Would you pay $63 million for a pizza? One foolish guy did

November 1, 2018 5:47 pm


The below is an extract of a CNBC article on the birth and life of Bitcoin, 10 years in the making.

On October 31, 2008 bitcoin (BTC) was born, in the midst of the start of a global economic crisis and in the past ten years has evolved from an anti-establishment hobby among coders to a household name.

Finding Satoshi

BTC was invented by an anonymous cryptographer going by the pseudonym Satoshi Nakomoto. He, she, or they wrote bitcoin’s founding white paper a decade ago on Halloween.

Image of Bitcoin whitepaper

Satoshi went radio silent on public forums by 2011 disappeared with a stash today worth over $6.2 billion and passed the reins to Gavin Andresen, a software engineer, who became the chief developer of the open code that refines the bitcoin protocol.

Bitcoin’s original goal: A “purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” Satoshi’s idea solved for the “double spending” problem that other failed digital currencies, like e-Cash or DigiCash in the 1990s, ran into.

To avoid third parties like banks, Bitcoin would rely on “distributed ledgers,” which could be seen by anyone to verify that the money actually changed hands. The network records transactions and put them onto an ongoing chain, forming a record that can’t be altered. That technology is widely known as blockchain and is now being applied to industries like healthcare, farming, and mortgages.

Related: Cryptos may RIP- Clear signs that the end could be near

Bitcoin goes live

The first-ever bitcoin transaction took place just over a week later from Satoshi to the late software developer Hal Finney. It began gaining traction in online forums, and by 2009 the first fifty bitcoins known as the “Genesis block,” was mined.

Mining is the energy-consuming process, done on high-powered computers, to solve math equations that confirm transactions on that public ledger.

In order to trade it, the first exchange, called “dwdollar,” came on the scene. A few months later, the first real-world transaction in bitcoin took place. At the time it had no real value. But a Jacksonville, Florida programmer paid 10,000 bitcoins for a pizza in May of 2010, which at the time using bitcoin’s newly established exchange rate was worth about $25, according to CoinDesk.

At October 2018 prices, he would have paid $63 million for that pizza.

By the end of 2010, it was emerging as a real currency with the first mobile transaction and its total value topping $1 million.

Wipeout!! Bitcoin swings from $24,000 to $6,400 in less than 24 hrs

Mt Gox & Silk Road

Mt. Gox put bitcoin on the map. The Tokyo-based bitcoin exchange launched in 2010 and three years later was handling roughly 70% of all cryptocurrency transactions in the world. The site was founded by Jed McCaleb, who later went on to found crypto projects Ripple and Stellar.

The site experienced its first of multiple hacks in 2011 when bitcoin reached a price milestone of $1. It was later effectively frozen out of the U.S. banking system for regulatory issues, and by 2013 stopped trading, closed its website and filed for bankruptcy protection.

Silk Road was another smudge on bitcoin’s reputation. The dark web marketplace facilitated transactions for guns, drugs and other illicit goods, mostly with bitcoin, the currency of choice for criminals.

Venture Capitalist Tim Draper was among those who bought bitcoin in government auctions after Mt. Gox closed down, and has since called it “the greatest technology since the internet.” Tyler and Cameron Winklevoss, who famously battled Mark Zuckerberg over the origins of Facebook, bought the cryptocurrency in 2013. Bitcoin made it to almost $1,000 that year but it took until 2017 to actually break that price threshold.

Cryptocurrency exchange Coinbase, recently valued at $8 billion, was founded around the same time in 2012. BitPay, the largest merchant services provider, started in 2011 and opened up space for merchants to start accepting bitcoin.

The currency made its way from the digital to the physical world with the first-ever Bitcoin ATM at a Vancouver coffee shop by 2013.

March to $20,000

By 2017, investors were using bitcoin more as a speculative bet than as a vehicle for buying pizza. It has been compared to digital gold — with a limited supply (21 million exist, and of that, roughly 17 million have been mined), and potential as an alternative investment, and a safe haven currency in turbulent times for stock markets.

Many retail investors were driven by FOMO, or “fear of missing out” at the end of last year. Bitcoin began last year below $1,000 and by December was trading above $19,000, bringing its total gains to 1,300%, according to CoinDesk.  It has since dropped more than 60%, and was trading near $6,300 as of Wednesday.

Read: Which Alt Coin is threatening to overtake both Ethereum and Bitcoin?

Futures

Bitcoin’s all-time high coincided with the launch of what many hoped would make it mainstream — the launch of a futures market. The Chicago Mercantile Exchange, or CME, introduced bitcoin futures trading on Dec. 17. That same day, bitcoin hit a high of $19,783, according to data from CoinDesk. The Chicago Board Options Exchange, or CBOE, also opened a futures market a week earlier.

Initial coin offering (ICO) mania

As bitcoin’s value climbed, other cryptocurrencies and a fundraising method known as initial coin offerings, or ICOs, climbed with it. An ICO is a fundraising method in which a startup, usually blockchain-based, raises money to build a business. Typically, all that is needed is a website landing page and an idea laid out in a white paper. The “tokens” or cryptocurrencies sold through ICOs promise a future payoff, or in the case of Ethereum, are used to access the actual blockchain platform. The fundraising method started in 2013 but was made famous last year as it brought in billions from retail investors.

Thanks to ICOs, there are more than 2,000 cryptocurrencies in existence, according to CoinMarketCap.com. ICO crowdfunding has raked in $12 billion this year alone, more than the total initial public offerings on major U.S. exchanges, according to the latest data from Autonomous Next. Many were outed as frauds and subpoenaed by U.S. regulators who repeatedly warned of “pump and dump” schemes.

Read Bitcoin on diet: Litecoin closing in as favorite among cryptos

Regulation

Since it’s not backed by a single government, no single entity is in charge of overseeing bitcoin. Each country and even different states within those countries have fragmented rules on how they treat the new asset class. Global regulators are still reconciling how to handle “know your customer” and anti-money laundering requirements, while not cracking down too hard on what could be an innovative new asset class.

Blockchain

Even if bitcoin doesn’t survive another ten years, many on Wall Street are betting that its underlying technology will.

J.P. Morgan Chase, IBM, Deloitte, Amazon, and Facebook are among those working on private blockchain solutions for businesses, which for the most part have nothing to do with cryptocurrencies.

Meanwhile, merger and acquisition activity for blockchain and cryptocurrency companies has more than doubled in the past year amid a 54% slump in bitcoin prices, according to JMP Securities and data from PitchBook.

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AMEinfo Staff
By AMEinfo Staff
AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.



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