Bitcoin Into Bits: The History Of The First Cryptocurrency

When you think crypto, one of the first things to pop into your head is Bitcoin. That makes perfect sense, it is the biggest and most popular cryptocurrency, and it’s everywhere, the headlines, the memes, and the tweets. If you’re not super invested in the crypto industry you might have some surface-level knowledge about Bitcoin. No doubt, however, there’s a lot that has likely gone right over your head. So let’s fix that, Bitcoin has been around for about 14 years, we’ll take a look at its evolution in that time.

An Origin Story: The Bitcoin Timeline

The early 1980s to 1997: The Emergence of Cryptocurrencies

Bitcoin didn’t exist yet, however, during this time, the concept of cryptocurrencies started to take shape. Computer scientist David Chaum played a big role in this by releasing a paper titled "Blind signatures for untraceable payments." His paper outlined a payment system that did not call for third-party involvement. Chaum brought this system to life in 1990 with Digicash, but it never gained widespread popularity and the company shut down in 1997.

1998-2008: B-Money and Bit Gold

David Chaum’s Digicash failed as a product, however, that didn’t put a stop to the idea of electronic money. Rather, Digicash created the groundwork for others to build on. Two more ideas sprang up featuring (like Digicash) decentralization at their core. Essentially, they both proposed digital currencies that could work without intermediaries like banks or governments overseeing transactions. These were Wei Dai’s “b-money” and Nick Szabo’s “Bit Gold” proposals.

Dai's "b-money" concept was built on a proof-of-work system where computers competed to solve complex mathematical equations to produce new currency units. On the other hand, Szabo's "Bit Gold" called for miners to solve cryptographic puzzles to create new "bits," which were then linked together to form a chain of transactions. These ideas were never actually implemented but looking at the Bitcoin network, it is possible to draw some parallels and trace the token’s origin back to this.

2008-2009: How Bitcoin Began

Bitcoin’s Anonymous Creator

Bitcoin's history is shrouded in mystery, and one of the most intriguing aspects of this revolutionary digital currency is the identity of its creator. Satoshi Nakamoto, the pseudonym used by the mysterious mind or minds behind Bitcoin, remains an enigma to this day. Was it a single genius developer or a group of collaborators? Nobody knows for sure, but what we do know is that in October 2008, Satoshi published a whitepaper on a cryptography mailing list that would change the world forever.

Whoever they may be, in October 2008 they published a whitepaper on a cryptography mailing list titled "Bitcoin: A Peer-to-Peer Electronic Cash System." The paper explained Bitcoin’s key features from its decentralized nature, to how it would use the blockchain to record transactions, and the process of creating new Bitcoins, dubbed "mining."

This was Bitcoin’s first introduction to the world, but it is worthy of note that Satoshi may have begun work on the project on August 18th of that same year when they purchased the domain name bitcoin.org. Bitcoin’s official launch took place on January 3, 2009, after Satoshi mined the starting block of Bitcoins known as the Genesis block. For the first time, BTC tokens- 50 of them came into existence. Interestingly, it included a message referencing a headline from The Times newspaper in London: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

Why Was Bitcoin Created?

Nakamoto’s whitepaper outlines some of the reasons Bitcoin was created. The token was born of a crisis, namely the 2008 financial crisis which saw many financial institutions go bankrupt or require government bailouts. This crisis brought the flaws of traditional finance into the light, many were open to alternative methods of exchange and Bitcoin showed up around this time; a knight in shining armor. So, as you may have guessed, the major reason Nakamoto created Bitcoin was to provide an alternative to regular banking systems.

The First Bitcoin Transaction

The world was never the same the day after January 9.  It was a day that marked the release of the Bitcoin software, a day that would change the course of history. Hal Finney, a computer programmer and one of the first supporters of the Bitcoin network downloaded the software on the day of its release. Not long after on January 12, the first Bitcoin transaction took place as Satoshi Nakamoto sent Finney 10 Bitcoins.

Bitcoin saw little action in the months after its launch. The digital currency was worth almost nothing and very few people even knew about it. There weren't any exchanges or markets where people could buy and sell it like we have today. Instead, most of the people using Bitcoin were just interested in experimenting with this new kind of digital currency. These early Bitcoin users would often send each other small amounts of Bitcoin for fun or to test out the system. The cryptocurrency was especially popular in forums where participants rewarded each other with BTC for good comments. It was a fascinating time in the history of Bitcoin, where a handful of people sparked a revolution that would forever change the way we see and use money.

