In the previous post about cryptocurrencies, we talked about what were cryptocurrencies. We especially talked about how cryptocurrencies really work. You should now know more about blockchain, cryptography, and miners.
In this post, we are going to talk about the history of cryptocurrencies. How it all started with the bitcoin. And how it all expanded into several thousand alternative cryptocurrencies. Most of the history 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, the bitcoin is not the only cryptocurrency out there. Most people believe that cryptocurrencies and bitcoins are the same things. But the bitcoin is only one of the cryptocurrencies.
There was some early by many research laboratories over the year about a cryptographic currency. 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 really started with the introduction of the bitcoin in 2009! Bitcoin itself is based on a paper from 2008 from Satoshi Nakamoto. It is interesting to note that nobody knows who that person is. Nobody every claimed its identity. We do not even know if it is a person or a group of persons. The paper was establishing the base system of the 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 are recorded.
In the beginning, it was not possible to trade bitcoins against other currencies or goods. Therefore, it had no monetary value. There is a story going 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, the bitcoin starts to trade at around 1 bitcoin for 0.003 dollars.
Bitcoin rise and alternative currencies
In April 2011, the price of the bitcoin is the same as the price of the dollar. This is a 300 times increase in around one year. This started bringing in some investors. And 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 a lot of them are just here to try to make some money. Since that point, there has been a lot of speculation into Bitcoin and altcoins.
Some websites already started to accept bitcoins or other cryptocurrencies as a payment method. And big exchanges for trading were starting to rise. There are also some stories about cryptocurrencies being used on the dark web. Many crypto coins have been seized by the authority 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, the bitcoin price rose to 1200$ for the first time. This price will not be matched until 2017. After this, there have been many issues with the 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 blocked existed in parallels for several hours. This should never happen of course. There was also a problem where the biggest exchange did not have enough processing capacity. This made transactions be delayed and cause a large dip in price.
One very big even is the Mt. Gox breach. We do not know exactly what happened, but all the users of the exchange website lost their bitcoins. That is almost a million bitcoin that was 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 was already illegal since 2009. This made the price of the bitcoin fall down significantly. Bitcoin price has been falling before this point. But from this point, its price had almost continuously been falling 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 full programming language. But it was also the start of Initial Coin Offerings (ICOs). These are fundraising systems in which you can get coins of cryptocurrencies that do not yet exist. Some coins are pre-mined from the cryptocurrencies and offered for early investors. There has been a lot of them over the years. Many of them were simply a scam 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 started accepting bitcoin. For instance, you could buy games on Steam with bitcoin. Even in Switzerland, the train company was starting to accept bitcoins.
There has also been some very large increase in computing power in the bitcoin network. In 2016, there was 10 to the power of 18 (10^18) hashes per second done in the network by miners. That 1 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 huge computing power, the delay for transactions and the fees continued to rise.
2017 was the big year for the rise of the cryptocurrencies. There were many events to drive that price increase. For instance, Japan and Russia legalized cryptocurrencies. There was also a huge increase in trading in bitcoins. This was mostly the case because a lot of people were trying to get into the big profits that cryptocurrencies had shown.
The price of the 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 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 a bit 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 yet. It has oscillated between 6000 and 9000 ever since.
I am talking here especially about the 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 together saw a decline of 75% between December 2017 and August 2018!
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. As for the cryptocurrencies themselves, I do not know. There have been many predictions this last year. Tim Draper predicted correctly the 10’000 dollars mark and he is now saying that bitcoin will hit 250’000 dollars by 2022. Jeet Singh, a portfolio manager, predicted that bitcoin will 50’000 dollars by the end of the year. John McAfee, creator of the popular Antivirus, predict a bitcoin price of one million by 2020. It could also totally drop in price. As ever, nobody can predict the future. We will see what happens.
Even though cryptocurrencies are still quite young, they already have a very rich history. I find it very interesting. A lot of things happened. Entirely new technology was developed. New cryptocurrencies were created. Coins were stolen, the exchange network got shut down. Some countries made it illegal while some other countries 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.
I really do not know what will happen in the future for cryptocurrencies. I am not a cryptocurrency investor. For now, I do not plan to invest in cryptocurrencies in the future. But I think that it is a very interesting story. The technology is very powerful. I think that the technology behind cryptocurrencies will last. And it will see new usages. In the next post of the story, I am going to 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?