A BRIEF HISTORY OF BITCOIN - BLOCKCHAIN 101

On November 10, 2021, Bitcoin reached an all-time high, with 1 BTC valued at $68,928.

 

If someone offered to trade you 10,000 Bitcoins for two pizzas, would you agree? If it were me, I would either think the person is a scammer or a madman. However, such a transaction actually took place in 2010.

 

How did Bitcoin transform from a tech enthusiast's dream to digital gold recognized by numerous central banks? And how did it lose 83% of its market value in just 14 months?

 

The 15-year history of Bitcoin is also a microcosm of the development of cryptocurrencies. With the clues collected, I hope to unveil a corner of the financial iceberg from 2008 to 2023.

·1998·

Many people know that the history of Bitcoin originates from the white paper published by Satoshi Nakamoto in 2008, so they believe Bitcoin is the first cryptocurrency. However, this is incorrect; the history of cryptocurrencies goes back even further, with the earliest being traced to 1976 when Whitfield Diffie and Martin Hellman published a paper titled "New Directions in Cryptography." I have provided a detailed introduction to this chapter in "A Brief History of Blockchain Technology," which you can read.

 

From cryptography to Merkle trees to encryption algorithms to consensus mechanisms, a 22-year accumulation of technology led to the birth of the first cryptocurrency in 1998. To understand the history of Bitcoin, we must start at the beginning.

 

Ten years before Bitcoin's inception, a cryptographer named Wei Dai invented b-money, an "anonymous, distributed electronic cash system." Satoshi Nakamoto, the founder of Bitcoin, even mentioned b-money in the famous Bitcoin white paper.

 

Nick Szabo proposed a similar idea - Bit Gold - which laid the foundation for blockchain, the technology behind Bitcoin.

 

·2008· Bitcoin White Paper is Born

On October 31, 2008, Satoshi Nakamoto published the Bitcoin white paper on a little-known cryptography mailing list. The white paper proposed a new financial system that would replace the roles of banks and third-party payment processors: "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."

 

·2009· Creation of the Genesis Block

On January 3, 2009, Satoshi Nakamoto mined the Genesis Block (also known as Block 0) on an ordinary computer, without competing with other miners. The original block contained 50 BTC, which are unspendable. It is still unclear whether this was intentional or a programming error.

 

The Genesis Block also included a message written by Satoshi: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." This message served as a timestamp, referencing the newspaper headline on January 3rd, and also hinted at Satoshi's distrust of the financial system.

 

To this day, people still donate to the Genesis address 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa, and the next block, Block 1, wasn't mined until six days later on January 9th.

 

·2009· Release of Bitcoin Client 0.1

On January 11, 2009, Satoshi Nakamoto released the Bitcoin Client 0.1. This was the first-ever Bitcoin client in history, allowing more people to mine and use Bitcoin.

 

·2009· First Bitcoin Transaction

On January 12, 2009, Satoshi Nakamoto sent 10 Bitcoins to developer and cryptographer Hal Finney. This was the first-ever transaction in Bitcoin history.

 

·2009· First Increase in Bitcoin Mining Difficulty

To maintain a constant mining rate of one block every 10 minutes, the Bitcoin network underwent self-adjustment, increasing the mining difficulty. On December 30, 2009, the Bitcoin mining difficulty increased for the first time.

 

·2010· Origins of Bitcoin Pizza Day

On May 22, 2010, the famous Bitcoin Pizza Day originated. Its backstory is quite interesting. If you're not a crypto practitioner, you might think it is to commemorate the birth of pizza.

No, it marked the second cryptocurrency milestone: 10,000 bitcoins for two large pizzas.  

That seems crazy today, doesn't it? At a current value of $28,000, that's a $280 million pizza.  

It's crazy, but it's something that really happened in history. After the invention of Bitcoin by Satoshi Nakamoto, there were still very few people in the world who really knew and used Bitcoin, and for a long time Bitcoin was a topic of discussion among cryptographers.  

Until, on May 18, 2010, a programmer named Laszlo Hanyecz expressed his desire to trade 10,000 bitcoins for two large pizzas from Papa John's (worth $40 at the time) on a bitcoin forum, then gradually people noticed the post, and three days later, cryptography enthusiast jercos, taking advantage of the merchant offer, paid $25 for two pizzas to send to Laszlo and received 10,000 bitcoins as promised.  

Although Laszlo's post was made on the 18th, the actual transaction took place on May 22nd, which was chosen as the official day of the transaction and thus named "Bitcoin Pizza Day.  

 

The initial price of Bitcoin was $0.004 based on the price of pizza at the time, and Bitcoin peaked at $69,000 per unit in November 2021, a 27.6 million times increase in price from that time.

·2010· The first cryptocurrency exchange appeared

The world's first Bitcoin exchange: Mt. Gox  

In July 2010, Jed McCaleb, the founder of the P2P transfer network "eDonkey," came across an article about Bitcoin. The new technology mentioned in the article sparked Jed's curiosity like a catalyst.  

