The History of Cryptocurrency: Bitcoin's Long, Strange Trip to Best-Performing Asset of the Decade
In early May 2021, a single Bitcoin is worth about $55,000. According to CNBC, if you had invested $100 in Bitcoin in its beginning over a decade ago, you would have been able to buy a thousand Bitcoins. At time of writing, those would be now worth over $55 million. Long before Bitcoin blew up, though, it was simply a theoretical concept in an academic paper, published by an anonymous person using a pseudonym. Read on for a brief history of Bitcoin, from its origins in the 1970s to the influence of the 2008 financial crisis, to the recent massive expansion of cryptocurrency and the non-fungible token craze taking over the internet world today. It's a tale of mystery, mistrust, risk, and reward (plus: a multi-million dollar pizza).
What is Bitcoin?
First things first: what exactly is Bitcoin? Bitcoin is a form of digital cash (cryptocurrency) in which unit transactions are recorded on a digital ledger called a "blockchain." It started as an idea in a white paper in 2008, and in 2021 became the best-performing asset of the last decade with its 9,000,000% rise. You can't actually hold a Bitcoin in your hand, but you can make a ton of money off of one. Why would someone want to buy Bitcoin in the first place? Allow us to explain.
Bitcoin doesn't involve any bank or government; it's peer-to-peer currency. Unlike the American dollar or any other country's currency, Bitcoin is not regulated or underwritten by any one government. With Mastercard and other noteworthy companies bringing cryptocurrency onto their networks, many are asking: does this shift signal the beginning of the end for the dollar?
How does Bitcoin work?
Since the 1980s, people have experimented with creating forms of digital money. For years, however, no one could figure out how to solve digital cash's "double-spend" problem. Blockchain technology solves this problem, as it serves as a public record of who owns what. It prevents people from spending the same token twice.
Money in the Digital Mattress
Owning Bitcoin is a little like stuffing your money under your mattress (if your mattress were a network of millions of computers all over the world keeping watch over your cash). Because you don't have to count on middlemen in the same way you do when your money is in the bank, you're not putting your trust in a single government or company. Mistrust of banks was one of the key contextual elements of the beginning of Bitcoin, as it started in the midst of the 2008 financial crisis.
What is Blockchain Technology?
Blockchain technology refers to a decentralized network of millions of computers around the world. Though this may conjure up images of mysterious tech experts operating secretively on laptops, actual humans are not hunched over these computers, physically writing in transactions on the digital ledger. Rather, the computers are programmed to autonomously solve complex mathematical puzzles in order to verify transactions on the ledger. The Bitcoin network verifies them. The founder of Bitcoin, Satashi Nakomoto, created digital scarcity, so that only a certain number of bitcoins can be mined each year. This seems cool, but there's a downside to all this mining: the environmental impact.
Environmental Impact Debate
There is an ongoing debate about the energy consumption and environmental impact of Bitcoin mining. According to Cambridge research, Bitcoin mining accounts for roughly 0.6% of global electricity consumption, meaning that the Bitcoin economy has the carbon dioxide emissions of a small country. Critics argue that cryptocurrency's energy use makes it an irresponsible (and even morally reprehensible) venture.
Bitcoin Mining Hardware
Supporters argue that Bitcoin's energy usage is comparable to the currency systems already in place throughout the world, and that all money takes significant energy but Bitcoin provides an opportunity to shift the type of energy being used.
Bitcoin Mine in Reykjavik, Iceland
Peter Van Valkenburgh is the Director of Research at the Coin Center, a non-profit focused on policy issues with cryptocurrency. He argues that "Bitcoin could drive the clean energy revolution" because of "the system’s economic incentives favor clean, renewable, energy." For example: the bitcoin mining facility Enigma, established by Genesis Mining in 2014 (pictured). Enigma uses renewable energy, harnessed by hydroelectric dams and geothermal power stations, to fuel their mining.
"Like Being Inside a Computer"
Upon visiting the Enigma facility, British photographer Lisa Barnard said it was the loudest environment that she had ever taken photos of. "The biggest thing I remember was just the noise and the flashing lights and wiring," Barnard told WIRED. "It was like being inside a computer."
1970s: Stanford Cryptographers Lay Groundwork
Before there was Bitcoin, there had to be "public key cryptography." In 1975, American cryptographers Whitfield Diffie (b. 1944) and Martin Hellman (b. 1945) discovered and developed the concept of public key cryptography at Stanford University. They published their ideas in a 1976 paper, "New Directions in Cryptography."
Whitfield Diffie in 2019
As defined by the New York Times: "Public-key cryptography is a method for scrambling data in which each party has a pair of keys, one which can be publicly shared and the other which is known only to the intended recipient of a message. It is possible for anyone to encrypt a message using the individual’s public key. However, the message can only be unscrambled with the aid of the private key held securely by the recipient of the message."
Diffie continues to be active in the crypto space today.
1980s: David Chaum's eCash
David Chaum (b. 1955) is widely recognized as the inventor of digital cash. In 1983, he published his paper "Blind Signatures for Untraceable Payments," which introduced the idea of anonymous electronic money. His company DigiCash created the first digital currency in 1995, eCash.
