Happy birthday, bitcoin. Many happy returns

Posted: 31 October 2018 6:55 pm
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Bitcoin was born with a purpose, and it still has it.

"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..."

So begins the bitcoin whitepaper, first publicly revealed by the anonymous Satoshi Nakamoto on 31 October 2008, a solid ten years ago.

Bitcoin wasn't the first to have that peer-to-peer digital cash revelation though, and the meatiest part of the whitepaper might be found in the next sentences.

"Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work."

It was the first public description of a public blockchain as we know it.

"Without knowing it, Satoshi Nakamoto and the rest of the cypherpunks kick-started an entire multi-billion dollar industry which we now call blockchain. Their distributed ledger, a novel form of recording millions of transactions between individuals without the need for banks, is the most notable accounting revolution since the Venetians' formalised double entry bookkeeping in the late 1400s," says Shiv Malik, head of strategy at Streamr.



The ins and outs of bitcoin's conception

It didn't begin with the whitepaper though. Bitcoin was conceived in the prior months, and the earliest publicly visible baby bump was the registering of the bitcoin.org domain name in August 2008.

Bitcoin received its birth certificate on 3 January 2009, at precisely 18:15:05 (GMT), with the creation of the genesis block. So began the documentation of bitcoin's blockchain and every transaction it has made since then.

The birth certificate also included a message: "The times 03/Jan/2009 Chancellor on brink of second bailout for banks."

It was a reference to The Times headline of the day and has since been construed as evidence that bitcoin was specifically created to bypass established financial institutions as a result of the widespread loss of faith in the existing system.

The loss of faith was well justified by all reasonable measures. A marketplace that blindly chases toxic debt off the edge of a cliff, dragging the entire world with it and killing thousands of people in the process just to satisfy a tiny handful of shareholders, is hardly a suitable foundation for the global economy.

"By creating a censorship-resistant alternative to money, it [bitcoin] has reignited discussions on the nature of money and money creation. It has presented an alternative to an unsustainable global financial system built on debt and inequality," says Vlad Dramaliev, head of digital marketing at æternity.

As Intercontinental Exchange CEO Jeffrey Sprecher said, "People put more faith in a guy named Satoshi Nakamoto that no one has ever met than they do in the U.S. Fed."

"The systematic problems that have contributed to the rise of blockchain and its mainstream adoption have summoned many bright minds to get involved in the industry, which is why I believe that blockchain will scale and is here to stay," said Fran Strajnar, an early bitcoin user and CEO of Brave New Coin.

Bitcoin's first steps, 2009

Bitcoin took its first steps about a week after its birth certificate became the cornerstone of the blockchain, with the first ever bitcoin transaction at block height 170, from Satoshi Nakamoto to Hal Finney.

It then spent most of 2009 finding its feet, supported by a growing community of the world's earliest bitcoin miners.

The first bitcoin exchange rates came along on 5 October 2009, almost a year after the first release of bitcoin's whitepaper. The opening price, as it were, was 1,392.33 BTC to the dollar – or US$0.00072 per bitcoin. The figure was calculated by estimating the average energy cost of mining each bitcoin.

Some people thought the prices were a little high, but these calculations would continue to serve as benchmarks for bitcoin's value until exchanges started arriving and market forces could start putting a price tag on bitcoin.

It didn't take long.

They grow up so fast, 2010

Early the next year, on 15 January 2010, the first bitcoin exchange – Bitcoin Market – was announced. After a few months under construction, it processed its first real live trade on 17 March. It would grow over the next year, using PayPal for its fiat movements and the bitcoin blockchain for its crypto movements.

The first bitcoin payment was on 22 May, Pizza Day, when someone bought about $25 of pizza for 10,000 BTC. Mt Gox was established later that year, on 17 July 2010, by overhauling a site that was previously used for trading Magic: The Gathering cards online.

Adding fiat bridges to bitcoin saw its price start growing quickly. Bitcoin broke through the 1 cent mark, and in the wake of all these factors, its price just kept growing. It spent much of the year flat at about 6 cents. In October, its price started climbing up from 6 cents, and in November, bitcoin prices on Mt Gox touched 50 cents while the bitcoin market cap topped $1 million.

This year also saw serious discussion around whether bitcoin was better suited as digital cash or as a kind of digital gold equivalent commodity. Other discussions on where exactly bitcoin fit in with different economic models, whether anyone would actually spend something that tended to increase in value so quickly and whether any of that even mattered also took place.

"I have been involved in crypto for nine years now," says Metal CEO Marshall Hayer. "When I first discovered bitcoin my curiosity was piqued, I didn't see how people could transact with it. The introduction of stablecoins are a huge innovation and will play a critical role in blockchain, especially now."

