Bitcoin is the grand-daddy of cryptocurrencies. It’s the OG. The one crypto that your uncle knows about because he’s seen it on television, but he doesn’t understand it and doesn’t think it’ll go anywhere or do anything, because it’s absolutely worthless and has no value and … you get it.
But regardless of your uncle’s confused tirades, it seems that Bitcoin’s here to stay.
Bitcoin has attracted some big names and there seems to be an entire sea of peculiarly named coins and tokens trailing behind it. Big name banks bounce back and forth between acceptance and assault, and now there’s this whole thing with China banning something called mining, and Texas is open for business. How is this possible for a coin with no hope, no value and no future? I get that the entire world has probably turned on its head in the past ten years, and you feel like you’ve been living in the embodiment of a Talking Heads song asking yourself ‘well, how did I get here?’
So with apologies to David Byrne, if you’ve read this far you’re probably here to learn about Bitcoin so let’s get started.
Who is Satoshi Nakamoto?
The principle face behind the creation of Bitcoin belongs to a person (or collective) known as Satoshi Nakamoto.
If Bitcoin achieves half of the promise that its adherents (including yours truly) believe it will, Nakamoto will be remembered as a quasi-mythical figure who brought it all to fruition and then vanished without trace. The reality is that nobody really knows who he is, was, or even if he’s an individual and not the voice of a collective of programmers.
What is known is that someone claiming to be Satoshi Nakamoto made something called Bitcoin in 2007 and Bitcoin.org made an appearance by August of the next year. By October, he’d published the white paper on the cryptography list at metzdowd.com.
By January, he’d released version 0.1 of the bitcoin software on SourceForge and launched the network by mining the genesis block (block zero), along with a story from The Times that does double duty as timestamp and ideological justification. “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
The first Satoshi Nakamoto statue is due to make an appearance later on this year in Budapest, Hungary.
The Bitcoin ledger started recording data in January 2009. At the time it was the faddish brainchild of computer and economics nerds. The cyberlibertarian proto-unabomber crowd fell in love because they could have their little anti-government coin and a way to buy their fertilizer without the government looking over their shoulder at everything they did. Mostly, though, it was spent on pizza, when it was spent at all.
These were the early years. It went through sufficient price development bumps as the reach of the network spread
The Wild West
In 2011, libertarian and former Eagle Scout Ross Ulbricht christened himself the Dread Pirate Roberts after his favourite The Princess Bride character and opened up, Silk Road, the first marketplace on the Darkweb. It was the place on the net where you could use Bitcoin to buy any variety of horrible black market items from guns to crack to people.
It took the United States government four years to bring his ass down.
Over the next four years, we saw the rise and collapse of unregulated exchanges largely on the backs of Bitcoin, which gave Bitcoin (and cryptocurrency in general) a black eye and a bad odour, which has only recently started to lift.
Now firmly on the radars of countries around the world, the US Financial Crimes Enforcement Network (FinCEN) determined regulatory guidelines for what they called decentralized virtual currencies, classifying miners who sell their bitcoins as Money Service Businesses (MSBs), which made them subject to registration and other legal obligations. China’s contentious love-hate relationship with Bitcoin started in 2013, when they banned financial institutions from using Bitcoin, even as buying items using digital currencies has been banned since 2009.
As always prices rose and fell with the news, as people onboarded and offloaded their Bitcoin, but nothing really started to make headway until 2016 with the proposed SegWit (Segregated Witness), soft fork which was supposed to boost the transaction power of the network. Naturally, not everyone liked the SegWit idea and shortly after it was locked-in, Bitcoin hard forked as part of the development team took their ball and went home. Their ball later became Bitcoin Cash, which we’ll discuss indepth in future installments.
