What first started out as an attempt to further build on pioneering cryptographic efforts of the late 1990’s in creating a decentralised, peer-to-peer network capable of sending electronic value, Bitcoin is now has now grown in size and scale to become almost unrecognisable in the eyes of it cypherpunk forefathers. But to truly understand bitcoin’s meteoric rise to its lofty heights of late, we must first look back over its short but significant history starting with the world in which it spawned.
Global Economic Catastrophe
2008 saw the world reel from the full effects of devastating global economic recession. A perfect storm of gross risk-taking by global banks and the US housing bubble bursting caused the values of securities tied to U.S. real estate to plummet. Made worse by our deeply interconnected global economies, a devastating domino effect ensued, wreaking havoc in our financial institutions and our belief in them. In response to the crisis global banks undertook massive and deeply unpopular ‘Quantitative Easing’ (read; money printing) policy programs aimed at stimulating ailing economies and to bail out the banks.
The immediate aftermath of the financial crisis saw a brief period of collective soul searching; How had the crisis had happened? Who was to blame? Was it due to over or under financial regulation ? How do we prevent this from happening again in the future?
As global economies continue to reel, an unknown cryptographer was getting ready to release Bitcoin onto the world.
August 2008 saw a domain called ‘bitcoin.org’ registered by an unknown person or group of people under the pseudonym, ‘Satoshi Nakamoto’. Later that same year, in October, a white-paper authored by the same name was posted to a cryptography mailing list entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System”.
Through blockchain forensics, we are able to see that whoever Satoshi Nakamoto is, they mined approximately 1 million bitcoin, most of which still hasn’t been touched to this day. The internet is rife with speculation as to who Satoshi is, but the simple truth is we’ll never really know for sure and it is this very speculation that only adds further fuels intrigue to the Bitcoin story.
Satoshi outlined their creation in a whitepaper called, “Bitcoin: A Peer-to-Peer Electronic Cash System” and is considered by some to be one of the most important documents of our time. Moreover, the underlying technology and network that process Bitcoin transactions, known as blockchain, is now beginning to transform industries as varied as banking, farming, logistics, healthcare, voting and manufacturing.
Satoshi’s whitepaper was widely circulated through a niche cryptography mailing list, and soon began to gather interest online among specialist groups and cyberpunks who began to rally around bitcoin.
The Beginnings of Magic Internet Money
A few days after Satoshi released the open-source code to bitcoin, the “Genesis Block” was mined, with it producing the first ever 50 Bitcoin in existence. Written into the genesis block was the headline of the day from The Times newspaper, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”, as seen below.
On 12 January 2009 early developer and bitcoin advocate Hal Finney downloaded the bitcoin software, and received 10 bitcoin from Satoshi, now known to be the world’s very first bitcoin transaction.
Did someone order a Pizza?
Fast forward to May 22, 2010 and a man named Laszlo Hanyecz made an order using an online forum for two large Papa John’s pizzas offering to pay 10,000 bitcoin, which at the time was around $41, for their delivery. Today, those same two pizzas would now have a price tag of a staggering $586 million, surely making them the most expensive pizzas in history.
Laszlo’s purchase is considered to be the first commercial transaction use of bitcoin, and has since become a history defining moment for the crypto community. The original post has been forever cemented in Bitcoin folk law, with Laszlo becoming famously known as the ‘Bitcoin Pizza Guy’.
You can still view that fateful post online to this day and every year on the 22nd May, Bitcoiners the world over eat pizza in memory of that pivotal transaction.
The infamous, and now defunct Silk Road was started in February 2011 and served as the first major online marketplace accepting bitcoin as payment. During its brief 30 months in existence, Silk Road transacted roughly $9.9 million in bitcoins, thought to be worth around $214 million.
Silk Road was shut down by the FBI in October 2013, and its creator Ross Ulbricht, was made an example of by the US authorities. Ulbricht’s full list of convictions include money laundering, computer hacking, conspiracy to traffic fraudulent identity documents, and conspiracy to traffic narcotics by means of the internet. Ulbricht was handed a double life sentence, plus 40 years, without parole.
The Mt. Gox Fiasco
Hard to imagine now, but back in the early days there was only one credible Bitcoin exchange, the now (in)famous Japanese based exchange, Mt. Gox. At its peak in 2013 it is thought that Mt. Gox was responsible for handling up to 98% of global Bitcoin transactions.
Mt. Gox’s very publicised fall from grace saw it involved in security breaches, data hacks, insider trading, price manipulation, outright theft, fraud, lawsuits, bankruptcy and arrests. On 13 June 2011, Mt. Gox publicly admitted that 478 customer accounts had been hacked, emptying them of some 25,000 BTC worth about $400,000 USD at the time, now worth some $1.5 billion.
It was later revealed that hackers appeared to have taken small amounts of Bitcoin continuously over the period of years that apparently went undetected. Over the years that followed, it is estimated that some 850,000 BTC were either lost, stolen or misplaced.
Mt. Gox filed for bankruptcy in February 2014 with the investigation into the missing Bitcoin still ongoing, with thousands of customers still awaiting news of their missing funds.
The importance of what happened at Mt. Gox cannot be understated. Perhaps the most important lesson learnt was never fully entrust your bitcoin to an exchange and immortalised the slogan; “Not your keys, Not your Bitcoin”.
In spite of the events of Silk Road and Mt. Gox, the years that followed saw several major online websites and international companies including Microsoft, begin to accept bitcoin as a payment option.
To prevent future exchanges and customers getting ‘Goxed’, a new term dubbed by the industry, increased regulation and security measures were implemented, the Wild West days of bitcoin were over.
Today, Bitcoin is almost unrecognisable from its early days as a novel experiment in cryptography. Shedding its image as a tool for dark web criminals and money laundering, bitcoin is gaining widespread mainstream attention, adoption and investment from some of the worlds biggest financial institutions and high net worth individuals.