insurance quotation.
It’s simple to become enthused about the cryptocurrency market and its potential from an investing and technology standpoint as the market becomes more stable with more understanding and the launch of new sectors like stablecoins and decentralized finance (DeFi). Regardless of whether Bitcoin or another blockchain project piques your curiosity, this is true.
