Evolution of Bitcoin

Evolution of Bitcoin

Since its inception in 2009, to becoming a household name in 2021, Bitcoin has gone on quite a journey.  In this article, we track the key milestones in Bitcoin’s success.

Created on 3 January 2009, Bitcoin was the first decentralised currency to utilise Blockchain technology.

Blockchain is a type of database that stores all the transactions associated with Bitcoin.  Unlike a traditional database, Blockchain stores data in blocks which are then chained together.  In the original whitepaper, the words ‘block’ and ‘chain’ were used separately.

It was 2016 when the phrase ‘blockchain’ started to gain mainstream use.

When a new piece of data comes in (for example, a new transaction), it is entered into a block.  Once that block is filled with data, it is chained onto the previous block.

To do this, the next block in the sequence contains a code that references the previous block.  This code is known as the ‘hash of the previous block.

Hence, all the data is chained together in chronological order.  Once a particular block is filled, the data in it cannot be reversed or altered.

While the identity of the creator still remains a mystery, Bitcoin was first mentioned in a whitepaper called “Bitcoin: A Peer-to-Peer Electronic Cash System”, published on 31 October 2008 by someone using the pseudonym Satoshi Nakamoto.  Instead of relying on centralised government-issued fiat currencies, Bitcoin’s aim was to conduct government-free transactions using digital signatures and digital coins.

To keep the network running, individuals (known as ‘Miners’) would volunteer their personal computing power.  In exchange, they would receive some Bitcoins and have a say in new protocols that are adapted to the blockchain network.

The blockchain was launched on 3 January 2009 when the first block, called the Genesis Block, was mined.  The first Bitcoin transaction, a test transaction, occurred on 12 January 2009, just days after the first open-source Bitcoin client was released.

Over a year later, the first economic transaction took place.  On 22 May 2010, a Florida man negotiated two Papa John’s pizzas, valued at $25, to be delivered in exchange for 10,000 Bitcoins.  The value of Bitcoins to be exchanged was negotiated on a Bitcoin forum.  This transaction established the first price of Bitcoin, at 4 Bitcoins per penny (1 cent USD).

On 6 August 2010, a major vulnerability was discovered in the Bitcoin protocol.  Essentially, the vulnerability allowed transactions to be included in the transaction log before being verified.  This let users bypass Bitcoin’s economic restrictions and create an infinite number of Bitcoins.  The vulnerability was first exploited on 15 August 2010, with over 184 billion Bitcoins generated in a single transaction.  The bug was fixed within hours of the attack occurring, and the transaction was removed from the transaction log.  To this date, there have been no other major security flaws found.

It was also in 2010 that Bitcoin started to become available on exchanges.  This made it easier for Bitcoin to be bought, sold, traded and stored.  It was because of these exchanges that Bitcoin could be first priced against the US Dollar.

In 2011, based on Bitcoin’s open-source code, other cryptocurrencies began to emerge, such as Ethereum and Litecoin.

These new cryptocurrencies improved the code behind Bitcoin’s blockchain, allowing it to be adapted for different uses.

In February 2011, Bitcoin’s price first exceeded $1, increasing to a peak of $31 in June 2011.  Around the same time, organisations such as WikiLeaks started accepting Bitcoins for donations.

In 2012, the number of organisations accepting Bitcoins continued to grow, with BitPay (a Bitcoin payment service provider) reporting in October 2012 that they had over 1,000 merchants accepting Bitcoin.

In 2013, the first salaries started to be paid in Bitcoin, with the Internet Archive stating that it intended to give employees a portion of their salary in Bitcoin. In April 2013, the value of Bitcoin had reached $200 and more than $1,000 by November that same year.  It was also in 2013 that the first Bitcoin ATM was created and, on 29 October, was installed in a coffee shop in Vancouver, Canada.

The acceptance of Bitcoin continued to grow, with Microsoft in December 2014 accepting Bitcoin as payment for Windows software and Xbox games.  By February 2015, the number of merchants accepting Bitcoin had risen to over 100,000.

It was in 2017 that Bitcoin began to gain some legal acceptance, with Japan passing a law to allow it to be accepted as a legal payment method.  At the same time, Bitcoin’s value continued to grow, reaching $10,000 in November 2017 and a peak of $19,650 USD in mid-December 2017.

The number of Bitcoin ATMs continued to grow throughout the world, with a reported 5,457 worldwide in September 2019.  The majority are in the United States, Canada, United Kingdom, Austria and Spain.

Recently, Bitcoin has appeared on stock exchanges with the Frankfurt Stock Exchange, quoting the first Bitcoin Exchange-traded Note on 3 September 2020, which was cleared via Eurex Clearing.

Furthermore, in October 2020, PayPal announced that it would allow US users to buy and sell Bitcoin using their PayPal accounts.

The future of Bitcoin looks bright, with both Visa and Mastercard publicly endorsing its use.  Visa is currently allowing transactions with stablecoins on the blockchain Ethereum.  Similarly, Mastercard has announced that it will allow transactions with cryptocurrencies in 2021.

Paying employees in different countries using cryptocurrency could also be a lot more convenient as it will eliminate the fees for currency exchange.  Furthermore, the employee and employer can instantly see the transaction status by looking at each other’s wallets.  Time and money can be saved by cutting out banks in the process.

James Girling
Managing Consultant

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