A Spooky Origin Story
Exactly one decade ago from today, with the U.S. on the precipice of its worst recession since the Great Depression, Bitcoin (BTC) came to life. At the time, no investor nor banker had any idea that one day, this alternative form of currency would catalyze a multi-billion dollar market.
It all began on Halloween 2008, with a simple idea. What if someone could create a peer-to-peer version of electronic cash allowing for online payments to be sent directly from one party to another without going through a financial institution?
This question, taken from the initial white paper of an anonymous cryptographer, known only by the pseudonym Satoshi Nakamoto, was the metaphorical shot-heard-round-the-world for the new cryptocurrency. Nakamoto’s white paper, titled “Bitcoin: A Peer-to-Peer Electronic Cash System”, goes on to explain, in full detail, the potential opportunities this new form of currency could create. Prior to Bitcoin’s inception, Nakamoto wrote that “commerce on the internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments.”
Nakamoto’s intended purpose for the new currency, aside from alleviating the trust-based model of depending on traditional banks to transact and safely store money, was to solve the issue of the “double spending” problem that other plagued earlier attempts at digital currencies in the 1990s. Using timestamps and other digital record keeping technologies, Nakamoto solved the “double spending” issue.
Bitcoin Takes Flight
Satori Nakamoto’s bitcoin was on fire, and the heat was only intensifying. A week after Nakamoto released the founding white paper, the first-ever bitcoin (BTC) transaction took place. After picking up speed in classic nerd fashion, in online forums, the first fifty bitcoins famously referred to as the “Genesis block,” were mined in 2009.
Mining, in the case of cryptocurrencies, is done by taking computers with increased processing capabilities and having them solve equations to confirm transactions on each coin. Once the equations are solved, bitcoins can be “harvested.”
The first real-world transaction in bitcoin (BTC) occurred at a pizza restaurant in Jacksonville, Florida, where a computer programmer paid 10,000 bitcoins for a cheese pizza in May 2010. Adjusting for inflation and current coin values, that man spent $63 million on a pizza.
I Go $20k to $6K, Real Quick
Over ten years have gone by since Nakamoto conceptualized the peer-to-peer currency, and investors are doing far more than buying pizza with it. In 2017, it was reported that of the 21 million bitcoins in existence, approximately 17 million had already been mined, indicating that given its limited supply, it had boundless monetary value. Bitcoin’s (BTC) initial coin offering (ICO) was valued at less than $1000 per coin, and in a few short months, it was trading at almost $20,000 per coin, according to CoinDesk.
However, nothing lasts forever in its current state and Bitcoin is no exception to this rule. With the financial market still hesitant to trust the legitimacy of cryptocurrencies and blockchain technology as a whole, Bitcoin’s (BTC) value continues to depreciate. What was once trading at $19,783.06 per coin in December 2017, is now only worth $6,306.69 as of Wednesday.
The future of cryptocurrencies is largely uncertain because of reasoning based on the framework of the coin itself. The whole premise of a cryptocurrency is that it is not regulated by a single government, bank, or official entity of any sort. For anarchists, this does away with capitalist infrastructures, and for coin owners, it is more secure. However, since it’s not regulated, coins aren’t backed by any form of currency used in the market, and this is disconcerting for investors.
Looking back at Nakamoto’s original white paper from 2008, one could argue that the cryptographer’s goal of creating a secure form of online cash without the need of a bank playing “middle-man” was realized. As for the next ten years of cryptocurrencies, coins like Bitcoin and Ether are still maturing in the hearts, minds, and wallets of investors.
It will be a while before cryptocurrencies fully replace fiat currencies, but this future is not impossible.
