In all aspects, Bitcoin had an utterly great year. The leading cryptocurrency bounced nearly 400% from its yearly lows, reached a market cap larger than JPMorgan, and hit levels of adoption which we have not seen before. But what led to this monumental rise in price and how did Bitcoin grow over the past decade?
Bitcoin rallied and crashed multiple times since its existence, while at the same time paving the road towards turning finance completely decentralized. To help you better understand why cryptocurrencies have such a high status in the modern economy, we wrote a comprehensive overview of the history of Bitcoin.
Everything begins with a mysterious creator who suddenly emerged on the internet, here is how he created a revolutionary piece of technology that will disrupt the system for decades to come.
2008 was a year of catastrophic economic turmoil that influenced the entire world for several years, if not even today. Coincidentally, 2008 marks the same year in which an anonymous and mysterious individual published a paper that introduces ‘blockchain technology.’
Called ‘Bitcoin: A Peer-to-Peer Electronic Cash System,’ an individual who calls himself Satoshi Nakamoto published the original Bitcoin whitepaper on October 31, 2008. Initially, Nakamoto shared the paper on a cryptography mailing list. Soon enough the paper spread to almost all parts of the internet, especially to the main circles of cryptography researchers.
Within the paper, Satoshi Nakamoto showcased blockchain networks and explained how they could massively improve the financial system, especially on the internet. Comparing it to a digital ledger, the creator explained blockchain as a decentralized peer-to-peer network that does not require trust. Moreover, he focused on how blockchains require no intermediary, something which was completely unthought of at the time.
The very first sentences from the paper read:
“Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust-based model.”
Blockchain technology, at least the first network to be created, would offer potential users the ability to transfer monetary value through Bitcoin. With irreversible transactions which are cryptographically secured, Bitcoin would become the first viable digital currency in the history of mankind.
On January 3, 2009, Satoshi Nakamoto launched the blockchain network which spawned the first block to be mined, the genesis block. Users were free to participate in the network as miners and earn Bitcoin in return, but it had no value at the time.
But in just a year, we had the chance to see the first (public) economic transaction that exchanged value. On the Bitcointalk forum, a resident from Florida revealed that he spent 10,000 Bitcoins on two pizzas from Papa John’s. The transaction was made on May 22 and based on the price of the goods, was valued at $25.
But if we take a look at the current price, we see that the same transaction now costs $170 million. It appears that BTC was incredibly undervalued at the time, but who would have known?
One year later, internet users realized that Bitcoin may actually hold some value. On Bitcointalk, an anonymous individual under the pseudonym of ‘dwdollar’ proposed a new platform for trading Bitcoin. Called Bitcoinmarket.com, the website was first proposed on January 15, 2010.
The individual then continued by greeting the community and introducing what is now officially the first Bitcoin exchange:
“I am trying to create a market where Bitcoins are treated as a commodity. People will be able to trade Bitcoins for dollars and speculate on the value. In theory, this will establish a real-time exchange rate so we will all have a clue what the current value of a Bitcoin is, compared to a dollar.”
As decentralized as bitcoin was, it was also severely fragmented. The community had no idea how to determine the price and miners who were looking to make money were able to reach a consensus on the ledger, but not on the asset’s price.
With that in mind, how could the community ever determine a price? While Bitcoin remained decentralized, it required a centralized entity like an exchange to set official prices. In March 2010, the previously mentioned poster launched Bitcoin Market.
In the beginning, a single Bitcoin was valued at only $0.003. If time travelers were ever to exist, they would certainly return to this point in time to stack up on cryptocurrencies.
At a similar time, the market saw the rise of a new Bitcoin exchange that would become the biggest one in the history of crypto.
In 2011 developer Jeb McCaleb converted his old website called Mt. Gox, designed as a marketplace for card game Magic: The Gathering, into an online Bitcoin exchange. Later on, McCaleb sold the exchange to another developer, Mark Karpeles.
Living in Japan at this moment of his life, Karpeles began to operate the exchange in the same year it was created. Soon, Mt. Gox turned into the largest cryptocurrency trading platform which ended on a dramatic note. With a history of negligence, security breaches, and other deficiencies.
Hacked for years and losing 740,000 BTC in the process, Mt. Gox unsurprisingly failed as an exchange. In 2014, its owner filed for bankruptcy in Tokyo and stopped processing trades. In August 2015, he was arrested for manipulating the exchange’s balance sheet.
In 2011, the very first blockchain developers emerged, along with a significant increase in miners. Developers went on to create new projects based on the original Bitcoin source code, starting with Litecoin. On October 13, 2011, the first fork in the history of cryptocurrencies occurred as one community split from the main chain and created Litecoin.
Bitcoin was thought to be the only digital currency based on blockchain technology that will ever exist, at least the dominant one. No one believed that miners would participate in anything other than Bitcoin, believing everything else to be worthless.
Essentially, this marks the start of ‘Bitcoin maximalists.’ But as we see, the Litecoin fork proved that there is extra room in the space of cryptocurrencies. Furthermore, we saw a rise in developers looking to create their own networks, with a majority of new forks stemming from Litecoin.
In the world of blockchain networks, forks are often conducted when a community seeks to split from the main network. As such, they have the ability to create their own home with new rules and features. Sometimes, miners will host forks to even reverse the effects of hacks or bugs that completely paralyze the network.
