The History of Bitcoin, the First Cryptocurrency

Is steadier growth on the horizon for Bitcoin after the roller-coaster ride of the past year?

A 2008 white paper by Bitcoin's mysterious creator revealed the blockchain system that would be the backbone of the cryptocurrency market. (GETTY IMAGES)
Cryptocurrency has had a short, but volatile and exciting history. It continues to be one of the most hotly debated global financial topics, with 2023 adding more marquee news headlines. Some key moments in the crypto's timeline include:

• In the earliest days, the FBI was working to shut down crypto-funded darknet black markets. 
• In 2013, Forbes named Bitcoin (BTC) the year's best investment. 
• In 2014, Bloomberg countered with its proclamation of Bitcoin being the year's worst investment. 
• In October 2021, the Securities and Exchange Commission approved ProShares Bitcoin Strategy (ticker: BITO), the first U.S. Bitcoin futures exchange-traded fund.
• In November 2022, FTX – the leading cryptocurrency exchange by trading volume – declared bankruptcy, creating some of the darkest days in the crypto history timeline

How Bitcoin Started

Bitcoin was the first cryptocurrency created and is now the most valuable and well known. It was first launched in January 2009 by a computer programmer or group of programmers under the pseudonym Satoshi Nakamoto, whose actual identity has never been verified. 
A 2008 white paper by Bitcoin's mysterious creator revealed the blockchain system that would be the backbone of the cryptocurrency market. A blockchain is a digital ledger of transactions that is replicated and distributed across a network of computer systems to secure information.

Bitcoin Core Concepts

Block. A block is a group of Bitcoin transactions over a certain period of time. The transactions are verified by "miners," who are rewarded for verifying the transactions with newly created BTC.
Bitcoin units. Each Bitcoin is divisible to eight decimal places. A millibitcoin (mBTC) is 1/1,000th of a Bitcoin. The smallest unit is a satoshi (sat), which is 1/100,000,000th of a Bitcoin. 
Transaction. A computer directive styled as "payer X sends Y Bitcoin to receiver Z."
Blockchain. Each transaction forms an unbroken link on the chain. This transparent, public chain is what allows Bitcoin to exist and be usable. All blocks of transactions are linked to previous blocks of transactions, forming the etymology for the word "blockchain."
Mining. Independent individuals or groups complete intensive and costly computer calculations to create a block. 
Block hash.  Mining activities incorporate a record-keeping service that keeps the blockchain consistent, complete and unalterable. The hashes validate available Bitcoin and serve as a means of uniformly rewarding the miners.
Blockchain address. A sequence of 25 to 34 alphanumeric characters. This is the information that is given to other parties so they know where to send the coins. They are considered pseudonymous because, while the blockchain itself is public, the address shields personally identifiable information. Cryptocurrency exchanges may be required by law to collect personally identifiable information, but each transaction can be associated with a different Bitcoin address to maintain privacy.
Wallet. Any individual or entity wishing to exchange Bitcoin (and not store them on an exchange, in someone else's custody) must create a digital collection of the credentials, known as a wallet, necessary to transact coins.

• Full clients. This is a wallet that includes a full copy of the entire blockchain. This is the safest form of storage other than offline, or "cold storage," but it requires substantial digital space.
• Lightweight clients. This is a wallet that includes a more limited version of the blockchain to enable it to be portable on devices, such as a smartphone. Since the entire blockchain is not available, a party using a lightweight wallet must trust intermediaries who have full wallets.

Keys. These are the credentials stored in the wallet. Like a safe-deposit box, there are two keys necessary for each transaction.

• Public. This is the technology necessary to encrypt and decrypt transactions. It is "one way," meaning that it easily unlocks transactions, but it can't be used to reverse the transaction. This key enables the blockchain to be uninterrupted.
• Private. This is the passcode that transacting parties initiate so that the transaction is unique to themselves. To spend Bitcoin, one must know their own private key and digitally sign the transaction. The party's signature is verified by the public key without revealing the private key.

If the party loses its key, the Bitcoin in the wallet becomes essentially worthless, as it is unrecognizable and inaccessible to anyone. According to Chainalysis, a blockchain analytics company, roughly 20% of Bitcoins have been lost by parties who misplaced the private key. Additionally, if the private key is revealed in a security breach, the value of Bitcoins can be stolen. In 2022, cryptocurrency investors lost a record $3.8 billion to hackers.
Cold storage. Private keys are stored offline to help avoid losing them or exposing them to a security breach.
SEE: 5 Best Cryptocurrency Exchanges

Bitcoin Adoption and Controversy

Bitcoin supporters also note that more and more institutions, countries and platforms are accepting the digital currency. They continue to hold hopes for Bitcoin to become a global reserve currency. 
Some countries, most notably China, have banned Bitcoin and other cryptocurrencies. However, others are embracing it fully:

