This was last updated April 16th 2018
When one looks at the history and development of bitcoin from a distance, it can easily be viewed as one of mysterious innovation that has appeared out of nowhere with a bold promise to change the way that information is stored and transacted in our increasingly globalized world. The blockchain as a way of storing and maintaining information provides many benefits over more centralized legacy systems that make up much of the world’s digital networks. Development of the modern internet has provided an overwhelming abundance of information available to anyone with a device and a connection. By contrast, cryptocurrencies such as bitcoin have developed in the opposite manner – bitcoins cannot be replicated and there are a limited number in supply. They therefore represent a scarce digital asset that can be transacted anywhere in the world. This paves the way for an internet of value.
In this blog piece, we will discuss the history of bitcoin up until today, and will periodically update our article to reflect the current state of affairs.
Early history of cryptocurrencies – setting the stage for bitcoin to emerge
To understand how bitcoin and blockchain technology developed, we must begin by looking to the early roots that paved the way. This began with the Cypherpunk movement in the early 1990s.
Nearing the end of 1992, “three individuals (Eric Hughes a mathematician from University of California, Berkeley; Tim May, a retired businessman who worked for Intel and; John Gilmore a computer scientist who was Sunmicrosystems’ fifth employee) who had all retired young, invited twenty of their closest friends to an informal meeting to discuss some of the world’s seemingly most vexing programming and cryptographic issues.” More specifically, they were aiming to develop strong privacy and encryption technologies that provided individuals with the ability to choose which information they allowed the world to know about. One of the key premises of the Cypherpunks is that privacy is a right, not a privilege.
The first meeting evolved into a monthly gathering at John Gilmore’s company Cygnus Solutions’ offices in the San Francisco Bay area. As the group expanded, they decided that the best way to keep in contact would be through a mailing list. That way, people from all over the world could contribute their expertise, and their privacy could be maintained through what was (at the time) modern encryption technology.
“This privacy and freedom resulted in free flowing discussions on wide ranging topics from technical ideas such as mathematics, cryptography and computer science to political and philosophical debates. Although there was never complete agreement on any one thing, this was an open forum where personal privacy and personal liberty were ultimately placed above all other considerations.”
Eric Hughes summarized the guiding principles behind the cypherpunk movement in the cypherpunk manifesto which maintains that:
“Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something one doesn’t want the whole world to know, but a secret matter is something one doesn’t want anybody to know. Privacy is the power to selectively reveal oneself to the world.”
Looking back on the vision and direction that the cypherpunks had in 1993 with the backdrop of our current state of information security, it becomes clear that they were onto something important well before it was apparent to the masses. The cypherpunk manifesto goes on to say that:
“We cannot expect governments, corporations, or other large, faceless organizations to grant us privacy out of their beneficence. It is to their advantage to speak of us, and we should expect that they will speak. To try to prevent their speech is to fight against the realities of information. Information does not just want to be free, it longs to be free…
We must defend our own privacy if we expect to have any. We must come together and create systems which allow anonymous transactions to take place..
We the Cypherpunks are dedicated to building anonymous systems. We are defending our privacy with cryptography… Cypherpunks write code. We know that someone has to write software to defend privacy, and since we can’t get privacy unless we all do, we’re going to write it.”
In many ways, the cypherpunks gathered to serve the greater good. By developing privacy-centric systems for themselves, they were helping the digital world at the same time. Before bitcoin entered the scene, a number of innovations and organizations emerged from the cypherpunk movement. Some of these include:
- PGP – “pretty good privacy” email encryption
- WikiLeaks – non-profit organisation that publishes secret information, news leaks, and classified media provided by anonymous sources to ensure that democracy doesn’t die in the darkness,
- TOR – “the onion router” which provides a way to anonymously access online content. Commonly known as the technology which facilitated the development of the ‘dark web’.
- Bittorrent – a technology that allows for users to upload and download large files such as movies and software in a decentralized manner.
Enter Satoshi Nakamoto
The bitcoin.org domain name was registered on the 18th August 2008, and in October 2008, an unknown person (or group) going by the name of Satoshi Nakamoto proposed the idea of bitcoin on the Cypherpunk mailing list – Bitcoin: A Peer-to-Peer Electronic Cash System This white paper describes the development of a peer-to-peer network that would create “a system for electronic transactions without relying on trust” through the creation of a blockchain. Traditional currencies allow people to transact with each other without needing to trust their counterparty, as the currencies are backed by a trusted third party, namely a central bank/government. Blockchain-based cryptocurrencies such as bitcoin allow people to transact with each other and transfer value without trusting in any third party.
