How Bitcoin Grew Up And Became Big Money

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Today marks the tenth anniversary of the birth of Bitcoin, which can be calculated in a number of different ways. A few months after the first whitepaper was published, on January 3, 2009, the first lines of code were added to the bitcoin blockchain. This occurred a few months after the release of the whitepaper. The person or individuals known as Satoshi Nakamoto are credited with writing these lines of code, which together are referred to in Bitcoin as the "genesis block."

On the 12th of January, Nakamoto transferred 10 bitcoins to Hal Finney, which marked the beginning of a new financial counterculture. At this juncture, the value of a bitcoin was essentially worthless. Users literally paid bitcoins to one another as incentives for making insightful remarks on various forums. On May 22, 2010, the first transaction that might be considered "genuine" occurred. For a total of 10,000 bitcoin, or around $30, Laszlo Hanyecz purchased two pizzas. (At the rates in effect right now, 10,000 bitcoins would be equivalent to $38 million. (I really hope that the pizza was delicious.)

Throughout the majority of its existence, Bitcoin has attracted members of three primary communities that overlap with one another. These communities are the small community of original investors and true believers; the enthusiasts of blockchain technology; and the speculators who are simply here to make some money, ma'am. In recent times, a new community has formed, and its members are more traditional and stuffy in their approach to money.

At its inception, bitcoin was a form of currency that was accompanied by a set of guiding principles. Rather than a central bank, Bitcoin consisted of code and a whitepaper written by Nakamoto, both of which expressed cynicism towards conventional financial institutions. But Nakamoto disappeared into thin air. As the use of digital money became more widespread, the system that was designed to function independently of trust began to experience trust problems. And as its price has increased, bitcoin has turned into another investment tool for the traditional monetary system that it was designed to supplant. After ten years, bitcoin has become a part of the same system that it was designed to overturn.

CRISIS BIRTHED

If you had asked me this question ten years ago, I would never have guessed that the world of finance could support a subculture. But in 2008, when the financial crisis was in full swing, a group of tech-savvy true believers who were unsatisfied with the status quo developed one. This group included anarchists and libertarians. (Other efforts have been made to create a kind of digital currency, but none of them have been successful.) Someone registered the domain bitcoin.org in August of 2008, and on October 31 of the same year, a paper was published that described a decentralized method for conducting electronic transactions that did not depend on trust. The first sentence of the white paper that was written by Satoshi Nakamoto reads as follows (italics mine): "A purely peer-to-peer form of electronic currency would let online payments be transmitted directly from one party to another without passing through a financial institution." [Citation needed]

You can see the impact of the banking crisis on the philosophy of bitcoin: first and foremost, it's a special skepticism of financial institutions. Secondly, it's a decentralized system. In addition to any number of other betrayals of trust that occurred during the financial crisis, a money market fund known as the Reserve Primary Fund committed an extremely alarming act: it broke the buck. You would get 97 cents in return for a dollar's worth of investment. The reason for this was that the money market fund had invested in Lehman Brothers, which was a financial institution that had just declared bankruptcy.

In some senses, money isn’t "real."

According to USA Today, as of September 2008, $3 trillion had been put into money market funds, which at the time were regarded to be just as secure as an actual savings account. However, due to the fact that they are not as risk-free as savings accounts, investors were surprised and disappointed to learn that they offered higher rates of return on investments. Following this, there were modifications made to the regulations regarding money market funds.

The failure of Lehman Brothers spread contamination across the larger financial markets, which made it abundantly evident how intimately institutions were intertwined with one another. There are a number of potential responses to this situation, one of which is to tighten financial laws, make some adjustments to the system, and let it continue operating, with the expectation that it would become more stable. Developing a brand-new system that is devoid of these potential dangers is yet another remedy that might be taken. Suddenly, a lot of individuals had the mindset to treat bitcoin with the seriousness it deserves.

