Bitcoin has been around since 2009, and in that time it has seen a fair amount of mystery, intrigue, growth, and challenges. For such a relatively young technology, It has a complex and compelling history.
Launched in 2009, Bitcoin is the first and most famous blockchain technology. Eight years later, it is still the most popular crypto token on the market. Recently, interest in it has become mainstream with even Wall Street investors considering providing Bitcoin futures investment-grade securities.
While Bitcoin’s rise has been meteoric over the past few years, the currency has faced its share of challenges along the way. For the first few years after its inception, Bitcoin faced ridicule in the press for attempting to create a new global currency. Early on, a mysterious security breach meant that millions of dollars worth of Bitcoins went missing. Bitcoin weathered those first few obstacles, but it still faces challenges today.
Some of its current challenges are technical. The original Bitcoin network wasn’t built to support the number of transactions currently taking place. The Bitcoin community is rife with debate about the best course to fix its scalability problem.
Bitcoin’s other challenge is economics. Much of its current value is based on speculation. You’d be hard-pressed to find grocery stores or coffee shops accepting it. The number of businesses accepting Bitcoin grows every year, especially online, but it’s still rare to find a company accepting it. While it has huge potential if it’s accepted as a legitimate currency, it’s current value is based on potential, not on concrete reality. As a result, many financial experts have called Bitcoin (and other cryptocurrencies) a bubble that’s likely to pop soon.
The man behind Bitcoin – Satoshi Nakamoto
Bitcoin started with a white paper written by a mysterious author, Satoshi Nakamoto. In the white paper, Satoshi outlined the basic elements of blockchain technology. He/ she/ they showed how to use hashing to create blocks and drive proof of work, solving the double-spend problem. The white paper was well received in the relatively small crypto community of the time, but there was one problem. Nobody had ever heard of Satoshi Nakamoto, and nobody could find anything about this mysterious person.
Satoshi continued to interact via forums and emails, but no one could ever figure out who the real person behind the pseudonym was. In 2009, Satoshi wrote the code behind Bitcoin and launched the network to the world. For years, Satoshi continued as the lead developer on Bitcoin until 2011 when he abruptly disappeared. Over the years, several people have claimed to be Satoshi, but nothing definitive has been found on the inventor of it.
It is clear that Satoshi was brilliant. Inventing blockchain solved a huge cryptographic hurdle in creating a viable distributed ledger. Even if Bitcoin were to fail tomorrow, blockchain technology is already in use for hundreds of applications, not just as a currency. It may go down in history that Satoshi was among the most important inventors of the 21st century, and we don’t know anything about him/ her/ them.
Satoshi transferred control of Bitcoin’s development to Gavin Andresen upon his disappearance. Andresen went on to become the lead developer at the Bitcoin Foundation, the organization currently responsible for Bitcoin development.
Silk Road Seizure
As Bitcoin began to gather steam, its anonymous wallets made it the perfect tool for conducting legally questionable transactions. its first few years were marked by this reputation as a black market, drug money, or money laundering currency.
In October 2013, the FBI raided the home of Ross William Ulbricht under charges of being the founder of a darknet website known as the Silk Road. The Silk Road had become notorious as a place to purchase illegal drugs online. As part of the seizure, the FBI also seized roughly 26,000 Bitcoins, marking one of the first official interactions between the U.S. government and the Bitcoin network.
Overall, the Silk Road incident was bad press for the Bitcoin network, further driving home the idea of it as a currency for illegal activities.
The Mt. Gox Mystery
One of the earliest Bitcoin exchanges was Mt. Gox, a Tokyo-based company that was one of the major exchanges in the early days of it. Mt. Gox’s CEO, Mark Karpeles, was CEO in name only and much-preferred coding to the day-to-day challenges of being CEO.
In 2014, Mt. Gox was the world’s largest Bitcoin exchange, handling over 70% of Bitcoin transactions worldwide. So, it came as a shock to consumers when Mt. Gox filed for bankruptcy in 2014. Over the course of years, its system had been hacked. In all, $ 450 million worth of it disappeared from Mt. Gox’s accounts between 2011 and 2014. While investigators were able to find some 200,000 BTC involved in the Mt. Gox hack, over 650,000 BTC were not recovered.
During the period of the Mt. Gox hack, Bitcoin decreased 36% in value. It should be noted that the problem was not with Bitcoin technology, but Mt. Gox’s security procedures. While its open ledger means those coins have been “found,” there’s no clear way to take the coins from their current owners and return them to their original owners.
To this day, Mt. Gox remains the biggest scandal in Bitcoin history, and it sparked a period of serious doubt over the cryptocurrency’s viability.
Bitcoin’s Scalibility Problem
In 2017, Bitcoin is more popular than ever. its rapid growth in valuation over the past year has fueled wide public awareness of the currency. It has also encouraged a lot of speculation, with investors buying and selling it in the hopes of turning a profit or avoiding a crash.
This increased interest in Bitcoin means the network saw a 55% increase in transaction volume in 2017. On an average day, the Bitcoin network processes 310,000 transactions. However, the network isn’t meeting demand. On any given day, there are tens of thousands of transactions that get put on hold waiting for the network to catch up to confirm them.
These transactions are on hold because Bitcoin has a limit on its block size. Only so many transactions can fit in one block, so any that don’t fit have to wait. This waiting for confirmation is its scalability problem, and it’s one that must be solved before the coin will be feasible as an everyday currency.
Centralization of Mining
A more recent concern in the history of Bitcoin is the centralization of mining. its proof of work algorithm is written in such a way that hardware manufacturers have developed Bitcoin-specific processing chips to earn lucrative mining rewards. Its the price has skyrocketed in recent years, the arms race for more and faster chips has accelerated. At this point, Bitcoin mining is a professional operation, with mining companies investing hundreds of thousands of dollars in mining hardware “farms.” These farms of hundreds of mining computers are often enormous, even filling entire warehouses with mining computers.
This growth in mining makes it unprofitable for small-time miners to compete, centralizing power among a few mega-miners. Unfortunately, this means the network that was created to be decentralized is paradoxically centralized. Miners could decide to prioritize certain types of transactions or blacklist certain users from the Bitcoin network. There’s no clear evidence that Bitcoin miners are abusing their power yet, however. This is largely because a few changes in its underlying code could make the expensive mining hardware worthless. As such, there’s a strong incentive, to be honest, and keep the Bitcoin community and Bitcoin Foundation happy.
Bitcoin is the mother of all blockchain, and it continues to be the preeminent cryptocurrency in the world. It is the most established and strongest of the cryptocurrencies out there. However, there are other contenders in the blockchain industry, and it’s not a sure thing that it will end up the winner when all is said and done. It needs to address its scalability issues and increase adoption if it wants to maintain its dominance. A combination of AI and Blockchain can move world to a new era.