Bitcoin (BTC), the first-ever cryptocurrency, transformed from a digital novelty worth less than a penny to a globally recognized currency trading for almost $70,000 per coin within a decade. Even diehard cryptocurrency enthusiasts have difficulty believing digital assets have come so far in such a short time. Although much of the history of cryptocurrency's timeline is still unknown, contemporary economists can’t ignore these coins and tokens.
The history of cryptocurrency is nowhere near as long as the history of traditional finance, but it has been a wild story thus far. Reviewing cryptocurrency’s early days gives traders a greater perspective on this emerging asset class.
The Cryptocurrency Industry Before Bitcoin
Bitcoin's launch in 2009 was the culmination of dozens of failed cryptocurrency projects from the ’80s to the early 2000s. Throughout these years, many independent developers and cryptographers experimented with digital currency payment systems, with some influencing BTC’s eventual design.
Most significantly, computer scientist David Chaum published a pivotal academic paper called Blind Signatures for Untraceable Payments in 1982. Here, Chaum outlined a new encryption technology known as the blinding formula, making it possible to send electronic cash without centralized entities, such as banks. Shortly after publishing his theories, Chaum moved to the Netherlands to launch a proto-cryptocurrency called "eCash" with his company DigiCash. Although many banks and tech companies expressed interest in eCash, DigiCash filed for bankruptcy in the late ’90s.
eCash’s high-profile rise and fall inspired a new generation of programmers to build on Chaum's ideas. Throughout the late ’90s and early 2000s, gold-related virtual currencies, such as EGold, tried to offer a scarce and secure internet-based asset without intermediaries. Although these pre-BTC projects ran into technical or funding issues, they influenced the Bitcoin blockchain’s final design.
The Rise of BTC
During the 2008 global financial crisis, an individual or group called Satoshi Nakamoto released a whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System. Drawing on previous projects such as eCash and EGold, Nakamoto proposed using a new decentralized computer network or blockchain to create a censorship-resistant peer-to-peer (P2P) digital payment system. Bitcoin's blockchain uses a proof-of-work (PoW) algorithm to verify and broadcast every transfer in the network. In Nakamoto's design, computers or nodes solve advanced algorithms every 10 minutes to get a chance to post new transactions on Bitcoin's payment ledger. Successful nodes even receive BTC rewards and transaction fees whenever they solve this puzzle. Other computers on the Bitcoin blockchain verify each transaction six times before posting data on the public payment ledger.
Nakamoto put their intricate PoW design into practice at the start of 2009 with the Bitcoin protocol’s release. In the early days, only Nakamoto and a few cryptography enthusiasts powered the BTC network, and it's estimated Nakamoto is the largest BTC holder with roughly $2 million BTC on multiple wallets. The first recorded price for Bitcoin in cryptocurrency's history was approximately $0.00099 per coin in 2009 on the P2P trading platform BitcoinTalk. In 2010, the early crypto adopter Laszlo Hanyecz bought the first real-world item with Bitcoin when he traded 10,000 BTC for a Papa John's pizza. To this day, BTC fans host pizza parties every May 22 to commemorate Hanyecz's historic purchase.
Market Growth and Mt.Gox: The Early History of the Cryptocurrency Market
Bitcoin started to grab mainstream attention in the early 2010s when Forbes’ reporters began covering the cryptocurrency. As stories on Bitcoin started circulating through the media, BTC's price began climbing until it almost cracked the $10 level in 2011. Bitcoin believers organized groups and published educational content to spread the word about cryptocurrency and capitalize on this momentum. For instance, programmer Gavin Andresen released the first Bitcoin Faucet website in 2010, giving away free BTC to visitors to boost cryptocurrency adoption. In 2012, crypto supporters—including Etheruem's cofounder Vitalik Buterin—launched Bitcoin Magazine to spread awareness of BTC's purpose and technology.
In fact, more developers used Bitcoin's blockchain design to create new P2P cryptocurrencies in the early 2010s. For instance, former Google executive Charlie Lee used Bitcoin's code to launch Litecoin (LTC) in 2011. Often described as the "silver to Bitcoin's gold," LTC became one of the first conventional "altcoins" (i.e., non-Bitcoin cryptocurrencies) thanks to its faster speeds and cheaper network fees. Other early altcoin projects in the cryptocurrency market include Ripple's XRP, Monero (XMR), and Dogecoin (DOGE).
