Bitcoin is the first and most well-known cryptocurrency that operates on a decentralized network using a technology called blockchain. It was introduced to the world in 2008 when an individual or group using the pseudonym Satoshi Nakamoto published a white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System.". As the first cryptocurrency, Bitcoin has pioneered a new way of thinking about money and the financial system.
Key Milestones in the History of Bitcoin:
1. The Bitcoin White Paper (2008): Satoshi Nakamoto's white paper proposed a system for electronic transactions without relying on trust. It introduced the concept of a decentralized ledger called the blockchain, which records all transactions transparently and permanently.
2. Genesis Block (2009): The first block of Bitcoin, known as the Genesis Block, was mined by Nakamoto in January 2009. This event marked the beginning of the Bitcoin blockchain.
3. First Bitcoin Transaction (2009): Satoshi Nakamoto sent 10 bitcoins to computer scientist Hal Finney in January 2009, in the first-ever Bitcoin transaction.
4. The Pizza Transaction (2010): The first known commercial transaction using Bitcoin occurred in May 2010 when programmer Laszlo Hanyecz bought two pizzas for 10,000 bitcoins, worth about $30 at the time. This event is now celebrated as "Bitcoin Pizza Day."
5. Mt. Gox (2010-2014): Mt. Gox, one of the first bitcoin exchanges, launched in 2010, became the largest platform for Bitcoin trading before it collapsed in 2014 due to a massive hack where about 850,000 bitcoins were stolen.
6. The Silk Road (2011-2013): Bitcoin gained notoriety as the preferred currency for transactions on The Silk Road, a dark web marketplace for drugs and other illicit goods. The site was shut down by the FBI in 2013, and its founder was sentenced to life in prison.
7. Regulatory Attention (2013 onwards): Bitcoin began to attract significant attention from regulatory bodies around the world in 2013 when the US Senate held a hearing to discuss the currency. Over time, various countries have developed policies to regulate or ban the use of Bitcoin.
8. Major Price Fluctuations (2013-2021): Bitcoin experienced major price fluctuations, reaching near $1,000 in late 2013, before crashing. It surpassed $19,000 in late 2017, crashed again, and reached historical highs above $64,000 in April 2021 and nearly $69,000 in November 2021.
9. Increasing Mainstream Acceptance (2020 onwards): Bitcoin has seen increased adoption among mainstream financial institutions and corporations, with companies like PayPal allowing transactions in Bitcoin and Tesla briefly accepting it for car purchases and investing $1.5 billion into the cryptocurrency. On 11 Jan 2024, SEC has approved 10 Bitcoin Spot ETF applications from BlackRock, Fidelity, ARK etc, which in aggregate have attracted approximately $12bn net inflows in first 4 months. Leading investors include hedge funds such as Millennium, Schonfeld, Aristeia and pension funds like State of Wisconsin Investment Board, as well as leading banks such as Morgan Stanley, BNP Paribas etc.
Economic Aspects
1. Monetary Policy: Unlike traditional currencies, Bitcoin has a fixed supply cap of 21 million coins, which is expected to be reached around 2140. This cap is intended to prevent inflation and mimic the scarcity (and potentially the value) of precious metals. New bitcoins are introduced into the market through the process of mining.
2. Mining: Bitcoin mining involves solving complex mathematical problems using high-powered computers. The first miner to solve the problem and validate the transaction is rewarded with bitcoins. This process also secures the network and validates transactions. The difficulty of these problems adjusts to ensure that a new block is created approximately every ten minutes.
3. Market Dynamics: The value of Bitcoin is not derived from physical properties or a central authority but from the consensus of its users and potential buyers and sellers. This makes its price highly volatile, influenced by factors such as market demand, investor sentiment, government regulations, and technological advancements.
4. Adoption and Usage: Bitcoin is accepted by a growing number of merchants and service providers worldwide. Its characteristics allow it to be used for a variety of purposes, from a medium of exchange to a store of value, or as an investment asset. It is particularly appealing in regions with unstable currencies or financial systems.