Driven by curiosity, he decided to buy a few Bitcoins for research, but found that purchasing Bitcoins was extremely inconvenient, with most transactions happening off-exchange. He suddenly had a brilliant idea: to create a website where anyone could buy Bitcoins at any time—Mt. Gox.  

On July 18, Mt. Gox went live. On its first day, Mt. Gox traded 20 Bitcoins at 5 cents each. Due to its 24-hour trading, fast transaction speed, and attractive interface, Mt. Gox became the world's largest Bitcoin trading platform within a month, accounting for 70% of the global Bitcoin trading volume.  

The emergence of exchanges marked a milestone in Bitcoin history.  

 

·2010· First major price fluctuation

From July 12-16, 2010, Bitcoin experienced a 5-day period of significant price fluctuations, rising from $0.008/BTC to $0.08/BTC. This marked the first time Bitcoin experienced a sharp change in value.

 

·2011· Emergence of Silk Road

Silk Road was an infamous marketplace on the dark web, created by Ross Ulbricht with a utopian vision that "people should have the right to buy and sell whatever they want, as long as they don't harm anyone." However, it quickly became a hub for criminals and drug dealers. Users could purchase drugs, forged documents, and various other items using BTC.

 

In June 2011, Gawker published an article about Silk Road, drawing mainstream attention to the website. A major investigation was launched to shut it down.

In the same year, Litecoin emerged as the first fork of the Bitcoin core client. Since then, various forks have been created to improve upon Bitcoin's design.

 

Many people believed (and still believe) that Bitcoin is not scalable and has become a digital asset, losing its initial goal of becoming a true global digital currency.

 

The trend of using "Bitcoin" in the name of Bitcoin forked cryptocurrencies really took off after the release of Bitcoin Classic in February 2016. Although Bitcoin Classic eventually failed and ceased operation, several new forks bearing the name "Bitcoin" quickly emerged. Examples include Bitcoin Classic, Bitcoin Gold, Bitcoin Private, and Bitcoin SV.

 

·2012· First Bitcoin halving

In 2012, Bitcoin experienced its first halving, in which the rewards for Bitcoin miners processing transactions and maintaining the network were reduced. When Bitcoin was launched, miners received a reward of 50 Bitcoins per block. However, a halving event occurs every 210,000 blocks, cutting the mining reward in half.

The first halving occurred in November 2012, reducing the reward from 50 Bitcoins to 25 Bitcoins per block. The second halving event took place in July 2016, and the third occurred in June 2020.

Has this deterred miners from mining BTC? So far, the answer is no.

 

·2015· Bitcoin licensing

The establishment of Bitcoin licensing has been one of the most influential regulatory measures to date. The New York State Department of Financial Services (NYDFS) gave businesses only 45 days to apply and required them to pay a non-refundable application fee of $5,000.

 

As a result of the law's passage, crypto-related companies operating in New York State must now complete balance sheet updates, cash flow statements, profit and loss data, revenue, and asset holdings. They are also subject to annual audits. Due to these regulations, some crypto-related businesses (such as Kraken and Shapeshift) closed their New York operations and never returned.

 

·2017· Largest Bitcoin fork in history

On August 1, 2017, Bitcoin Cash was launched, marking the largest and most well-known Bitcoin fork in history. For years, Bitcoin had been plagued by speed and congestion issues, and debates about how to scale Bitcoin were ongoing. Unable to reach a compromise, the community split into two, giving birth to a new cryptocurrency.

 

·2017· The Largest Fork in Bitcoin History

On August 1, 2017, Bitcoin Cash was launched, which is the largest and most well-known fork in the history of Bitcoin. For years, Bitcoin had been plagued by speed and congestion issues, and debates raged on about how to scale Bitcoin. As a compromise could not be reached, the community split into two factions, leading to the birth of a new cryptocurrency.

 

·2017· Bitcoin Futures Launch

In December 2017, Bitcoin futures were launched and approved by regulators. Futures contracts are trading tools used by institutional traders, allowing investors to "bet" on the future price of an asset (usually stocks, bonds, or commodities).

 

In December 2017, the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) introduced the first Bitcoin futures contracts. This was the first major sign of institutional interest in cryptocurrencies and a new way to increase mainstream crypto trading.

 

·2018-2021· Bitcoin Reaches New Heights

Bitcoin reached its historical high of $19,783 in 2017, but it didn't last long. Financial regulation and security issues (with exchanges being periodically hacked) led to a market-wide downturn, with Bitcoin falling to around $3,700 by the end of 2018.

 

However, the price didn't stay down for too long. Starting in late 2020, Bitcoin began to see a resurgence, starting with "business intelligence company" MicroStrategy announcing in August that it had purchased $250 million worth of Bitcoin. This kicked off a bull market, with other markets joining in, and Tesla purchasing $1.5 billion worth of Bitcoin in early 2021 further driving up the price. In November of the following year, Bitcoin reached a new all-time high of $68,928.