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The brief history of Bitcoin

Mario Aguayo - Posted: July 30, 2018

In the Beginning...

To understand the origins of Bitcoin you have to understand the community behind it. Bitcoin is not just a digital currency, or some weird thing your friends have gotten involved in. It is a belief in being able to have more control over your financial freedom and decoupling regulations and institutions from peoples privacy and security.

The journey for Bitcoin begins far before the first ever transaction, it actually started back in the early 90's in the beliefs of the cypherpunk community and goal to create widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change.

Some of the most influentual individuals from the cypherpunk community, can be credited with the frameworks for which Bitcoin would eventually be created.

The White Paper

In late October 2008 after the initial plunges of the financial crises in the United States, a white paper was published titled Bitcoin: A Peer-to-Peer Electronic Cash System, by Satoshi Nakamoto. In it, the author describes an opportunity to utilize many different cryptography applications and proof of work concepts to create a stable, decentralized, independent and secure digital currency. 

This network would utilize massive amounts of computing power to accurately control and monitor financial transactions between any two entities, allowing full transparency of the flow of funds without the necessity of oversight by any one financial institution.

In addition to providing a network that did not need to rely on a third-party to monitor transactions, Satoshi was able to address inflation by instituting a cap in available Bitcoin. The set amount of Bitcoin to exist is 21 million, which are set to be all mined by 2140.To understand the reason of having a cap amount in Bitcoin, you just have to look at the current exchange rate of a Zimbabwe Dollar to USD. Inflation is a real threat to any currency, so to protect against this Satoshi made it a point to include a set amount in the Bitcoin protocol. 

With this white paper, the modern day vision of what Bitcoin was to be was realized and now developers and backers had a path towards making that vision a reality. 

Early Adoption

Development of the Bitcoin protocol began shortly after the release of the Satoshi Nakamoto white paper. This lead to a functioning network where the first recorded Bitcoin transaction happened on January 12th 2009.

In the early stages of the Bitcoin protocol, the value of Bitcoins were negotiated by individuals on a Bitcoin forum. Where individuals were able to post transactions for goods and services, such as the most expensive pizza ever purchased. These early transactions were used to not only validate the usage of Bitcoin, but also to monitor for any vulnerabilities in the network.

Only one such vulnerability has happened in the history of Bitcoin that happened on August 15th, 2010. It was then corrected and forked over to a new production of the protocol. 

Growth

For the next 3 years after the release of the Bitcoin protocol the Bitcoin community started to see larger brands and institutions convert to accepting the digital currency as a form of payment. These early adopting companies included Wikileaks and Wordpress, who began paving the way for other retailers and service providers to start accepting the new digital currency.

2011
Several new cryptocurrencies were released into the market and new users were introduced to cryptocurrency.

2012
Bitcoin made it's way into Pop-culture where it was referenced on several US television shows and finance channels. This also marked the launch of the Bicoin Foundation, who was geared to aiding in the growth and acceptance of the new digital currency.

2013
The Bitcoin blockchain split temporarily and with it generated two different set of rules. This caused the two different blockchains to contain two different sets of transaction histories, and eventually caused a brief global dip in the market. After 6 hours the Bitcoin software was downgraded to a more stable version and the currency returned to its value before the split.

The Comeback

Even with the downfall of two of cryptocurrency's largest institutions, Bitcoin continued to thrive. One thing to note is that Bitcoin itself didn't fail, instead, it was the facilitators that made mistakes which affected their own systems, while all the while the Bitcoin protocol was still intact.

In early 2013 more traditional industries started to be more accepting of Bitcoin, including universities, gaming platforms, and even foreign governments. Finally in December 2013, the large e-tailer Overstock.com started to accept Bitcoin as a source of payment, and this enabled more and more users to utilize their Bitcoin for more practical everyday purchases. 

This adaptation by larger entities encouraged more and more users to become involved in the cryptocurrency space. However these users still needed a solution to exchange FIAT into Bitcoin, and fortunately for consumers Coinbase was also launched in 2013. 