2010: Market Formation

The slow movement continued for a while. In March 2010, one user named "SmokeTooMuch" decided to auction off 10,000 Bitcoin for a total of $50 but no one was willing to buy the Bitcoin at that price. Fast forward to May of the same year, the first real-world Bitcoin transaction occurred.

Florida-based programmer Laszlo Hanyecz secured his spot in history by buying two pizzas valued at about $25 for 10,000 BTC. At the time, Bitcoin was worth less than a penny, so it seemed like a great deal. But little did he know that his hankering for pizza would go down in history as the most expensive meal ever. You see, those two pizzas cost him a whopping 10,000 BTC, which would have been worth over $600 million in April 2021! Moral of the story: always consider the long-term value of your pizza cravings.

The deal drew the attention of various parties. Bitcoin’s value began to climb and by the end of the year, its price was just under $1. 2010 was the year when Bitcoin started to make bank! The birth of a market around Bitcoin was the hottest topic of the year. It was the time when the concept of exchange rates became a reality and the first exchanges were established. The early birds in the game were Slush Market, which went live in January, and the notorious Mt. Gox, which made its grand entrance a few months later in July. The excitement didn't stop there, as the total Bitcoin market cap reached over $1M for the first time in October 2010. It was the start of something big!

2011 to 2013: The Bitcoin Revolution Spreads!

During this time Bitcoin grew in popularity reaching a valuation of one dollar in February of 2011. A Forbes story came out in April that explained how the new cryptocurrency worked and this caused its price to soar. TIME Magazine also published a piece about Bitcoin and later on in June Gawker released an article discussing Bitcoin’s appeal within the online black market Silk Road.

Silk Road was a notorious online marketplace that operated on the dark web, allowing users to buy and sell illegal goods and services anonymously. It used Bitcoin as its primary form of payment, which made it difficult for law enforcement to track down the perpetrators.

The Gawker piece drew more attention to Bitcoin and its price tripled, however, the surge didn’t last long and BTC soon returned to previous levels. As interest in the network grew, rivals began to pop up such as Litecoin in October. The next year was mostly smooth sailing for Bitcoin. The token crossed the $100 threshold in April 2012, and in September, the Bitcoin Foundation was established to push the project forward. Thus, Bitcoin continued to rise.

2013 was a rollercoaster of a year for Bitcoin. There were plenty of ups and downs, with the token experiencing its first major crash early on. Despite this, November saw a triumphant recovery, with Bitcoin soaring past the $1,000 mark. But the excitement didn't stop there! Major companies and startups jumping on board and accepting Bitcoin as a payment method. This surge in adoption only added to the fun and excitement of Bitcoin's wild ride in 2013

2014 to 2016: Recovery and Turbulence

Hacks and Regulation

2014 started on a low note for Bitcoin, the digital currency had fallen under $1000 and for a few years, it failed to cross this threshold. We have to consider events like February’s Mt Gox collapse. The platform had been the world's largest Bitcoin exchange, but after suffering a massive hack, it filed for bankruptcy, taking with it an estimated 850,000 Bitcoins which still have not been recovered.

The digital coin also faced increased scrutiny from regulators and law enforcement agencies, who were concerned about its potential use for money laundering and other illegal activities. In November 2014, Silk Road founder, Ross Ulbricht, was sentenced to life imprisonment after illegal drugs were found to account for a significant portion of the products sold on the website.

By exercising caution and using the platform responsibly, users can help ensure that digital coins continue to grow and thrive as a legitimate form of payment. So, while it can be tempting to take advantage of the anonymity and convenience offered by these coins, it's important to remember that they should be used wisely and responsibly.

Hard Forks, Ethereum, and ICOs

Additionally, the Bitcoin community was deeply divided over how best to improve the network to accommodate growing demand. This caused many debates, some of which ended in hard forks. A hard fork is a change to a blockchain protocol that is not compatible with older versions. It can result in the creation of a new cryptocurrency that operates independently from the original. Some notable Bitcoin hard forks that emerged include Bitcoin Classic and Bitcoin Cash.

In July 2015, Bitcoin’s biggest rival Ethereum was launched. Created by Vitalik Buterin, Ethereum was designed to be a more flexible blockchain platform than Bitcoin. Unlike Bitcoin, which primarily serves as a digital currency, Ethereum allows developers to build decentralized applications (dapps) on top of its blockchain.

With Ethereum’s appearance, there was a corresponding increase in the popularity of initial coin offerings (ICOs). An ICO is a type of crowdfunding campaign that allows startups to raise funds by selling tokens or coins that represent a share in a project. ICOs grew popular for startups to raise funds, but unregulated markets led to scams and fraud. Regulators were on high alert, and many countries cracked down on ICOs. Ethereum's rise and the ICO trend represented a shift in crypto, opening up new possibilities for decentralized apps and alternative fundraising and business models.