Initially, many of the cypherpunks dismissed the idea. However, Hal Finney, a distinguished computer scientist embraced the idea and helped Satoshi to develop and implement Bitcoin. The identity of Satoshi Nakamoto remains to this day a mystery. Cypherpunks valued privacy, so nobody questioned the identity of Satoshi in the early days, and he/she/they did a great job of covering their tracks.
In January 2009, the bitcoin blockchain went live with the release of the first open source bitcoin software. Satoshi Nakamoto mined the first bitcoin block (otherwise known as the genesis block) on the blockchain and embedded the following message:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
As a piece of history, this message was quite pertinent to the economic realities of the time. With the western world wallowing in the depths of the Global Financial Crisis (GFC), this text was quoting an article from The Times newspaper which spoke about insolvent banks getting a second round of bailouts in the UK. In many ways this is a poetic compliment to the design of bitcoin: bitcoins are minted based on what the mathematical code of the software dictates. It is unchangeable and new bitcoins cannot be created out of thin air… unlike traditional fiat currencies which are based on a system of debt and controlled through adjusting the money supply and interest rates.
“Satoshi Nakamoto… is estimated to have mined 1 million bitcoins in the currency’s early days.”
Satoshi and a growing number of cryptographers including Hal Finney, Gavin Andresen, Wei Dai (inventor of bitcoin predecessor, b-money) and Nick Szabo (inventor of bitcoin predecessor, bitgold and later on, smart contracts) worked to test and improve bitcoin software during 2009.
On May 22nd, 2010, the first official real world bitcoin transaction took place when Lazlo Haynecz purchased two Papa Johns Pizzas for 10,000 bitcoins . In many ways, this transaction validated the bitcoin software and proved that there really was potential for bitcoin to be used as a payment method.
On August 6th, 2010, a major weakness in the bitcoin software was found which meant that transactions weren’t being properly verified before they were included on the blockchain. This resulted in 184 billion bitcoins being created in a fraudulent transaction on the 15th August. Within hours, the transaction was spotted and removed and the bug was fixed. The software was updated and the blockchain was forked to another version of the chain. This was the only major vulnerability to be found and exploited in the history of bitcoin to date.
As the year of 2010 was nearing an end, and the bitcoin software was becoming more ready for beta usage, Satoshi Nakamoto’s input to the project tapered, and by the end of 2010, he had left the mailing list and disappeared from the cypherpunk scene, leaving a number of the early adopters including Hal Finney and Gavin Andressen to take charge for the development of bitcoin.
“I’ve moved onto other things…” – Satoshi Nakamoto
Around this time, the first ‘alt-coins’ such as peercoin, dogecoin and namecoin came about as ‘forks’ to the bitcoin protocol with altered parameters.
In January 2011, the Electronic Frontier Foundation (non-profit set up to promote civil liberties in the digital realm) began to accept bitcoin. However, the foundation stopped accepting bitcoin around 6 months later, due to concerns about a lack of legal frameworks around digital currencies. On 17th May, 2013, they reversed their decision and began accepting bitcoin again.
In February 2011, Ross Ulbricht set up the Silk Road anonymous online black market under his pseudonym “Dread Pirate Roberts”. This was a place where all sorts of illegal items were for sale. Being the first of its kind, the Silk Road used a ToR browser to hide user activity and bitcoin as a borderless payment method. This attracted the attention of regulators and law enforcement services to bitcoin.
In June 2011, WikiLeaks began accepting bitcoin for the purpose of anonymous donations.
Bitcoin started getting mainstream media attention in January 2012, where it was the main subject on a fictionalized legal drama, “The Good Wife”. In one scene, Jim Cramer “played himself in a courtroom scene where he testifies that he doesn’t consider bitcoin a true currency, saying “There’s no central bank to regulate it; it’s digital and functions completely peer to peer”.
In September 2012, the Bitcoin Foundation was setup by Gavin Andressen, Charlie Shrem and a number of other early adopters. The Bitcoin Foundation was developed to coordinate the efforts of the bitcoin community to aid with adoption and fostering bitcoin as a decentralized currency of the future.
By October 2012, BitPay (a global bitcoin payment service provider) reported having more than 1,000 active merchants.
In November 2012, WordPress began accepting bitcoins as payment for upgrades through the BitPay service. They began accepting this payment method to make their services more accessible to people around the world. At the time, PayPal refused to accept payments from over 60 countries.
“We don’t think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can’t control. Our goal is to enable people, not block them.”
The benefits of removing the need for trust in a third party were beginning to become clear. Decentralized digital currencies foster the promise of financial inclusion for anyone with access to the internet.
