Nadaq.com – Earlier versions of cryptocurrency existed well over a decade before Bitcoin’s first lines of code were written in 2009.
The cryptographer and computer scientist David Chaum is often credited with laying the intellectual and technological groundwork for Bitcoin. Chaum pioneered the “blinding signature” protocol as a way to encrypt information and data. He created electronic money company DigiCash in 1995, which utilized his privacy-protecting formula to establish one of the first forms of digital cash.
Others soon followed. The computer scientist Nick Szabo created Bitcoin predecessor Bit Gold, a decentralized currency with its own proof-of-work consensus mechanism. The developer Wei Day created B-money, a similar attempt at a decentralized, private money network. Ultimately, these efforts failed to gain traction. But they set the template for what a digital currency might look like.
The 1990s efforts to create digital cash took place against the backdrop of the Internet entering peoples’ homes and technology embedding itself in the fabric of everyday life. The early advocates for digital currencies, and more broadly for cryptography and privacy-enhancing technologies as instruments of political change, were known as Cypherpunks. They laid the groundwork for Bitcoin’s emergence a decade later.
When people hear “cryptocurrency,” they think of Bitcoin (BTC). And if there’s one cryptocurrency to wrap your head around, it’s Bitcoin. As the largest cryptocurrency with a market capitalization of roughly 700 billion (at the time of this writing), Bitcoin is what many of its most fervent enthusiasts call The Granddaddy of digital assets.
Bitcoin, unlike its imitators and competitors, began in obscurity in 2008 when the domain name bitcoin.org was registered online to little fanfare. A short white paper entitled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ was then distributed to a cryptography mailing list. (That original paper is available online). Then, in January 2009, the first lines of Bitcoin’s code were written.
Who created Bitcoin?
Satoshi Nakamoto, the pseudonymous creator of Bitcoin and author of its white paper, invited other technologists and cryptography enthusiasts to contribute to the budding cryptocurrency project. Soon however, Nakamoto disappeared from the project. To this day, the real identity of Nakamoto is unknown. Lacking a central figurehead or director, Bitcoin became the decentralized project that Nakamoto first envisioned.
Bitcoin’s proof-of-work algorithm encouraged early devotees to mine bitcoin from their computers. These early investors helped secure the Bitcoin network, evangelized on behalf of the cryptocurrency and accumulated freshly minted coins. Soon, wealthy investors like the Winklevoss twins began splurging millions of dollars on Bitcoin, in a long-term bet on the fledgling digital currency. Within a few years of its creation, Bitcoin had attracted a passionate, global community.
How did Bitcoin grow?
The first commercial transaction using Bitcoin occurred on May 22, 2010, when the developer and early Bitcoin enthusiast Laszlo Hanyecz purchased two pizzas for 10,000 Bitcoins. Today, Hanyecz’s pizza purchase would be worth $350 million. Throughout 2011, Bitcoin continued to attract new investors, miners, and enthusiasts. Its price slowly increased, from pennies, to dollars, to tens of dollars. In 2012, the Bitcoin Foundation was created to help standardize Bitcoin’s development and increase its adoption.
As its fan base grew, Bitcoin also courted controversy. Sellers and buyers of the online drug bazaar the Silk Road used Bitcoin as its method of payment; the cryptocurrency’s tracelessness made it a useful medium of exchange for facilitating illegal transactions. When the Silk Road’s creator Ross Ulbricht was arrested in 2013, a torrent of bad headlines for Bitcoin followed. Then in 2014, Mt. Gox, the largest Bitcoin exchange, was hacked, raising questions about the ability of investors to hold Bitcoin securely.
But the unwanted attention also attracted new investors, who drove up Bitcoin’s price. After beginning 2013 at around $13, the price had risen to $770 by the start of 2014. Bitcoin’s price continued to hover in the mid-hundreds until the end of 2017, when its price exploded to nearly $20,000 in a euphoric rush of mainstream attention and speculative investment.
Bitcoin’s institutional appeal
For the next three years, Bitcoin’s price vacillated between $3,000 and $12,000, but that failure to recapture its all-time high belied the groundswell of excitement on Wall Street, where financial institutions like J.P. Morgan started building infrastructure to support digital assets. It hid the innovation happening within crypto circles, as exchanges like Binance and Coinbase (COIN) grew, making retail investment in Bitcoin easier. And it failed to reflect the U.S. government’s increasing acceptance of Bitcoin: Federal Reserve Chair Jerome Powell compared it to gold during congressional testimony, while the Office of the Comptroller of the Currency under President Trump began issuing crypto charters.
The pandemic was a catalyst for Bitcoin’s breakout in 2021. Trillions of dollars in stimulus stoked concerns about inflation, enhancing the appeal of Bitcoin’s inherent scarcity. Bitcoin achieved an all-time high of about $63,000 in April 2021. Respected investors such as Cathie Wood have put a $500,000 price target on Bitcoin, convinced more people will start buying the digital asset. Celebrity business people like Elon Musk and Mark Cuban have become some of Bitcoin’s biggest boosters. And a new generation of Gen Z investors is now acquiring the digital asset.
Twelve years after Bitcoin’s creation, there are thousands of cryptocurrencies. But Bitcoin’s status as the number one cryptocurrency is more secure than ever. With institutional investors and corporations now investing in Bitcoin, some worry that the original digital asset is losing hold of its decentralized ethos. But no matter how its investor base changes, Bitcoin is here to stay.
CONTRIBUTOR John Hyatt