Bitcoin debuted in 2009 through its creator, Satoshi Nakamoto. With the Bitcoin network, people can send secure peer-to-peer transactions over the Internet.
Bitcoin’s operational mechanism differs from that of traditional financial institutions like banks. In conventional finance, a central body is essential to secure and verify transactions. Bitcoin, on the other hand, negates this need.
In this article, we will retrace Bitcoin’s steps from when its pseudonymous creator published a whitepaper to its adoption by Wall Street financial giants.
The Genesis Of Bitcoin
Bitcoin’s origins are shrouded in mystery given that over a decade since the coin launched, its creator remains anonymous.
The Bitcoin concept originally appeared in a whitepaper published in 2008 by Satoshi Nakamoto. Nakamoto discussed the Bitcoin private key and the blockchain ledger in this whitepaper.
The whitepaper refers to earlier concepts of digital money. It sought to solve the issue of creating trust between online entities where people remain anonymous or are not nearby.
Satoshi mined the first block of Bitcoin, known as the Genesis Block, on January 3, 2009, three months after publishing the Bitcoin whitepaper. The block contained 50 BTC sent to an irretrievable address.
Satoshi inscribed the message, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,” into this block, hinting at Bitcoin being an alternative to fiat currency.
Early Days of Bitcoin and Adoption
The Bitcoin network produced another block six days after the Genesis Block. The protocol codebase was written in the C++ programming language. During the early Bitcoin days, users also used a Windows GUI mining application to mine Bitcoin blocks.
Satoshi sent the first Bitcoin transaction on January 12, 2009, to cryptographer and computer scientist Hal Finney. Satoshi sent Finney 10 BTC. At the time, Bitcoin did not have a determined price.
During its early years, Bitcoin was worth a fraction of one USD. Moreover, there were no major exchanges or markets between 2009 and 2010, with cryptography fans sending the coins to each other for hobby purposes.
Its use-case as digital money in the real world happened in May 2010 when an individual known as Laszlo Hanyecz bought two pizzas for 10,000 BTC. At the time, Bitcoin was worth less than $0.01.
Mt. Gox And Early Challenges
As Bitcoin’s popularity grew, a cryptocurrency exchange became a necessity. In 2010, Jed McCaleb posted a message on a Bitcoin forum:
Hi everyone, I just put up a new Bitcoin exchange. Please let me know what you think.
On its first day, Mt. Gox traded 20 BTC for 5 cents each. Over time, it grew to account for 70% of all Bitcoin transactions. In 2011, McCaleb stepped down over frustrations running the exchange and handed ownership to Mark Karpelès.
In 2011, Mt. Gox suffered its first hack, losing 25,000 BTC. However, it bounced back despite the price plunging to nearly zero.
All was well at Mt. Gox until early 2014 when Bitcoin traded at around $1,000. At the time, users started complaining of withdrawal problems on the exchange.
Karpelès made some vague explanations about halting withdrawals to analyze all current processes. It later emerged that the exchange suffered a hack, and all the Bitcoin was gone.
Hackers stole 750,000 BTC in this breach. At the current price of around $37,000 per Bitcoin, this would have been worth $27 billion.
The Mt. Gox hack helped shape the future of cryptocurrency exchanges. It helped other exchanges pay more attention to security. It also fostered a culture of users holding their own Bitcoin on personal cold wallets.
Silk Road And Darknet Markets Start Testing Bitcoin
Bitcoin rapidly attracted the attention of cybercriminals due to its decentralized and anonymous nature.
Silk Road, a Darknet marketplace created in 2011, mainly depended on two technologies: the Tor software and the Bitcoin cryptocurrency.
Silk Road came into the limelight when Bitcoin was in its early stages. Few knew how to trail blockchain transactions on a public ledger. Given this limitation, Bitcoin emerged as the primary medium of exchange.
To understand the extent of Bitcoin’s usage on Silk Road, after the marketplace halted operations, authorities seized 70,000 Bitcoins. The US government recently started moving the seized Bitcoin.
This incident drew regulatory attention and a need for Know-Your-Customer (KYC) in crypto brokerage firms. Silk Road’s founder, Ross Ulbricht, was detained in 2013.
Maturation and Mainstream Recognition
Bitcoin enjoyed its status as the only cryptocurrency for several years after its launch. Its status changed in late 2013 after Vitalik Buterin issued the Ethereum whitepaper.