As an asset, the most notable part of Bitcoin’s history is the price. Since first arriving on markets, the cryptocurrency’s value increased and decreased in an extremely volatile way over the past ten years.
The first major event started in February 2011 when Bitcoin finally reached the price of $1. Only a few months later, the digital asset experienced its first bubble by reaching $31 in June. This was the first parabolic rally that has shown people just how volatile Bitcoin can be. But just like in any other bubble, the price violently crashed. After a short while, it returned to a single-digit value.
It did not take too long for Bitcoin to explore far greater price levels. In 2013, Bitcoin reached a price of $200 by April. In November 2013, it already began to trade at around $1,000. Likewise, the price crashed after a couple of months.
Bitcoin’s price was mostly driven by the rise of illegal black markets on the internet. The first such market launched in 2011 with the name Silk Road. Founded by Ross William Ulbricht, the digital marketplace worked on the ‘dark net’ and gave criminals and drug dealers a way to sell illegal substances. On the other hand, consumers also had a way to digitally purchase drugs while remaining totally anonymous.
The story of Silk Road did not last too long as the FBI apprehended Ross Ulbricht on October 1, 2013. The market went on to be used for a long time before finally losing all users around three years later.
Naturally, Bitcoin was more than just a currency for hackers, criminals, and drug dealers to use. The cryptocurrency amassed a wide following that came with developers, miners, technology enthusiasts, and many other groups. As a digital currency that brought decentralization to the traditional financial system, Bitcoin was set to disrupt the world for the first time.
After years of turbulent price action, investors started a rally that would completely faze everyone, especially Bitcoin holders. In August 2015, the price reached a bottom which we would never see again. With strong support at $200, we saw the asset slowly rise in value over time. By June 2016, Bitcoin already came close to its previous all-time high and was valued at $770.
In March 2017, bullish investors led to an all-time high of $1345, slightly above the previous one. Giving absolutely zero chances for bears to recover, Bitcoin dropped only to $945 before bouncing radically in a short time.
We all know what happened next! Bitcoin entered a parabolic phase through which it successfully increased in value many times over. On December 11, 2017, Bitcoin reached its final ATH at $20,000.
Afterward, investors decided to utilize all the newly gained returns to invest in altcoins, the other cryptocurrencies in the market. Just like Bitcoin, these mostly Ethereum-based altcoins tremendously increased in price during January 2018. Some of them grew 20 times in value in the course of a single day.
Aside from prices, Bitcoin reached an ATH for all its other aspects as well. Retail buyers became interested in the ‘official internet currency.’ Many of them used their entire savings, sold possessions, and even houses to be ‘early adopters’ of a new disruptive asset. With many new investors buying at the very top, the story ended badly.
Bitcoin revealed to the entire world that, apart from having an investment value, it can also be reliably used for payments. Forked projects and altcoins also helped contribute to this factor by introducing a variety of use cases in almost all fields of life.
Smart contracts, a separate and new piece of blockchain technology, also gained traction as they were popularized by Ethereum. Its gigantic ecosystem supported a majority of the new cryptocurrencies. More than that, Ethereum has shown that blockchain technology can not only disrupt markets and banks but other institutions as well.
In the end, Bitcoin’s story did not end well in 2017. After reaching an ATH at $20,000 early investors began to sell their profitable positions en masse. Prices can increase for only so long and the hype surrounding Bitcoin started to die day by day.
By December 2018, Bitcoin finally found support at $3,400 and reached the lowest point that it has ever seen in the last couple of years. From that point on, Bitcoin had a small bull run in 2019. Ultimately, bulls failed to deliver their promise of new highs. The cryptocurrency slowly started to fall again after touching $14,000 in June 2019.
By October, Bitcoin found another bottom after Chinese President Xi Jinping announced a national blockchain program. The market looked bright at the moment, starting another rally around new years eve. However, the ongoing Coronavirus pandemic soiled all plans and led to a gigantic crash for all markets in March 2020.
In only a few days, Bitcoin lost its recently gained value and fell back to $3,500. Yet again, we saw the entire crypto market at the lowest point it has been in years. With uncertainty and risk surrounding everyone, the community did not know what to believe next.
From this perspective, the almost hysterical price drop may look funny. After a couple of months of ranging, Bitcoin continued its previous rally and slowly revisited prices that we have not seen since 2017. In November, the leading cryptocurrency reached a new yearly high at $19,540.
Despite several dramatic events since the major crash in 2017, Bitcoin and the overall cryptocurrency market are alive and well. As a matter of fact, the crypto assets market experienced a complete revival in 2020 by rising to the same highs seen three years before.
The world has changed a lot in the past decade and blockchain technology surely had a big influence on shaping the world. From a niche digital currency known only by cryptographers to an investment and currency with a price higher than any other asset, we can state with confidence that Bitcoin has a volatile history.
What does the future hold for Bitcoin and all other cryptocurrencies? Will they exist side-by-side with fiat currencies or will they completely replace them? With that in mind, can we expect blockchain technology to influence other aspects of our everyday lives and if so, what will decentralized networks disrupt next?
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Mt. Gox is the industry's formerly largest cryptocurrency exchange, processing nearly 70% of all Bitcoin transactions at its height. After years of neglect, Mt. Gox collapsed and declared bankruptcy following a hack in which 740,000 BTC were stolen.