• El Salvador adopted Bitcoin as its legal tender in 2021 to resolve deep economic woes. Public adoption has been painfully lackluster due to limited internet access, inconsistent technology capabilities and a lack of enforcement by municipalities. The country has lost an estimated $40 million of its total investment in Bitcoin since adoption, leading many to question its value as legal tender given that the country is still struggling to meet its debt obligations and public health needs. Officials are doubling down, mandating cryptocurrency literacy courses in their public schools beginning in 2024. 
• Ukraine posted two crypto wallets at the beginning of the Russian invasion to raise funds, attracting more than $10.2 million within the first week to fund both humanitarian needs and military support. Ukraine anticipates rebuilding its economy using blockchain technology. Kuna, an exchange led by Michael Chobanian, has emerged as the most popular cryptocurrency exchange in Ukraine with about 60,000 active traders and over $100 million in assets. In February 2022, Kuna partnered with Ukraine's Ministry of Digital Transformation, a governmental agency formed in 2019 to create a universal access point for all electronic governmental services provided to Ukrainian citizens. 
• Iran has found Bitcoin to be an effective method to bypass U.S. financial sanctions on the country. Because of its abundant natural resources, Iran has been able to easily pivot to producing electricity for Bitcoin mining when the U.S. clamped down on its oil and gas operations. However, illegal Bitcoin mining activities have created significant electrical outages in the country during peak usage periods. All mined Bitcoin, currently valued at approximately $1 billion, must be sold to Iran's central bank. Iran also began accepting imports using cryptocurrency, placing its first international order worth $10 million immediately after the announcement in August 2022. 

Bitcoin has also attracted controversy due to its climate change implications. Mining Bitcoin requires significant electricity use and is responsible for 0.1% of global greenhouse gas emissions. The University of Cambridge publishes the Cambridge Bitcoin Electricity Consumption Index (CBECI), which provides estimates on the greenhouse gas emissions related to Bitcoin. Its calculations show that about 70 metric tons of carbon dioxide equivalent are released annually by Bitcoin miners. Many rural, low-income communities have been selected for additional mining centers due to few zoning laws. The mining centers often bring a small handful of new jobs, but they create intense pressure on local resources and significant, 24-hour noise pollution.
The greatest drama in Bitcoin history has been the aggressive rise and subsequent collapse of FTX. Here's a brief timeline:

• FTX grew aggressively through high-profile acquisitions and splashy marketing campaigns, including celebrity and social media influencer endorsements. The marketing message was focused on higher yields than typical bank accounts.
• FTX was led by Sam Bankman-Fried, colloquially known as SBF, and operated in conjunction with Alameda Research, another SBF-founded entity run by Caroline Ellison, SBF's romantic partner at the time. 
• In November 2022, CoinDesk published an article detailing FTX's precarious financial risks, lack of accounting oversight and potential criminal use of customer assets. Shortly thereafter, FTX went into bankruptcy as it could not create enough liquidity to cover an $8 billion shortfall from panicked customers and the collapse of the FTT digital token on which Alameda Research relied for its operations.
• On Dec. 12, 2022, SBF was arrested and indicted by the U.S. District Court on eight criminal charges, including money laundering, wire fraud, campaign finance violations and securities fraud. His $250 million bond was the largest in history.
• On Nov. 2, 2023, SBF was convicted on seven federal counts and will be sentenced in March 2024.
• FTX was assigned a new CEO named John J. Ray III, an attorney who specializes in recovering failed corporate assets and whose most notable case was the aftermath of the Enron collapse in the early 2000s. Ray is working to claw back assets from diverse sources such as crypto exchange Bybit and SBF's parents, Joe Bankman and Barbara Fried, both tenured Stanford University law professors.
• As of early September 2023, over $7 billion in cash and liquid assets of the estimated $8 billion total assets missing have been recovered.
• FTX investors have filed a class action civil lawsuit against FTX, its celebrity/influencer endorsers and significant venture capital investment firms, which is still pending.

