An Introduction: Welcome to Bitcoin
“As it turns out, the biggest blocker in understanding Bitcoin might be ourselves. The path of understanding bitcoin might be unfamiliar to the majority. From a distance, Bitcoin is a speculative and extremely volatile asset and it’s history seems too good to be true. Most of us dismiss it at first glance. That all changes when the individual decides to give oneself time for understanding the topic. When there’s enough curiosity it’s hard not to fall down the bitcoin rabbit hole.” (Nick Beaird)
In September 2008 the world was hit by the Great Recession, considered by many economists to be the most severe financial crisis the modern world has experienced. The bursting of the US housing bubble caused the US real estate market tied to the values of securities to cave, damaging financial markets and institutions across the globe. Under high pressure from the international finance and banking sector, governments globally ordered central banks and treasuries to respond with an unprecedented expansion of fiscal stimulation and monetary policy, and from the brink of collapse, the global financial system was stabilised (Antonopoulos A,M. (2017). The Internet of Money. Merkle Bloom LLC).
However, a great deal of people were unhappy with the way governments worldwide dealt with the crisis. Central banks were accused of saving a failed financial system and merely setting up the global economy for more trouble to follow. The cause of the crisis, an out-of-date monetary system, dramatic failures of corporate governance and risk management had been allowed to survive a crash they directed, without the proper oversight into whether they were corrected post-crash (Antonopoulos A,M. (2017). The Internet of Money. Merkle Bloom LLC).
Some libertarians took it on themselves to create an impulse for the change they believed to be necessary. On August 18th, 2008, the website bitcoin.org was quietly registered. Shortly after, on October 31st in 2008, Satoschi Nakamoto submitted a nine-page paper, the Bitcoin white paper, entitled “Bitcoin: A peer-to-peer electronic cash system” to the cryptography mailing list, outlining a design for Bitcoin. On January 3rd, 2009, UK Chancellor of the Exchequer Alistair Darling announced the second bailout of the banks. In parallel the first 50 bitcoins were mined. It was the starting point for a new digital currency, with the potential to change the world (Antonopoulos, 2015).
Sataoshi Nakamoto explained “The root problem with conventional currency is all the trust that’s required to make it work” […] the central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of trust. Banks must be trusted to hold our money and transfer it electronically, but they lent it out in waves of credit bubbles with barely a fraction in reserve.” (February 11, 2009 at 22:27)
At first, few people took notice of Bitcoin. When Satoschi finally announced the successful launch of the project on January 8th 2009, Hal Finney was the first member of the cryptography mailing list to respond. On January 11th he announced via twitter “Running bitcoin”, becoming the first person to engage in a bitcoin transaction and receive 10 bitcoins directly from Satoshi (Bitcoin Magazine; 10th Year Anniversary Edition, Page 16).
In late 2009, the first bitcoin exchange took place. A university student from Helsinki, Martti Malmi, sold 5,050 bitcoins for 5.02$. Around 0.1$ cents per coin. By May 22, 2010, the time had finally come for the first bitcoin payment. Laszlo Hanyecz, a bitcoin user from Florida, posted on the bitcoin.org forum: “I’ll pay 10,000 bitcoin for a couple of pizzas”. Jeremy Sturdivant, a bitcoin user from the UK, took up the offer. Hanyec sent Sturdivant 10,000 bitcoin, who in return ordered a couple of Domino’s pizzas on behalf of Hanyecz. The pizzas were successfully delivered to Hanyecz doorsteps in Florida. In hindsight, this was probably the most expensive pizza ever sold, now worth over a couple of hundred million dollars (Bitcoin Magazine; 10th Year Anniversary Edition, Page 16).
By the end of 2010 a community had formed around bitcoin.org. Satoschi Nakamoto organised a team of people for the administration of the website and developers contributed to the open-source code of Bitcoin. Satoshi had made Gavin Andresen, a developer from Massachusetts, the main contact on the Bitcoin product page and vanished from the internet in early 2011. In the meantime various online retailers, institutions and private individuals started to accept bitcoin for payment. The Electronic Frontier Foundation became the first institute to accept bitcoin as donations. By February 2011 one bitcoin was worth one dollar (Bitcoin Magazine; 10th Year Anniversary Edition, Page 16).
Continue reading: An Explanation: What is Bitcoin
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