History of Bitcoin
Bitcoin (BTC) is a cryptocurrency, which means it is not reliant on any centralized regulating authority. It was created in November 2008, at the tail end of the financial crisis, by Satoshi Nakamoto in a paper titled “bitcoin: A Peer-to-Peer Electronic Cash System.” In the paper, Satoshi Nakamoto, which is likely a pseudonym, described an ideal currency which involved a system of electronic transactions that did not rely on trust. Two months later, in January 2009, would be the advent of the bitcoin. With the release of the first bitcoin client, the bitcoin network came into being. Satoshi Nakamoto was the first to “mine” bitcoin; this first bitcoin retrieval is known as “The Genesis Block”. One of the first ever transactions using bitcoin involved two Papa John’s pizzas for 10,000 bitcoin negotiated in the bitcointalk forum.
Historically, bitcoin have been a secure, reliable method for peer to peer transactions. One notable vulnerability occurred in August 2010. A loophole was present in the system which allowed users to bypass bitcoin restrictions and create an indefinite quantity of bitcoin. Over 184 billion bitcoin were created in such a manner, and were divested to two addresses within the network. Soon thereafter, the fraudulent transaction was detected and eradicated from the bitcoin transaction log. The bug was then fixed with an updated version of bitcoin protocol. Since its creation, this was the only major security breach to ever impede the credibility of the bitcoin.
In 2012, bitcoin was featured on an episode of “The Good Wife”, in which Jim Cramer, host of CNBC’s “Mad Money”, said: “There’s no central bank to regulate it; it’s digital and functions completely peer to peer”.
Jim Cramer’s comments, despite them being in a fictional TV show, are quite accurate. Bitcoin, which were created at the end of the internationally detrimental financial collapse of 2008, quickly raised in popularity and value. Based in the underground, many began accepting bitcoin as a legitimate, valued form of currency. Wikileaks among other organizations began to accept them as a form of donation. Processors like BitPay reported over 1,000 viable merchants that accepted bitcoin by 2012. Coinbase, another bitcoin-based payment processor, reported selling 1,000,000$ worth of bitcoin in a single month when a bitcoin was valued around 22$. One of the greatest advantages to this form of currency was its lack of regulation, and thus taxability.
In the United States, the Financial Crimes Enforcement Network (FinCEN) created guidelines regulating “decentralized virtual currencies”. This was directly aimed at currencies such as bitcoin, and officially classified American bitcoin miners (generators), who then go on to sell these bitcoin, as “Money Service Businesses” (MSB), which rendered them liable to register for the various legal obligations that coincide with MSB’s. This is one of the first instances in which these currency vendors were regulated by government, which is the antithesis to the entire philosophy of cryptocurrency. This only applied to those who would sell the mined currency, so peer to peer transaction was not included in this regulation.
On May 15, 2013, Mt. Gox, a bitcoin exchange involved with various customer accounts, had some of their accounts seized by FinCEN due to being unregistered money transmitters. Soon after in June 2013, the US Drug Enforcement Administration accounted bitcoin as a seized asset during an audit. In August 2013, the Eastern District of Texas of the Fifth Circuit deemed it a “currency or a form of money”, which rendered the currency to be subject to legal jurisdiction. The Finance Ministry of Germany deemed it a “unit of account”, which made it technically a financial instrument, but not necessarily a functioning currency. One of the largest seizures of all time occurred when the FBI took over the assets from the underground website “Silk Road”; they seized 26,000 BTC from owner Ross William Ulbricht.
Robocoin and Bitcoiniacs, two BTC companies, created the world’s first bitcoin ATM on October 29, 2013 in Vancouver, Canada. In November 2013, Nicosia University in Cyprus was the first school to accept BTC for tuition costs. The university’s chief financial advisor deemed it the “gold of tomorrow”. Las Vegas soon followed suite and many of their casinos, such as Golden Gate Hotel and Casino, began accepting BTC throughout the premises.
The growing popularity of BTC is undeniable. It is currently worth around 430$. Here is a graph of its worth over time, in which it nearly reached 1200$ in late 2013. In 2015 it steadily raised up until present day. For peer to peer transactions, BTC is one of the preferred currencies. Although, it has had its volatile moments, meaning that its price in USD can change dramatically over a short period of time.
In April 2013, payment processors such as BitInstant and Mt. Gox experienced transaction delays due to an exceeded capacity, this resulted a drop from 266$ to 76$, upon satisfying the required capacity, BTC rose back up to 160$. All of this was within 6 hours. This volatility has become rare in recent times, mostly because technological hiccups are less common. Despite this, there is still minimal regulation effecting this currency, making it quite unpredictable.
On June 24, 2015, NASDAQ, the second largest finance stock exchange in the world, agreed to begin trials on a Private Market for trading pre-IPO company shares backed by blockchain. NASDAQ will begin issuing, managing, and cataloging transactions for privately issued shares working with an application program interface (API) developing chain. This increases the scope, value and perception of BTC’s blockchain technology; implying that various financial entities will begin researching this method of payment. This strongly insists that commercial banking, credit card companies, and venture capitalists will be researching the potential financial use of bitcoin.
The history of BTC has been exhilarating, and quite the roller coaster ride. Despite its dramatic ups and downs, the volatility of bitcoin is subsiding, making it a stable, yet profitable, venture to pursue. Be sure to make knowledgeable decisions when delving into the bitcoin market. The ever-expanding history of BTC is only surpassed by its exciting, lucrative future.