Officially, the Bitcoin history began on October 31, 2008. A document describing the newest concept of decentralized cryptographic currency was published. However, many studies preceded this event while lasting twenty years.
Tasty beginning — Pizza Bitcoined
So, on May 22, 2010, the Las Vegas programmer Laszlo Heinitz paid bitcoins for two Papa John’s pizza. It was a very unusual step at that time. The purchase cost Heyniz 10,000 BTC (about $ 25).
It is curious that the transaction was not carried out directly in the network of pizzerias. One of the users of the Bitcoin Talk forum Responded to the request of László. He ordered a pizza for “live” $ 25, getting in return the very 10000 BTC. The identity of the user is still unknown. However, let’s imagine he did not hurry to convert them into cash. Then, today, when Bitcoin costs more than $ 4,000, the cost of that purchase would be an astounding $ 40 million.
It is known that history can not be reversed. However, if such an opportunity existed, many would hasten to use it. They would return seven years ago when Bitcoin only took the first steps. When Bitcoin history was as young as the Earth in Cretaceous Era.
And although many nowadays traditionally talk about missed chances, the case with the first pizza for Bitcoins may well serve as another topic for conversation: about the opportunities that the cryptocurrency opens from a commercial point of view. At the same time, these opportunities have recently been appreciated. The number of companies accepting Bitcoin constantly growing throughout the world. Perhaps, right now it is the most suitable time for the business to start accepting the crypto currency in cash.
Bitcoin Scientific Origins
In 1983, David Chaum, an associate at the Department of Computer Science at the University of California at Santa Barbara, was thinking about how to combine anonymity payments and their transparency for all market participants. The scientist suggested using the so-called “blind signature” algorithm. This algorithm allowed to conduct a secret deal between two anonymous participants. At the same time, it reported on deal fact to outside observers.
Then, together with his Israeli counterparts, Chaum developed “electronic cash” protocols. Through them the conditional seller approves the transaction only after confirming the authenticity of an anonymous payment by a third party. It is sufficient for the buyer to have proof of sending virtual money.
As a matter of fact, this technology became the basis for making transactions using bitcoins.
British inventor Adam Beck worked on the prototype of the mechanism for creating the cryptocurrency. He suggested using the anti-spam system Hashcash. In Hashcash the sender makes a lot of time-consuming transactions. And the recipient verifies their authenticity very quickly.
A year later, researcher Nick Szabo began working on the decentralized money system Bit gold. According to him, electronic money would save users from many threats. That would include theft, forgery and even inflation. Sabo worked on his project until 2005, but could not ensure its launch.
“Satoshi Nakamoto” — searching the unknown
An unknown person or a group of individuals under the pseudonym of Satoshi Nakamoto used all of the above developments. The purpose was to create an electronic currency with completely anonymous transactions. At the end of October 2008, its technical description and the first version of the code appeared in the network.
Internet users tried several times to reveal the true identity of its creator. Since 2010, Satoshi Nakamoto has ceased to participate in the project. He transferred control over the Bitcoin.org domain and development tools to his colleagues. He communicated with them through the website P2P Foundation. There he indicated that he lives in Japan. However, the developer wrote beautifully in English. Also, the technical description of cryptocurrency technologies was not localized for the Japanese language.
The fortune of Nakamoto is estimated at 1 million bitcoins. In order to achieve such a state, he most likely originally used a network of several dozen computers.
The first attempt to uncover the true personality of Nakamoto was undertaken by the researcher Sky Gray. He published a detailed analysis of textual predispositions based on key speech speeds in the technical documentation on Bitcoin. As a result, Gray said that the true creator of the cryptocurrency is the developer of the Bit Gold money system, Nik Szabo. However, Sabot rejected these suspicions.
In 2014, Newsweek magazine published the investigation of journalist Leah Goodman, who claimed that the creator of Bitcoin was a 64-year-old American of Japanese descent, Dorian Prentis Satoshi Nakamoto.
Another version of the true identity of Nakamoto in early December 2015 was provided by the journalists of The Wired. According to their information, Australian businessman Craig Wright hides under this name. However, as the Bitcoin history goes, none had uncovered the true identity of Bitcoin creator.
The blockchain system is like a building block in Bitcoin history. The blockchain system became the basis for transactions with new electronic money. It originated in part on the studies of Chaum and Beck. The Bitcoin creators developed a database that stores all ever committed transactions in the form of publicly available blocks of information. A special mathematical algorithm links blocks to each other. So, if you change the contents of one of them, you’ll have to make corrections to the next block and then to the whole chain.
Copies of the database are stored in bitcoin-purses – encrypted clients that users create themselves. Nakamoto himself created the first purse in early 2009. With the help of a purse, each of the confirmed transactions is recorded in one of the blocks. Then it will join the common chain. When registering, the user is assigned his personal address. The personal address is indicated when sending bitcoins. It also provides complete anonymity.
