A Brief History of Bitcoin
It was in January of 2009 when Bitcoin first launched. Ever since, the world’s first cryptocurrency has seen many ups and downs. It succeeded largely due to its very nature – one that made it easier to truly ‘own’ your money, without interference from a central authority. One that made it possible to limit the exposure of your identity when making payments. Bitcoin can be understood better by knowing how it evolved – this post is a quick look at the birth, and rise of Bitcoin.
The Birth of Bitcoin
Before Bitcoin came into being, there had already been several attempts on designing an efficient cryptocurrency. So the concept wasn’t really new. Just that no one had been successful till date .
- Nik Szabo had already given his theory on ‘bit gold’ in the 90s.
- There had been other digital currencies like, digicash by David Chaum, e-gold by Douglas Jackson and Barry Downey, beenz by Charles Cohen, and flooz.
- Researchers had been studying cryptocurrencies from a long time until someone, or some people, going by the name of Satoshi Nakamoto, published a paper.
Satoshi Nakamoto’s real identity remains known – but that’s worthy of its own post here.
The two primary characteristics of bitcoin are:
- Firstly, it is decentralized. There is no regulatory authority involved like a bank. Even the government exercises no control over it.
- Secondly, it is highly encrypted. Unless you have data on who control whichs wallet, you cannot determine who is sending money to whom.
Bitcoins are created by ‘miners’, using specialise hardware to solve complex math problems, in order to secure the network.
Satoshi Nakamoto began his work on bitcoin in 2007. By January 2009 Bitcoin had been made public. In 2008, Satoshi posted his research titled, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ in a cryptography mailing list – metzdowd.com. It discussed a peer-to-peer network had been able to eliminate the problem of double spending. In August 2008 he made his website ‘bitcoin.org’ public. In January 2009, Satoshi released version 0.1 of the software he had created for mining bitcoins.
The initial block of bitcoins mined had a reward of 50 bitcoins. The world’s first bitcoin exchange occurred between Satoshi and Hal Finney when Satoshi sent him 10 bitcoins. It is said that in the beginning, Satoshi mined 1 million bitcoins altogether. Currently there are approximately 15 million bitcoins in circulation and a maximum of 21 million bitcoins can be mined.
Satoshi remained in continuous electronic contact with all the developers he was working with without revealing his true identity to anyone. After this, he suddenly disappeared in 2011. Nothing is known of him since then. He handed over the reins to a developer called Gavin Anderson, who became the head of the Bitcoin Foundation.
Evolution
Bitcoin’s initial years were dedicated to its development and the creation of a strong foundation. In 2009, value of $1 could get you 1,309 BTC. By 2011, multiple organizations like Wikileaks had started accepting bitcoins. .
Gavin Anderson along with four others – Patrick Murck, Jon Matonis, Charlie Shrem, and Peter Vessenes launched the Bitcoin Foundation in 2012. Its motto was to “accelerate the global growth of bitcoin through standardization, protection, and promotion of the open source protocol.” By 2012 many more eminent organizations like WordPress started accepting bitcoins as a mode of payment.
By now exchanges had sprung up. They helped customers convert bitcoins into other currencies. In 2013, one such company called ‘Coinbase’ reported selling one million dollars worth of bitcoins over a period of one month. In the same year, U.S. legalised bitcoins and classified them as a commodity. The USA’s Financial Crimes Enforcement Network also issued certain guidelines on the operation of all decentralized virtual currencies.
- By 2013, bitcoin price had climbed to $700.
- In November 2013 the world’s first bitcoin ATM machine was installed.
- In December 2013, the Chinese government prohibited the exchange of bitcoins with Chinese currency. This decision caused a drop in bitcoin prices, but it was temporary.
- 2014 was another important year as the world’s first bitcoin storage service was launched by Elliptic.
