History of Bitcoin

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Bitcoin is not an entirely new invention – it is a creation that comes from different thoughts and ideas stretching back to before 1970. Bitcoin combines different ideas such as cryptography, distributed ledgers, blockchain, and many more.

Cryptography – 1970s

Cryptography is used primarily in the military world for military communication and secret intelligence agencies. After the publications of Data Encryption Standard and the New Direction of Cryptography, people see that cryptography can be used for other things, including inventing digital money.

Dr. David Chaum, an American computer scientist and a cryptographer, started to write about different topics regarding how to use cryptography in money such as digital cash and pseudonymous reputation systems. Chaum founded DigiCash company in 1989. DigiCash enabled people to create a transaction without providing any identifying information, which is great for personal privacy. This idea leads to the cypherpunks’ movements, cypherpunks are a group of people who want to use strong cryptography for privacy and personal freedom. Unfortunately, DigiCash didn’t last long. In 1998, the company behind DigiCash declared bankruptcy.

Cypherpunks movements – the 1990s

In late 1992, Eric Hughes, Timothy C May, and John Gilmore released the Cypherpunks Manifesto. It is a vision of a society using cryptography in every aspect of their life to ensure their privacy and freedom.

“Privacy is necessary for an open society in electronic age – Cypherpunks Manifesto”

This is very relevant considering in the 1990s the US government created a clipper chip, a chipset to secure voice and data messages. However, Clipper Chip received a lot of backlashes because it was argued to be used as a government surveillance tool and had security vulnerabilities.

The 1990s is the development era of a cryptographic hash function. A hash function is a mathematical function that always produces the same output given the same input. The function is one-way: you can almost never find/guess the original input from the hash output alone. A cryptographic hash function is useful to create a secure and private society.

In 1997, Adam Back created Hashcash, an anti-spam mechanism. He envisioned that hashcash is not only good as an anti-spam mechanism but also useful for digital cash. A Hashcash is an anonymous cash system. User doesn’t need to create an account to transact with each other. Adam Back also tries to solve the “double-spending” problem in digital money through hashcash. Double Spending is a risk when digital money can be spent twice or more because a digital file can be easily duplicated or falsified.

In 1998, Wei Dai published a proposal called  “b-money”. This proposal has similarities with Bitcoin such as, first, all the transactions will be broadcasted, and second, there is a system of servers to check the balance of the money and incentivized to keep being honest.

Proof of Work and Bit Gold – the 2000s

In 2004, Hal Finney created Reusable Proof of Work (RPOW),  a unique cryptographic token that could only be spent once. RPOW is the first public implementation of a server designed to allow users from all over the world to verify its integrity and correctness in real-time. RPOW is called Transparent Servers. This invention increased the end-user-privacy.

A year later, Nick Szabo published a proposal called “bit gold”. It is a proposal to create a digital collectible token built upon RPOW. Bit Gold has similarities in terms of immutability in Bitcoin’s blockchain. The only difference between bit gold and Bitcoin is that Nick Szabo did not limit the total unit of bit gold.

Satoshi Nakamoto era – 2007 – 2010

Bitcoin did not appear on a single night, it is a collective idea that been perfected over time. In 2007, a pseudonym called Satoshi Nakamoto, posted an idea in a Cryptography mailing list about a possible peer-to-peer payment system called Bitcoin. Satoshi then released The Bitcoin White Paper to further explain his idea. Satoshi also mentioned hashcash and b-money in the paper.

The creation of Bitcoin was in perfect timing. In 2008, the world experienced the worst global economic crash that leads to banks’ bailout. Many people were out of jobs and grew pessimistic with the current economic system. Bitcoin provides an alternative monetary network outside of the current system.

Satoshi created the code for Bitcoin and on January 3rd, 2009 Satoshi created the first block of Bitcoin called the Genesis Block. This block is so famous because it is considered to be the birth of Bitcoin. Satoshi also added a note in the block reference a story in The Times of London newspaper with the headline “Chancellor on brink of second bailout for banks”. Satoshi made it clear that there is no Bitcoin reserved for himself / produced before the genesis block – everyone has the same starting point to mine Bitcoin.

Satoshi made the first Bitcoin transaction to Hal Finney with an amount of 10 BTC on January 12th, 2009. This is the only transaction that we know from Satoshi Nakamoto. Another famous transaction also happened on May 22nd, 2010, when Laszlo Hanyecz posted on a forum that he is willing to trade his Bitcoin for two boxes of Papa John Pizzas. At that time the pizzas’ worth 10,000 BTC or around $25 dollar. Someone from the UK accepted his offer and bought him pizzas in exchange for 10,000 BTC. This marked the first Bitcoin transaction with tangible goods. Today, May 22nd is celebrated as Bitcoin Pizza Day amongst Bitcoiners.

