(Disclosure: Some of the links below may be affiliate links)
In the previous post about cryptocurrencies, we talked about what cryptocurrencies were. We mainly talked about how cryptocurrencies work. You should know more about blockchain, cryptography, and miners.
This post talks about the history of cryptocurrencies and how it all started with bitcoin. And how it all expanded into several thousand alternative cryptocurrencies. Most of the article will be related to bitcoin since it was the first cryptocurrency. And it was also the one that made the more headlines over the years!
However, bitcoin is not the only cryptocurrency out there. Most people believe that cryptocurrencies and bitcoins are the same things. But bitcoin is only one of the cryptocurrencies.
Without further ado, we delve into a bit of cryptocurrency history.
There was some early by many research laboratories about a cryptographic currency over the years. In 1998, there were two publications about simple cryptocurrencies, the b-money, and the bit gold. Both of these were only concepts; they never were fully developed.
However, it all started with the introduction of bitcoin in 2009! Bitcoin itself is based on a paper from 2008 by Satoshi Nakamoto. It is interesting to note that nobody knows who that person is. Nobody ever claimed its identity. We do not even know if it is a person or a group of persons. The paper established the base system of bitcoin in practical ways. One year later, the software is available publicly. And the first miners are starting their work and generating new cryptocurrencies. The first transactions were recorded.
In the beginning, it was not possible to trade bitcoins against other currencies or goods. Therefore, it had no monetary value. A story goes on that someone paid for two pizzas with ten thousand bitcoins. I do not know if that is true. But I hope the pizza shop kept them. That is still worth about 100 million dollars today! Around 2010, bitcoin started to trade at around one bitcoin for 0.003 dollars.
Bitcoin rise and alternative currencies
In April 2011, the price of bitcoin was the same as the dollar price. This price represents a 300 times increase in around one year. This quick rise started bringing in some investors. And it also started bringing in a lot of competitors. Other cryptocurrencies are often referred to as altcoins (alternative coins). The first important ones to emerge are Namecoin, Swiftcoin, and Litecoin.
Some of these alternative coins are bringing real improvements to the technology. For instance, some of them are faster. Or some of them are more secure. But many of them are just here to try to make some money. Since that point, there has been a lot of speculation about Bitcoin and altcoins.
Some websites have already started to accept bitcoins or other cryptocurrencies as payment methods. And big exchanges for trading were beginning to rise. There are also some stories about cryptocurrencies being used on the dark web. The authority has seized many crypto coins after several takedowns.
First bitcoin crash
2013 was starting well for the bitcoin. There were several millions of dollars of transactions of cryptocurrencies.
In November 2013, the bitcoin price rose to 1200$ for the first time. Bitcoin will not match this price until 2017. After this, there have been many issues with bitcoin. Its price moved up and down with a lot of volatility. For instance, there was one big issue where two different versions of the blockchain existed in parallel for several hours. It should never happen, of course. There was also a problem where the biggest exchange did not have enough processing capacity. This issue delayed transactions and caused a significant dip in price.
One massive event is the Mt. Gox breach. We do not know what happened, but all the users of the exchange website lost their bitcoins. That is almost a million bitcoin that were lost. The exchange filed for bankruptcy shortly after this.
In 2013, Thailand banned bitcoins. In 2014, China forbid all Chinese banks to use bitcoins. Moreover, in China, exchanging crypto-currencies for real goods has been illegal since 2009. This made the price of bitcoin fall significantly. Bitcoin price has been falling before this point. But from this point, its price had almost continuously fallen until 2015.
New rise, Ethereum and Initial Coin Offerings (ICOs)
In 2016, cryptocurrencies got a new rise in popularity. This time, it was not only about Bitcoin but also about Ethereum. They took the concept further than Bitcoin. You can run safe applications on the Ether network. Ethereum is even a complete programming language. But it was also the start of Initial Coin Offerings (ICOs). These are fundraising systems where you can get coins of cryptocurrencies that do not yet exist. Some coins are pre-mined from the cryptocurrencies and offered to early investors. There has been a lot of them over the years. Many were simply scams to get money without any real value behind the new cryptocurrency. China directly banned ICOs.
It is also important to note that more and more websites and services have started accepting bitcoin. For instance, you could buy games on Steam with bitcoin. Even in Switzerland, the train company was beginning to accept bitcoins.
