The Internet Gold and The Evolution of Money - Part 2

     So we have been discussing about the evolution of money over the years. Bitcoin (Digital Gold) is the main topic we have been focusing on. The first ever digital currency to be invented. We want to focus in this article on the full timeline of bitcoin and some really cool characteristics of owning bitcoin. 

     So let's begin with the timeline of bitcoin. The domain name bitcoin.org was registered in August 2008. On October 31st 2008, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list. Nakamoto designed the bitcoin software as open source code and released it in January 2009. On the 3 January 2009, Satoshi mined the genesis block. On the Coinbase of that block was a note referencing the glitches of the traditional banking system. The recipient of the first bitcoin transaction was Hal Finney who created the first re-usable proof of work system(RPoW) in 2004. Finney downloaded the bitcoin software on its release date and on 12 January 2009 received ten bitcoins from Nakamoto. Other early cyperhunk supporters were creators of bitcoin predecessors: Wei Dai who created B-money, Nick Szabo who created but gold. In 2010, the first known commercial transaction using bitcoin occurred when programmer Laszlo Hanyecz bought two Papa John pizzas for 10000 bitcoin from Jeremy Sturdivant. Blockchain speculators estimate that Satoshi himself had mined about a million bitcoins before his mysterious disappearance in 2010 and then he handed over authority and control to Gavin Andresen. Andresen later became lead developer at the Bitcoin Foundation. Andresen this sought to decentralized control and he opened up opportunities to develop the future path of bitcoin. After early proof of concept transactions, bitcoin was majorly used by black markets such as Silk Road. During its 30 months in existence beginning in February 2011, it began processing about 9.9 million dollars in bitcoin transactions worth about 214 million dollars in today's date. The Bitcoin Foundation was thus established in September 2012 to promote bitcoin's development and uptake. In 2011, the price of bitcoin started at 30 cents per bitcoin and rose all the way to $5. The following year, the prices started at $5.27 growing all the way to $13.30 for the year. In 2013, prices started at $13.30 and rose to $770 by 1 January 2014. On 5 December 2013, the People's Bank of China prohibited Chinese financial institutions from using bitcoins. After the announcement, the value of bitcoins declined and Baidu no longer accepted bitcoin payment for certain services. Buying real world goods with any virtual currencies had already been prohibited in China as a whole. 

     In 2015, prices started at $314 and rose to $434 for the year. In 2016, prices rose and climbed up to $998 by 1 January 2017. In October 2016, Bitcoin's core 0.13.1 release featured the "SegWit" soft fork that included a scaling improvement aiming to optimize the bitcoin block size. This release featured Segregated Witness(SegWit)  which is aimed to place downward pressure transaction fees as well as increase the maximum capacity of transaction on the network. Research provided by the University of Cambridge estimated that there were about 2.9 to 5.8 million users of a cryptocurrency wallet mostly bitcoin back in 2017. SegWit was originally intended to support the Lightning Network as well as improved scalability. SegWit was subsequently activated on the network on 24 August 2017. The bitcoin price pumped up the following week. Participants of large blocks who were not satisfied with SegWit's activation forked the software birthing  a prototype called Bitcoin Gold on 1 August 2017 on  the 1 January 2018, the prices started at $988 in 2017 and rose all the way up to $13,412.84. On 1 January 2018 after an all time high of $19,783.06 on 17 December, 2017. China banned bitcoin trading in September September 2017 first partially and then imposed a total ban on bitcoin mining on 1 February 2018. This caused a decline in the price of bitcoin from $9052 to $6914. By the 1 January 2019, the bitcoin price was at  $3747 a 72% decline from the previous year  and an 81% decline from all-time high. A major reason for the decline in the price of bitcoin was the security breach form cryptocurrency exchanges. In the first six months of 2018, $761 million worth of currencies were  stolen from exchanges. In September 2019, the Intercontinental Exchange(owners of the NYSE) began trading bitcoin futures on their exchange called Bakkt. In December 2019, Youtube removed bitcoin and cryptocurrency videos but later restored the content after judging they had "made the wrong call". 