Within this time, Bitcoin’s value slowly began to recover, and by mid-2015, after many ups and downs, it had surpassed the $300 mark once again. This upward momentum was driven by several factors, including the growing adoption of Bitcoin by merchants and consumers, and the emergence of new use cases for the currency. By 2016, the project was back on track and drawing close to $1000 once more.

2017 to 2019: Bitcoin Goes Mainstream

In 2017, Bitcoin shattered all expectations and set the world ablaze. The token skyrocketed from a mere $1,000 to over three times that amount by June of the same year. It was as if the world had caught Bitcoin fever, with the ICO craze still in full swing and the general crypto market seeing massive levels of adoption from retailers and large institutions. Everyone was buzzing about Bitcoin, and the industry that had developed around it was exploding! The demand for the cryptocurrency surged through the roof, driving its price to settle just shy of $20,000 as the year drew to a close. It was an undeniable game-changer, and the world was watching, holding its breath in anticipation of what would happen next.

Once more, however, the positive movement was short-lived. In 2018, Bitcoin users experienced a challenging year, particularly those who had held on to the currency, expecting its value to continue to rise. The token started the year with a value of around $13,000, but by December it was worth about $3200. In spite of this, there were still significant developments in the bitcoin ecosystem in 2018. For example, the Lightning Network, a technology designed to increase the speed and scalability of bitcoin transactions, was launched in early 2018. Another rebound came for the cryptocurrency in 2019, and Bitcoin did well compared to the past year but it didn’t trade quite as high as it had in 2017.

2020 to 2021: Institutional Adoption Leads Bitcoin to New Highs

Bitcoin had come a long way since its 2009 inception. After a few years of stagnation, this digital coin has started to resurge, and it's been an electrifying journey so far. The pandemic year called for online payments and this pushed demand for Bitcoin. However, what really helped the digital coin start to rise again was MicroStrategy's announcement in August that it had invested $250 million in Bitcoin. Other companies including Square and PayPal, began to follow suit further boosting the cryptocurrency's popularity. Tesla's announcement in February 2021 took Bitcoin to a whole new level. The electric car company revealed that it had invested $1.5 billion in Bitcoin.

Bitcoin was on a roll until May 2021, when China made an announcement that shook the world of cryptocurrencies. The Asian giant banned all crypto mining operations and put a dent in the progress that Bitcoin had made. Miners in China had previously handled the majority of Bitcoin mining so the restriction wasn’t great news. Bitcoin crashed to $32,450 on May 23 and to a new low of $29,970 on July 21.

Resilient as ever, Bitcoin started to pick up again in September. El Salvador made history in June of 2021 as the first country to adopt Bitcoin as a legal tender. Following the announcement, the country took a number of steps to further integrate Bitcoin into its economy and has continued to do so. This along with the October launch of the first futures-based Bitcoin ETF helped Bitcoin resurge enough to hit an all-time high of $69,000 in November 2021.

2022 Till Date: The Crypto Winter

The Russia-Ukraine Conflict

Bitcoin's record-high value was not sustained, it faced regulatory and geopolitical challenges by early 2022, which led to a decline. Many governments around the world were still unsure of how to regulate assets like Bitcoin and China’s ban made existing and potential investors wary. BTC had fallen to roughly half of its record value by January as the Russia-Ukraine war began to take shape.

The Terra and FTX Crashes

It recovered again in March only to crash 2 months later after the collapse of blockchain platform Terra-Luna and its sister stablecoin, UST. This event caused investors to panic and dump their crypto holdings. Bitcoin and many other cryptocurrencies were affected as well as other crypto firms. As the months went on, Bitcoin attempted to recover but other factors such as a large number of hacks across the crypto space and investor distrust got in the way.

BTC started to get on the positive side of its back and forth in November but another staggering development interrupted its progress. Leading crypto exchange firm FTX went bankrupt due to a lack of liquidity and mismanagement of funds resulting in a $9 billion hole in its balance sheet. As the FTX crisis rippled across the market, BTC continued to drop even going as low as $15,000.

Bitcoin’s Future

The entry into 2023 brought some hope for the cryptocurrency. Bitcoin has risen and is trading above $20,000 once more. Traders and institutions alike are approaching the digital coin with caution. A lot of people described 2022 as a “crypto winter,” and there have been many predictions, but we’ll have to wait to see where the winds go next. Still, if there’s one thing Bitcoin has proved through the years, it’s that the king crypto is the king of comebacks.

‍