The cryptocurrency revolution began in 2009 with the invention of the first ever digital cryptocurrency, Bitcoin. It is not surprising that Bitcoin was created during the financial crisis of 2007 to 2009 when distrust in banks was at an all-time high. There was a desperate need for a currency that wasn’t regulated or controlled by any central authority. The solution? Bitcoin, a digital currency that operates on a shared public ledger known as a blockchain. All registered transactions are included on the blockchain, and cryptography enforces the chronological order of the blockchain. The invention of bitcoin allowed people to break free from oppressive banking. Cryptocurrency is unique because it was the first digital non-fungible currency to give individuals full control of their assets unlike standard currency (fiat) which is controlled by a government or a bank.
Cryptocurrency as an idea emerged in 1983 when American cryptographer David Chaum described an early form of anonymous cryptographic electronic money. The concept was about a currency which could be sent in an untraceable and decentralized manner. Decentralization aims to eliminate the need for a controlling central authority (i.e.: banks). Bit Gold, often considered the precursor to Bitcoin, was developed in 1998 by Nick Szabo. It required users to donate computer power to solving cryptographic puzzles. When the puzzle was solved, a reward was generated. However, Szabo couldn’t solve the double spending problem without the use of a central authority because digital data can be copied and pasted. It was not until a decade later that a mysterious group or person, Satoshi Nakamoto, invented the “Peer to Peer Electronic Cash System” known as Bitcoin which solved the double spending problem with blockchain technology. The invention of Bitcoin is often considered to be the true beginning of the cryptocurrency movement.
Who is Satoshi Nakamoto?
Satoshi Nakamoto is the pseudonym for the group or individual that created Bitcoin. Nakamoto solved the double spending problem by creating the blockchain system of verification. Communication with Satoshi Nakamoto was conducted via email and the lack of personal details made it impossible to reveal the identity of Satoshi Nakamoto. The last correspondence with Satoshi Nakamoto was in 2010 when they said they were moving on to other things. To this day the identity of Satoshi Nakamoto has not been confirmed even though many have stepped forward claiming the name. Bitcoin: A Peer-to-Peer Electronic Cash System was published by Satoshi Nakamoto in 2008 which describes the use of a peer-to-peer cash system that would allow online payments to be sent from one party to another without going through a financial institution.
In the Bitcoin whitepaper, Nakamoto explains how the population has come to rely on financial institutions as trusted third parties for processing electronic payments and how this system suffers from the trust-based model. When a financial institution is involved, there is no completely non-reversible transactions because the financial institution will seek to resolve disputes. This mediation by the financial institution is frequently abused allowing for fraud to occur. Therefore, Nakamoto proposed a system based on cryptographic proof instead of trust, allowing any two parties to transact with each other without the need for a trusted third party. Irreversible transactions would protect the transacting parties from fraud because there is no third party that could reverse a disputed transaction. The double spending problem is fixed by using a peer-to-peer distributed time stamp server to generate computational proof of the chronological order of transactions. The system will remain secure as long as honest nodes collectively control more CPU power than any cooperating attacker nodes.
The Genesis Block
The first Bitcoin genesis block was mined by Satoshi Nakamoto on January 3, 2009. The genesis block, known as block 0, is the very first block upon which other blocks are added. Blocks act as digital containers where data pertaining to the transactions are permanently recorded like a page of a ledger or record book. Once a block is filled with transaction data it gives way to the next block in the blockchain. A block is thus a permanent store of records that can never be removed or altered. It wasn’t until 6 days later that the next block, block 1, was mined. This is odd considering the time between mining blocks is approximately 10 minutes. Theories suggest that the delay could be due to Nakamoto testing the system for 6 days to make sure it was stable before mining out the genesis block. Other cultish followers believe Satoshi intended to reenact the story of God’s rest after creating the world in 6 days. Within 7 months, Satoshi had mined approximately 1.1 million bitcoins.
In 2010, exchanges allowed the purchase of bitcoin and in April 2011 Bitcoin crossed the $1 threshold for the first time. Litecoin (LTC) was introduced in October 2011 as the first competitor of Bitcoin. The Ethereum (ETH) blockchain was deployed a few years later in 2015 and is presently second to Bitcoin by market cap. Ethereum is used as the primary currency for purchasing NFTs (non-fungible tokens) which have grown exponentially in popularity over the past few years. The price of Bitcoin continued to rise hitting $1000, $10000, $20000, and eventually reaching over $65000 for a single (1.00) bitcoin in November 2021. This parabolic rise can be attributed to an announcement by CME group inc. that it would be launching bitcoin futures in 2017 marking the first time a regulated U.S. financial institution would offer a Bitcoin-related financial product. Like change in a dollar, bitcoin is often purchased in fractions by the average person with some of the most dedicated or early followers owning multiple bitcoins. It is estimated that there are over 100000 bitcoin millionaires. This figure comes from the number of wallets in existence that show over a million dollars in bitcoin.
Eric Fineman, 11 years old, borrowed $1000 from his grandma to buy bitcoin in 2011 when it was $12. He made significant gains and in 2015 he founded his own education company which he later sold to buy more bitcoin. Today he is 18 years old and involved on a project with NASA. Kristoffer Koch discovered bitcoin when he was writing his master thesis on encryption technology in 2009. He bought 5000 bitcoins for only $27 and left it. When bitcoin reached over $1000, he spent the day looking for his encrypted wallet and became a bitcoin millionaire. These are just a few of the many stories where early adopters of bitcoin were handsomely rewarded as bitcoin is now the most expensive cryptocurrency as well as one of the most profitable investments in history. Shortly after reaching the ATH (all-time high), the price of Bitcoin entered a steady decline reaching around $20000 in June 2022. High volatility and uncertainty in the future of cryptocurrency keep some investors wary. As cryptocurrency grows, government intervention and regulation continue to threaten the coins existence with some countries outright banning cryptocurrency. However, the blockchain system upon which bitcoin was built is designed to resist these attacks incase an authority ever wanted to take control. Despite the inherent unpredictability, the popularity of cryptocurrency continues to grow with many large companies and celebrities endorsing or investing in cryptocurrency.