By now Bitcoin has become a household name. It is traded on the market and has seen its ups and downs. But just where did Bitcoin come from? Was it a system that magically appeared on the internet? Or is it a program that has been in the works since the beginning of the internet?
What is Bitcoin?
Bitcoin is a digital currency that exists entirely over the internet. It’s the most well-known virtual currency in the world today – although most people don’t really understand how it works.
To a layman, Bitcoin is best described as anonymous internet money. It’s based on a decentralized peer-to-peer payment network. You send digital money to someone for products or services.
- 1 What is Bitcoin?
- 2 A Rough Start:
- 3 The Beginnings
- 4 Who Created Bitcoin?
- 5 How Does Bitcoin Work?
- 6 Advantages of Bitcoin
- 7 Disadvantages of Bitcoin
- 8 BTC Highs and Lows
- 9 Where Will Bitcoin Go in the Future?
- 10 Conclusion
A Rough Start:
As far as we can tell, 1982 is when the idea for cryptocurrencies was introduced. David Chaum, a scientist, proposed the notion of e-Cash. e-Cash was a way for people to use an automated system to process payments where third parties were left out of the loop.
It wasn't until eight years later in 1990 when Mr. Chaum's idea became a reality in the form of DigiCash. DigiCash was founded in Amsterdam as a means for a safe and secure currency that would be used online. However, DigiCash took a significant hit in the later part of 1990 when the company filed for bankruptcy.
The idea of having a currency to use in the digital world was the prize for many cyberpunks. It would take another seven years before another breakthrough would take place. In 1997, ‘HashCash' was invented by Adam Back. Mr. Back's proof-of-work system would be the breaking grounds for Bitcoin.
In 1998 two cryptocurrencies were proposed, B-Money and Bit Gold. B-Money was the concept of proof-of-work (PoW) system that would create the currency by using a mathematical computation. The idea for B-Money was brought to the community by Wei Dai. Later in 1998, Nick Szabo would propose the Bit Gold which would cut out the middleman and by solving the PoW would allow the user to obtain bits while the last bit on the chain would be utilized to create the string for the following transaction.
Both B-Money and Bit Gold may not have realized how they were laying the groundwork for Bitcoin to emerge. But without B-Money, Bit Gold, or the HashCash system, Bitcoin would have never been able to take off.
It took 26 years as well as ideas from several different people for Bitcoin to be born. In August 2008, Bitcoin.org was registered to the world wide web, and two months later, the whitepaper for the concept of Bitcoin was published.
In the whitepaper, the plans for Bitcoin were made clear. The concept would allow a peer to peer transactions that would be safe and secure. The paper continues to say how Bitcoin would utilize PoW and hashing the information from the operation to form a chain all the while cutting out the middleman.
There is speculation as to who wrote the whitepaper for Bitcoin. While the paper was published under the name of Satoshi Nakamoto, history has proven that this name is not affiliated with anyone. It was a pen name used by a person or group of people who saw a need for digital currencies and brought to the table a mesh of former ideas melted together to what has now become the biggest cryptocurrency in the world today.
Who Created Bitcoin?
The idea of cryptocurrency has existed for a long time. The roots of Bitcoin can be traced way back to 1998, when the term “cryptocurrency” was used for the very first time by Wei Dai on an online mailing list. This futuristic currency was proposed to be a new form of money fueled by the internet that would use cryptography to govern its creations and transactions – two things that are typically governed by a central authority in most modern currencies.
The creation of Bitcoin itself, however, is traced back to a man named Satoshi Nakamoto. Satoshi published the first proof of concept for Bitcoin in 2009 in a cryptography mailing list. Satoshi’s involvement with Bitcoin ended in 2010, at which point the currency’s development was undertaken by many developers around the world.
Satoshi is one of the most mysterious parts about Bitcoin. The man himself has never been identified. It’s unknown if Satoshi Nakamoto even is a man. The Wikipedia page on Nakamoto claims that “Satoshi Nakamoto is a person or group of people who created the Bitcoin protocol.”
In any case, Satoshi’s anonymity doesn’t mean much today. The Bitcoin software is entirely open and available for anyone to review: it’s not some hidden scheme created by an evil genius. As a result, Bitcoin.org claims that:
“the identity of Bitcoin’s inventor is probably as relevant today as the identity of the person who invented paper.”
How Does Bitcoin Work?
Most people can tell you that Bitcoin is a digital cryptocurrency – even if they don’t use those exact terms.
But when you start asking these people about how Bitcoin works, they might start to get quiet. So how exactly does Bitcoin work?
From your perspective as an average Bitcoin user, Bitcoin is just a mobile app or computer software program. You manage your Bitcoin wallet using this software and can send and receive Bitcoins with the software. For most users, your extent of knowledge about how Bitcoin works can safely end there.
But there’s plenty more information about Bitcoin behind the scenes. Behind the scenes, the Bitcoin network shares a public ledger called the blockchain. This block chain lists every single Bitcoin transaction ever processed. Each user’s computer/app can verify the validity of each transaction. All Bitcoin transactions are protected by digital signatures that correspond to the sending addresses.
If you have specialized computer hardware, you can actually use your processing power to help process Bitcoin transactions. This is called “mining” and users are rewarded in Bitcoins for their processing power. We’ll comprehensively cover Bitcoin mining in another article.
How Do You Send and Receive Payments with Bitcoin?