There has also been a considerable increase in computing power in the bitcoin network. In 2016, there were 10 to the power of 18 (10^18) hashes per second done in the network by miners. That is one followed by 18 zeroes! It also increased the academic interest in cryptocurrencies. In 2016, there were more than three thousand papers mentioning bitcoins. Although there was enormous computing power, the delay for transactions and the fees continued to rise.
2017 was the big year for the rise of cryptocurrencies. There were many events to drive that price increase. For instance, Japan and Russia legalized cryptocurrencies. There was also a considerable increase in trading in bitcoins. It was mostly the case because many people (including me) were trying to get into the big profits that cryptocurrencies had shown (FOMO!).
The price of bitcoin started to soar. In March 2017, it went above its previous high of November 2013. It already went to 3000 dollars in June. In August, it passed 4000 dollars. IT started to make a lot of noise in the media. And many people started investing in it, even having no idea what the cryptocurrency was about. September saw 5000 dollars, and already October saw 6000 dollars. In November, it reached 8000 dollars, and it reached 19000 dollars in December already. That is a 100% increase in a month.
The first burst of the crypto-bubble
But of course, the bubble had to burst. The December 22nd day saw the bitcoin lose one-third of its value in one day. It started to rise again, but January 2018 and February were not good months for cryptocurrencies. Bitcoin lost another half of its value in two weeks. Its value did not recover for a while.
I talk here, especially about bitcoin but other cryptocurrencies also followed the same bubble pattern. Ethereum lost 75% of its value. Litecoin saw its value divided by six. The entire capitalization of all the cryptocurrencies saw a decline of 75% between December 2017 and August 2018!
The second bubble
It took three years for bitcoin to reach its previous high again. After this point, it reached a new all-time high very quickly. It went from 19K to more than 62K in five months. This is an impressive climb.
It stayed near the top for a few months and then lost 50% of its value in about two months. This time, the crash was primarily due to some bad institutional news.
For instance, Elon Musk has announced that Tesla would stop accepting Bitcoin as a payment for his cars. One of the reasons cited was the terrible environmental impact of Bitcoin.
The third bubble
Shortly after the second crash, bitcoin started a new climb. From the lows of July 2021, it more than doubled its value in four months until it reached 67K USD in November 2021.
Many people say that 2021 is the year of crypto. It made more news than ever, and many people started talking about crypto and investing.
After this, it started a freefall towards losing half of its value again. This was primarily due to some concerns over the Omicron variant that was beginning to take the world by surprise.
At the time of this writing, in late May 2022, the price of bitcoin is not moving in any clear direction. It seems pretty hesitant. I have no idea how high or low it could go from here.
Other bits of history
This article only tells a small part of the history of cryptocurrencies. I mainly focused on Bitcoin and Ethereum in this article. However, there have been thousands of crypto-currencies since the beginning of the blockchain.
Some of these coins did well, but most of them failed. And many of them were huge scams. It is important to mention that many of the coins were Ponzi schemes. Other coins were memes from the beginning. Several coins were hacked, and their value tanked massively.
It is essential to know that the history of cryptocurrencies is full of fraud. If you decide to invest in crypto, you need to do your research, and you should avoid falling into complete FOMO for coins that promise 20% returns guaranteed. Even in the crypto world, there is no such thing.
Even though cryptocurrencies are still relatively young, they already have a rich history. I find it very interesting. A lot of things happened. Entirely new technology was developed. New cryptocurrencies were created. Coins were stolen, and exchange networks got shut down.
Some countries made it illegal, while others have been very enthusiastic about it. Some cryptocurrencies saw a rise of several thousand times their values in a short period. And the entire cryptocurrency market lost 75% of its value in one month.
Nobody knows what will be the future of cryptocurrencies. I think the technology itself has a lot of potentials. Blockchain ledgers can be used in many applications, from banking to administration.
I do not know what will happen in the future for cryptocurrencies. I am not a cryptocurrency investor. I do not plan to invest in cryptocurrencies in the future. But I think that it is a fascinating story. The technology is very powerful. I believe that the technology behind cryptocurrencies will last. And it will see new usages. In the next post of the story, I look at cryptocurrencies from the point of view of an investor.
What do you think about cryptocurrencies? What do you think will happen to them in the future?
Download this e-book and optimize your finances and save money by using the best financial services available in Switzerland!Download The FREE e-book