Since the Bitcoin program is open-source, early contributors joined Satoshi Nakamoto to create Bitcoin using Linux and macOS. Satoshi actively contributing to the development of Bitcoin until 2010. No one knows why he decided to step down from the project, but Satoshi’s disappearance possibly is the greatest gift to Bitcoin. The open-source project becomes decentralized, and even without Satoshi involvement, developers are still working on Bitcoin until today.

Scandal, Hacks, Illegal activity, and Crypto startup – 2010 – 2014

Bitcoin received bad reputations and had to go through rough roads at the beginning of 2010-2012. Mt Gox, the biggest Bitcoin exchange at that time. was hacked in 2014 and lost 744,408 BTC. Bitcoin gained its popularity as a method of payment in Silk Road, a website to buy drugs and other illicit items. In October 2013, the FBI shut down Silk Road, seized over more than 29,000 BTC, and the founder Ross Ulbricht is currently serving a life sentence in jail. These two major events still remain scandals until today.

Despite that Bitcoin is used as a currency to pay for drugs on the Silk Road website, it is still a small fraction in comparison to the dollar. US Dollar still remains the preferred currency for illegal activities. This year also the year when many crypto venture-funded startups were established such as Coinbase, Bitfinex, Blockstream etc.

Forking, institutional acceptance, fraud Satoshi and Bull Run – 2014 – 2017

Despite the tainted scandals, Bitcoin still thrives. 2014 marked the beginning of institutional acceptance. Big companies such as Microsoft and Wikipedia started accepting payments in Bitcoin. Small business owners especially in touristy areas also accepted Bitcoin as a method of payment. Bitcoin gained its popularity but many are still skeptical about it. Japan accepted Bitcoin as legal tender, but many countries also banned Bitcoin as legal tender.

Bitcoin became popular among retail investors because after halving in 2016 Bitcoin went into a bull market. The Bitcoin price rose from $600 to $20,000 and then corrected itself to $3,000. Although the price dropped 80% from the peak, Bitcoin grew 500% from its low prices. This period also signified the growth of cryptocurrency. There were hundreds of new cryptocurrencies and ICOs that were made during this period.

Since Satoshi’s disappearance, many try to claim to be Satoshi Nakamoto. A guy named Dorian Nakamoto was being exposed as Satoshi Nakamoto through a Newsweek article. Dorian Nakamoto denies any involvement in Bitcoin.

Dorian Nakamoto denied he is Satoshi Nakamoto and didn’t even know Cryptography

Another person took a different gesture, Craig Wright, an Australian entrepreneur who claimed to be Satoshi Nakamoto and invented Bitcoin, filed a copyright lawsuit on Bitcoin Whitepaper. Another person who filed a copyright lawsuit is Wei Liu, who claimed that he wrote Bitcoin Whitepaper with the pseudonym Satoshi Nakamoto. None of these claimed have been proven since no one can prove Satoshi Nakamoto private keys.

Without Satoshi telling people what to do, the community needs to find a consensus on how to move Bitcoin forward. There were years of debates regarding Bitcoin scalability. Bitcoin finally forked or split into two different directions: one would like to optimized Bitcoin using Segwit (remains as BTC) and the other wants to increase the block size (forked into Bitcoin Cash). And not long after that Bitcoin also face another fork to Bitcoin Gold in 2017.

Pandemic and institutional reserve era – 2018 – now

By January 2018, 80% of Bitcoin has been mined. South Korea passed regulations that all crypto traders need to identify themselves. Kraken, a crypto exchange in the US became the first digital asset company that received a bank charter.

Pandemic hits the world in 2020, leading to economic stagnation. The US government printed trillions of dollars to stimulate the economy, followed by many other countries. During this period, people invest a lot in the stock market and cryptocurrency. Bitcoin prices soar to multiple all-time-highs as more people joined the network. Bitcoin gained more credibility when big investors such as Paul Tudor Jones invested in Bitcoin.

Institutions started to warm up to the idea of holding part of their cash reserve in Bitcoin. Companies like Square, Blackrock, Microstrategy, and Tesla bought Bitcoin as their reserve. To learn more about this topic, you can read https://pintu.co.id/en/academy/post/which-investors-and-institutions-have-invested-in-bitcoin

Conclusion

We probably will never know who is Satoshi Nakamoto. We don’t know whether Satoshi is a he or a she, a group of people, or an alien. Bitcoin is not made on a single night. Bitcoin is a creation from cypherpunks before and after it. Bitcoin is still young but we are currently witnessing a new type of disruptive money unfold in this world. It’s an exciting time indeed.

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