POV: You’re at a dinner party. COVID is over. You bought your first bitcoin at the beginning of the week, and its value has since reached an eye-watering price. Congratulations.
“Who invented bitcoin, or like, why is it a thing?” Your Cute Neighbour asks across the dinner table, glass of wine in hand.
Oh no, you think. Cute Neighbour is saying words at me. Open mouth, answer question. Don’t sound dumb.
There’s a lot at stake. They’re very cute. You focus. And you recall… this blog post. On the history of bitcoin.
You take a deep breath in, and say:
The Inception of Bitcoin, or, Who is Satoshi Nakamoto
If you’re dealing in bitcoin, Satoshi Nakamoto is the first name you should know.
In 2007, it was Nakamoto that began writing the code for bitcoin, a first of its kind peer-to-peer electronic cash system. This code would prove the foundation of the cryptocurrency that, since it was released in 2009, would change how we think about the arrangement of our financial systems.1
But who, or what, is Satoshi Nakamoto? Indeed, the name attached to the creation of this financial phenom is only a pseudonym; it’s a complete fiction. And what’s more, there is little certainty as to whether Nakamoto is one person, or a group of people working united under the fictitious moniker. To date, the real identity (or identities) of Nakamoto have been rumoured to be Hal Finney, a cryptologist that was the first to use bitcoin after Nakamoto; Nick Szabo, a proponent of decentralized currencies; Dorian Satoshi Nakamoto, a libertarian physicist; or Craig Wright, a rather litigious academic. But the fact is, we still don’t know for sure.3
Nakamoto designed bitcoin to function within a decentralized, peer-to-peer network that didn’t have to rely on trust. This sounds a bit gloomy, right? But trust plays a big role in how fractional-reserve banking has traditionally operated.
Fractional-reserve banking is a system most commercial banks use, and relies on the deposit of funds from customers. Those are deposits the bank loans out to borrowers; the banks keep only a fraction of their actual liabilities on hand. Meaning, it’s possible that withdrawals could amount to greater values than the reserves held by the bank, like the bank run scenes from It’s a Wonderful Life. We merely trust that our hard earned money is safe with banks, and that our banks will manage those funds responsibly.
This is why bitcoin was, and is, so radical. Because it’s decentralized, it’s not based on trust, and there is absolute accountability and transparency regarding where one’s funds exist.
Bitcoin’s Long Road to Widespread Acceptance
In the genesis block of bitcoin created in 2009, block number 0, Satoshi Nakamoto embedded the following text:
‘The Times Jan/03/2009 Chancellor on brink of second bailout for banks.’4
This text signalled the beginning of the bitcoin exchange network and pointed to the fallibility of trust-based financial systems, positioning itself as a potentially revolutionary alternative. On January 12, 2009, Hal Finney received 10 bitcoins from Nakamoto in the world’s first ever bitcoin transaction.5 But BTC’s uptake didn’t happen overnight, and for good reason. There were flaws.
Bitcoin’s first and only security breach and exploitation occurred in 2010, wherein transactions were not properly verified before their inclusion in the blockchain. This weakness resulted in the fabrication of over 184 billion bitcoins—but within hours, the transactions were erased, and the bitcoin protocol was updated. Since, bitcoin has proven a reliable system.
It wasn’t until 2013 that companies more widely began accepting bitcoin as payment, and this trend was led by organizations that were very online—including, for example, the Internet Archive.
But this embrace was important, as it demonstrated the viability of a decentralized banking system which doesn’t rely on a central authority, like a bank, or a government, to manage and regulate it. For many people, the transparency provided by blockchain technology feels like a safer way to use money. But for all of bitcoin’s radical potential and history, it brings just as much volatility.
Volatile Values and the Bitcoin Craze
In the early years, bitcoin was worth nothing. At auction in 2010, when 10,000 BTC was offered up at a starting price of $50USD, no one even bid (this would be worth hundreds of millions today. Ouch.). But by the spring of 2011, one bitcoin was worth one US dollar. On November 29, 2013 the value of one bitcoin reached $1,242. The currency began picking up steam, and being a speculative asset, this drove more buyers to invest. But in April of 2014, prices dropped—from around $1,200 all the way down to $340. This plummet represents the risk of bitcoin acutely; it took three years for bitcoin to recover and reach its November 2013 value again.6
2017 was a big year for bitcoin, and prices climbed from $1,290 to a whopping $19,783.06 over the course of the year. But, over the same duration, by December 2018, BTC prices plummeted to only $3,300USD. This crash happened for a variety of reasons, including hacks and security flaws of other cryptocurrencies.6 But a very clear picture came into focus: while bitcoin and cryptocurrencies seem radical, and potentially highly valuable, they are also risky. The history of bitcoin has taught us that the only way to invest safely is to do your research, practice dollar cost averaging to minimize your exposure, and never invest more than you can afford to lose.
In January of 2021, bitcoin traded at over $52,000CAD.7 Only time will tell if this meteoric rise is yet another bubble, or if this high valuation will last. Either way, what we know for sure is that bitcoin is both volatile and valuable, and is probably here to stay,” you say.
“And that is a brief history of bitcoin.”
You look around. You’ve been talking for 24 hours straight. Everyone is exhausted. The Cute Neighbour looks at you, puzzled.
“Wow, it’s really impressive you know all that!” They say. You exhale. You did it, you sounded like you knew what you were talking about.
“Yeah, I don’t really know a ton about all of the specifics,” the Cute Neighbour says. “I just use this app called Mogo, it makes buying bitcoin super easy and gives me great visibility on my investments.”
“No way!” You say. “I literally just recited an entire Mogo blog post!”
They look at you and smile. You are instantly in love. You get married, and combine your bitcoin investments. You live, happily ever after, experts on the history of cryptocurrency. #bitcoin #meetcute
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Wanna learn more about Bitcoin? Check out a few related articles here:
- What is bitcoin? - A 101 explainer on everything you need to know about bitcoin
- Crypto 201 - In depth details about bitcoin you'll want to know before investing
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1 Bitcoin P2P E-Cash Paper | Satoshi Nakamoto Institute. https://satoshi.nakamotoinstitute.org/emails/cryptography/1/. Accessed 24 Jan. 2021.
2 Bitcoin: A Peer-to-Peer Electronic Cash System | Satoshi Nakamoto Institute. https://nakamotoinstitute.org/bitcoin/. Accessed 24 Jan. 2021.
3 Sharma, Rakesh. “Three People Who Were Supposedly Bitcoin Founder Satoshi Nakamoto.” Investopedia, https://www.investopedia.com/tech/three-people-who-were-supposedly-bitcoin-founder-satoshi-nakamoto/. Accessed 24 Jan. 2021.
4 Code | Satoshi Nakamoto Institute. https://satoshi.nakamotoinstitute.org/code/. Accessed 24 Jan. 2021.
5 Peterson, Andrea. “Hal Finney Received the First Bitcoin Transaction. Here’s How He Describes It.” Washington Post. www.washingtonpost.com, https://www.washingtonpost.com/news/the-switch/wp/2014/01/03/hal-finney-received-the-first-bitcoin-transaction-heres-how-he-describes-it/. Accessed 24 Jan. 2021.
6 Edwards, John. “Bitcoin’s Price History.” Investopedia, https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp. Accessed 24 Jan. 2021.
7 “Bitcoin Price Index — CoinDesk 20.” CoinDesk, https://www.coindesk.com/price/bitcoin. Accessed 24 Jan. 2021.