So-called “miners” play the main role in the functioning of the whole system. They create new blocks from transaction records. The process of mining, named so by analogy with harvesting resources, requires solving a number of complex mathematical problems. So, the miners need to use powerful computing resources on specially equipped computers. For each created block, they receive commission fees from transactions or newly created bitcoins. The complexity of the mining is automatically adjusted every two weeks. It depends on the total number of blocks that appear during this time.
In this case, the first miners could only generate virtual money on their computers and transfer them to each other. The approximate Bitcoin rate in 2009 ranged from 700 to 1,600 units for one dollar. It was calculated based on the consumption of one unit of CPU power, multiplied by the cost of electricity in the US, divided by the total number of bitcoins created by the miner.
Bitcoin history — 2010 – 2011
In February 2010, the first service (Bitcoin Market) for buying bitcoins appeared. In May 2010, cryptocurrency forum user decided to buy two pizzas for 10 thousand bitcoins. However, in July after mentioning in Slashdot, the number of virtual money users began to grow dramatically. As a result, after month 10 thousand bitcoins cost 600 dollars. Many network users began intense crypto-mining. This led to the emergence of the first Bitcoin stock exchange MtGox. It allowed not only to acquire bitcoins but also to exchange them for real money. The rate of Bitcoin increased rapidly from 6 cents per unit in July to 50 cents in November. At the same time, the estimation of the cumulative market volume was at $ 1 million.
In February 2011, Bitcoin equaled the value of the dollar. In March, exchanges excepting bitcoins for British pounds and Brazilian reals launched. At the same time, the founder of the Swedish Pirate Party, Rick Falkwinge invested all his funds in bitcoins. Also, the famous Wikileaks site began accepting donations in them. In April, Time magazine published a post about the cryptocurrency. Also, the total volume of the Bitcoin market exceeded $ 10 million.
True Dark Side of Bitcoin
The fact is that in February 2011, the anonymous electronic trading platform Silk Road started its work. It was accessible only through Tor-browser. Participants used the safest way – bitcoins for payment. More than half of all goods were narcotic substances. Anyone could acquire weapons, other bank details, and personal data, as well as prohibited pornographic materials. Some users even ran ads about selling human organs or offering killer services. In 2012, Silk Road sales reached $ 15 million. During its existence, the users of the website made more than a million transactions amounting to 9.5 million bitcoins.
Another loud story was the discovery of the “Murder Market” website. It collected donations in bitcoins for the removal of political figures. Although Silk Road was eventually closed, and the “Murder Market” did not lead to real crimes, bitcoins are still actively used in making shadow transactions in the network. This negatively affects the reputation of the cryptocurrency and prevents its spread all over the world. Both “Silk Road” and “Murder Market” somewhat stain the Bitcoin history.
Investigations in Bitcoin history
The agent of the department for the control of drug trafficking in the US – Carl Force conducted the investigation of Silk Road. His efforts led to the arrest of the founder of Silk Road, Ross William Ulbricht in October 2013. At the same time, Ulbricht repeatedly claimed that he had purchased an online store from his true founder, the founder of MtGox, Mark Karpeles. Later it became known that Karl Fors disclosed the identity of Ulbricht long before his arrest. And blackmailed him about a year, pretending to be one of the users.
For his silence, the agent received almost 800 thousand dollars in bitcoins. He even managed to invest part of these funds in the exchange — CoinMKT. During the investigation, Force’s accomplice – a member of the US Secret Service Sean Bridges stole nearly same amount. Later, he disclosed a criminal scheme to the authorities, voluntarily surrendering to the police. Now Ulbricht is serving life imprisonment for drug dealing, money laundering, and hacking. Karl Force received six and a half years in prison.
During the investigation, the Force’s accomplice – a member of the US Secret Service Sean Bridges stole the same amount. Later, he disclosed a criminal scheme to the authorities, voluntarily surrendering to the police. Now Ulbricht is serving life imprisonment for drug dealing, money laundering, and hacking. Karl Force received six and a half years in prison.
The Bitcoin history experienced the second round of development after a swift fall. Problems appeared in 2012. The system became the subject of constant hacker attacks. As a result, the currency began to rise and fall sharply. The theft of cryptocurrency from the users’ wallets became more frequent. At the same time, online stores began to appear. They accepted bitcoins as payment for goods. Within a year, the positions of the cryptocurrency grew stronger. The rate soared and reached $ 1,000 per bitcoin. Many online services surfaced.
The sharp rise in prices and the active use of bitcoins by users attracted the attention of the controlling bodies. Some countries have banned the use of cryptocurrency in their territory. However, now the situation begins to stabilize again. New strategies for the use of cryptocurrency are in development. In our opinion, the Bitcoin history has approached the next stage.