Cryptocurrencies_10. History of Bitcoin

Lesson 10: History of Bitcoin

Prior to the release of bitcoin there were a number of digital cash technologies
starting with the issuer based ecash protocols of David Chaum and Stefan Brands.
Adam Back developed hashcash, a proof-of-work scheme for spam control. The first
proposals for distributed digital scarcity based cryptocurrencies were Wei Dai's
b-money and Nick Szabo's bit gold. Hal Finney developed reusable proof of work
using hashcash as its proof of work algorithm.

In the bit gold proposal which proposed a collectible market based mechanism for
inflation control, Nick Szabo also investigated some additional enabling aspects
including a Byzantine fault-tolerant asset registry to store and transfer the chained
proof-of-work solutions.

There has been much speculation as to the identity of Satoshi Nakamoto with
suspects including Wei Dai, Hal Finney and accompanying denials. The possibility
that Satoshi Nakamoto was a computer collective in the European financial sector
has also been discussed.

On August 18 2008, the domain name bitcoin.org was registered. In November that
year, 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. This paper
detailed methods of using a peer-to-peer network to generate what was described as
"a system for electronic transactions without relying on trust". In January 2009, the
bitcoin network came into existence with the release of the first open source bitcoin
client and the issuance of the first bitcoins, with Satoshi Nakamoto mining the first
block of bitcoins ever, known as the genesis block. Embedded in the coinbase of this
block was the text:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.[18]

One of the first supporters, adopters, contributor to bitcoin and receiver of the first
bitcoin transaction was programmer Hal Finney. Finney downloaded the bitcoin
software the day it was released, and received 10 bitcoins from Nakamoto in the
world's first bitcoin transaction. Other early supporters were Wei Dai, creator of
bitcoin predecessor b-money, and Nick Szabo, creator of bitcoin predecessor bit
gold.

In the early days, Nakamoto is estimated to have mined 1 million bitcoins. Before
disappearing from any involvement in bitcoin, Nakamoto in a sense handed over the
reins to developer Gavin Andresen, who then became the bitcoin lead developer at
the Bitcoin Foundation, the 'anarchic' bitcoin community's closest thing to an official
public face.

The value of the first bitcoin transactions were negotiated by individuals on the
bitcointalk forums with one notable transaction of 10,000 BTC used to indirectly
purchase two pizzas.

On 6 August 2010, a major vulnerability in the bitcoin protocol was spotted.
Transactions weren't properly verified before they were included in the transaction
log or blockchain, which let users bypass bitcoin's economic restrictions and create
an indefinite number of bitcoins. On 15 August, the vulnerability was exploited; over
184 billion bitcoins were generated in a transaction, and sent to two addresses on
the network. Within hours, the transaction was spotted and erased from the
transaction log after the bug was fixed and the network forked to an updated version
of the bitcoin protocol. This was the only major security flaw found and exploited in
bitcoin's history.

Based on bitcoin's open source code, other cryptocurrencies started to emerge.
In June 2011 Wikileaks and other organizations began to accept bitcoins for
donations. The Electronic Frontier Foundation began, and then temporarily
suspended, bitcoin acceptance, citing concerns about a lack of legal precedent
about new currency systems.

In January 2012, bitcoin was featured as the main subject within a fictionalized trial
on the CBS legal drama The Good Wife in the third-season episode "Bitcoin for
Dummies". The host of CNBC's Mad Money, Jim Cramer, played himself in a
courtroom scene where he testifies that he doesn't consider bitcoin a true currency,
saying "There's no central bank to regulate it; it's digital and functions completely
peer to peer".

In September 2012, the Bitcoin Foundation was launched to "accelerate the global
growth of bitcoin through standardization, protection, and promotion of the open
source protocol". The founders were Gavin Andresen, Jon Matonis, Patrick Murck,
Charlie Shrem, and Peter Vessenes.

In October 2012, BitPay reported having over 1,000 merchants accepting bitcoin
under its payment processing service. In November 2012, WordPress had started
accepting bitcoins.

In February 2013 the bitcoin-based payment processor Coinbase reported selling
US$1 million worth of bitcoins in a single month at over $22 per bitcoin. The Internet
Archive announced that it was ready to accept donations as bitcoins and that it
intends to give employees the option to receive portions of their salaries in bitcoin
currency.

In March the bitcoin transaction log, the blockchain, temporarily split into two
independent chains with differing rules on how transactions were accepted. For six

hours two bitcoin networks operated at the same time, each with its own version of
the transaction history. The core developers called for a temporary halt to
transactions, sparking a sharp sell-off.
Normal operation was restored when the majority of the network downgraded to
version 0.7 of the bitcoin software. Bitcoin’s rate briefly dipped by 23% to $37 as the
event occurred before recovering to previous level of approximately $48 in the
following hours. In the US, the Financial Crimes Enforcement Network established
regulatory guidelines for "decentralized virtual currencies" such as bitcoin, classifying
American "bitcoin miners" who sell their generated bitcoins as Money Service
Businesses, that may be subject to registration and other legal obligations.

