The History of Bitcoin

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The History of Bitcoin

Bitcoin’s rapid rise in success has been hard to ignore. In just a decade, it has gone from an idea to being worth billions of dollars. Some even see it as being the future of money.

But what actually is Bitcoin? Bitcoin is a digital currency. It only exists on the internet. It isn't controlled by any bank or governing body and can be used in any country. It is often referred to as a “cryptocurrency”. This sounds complicated, but it essentially means that it's a digital currency that uses encryption to send, receive, and create money.

Many people will only have heard of Bitcoin in recent years, as the cryptocurrency started to hit headlines around the world. As a result of gathering steam the value of Bitcoin steadily grew. It hit an all-time high in February 2017, with one Bitcoin being worth over AUD 1,600. But make no mistake, the journey to reach this stage hasn’t been easy.

Below, we take a look at the history of Bitcoin. We are tracing its origins all the way back to when it was just a theory. We also outline important events within the cryptocurrency’s life so far.

The History of Bitcoin: Ideas, Concepts, and Theories

The idea of a cryptocurrency did not start with Bitcoin. The first example of the technology can be traced back to the 1990s and a company called DigiCash. For many, DigiCash was the first major player in the history of Bitcoin.

DigiCash was established in 1990 by David Chaum. Chaum had established himself as a well-respected cryptographer, or more simply, someone who specialises in making and breaking codes.

Chaum set up DigiCash due to wanting to make currency more secure and anonymous. Before starting the company, Chaum had carried out work and research on data security. He used what he knew from this previous work within the DigiCash system.

In simple terms, DigiCash was a system that allowed money to be withdrawn from banks in an anonymous way. It used the idea of public and private keys. These work in a similar way to how accounts and passwords do. This was an important first step for cryptocurrencies. The idea of using public and private keys in order to send money is what drives Bitcoin today.

DigiCash was completely ahead of its time. All you need to do to understand this is to read the following quote from an article in Wired:

David Chaum has devoted his life, or at least his life's work, to creating cryptographic technology that liberates individuals from the spooky shadows of those who gather digital profiles.

This reads like it could have been written in 2017. The original article was written in 1994.

In the end, DigiCash was unsuccessful. It failed in its attempt to be a profitable business and went bankrupt in 1998 before disappearing completely in 2002. However, this didn’t happen without gaining the interest of some big players within the digital space.

Microsoft made an offer to purchase DigiCash for USD 75 million. They wanted to implement DigiCash’s electronic cash system throughout their Windows 95 software. Had the deal gone through, it could have advanced digital currency by decades. It would have been possible for people to transfer digital currency straight from their PC.

Bitcoin: The Brainchild of Satoshi Nakamoto

Sources often credit DigiCash with being the father of Bitcoin. This makes sense. However, during DigiCash’s time, the internet was still relatively young. It wasn’t as widely used as it was in the 2000s when Bitcoin appeared. Buying things on the internet hadn’t taken off in the 1990s. People simply didn’t trust the digital security of the time.

As security gradually improved, people’s spending habits online changed. Making online purchases became normal. This created the right environment for cryptocurrencies to emerge again.

It wasn’t until October 2008 that the world got the first glimpse of Bitcoin. It was at this time that Satoshi Nakamoto released the paper Bitcoin: A Peer-to-Peer Electronic Cash System. This event is important within the history of Bitcoin. It was this paper that mapped out the thoughts and ideas that Bitcoin is built around.

Not a lot is known about Satoshi Nakamoto. Many believe it is a pretend name designed to protect the Bitcoin inventor's real identity. Some have even suggested that it could be a cover name for a group of people working together. The Bitcoin creator has never revealed their true identity. People have claimed to be Nakamoto, with the most notable of these being Australian academic Craig Wright. However, the Bitcoin community was not convinced by Wright's bold claim. Bitcoin's true creator is still unknown.

Nakamoto’s paper talked about some of the issues with digital cash and how they could be fixed. The biggest issue with digital cash is that files can be copied over and over again. This essentially meant it was possible to copy and spend money more than once. However, Nakamoto came up with a system to stop this.

In order to combat this problem, Nakamoto talked about the idea of the blockchain. A blockchain is like a big address book or directory of all Bitcoins ever created. This directory can be accessed by anyone. It allows people to see all Bitcoin transactions and makes it very difficult to fake or copy Bitcoins and payments.

After this paper was uploaded to the newly set-up domain, things started to take shape with Bitcoin. It started to form into the cryptocurrency that we recognise today.

The Bitcoin network was made live and accessible to the public in January 2009. This saw the release of the first Bitcoin client, which let people 'earn' Bitcoins through their computer. This process is known as Bitcoin mining. Bitcoin mining sees a computer try to solve a difficult math sum. If the computer cracks the sum and produces the right answer, Bitcoins are released as a reward. This works in a similar way to how people earn money by getting paid for the work they do.

Satoshi Nakamoto mined the first ever Bitcoins, dubbed the “Genesis block”. Due to how the blockchain works, this very first block can still be viewed online. One of the main things that is interesting about the Genesis block is that it had a message encoded within it. The messaged referenced the front page of The Times newspaper on 3rd January 2009. The headline read:

Chancellor on brink of second bailout for banks.