- Microsoft too realised the potential of bitcoins and decided to accept it as a mode of payment. By 2016, network rate was seen greater than 1 exhash per second. Japan too gave recognition to bitcoin and legalised it. This further caused a hike in price. Bitcoin ATMs all over the world are constantly increasing.
Challenges
In 2017, Bitcoin briefly touched $20,000. It’s been an exponential rise, with tiny price corrections every now and then. But that doesn’t mean it’ll continue to rise. There are plenty of challenges the currency continues to face.
- Volatility: Bitcoin is highly volatile. It’s impossible to predict how high or low it might go in the next hour. Unfortunately, bitcoin isn’t as famous as a currency as much as it’s as an investment option. Hence, in this sense it can be said that the purpose of bitcoin is defeated.
- Due to its volatile nature, Bitcoin faces challenges on adoption by the masses. Normal people continue to prefer buying goods in their own currency and are unable to trust Bitcoin.
- Many countries have not yet accepted bitcoin as legal currency. This further adds to people’s doubts on bitcoins. Concerns were also expressed by India’s Ex-RBI Governor Raghuram Rajan on how this highly fluctuating currency will be controlled.
- Considering the fact that no transaction of bitcoin is known to anyone except the one performing it, it makes it susceptible to criminal activity. Terrorists can easily operate their organisations using bitcoins. They can buy illegal goods with no one getting a hint. When bitcoin was in its nascent stage, it was famous for its use on the dark web.
- There have also been incidents when people’s bitcoin accounts were hacked and transferred to unknown accounts. In such cases, there is no kind of help available since the transactions cannot be tracked. Even though, anonymity is one of the positive features of the currency, it sometimes creates some problems too.
- Bitcoin faces a scalability issue too. Each block of the blockchain can store a maximum of 1 megabyte data. Therefore, only 3 bitcoin transactions could be processed in a second as compared to 2000 Visa transactions per second. This means that as more and more people join the bitcoin network, it takes longer to process each transaction. With changes to its protocol, the number has increased to 7 transactions a second.
Bitcoin Improvement Proposal
Since bitcoin lacks a formal structure, a protocol – called Bitcoin Investment Proposal – helps users propose changes in the structure and functioning of bitcoins. People are then allowed to vote and the changes are accordingly accepted. There are broadly three types of proposals – Standards Track BIPs, Informational BIPs and Process BIPs. The very first bitcoin improvement proposal was submitted by Amir Taaki in 2011.
- SegWit – Only 3 bitcoin transactions can occur in a second since each block can store 1 megabyte of data at a time. If the signature data is removed from each block to free up space, it’ll be able to carry more data and hence the transaction speed will increase. This is called SegWit or segregated witness. SegWit was Bitcoin Investment Proposal 141 (hence BIP 141), by Dr. Pieter Wuille.
- SegWit2x – It proposed a change in bitcoin hard fork, which would increment the amount of data each block carries from 1 MB to 2 MB. This will obviously increase the speed of transactions. SegWit2x aimed to put an end to the scalability issue. However, adoption failed.
- BIP 91 – It is also a soft fork proposal for activating SegWit. It has also locked in with SegWit2x. BIP 91 is actually a solution for triggering SegWit by hash power miner support of at least 95%.
- BIP 148 – It is also known as user activated soft fork and is just another solution to activate SegWit like BIP 91, the difference being that it’s user activated. It was proposed by Shaolin Fry in March 2017. If 50% or more users update their software, only then it can be activated, but it hasn’t been able to achieve that much support till now.
Bitcoin still seems to be a great investment option, even though the purpose it was created for has not been fulfilled yet. but it is surely pleasing the investors. Bitcoin prices have been constantly rising since the beginning with minor decrements in between. Bitcoin has seen many ups and downs during its evolution. There has been extensive price rise as well as crash. There were one or two hacking incidents too, but this does not stop the public from investing in bitcoins. People who had started with meager investment of 5 to 10 dollars are now millionaires! Presently, bitcoin is priced quite high and there is clear possibility of greater growth.