The peculiar nature of money is brought into stark relief by bitcoin. Money, in a certain sense, is not "real" in the same sense that a tree is. A value token that facilitates simpler trade is something that humans have invented. People fight and die for it, empires crumble because they do not have enough of it, and I myself would be destitute if I did not need it to pay my rent. However, it is real enough. If enough people think it exists, money is much like Tinkerbell from Peter Pan. It may become a reality. And at the same time, in 2009, a lot of individuals were seeking alternative financial systems to the mainstream one, which had collapsed in a disastrous way. According to the common conception, money is the most important aspect of banking. But what does money look like if there are no bankers there to handle it? Bitcoin was the one that broke out as the greatest conceivable solution to society's collective fears about the financial system. Among all the earlier efforts at internet-based money, and there were many, bitcoin was the one that succeeded in becoming the most popular.

INTO THE UNDERWORLD

Bitcoin is designed in a manner that makes its philosophy transparent via its structure. The concept of a peer-to-peer money network is reminiscent of the disruption that Silicon Valley was known for in the past. When you transfer money to a third party, such as a bank or Western Union, you won't be charged any additional fees. However, the original philosophy was much more extreme: if you believe that the state is nothing more than a designated force for violence, it's possible that you believe that fiat money, such as the dollar, is an imposed state monopoly.Bitcoin breaks up this monopoly and could be seen as a way to use money to show how much you dislike the government.

Even the phrase "mine" alludes to this way of thinking: many investors consider bitcoin to be a commodity, similar to gold. (Let's bow down to the gold standard, but keep the conversation going.) There is also the fact that bitcoin is limited in supply; according to the system in place, there can never be more than 21 million bitcoin in circulation. Over 17 million have already been extracted from the ground. The remaining resources will be unlocked at a pace that can be accurately predicted by the mining process, which has become less rapid as more of the resources have been available. This system cannot be made to run any faster, and no president or central bank can artificially inflate prices to further their political agendas.

The closure of Silk Road was the end of bitcoin’s beginning.

The distributed ledger is another important technology that may be used to circumvent traditional financial institutions as well as the authorities. Everyone has access to the "blockchain," which is a public record of all the transactions that have been done over the course of time. At least in principle, the completion of trustworthy transactions does not require the participation of any organization. If you are able to conceal your identity using a wallet, then they do not even need to know who you are.

However, the last ten years have made it very evident that losing trust as a component in one sector of the financial system implies that trust issues show up someplace else. This is how the counterculture emerged. It was necessary to persuade others that an investment in bitcoin was beneficial for there to be any return on the money spent purchasing bitcoin. On social networking sites like IRC and Reddit, Bitcoin groups have begun to develop.

However, the underground market known as Silk Road was the most influential community during the early days of bitcoin. The promise of Silk Road was likewise fundamentally libertarian, and it was founded by Dread Pirate Roberts, whose true identity would subsequently be discovered to be that of Ross Ulbricht. The concept included the possibility of trading anything at all, regardless of whether or not the state regarded the activity as being legitimate. Marijuana, phony identification documents, benzos, and several other prescription medications dominated the transaction, which was supported almost entirely by bitcoin. The United States authorities took control of the Silk Road in 2013, and as part of that takeover, they confiscated 144,336 bitcoins that belonged to Ross Ulbricht.

The elimination of Silk Road marked the conclusion of Bitcoin's formative years. It was maybe at that point that it became apparent that separating banking institutions from money would not necessarily create a more trustworthy environment, nor would it certainly provide protection from the state. If Mt. Gox went out of business, it would make it much harder for people to trust bitcoin.

Mt. Gox, which stands for "Magic: The Gathering Online eXchange," was not initially established for the purpose of bitcoin, although it did start operations as a bitcoin exchange in early 2010. Mt. Gox was a digital currency exchange that was founded in 2011 by Jed McCaleb and later sold to Mark Karpelès. Mt. Gox allowed users to purchase and sell bitcoins via bank transfers. According to an article that was published in The Verge by Adrianne Jeffries, the early years of Mt. Gox revealed the new dangers that were associated with using online cash. These new risks included "hacks, outages, a run-in with the US government, and a $75 million lawsuit."