It is thought that this was included to prove the time that this first block was created. It's also a reminder of Bitcoin’s mission and the poor economy of the time. Within the Bitcoin community, this newspaper has become a sought-after collector’s item.

The First Real-World Use of Bitcoin: Bitcoin Pizza Day

Throughout these developments in the history of Bitcoin, the cryptocurrency was not really known to a mainstream audience. It was very much based around a community of people “in the know”.

Communities were popping up around the web, most notably on the Bitcoin Talk forum. This is where the first real world usage of Bitcoin happened. On 22nd May 2010, a forum member paid another forum member for two Papa John’s pizzas in Bitcoin. It is thought that this was the first time Bitcoin was used to purchase real-world goods. The price for these pizzas? 10,000 BTC. At the time, this roughly equated to AUD 30.

If you’ve been following Bitcoin for a while, you’ll know that 10,000 BTC is a giant sum of money by today’s standards. In fact, from January 2017 onwards, the coin has had multiple runs of being traded at over AUD 1,500 to 1 BTC. By today’s standards, the coins used to purchase the two now infamous pizzas would be worth AUD 150,000,000, showing just how rapidly Bitcoin has shot up in value.

This is one of the reasons why Bitcoin has become so popular. The price has jumped a big amount in a short time. Lots of investors have paid attention to this and have bought Bitcoin to trade for a profit. If this interests you, we have reviewed Forex platforms that trade Bitcoin, such as IG Australia. You can read the review to see if the platform is right for you before diving in and trading.

It Became Easier to Get Bitcoins

It soon became easier for people to access Bitcoins without having to mine them. Bitcoin exchanges such as Mt Gox (which has since shut down) emerged and gained popularity. These offer a way for people to buy Bitcoin just the same way as they would any other currency. Nowadays, there are many Bitcoin exchanges based all around the world.

As Bitcoin's popularity grew, finance and investment experts started viewing Bitcoin as a risky but potentially highly rewarding investment. This was helped on by Bitcoin exchanges as they allowed people to buy Bitcoin like any other currency. The process is very similar to how you exchange money for when you go on holiday abroad. You buy another currency using your existing currency.

The Bumpy Road Continues

Bitcoin can be extremely unstable in terms of its value. Whilst the value of Bitcoin has been growing steadily from its creation to the present, there have been some big drops as well.

There have been several Bitcoin bubbles where the price grew and then dropped extremely quickly. A notable bubble occurred in 2011 which saw Bitcoin lose 93% of its value over a period of four months, plummeting from a high of nearly AUD 27 down to around AUD 2.

Yet, following this rapid loss in value, Bitcoin was trading for over AUD 1,000 in November 2013, just two years later. This was actually another bubble, with the price soon dropping to AUD 626.

The price would rally again at the start of 2017, pushing Bitcoin to an all-time high of AUD 1,684 in early March.

This highlights just how much the price of Bitcoin can shift in relatively short periods, especially in comparison to traditional money. This pattern of boom and bust looks set to continue for Bitcoin, especially as the cryptocurrency’s user base keeps on growing.

The amount of mainstream media attention Bitcoin receives has also exploded within this period, especially in 2017. Mainstream media outlets across the world have been paying close attention to Bitcoin prices.

Big Businesses Start to Accept Bitcoin Payments

From 2010 to the present, Bitcoin has been growing. This is the point within the history of Bitcoin where the digital currency really started to gain more mainstream popularity. An increasing amount of online and physical stores have started accepting Bitcoin, with this amount only set to increase. It was a slow process at first, but big names in the digital space helped the idea of Bitcoin spread.

Slowly but surely, retailers entered the Bitcoin game. One of the biggest companies to announce the acceptance of Bitcoin is Dell, the computer giant. Video game marketplace Steam have also started to accept Bitcoin, which has been a popular move. On top of this, Wikipedia, which is one of the largest websites in the world, have also started accepting Bitcoin donations.

Generally, tech and digital services have been the quickest to start accepting Bitcoin. However, this is changing. Pubs, diners and coffee shops around the world are slowly starting to accept Bitcoin. You can even buy a car using Bitcoin, thanks to Bitcoin being accepted by Tesla. The amount of business that accept Bitcoin is set to increase in upcoming years

Bitcoin Has Come a Long Way in a Short Time

It’s mind-boggling to think about just how far Bitcoin has come in such a short period of time. It’s turned from an idea into a functioning currency in under a decade.

On top of this, it has helped inspire an entire generation of new financial products and has totally shattered the way people think about money.

Digital currency is now a huge, global market. It’s hard to see it being such an important industry if it wasn’t for Bitcoin. It highlighted the inefficiencies with traditional banks and currencies. This has been Bitcoin’s mission since day one. Ultimately, it looks like Bitcoin will continue to capture the imagination of the public. Having come so far, it’s difficult to imagine that the cryptocurrency will slow down any time soon.

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