Bitcoin (BTC) was the first digital currency and remains the most valuable and widely recognized digital asset today. Conceptually existing for 40 years, Bitcoin made it a reality in 2009, and its journey since has been both volatile and revolutionary.
[Sign up for stock news with our Invested newsletter.]
Key Moments in Bitcoin’s History
1983: American cryptographer David Chaum, the “godfather of cryptocurrency,” proposed eCash, the idea of anonymous electronic money. He launched Digicash in 1989, but failed to achieve widespread adoption. 2008: An unknown person or persons going by the name Satoshi Nakamoto published Bitcoin: A Peer-to-Peer Electronic Cash System.2009: Bitcoin launched, introducing the world to decentralized digital currency. 2013: Bitcoin was named the best investment of the year by Forbes. 2014: Bloomberg shifted the narrative, proclaiming Bitcoin the year’s worst investment. October 2021: The Securities and Exchange Commission (SEC) approved ProShares Bitcoin Strategy (ticker: BITO), the first U.S. Bitcoin futures exchange-traded fund (ETF). November 2022: FTX, the leading cryptocurrency exchange by trading volume, declared bankruptcy. January 2024: SEC approved 11 spot Bitcoin ETFs. July 2024: SEC gave final approval for spot Ether (ETH) ETFs to start trading, further legitimizing the asset class.
How Bitcoin Started
Satoshi Nakamoto, a pseudonym, launched Bitcoin in January 2009. Nakamoto introduced the blockchain system, the backbone of the cryptocurrency market. Nakamoto’s true identity has never been verified.
In a 2008 white paper, Bitcoin’s enigmatic creator introduced the blockchain system, the backbone of the cryptocurrency market. A blockchain is a digital ledger of transactions replicated and distributed across a network of computer systems, securing the information. It allows any person with internet access to make financial transactions independent of banks, financial firms and the government.
Bitcoin Core Concepts
Bitcoin units. Each Bitcoin is divisible to eight decimal places. A millibitcoin (mBTC) is 1/1,000th of a Bitcoin. The smallest unit is a satoshi (sat), which is 1/100,000,000th of a Bitcoin. Transaction. A computer directive styled as “payer X sends Y Bitcoin to receiver Z.” Block. A block is a group of Bitcoin transactions over a certain period. Transactions are verified by Bitcoin “miners.” Mining. A process where individuals or groups (“miners”) solve complex calculations to validate transactions and create new blocks. Miners are financially rewarded for their work with newly minted BTC. Block hash.Mining activities include a record-keeping service ensuring the blockchain remains consistent, complete and unalterable. The hashes validate available Bitcoin and provide a uniform mining reward. Blockchain. A continuous, transparent ledger where each block transaction is seamlessly linked to the previous one. This public chain enables both Bitcoin’s existence and usability. Blockchain address. A sequence of 25 to 34 alphanumeric characters used to receive Bitcoin while concealing personally identifiable information. While cryptocurrency exchanges may be required to collect personal data, each transaction can use a different Bitcoin address to enhance privacy. Keys. Credentials, similar to a safe-deposit box, that allow access to Bitcoin assets. If a party loses their key, the Bitcoin becomes inaccessible and effectively worthless. According to Chainalysis, a blockchain analytics firm, roughly 20% of Bitcoins have been lost due to misplaced private keys.
— Public keys. This is the technology used to encrypt and decrypt transactions. It is “one way,” allowing transactions to be unlocked but not reversed. This key enables the blockchain to be uninterrupted.
— Private keys. A unique passcode used by transacting parties to initiate a Bitcoin transaction. To spend Bitcoin, one must know their own private key and digitally sign the transaction. The party’s signature is verified by the public key without revealing the private key. Private keys are invaluable and must be protected. If a party loses their key, the Bitcoin becomes inaccessible and effectively worthless. A 2023 Finbold study showed that 39.7% of individuals had forgotten their passwords.
Wallet. A digital collection of private keys necessary to managing and using Bitcoin.
— Full clients. A wallet that contains a complete copy of the entire blockchain, making it the safest form of storage besides offline or “cold storage.”
— Lightweight clients. A wallet that holds a partial version of the blockchain, allowing it to be used on mobile devices. Since it does not include the entire blockchain, users must trust full wallet intermediaries for verification.
Bitcoin Adoption
Bitcoin supporters point out that an increasing number of institutions, countries and platforms are accepting the digital currency. In the U.S., its primary value is as an investment.
[See: What’s the Best Cryptocurrency to Buy? 6 Contenders]
While some countries (notably China, India and Saudi Arabia), have banned cryptocurrency mining and trading, many others are fully embracing it:
— Cryptocurrency has been used to fund both sides of the Russia-Ukraine conflict. Crypto is prized due to its decentralized nature, where quick transactions are useful to get humanitarian aid and military support funding into conflict zones.
— El Salvador, battling severe economic issues and a weak national economy, became the first country to adopt Bitcoin as legal tender in 2021.
— Iran has effectively used Bitcoin to bypass U.S. financial sanctions. Hamas is believed to have used $165 million in crypto transactions to fund the surprise attack on Israel on Oct. 7, 2023.
Bitcoin has faced heavy scrutiny for its electricity consumption. The Cambridge Bitcoin Electricity Consumption Index (CBECI) provides estimates of the greenhouse gas emissions associated with Bitcoin. The CBECI found that improvements in Bitcoin mining hardware have reduced energy demands by 15 terawatt hours (TWh), and KPMG reported in August 2023 that Bitcoin had received a positive ESG rating.
