Oct. 31 will mark the 10th birthday of one of the most promising, yet divisive technological advancements of the 21st century: Bitcoin.
In the aftermath of the global financial crisis, the first and most famous cryptocurrency emerged from an underground network of libertarian-leaning cypherpunks. Over the past decade its popularity has soared, but so has the number of its detractors. On the eve of its anniversary, here’s a look back at some of the glorious — and infamous — moments in the short life of the world’s most famous cryptocurrency.
And where it all began:
‘I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party’
That was the first email in a series of messages sent by Satoshi Nakamoto, the presumed pseudonym adopted by the creator of bitcoin, in a proposal for a payment system that is completely anonymous running on a decentralized distributed ledger, known as the blockchain.
Today, there are over 2,000 cryptocurrencies, most of which will fail and become worthless, according to Barry Silbert, chief executive officer of the Digital Currency Group, and there are already close to 1,000 dead coins, ones that either failed before launching or have ceased operation, according to a website that tracks such failures.
But the very first digital currency is still going strong, albeit with plenty of ups and downs. Once worth less than 1 cent, a single bitcoin fetched nearly $20,000 in December 2017. Today, one bitcoin
changes hands for about $6,500.
The early days
After the release of the Bitcoin white paper a decade ago, Satoshi started a chain of emails to a cryptography mailing list, largely made up of cypherpunks — those who promote increased financial privacy — looking to spread and champion computer encryption. The early emails were met with both enthusiasm and skepticism.
“Bitcoin seems to be a very promising idea. I like the idea of basing security on the assumption that the CPU power of honest participants outweighs that of the attacker,” wrote computer programmer Hal Finney in an email exchange with the group.
It was at least two months before the blockchain and bitcoin experiment got under way with the creation of the Genesis Block, the first 50 bitcoins ever mined.
A note that accompanied the copy of the Genesis Block gave rise to the notion that bitcoin, in part, may have been a response to the financial crisis. “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,” the message said.
However, in an interview with MarketWatch, New York University professor David Yermack, debunked this theory, but did say that the timing definitely contributed to the hype around bitcoin.
But what were people meant to do with these bitcoins once they had been created, or mined?
“I guess the key problem right now is that once you generate coins, there’s nobody to test it with, even for dummy transactions. Is there a plan for a mailing list or some kind of trivial marketplace to give people something to do with their newly minted bitcoins?” wrote Mike Hearn, a software developer and early bitcoin developer in the cryptography email chain.
One year later, his question was answered.
First recorded transaction
While there were a number of early test transactions — the first being a transfer between Satoshi and Finney — the first documented transaction didn’t occur until 2010.
On May 22, 2010, Jacksonville programmer Laszlo Hanyecz, convinced Jeremy Sturdivant to send him two pizzas, and in return, Hanyecz would give him 10,000 bitcoin, which in today’s terms is more than $30 million per pizza. The transaction would become part of crypto folklore and May 22 will always be known as Bitcoin Pizza Day.
Eight years on, bitcoin is traded freely on more than 200 exchanges, with volume dominated by speculators hoping to make a quick buck buying and selling the most liquid cryptocurrency. There are now more than 250,000 on-ledger transactions per day, according to data from Blockchain.com.
At its peak in late 2017, there were nearly half a million transactions happening each day.
Mt. Gox hack
Four years after the first bitcoin transaction, the industry hit one of its lowest points. In February 2014, Japanese-based cryptocurrency exchange Mt. Gox was hacked, resulting in the loss of more than 800,000 bitcoins. At the time, Mt. Gox was handling more than half of all bitcoin transactions world-wide. The heist was the first big snag in the coming out of the opaque industry.
The Mt. Gox scandal was met with hostility and the company was forced to move its headquarters to its previous offices citing security concerns, the company said at the time.
But what it did do was put bitcoin on the front page of the news.
“I became enthralled in bitcoin when Mt. Gox ‘disappeared’ my bitcoin,” said Tim Draper, founder and director of Draper Associates. “When that happened, I thought bitcoin would collapse, but it didn’t, so I knew it was more important than it seemed on the surface.”
Draper would later become a household name in the crypto industry when he purchased the bitcoins the U.S. Justice Department seized in the Silk Road case. The bitcoins were sold for an average price of just over $300. Draper said he weighed the risk/reward at the time and figured there is a chance they could be worth hundreds or even thousands of dollars at some stage. “At this point, It looks like it will be the former, so I lucked out,” he said.
Yet, security remains one of the technology’s biggest hurdles.
Limitations and headwinds
The Mt. Gox hack is just one in a number of thefts that has undermined the integrity of digital assets. In 2016, two years after the Mt. Gox fiasco, the Bitfinex exchange was infiltrated resulting in the theft of 120,000 bitcoins. All totaled, some estimate that more than 1 million bitcoins have been stolen.
However, the pressing question for bitcoin evangelists is adoption: Is there a place for it in the financial ecosystem? Right now that answer is not quite yet.
As a payment device, bitcoin can process around five transactions per second, while credit card companies like Visa
can process more than 5,000 per second. As a store of wealth its security flaws, as discussed earlier, mean it is far from becoming digital gold.
But according to Nigel Green, founder and CEO of deVere Group, a U.K. consulting firm, that will change: “There’s an ongoing shift away from fiat money, and the momentum of this is only set to increase over the next 10 years.”
On the eve of its 10th birthday, 2018 has unveiled another flaw in bitcoin: volatility. While the trading community lap up the wild price swings, those pushing for mainstream use have had to withstand a collapse in the price of the No. 1 digital currency.
As euphoria was building, highlighted by the introduction of bitcoin futures, bitcoin fell more than 60% from its all-time high on Dec 17, 2017.
What the future holds
Depending on who you ask, the future of bitcoin looks like anything from the next U.S. dollar or digital gold, to a total bust that will be nothing but a footnote in financial textbooks.
As bitcoin proponents push for more complex financial products, most notably a bitcoin-backed exchange-traded fund, or ETF, regulators now play a pivotal role in the advancement of the cryptocurrency and blockchain movement. Lawmakers and regulators are weighing investor protection in an industry that is rife with nefarious characters, yet offers much potential.
For detractors, bitcoin is just a passing fad. One of the most vocal critics is prominent New York University economics professor, Nouriel Roubini, who has called bitcoin the mother of all bubbles, compared blockchain with a glorified excel spreadsheet and lambasted the crypto community as a bunch of “self-serving white men pretending to be messiahs for the world’s impoverished, marginalized, and unbanked masses.”
However, the nascent product may have received its biggest stamp of approval just weeks before its 10th birthday when financial services giant Fidelity Investments announced it was opening a cryptocurrency trading service for funds and sophisticated investors. Previously, large institutions had largely remained on the sidelines.
But now, coming upon 10 years since the inception of cryptocurrencies, the decentralized technology that began with bitcoin may have started a path where the so-called trusted third parties are mining bitcoin instead of printing money.
“I see bitcoin becoming the most important and most transacted currency in the world, not just for remittances, or cross-border transactions, but for every use currency. It won’t be long before bitcoin eclipses the dollar as the most popular currency,” said Draper.
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