After customers complained that they were unable to withdraw their bitcoin, Mt. Gox ultimately decided to file for bankruptcy in 2014. As a result, its demise could have had disastrous consequences.Jeffries claimed that "behind the scenes," Karpelès had found that an attacker had been methodically draining all of Mt. Gox's bitcoins without being spotted. "Karpelès had uncovered this," Jeffries said. In February of 2014, the firm filed for bankruptcy, claiming $64 million in liabilities as the primary reason. The price of bitcoin continued to surge in the years that followed, which enabled at least some of the creditors to cash out at the rates that existed in 2014; nonetheless, this was not the primary issue. The promise of bitcoin was that your money would not be held hostage by a failing bank, but in reality, that is exactly what has happened.

In essence, Mt. Gox and the other exchanges provide the same purpose as traditional commodities exchanges, but for bitcoin, which makes the process of trading bitcoin much more straightforward. People are able to establish the exchange rate for bitcoin (and other cryptocurrencies), convert fiat money (state-issued currency such as dollars) into cryptocurrency, buy and sell cryptocurrencies, and set the exchange rate for bitcoin. Their very presence made it simpler for ordinary schmucks to acquire bitcoin, which in turn ushered in a whole new set of security concerns. Some of the issues that Mt. Gox encountered early on continued to affect other exchanges like Coinbase, which led some to speculate that digital currency presented unique challenges that paper-based currency did not. Although you could get into my home and take the $40 that is sitting next to my laptop, doing so would require a lot of effort for very little payoff. Learning how to hack the exchanges, on the other hand, could result in tens of millions of dollars in cash from a single breach.

Even while traditional banks and exchanges may be hacked, they nonetheless invest significant resources into making themselves more difficult targets. However, John Sedunov, an associate professor of finance at Villanova University, told The Washington Post in 2018 that Bitcoin exchanges "may not have had the funds on hand, time, or even the technological competence to scale up security measures quickly enough to fend off possible attackers."

BUILDING A SMARTER COIN

But despite the collapse of Mt. Gox and the shutdown of Silk Road, bitcoin has continued to make headway in the mainstream financial sector. According to Cointelegraph, Microsoft started taking bitcoin payments before the end of 2014. [Citation needed] Bitcoin was featured prominently on the front page of The Economist in the year 2015. During this time period, additional cryptocurrencies, which were also based on the blockchain, started to appear. The most prominent of these was Ethereum, which was released in 2014 and raised $18 million via an initial coin offering (ICO).

The cryptocurrency world saw yet another significant shift when Ethereum marked the beginning of a transition away from an emphasis on bitcoin itself and toward an interest in blockchain technology. Ethereum gives its users the ability to build apps and profit from their efforts by using blockchain technology. The "smart contract" is perhaps the most well-known implementation of blockchain technology. Despite the fact that this technology markets itself as a solution to do away with the need for attorneys, it is very difficult to dissuade lawyers from their positions once they have established themselves. Just saying!) The following is a simplified example of how to create a smart contract: Let's pretend that you and I have reached an agreement that, in exchange for me writing you a history of bitcoin, you will give me ten dollars when it's my birthday this year. We may do this via the use of a legally binding contract, which requires the services of attorneys, notaries, and other professionals, or we can do it with Ethereum. In the second scenario, you place ten dollars' worth of smart coins into escrow, and if all of the conditions of the contract are satisfied, I will get those coins as payment. If I don't do what we agreed to, you'll get the coins back.

Increasingly, bitcoin has left behind its original community of true believers.

Despite the fact that Ethereum was the most significant of these organizations, a large number of other initial coin offerings (ICOs) came into life, including NXT Neo, Spectrecoin, Stratis, and EOS, among others. These ICOs were often associated with particular businesses and goods. As many governments across the world woke up to the fact that new cryptocurrencies are taxable investment vehicles with the potential to be regulated, the enlarged universe of blockchain technology began to take form. Coincidentally, this is a concept on which absolutely no one can agree. In 2017, the United States Securities and Exchange Commission, also known as the "money cops," made the announcement that, under certain conditions, financing events for digital currencies would be regarded as securities. The SEC then sued a number of fake coin projects for breaking securities law.