- The cryptocurrency payment processor and exchange Coinbase reported selling over US$1 million of bitcoin at a price of more than $22 per bitcoin.
- In the same month, The Internet Archive, a non-profit dedicated to providing universal access to knowledge began accepting bitcoin donations and stated that it intends to offer employees the choice of having their salary paid in bitcoin.
- There was an issue with the blockchain separating into two separate records of events. Core developers requested that users stop transacting on the network and downgrading to version 0.7 of the software. Within moments, this caused the bitcoin price to drop by 23% to $37 each. The price recovered within hours.
- The United States Financial Crimes Enforcement Network (FinCEN) established guidelines for “decentralized virtual currencies” including bitcoin. Their guidelines stated that “while users are not classified as money services businesses (MSBs) subject to its rules, exchanges and administrators are.” Under their regulations, bitcoin miners that sold their cryptocurrency to pay for operating expenses would be classified as MSBs, and would be subject to their regulations.
- As the popularity of bitcoin grew, payment processors BitInstant and Mt Gox were unable to keep up with demand due to insufficient capacity.
- This lead to a flash crash in the price of bitcoin, dropping from $266 to $76. However, within 6 hours, the price had stabilized to $160.
- Some more mainstream services such as Ok Cupid and Foodler began accepting bitcoin as payment.
- US Authorities seized accounts associated with the Mt Gox bitcoin exchange after finding that they did not register as a money transmitter service with the FinCEN.
- The United States Drug Enforcement Agency (DEA) reported seizing 11.02 bitcoins. This was the first time a government agency ever reportedly seized digital currency.
- A project in Kenya began that linked bitcoin with the popular mobile payments technology, M-Pesa, launched. Bit Pesa was an innovative test into how borderless payments could work through Africa, which evolved into a payments provider for trade businesses in Africa to deal with suppliers around the world. Bit Pesa now covers over 85 countries and looks after more than 6,000 customers.
- Thailand became the first country to ban bitcoin. Although this was later reversed, in many ways, it marked the beginning of governments exploring the cryptocurrency space.
- We began to see cryptocurrencies gain various classifications by regulators. For example, in response to a bitcoin-related ponzi scheme operated out of texas, Federal Judge Amoz Mazzant of Eastern District of Texas ruled that bitcoins are “a currency or form of money”, but that they were more specifically securities, and the finance minister of Germany deemed bitcoins as “a unit of account”, but more as a financial instrument than digital money.
- During the following few years, many different governments made their own judgements regarding the legal and tax-based status of bitcoin and cryptocurrencies in general. Being such a new innovation, there was much difficulty surrounding how to classify cryptocurrencies using the existing framework.
- The FBI shut down the Silk Road online marketplace, arrested Ross Ulbricht and seized roughly 26,000BTC. Not long after, “Silk Road 2.0” was set up by an administrator of Silk Road, which lasted for a year before it too was shut down by the FBI.
- The first ever bitcoin ATMs appeared in Vancouver, Canada.
- Chinese tech conglomerate, Baidu began accepting payment in bitcoin for their cyber security service, Jaisule.
- The University of Nicosia became the first university to accept bitcoin as payment for tuition fees.
- The Chinese cryptocurrency exchange, BTC China overtook all other exchanges to become the largest bitcoin exchange in the world by trade volume.
- Overstock.com, a large internet retailer announced it’s plans to begin accepting bitcoin in the first half of 2014.
- The People’s Bank of China banned Chinese financial institutions from using bitcoin. As one can imagine, following the announcement, the price of bitcoin dropped and Baidu decided to stop accepting bitcoin as payment.
- Gambling companies began entering the crypto space: Zynga (developers of FarmVille) announced that it was testing bitcoin payments for seven of its games, The D Las Vegas Casino Hotel and Golden Gate Hotel and Casino announced that they would be accepting bitcoin, and that it could be used as payment for gambling and at certain restaurants.
- Bitcoin mining activity and competition increasing at a breakneck pace, signifying the demand for bitcoins. Network activity exceeded 10 petahash/second.
- Overstock.com and TigerDirect began accepting bitcoin as payment through payment providers Coinbase and BitPay. Through this method, customers have the choice to pay using their cryptocurrency, and merchants have a choice whether to receive payment in dollars or bitcoin.
- The beginning of the end for the first ever major bitcoin exchange, Mt. Gox. They began suspending withdrawals, and by the end of the month, Mt. Gox had filed for bankruptcy protection following reports that 744,000 bitcoins had been stolen. This was a big deal, as Mt. Gox handled over 70% of bitcoin transactions worldwide during 2013, and into 2014.