     On 13 March 2020, there was a broad sell-off(about 281,000 bitcoins were sold) in the market when bitcoin fell below $4000 after trading above $10,000in the previous month. On the 11 March 2020, Kraken experienced an 83% increase in the number of account signups over the week of bitcoin's price collapse, a result of buyers looking to capitalize on the low price. These events were attributed to the onset of the Covid-19 pandemic. In August 2020, Mictrostrategy invested $250 million in bitcoin as a treasury reserve asset. In October 2020, Square Inc. placed approximately 1% of all their assets($150 million) in bitcoin. In November, Paypal announced that US users could buy, hold or sell bitcoin. On 30 November 2020, the bitcoin value  reached an all-time high of $19,860 which was quite a higher difference from the previous all-time high in 2017. 

     In December 2020, Massauchetts Mutual Life Insurance Company announced a bitcoin purchase of US $100 million, or roughly 0.04% of its general investment account. On 19 January 2021, Elon Musk placed the handle hashtag  Bitcoin in his Twitter profile tweeting in retrospect, it was inevitable'' which caused the price to rise above $5000 in an hour to $37299. On 25 January 2021, Microstrategy announced that it continued to buy bitcoin and as of the same date, it had holdings of 70,784 bitcoins worth $2.38 billion. On 8 February 2021, Tesla announced the purchase US $1.5 billion worth of bitcoins and their plan to start accepting bitcoin payments for their vehicles pushing the price of bitcoin to $44,141. On 18 February 2021, Elon Musk stated that holding bitcoin was only slightly better than holding conventional cash and that was what made it a better asset to hold. On the 12 May 2021, Tesla stated that they would no longer accept bitcoin payments due to environmental concerns. This led to a 12% decline in the price. During a bitcoin conference in July, Musk suggested Tesla could possibly help bitcoin miners switch to renewable energy in the future. He also suggested that if bitcoin rises above the 50% renewable energy usage, Tesla would resume accepting bitcoin payments. Swiftly, the price of bitcoin rose just after this announcement.

     In June 2021, the Legislative Assembly or El Salvador voted legislation to make bitcoin legal tender in El Salvador. The law took effect on 7 September. In opposition, a survey conducted by the Center for Citizen Studies (CEC) showed that 91% of the country preferred the dollar over bitcoin. In 2022, The International Monetary Fund(IMF) urged El Salvador to retrace their steps and thus warned that it would be difficult to lend them a loan in voke of any financial crisis. On 16 October 2021,the SEC approved the ProShares Bitcoin Strategy ETF, a cash settled future exchange traded fund (ETF). The first bitcoin ETF in the U.S gained 5% on its first trading day on 19 October 2021. On 25 March 2022, Pawel Zavalny stated that Russia might accept bitcoin for payment of their crude oil exports in response to the invasion of Ukraine. On 27 April 2022, Central African Republic became the first African country and the second in the world to adopt bitcoin as legal tender alongside their currency CFA Franc on 10 May 2022. The UST stablecoin experiment named Terra with bitcoin more than 50% down since the November 2021 high. By June 13 2022, the Celsius network(a decentralized finance loan) halted withdrawals and resulted in the bitcoin price falling below $20,000. 

     So now we have seen the timeline of bitcoin till date. Let us talk about some other interesting features of bitcoin. Bitcoin is decentralized as we all know and so there are certain benefits that come with that. They are: 

- Bitcoin does not require a central authority

- The bitcoin network is peer to peer without central services

- The bitcoin network also does not have like a central storage; the bitcoin ledger is distributed

- The ledger is public; anybody can store it on a computer

- There is no single administrator, the ledger is maintained by a network of equally privileged miners. 

- Anyone can become a miner

- The addition of blocks to the ledger is competitive. Until a new block is added to the ledger, it is not known which miner will create the block.

- The issuance of bitcoins is decentralized. They are issued as a reward for the creation of a new block

- Anybody can create a new bitcoin address ( a bitcoin counterpart or a bank account) without needing any approval.

