Last updated on January 2nd, 2018 at 12:00 am
Chances are, you’ve been hearing all about the Bitcoin. This radical, all-digital, peer-to-peer currency could potentially revolutionize monetary markets. So where did Bitcoin come from, and where is it going?
Bitcoin was created by a computer programmer, or group of programmers, working under the pseudonym of Satoshi Nakamoto. On November 1st, 2008 Nakamoto wrote and published a research paper on an obscure cryptology website describing Bitcoin and how the all-digital currency could work. At first, Nakamoto claimed to be a resident of Japan but further research quickly revealed that his true identity, citizenship, and gender are completely unknown.
While the Bitcoin concept became public in 2008, the idea of an all-digital, non-governmental currency has been around since the early 1990s during the foundational stages of the Internet. Numerous programmers and business leaders had tried to establish such a currency. One example, Ecash, was launched during this time, and tried to leverage existing government and credit infrastructures, only to fail. Others followed in the footsteps of Ecash, but each tried to use a central clearing house or other method to create and monitor the electronic currency.
Nakamoto had a far more radical idea. He wanted to do away with government, and central clearing house controls and create a “peer-to-peer” currency that would rely on the entire community to monitor Bitcoin through a common and public ledger. This ledger would track every Bitcoin created and every transaction conducted, while also protecting the identity of each user. In a sense, each Bitcoin user would be invited to join the “monetary authority” of the Bitcoin market.
Nakamoto’s idea quickly attracted a small group of followers, most of whom were computer experts. On January 3rd, 2009 the first 50 Bitcoins were created. Using a process called Bitcoin mining, individual users and companies could create Bitcoins by solving immensely complex equations with their computers, and later specially designed mining computers. Solving these equations would require increasing amounts of electricity, which in turn placed a cost (that gradually increases over time) to produce Bitcoins.
The Bitcoin concept came at the perfect time. In 2008 and 2009, when Bitcoin was going through its infancy, world financial markets were reeling and on the verge of collapse in the midst of the worst global financial crisis since the Great Depression. As the crisis developed, central banks, treasury authorities, and economic leaders seemed to be overwhelmed and two steps behind each development. Confidence in traditional currencies was plummeting and many people were beginning to question the value of national currencies.
Investors, computer programmers, the disenchanted, and many others began to be drawn towards Bitcoin, and mining operations began to increase. In the early days the Bitcoin community was a largely communitarian group working through open-source software and conducting trades amongst themselves. Soon a small number of businesses, farmers, and traders began accepting Bitcoins as payment.
Through the early stages Nakamoto provided various insights and guidance to early Bitcoin miners, but on December 12th, 2010 he posted his final message, concerning mostly minute details of software, before disappearing from the world. While Nakamoto has vanished, however, Bitcoin has only grown in size and influence.
As Bitcoin mining has continued, it has grown from its initial communal stages into a global industry. As the power required to mine Bitcoin has gradually increased and the value of the coins rose, professional operations using advanced hardware were set up to mine more coins. And more businesses have begun to accept Bitcoins. At the time of writing this article over 1,000 businesses now accept BitCoins as currency.
By the end of January, 2011 over 5 million Bitcoins have been mined and the currency began garnering global attention. Bitcoin exchanges, which allow Bitcoin users to trade in their coins for national currencies began to grow rapidly. Now Bitcoins can be traded in for numerous currencies, including the dollar, Brazilian Reals, British Pounds, and Euros.
2013 has ushered in a period of instability for Bitcoin. Values have surged widely to record highs before plummeting in a matter of days. Many believe that this instability will destroy Bitcoin, but the faithful are remaining dedicated to it. What does the future hold for Bitcoin? No one is sure just yet, and only time will tell.