Growing pains, 2011

Bitcoin reached parity with the US dollar on 9 February 2011, hitting $1 at Mt Gox. This came with a brand new wave of attention from around the world and saw the until-then relatively insular bitcoin community start opening up much more widely as a lot more people discovered bitcoin.

Bitcoin started igniting imaginations across a much wider range of industries and backgrounds than it previously did and achieved what might be called mainstream recognition for the first time.

juicy crypto words

This was exacerbated by the growing reach of payment processors like PayPal and credit card providers who took it upon themselves to police transactions and freeze payments such as donations to WikiLeaks. Bitcoin had a clearer use case, especially for payments of the subversive or outright illegal kind.

A host of new markets for currencies other than the US dollar sprung up in March, then TIME Magazine wrote an article on bitcoin in April and bitcoin's market cap rose above $10 million later that month. It kept multiplying from there, and in June, bitcoin's market cap topped $200 million as bitcoin prices reached US$30 on Mt Gox. Four days later, by 12 June, it was back down to a third of that.

That was also the month the first exchange, Bitcoin Markets, met its untimely end when a scammer robbed people with chargeback fraud through PayPal. PayPal's dispute resolution process sided with the scammer across the board, and Bitcoin Markets regretfully closed up shop.

"I'm getting the impression that PayPal is intentionally trying to shake any connection between itself and Bitcoin. That is, they WANT to burn people and discredit Bitcoin," said the Bitcoin Markets founder at the time.

Mt Gox was also put through the wringer on 19 June when a hacker cracked it open and made off with a small fortune in several different ways. Bitcoin and its now-numerous third-party applications were being stress tested by their newfound attention and were, in many cases, found wanting.

People were now losing real money to these issues – in some cases, the equivalent to tens of thousands of dollars. Prices fell back to the $10 range and would languish there for almost two years.

But behind the scenes, the believers kept building and using bitcoin. Growing pains might not be pleasant, but they do imply growth. The genie was out of the bottle and had no intention of going back, and the bitcoin community was bigger than ever.

Bitcoin conferences, blockchain meetups, true believer evangelists and others would do their part over the next year to keep bitcoin growing.

Mood swings and know-it-all teenage years, 2013-2016

The ongoing work yielded results in 2013, and bitcoin prices on 28 February 2013 reached a new all-time high. It had been 601 days since the 2011 peak. It kept going from there, and bitcoin's total market cap passed $1 billion on 28 March, and bitcoin passed $100 on 1 April, according to Mt Gox prices.

Prices gradually pulled back to the $60 to $70 range by the middle of the year – and then they did this:

Stupefying all known laws of economics, bitcoin skyrocketed above $1,000 in just a couple of months, and a lot of those bitcoin users of the last two years took advantage of the rise to cash out. For many, it was confirmation of what they had known all along, and what had kept them going over the previous years – bitcoin was something else, and it really had the potential to change the world.

Of course, it's now known that the extreme rise was most likely due to market manipulation, but still, it was heady days.

What's not yet known is who was manipulating the prices back then, but suspicions often alight on Mt Gox. This is because while all this was happening, throughout the second half of 2013 it's believed, hackers were siphoning off funds from Mt Gox.

The hollowed-out exchange collapsed shortly after bitcoin prices reached those new heights. Along with the sell-off of newfound wealth, this is believed to have sparked the next prolonged downswing. And this time it would be much longer before bitcoin would be able to climb back to its old heights.

And once again, the evangelists and true believers were hard at work behind the scenes. And this time, there were a lot more of them working on a lot more projects, with a lot more time to build now that they had money in the bank from the recent rise. Cryptocurrencies of all kinds started proliferating.

In particular, Ethereum was created in 2015 as people were thinking about decentralisation, immutability, governance, the potential of blockchain technology, applications like smart contracts and much, much more.

Blockchain was now about much more than bitcoin, while blockchain was being explored as a revolutionary technology in its own right. But given its prominence, much of that new value naturally kept coming to bitcoin.

"It's impossible to look at the progress of the entire blockchain industry without recognizing the foundational role that bitcoin played. Every business use case, every major step forward on the infrastructure front is ultimately a credit to the initial starting point of bitcoin. Bitcoin proved that there is an application for blockchain and that it has real and tangible value," notes Daniel Peled, president of Orbs. "Even though the industry has expanded far beyond producing a digital currency, bitcoin was still the use case that established the legitimacy and potential of the entire blockchain enterprise."

Collectively, this massively growing field of cryptocurrencies saw blockchain, with bitcoin at their head, come roaring back in late 2016 and continue gaining steam in 2017. And that mind-bending price jump of 2013 turned to be just a blip on the radar.

