Coin Story: Bitcoin
My name is Bitcoin, but people call me many things…a scam, a fraud, a commodity, a security, a crypto currency…a bubble. I was hatched in 2008 and born in 2009. I don’t know who created me but I know people call him Satoshi. I can’t wait to be a teenager as I seem to be growing faster and faster…
Some people like to use me to travel across borders, but most people these days just like to hold me tighter and tighter…I am banned in some countries and welcome in others. You decide who I am…and how precious I am…after you hear my story…
Bitcoin (BTC) emerged in 2008, when an anonymous individual (or a group of individuals) known as Satoshi Nakamoto published a white paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin – the currency and the underlying blockchain protocol – formed the foundation of an electronic payment system based on cryptographic proof, allowing any two parties to directly transact with each other without the need of a trusted third party, such as a bank. These two parties can exchange any type of property in a digital form over the internet, including money, contracts, keys (to physical locks, or to online lockers), land titles, ownership of physical assets such as cars and houses, and stocks and bonds.
In early 2009 the first block of transactions (the Genesis block) was created, and the first ever Bitcoin transaction took place between Hal Finney and Satoshi Nakamoto. Later in 2009, a Bitcoin market was established allowing individuals to exchange paper money for Bitcoin. 22 May 2010 was the first documented purchase of a good with Bitcoin, when two pizzas were bought for 10,000 bitcoins, or $41 at that time. These would have been very expensive pizzas today! As Bitcoin continued to grow in value – it reached parity with the USD in February 2011 – it attracted enough attention to justify a dedicated media outlet, Bitcoin Magazine (started in 2012). Bitcoin reached critical mass in 2013, when its market capitalisation surpassed $1B. Companies and institutions started to get notice of Bitcoin and the underlying blockchain technology in 2014-2015, and institutional investment has been gaining momentum ever since. Some analysts predict that institutions will start offering Bitcoin and cryptocurrency-related products in 2018, which will, most likely, make prices surge. From humble beginnings, Bitcoin has reached mainstream and is now the largest cryptocurrency by market capitalisation and is also the most expensive.
Bitcoin (BTC), like some other cryptocurrencies, has been subject to ‘forking’ – changes to the code to improve the technology’s functionality, particularly the block size to increase the speed of transactions. The most popular fork of Bitcoin is Bitcoin Cash (BCH) which took place on 1 August 2017; the coin since then has rapidly increased in value and is actively trading on exchanges.
What determines the value of Bitcoin (BTC)? Early long-term investors in Bitcoin have enjoyed unprecedented returns not seen in any other asset class. At the heart of the value of any good is scarcity, and Bitcoin is no different. Bitcoin’s supply is limited by computer code, and there will ever be only 21 million Bitcoins mined, with the last block to be created in 2140. In this regard Bitcoin is quite different from fiat money and is not subject to inflation. Bitcoin’s value is also determined by how broadly it is adopted and how many people use it – the more people use it, the higher the value. Bitcoin is mainly used for storing value rather than transactions, and currently there are over 16 M of Bitcoins in circulation. The most updated information on Bitcoin can be obtained from https://coinmarketcap.com
References and further reading
Nakamoto, S. (2008) Bitcoin: A Peer-to-Peer Electronic Cash System https://bitcoin.org/bitcoin.pdf
Antonopoulos (2017). Mastering Bitcoin, 2nd edition. https://www.safaribooksonline.com/library/view/mastering-bitcoin-2nd/9781491954379/