- It wasn’t until April, 2014 that Mt. Gox began liquidation proceedings after losing around 650,000 bitcoins. A few years later, in 2017, this was found to be part of an elaborate scam performed over many years. Due to the fact that the bitcoin blockchain is traceable, we can see where the funds went.
- The network activity/mining competition had increased more than 10 times in less than 6 months, exceeding 100 petahash/second!
- Computer manufacturer Dell and electronics retailer Newegg began accepting bitcoin as a payment method through Coinbase.
- TeraExchange LLC received approval from the US Commodity Futures Trading Commission to offer an ‘over-the-counter swap’ that was based on the price of bitcoin. This was the first time a US agency ever approved a bitcoin-based financial product.
- Microsoft began accepting bitcoin as payment for downloadable digital content such as Xbox games and Windows software for US-based customers. This was offered through payment service provider, BitPay.
- Coinbase raised $75 million in funding, making it the largest dollar amount ever raised for a bitcoin company up until this point. At the time, they were serving customers in 18 countries, and this funding helped them to establish their presence as a market leader. Prior to this, Blockchain.info held the record for the largest amount of capital raised at $30.5 million.
- Bitstamp, a UK-based exchange lost 19,000 bitcoins due to a hack. After going offline for a few days, they resumed trading on the 9th January with a promise to reimburse customer funds. Cryptocurrency exchanges are a large target for hackers due to the significant amount of funds that are held in ‘hot wallets’.
- Following the hack, Bitstamp beefed up security measures to prevent the same thing happening again.
- Not long after Coinbase raised a record sum of funding, 21 Inc. announced that it had raised $116 million. This company, now renamed earn, offers a service where people can choose to be paid in bitcoin to respond to emails, take surveys and complete other value-added tasks. One of the main ideas behind it is that people with authority, specific skills and knowledge or fame have the option to be rewarded for being accessible to people who value their expertise
- By March 2015, there were 353 bitcoin ATMs available to make it easier for people to buy bitcoin!
- Barclays Bank announced that they would be the first mainstream bank to accept bitcoin, for the purpose of helping charities with receiving money. Barclays partnered with social payments app, Circle in April 2016 to facilitate this offering without physically handling bitcoins.
“We are working with some charity clients in a proof of concept to understand how Bitcoin payments might help with their fund raising and fund disbursement needs”
- The cumulative power of miners on the bitcoin network exceeded 1 exahash/second – which equates to a 10x increase in mining power in roughly 18 months. At the time, this made the computing power on the bitcoin network around three-hundred-thousand times more powerful than the world’s fastest supercomputer, the tianhe-2.
- The Cabinet of Japan recognized digital currencies as “similar to real money” after approving a new set of bills related to digital currency. This helped to establish Japan as a market leader in the cryptocurrency space:
“Under the revised banking bills, bank-holding companies will be able to acquire IT-related ventures. The move is aimed at promoting innovative financial services called “Fintech” and allowing banks to embark on new settlement systems and other businesses.”
- Bidorbuy, South Africa’s largest online marketplace enabled payments to be made in bitcoin. This was offered through Luno, an international cryptocurrency payment provider.
- Gaming software giant, Steam (available in 237 countries in over 20 languages) started accepting payments in the form of bitcoin for various online games and media through cryptocurrency payments provider, BitPay.
- A collaborative research study of bitcoin transactions between 2009-2015 found that from November 2013 onwards, bitcoin usage was driven by legitimate commerce rather than “sin” transactions such as gambling and black market activity. Bitcoin was beginning to mature!
- In response to the government of Argentina blocking credit card companies from dealing with ride-sharing app Uber, the company switched their payment method to bitcoin. This was part of a growing trend of bitcoin acceptance in Latin America.
“Confidence in Bitcoin is growing steadily in Latam as the years go by and the technology proves to be resilient while the currency proves to be a safe haven compared to the highly inflationary national currencies.”
- Major cryptocurrency exchange Bitfinex was hacked and lost close to 120,000 bitcoins. They decided to socialize the losses across all customers and assets held on the platform, resulting approximately 36% of funds removed from all accounts. This was repaid from trade commissions over time, however users were not impressed. Following the hack, Bitfinex significantly improved their security measures. Nonetheless, this is another striking reminder that cryptocurrency stored on an exchange is at risk to third-party error and proactive hackers.
- The number of bitcoin ATMs grows rapidly, with more than 100% growth in 18 months. In September 2016, there were 771 bitcoin ATMs worldwide (mainly in America and Canada). This website is a useful tool to find where the nearest bitcoin ATM is located.
