Bitcoin

Written by Daniel Codella Daniel Garcia

BITCOIN tales of cryptocurrency

bitcoin.org

ethereum.org

Twitter ethereumprojectrk

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The Great Recession during the late 2000s changed the lives of millions of people around the globe. Greed, the housing bubble, risky loans, and skyrocketing personal debt created the perfect storm, tanking markets from the US to Asia. Scores of people lost their homes, jobs, retirement savings, and worst of all, their hope in the future. Most of the blame was squarely pinned on US financial institutions. When the government stepped in to provide relief, the bailout came, not for the average Joe, but for the banks themselves. To many, this move was a slap in the face. People were angry, and the stage was set for a revolution.

THE MAN, THE MYTH, THE LEGEND

In August 2008, without any fanfare, the domain bitcoin.org was registered. Shortly thereafter, a white paper was posted entitled “Bitcoin: A Peer-to- Peer Electronic Cash System” by a mysterious figure named Satoshi Nakamoto. In it, he describes the problems of the trust-based model that the traditional banking system is based on and lays out a solution to eliminate the need for trusted third parties: the blockchain. A decentralized and distributed public digital ledger or database, the blockchain is used to record and synchronize transactions across a global network of computers. The entries are public yet encrypted, allowing everyone to view them without being able to alter, revise, or tamper with them. The first use of this revolutionary new technology would be a digital currency. Bitcoin was born.

A few months later, in January 2009, software was made public that enabled “mining,” the complex

process by which new bitcoins are created and transactions are added to the blockchain. Satoshi mined the first block on the chain, the genesis block.

Inspired by Satoshi’s vision, developers around the world downloaded the open-source software and began mining bitcoins, contributing to its codebase, and talking about its value on forums and in chat rooms. On May 22, 2010, a Bitcoin enthusiast from Florida named Laszlo Hanyecz offered 10,000 bitcoins to anyone who bought him pizza. A man in the UK took him up on his offer and had two Papa John’s pizzas delivered to his door. For the first time ever, Bitcoin was assigned real-world, tangible value.

As quickly and mysteriously as he came on to the scene, Satoshi Nakamoto, Bitcoin’s enigmatic and brilliant creator, announced he had “moved on to other things” and disappeared completely. To this day, no one really knows who he is or if he’s even a single individual. Despite Satoshi’s exit in 2011, Bitcoin continued to gain popularity and grow in value. In honor of its creator, fractions of bitcoins began to be measured in units affectionately referred to as satoshis or sats.

BLACK MAGIC

Interest in Bitcoin reached a fever pitch in 2013, and its value surged to over $1000 for the first time. Serious traders were buying and selling bitcoins on exchanges like brokers on Wall Street, the most popular being Mt. Gox. At its height, Mt. Gox was handling 70 percent of all Bitcoin transactions

worldwide. It was the brainchild of a talented programmer named Jed McCaleb. He initially wanted to create a site for trading Magic: The Gathering cards and purchased the domain mtgox.com—short for “Magic: The Gathering Online eXchange.” He read about Bitcoin in 2010 and decided to pivot the site to trade cryptocurrencies.

As Mt. Gox grew so did its problems. After a series of hacks, lawsuits, and investigations, customers began complaining of long delays and poor service. It halted withdrawals in 2014, suspended all trading, and on February 24, 2014, took its website offline. By March they had filed for bankruptcy, claiming that 850,000 bitcoins, worth $450 million, were “missing.”

A CONTENDER TO THE THRONE

Confidence in Bitcoin was in freefall. For years, it had been attacked by critics as a bubble at best and a magnet for criminality at worst. The corruption and failure of Mt. Gox only seemed to add validity to those claims. For years, Bitcoin declined in value and overall enthusiasm for the project died down to just a few pockets of passionate believers. One of them was a brilliant young Russian programmer named Vitalik Buterin. He first learned about Bitcoin from his father and would soon reinvigorate the cryptocurrency world and usher in the second wave.

At the tender age of 19, Vitalik began drafting the white paper for Ethereum, a new cryptocurrency that would turn the blockchain into a decentralized application platform by adding smart contracts. These enable developers to program their own “autonomous agents,” programs that can control the transfer of assets between parties under certain conditions. Unlike a traditional paper contract, these smart contracts are programmed to outline the rules and penalties around an agreement and enforce them, eliminating the need for any sort of third party. The Ethereum white paper was published in 2013, and Ethereum quickly gained momentum throughout 2014.

While it wasn’t the first to do so, Ethereum popularized the concept of the initial coin offering (ICO). Through crowdfunding, organizations raise capital by selling their new cryptocurrency or token. Ethereum was able to raise 3,700 bitcoins (worth $2.3 million at the time) in just 12 hours.

GONE IN A FLASH

Despite a serious hack that resulted in the currency being hard forked into two, Ethereum rapidly broke $300 and was thought by many to be the new king of cryptocurrencies. But then, the unthinkable

happened. A single trader’s $12.5 million sell order on a popular exchange called GDAX dropped the price of Ethereum down nearly 30 percent. This triggered a series of automated stop-loss orders and margin liquidations. In 45 milliseconds, the price of Ethereum plunged from $320 to 10 cents.

It was the biggest flash crash in history, with Ethereum losing 99.6 percent of its value in the blink of an eye. Coinbase, the company who owns GDAX, as an act of goodwill, decided to reimburse all of their customers for their losses, and the price of Ethereum quickly recovered. The incident was not without consequence though: it sparked a new wave of what crypto traders refer to as FUD (Fear, Uncertainty, and Doubt). An investigation by the US Commodity Futures Trading Commission was launched, and for a time, it looked like the freewheeling days of wild west trading were over.

BURSTING THE BUBBLE

Over time, both Ethereum and Bitcoin have continued their meteoric rise, with Bitcoin enjoying what was arguably the greatest bull run in history. In 2017 alone, the price of Bitcoin rose from $1,000 to nearly $20,000 for a short time. This has not silenced its critics, though, who are some of the most powerful people in the financial world. One of the most outspoken has been Jamie Dimon, chairman and CEO of JPMorgan Chase. He called people who buy Bitcoin “stupid” and referred to it as a “fraud.” He and others have likened it to the tulip mania bubble of 1637. During that craze, the price of tulip bulbs inflated to astronomical levels only to burst, leaving thousands in financial ruin. Warren Buffett, too, predicts “a bad ending.”

But despite the naysayers and the near-weekly FUD, Bitcoin, Ethereum, and other cryptocurrencies continue to draw more investors, interest, and talent to their projects. In many ways, the public has already spoken. They’ve voiced their distrust of the current financial system and have demonstrated their willingness to try something different, something that could be better. It has become too big to ignore. Coinbase, one of the most popular Bitcoin exchanges, now has more users than Charles Schwab.

The word “bubble” is still being thrown around in regards to Bitcoin. Many economists and bankers still broadcast their warnings—as they have for the last decade. The future is uncertain, and it does appear that we’re about to see a bubble burst, but in the words of Bitcoin enthusiast Freddy Callan, “Bitcoin isn’t a bubble; it’s the pin.” C

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