Bitcoin is not a new invention – it was created through various ideas and thoughts that existed long before 1970. Bitcoin combines various ideas such as cryptography, distributed ledger, blockchain and many more.
Cryptography – 1970s
In the 1970’s, cryptography was used primarily in the military for military communications and secret intelligence services. After the publication of the Data Encryption Standard and New Directions of Cryptography, people saw that cryptography could be used for other things, including creating digital money.
Dr. David Chaum, an American computer scientist and cryptographer, began writing on various topics on how to use cryptography in money such as digital cash and pseudonym reputation systems. Chaum founded the company DigiCash in 1989. DigiCash allows people to make transactions without providing any identifying information, which is great for personal privacy. This idea inspired the Cypherpunks Movement. Cypherpunks are a group of people who want to use strong cryptography for privacy and personal freedom. Unfortunately, DigiCash didn’t last long. In 1998, the company behind DigiCash was declared bankrupt.
Cypherpunks Movement – 1990s
In late 1992, Eric Hughes, Timothy C May, and John Gilmore released the Cypherpunks Manifesto. This is the vision of a society that uses cryptography in every aspect of their lives to ensure their privacy and freedom.
“Privacy is necessary for an open society in the electronic age – the Cypherpunks Manifesto”
This is especially relevant considering that in the 1990s the US government made a chip clipper, a chipset for securing voice and data messages. However, the Clipper Chip has received a lot of backlash because it is perceived as being used as a government surveillance tool and has security vulnerabilities.
The 1990s were the era of the development of cryptographic hash functions. Hash functions are mathematical functions that always produce the same output with the same input. Its functionality is one-way: you can almost never find / guess the original input from just the hash output. Cryptographic hash functions are useful for creating secure and private societies.
In 1997, Adam Back created Hashcash, an anti-spam mechanism. He wants hashcash to be used not only as an anti-spam mechanism but also useful for digital cash. Hashcash is an anonymous cash system. Users do not need to create accounts to transact with each other. Adam Back is also trying to solve the problem of “double-spending” digital money via hashcash. Double-spending is the risk when digital money can be spent twice or more because digital files can easily be duplicated or counterfeited.
In 1998, Wei Dai published a proposal called “b-money”. This proposal has similarities to Bitcoin in that, first, all transactions will be broadcast publicly, and secondly, there is a server system that checks the balance of money and is incentivized to remain honest.
Proof-of-work and Bit Gold – 2000s
In 2004, Hal Finney created Reusable Proof of Work (RPOW), a unique cryptographic token that can only be used once. RPOW is the first public server implementation designed to allow users from all over the world to verify data integrity and correctness in real-time. RPOW is called Transparent Server. This discovery increases the privacy of the end users.
A year later, Nick Szabo published a proposal called “bit gold”. This is a proposal to create a digital collection token built on RPOW. Bit Gold is similar in terms of immutability to the Bitcoin blockchain. The only difference between bit gold and Bitcoin is that Nick Szabo does not limit the total units of gold bits.
Satoshi Nakamoto era – 2007-2010
payment system called Bitcoin. Satoshi then released a Bitcoin White Paper to explain his idea further. SatoBitcoin doesn’t show up overnight, it’s a collective idea that gets refined over time. In 2007, a pseudonym, Satoshi Nakamoto, posted an idea on a Cryptography mailing list about a possible peer-to-peer shi also mentioned hashcash and b-money in his paper.
The creation of Bitcoin is at the right time. In 2008, the world experienced the worst global economic crisis that resulted in many bank bailouts. Many people lose their jobs and become pessimistic about the current economic system. Bitcoin provides an alternative monetary network outside of the traditional system.
Satoshi coded Bitcoin and on January 3, 2009 Satoshi created the first Bitcoin block called the Genesis Block. This block is so famous because it is considered the birth of Bitcoin. Satoshi also added a note to the reference block of a story in The Times of London newspaper with the headline “The Chancellor is on the verge of a second bailout for the bank”. Satoshi made it clear that no Bitcoin was reserved for himself / was produced before the genesis block – everyone has a common starting point for mining Bitcoin.
Satoshi made his first Bitcoin transaction to Hal Finney for 10 BTC on January 12, 2009. This is the only transaction we are aware of from Satoshi Nakamoto. Another well-known transaction took place on May 22, 2010, when Laszlo Hanyecz posted on a forum that he was willing to exchange his Bitcoin for two boxes of Papa John Pizza. At that time the pizza was worth 10,000 BTC or about $25 dollars. A person from England accepted the offer and bought him a pizza in exchange for 10,000 BTC. This marks the first Bitcoin transaction with tangible goods. Today, May 22nd is celebrated as Bitcoin Pizza Day among Bitcoiners.
