Bitcoin: How it All Started

The phenomenal surge in the price of Bitcoin in 2017 generated huge interest in this and other cryptocurrencies. It attracted a lot of attention worldwide and many people were jumping on the bandwagon with the fear of missing out without checking first what Bitcoin is all about.

With any investment, it is wise to do due diligence and check the facts before taking the plunge. Those who did this, were asking the question: “Who created Bitcoin?”

The Mysterious Satoshi Nakamoto

To this day, the identity of the Bitcoin creator remains a mystery. An unknown person, group or entity registered the Bitcoin.org domain on August 18, 2008 and then on October 31, 2008 a whitepaper was published under the name of Satoshi Nakamoto. It was entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” and it was posted to a select cryptography mailing list. The first version of Bitcoin was announced on January 8, 2009, followed by the first Bitcoin mining operation, the process whereby new Bitcoins are created.

Satoshi’s true identity has never been established and many people believe it was a pseudonym used by the creator. Right from the start, Satoshi Nakamoto envisioned a digital currency to rival gold in value and scarcity. Obviously, these coins would have no value to start with, but Satoshi’s system was designed to limit the number of Bitcoins in circulation to 21 million. This would guarantee their scarcity, drive up the price and increase their value with growing demand for these coins.

Satoshi’s vision for Bitcoin was that it wouldn’t need the management of a bank or other third party to facilitate exchanges. It would operate on a decentralized, peer-to-peer network and exist entirely in the computer memory of users. Bitcoin provided a straightforward way of creating, storing and exchanging money.

Developing Bitcoin’s Value

Bitcoin was launched at a time when the world had experienced a financial crisis, and people were looking for alternatives. Bitcoin provided them with an opportunity to take away the financial power held by banks and governments and giving it to a network of people using the currency.

In the early days of its development, Nakamoto is estimated to have mined one million Bitcoins. Before disappearing, Satoshi handed the reins over to software developer, Gavin Andresen. At that stage it was impossible to assign any monetary value to Bitcoin because it had only been mined, never traded.

However, in May 2010, Laszlo Hanyecz conducted the first transaction by buying two pizzas in Jacksonville, Florida for 10,000 Bitcoins. Within five days, the price of one Bitcoin jumped by around 900 percent, from $0.008 to $0.08. If Hanyecz had decided to hang to those Bitcoins, he would have fetched in the region of $100 million at today’s prices.

Nefarious Dealings

In these early days, very few businesses accepted Bitcoin as payment for their services. Its anonymous nature proved to be attractive for the black market and criminal underworld. In 2011, a dark-web marketplace called Silk Road was founded by Ross Ulbricht, using Tor routers to ensure anonymity while browsing and untraceable Bitcoin payments.

The site quickly enabled the trade of illegal drugs. In 2014, nearly 14,000 product listings on Silk Road were found to be cannabis, heroin, methamphetamine and LSD. A government task force comprising members of the FBI, IRS, Drug Enforcement Administration and U.S. Marshals eventually tracked down Ulbricht and arrested him. When Silk Road was shut down it had over a million active user accounts. During its existence, the site processed 1.2 million transactions.

Winklevoss Bitcoin Billionaires

The value of all Bitcoins in circulation reached $1 billion in March 2013. This attracted the attention of venture capitalists, among them the Winkelvoss twins, Cameron and Tyler. The twins are best known for successfully suing Mark Zuckerberg, alleging that he stole their idea for Facebook. They received a $65 million settlement, but insisted on receiving it the form of Facebook shares.

When Facebook went public, the Winklevoss twins sold their shares to amass a fortune in Bitcoin instead. By late 2017, their Bitcoin fortune was estimated to be worth $1.3 billion. Today, the twins are also majority shareholders in a digital currency exchange called Gemini.

The Mt. Gox Debacle

The Mt. Gox website was used as an online exchange to trade cryptocurrency. The site was plagued by security breaches and operating deficiencies. In 2013, Mt. Gox suspended trading because the price of Bitcoin was rising too rapidly. This caused the price to drop below $55, as the site facilitated around 70 percent of all Bitcoin trading worldwide.

In June 2013, the site suspended withdrawals in U.S. dollars, but lifted the suspension a month later. However, many users reported significant delays waiting for withdrawals to clear. In February 2014, Mt. Gox halted all Bitcoin withdrawals and by the end of the month had filed for bankruptcy. This resulted in the Bitcoin price declining by 36 percent.

Bitcoin Today

Since these early setbacks and association with illegal activities, Bitcoin has been going from strength to strength. The cryptocurrency experienced a phenomenal price surge in 2017 from $1,000 in January to over $17,000 in December.

Bitcoin is increasingly being used as a global medium of exchange by both individuals and businesses. Major banks such as Barclays, Deutsche Bank, Citi Bank and BNP Paribas are investigating ways they may be able to work with Bitcoin.

If you are interested in finding out more about Bitcoin and blockchain technology, there are a number of excellent books on these topics. They will provide you with a valuable insight into the world of Bitcoin and its potential to disrupt the traditional financial markets.

If you're a fan of Bitcoin and want to help Bitcoin Gear in its quest to accelerate Bitcoin's mainstream adoption, then make sure to grab a Bitcoin t shirt and wear it proud!

Cheers

Mike 


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