Bitcoin Controversy
The most dramatic chapter in Bitcoin’s history was the rapid rise and subsequent collapse of crypto exchange FTX. Led by Sam Bankman-Fried (SBF), FTX operated alongside Alameda Research, another company founded by SBF and managed by Caroline Ellison. FTX expanded aggressively through high-profile acquisitions and splashy marketing campaigns. At FTX’s peak, SBF was ranked the 41st-richest person on the Forbes 400 list.
In November 2022, CoinDesk published an article detailing FTX’s precarious financial situation, lack of accounting oversight and potential criminal use of customer assets. Panicked customers created an $8 billion liquidity shortfall. Coupled with the collapse of the FTT digital token, crucial to Alameda Research’s operations, FTX ultimately filed for bankruptcy.
SBF was arrested and indicted in 2022 by the U.S. District Court on multiple criminal charges, including money laundering, wire fraud, campaign finance violations and securities fraud. In November 2023, SBF was convicted of seven federal counts of fraud and conspiracy. On March 28, 2024, he was sentenced to 25 years in federal prison and ordered to forfeit $11.02 billion. Currently serving his sentence at the Metropolitan Detention Center in Brooklyn, New York, his conviction is on appeal.
Bitcoin Price Trajectory
Nakamoto initially capped the Bitcoin supply at 21 million coins. As of this writing, there were 19,771,928 BTC in circulation.
The first real-world Bitcoin transaction occurred on May 22, 2010, now celebrated by Bitcoin enthusiasts as Bitcoin Pizza Day. Laszlo Hanyecz spent 10,000 BTC to have two Papa John’s pizzas delivered, valued at approximately $25. The transaction continues to be tracked as the Bitcoin Pizza Index, and the Bitcoin used to purchase the pizzas would now be worth about $671 million.
Nakamoto became a digital ghost in 2011. The Bitcoin founder’s decentralized vision meant that there was no central authority, server, storage or administrator. This uncertainty around Nakamoto’s absence caused Bitcoin’s price to fall.
In 2022, the markets experienced a “crypto winter,” and Bitcoin’s value plunged more than 70%. Bitcoin thrives on volatility, a phenomenon partly explained by the Gartner Hype Cycle, which is common among new and innovative technologies. This cycle includes five stages: the innovation trigger, peak of inflated expectations, trough of disillusionment, slope of enlightenment and plateau of productivity. Many people have gained and lost substantial fortunes with Bitcoin, leading eight Nobel Prize winners in economic sciences to compare it to the oft-cited Dutch tulip mania in the 1600s. Bitcoin supporters argue that despite significant crashes, Bitcoin has consistently rebounded to its previous peak, and in 2023, the market began another steady recovery.
On April 19, 2024, Bitcoin experienced an event known as “halving.” This unique deflationary mechanism, occurring roughly every four years, reduces the rate at which new coins are created, enhancing Bitcoin’s scarcity. This halving reduced the mining reward from 6.25 BTC per block to 3.125 BTC. Historically, halvings correlate with rising BTC prices, although past performance does not guarantee future results. The next halving is expected in 2028, and the process will continue until 2040, when the total Bitcoin supply reaches its cap of 21 million. At that point, the mining reward will drop to just one satoshi, the smallest unit of Bitcoin, which cannot be further divided.
Bitcoin continues to be influenced by global economic conditions, regulatory changes and evolving market demand. Money from the newly traded Bitcoin ETFs caused Bitcoin’s price to rise to a high intraday price of $73,750.07 on March 14, 2024. As of Oct. 23, the price of BTC is about $65,982.
Regulatory Outlook
With Bitcoin’s increasing values and more spot ETFs on the horizon, regulators have continued to increase watchful eyes on the industry.
Digital currencies are subject to multiple tax challenges that can complicate tax compliance, including difficulties in tracking cost basis, short-term capital gains classification and international tax law coming into play. As a result, Bitcoin investors should review their portfolios with their CPA or other tax specialist to ensure that they are reporting these assets properly to the IRS.
SEC regulatory activity had been on the rise until July 2024, when the U.S. Supreme Court unexpectedly ruled against the Chevron doctrine, a 40-year precedent on the power of federal agencies, including the SEC. Until these powers are more clearly articulated, new crypto rules are unlikely.
Looking Ahead
With the approval of Bitcoin ETFs and the growing institutional interest, investors are eager to watch the future of digital currencies. While some analysts have projected a Bitcoin price surge as high as $500,000 in the coming years, adoption has been slower than initially expected. Bitcoin’s narrative as “digital gold” commands the greatest traction as a proven store of value during global disruptions.
Satoshi Nakamoto’s personal holdings are believed to total 1,125,150 BTC. At Bitcoin’s current price, Nakamoto would have digital assets valued at about $74 billion. Significant wealth concentrated in a speculative investment can be problematic both for the living as well as their heirs. As time continues to pass, Nakamoto’s estate planning (or lack thereof) could lead to unexpected developments.
The outcome of the upcoming U.S. elections will likely have an effect on Bitcoin and the broader crypto market, as the regulatory environment and market dynamics take shape under a new administration.
Even after 15 years, Bitcoin’s journey is still unfolding. Marked by both promise and uncertainly, its story captivates a global audience and its next chapters are sure to be just as intriguing.
More from U.S. News
11 of the Best Investing Books for Beginners
Where to Find Free Professional Financial Advice
What Is the Most Expensive Stock?
The History of Bitcoin originally appeared on usnews.com
Update 10/23/24: This story was previously published at an earlier date and has been updated with new information.