1990s: Adam Back's "Proof of Work"
In 1997, British cryptographer and cypherpunk Adam Back (b. 1970) invented Hashcash, which uses a "proof of work" system that will later make Bitcoin mining possible. Back is now the CEO of Blockstream, a blockchain technology company, which he co-founded in 2014.
2000s: The Mysterious Satoshi Nakomoto
Bitcoin began as a white paper, "Bitcoin: A Peer-to-Peer Electronic Cash System," published by someone using the name Satoshi Nakamoto on October 31st, 2008. The paper outlined the blockchain technology underpinning the cryptocurrency, solving the double-spend problem of digital cash. In March 2014, a Newsweek article called “The Face Behind Bitcoin" claimed that Bitcoin's inventor was a retired physicist named Dorian Nakamoto (pictured).
The Mystery Remains
Dorian Nakomoto has denied the claims that he is the creator of Bitcoin. In 2016, Australian computer scientist Craig Wright claimed that he was Satoshi. This claim has been disputed by many, as Wright has no concrete proof. Wright, however, is currently suing bitcoin.org, claiming copyright over the white paper that they currently host a copy of online. The lawsuit is ongoing, and the real inventor of Bitcoin remains unknown today.
The 2008 Financial Crisis
After the 2008 financial crisis, people had deep mistrust for banks and the government. In that context, a peer-to-peer form of currency made more sense and was more appealing than it might've been at other points throughout world history.
Bitcoin, Crime, and Illegal Drugs
January 2015: Supporters of Ross Ulbricht protest outside the courthouse during jury selection for the case against Ulbricht. Born in 1984, Ulbright was around 27 years old at the time when he allegedly developed, created, and operated the Silk Road website.
The Silk Road
The Silk Road was an underground market hosted on the dark web from 2011 until the FBI shut it down in 2013, primarily for the sale of illegal drugs and fake IDs. Bitcoin was the only accepted currency on the Silk Road due to its degree of anonymity.
Bitcoin Billionaires: The Revenge of the Winklevii
Remember the Winklevoss twins (from real life, or from The Social Network)? They're the extremely tall, extremely identical Harvard classmates of Mark Zuckerberg who sued the Facebook founder over the origins of the mega social media site, for stealing their idea. They settled with Zuck for $65 million, but of course the rest is history. Though they may have lost Facebook, the twins have cornered the cryptocurrency market and are Bitcoin billionaires today.
David Chaum and Tyler Winklevoss
The Winklevii bought $11 million worth of Bitcoins in 2013, according to the New York Times. They soon created the cryptocurrency exchange company, Gemini.
What are NFTs?
NFT stands for "non-fungible token." This kind of token is like Bitcoin, except while you can trade Bitcoin and have more of the same thing that represents real money at a varying market value, each NFT is unique. You possess the token that says you own something, like an art piece, and you can trade it, but if you do, you'll be getting an entirely different piece.
Twitter CEO Jack Dorsey's NFT
To keep all the parts in place, there's enforced scarcity. The deeper concept of NFT art is agreed-upon value and ownership; even if anyone can see, download, print out and hang up a piece of digital art, only a select few can actually own that exact piece. So NFTs are a form of digital asset, whose ownership is recorded on a blockchain. Ethereum's blockchain, to be specific. It's a similar to the blockchain that grounds Bitcoin.
Twitter Jack Dorsey sold his first tweet as an NFT for over $2.9 million and donated the proceeds to charity.
Digital Art as NFTs
Pictured: an exhibition of Beeple's digital art in Beijing, China, in March 2021. Beeple made headlines for the biggest NFT digital art sale of all time, at Christie's historic auction house.
Christie's and Beeple Make History
Christie's first ever digital-only work of art, Beeple's "EVERYDAYS: THE FIRST 5000 DAYS" sold for a whopping $69.3 million in March 2021.
Pictured: Vignesh Sundaresan (known online as Metakovan) shows Beeple's "EVERYDAYS: THE FIRST 5000 DAYS" which he bought at the Christie's auction. Sundaresan and his buying partner announced that their purchase was about taking a stand for people of color.
NFT Mainstream Explosion
Major athletes such as Rob Gronkowski have gotten into the NFT game, selling trading cards for millions.
$613 Million Pizza
Fun fact: early in the Bitcoin days, a programmer named Laszlo Hanyecz traded 10,000 bitcoins for two Papa John's pizzas on May 22, 2010. Today, those pizzas would be worth about $613 million. In the crypto community, that date is now celebrated as "Bitcoin Pizza Day." Talk about an expensive slice!
Shitcoins are alternative crypto coins that often have very little value and are essentially internet jokes. Dogecoin, a popular new "shitcoin," is a cryptocurrency named after a meme. Can't get any more internet than that.
Major Companies and Cryptocurrency
Tesla, PayPal, Xbox, Burger King, and more companies are accepting Bitcoin and other cryptocurrencies, while more and more companies explore the possibility and weigh their options.
The Future of Bitcoin
The future of Bitcoin rests in the hands of government oversight. Will they regulate or won't they? The American government is currently calling for more regulation and transparency in Bitcoin and other cryptocurrencies to help curb ransonware and other web hacking attacks.
From: Esquire US