Yes, we know. Our blog is called “Blockchain For All”, and now we want to talk about Bitcoin?
Well, yes. And that is because they are rather interconnected. More precisely, blockchain is the technology beneath Bitcoin, allowing its system to run. Writing about Bitcoin is therefore writing about blockchain as well, and it beautifully displays the practical side of this technology. As we will see in the upcoming posts, blockchain can be applied to a host of industries other than cryptocurrencies.
But now, let’s get to the point. As many of you already know, Bitcoin is the world’s most famous cryptocurrency. The transaction of bitcoins between users is executed directly, without the need for a third party such as PayPal, Master Card or any bank. These transactions are registered in a distributed ledger (which we talked about in our last post!) in the big blockchain of the bitcoin network consisting of communicating nodes.
Ok, this is where things get technical... But, before we give you a massively simplified explanation of how Bitcoin works, we will walk you through a short history of it. In order to really get to know this technology, it is good to check out how it all started, and how it developed over time.
As shortly explained above, bitcoin is tightly connected to blockchain technology. Actually, it all goes back to the beginning of 1990s, where the initial work of Stuart Haber and W. Scott Stornetta resulted in the creation of blockchain. If you want to learn more about Digital Time-Stamping at that time, click here and here.
Let’s press the fast forward button to the financial crisis, back in 2008. The world’s financial system showed its weaknesses, and Lehman Brothers, the fourth-greatest investment bank of US, broke down. Just a couple of weeks after that, Satoshi Nakamoto (whose identity is still unknown) realized the idea of making a decentralized digital currency called bitcoin; a political statement, a new means of exchange. This meant, among other things, no third-party seizure (no control by the government or a central bank), no tracking or regulations, and no transaction costs or taxes.
In the next two years, bitcoin started to develop slowly but surely, and made its way up in the currency world. On February 6, 2009, the first Bitcoin currency exchange ever was set up by so called “dwdollar”. A week later, the first bitcoin transaction was made between Satoshi Nakamoto and the cryptographer Hal Finney. “The bitcoin was born”.
The first purchase ever in Bitcoin was made in May 2010. Laszlo Hanyecz, from Florida, offered 10 000 Bitcoins in exchange for two pizzas. A man from London accepted the offer, and, making a long distance call, ordered the pizzas from a pizza store. This was the first step into the digital payment system of bitcoin. For the curious ones - today, the value of 10 000 bitcoins is $44 M. With this money, you could buy approximately 3 million pizzas.
The first controversy around bitcoin was a platform called Silk Road, created by Ross Ullbricht. This marketplace allowed people to anonymously and securely buy drugs and guns, among other things, using Bitcoin as a method of payment. The FBI shut this online black market down in October 2013, calling the site “the most sophisticated marketplace on the Internet”. This is obviously because bitcoin provides anonymity to its users. “Bitcoin tends to be suited for illegal activities” – the sceptics said at the time. Half a year later, the US government auctioned off the bitcoins collected from the Silk Road, effectively detaching them from their “criminal” usage nature by selling them off to the general public.
By October 2012, BitPay (Bitcoin payment provider) announced that 1000 merchants accepted bitcoin payments. Since that time, a number of corporations such as Microsoft, Dell, Barklays, etc., announced their willingness to accept bitcoin as a form of payment. Reading the newspapers last weeks, we found out that Google might also jump on the bitcoin wagon.
The market value of Bitcoin increased rapidly at the end of 2013, and within 3 months rose from $125 to $1100. Mt. Gox, one of the biggest online exchanges for buying Bitcoins, unexpectedly collapsed in February 2014. The price of Bitcoin eroded at the same time.
The current value of Bitcoin is around $4400, while it reached its peak on September 1st, 2017 ($5000)!!
HISTORY OF BITCOIN
In our next article, we will break bitcoin down... Is your wallet ready?
MiM Candidate at IE Business School