Today, Bitcoin is a global phenomenon – it’s being discussed on mainstream media channels, traded 24/7 in large volumes, and even publicly-listed companies and institutional investors are taking note. Of course, there’s also the grassroots community of cryptocurrency users and developers that has been driving the space forward since day 1.
Right now, the total cryptocurrency market cap stands at $370 billion, with Bitcoin alone being valued at $220 billion. Crypto prices have been rising this year, with Bitcoin gaining 61% year-to-date and the market as a whole growing by 93% in the same time period.
Is this valuation inflated or is Bitcoin just getting started? In order to have a better understanding of the cryptocurrency space today, we need to place it in the appropriate context. In this article, we’ll be presenting a brief history of Bitcoin and going through the most important developments that have left a mark on this rapidly evolving space.
Bitcoin was introduced to the world in 2008
Bitcoin was the first digital asset that was described with the word “cryptocurrency”. Bitcoin was initially proposed in a 2008 whitepaper by Satoshi Nakamoto, who described a peer-to-peer electronic cash system that would facilitate online payments without requiring any third-party intermediaries.
In the whitepaper, Satoshi Nakamoto described a chain of hash-based proof-of-work that would address the issue of double spending, which represented a major problem for earlier attempts at digital money. In this system, a dishonest node operator would need to control more than 50% of the entire network’s computing power in order to perform double spends or alter the history of transactions.
The Bitcoin whitepaper marked the invention of blockchain technology, which is used today also in applications that don’t involve cryptocurrency. The Bitcoin software was released in early 2009 and the first Bitcoin block was mined on January 3, 2009.
Bitcoin was initially a niche interest for cryptography enthusiasts, with discussions about the technology taking place on the Bitcointalk.org forum. Satoshi Nakamoto participated in these discussions as well, making a total of 575 posts. Some of the early individuals that were involved with Bitcoin at this time were Hal Finney, Gavin Andresen, Nick Szabo, Wei Dai and Mike Hearn.
The real identity of Satoshi Nakamoto remains unknown to this day – we aren’t even sure if Satoshi Nakamoto was one person or represented a group of people. The last known activity from Satoshi was an April 23, 2011 email to Bitcoin developer Mike Hearn. In the email, Satoshi said he had “moved on to other things” and that the Bitcoin project was in “good hands”.
In these early days, Bitcoin was sporadically used as a means of facilitating payments, but there was no widely accepted exchange rate. Probably the most infamous such transaction came in May of 2010, when Bitcointalk user Laszlo Hanyecz paid 10,000 BTC to a forum user that arranged the delivery of two pizzas to his home. At today’s prices, 10,000 BTC would be worth a stunning $118.6 million.
Bitcoin was no stranger to controversy as it started to become valuable
Bitcoin was a supply-capped digital currency that could be transacted securely by people across the globe on a 24/7 basis. It could also be used by anyone, and didn’t require a user to create an account or submit their personal information. These unique properties all contributed towards Bitcoin transitioning from being a mere curiosity to actually being valued as a digital asset.
The first widespread use of Bitcoin came from a rather unfortunate source. Bitcoin became the default currency of the dark web, where it was used to facilitate payments for various illicit goods and services. The most popular dark web marketplace that used Bitcoin was Silk Road, which launched in February 2011 and was shut down by the FBI on October 2013. Silk Road was similar in principle to eBay and other online marketplaces, but listings primarily featured illegal drugs and other illicit goods.
In addition to usage on the dark web, Bitcoin also started to interest speculators who traded BTC against the US dollar and other fiat currencies. Mt.Gox was the first Bitcoin exchange to achieve widespread popularity. Mt.Gox was initially launched in 2010 by Jed McCaleb, but he sold the site to Mark Karpelès in March of 2011. At one point, the Mt.Gox exchange was said to be processing 70% of all Bitcoin trades. Mt.Gox eventually collapsed, as hackers drained around 850,000 BTC from the exchange. Mt. Gox was officially shut down in February of 2014.
The collapse of Mt. Gox triggered a bear market for Bitcoin, as the price of BTC fell from a peak of over $1,000 in early December 2013 to a low of around $200 in January 2015. The price of BTC steadily climbed through 2015 and 2016 and eventually returned above $1,000 in early 2017. By this point, Bitcoin trading infrastructure was already developed quite well, with major exchanges such as Coinbase, Bitstamp, Bitfinex and Poloniex becoming highly valuable businesses.
The 2017 cryptocurrency market rally drove the Bitcoin price to its all-time high
The second half of 2017 produced the wildest speculative bubble that the cryptocurrency space as a whole has witnessed so far. The price of Bitcoin rallied to around $20,000 by December, but other alternative cryptocurrencies or “altcoins” displayed even more explosive gains.
Ethereum established itself as a force to be reckoned with, as ICOs and Ethereum-based tokens created a completely new way for investors to bet on highly speculative projects. Ethereum even threatened to overtake the market capitalization of Bitcoin in the summer of 2017, but this hasn’t materialized so far and Bitcoin has since established a large lead in market capitalization yet again.
On August 1, 2017, the Bitcoin blockchain saw its most controversial fork ever – due to serious disagreements about how the Bitcoin project should approach scalability, a segment of the Bitcoin community decided to create a fork called Bitcoin Cash. The biggest point of contention was the Bitcoin block size – ultimately, the side that supported a Bitcoin block size larger than 1 megabyte put its weight behind Bitcoin Cash. Even though Bitcoin Cash is the 5th largest cryptocurrency by market capitalization, it is still almost 50 times smaller than Bitcoin, according to CoinCheckup.
The 2017 bubble popped at the beginning of 2018. The cryptocurrency market kept declining throughout the year and eventually crashed in November, with Bitcoin dropping all the way to $3,200. This just goes to showcase the immense volatility of the cryptocurrency market – less than a year before that, Bitcoin had reach its all-time high price of almost $20,000.
What’s next for Bitcoin?
Bitcoin is currently on its longest-ever streak of staying above $10,000. BTC has gained more than 60% year-to-date, outperforming both the NASDAQ 100 and the Dow. This year, we’ve also seen a stronger presence of institutional investors in the cryptocurrency market – retail investors are no longer the only players in the game. Publicly-traded companies such as MicroStrategy and Square have invested millions of dollars into Bitcoin, and institutional-grade crypto asset manager Grayscale has been reporting record inflows for three quarters in a row now.
The only thing that we can say for sure is that the future of Bitcoin will likely contain many unexpected twists and turns. However, the long-term trend has been extremely positive. Let’s take a look at how long the Bitcoin price took to reach key milestones. Is $100,000 up next?
- Bitcoin surpasses $1 for the first time: April 2011
- Bitcoin surpasses $10 for the first time: August 2012
- Bitcoin surpasses $100 for the first time: April 2013
- Bitcoin surpasses $1,000 for the first time: December 2013
- Bitcoin surpasses $10,000 for the first time: November 2017