History of Bitcoin
21 Feb 20225min
Instantaneous communication and information unhindered by distance was once the stuff of science fiction. Even Mark Twain dreamt of a 'limitless distance telephone' able to broadcast images and sound across the world all the way back in 1904.
Today, the supercomputers of yesteryear fit into our jean pockets. The way we work, socialise and digest information has been fundamentally and irreversibly changed forever.
Yet somehow along the way, our financial systems have remained more or less static. Although physical money has been replaced by an unseen stream of bits and bytes, we still rely on the institutions, bankers and financiers of the past to gatekeep transactions and dictate monetary value.
The technology sector always seeks to blaze trails, and the history of digital finance is no different. Cryptocurrency and Bitcoin is no doubt the hottest topic in a generation of finance news. It seems incredibly futuristic and modern, but surprisingly, the technology has roots reaching far back into the 1980s.
The seeds of blockchain technology were planted by American computer scientist and cryptography researcher David Chaum. Working at the University of California, Berkeley, Chaum’s 1982 dissertation outlined the main tenets of blockchain technology in detail. In fact, all but one factor of his work are part of modern Bitcoin as we know it today.
Chaum's work focused on anonymity and secure transactional information. He went on to found eCash and other digital currency ventures in the rest of his career. This included his own company DigiCash in the 90s.
Chaum's venture into e-commerce filed for bankruptcy in 1998. Chaum, in good nature, cites the lack of widespread financial adoption as the key cause of DigiCash's failure. Sometimes forward thinkers are a bit too ahead of the curve.
QUOTE: “I’ve always had a fundamental belief that individuals should control their own digital lives, and to do so, peer-to-peer networks are necessary.” - David Chaum, 2019
The idea of blockchain faded into obscurity until the late 2000s. The Global Financial Crisis of 2008 shook the world to its core. Millions of people's savings, life plans and investments disappeared overnight due to the unseen actions of a few elite institutions. The system had failed in an unprecedented way all across the world.
The big banks and financial institutions had grown too big for their own good, and the way in which governments bailed them out while ignoring the suffering of the everyday citizen struck a sour chord. People’s faith in the establishment was irrevocably damaged.
Meanwhile, the advent of social media, smartphones and ubiquitous technology use was accelerating. People began spending more and more time online, and not just for memes and funny cat videos. We began to really live our whole lives online.
In 2009, an anonymous persona with the pseudonym Satoshi Nakomoto launched Bitcoin nn January.
At first, it was merely the realm of diehard internet geeks and IT aficionados. It existed as an intellectual curiosity with an emphasis on anonymous financial transactions away from the prying eyes of governments and regulators.
For that reason, early adopters of Bitcoin were often associated with the dark web, purchasing contraband or novelty items. At the time, there were no long-term benefits to the strange idea of cryptocurrency making serious headway. In fact, in 2010, a Florida man paid 10,000 Bitcoins for the home delivery of two Papa John’s pizzas just for the heck of it (this anecdote is now commemorated by the crypto community on May 22 as Bitcoin Pizza Day).
It wasn’t long however, before the true potential of this technological advancement was being noticed. In 2012, Coinbase was founded by Brian Armstrong and Fred Ehrsam, receiving financial backing and support from Wall Street big-hitters. It’s also no coincidence that Armstrong came from an established career as an Airbnb engineer, a notable disruptor of the accommodation and travel industry.
By 2014, Coinbase had grown to 1 million users, and today that number has exploded to more than 70 million verified users making Coinbase the largest US-based cryptocurrency exchange service, and the second largest in the world. In 2022, the average 24 hour trading volume exceeds $5 billion USD on Coinbase.
The mid 2010s was a period of high volatility. The value graph of Bitcoin ping-ponged intensely, causing similar blood pressure patterns to form in the veins of speculative buyers joining the digital revolution. However, the continuous upward trend of Bitcoin’s value meant that it soon became a household name, not just a buzzword amongst the nerdiest of the fin-tech in-crowd.
Still, that didn’t mean there weren’t bumps along the way. Two major bubbles are said to have occurred in 2011 and 2018. The latter is colloquially known as The Great Crypto Crash, during which a major drop in value of up to 70% occurred. Financial experts have remarked on the resiliency of cryptocurrency as a whole, allowing a new age of maturation to occur following the crash.
And so here we are today, with an explosion in cryptocurrency popularity. Another global event beginning in 2020 forced people indoors and online on an unprecedented scale. The COVID-19 pandemic normalised the idea of remote work, distance education, and further intensified our symbiotic relationship with the internet.
When international travel was shut down and lockdowns made the future uncertain, countless businesses and economies floundered. All of a sudden, this novel idea of peer-to-peer financial transactions found a very real application. And just like the 2008 GFC, financial crises in inflation rates, unemployment and growing debt once again led to people searching for viable alternatives. Outdated and convoluted, the pitfalls of traditional banking systems became more apparent than ever.
In an extreme case of policy action, the crashing economy of El Salvador turned to cryptocurrency as a formal public ledger, becoming the first country to officially accept Bitcoin as legal tender. This test of financial liberty is still in its early stages, but it may prove to be a crucial proof of concept in yet another evolutionary phase of cryptocurrency usage.
But it’s not just for governments or policymakers. In January 2021, TechCrunch published a report titled ‘How Bitcoin is helping middle-class users survive the pandemic’, highlighting how international students and workers turned to Bitcoin to continue their lives in the face of a global emergency. More succinctly, the New York Times simply said: “We’re All Crypto People now”.
...the true believers and veterans of the 12-year-old digital currency industry insist that the underlying tech is real and transformative and finally — finally! — ready to upend nothing less than the global financial system and internet as we know it.
Today, it’s hard to go a day without hearing something about cryptocurrency. From the diehard gamer college student who’s holding Ethereum, to the hedge fund manager looking to invest in the next hottest coin, to companies like Nike and Prada launching NFTs, everyone is looking for a piece of the crypto pie. The total market cap of cryptocurrency in 2021 exceeded an incredible $2.2 trillion.
Digital money in the form of Bitcoin laid the foundation for the future we are already living. From its inception as a form of ‘eCash’, to its novelty use by nerds and geeks, to today’s hyped and exploding market in the mainstream, it’s been a fascinating journey so far. But it really is only just beginning.