Despite BTC's rise to more than $1,000 per coin in 2013, it fell to around $300 after the Mt.Gox hack. At this time, roughly 70% of all BTC transfers went through the Mt.Gox cryptocurrency exchange. In 2014, hackers broke into Mt.Gox and stole 850,000 BTC from the Tokyo-based crypto trading platform. The fallout from the Mt.Gox hack influenced future crypto exchanges and wallet developers to introduce advanced security features, such as anti-phishing codes, insurance treasuries (e.g., Binance's SAFU Fund), and two-factor authentication (2FA) to protect users' funds.
How Ethereum Changed Cryptocurrency
Following the Mt.Gox attack, a new project called Ethereum started to make waves in the cryptocurrency market. Launched in 2015, Ethereum differed from previous altcoins thanks to its innovative smart contract technology. Smart contracts are special blockchain-based programs that automatically execute term agreements once a set of conditions are met. Developers who use smart contracts on Ethereum don't need to rely on central authorities to approve transactions or oversee in-app activity. Inspired by Ethereum's smart contract capabilities, developers began experimenting with decentralized internet applications (aka dApps) on Ethereum’s blockchain.
However, Ethereum faced a major crisis in 2016 when hackers exploited a bug in the smart contract code of an Ethereum-based fund called a decentralized autonomous organization (DAO). The DAO hack drained roughly $60 million from early investors in the Ethereum ecosystem. Some Ethereum developers proposed creating a new blockchain to reimburse DAO investors, while others argued any third-party intervention went against the decentralized ethos of cryptocurrency. Eventually, the Ethereum blockchain split into two networks: the new Ethereum (ETH) and the original Ethereum Classic (ETC) chain.
After the DAO hack drama, Ethereum continued to rise in significance in the cryptocurrency community. Popular cryptocurrency collectibles called non-fungible tokens (NFTs) emerged on Ethereum with early collections, such as CryptoKitties, MoonCats, and CryptoPunks. New fields such as decentralized finance (DeFi) began using smart contract technology to provide users with decentralized services such as trading, lending, and borrowing. Like Bitcoin, Ethereum influenced developers to create similar smart contract-based blockchains. Ethereum’s competitor chains include Cardano, Solana, and Polkadot.
Expansion and Crashes in Recent Cryptocurrency History
On July 9, 2016, Bitcoin's daily issuance dropped from 25 BTC to 12.5 BTC per block in a preprogrammed halving event. Every four years, Bitcoin's supply reduces by half until there are 21 million BTC in circulation. Although 2012 was the first halving event in BTC's history, 2016's halving led to a significant rise in BTC's price in 2017, culminating in BTC almost breaking the $20,000 level in December. Although the entire crypto market fell after the 2017 bull run, more investors became aware of digital assets.
The cryptocurrency market’s coverage increased after Bitcoin's next halving event on May 11, 2020. Like the post-2016 halving era, BTC entered a new bull run in 2021 and nearly touched $70,000 per coin in November. Companies, such as Tesla and MicroStrategy, started putting Bitcoin on their balance sheets, and countries like El Salvador recognized it as legal tender. NFTs also became famous as celebrities, influencers, and companies brought attention to collections like CryptoPunks and the Bored Ape Yacht Club.
Despite Bitcoin’s massive growth, China announced a crypto ban in 2021, leading to a decline in BTC’s price. Although Bitcoin quickly regained its value, 2022 was challenging for crypto projects and companies. First, Terraform Labs' multibillion-dollar cryptocurrency LUNA fell to zero after its experimental stablecoin UST failed when UST lost its pegged value. Many crypto companies and firms tied to LUNA and UST (e.g., Celsius, Three Arrows Capital, and Voyager) filed for bankruptcy. The centralized cryptocurrency exchange FTX, based in the Bahamas, also filed for bankruptcy in late 2022. Before the crash, FTX was worth an estimated $32 billion.
Regardless of the negative news in 2022, the global market cap for crypto assets hovered around $1 trillion for most of the year. Crypto believers hope projects with solid fundamentals will weather the bear market conditions moving into 2023 and beyond.
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