Over the next 3 years Bitcoin would continue to grow in popularity and accessibility. Consumers worldwide were beginning to use Bitcoin to process transactions globally with the new digital currency. At the same time more and more governments started to pay closer attention to the growing excitement around Bitcoin and the cryptocurrency space. 

The 2017 Bull Run

Bitcoin saw some of it's largest growth in both it's value and it's acceptance as legal tender 2017. This sudden rise in popularity and access drove it's individual coin value to rise from $1,000 to over $20,000 in December 2017. But what caused this massive increase in value?

1. Currency acceptance by foreign nations
In early 2017 more and more nations were starting to adapt legislation that would allow Bitcoin and cryptocurrencies to be used more readily and available for their citizens. One notable inclusive nation was Japan, and in less than a year Japan had over 260,000 retailers accepting Bitcoin as legal tender. 

2. US SEC and Bitcoin
The SEC has been looking more closely at Bitcoin and its connection within the finance industry. As far as considering it for an ETF capability, which they ultimately denied but will be reviewing again in May of 2018. In April of 2018 SEC Chariman Jay Clayton also stated:

"distributed ledger technology has incredible promise for the financial industry."
- Jay Clayton @ Princeton University April '18

This new approach and outlook at the industry in general is a softer stance towards the crypto industry as a whole.

3. The Rise of Ethereum
Bitcoin is just one of over 1,000 digital currencies. With that being said it is definitely the one with the longest lifespan and popularity. However in 2015 a new coin was released named Ether on the Ethereum blockchain. This new coin promised not only the efficiency and security of a blockchain network, but it also gave a utility to what the cryptocurrency could be utilized for. You can read more about Ethereum in our other guides

The excitement around Ethereum lead to an overall interest in cryptocurrency, and with that new consumers were pulled into the cryptocurrency space and saw a familiar name, Bitcoin.

4. The New Consumer
In addition to the industry changes there has also been a change in consumer base, millennials. According to Julia-Carolin Zeng, a Bitcoin advocate, 

"Bitcoin’s anti-establishment roots and decentralized system brings with it the hope for a new economy that puts people over corporations. This is an extremely appealing message to millennials who watched their job outlooks dwindle as the financial crisis unfolded in tandem with their first-ever entry into the job market."

With this viewpoint towards traditional financial institutions it is no surprise that over 33% of millennials would invest in cryptocurrency. 

What the Fork?

"Forks" are either changes in the protocol, or, as the situations that occur "when two or more blocks have the same block height". Forks are typically conducted in order to add new features to a blockchain, or to reverse the effects of hacking or catastrophic bugs. In order for a fork to be accepted, they require consensus to be resolved or else a permanent split emerges.

There are two main types of forks that exist for cryptocurrency. The first is forking the client software which changes the underlying code called soft forks .Bitcoin has had 3 attempts to fork the client software, however the majority consensus was not received and each fork was abandoned. These client software fork attempts were intended to increase the transaction capacity resulting in quicker transactions on the protocol.

The second and probably most notable forks are the ones that split the cryptocurrency itself, called hard forks. In the history of Bitcoin there have 3 major forks resulting in new currencies: Bitcoin Cash, Bitcoin Gold, Bitcoin Private. These new currencies have a base code using the Bitcoin protocol, however they change the code or impose new rules that make it divert from the original Bitcoin protocol. 

Where Are We Now?

Bitcoin entered 2018 off of a high of the previous year. Naturally the market saw a leveling out of value across all cryptocurrencies, and Bitcoin rested in the $6,500-$7,000 per coin range. However even with this drop in price, Bitcoin is still leading the way for cryptocurrencies. With upcoming forks, SEC reviews, and more countries providing legislation to make cryptocurrency more accessible we can expect to see it thrive in the coming years. 

Mario Aguayo
Mario has been a developer for the past 3 years and lover of everything tech all his life. He uses his tech skills and natural inquisitiveness to help others learn about tech.

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