Pre-2008 history of crypto and the launch of Bitcoin
Bitcoin is often referred to as the first cryptocurrency. However, while the launch of Bitcoin was a pivotal moment for the development of cryptocurrencies, it wasn’t the first iteration of digital money.
In the early 1980s, a UC Berkeley cryptographer called David Chaum wrote a paper describing a version of cryptographic money using “blind signatures for untraceable payments” called eCash. Recognizing that electronic payments could reveal a substantial amount of personal data, Chaum proposed a more private alternative that would also enable a more secure proof of payment than cash.
In the mid-1990s, he implemented his idea via his company Digicash. By then, other researchers were also working on their own digital money projects, including Nick Szabo, who proposed another type of digital currency called “bit gold.” Szabo’s project, which was designed around the principle of a decentralized network solving cryptographic problems, is widely credited with influencing the development of Bitcoin.
In 2008, pseudonymous developer Satoshi Nakamoto published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” describing the Bitcoin blockchain, which they later implemented as an open-source project. Bitcoin’s first block, known as its “genesis block”, was mined on January 3, 2009, with the words “Chancellor on brink of second bailout for banks,” the headline of the London Times on that day, inscribed into the block. The inscription is widely thought to be a criticism of the weaknesses in established monetary systems.
The first Bitcoin transaction took place nine days after the genesis, when Satoshi sent ten BTC to fellow cryptographer Hal Finney.
2008 to 2014 – the cypherpunk years
Satoshi Nakamoto remained with the Bitcoin project until disappearing in 2010. However, by then, there was a growing movement around Bitcoin and cryptocurrencies.
On May 22, 2010, Laszlo Hanyecz undertook the first known commercial transaction using Bitcoin when he bought two pizzas for 10,000 BTC. May 22 is now commemorated as Bitcoin Pizza Day among the crypto community.
In the following years, more cryptocurrencies were launched with various twists on the Bitcoin blueprint, including Litecoin (2011) and Peercoin (2012), which first introduced the proof of stake concept under a hybrid model with proof of work.
During this time, only a small number of exchanges existed for trading bitcoins, and one of the most popular was Mt.Gox. At its peak, the platform was handling around 70% of all BTC trading volumes. In February 2014, it emerged that Mt.Gox had been hacked, with customer losses amounting to more than 750,000 BTC (worth more than $450 million at the time.) The incident was largely credited with causing the first significant bear market in crypto.
2015 – 2017 – the rise of Ethereum
Bitcoin’s launch inspired the launch of many other cryptocurrency projects. However, 2015 saw the launch of the second most significant project in the history of cryptocurrencies after Bitcoin – Ethereum. Ethereum’s expressive programmability allowed users to build creative new projects, including enabling users to create their own ERC-20 tokens on the blockchain and develop decentralized applications based on smart contracts that could execute rules automatically.
One such project was The DAO, a decentralized autonomous organization established as an investment contract for up-and-coming Ethereum projects. In 2016, The DAO became one of the first smart contracts to fall prey to an attack on vulnerabilities in the underlying code, and a malicious actor stole $150 million worth of ETH. The incident led the Ethereum core development team to a vote, which determined that the blockchain should be hard-forked to restore the stolen funds. The vote split the Ethereum community and the fork led to separate Ethereum and Ethereum Classic blockchains.
While the incident shook the cryptocurrency community, 2016 and 2017 saw an explosion in development activity on Ethereum, leading to 2017 being dubbed the “ICO (initial coin offering) boom” due to the high number of new token launches.
In December 2017, the price of Bitcoin reached $20,000 for the first time in the history of crypto. In the same month, the CME and the Cboe began offering the first regulated Bitcoin futures products to institutional users.
2018 to 2021 – DeFi, NFTs, and a new market high
Following the boom in token offerings in 2017, 2018 was a more sober year as the SEC began to clamp down on cryptocurrencies, stating the view that many digital assets had characteristics of securities. The markets remained largely in a slump throughout 2018 and 2019. However, 2020 marked a turning point with several notable occurrences.
From the beginning of the year, interest in decentralized finance (DeFi) began to pick up pace following the launch of new concepts such as flash loans, governance tokens including Compound’s COMP, and yield farming, which offered token rewards.
In late 2020, PayPal announced that it would begin offering cryptocurrency services to its customers and merchant network, creating a significant buzz in the markets and starting a bull run that would culminate in Bitcoin’s next price high of nearly $69,000 in April 2021.
2021 also proved to be a pivotal year in the popularity of NFTs, which underwent a similar trajectory as DeFi in the preceding year. In March 2021, Christie’s brokered the sale of Beeple’s “Everyday: The First 5000 Days” collection as an NFT for the sum of $69 million, an event that made global headlines. NFTs also sparked an interest in the play-to-earn blockchain gaming segment and in decentralized metaverses such as The Sandbox.
Around 2020 and 2021, many governments and national banks began research into the concept of central bank digital currencies, which continues to this day. At the same time, banking and financial institutions across the globe began to research digital asset products and services and/or integrate them into their existing products and services.
2022 to date, and the road ahead
In 2022, the cyclical nature of the crypto market came into effect once again, and several high-profile projects collapsed, causing significant losses to customers and investors. In May 2022, Terra’s LUNA began to enter a downward spiral, causing a ripple effect of damage across projects and companies that had been exposed to the losses.
In November 2022, an exposé in the cryptocurrency press led to the collapse of FTX, resulting in losses of around $8 billion in customer funds and leading to the arrest and subsequent trial and conviction for fraud of its founder, Sam Bankman-Fried.
2023 has seen subdued levels of activity as the sector processes the fallout from the incidents in 2022. Furthermore, the geographical make-up of the cryptocurrency markets continues to evolve due to the ongoing action of the SEC against cryptocurrency market operators in the US. The future acceptance of vehicles such as spot Bitcoin ETFs offers a glimpse of hope that crypto can remain viable as a more regulated market in the US in future.
However, the introduction of the European Union’s Markets in Crypto Assets Regulation in 2023, along with increasing adoption in middle-income countries such as India and Nigeria, also creates fertile ground for the future growth and development of the digital asset sector across the globe. Institutional and enterprise interest are also growing, as firms such as PayPal and Mastercard extend their reach into crypto. Furthermore, the longevity of cryptocurrency is now a testament to its resilience and enduring appeal.
History of cryptocurrency essentials
- Bitcoin’s genesis in 2008 came following a series of projects experimenting with digital money, and sparked a new movement around cryptocurrencies.
- The launch of Ethereum in 2015 marked a new era of development based on decentralized applications and tokens.
- The current landscape is characterized by shifting regulations and increasing institutional adoption.