Lesson 2 of 10
In Progress

2. Bitcoin – the story of a technological revolution

Although bitcoin was not the first cryptocurrency, its popularity cannot be denied. It is changing the world, even though its history is quite short.

History of the origins of cryptocurrencies

The idea of creating a decentralized payment system appeared back in the 1990s. With the financial crisis of 2007-2009, the movement was gaining strength. The programmers took up a manifesto to promote online anonymity. They wanted every Internet participant to have the right not to share some of their data or keep their identity to themselves, and they wanted the government not to interfere with the actions of Internet users.

The first cryptocurrencies appeared in 2008. It started with Hascash and Bit Gold, but Bitcoin has survived until now. All thanks to Satoshi Nakamoto’s manifesto released on October 31, 2008. The title of the document was “ Bitcoin: A peer-to-peer electronic money system”.   

Satoshi Nakamoto’s manifesto

Satoshi Nakamoto is the pseudonym of the person or group of people who designed and created bitcoin and the Bitcoin-Qt software (now Bitcoin Core). He is also the founder of bitcoin.org and the bitcointalk forum.

Link to Bitcoin’s whitepaper: https://bitcoin.org/bitcoin.pdf – (Whitepaper- is a document that holds all the information about the Blockchain of any crypto project). 

Satoshi had a goal- an electronic transaction system based on trust. The use of P2P was to allow users to perform buy/sell transactions without the involvement of third parties. This would offer full decentralization of the system. Bitcoin was to be the new cashless payment system. Bitcoin was supposed to belong to everyone.

The Whitepaper also stated that in the current financial system “outside of Bitcoin,” coin and bill exchanges or transactions are never truly irreversible – therefore, they can be questioned. With Blockchain technology, transactions are irreversible. 

Bitcoin – Proof of Work

To become a Bitcoin holder, we had to mine it first. To achieve this, you used the computing power of your computer. Satoshi Nakamoto mined the first block of BTC (the funds are still in Nakamoto’s account). At the time, it had the equivalent of 50 BTC.  The first block is known as the genesis. On October 5, 2009, the real price of this digital asset was established. All based on the conversion of the cost of its mining. On that date, it was possible to buy, 1309BTC for 1 USD. 

The first transaction between Satoshi Nakamoto, and Hal Finney, a player very involved in BTC at the time of its launch, was made shortly after January 12, 2009. The transaction can be found here https://www.blockchain.com/btc/tx/f4184fc596403b9d638783cf57adfe4c75c605f6356fbc91338530e9831e9e16

Bitcoin without Nakamoto

Satoshi vanished from the scene on December 12, 2010, to hand over the reins to Gavin Andresen. He later distanced himself from the Bitcoin Core leader to pass it on to Wladimir van der Laan. A list of top contributors is available on the Bitcoin Core website here https://bitcoin.org/en/development#starter-projects. The first global transaction using the digital asset took place on May 22, 2010. The programmer – Laszlo Haneycz ordered a pizza at Papa John’s pizzeria for 10,000 BTC. In currency terms, it was the equivalent of $30. It is not hard to calculate that in 2022, for 10,000 BTC he would own the entire chain of those pizzerias. 

The process of mining Bitcoin or buying it from third parties was both long and time-consuming. As a result, in February 2010, the first crypto exchange was established – “Bitcoin Market”. However, it did not conquer the market. A few months later – on July 17, 2010 – Mt. Gox was created. It was one of the most popular cryptocurrency exchanges in the world. It encouraged users with the speed of exchange of ordinary currencies for digital ones. In 2013 – 2014, as many as 70% of transactions of digital assets came from this exchange. However, its popularity did not last long. In 2014, the exchange collapsed, which caused a decrease in interest in virtual coins among Internet users. 

At the same time, bitcoin was being modified. A new method of mining the digital asset was applied to it.  GPU graphics processors were used. The consequence of this was increased efficiency and profits for miners. The popularity of Bitcoin grew during this time. In 2010, the price of BTC surpassed the $1 level.

The year 2011 was not so kind to cryptocurrency. It went through a serious crisis. Its creator withdrew from the Bitcoin project; large exchanges fell down, e.g.,: bitomat.pl collapsed in Poland, which resulted in the loss of 17 000 BTC. Hacker attacks have intensified, in which cryptocurrencies were stolen in large numbers. By 2012, the network had already recovered from the negative events. The following year brought considerable profits. The reward for a  block reached 25 BTC. The flagship digital asset has become increasingly popular, not only among users, but also among official government authorities. More and more business entities were allowing payments with Bitcoin. 

The coming years have brought Bitcoin nothing but success. In September 2013, it was recognized as full-fledged private money in Germany. Its valuation oscillated around $1,000. In January 2015, the Overstock company became interested in it and started accepting payments in BTC. This only propelled Bitcoin to achieve further success. 

The cryptocurrency began to be used on other grounds. The path of its regulation was started. In 2015, the price of 1 BTC was already $500 in November. Whereas 2016 ended with a price of $960 for 1 BTC. Bitcoin’s rally started in 2017. It overcame further psychological boundaries. In December 2017, the price of 1 BTC was as high as $20,000. 

However, it was in 2021 that Bitcoin hit its ATH (all time high) – a peak of $68,744(10.11.2021)

Bitcoin is: 

Currency: unit of account, medium of exchange.

Safe haven: like precious metals (gold), real estate, some luxury goods.

A payment network: like PayPal, Visa, or Mastercard.

Bitcoin versus gold?

Throughout human history, currencies have always kept evolving or changing. This is a completely natural process. Fiat currencies, such as the dollar or the euro, are currencies that lose value over time, mainly due to inflation. Bitcoin was created to fight inflation and the re-printing of fiat currencies. Bitcoin is often considered digital gold. The advantage of gold over Bitcoin is that gold is a material asset that can be touched. From an economic perspective, Bitcoin does everything that gold does, sometimes even better!

1. Bitcoin is rare – 21 million bitcoins are in circulation, compared to about 190,000 tons of mined gold. It is estimated that 50,000 tons of gold can still be extracted from the ground, but we don’t have exact indicators. This is one of the first problems with gold.

2. Bitcoin money supply is accurate – We know exactly how many bitcoins there will be: 21 million around 2140, of which almost 19 million have already been mined.

3. Bitcoin is mobile – Imagine having to move 100 kg of gold; it would not be a simple matter. It’s easier with Bitcoin because it’s an intangible asset; it can be stored on a USB key, your phone, or even on a piece of paper (paper wallet). No matter how much bitcoin you need to transfer or send, you won’t have any issue doing so. You can imagine bitcoin as a cloud currency, only this cloud is public and hosted by everyone! 

4. Transparent – every transaction on Bitcoin is stored on the Blockchain and cannot be undone or deleted. You can check all transactions even from that first one in the explorer. https://www.blockchain.com/explorer

In your opinion, can Bitcoin be considered Gold 2.0?