In October 2008 Satoshi Nakamoto published a paper on The Cryptography Mailing List outlining the basis intent behind Bitcoin, his cryptocurrency format. This proposed idea involved using sophisticated software code to create, authenticate and protect intangible currency without involving or being dependent on any government treasury or centralized banking system.
There has been much discussion and investigation into who exactly is Satoshi Nakamoto. In the beginning it was thought Nakamoto was not one single person but a group of individuals who invented this new form of currency in response to the global financial crisis which was occurring at the time. Angered over what he saw as the irresponsible and predatory tactics of those individuals charged with overseeing the world’s monetary policies, Nakamoto was determined to create a form of currency that could not be tainted or manipulated by bankers, stockbrokers or politicians.
Adding more confusion to the mix, that same year, Neal Kin, Charles Bry and Vladimir Oksman, disavowing any connection to Nakamoto, simultaneously registered the site: Bitcoin.org and filed paperwork for an encryption patent. While the creator of Bitcoin left great speculation in his wake, it is well documented that on January 3rd, 2009 someone out there on the world-wide web, with a single keystroke, turned Bitcoin from concept to reality.
No paper money, no silver coins, no backing by any government or banking entity, Bitcoin was simply 31,000 lines of code and a short Internet announcement. The code also included a generational software system set up to release a total of 21 million Bitcoins between 2009 and 2040. This first block of code, called Genesis, set off the Bitcoin “mining” process and on January 12th, 2009, the first ever Bitcoin transaction took place between Nakamoto and Hal Finney, a prominent gaming developer and cryptographic activist.
As Bitcoin’s popularity continued, problems arose. In August, 2010 the Bitcoin site was hacked and 184 billion Bitcoins were released; immediately devaluing the cyber-currency. Two months later, the government released reports indicating digital money could easily become a convenient method of financing terrorist cells and other illegal activity. This seemed to come true when in January, 2011 Silk Road, an online illegal drug market opened, using Bitcoins as the only acceptable form of payment due to the anonymity involved. In July of the same year the security of Bitcoin began to be questioned due to online hacking.
In 2013 there was a major Bitcoin theft which ultimately had a devastating effect on the overall value of the currency. Twenty five thousand bitcoins, or $487,749 tangible dollars was stolen from the digital wallet of the founder of Bitcoin Forum. Then later that same month a major international security breach plunged the value of a single Bitcoin from the going rate of over $17 a share to less than a penny.
In spite of these hacking concerns during this same time period of 2011 through 2013, Bitcoins were gaining a sense of legitimacy through numerous organizations embracing their mission. They were also given a boost when in January of 2013 the total overall value of all Bitcoins in circulation topped a billion dollars. Many economists believe the 2012/2013 European economic crisis had a great deal to do with this increased popularity. Like Nakamoto, after suffering through the first financial crisis of 2008, many Europeans began to see the attractiveness of using a currency that had no government or financial ties.
Contributing to the ongoing authenticity of Bitcoins, in October 2013, Silk Road, the original online illicit drug marketplace dealing solely in Bitcoins, was shuttered by the FBI. Realizing that while the government had no financial stake in this form of currency, they refused to turn a blind eye to illegal activities involving Bitcoins, along with the first Bitcoin ATM opening in Vancouver, more people began to see digital money as a legitimate entity.
Immediately after a Senate hearing in November 2013 where federal regulators touted the benefits of cyber-currency in today’s financial landscape, the value once again shot through the roof and by the end of the year the value of all Bitcoins in circulation was estimated to be a staggering $7 billion.
The beginning of 2014 saw more trouble for Bitcoin in spite of the Senate’s vote of confidence just a few months earlier. The People’s Bank of China refused to allow financial institutions to accept Bitcoin transactions, which is ironic considering today China is one of the world’s largest bitcoin traders. Then Charlie Shrem, vice-chairman of BitInstant, a Bitcoin exchange, was indicted on money laundering charges.
But in a bit of good news, 2014 was also the year Overstock.com began accepting Bitcoins on their online retail site. Across the pond in England, Her Majesty’s Revenue and Customs (HMRC) classified Bitcoins as private money, establishing the UK government as one of the most progressive countries in regards to acceptance and taxation of digital money. The remainder of 2014 saw additional foreign countries legitimizing cyber-currency along Microsoft accepting Bitcoins for their tech products.
For 2015 most pundits agree Bitcoin is heading toward legitimacy through widespread acceptance by the world’s leading financial institutions. While the European Banking authority and The European Central Bank have published detailed reports and suggested industry regulations, other countries including Canada, Switzerland and Brazil have all taken the next step and included the regulation of digital money under their government’s fraud, theft and money laundering protection. All this points toward a positive integration of cyber-currency into the mainstream financial world during the next several years.