All Bitcoin users have an address. This address typically looks something like this:
That may look like gibberish, but it’s a unique identifying code of 26 to 35 alphanumeric characters. The address always begin with the number 1 or 3.
Getting a new Bitcoin address is easy. Using Bitcoin software, you typically just click the “New Address” button.
You can send Bitcoins by typing in that person’s address. You can also tap phones together to exchange addresses using NFC technology in your smartphone. Or, some users simply scan a QR code.
Advantages of Bitcoin
Bitcoin isn’t locked into any country, any hours, or any markets. It’s a currency free from any national restrictions. You can send and receive an unlimited amount of money to and from anywhere in the world at any time of the day. You don’t have to be restricted by banking holidays. You can enjoy complete control of your money.
Bitcoin payments can be made with no personal information attached to the transaction. This is why Bitcoin is popular with privacy advocates and criminals alike. Bitcoin users are also in complete control of their transactions because merchants cannot add fees at the point of purchase.
Minimal Transaction Fees:
Most Bitcoin transactions have no fees. If fees are incurred, they’re typically extremely small – like the small fee used for transactions to receive priority processing. Compared to credit card networks and online payment platforms like PayPal, Bitcoin’s fees are miniscule.
Transparent and Neutral Currency:
When you own most of your wealth in US dollars, your financial security is inexorably linked to the success of the American economy and decisions of the American government. Bitcoin isn’t tied to anything. All information about Bitcoin is readily available online. Average people can look at the block chain to verify its authenticity in real time. No organization can control or manipulate Bitcoin due to its cryptographic security. No other currency in the world can claim to be this neutral, transparent, and predictable.
Disadvantages of Bitcoin
It’s Not Available Everywhere:
Most people have heard of Bitcoin today. But most people don’t own a Bitcoin wallet. You can’t walk into a McDonald’s and pay for your Big Mac meal with a fraction of a Bitcoin. Of course, Bitcoin is still in its very early days, so we can expect acceptance to grow. But still, at this point, it’s a big hurdle to cross.
Bitcoin isn’t backed by any concrete asset. Therein lies its most fundamental value – neutrality – and its fundamental weakness – volatility. Today, Bitcoin hovers around $300 to $400. In the past, it has hit highs of $1100+.
BTC Highs and Lows
Bitcoin, however, didn't take off right away. The first transaction for Bitcoin took place on January 12, 2009. By the end of 2009, BTC the Bitcoin token was deemed to be worth $1 for 1,309.3 BTC.
May of 2010 BTC was used to purchase two pizzas. The cost of the pizzas was 10,000 BTC which roughly estimated to be $25. After the transaction took place, the world stopped and realized the value of Bitcoin and began taking note of how it could change the way people did business online.
It took a couple of months for BTC to reach the $1 mark for the stocks, but it didn't stop there. The market cap for BTC surpassed $1 million in November. However, in October of 2010, someone found Bitcoin's weak spot and exploited it by generating 184 billion BTC. It didn't take long before the issue was resolved and the transaction erased.
In 2011, BTC finally hit the $1 mark for the stock despite the press giving mixed reviews about the company and the currency. TIME magazine printed an article as well as Gawker. Both illustrated the good and the bad side of using cryptocurrency.
Despite the press that Bitcoin was receiving, by June 2011, BTC was over $30 a token. The rise of the Bitcoin token didn't last long as it soon tumbled back down to $10. The crash may have had something to do with the security breach which compromised Mt. Gox accounts and the Bitcoins within those accounts. The fear of losing so much BTC caused for the birth of Litecoin.
Even with the development of other cryptocurrencies hitting the market, Bitcoin managed to stay ahead of the game. In 2012, BTC hit the $100 mark per coin.
It would take a year for BTC to be $1,000 per token, but it happened. Bitcoin was becoming a household name, and people were flocking to take note of the stock and get in while the price kept soaring.
2014 – 2016
A lot happened in two years for Bitcoin. While it may have stalled in 2014, due to Mt. Gox filing for bankruptcy, people knew Bitcoin to be the most secure and prosperous e-wallet to use for transactions.
2017 was a massive year for Bitcoin. Not only did it finally hold at $1,000 per token, but it also managed to break out and by June hit $3,000 per token. Due to its popularity, several people who used BTC were getting irritated due to the overcrowded network. To satisfy their customers’ needs and wants, Bitcoin did a hard split and created Bitcoin Cash (BCH).
For the remainder of 2017, Bitcoin leaped up to $6,000 per token, and by late November the token was estimated at $10,000. In December BTC was worth $19,783. As more people and business saw the potential for Bitcoin, the price continued to rise. However, what goes up, must come down.
2018 hasn't seen the steady and hefty climb of Bitcoin the way 2017 had. As of this posting, BTC is only worth $6,270.50 and doesn't look as if it will hold that spot for much longer.
Where Will Bitcoin Go in the Future?
The Bitcoin project is currently ongoing and it’s unknown where the technology will go from here. What we do know about the future of Bitcoin is that only 21 million Bitcoins will ever be created.
Nevertheless, that won’t really limit the currency: it just means that future transactions will be split into fractional denominations of Bitcoins. You can divide a single Bitcoin up to 8 decimal places (0.00000001 Bitcoins) using the current system.
Other than that, we also know that Bitcoin will always be governed by two important things: supply and demand.
While it is anyone's guess where Bitcoin will go in the future, one thing is certain; it has proven to be a new form for payment that cuts the middleman out while providing security to its users.