Because the Bitcoin program is open-source, early contributors joined with Satoshi Nakamoto to create Bitcoin using Linux and macOS. Satoshi actively contributed to Bitcoin’s development until 2010. No one knows why he decided to quit the project, but Satoshi’s disappearance was probably the biggest reward for Bitcoin. Open source projects became decentralized, and even without Satoshi’s involvement, developers were still working on Bitcoin to this day.
Scandals, hacks, illegal activity and crypto startups – 2010 – 2014
Bitcoin received a bad reputation and walked a winding road in early 2010-2012. Mt Gox, the largest Bitcoin exchange at the time, was hacked in 2014 and lost 744,408 BTC. Bitcoin is gaining popularity as a payment method on Silk Road, a website for buying drugs and other illicit goods. In October 2013, the FBI closed Silk Road, confiscated more than 29,000 BTC, and its founder, Ross Ulbricht, is currently serving a life sentence in prison. These two major events are still scandals to this day.
Although Bitcoin was used as currency to pay for drugs on the Silk Road website, it was still a small fraction of the dollar. The US dollar remains the currency of choice for illegal activities. This year was also the year when many startups funded by crypto companies were founded such as Coinbase, Bitfinex, Blockstream, etc.
Forking, accepted by institutions, fake satoshi and bull run – 2014-2017
Despite the scandals that defame Bitcoin, Bitcoin continues to experience developments. 2014 marked the beginning of the institution’s acceptance. Large companies such as Microsoft and Wikipedia are starting to accept payments in Bitcoin. Small business owners especially in tourism areas also accept Bitcoin as a payment method. Bitcoin is gaining in popularity but many are still skeptical about it. Japan accepts Bitcoin as a legal means of payment, but many countries also prohibit Bitcoin as a legal means of payment.
Bitcoin has become popular among retail investors because after the halving in 2016, it entered a bullish market. Bitcoin’s price went up from $ 600 to $ 20,000 and then corrected itself to $ 3,000. Even though the price fell 80% from its peak, Bitcoin grew 500% from its low price. This period also marks the growth of cryptocurrencies. There were hundreds of new cryptocurrencies and ICOs created during this period.
Since Satoshi’s disappearance, many have tried to claim to be Satoshi Nakamoto. A man named Dorian Nakamoto was revealed to be Satoshi Nakamoto through a Newsweek article. Dorian Nakamoto denies involvement in Bitcoin.
Dorian Nakamoto denies that he is Satohsi Nakamoto and doesn’t even know about cryptography.
Another person taking a different stance, Craig Wright, an Australian businessman who claimed to be Satoshi Nakamoto and discovered Bitcoin, filed a copyright lawsuit on the Bitcoin White Paper. Another person who filed a copyright lawsuit is Wei Liu, who claims that he wrote the Bitcoin Whitepaper under the pseudonym Satoshi Nakamoto. Neither of these claims has been proven as nothing has been able to prove Satoshi Nakamoto’s private key.
Without Satoshi telling people what to do, the community will need to find its own consensus on how to advance Bitcoin. There has been debate for years about Bitcoin’s scalability. Bitcoin ends up branching out or splitting into two different directions: one wants to optimize Bitcoin using Segwit (remains as BTC) and the other wants to increase the block size (branch out into Bitcoin Cash). And not long after that Bitcoin also faced another fork for Bitcoin Gold in 2017.
Pandemics and the Era of Institutional Reserves – 2018 to the present
As of January 2018, 80% of Bitcoin has been mined. South Korea issued regulations that all crypto traders need to identify themselves with. Kraken, a crypto exchange in the US, became the first digital asset company to receive a bank charter.
A pandemic hit the world in 2020, causing global economic stagnation. The US government prints trillions of dollars to stimulate the economy, a policy followed by many other countries. During this period, people invested heavily in the stock and cryptocurrency markets. The price of Bitcoin has soared to some of its all-time highs as more and more people join the network. Bitcoin gained more credibility when large investors like Paul Tudor Jones invested in Bitcoin.
Institutions are starting to embrace the idea of holding a portion of their cash reserves in Bitcoin. Companies like Square, Blackrock, Microstrategy, and Tesla buy Bitcoin as their reserve.
We may never find out who Satoshi Nakamoto is. We don’t know whether Satoshi is male or female, a group of people, or an alien. Bitcoin is not created overnight. Bitcoin is the creation of cypherpunks before and after. Bitcoin is relatively young at the moment but we are currently witnessing a new kind of money that could shake the world.