By this time, though, Bitcoin was already on its first trip to the moon, setting an all-time high of USD$19,458 on December 17, 2017. The causes of the collapse and decline, and the lengthy bear market that followed, have been attributed to hacks, negative press, illegal activity, but the largest contributing factor seems to be the response of the Chinese government—effectively implementing a complete ban on trading on February 1, 2018. Bitcoin’s price cratered from $9,052 to $6,914 by February 5th, and the percentage of bitcoin trading in the Chinese renminbi fell from over 90% in September 2017 to less than 1% by June of 2018.
It’s also a perfect example of one country that has far too much control over the functions and fate of a coin, and definitely a noteworthy bit of foreshadowing of what was to come.
Add to that the number of notable failed exchanges, the rise of scams using Bitcoin (and other coins), and the emergence of Bitcoin as the coin of choice for money launderers globally, and all of that spelled a lengthy crypto-winter.
It ended and prices began to rise. By June 2019, the price rebounded to $13,000. With the promise of a global pandemic on the horizon, price fluctuations reduced Bitcoin’s price to four figures, and then rebounded it as big names like Circle, Jack Dorsey or Twitter (TWTR.Q) and Square (SQ.NYSE), Microstrategy, and later on Tesla’s (TSLA.Q) Elon Musk and the CEO of Ark Investments, Cathy Wood, got involved, lending their names and social media followings to affect the price, which promptly Bitcoin’s bounded over its previous all-time high and went on its second trip to the moon.
Naturally, there’s more to the story of Bitcoin’s second moonshot than these three. Big name banks like Morgan Stanley and J.P. Morgan stopped dithering about getting involved in Bitcoin. Big name exchanges either went public like Coinbase (COIN.Q) or took other avenues towards legitimacy, agreeing to work with government towards foundering new regulations.
It reached the moon in April, setting a new all-time high of $64,804.72, and then catapulted itself back to earth. The most recent spate of price decreases, which saw Bitcoin lose almost 60% of its value, came at the behest of a mix of the pandemic, and China’s banning of cryptocurrency mining and value trading. Formerly, Chinese miners were responsible for 70% of Bitcoin’s hashrate, further demonstrating the issues associated with giving any one country too much control over a global enterprise.
This facilitated a lengthy diaspora, wherein Bitcoin miners formerly drawing on the electrical grid and largess of the Chinese government, were scattered across the globe in search of low-cost electricity and a favourable regulatory environment. For example, Texas has flung open its borders to crypto-miners, offering abundant, cheap electricity, but highlighting one of the principle environmental problems with large scale proof-of-work mining and one which will need to be addressed in the coming years.
Where are we now?
The legislative assembly of El Salvador enacted legislation to make Bitcoin legal tender in June. The law will take effect in September. On the technical side, there’s another bitcoin network software update called Taproot on the horizon, which will add support and improvements for smart contract functionality as well as the Lighting Network—a potential solution to the Bitcoin scaling issue—and the change is expected in November.
Smart contracts could open up entirely new vista for Bitcoin users, including entry into the decentralized finance sector.
Nowadays, companies and governments are getting wise to the criminal enterprises using Bitcoin as their de facto currency. They’ve since developed various technologies that allow for tracing the lifecycle of a given Bitcoin from inception to wherever it ultimately lands on the blockchain, and then engaging in a little sleuth work to determine the owner of said address.
Regulations are on the horizon, which likely push Bitcoin towards its goal of widespread adoption. Meanwhile, powerful voices yammer about it on twitter, affecting its price. People get in and out based on market sentiment provoked by such disparate voices like wallstreet bets. At the very least, it’ll signal the death knell of the retail age of crypto, and usher in an all new institutional age.
When you factor in that Bitcoin is presently trading at $45,479.51, and is basically out of reach for the average investor, then you could almost say it’s already started.
This might be the end of the first crypto guide to the perplexed, with its focus on Bitcoin, but that doesn’t mean the story’s over. Whenever something big happens to Bitcoin, or any of the coins we cover, we’ll be sure to provide updates so check back periodically.