Bitcoin Price Trajectory

The Bitcoin supply was capped from the beginning by Nakamoto. The maximum number of coins stipulated to be in existence was 21 million. As of Nov. 12, 2023, there were 19.53 million Bitcoins in existence with 1.46 million left to be mined. However, the Bitcoin mining operators regularly cut in half the rewards for mining each block in a process known as Bitcoin halving, leading experts to believe that it will take until the year 2140 before the supply cap of 21 million is reached.
After Nakamoto rolled out Bitcoin in 2009, he mined about 1.1 million Bitcoins and disappeared in 2010. He ceded the responsibility of development to Gavin Andresen, formerly known as Gavin Bell, who worked to see Bitcoin's decentralized vision realized. This meant that there was no central authority, server, storage or administrator. All the parties were peer-to-peer and the blockchain was distributed to all. The network existed merely to legitimize and confirm the transactions. The price of Bitcoin dropped with the new uncertainty surrounding these actions. 
However, control issues emerged when GHash.io, a cryptocurrency mining pool, exceeded 51% hashing power for the first time. One of Bitcoin's tenets is that power cannot be accumulated in too few hands, and GHash's popularity meant that coins could be double-spent, or counterfeited, and they could push other miners out of being rewarded for their activity. Fortunately for the Bitcoin industry, the parties voluntarily enacted provisions that redistributed hashing power to acceptable, sustainable limits. 
The first real-world Bitcoin transaction occurred on May 22, 2010, a date known to Bitcoin enthusiasts now as Bitcoin Pizza Day. Laszlo Hanyecz paid 10,000 BTC to have two Papa John's pizzas delivered to him. The pizzas retailed for about $25. At the peak of Bitcoin's pricing in 2021, the two pizzas would have cost north of $680 million. Due to Bitcoin's extreme volatility, the pizzas would currently be worth about $250 million.
Part of Bitcoin's volatility comes from the Gartner Hype Cycle, a life cycle common among new and innovative technologies. The five stages include the innovation trigger, the peak of inflated expectations, the trough of disillusionment, the slope of enlightenment and the plateau of productivity. Many individuals created and then lost vast fortunes in Bitcoin, causing eight Nobel Prize winners in economic sciences to call Bitcoin a bubble, much like the oft-cited Dutch tulip mania in the 1600s. However, Bitcoin supporters point out that although Bitcoin has crashed several times, it has also returned to its previous price each time, while other bubbles have not recovered their value. 
Bitcoin values sank with the implosion of purported stablecoin TerraUSD, a catalyst for the market failures that precipitated the 2022 FTX collapse. However, on Nov. 9, 2023, Bitcoin hit a new 2023 high on the news of the FTX convictions. Additionally, BlackRock made a one-two-punch announcement with a surprise Ethereum spot ETF filing, closely following Grayscale Investments' landmark legal victory against the SEC regarding it's application for a spot of Bitcoin ETF.
The questionable strength of the economy has also been a huge factor in Bitcoin pricing. In what has been called the 2022 "crypto winter," sharp declines occurred in Bitcoin pricing as the Federal Reserve began aggressively increasing interest rates to stave off inflation. Investor appetite for risk all but disappeared and liquidity became a major issue among the exchanges. 

The FTX collapse exacerbated the liquidity issue as investors began pulling funds, while $16 billion of assets were frozen within FTX. FTX's woes also depressed non-fungible token, or NFT, weekly trading volume by half. Venture capital firms' activity dropped over 60% for crypto startups, as their attention shifted to artificial intelligence. Many crypto operations shifted to more crypto-friendly locales abroad, such as the U.K., the European Union and Singapore. Many are hoping that the Bitcoin and Ethereum spot ETF announcements will restore badly needed liquidity to the crypto market. 
Intense regulatory scrutiny was another byproduct of the FTX collapse. Just as founders are seeking international destinations, Dubai and Hong Kong are openly courting investors with the message that they are poised to operate new hubs with an emphasis on disrupting the failing behavior exhibited by FTX. 
The fallout may be felt for quite a while, and Congress will consider what regulations are needed for Bitcoin going forward. It remains to be seen whether the industry can stay true to its decentralization goal.
Bitcoin's value decreased more than 70% from its all-time high of $68,789 in November 2021 to lows in the $16,000 range in December 2022. In late 2023, Bitcoin finally broke through resistance barriers to reach the $30,000 to $35,000 range. 

Anticipating the Future of Bitcoin

Despite the shocking headlines around FTX and Alameda Research, as well as a dearth of smaller exchanges buckling under the liquidity strain, the allure of cryptocurrencies continues. 
Nouriel Roubini is an economist who was one of the few to correctly predict the 2008 subprime mortgage crisis. Dubbed "Dr. Doom," due to his consistently pessimistic outlook on the economy, Roubini has been a frequent critic of cryptocurrencies in general and Bitcoin in particular. In 2018, he testified to the U.S. Congress that cryptocurrency is the most corrupt industry. However, after years of aggressive bashing, Roubini is now launching the Atlas Climate Token, a blockchain-based stablecoin, through his firm, Atlas Capital.  
Innovation is likely to continue with ETFs and NFTs on the Ethereum blockchain, as evidenced by the enthusiastic response to BlackRock's recent announcement. The regulatory focus from the FTX fallout has generated greater attention on decentralized finance, or DeFi, in the Web3 space with a continued focus on gaming applications. 
Some think artificial intelligence can be used to optimize cryptocurrency trading, but AI is currently sorting out its myriad issues, such as content ownership in large language models. Blockchain technology may be the key to determining what content is AI driven versus uniquely human, a differentiator that could have a great effect on the overall public adoption of AI.
And don't count FTX out just yet. Three parties, including former New York Stock Exchange President Tom Farley, are bidding to reboot the firm, despite the black cloud still drifting above it. FTX had a long list of global connections that would enable them to capitalize quickly on the $1.2 trillion market cap for cryptocurrencies.