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To understand where we are today, we must first understand the past. I want to explore the early years of Bitcoin and the Bitcoin network. Some seminal moments bear relevance. I am sure you will find them both fascinating and informative.
The history of Bitcoin will forever be tied to Satoshi Nakamoto. Thirteen years after the genesis block (the first bitcoin block) was mined, we still don't know who is responsible for this revolutionary technology. The identity of the person or group of persons behind the pseudonym is still unknown. In my opinion, this fact is foundational to the lure and success of bitcoin today. Bitcoin is forever free from any central authority. Even its creator/s.
On January 12 2009, Satoshi transferred 10 bitcoin to Hal Finney, a computer programmer. This is the very first recorded Bitcoin transaction. Though he denied it, many suspect that Finney was, in fact, Satoshi Nakamoto. Unfortunately, we will never know, as he passed away in 2014 from ALS. Whatever the case may be, on April 23, 2011, Satoshi bid farewell to the Bitcoin community and disappeared from the scene. The Bitcoin wallet owned by Satoshi is believed to have mined 1 million BTC. The approximate value (as on April 29 2022) is USD 39,473,400,000 (~ USD 40 Billion).
Bitcoin Pizza Day
The first recorded purchase of goods or services using bitcoin was between Laszlo Hanyecz and Jeremy "Jercos" Sturdivant. Hanyecz offered 10,000 BTC for two Large Pizzas on May 18 2010. But did not get a response until May 22, when Jercos (a 19-year-old) finally agreed to help him complete the delivery. At the time, the pizzas were worth just $41, putting the price per Bitcoin at roughly $0.004. Today, the value of 10,000 BTC is a shade under $400 Million!!!
I found it fascinating that Jericos didn't hold on to the 10,000 BTC for long. When interviewed in 2015, he had a very mature perspective. He said, "Naturally, there will always be people hoarding coins, trying to get rich, and quite a few people did get quite rich, but they wouldn't have got that way without economic growth allowing it,"
Guess what! Hanyecz continued to buy two large pizzas for 10,000 BTC until August 2010. In case you are wondering, it was Papa Jones Pizza! The man loved his Pizza, and he requested two pizzas because he loved the taste of leftover Pizza the next day.
May 22 is celebrated every year as "Bitcoin Pizza Day".
A significant vulnerability in Bitcoin
Around this time, in 2010, a major vulnerability was discovered in the Bitcoin code. A single transaction was found; 0.5 bitcoin was spent to send 92 billion bitcoins each to two different addresses on the network. Miners who discovered the vulnerability immediately forked the blockchain and fixed the code. This transaction is no longer visible on the Bitcoin blockchain. This is also the first and last major vulnerability found and exploited on the bitcoin network.
Bitcoin in the mainstream
2011 was notable in bitcoin history because foundations like the Electronic Frontier Foundation and Wikileaks started accepting donations in bitcoin. They laid the path for better mainstream bitcoin adoption.
Also notable was the founding of Bitpay, a platform that helped merchants accept bitcoin transactions. By 2012, Bitpay had over 1000 merchants registered. Another famous crypto exchange that was founded around the time was Coinbase.
The ugly side of bitcoin
2013 and 2014 were dark years for bitcoin and crypto. During this period, US regulators tried hard to curb the adoption of crypto tokens. Firstly, bitcoin was in the news for its use in illegal transactions. Secondly, the poor management of crypto exchanges caused significant price fluctuations.
Due to the Silk Road controversy, bitcoin became synonymous with illegal transactions and the drug trade. The darknet website was launched in 2011. It was a marketplace for trading illicit goods and services in exchange for bitcoin. You could buy/sell drugs and weapons and even pay for hitmen using bitcoin. The FBI finally shut it down in 2013. Unfortunately, bitcoin and other crypto tokens continue to be associated with shady transactions.
At the same time, the largest crypto exchange Mt. Gox filed for bankruptcy. In 2013, Mt. Gox was responsible for almost 70% of all bitcoin trade on the internet. This was the case even though the site was hacked multiple times. Unfortunately, the exchange filed for bankruptcy in 2014 when it was hacked one last time, losing over 740,000 BTC worth $ 470 million.
The loss or theft of bitcoin in 2014 from Mt. Gox had nothing to do with the fundamental security of the bitcoin network. The exchange did not take its security seriously. Investigators discovered that the theft of the Mt. Gox "Hot Wallet" and several private keys caused the exchange's failure. I'm sharing the link to a phenomenal medium article titled "The Mt. Gox Hack— What's in your Bitcoin Wallet?" that I came across when researching this part of my article.
Spawning a thousand fakes
They say imitation is the best form of flattery. In 2013 there were seven known crypto tokens, including bitcoin. By 2015, the number had grown to 501. Today, there are over 10,000 active crypto tokens. Some crypto networks like Etherium and Solana were built to address shortcomings in bitcoin technology. These tokens and networks have added a lot of value to the Web 3.0 movement. But sadly, a vast majority of crypto tokens out there are just scams. They have little to no long-term value and do not deserve a second glance.
Several readers have asked me if I have invested in crypto, and the answer is no. I am yet to thoroughly understand the shortcomings of bitcoin or the reasons for the existence of other crypto tokens. I encourage you to tread lightly, read up and don't fall for the hype.
Until next time.