- Anybody can send a transaction to the network without needing any approval. The network merely confirms that the transaction is legitimate. 

     

     Another really cool feature of bitcoin is privacy and fungibility. Bitcoin is pseudonymous cash meaning that funds are not tied to real world entities but rather bitcoin addresses. Owners of bitcoin addresses are not clearly identified but all transactions on the blockchain are public. Additionally, bitcoin exchanges where bitcoins are traded may be required by law to collect personal information. To heighten financial privacy, a new bitcoin address can be generated for each transaction. Wallets and similar software technically handle all bitcoins in circulation. Researchers have pointed out that the history of each bitcoin is registered and publicly available in the blockchain ledger and that some users refuse to accept bitcoins coming from controversial transactions which could harm bitcoin's fungibility. For instance in 2012, Mt. Gox froze accounts of  users who deposited bitcoins that were known to have just been stolen.

     A wallet stores information necessary to transact bitcoins. While wallets are often described as a place to hold or store bitcoins, due to the nature of the system, bitcoins are inseperable from the blockchain transaction ledger. A wallet can more or less be described in digital terms as something that holds digital credentials for your bitcoin holdings and allows one to access and spend them. Bitcoin uses public key cryptography in which two cryptographic keys; one public and one private are generated. At its most basic, a wallet is a collection of these keys. Below are some of the types of wallets that exist: 

Software wallets - The first wallet program simply termed bitcoin and sometimes referred to as the Satoshi client was released in 2009 by Satoshi  Nakamoto as an open-source software. After the release of version 0.9, the software was renamed Bitcoin Core to distinguish itself from the underlying network. The Bitcoin Core is perhaps the best known implementation or client. Third-party web services called online wallets offer storage functionality but may be quite easier to use. In this case, credentials to access funds are stored with the online wallet provider than on the user's hardware. As a result, the user must have complete trust in the online wallet provider. A malicious provider or breach in the server security may cause entrusted bitcoins to be stolen. An example of this is the Mt. Gox security breach back in 2011. 

Cold wallets: A wallet software is a prime target of hackers because of the lucrative potential for stealing bitcoins. A technique called "cold storage" keeps the private keys out of reach of hackers; this is accomplished by keeping private keys offline at all times by generating them on a device that is not connected to the internet. The credentials necessary to spend bitcoins can be stored online in a number of different ways from specialized hardware wallets to simple paper printouts of the private key.

Hardware wallets: A hardware wallet is a computer peripheral transaction as requested by the user. These devices store private keys and carry out signing and encryption internally and does not share any sensitive information with  the host computer except (already signed and unalterable) transactions. Because hardware wallets never expose their private keys, even computers that may be compromised by malware do not have a vector to access or steal them. The user sets a passcode when setting up a hardware wallet. As hardware wallets are tamper-resistant, the passcode will be needed to extract any money. 

Paper wallets: A paper wallet is created with a keypair generated in a computer without access to the internet. The private key is written or printed onto the paper and then erased from the computer. The paper wallet can then be stored in a safe physical location for later retrieval. Physical wallets can also take the form of metal token coins with a private key accessible under a security hologram with a recess struck on the reverse side. The security  hologram self destructs when removed from the token showing that the private key has been accessed. Previously, these bitcoins were struck in brass and other base metals but later used precious metals as bitcoin grew in value and popularity. Coins with stored face value as high as 1000 bitcoins have been struck in gold. The British museum's collection included four specimens from  the earliest series of funded bitcoin tokens, one is currently on display in the museum's money gallery. In 2013, a Utah manufacturer of these tokens was ordered by the Financial Crimes Enforcement Network(FINCEN) to register as a money services business before producing any more funded bitcoin tokens.

 

So far we have discussed the timeline of bitcoin as well as some other really cool features of these digital innovation but there is a lot more to know about bitcoin. In the final phase article, we will see how bitcoin compares to the traditional banking system, how bitcoin can well be described as digital energy and how much growth potential there is for the bitcoin market. So stay tuned for that last phase because it will be really insightful. Stay blessed