Early Ethereum investors participated in an initial coin offering (ICO) in late 2014 before the network launched in mid-2015.
More cryptocurrencies started sprouting up, with new consensus mechanisms such as proof-of-stake (Ethereum switched to PoS in 2022) and proof-of-history launching.
Bitcoin’s interest from institutions has only happened in the last two years. Tesla started holding Bitcoin on its balance sheet in 2021, paving the way for more corporates to do the same. Wall Street giants such as BlackRock and Fidelity also show interest in Bitcoin.
Bitcoin launched slightly after the 2008 global financial crisis, giving people an alternative to fiat currency. However, this use case failed in the early years due to volatile price action. However, Bitcoin now ranks as a store of value after outperforming many currencies and traditional assets like gold and stocks.
Regulatory Landscape
The staggering growth of Bitcoin in slightly over a decade is capturing regulatory attention amid a rise in scams. The US Securities and Exchange Commission (SEC) is obtaining criticism for failing to offer regulatory clarity on Bitcoin and other crypto assets.
However, other regions are making progress. Europe’s Markets in Crypto Assets (MiCA) regulation is the first comprehensive regulatory framework for digital assets.
The need for regulatory clarity is a significant hindrance to mainstream Bitcoin adoption. Once these legal frameworks come into place, Bitcoin’s growth and adoption will grow significantly.
Debates Around Bitcoin Scalability And Forks
In 2010, Satoshi imposed a 1MB limit on the Bitcoin block transaction size, reducing the likelihood of span and distributed denial-of-service (DDoS) attacks.
As Bitcoin grew in terms of users and number of transactions, the blocks started filling up fast, raising pressure to increase the block size.
Bitcoin’s core developers tabled proposals to increase the block size. However, a hard fork for the Bitcoin network, Bitcoin Cash, launched in 2017 after developers failed to reach an agreement. The new Bitcoin sought to achieve scalability and functionality.
The Segregated Witness (SegWit) upgrade partly solved the issue. The upgrade removed Signature data from the “base” block to store it in a separate block, creating room for more transactions within a block.
SegWit also came with “block weight,” increasing Bitcoin blocks from 1MB to 4MB. The blocks comprise 3B of signature data and 1MB of transaction data.
Bitcoin’s Bull Runs And Market Dynamics
Bitcoin’s price action tends to follow a 4-year cycle. During these cycles, Bitcoin records an uptrend and a downtrend.
The theory claims the uptrend lasts for three years, known as a bull run, while the downtrend lasts for a year, known as the bear market.
Bitcoin’s bull market hit its peaks in 2013, 2017 and 2021. Another bull run happened in 2024, with Bitcoin racing to an all-time high after the approval of spot Bitcoin exchange-traded funds (ETFs) in the US.
Developments in the cryptocurrency market and adoption influence Bitcoin’s price action. Regulatory and legal changes also influence Bitcoin’s price movement.
Analysts often debate whether Bitcoin’s price action comes from speculation or adoption. Bitcoin tends to record sharp price movements when the market sentiment changes and speculators take positions.
However, the volatility has dropped significantly in recent years, with the change coming from growing adoption.
The Current State And Future Prospects Of Bitcoin
Institutions are becoming more open towards Bitcoin. For instance, the world’s largest asset manager, BlackRock, has filed for a spot Bitcoin exchange-traded fund (ETF). If this product launches, it will give Bitcoin legitimacy on Wall Street.
The network also continues to grow and expand its utility. The launch of the Lightning Network solved scalability issues on the network and boosted its use case as a payment system. Bitcoin Ordinals also bring Bitcoin to the non-fungible token (NFT) market.
As Bitcoin grows in adoption and popularity, so do its chances of shaping the future of finance and decentralized applications.
Conclusion
Bitcoin’s growth over the years is commendable. It has evolved from being a speculative asset to a leading financial asset. Its massive market cap surpasses most companies and traditional assets.
Bitcoin is still evolving, with regulatory changes set to shape its future. The network is also finding new use cases, such as the recent entry into the NFT industry.
Once the appropriate legal and regulatory frameworks come into place, Bitcoin will live up to its “digital gold” name to become a store of value. It could also become an alternative currency in unbanked populations and countries with high inflation.