The History of Bitcoin
Starting as an idea in 2008, bitcoin became a mainstream currency option in just five years.
Fittingly, the history of bitcoin reflects the cryptocurrency’s primary advantages and disadvantages.
Development of Bitcoin
Satoshi Nakamoto publishes a paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” on Oct. 31, 2008, outlining the invention. “A purely peer-to-peer version of electronic cash would allow payments to be sent directly from one party to another without going through a financial institution,” Nakamoto writes, highlighting how the peer-to-peer network eliminates the “double-spending problem” of digital cash systems when a single digital token is spent twice.
In January 2009, Nakamoto releases the first bitcoin software and bitcoin units. This block of bitcoin units is known as the “Genesis” block, and later that month, the first bitcoin transaction takes place between Nakamoto and programmer Hal Finney. Nakamoto sends Finney 10 bitcoins in the transaction, after Finney downloads the bitcoin software the day it is released.
The identity of Satoshi Nakamoto has not been confirmed. Nakamoto may be a single individual, or, due to the strength of bitcoin’s code, a team of people, The Economist explains.
Bitcoin Emergence and Security Concerns
In May 2010, just a few months after a marketplace for bitcoins is established, Florida programmer Laslo Hanyecz sends a volunteer in England bitcoins to order pizza. Hanyecz sends 10,000 bitcoins to the volunteer, who purchases two Papa John’s pizzas for about $25. The value of 10,000 bitcoins in May 2015 is $2.3 million — or $4.5 million in May 2016.
The next several months point to the legitimacy of bitcoin. The bitcoin economy surpasses $1 million in November 2010. In February 2011, bitcoin reaches parity with the U.S. dollar for the first time, according to The Next Web. By June, each bitcoin is worth $31, and the market cap reaches $206 million. Despite the risks, bitcoin use grows throughout 2012, including black markets and legitimate groups, The New York Times says.
Security concerns also describe this time period for bitcoin. In 2010, vulnerability in an early version of the bitcoin software is exposed, creating 184 billion bitcoins. The transaction is spotted within hours and corrected from the transaction log. The next year, reports surface of thefts related to bitcoin. One of many cases involving unprotected wallets on bitcoin owners’ hard drives is worth $500,000. And the largest trader of bitcoins at the time, the Mt. Gox exchange, finds accounts hacked and emptied in June (Mt. Gox collapses in 2014 after losing $450 million worth of bitcoins).
“I expected it to have lots of speed bumps along the way — but I didn’t expect there to be so many speed bumps in a row,” Gavin Anderson, developer of open source software that operates bitcoin, tells The New York Times in a 2011 article. Nearly 50,000 bitcoins, or more than $228,000, is stolen in March 2012 from customer accounts at hosting company Linode, Forbes reports.
Bitcoin Regulations and Mainstream Acceptance
In April 2013, the collective value of all bitcoins passes $1 billion. By the start of 2014, the total market value of bitcoins reaches $10 billion.
Several websites start accepting bitcoin during this time period. The first major online retailer to accept bitcoin is Overstock.com in January 2014. Others follow in the same year, including Expedia, Newegg, Dell, PayPal and Microsoft. And as of early 2015, more than 100,000 merchants accept bitcoin.
The legitimacy of bitcoin is further illustrated through regulatory issues that take place in 2013 and 2014. A Senate hearing in November 2013 acknowledges that digital currency networks offer benefits for the financial system. The next year, the Internal Revenue Service classifies virtual currency as property rather than currency. A progressive treatment on bitcoin takes place in the United Kingdom in February 2014, when Her Majesty’s Revenue and Customs classifies bitcoin as assets or private money, which means that no value-added tax will be charged on the mining or exchange of bitcoin.
From Bitcoin to Other Business Topics
Despite security concerns and extreme volatility, bitcoin’s history demonstrates how the currency has emerged from an innovative idea to a legitimate part of the economy. As a result, business leaders need to be aware of this and other emerging business topics to gauge value and application.
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