It's easy to see why most early bitcoin users are pretty blasé about price declines in 2018.

"Those who have been involved in digital currency since the early days have seen the cyclical rise and fall of bitcoin. I believe that bitcoin's supply curve will continue to follow the boom-bust cycle, but expect all-time highs following block-halving by 2020. As an asset class, bitcoin's value has witnessed outstanding upward momentum – with the value far above now what it was in the early days following its inception," says Fran Strajnar.

Divorce and custody battles, 2017

The new surge of interest in cryptocurrency started pushing bitcoin to its limits, and people started more seriously discussing the capabilities of bitcoin and whether it would be able to accommodate its growing user base in the near future. One of the main focuses was how to scale bitcoin up in a way that could accommodate more transactions. A large portion of the community was predicting crunch time for bitcoin, rising transaction fees and troubled times ahead if it didn't find a way to quickly update so it could accommodate more users.

A hard fork was proposed to increase the block size as a stop-gap scaling solution, but it proved to be a contentious suggestion. The bitcoin community ended up splitting down the middle, with the pro- and anti-fork crowds each picking out their favourite parent.

These parents, bitcoin and Bitcoin Cash, would end up dividing bitcoin, its users and its assets between each other.

The original bitcoin website, Bitcoin.org, went to Bitcoin Cash as did the @Bitcoin Twitter handle. Other bitcoin assets, including developers, miners, evangelists and users also followed Bitcoin Cash. It also tried to get the bitcoin (BTC) name, but couldn't get enough support from exchanges to pull it off and ended up settling for BCH instead.

The irreconcilable difference underpinning the divorce is now being described as the unanswered questions around whether bitcoin is a currency to be used for transactions or a commodity to be used for storing value. Elsewhere, minor movements like Bitcoin Gold also emancipated themselves from the main chain for other reasons.

Sadly, some early bitcoin enthusiasts on both sides haven't really been the same since the divorce.

Looking to the future

One of the testaments to the innate robustness of bitcoin might be that its most painful periods have tended to come after times of monumental growth, and it has always been accompanied by collectively educational moments.

"On the tenth anniversary of bitcoin, we reflect on how far the space has come. Bitcoin was a groundbreaking innovation, and it's caused us to learn lessons about how, why, and in what contexts people use digital currencies as a unit of account, a means of exchange, and a store of value," says COSIMO Ventures CTO and early ndau collective member Ken Lang. "The rise in popularity of bitcoin – and consequently, other tokens – has also taught us about the shortcomings of particular digital currencies for particular purposes. It's led to trends that try to solve for the governance and volatility problems... the industry is maturing and attempting to solve its own problems over time."

"The publishing of the Bitcoin white paper by Satoshi Nakamoto a decade ago kickstarted a new era of technological innovation and global disruption that is continuing to this day. Through community consensus, bitcoin's protocol has evolved through the years and has remained the standard for the cryptocurrency market and bitcoin purists," says Lisk co-founder and Lightcurve CEO Max Kordek. "Satoshi Nakamoto has inspired hundreds of dedicated teams around the world to build on his vision for a future powered by blockchain, a future in which individuals are empowered to bring real change to the world."

Bitcoin has come a very long way, despite being subject to a fairly constant barrage of criticism. It's been hypocritically called a currency for criminals and roundly accused of being an energy guzzling environmental disaster by researchers who legitimately have no idea how its energy consumption actually works and didn't bother finding out.

What bitcoin is for

Most of all, bitcoin has been criticised for going ten years without seeing significant uptake of any kind. Next to traditional markets, bitcoin is still a very small fry. "Ten years later, we still don't know what bitcoin is used for," people complain.

However, the truth is that we all know perfectly well what bitcoin is used for. The reason for its existence was clearly laid out in the genesis block.

The point of bitcoin and blockchain is not to create a more efficient payment network, to produce eye-watering returns on investment or to devise a system that allows for reliable automation on a previously unimaginable scale – those are just happy side-effects and things to do with it. The point is decentralisation, trustlessness and the restoration of personal power over money, data, identity and much more to individuals.

"No longer do we have to depend on (or trust) big banks who don't always put individual needs above their own," says Crumbs founder Patrick Mrozowski. "The true beauty of crypto lies in its ability to give power back to individuals who have been habitually neglected by traditional financial institutions — no matter demographic, socioeconomic status, or credit history, you have the ability to participate in the economic future. The next 10 years will bring more decentralization, better technology, but most importantly — financial power to the people."

If you don't think bitcoin and cryptocurrency has a point, just remember that right now the world is knowingly marching towards yet another sub-prime loan crisis, and there's absolutely nothing you can do about it.


Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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