At inception, Bitcoin was trading at mere fractions of a penny on the dollar. It is primarily a digital currency – a cryptocurrency – that utilises cryptography and blockchain technology. The purported creator of Bitcoin is known by the moniker ‘Satoshi Nakamoto’. Nobody knows quite who this individual or group of individuals may be, suffice it to say that Satoshi Nakamoto has disappeared from the scene in recent years.
There are many benefits to owning Bitcoin, notably the fact that it is decentralised, unregulated, and allows for near anonymous transactions. This peer-to-peer technology is not centralised, and not under the jurisdiction of a central bank. It has multiple nodes which are controlled by all users in the Bitcoin network. This enhances its appeal as a safe-haven digital currency.
From humble beginnings
In November 2008, Satoshi Nakamoto inked a paper titled: Bitcoin A Peer-To-Peer Electronic Cash System. When the first Bitcoins were released, there was a great degree of skepticism about them. The genesis block of Bitcoin rewarded miners with 50 BTC. This digital currency was adopted by a notable programmer by the name of Hal Finney. For his efforts, he received 10 BTC from Satoshi Nakamoto. At today’s prices, that would be worth approximately $45,164.40.
Sources estimate that Satoshi Nakamoto may have mined upwards of 1 million BTC before he disappeared entirely from the scene. The Bitcoin Foundation soon found itself with a new head in the form of Gavin Andresen. Consider this amusing fact: The lopsided nature of Bitcoin is such that 2 Papa John’s pizzas were paid for with 10,000 Bitcoin in the early days. That is the equivalent of $45,250,000 today.
There have been a handful of notable security flaws in Bitcoin’s blockchain technology over the years, notably a transaction that took place in August 2010 where 184 billion BTC were created in a single transaction. Fortunately, the anomaly was spotted in the network and it was removed. Several notable watershed events have taken place over the years, including a TV scene relating to Bitcoin with Jim Cramer of Mad Money, in 2012. Increasing acceptance and adoption of Bitcoin in 2012 took place, with companies like BitPay, and the Bitcoin Foundation.
In 2013, Bitcoin was hit with many challenges as Mt Gox was shut down by US authorities. In the same year, the DEA seized BTC in a government sting operation. A watershed moment occurred in August 2013 when a federal judge declared that BTC was a viable and accepted currency or a form of money. He asserted that BTC was subject to his court’s jurisdiction. By 2014, Zynga began allowing the purchase of in-game assets with Bitcoin and by the end of the year, Microsoft accepted BTC for the purchase of Windows apps and Xbox games.
Scaling Bitcoin: A lesson in complexity
A watershed event took place with Bitcoin when it split in 2 – BCC and BTC. Bitcoincash (BCC) was created out of a desire to scale the cryptocurrency. BCC was de the scaling signed to bring this cryptocurrency to the mass market. The scaling process is complex. Bitcoin operates on a public ledger known as the blockchain. It contains all information of all transactions ever conducted.
Every transaction is recorded on a block, and there are approximately 1,700 transactions per block. These take place at around three register transactions every second. While this appears impressive, it pales in comparison to credit card companies like MasterCard, Visa, American Express and others. They can handle thousands of transactions every second. Therefore, the scaling process was done to speed up transactions to make it more effective for users.
Bitcoin developers attempted to change the rules on the peer-to-peer software network by implementing a segregated witness. This allowed for a greater number of transactions per block, known as a soft fork in technical jargon. While many were expecting Bitcoin (BTC) not to change, it did. The soft fork became a hard fork and to unique cryptocurrencies were formed. The first being Bitcoin (BTC) and the second being Bitcoincash (BCH). Currently, Bitcoincash is priced at $573.40, with a market capitalisation of $9,490,572,760. There are currently a maximum of 21 million BCH in circulation, the same as Bitcoin (BTC). The sharp rise in the value of Bitcoin has enticed an entire generation of new traders and investors to diversify their portfolios and buy Bitcoin.
2015 and 2016 saw the exponential rise of BTC in the markets, with Barclays Bank in the UK stating that they were accepting BTC. This was a major development in the UK. In 2016, Bitcoin’s inexorable march continued with Japan recognising this virtual currency and scores of virtual Bitcoin ATMs launching around the world. In 2017, dramatic changes took place in digital currencies. The price went from $968.23 per BTC to the current price of $4667.02. This dramatic increase in BTC trading activity represents a 382 per cent increase, and has been brought about by explosive growth in demand.
Several factors fuelling Bitcoin’s demand are tensions between North Korea and the US, with both sides ramping up bellicose rhetoric and conducting military drills. Japan has largely been responsible for the growth in Bitcoin demand, as traders in the island nation regard it as somewhat of a ‘safe-haven’ investment, although it is a highly volatile asset. BTC has been likened – to a degree – to gold in terms of how traders and investors flocked to it during times of geopolitical uncertainty. On Tuesday, 29 August 2017, Bitcoin spike to an all-time high at $4,703.42 per unit (£3633.11). Like gold, the price of BTC rises with ongoing geopolitical uncertainty. As we barrel ahead into the future, more countries will sign on to the cryptocurrency phenomenon.
Already, the Philippines and South Korea have fully regulated BTC, and its adoption in Asia and elsewhere is widespread. More e-commerce merchants, retailers and individuals are excepting Bitcoin and digital currency than ever before. It is fast becoming the go-to contrarian investment in financial portfolios, and trading volumes are through the roof. Bitcoin is clearly the way of the future, and it’s here to stay.