Depending on how you feel about this development, it can either be viewed as a step toward legitimizing cryptocurrencies ("it's so real that the government is choosing to regulate it as an investment vehicle!") or as a betrayal of the initial promise that bitcoin would be free from the influence of governments, which was the basis upon which the Nakamoto entity launched bitcoin. However, bitcoin has grown increasingly distant from the core group of true believers that it initially attracted.

The price of bitcoin increased by more than one thousand percent in 2017, which may help to explain why it was the subject of such strong curiosity from individuals who, you know, earn money professionally. (Later on, a finance expert at the University of Texas argued that market manipulation may have been responsible for half of this surge.) On the 17th of December, 2017, Bitcoin reached an all-time high of $20,000, surpassing any previous price. Even though, as of August 2018, a DEA agent told Bloomberg that the majority of bitcoin transactions were being conducted by speculators rather than the black market types that dominated bitcoin during the days of Silk Road, the crime rate associated with cryptocurrency-related activities increased.

In 2018, these investors had a more difficult year, as the price of bitcoin fell by 80% from its peak the previous year.And when its price dropped, most people's interest in it diminished; but the interest of financial specialists, who can earn money regardless of whether an asset's value increases or decreases, did not.

At the time that this article was written, venture capital firms (with boosters like Tim Draper of Draper Fisher Jurvetson and Marc Andreessen of Andreessen Horowitz), hedge funds, unidentified bitcoin "whales," and mainstream investors like George Soros were trading cryptocurrencies in general and bitcoin in particular. There have been rumours that Goldman Sachs, in particular, is considering joining the market. Exchange-traded funds (ETFs) are already in the planning stages, and if approved, they would enable investors to trade cryptocurrencies like stocks. This will bring digital currencies even closer to the system that they were designed to eventually replace.

A price has been paid as a result of the unanticipated popularity of bitcoin outside of the financial world. The number of individuals mining bitcoin has caused the price of the powerful processors that are used by scientists to more than quadruple. This has made it more difficult for astronomers and other professionals to accomplish their tasks. Mining bitcoins uses a lot of energy and makes a lot of pollution, which worries environmentalists.

Despite the countless investigations that have been conducted, no one has been able to determine who Satoshi Nakamoto was or is. There have been many people who have claimed to be the true creators of bitcoin, but no one has ever shown the conclusive evidence that is exchanging Nakamoto's bitcoin. It would seem that the issue that threatened people's faith in the financial system has been resolved. But it's possible that institutional investors and banks may end up being the largest beneficiaries of the new age of bitcoin, despite the fact that the system was built to avoid them.

Conclusion

Bitcoin and the cryptocurrency industry as a whole are still going strong in spite of the many shocking occurrences that have occurred since the catastrophic crisis in 2017. In fact, the market for crypto assets fully recovered in 2020, as shown by a rise to levels similar to those seen three years earlier.

FAQ

How did Bitcoin amass such a fortune?

Scarcity. The value of Bitcoin is directly proportional to how scarce it is. The demand for cryptocurrencies is growing at a faster rate than the supply can keep up with. Investors are vying for a piece of the ever-increasing profit pie that is the consequence of trading its finite supply, and they are doing all in their power to get it.

How did Bitcoin have such rapid growth?

Bitcoin just broke over a critical barrier level, leading investors to feel that there is room for more price appreciation. People are nevertheless drawn to assets that are considered safe havens despite rising inflation and the possibility of much more stimulus. Because payment systems like PayPal are starting to accept cryptocurrencies more and more, a lot more people will find it easy to use them.

Who is the bitcoin owner with the most wealth?

According to the Bloomberg Billionaire Index, Changpeng Zhao, who started the cryptocurrency exchange Binance, has a net worth of $96 billion. This makes him the richest person in the cryptocurrency world.

That's all for today, see ya tomorrow! If you want more, be sure to follow our Twitter (@croxroadnews)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

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External Links

• Bitcoin launched 13 years ago this month⁠—here are 8 milestones from the past year

• How Bitcoin Grew Up And Became Big Money

• What Is Bitcoin?

• The History of Bitcoin: How did Bitcoin become so popular?

• Bitcoin Price History: 2009 - 2022