- The Swiss railway operator, SBB upgraded all of their automated ticketing machines to enable people to purchase bitcoin from a range of convenient locations around Switzerland.
- BitPay CEO Stephen Pair announced that they have seen a 300% increase in transactions between January 2016 and February 2017, and that some of their clients had started using bitcoin for B2B-based supply chain payments. This highlights the value of having a borderless currency that doesn’t reside in any particular jurisdiction.
- In the same article, it was noted that BitPay had seen a 35x increase in transaction fees (in $USD) being paid to miners in the same time period. This issue had been bubbling away for some time, which would result in a hard fork later in the year.
- The number of bitcoin-related projects on Github (the go to web-based hosting service for open-source software development) exceeded 10,000. Many of these were forks of the bitcoin technology.
- During 2017, bitcoin gained a-lot more of legitimacy around governments and traditional banking sectors. In April, it was reported that Russia was moving towards developing a legal framework around cryptocurrencies, and Japan was seeing widespread adoption of bitcoin, leading to the BTC/JPY trading pair being the second largest bitcoin-to-fiat trading pair by trade volume.
- Cryptocurrency trading volumes skyrocketed all over the world during 2017. For example, Poloniex, a leading exchange experienced a 640% increase in transactions and a 600% increase in active traders within 4 months from January-May, 2017!
- Norway’s largest online bank, Skandiabanken began offering customers the ability to integrate their bank account with Coinbase. They were testing the waters, allowing their customers to hold funds in bitcoin, and to have this functionality without leaving their traditional banking platform.
“We acknowledge that this is something people want to put their money into”
- The founder of Ethereum, Vitalik Buterin met with Russian president Vladimir Putin to discuss “the opportunities for using the technologies he developed in Russia.”
- The bitcoin symbol, ₿ became part of the Unicode vocabulary
- Following a long and drawn-out debate on scaling the bitcoin network for mainstream adoption, the bitcoin blockchain forked into two separate projects on the 1st August: bitcoin and bitcoin cash. The main issue of contention was around whether scaling should be done on-chain by increasing the size of each block in the blockchain, or whether off-chain scaling solutions should be implemented to allow for higher transaction throughput.
- Initial Coin Offerings (ICOs) come under regulatory scrutiny in both China and South Korea
- Publicly listed stocks rally up to 400% following the addition of “blockchain” to their name, bringing back memories of the dot com bubble.
- CME Group announces they will launch trading of Bitcoin Futures.
- The contentious SegWit2x fork was called off at the last minute.
- Square Cash announces support for users to buy and sell Bitcoin.
- CBOE group begins trading of their Bitcoin futures contract.
- TD Ameritrade announces support for trading of bitcoin futures.
- Facebook CEO, Mark Zuckerberg, says that he will look into integrating cryptocurrencies into Facebook services.
- Ledger raises $75 million to continue it’s development of bitcoin hardware wallets.
- Coinbase, one of the first U.S based bitcoin exchanges and brokers, reveals 2017 earnings of over $1bn.
- Japanese cryptocurrency exchange Coincheck loses more than $500 million of altcoin NEM to hackers.
- Facebook bans cryptocurrency and ICO ads.
- Samsung enters the bitcoin mining market with mass production of ASIC chips in partnership with Taiwanese manufacturer TSMC. This brings much needed competition to incumbent Bitmain, who have been criticized for exploiting their monopoly position and trying to block segwit as it would remove their contentious ASICBoost advantage.
- Major US banks begin banning credit card transactions used to purchase Cryptocurrency. Citing both concerns of the credit risk and anti money laundering regulation.
- Mike Novogratz raises $250m for Cryptocurrency Merchant Bank “Galaxy Digital”. The bank will open a cryptocurrency trading desk and initially seek to capitalize on opportunities for cross-exchange arbitrage. It will also invest in blockchain startups and initial coin offerings (ICOs).
- Telelgram raises $850m in SEC exempt pre-sale of it’s ICO.
- Sovereign entities begin to explore the possibility of ICO’s to circumvent U.S Sanctions. Venezuela’s President Announces ‘Petro’ Token Pre-Sale. Iran & Turkey follow shortly after with plans to launch their own cryptocurrency.
- Cryptocurrency exchange Poloniex is acquired by Circle for $400m USD.
- Trustees of the Mt Gox bankruptcy reveal that they sold ~$400m USD worth of Bitcoin between September and February in order to settle creditors claims on the bankrupt estate. The appreciation in value of the Bitcoin’s recovered by the estate created a unique bankruptcy situation that would give the shareholders a windfall gain at the expense of the creditors. Mark Karpeles, former CEO of Mt Gox, does an AMA on reddit to address these concerns.