History of bitcoin

Discover interesting facts about how bitcoin has been used until now and what to expect for the future.

Brief note

This article assumes you know what's bitcoin and how it works. If that's not the case we highly recommend to read this article and then come back to this one.

Creation: the genesis block

Bitcoin was created by an anonymous being who published it under the name of Satoshi Nakamoto. The paper, which describes bitcoin as a peer-to-peer (P2P) electronic cash system and includes technical details about its implementation, was posted in a cryptography mailing list in October 2008. The source code was released in January 2009 when also the network was started as Nakamoto mined the first block, also called genesis block.

Early adopters

The first ones to pay attention to this concept were mostly cryptography developers who were more interested in the technical aspects of bitcoin than in its use as a currency. In fact, the first known commercial transaction using bitcoin occurred in 2010, when 10.000 bitcoins were paid for two pizzas. Apart from that, all transactions until that moment were proof-of-concept transactions made for educational purposes. Nakamoto always remained as a very active member of the community, constantly writing posts that allowed others to better understand the concept and solving questions, although never sharing any personal information.

Goodbye dad!

In 2010 Nakamoto disappeared from the forums and gave the control of the project to a person of trust who later distributed that control among the most trustworthy members of the community. At that moment bitcoin was known by a very small amount of people and mostly used in black markets. This situation wouldn't change until 2013, when a political event triggered a tremendous spike in price which caught media attention.

Bitcoin to the rescue

The Cyprus' banking crisis of 2013 raised the fear of freezing of financial assets among Cypriots and the fear of a domino effect among the European Union members, all leading to a search of safe havens which would be satisfied with bitcoin, generating a high buy pressure on its markets. While the price at the start of the year was $13, it reached a spike of $266 on 11st April. What happened here? The banking crisis itself rose the price to around $78, enough for a cryptocurrency to be in the news of lots of people thus generating a huge buying wave. Once the wave passed, the price briefly stabilized in $100 in June.

Bitcoin in the surface

Since 2013 bitcoin wouldn't be underground (only) anymore. The media attention it received due to its price spike generated not only a wave of buyers, but a second wave of enthusiasts. In October started another buying wave who led to a price spike of $1,240 in November, probably as a result of all the emergent bitcoin-related business (and scams), and soon experienced several ups and downs. During that time the price was just revealing a psychological aspect of humans. We need time to adapt to new things and during that adaptation we pass along states of enthusiasm, mistake-making, re-thinking, learning more, experimenting, etc.

Cool mind

All the sudden attention and all the sudden new opportunities seen in 2013 led to a period of confussion. Fake news claiming both blesses and curses regarding bitcoin, fake rumors and misinformation were everywhere and they would need time to clear up. The instinctive reactions evolved into a better analysis of what's bitcoin, how it works, which are its limitations and how to deal with them. This cooling of the atmosphere also lead to a constant decrease in price which reached an end in March 2015 at $200. People better informed started to make smarter moves in the markets and the price started a slow but constant increase that would last almost 2 years. The bitcoin halving of middle 2016 supposed a price boost and by middle 2017 it reached $2,000.

Traders or savers?

As long as more and more people were learning about bitcoin thus eventually using it, a technical limitation made its appearance. The limit of 1 MB per block was causing some transactions to be delayed for hours or in some cases even days, due to the impossibility to be included in the blockchain if no more space is left in blocks. Surrounded by a lot of controversy*, in part because of the complexity of the subject, a group inside the bitcoin community proposed an increment in the block size from 1 to 8 MB, priorizing a high number of transactions per unit time, alleging that bitcoin is made to be constantly changing of hands. However, the majority of developers were working in the segregated witness (aka SegWit), a way to compress the information contained in a transaction thus including more transactions in each block, and the majority of users supported this decision. In August 2017 took place a bitcoin fork: those who wanted a bigger block created what we now know as Bitcoin Cash, while the SegWit technology was implemented in Bitcoin Core.

* Although the controversy raised by the debate regarding if bitcoin is made to be used as daily money or just as a reserve of value, history has demonstrated that both paradigms can coexist, even without the need of increasing the block size.

Peace and plenitude

From fake news claiming bitcoin to be a senseless bubble to technical problems while registering transactions, bitcoin has successfully faced a lot of problems in its short history. Even more, it's still there, never hacked. All thefts made using bitcoin have consisted in tricking or coercing its owners, none through the bitcoin infrastructure. A considerable amount of people is well informed about bitcoin and a lot of bitcoin-related serious business are well stablished. After a $20,000 spike at the end of 2017 the price has been oscillating between $3,500 and $12,000, being $7,400 at the end of 2019.

Cutting the edge: the Lightning Network

We previously spoke about SegWit and said that it allowed a way to compress a transaction, thus allowing lesser space to be occuped by it. However, it just allowed us to store in 1 MB what we could have stored in 1.44 MB before SegWit. With the transaction-intensive uses taking place in the Bitcoin Cash network and the extra space provided by SegWit, we had a short-term solution, but it would eventually become insufficient. However, when this technology was implemented in 2017, it also prepared the bitcoin network to work with level-2 layers, and that's what the Lightning Network is. It means that the payments made through this network are not directly written in the blockchain. Instead, the lightning transactions are grouped among different payment channels that work outside of the blockchain. When a payment channel is closed, all transactions occurred on that channel are condensed into a single transaction that is then written into the blockchain. This method has the following benefits:

Present situation

We are in a second cooling period or learning period. The appearance of thousands of cryptocurencies has generated a second wave of confussion because of their huge number in the first place, but also because some of them work with a more complex concept, some others have an unclear concept due in most cases to a bad or incorrect raison d'être and others are just scams. However, in the last year we've been observing that bitcoin is recovering its dominance among the cryptocurrencies in terms of capitalization, meaning that people is not so willing to trust every new crypto idea that comes out and prefer to trust bitcoin instead. The community is also assimilating and learning about the Lightning Network, which started working in January 2019.

Future perspectives

To have a good perspective about the future of bitcoin, we have to keep in mind some important aspects:

Conclusion

If one of the big banks falls and triggers the financial crisis we have above our heads, the price is expected to be skyrocketed. One can take as a reference the outcome of the Cyprus' banking crisis to figure out how things would happen. However, even without a financial crisis, there are two determinant factors for bitcoin price:

  1. There will be a new halving in the summer of 2020.
  2. The spreading of the Lightning Network and the release of solutions that take advantage of this implementation will help recover the concept of bitcoin being used daily, without limitations this time. This will surely lead to a higher adoption among local merchants and at the same time causing a more widely broadcast about bitcoin and its use.

Some say that bitcoin will reach $1,000,000 in the short term. Others are more conservative and claim that it will reach $100,000. We don't know which one is right, if any, but you can see it this way: bitcoin is like an adolescent now. It has a splendid health and it's facing the changes and self-improvements that will lead to adulthood. It has a bright future before it and excellent opportunities for growing.

Related links

Do you like our content?
Let us know by giving us a follow
We'll respond! If we reach 2.000 we'll cover
even more specific content through a blog!