In April, payment processors BitInstant and Mt. Gox experienced processing delays
due to insufficient capacity, resulting in the bitcoin exchange rate dropping from $266
to $76 before returning to $160 within six hours. Bitcoin gained greater recognition
when services such as OkCupid and Foodler began accepting it for payment.

On 15 May 2013, the US authorities seized accounts associated with Mt. Gox after
discovering that it had not registered as a money transmitter with FinCEN in the US.

On 17 May 2013, it was reported that BitInstant processed approximately 30 percent
of the money going into and out of bitcoin, and in April alone facilitated 30,000
transactions.

On 23 June 2013, it was reported that the US Drug Enforcement Administration
listed 11.02 bitcoins as a seized asset in a United States Department of Justice. It is
the first time a government agency has claimed to have seized bitcoin.

In July 2013 a project began in Kenya linking bitcoin with M-Pesa, a popular mobile
payments system, in an experiment designed to spur innovative payments in Africa.
During the same month the Foreign Exchange Administration and Policy Department
in Thailand stated that bitcoin lacks any legal framework and would therefore be
illegal, which effectively banned trading on bitcoin exchanges in the country.
According to Vitalik Buterin, a writer for Bitcoin Magazine, "bitcoin's fate in Thailand
may give the electronic currency more credibility in some circles", but he was
concerned it didn't bode well for bitcoin in China.

On 6 August 2013, Federal Judge Amos Mazzant of the Eastern District of Texas of
the Fifth Circuit ruled that bitcoins are "a currency or a form of money", specifically
securities as defined by Federal Securities Laws, and as such were subject to the
court's jurisdiction. Germany's Finance Ministry subsumed bitcoins under the term
"unit of account"—a financial instrument—though not as e-money or a functional
currency, a classification nonetheless having legal and tax implications.

In October 2013, the FBI seized roughly 26,000 BTC from website Silk Road during
the arrest of alleged owner Ross William Ulbricht. Two companies, Robocoin and
Bitcoiniacs launched the world's first bitcoin ATM on 29 October 2013 in Vancouver,
BC, Canada, allowing clients to sell or purchase bitcoin currency at a downtown
coffee shop. Chinese internet giant Baidu had allowed clients of website security
services to pay with bitcoins.

In November 2013, the University of Nicosia announced that it would be accepting
bitcoin as payment for tuition fees, with the university's chief financial officer calling it
the "gold of tomorrow". During November 2013, the China-based bitcoin exchange
BTC China overtook the Japan-based Mt. Gox and the Europe-based Bitstamp to
become the largest bitcoin trading exchange by trade volume.

In December 2013, Overstock.com announced plans to accept bitcoin in the second
half of 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 dropped and Baidu no longer accepted bitcoins for certain services. Buying
real-world goods with any virtual currency has been illegal in China since 2009.

In January 2014, Zynga announced it was testing bitcoin for purchasing in-game
assets in seven of its games. That same month, The D Las Vegas Casino Hotel and
Golden Gate Hotel & Casino properties in downtown Las Vegas announced they
would also begin accepting bitcoin.

In early February 2014, one of the largest bitcoin exchanges, Mt. Gox, suspended
withdrawals citing technical issues. By the end of the month, Mt. Gox had filed for
bankruptcy protection in Japan amid reports that 744,000 bitcoins had been stolen.
Months before the filing, the popularity of Mt. Gox had waned as users experienced
difficulties withdrawing funds.

In June 2014 the network exceeded 100 petahash/sec. On 18 June 2014, it was
announced that bitcoin payment service provider BitPay would become the new
sponsor of St. Petersburg Bowl under a two-year deal, renamed the Bitcoin St.
Petersburg Bowl. Bitcoin was to be accepted for ticket and concession sales at the
game as part of the sponsorship, and the sponsorship itself was also paid for using
bitcoin.

In July 2014 Newegg and Dell started accepting bitcoin.

In September 2014 TeraExchange, LLC, received approval from the U.S.Commodity
Futures Trading Commission "CFTC" to begin listing an over-the-counter swap
product based on the price of a bitcoin. The CFTC swap product approval marks the
first time a U.S. regulatory agency approved a bitcoin financial product.

In December 2014 Microsoft began to accept bitcoin to buy Xbox games and
Windows software.

In January 2015 Coinbase raised 75 million USD as part of a Series C funding
round, smashing the previous record for a bitcoin company. Less than one year after
the collapse of Mt. Gox, United Kingdom-based exchange Bitstamp announced that
their exchange would be taken offline while they investigate a hack which resulted in
about 19,000 bitcoins being stolen from their hot wallet. The exchange remained
offline for several days amid speculation that customers had lost their funds.
Bitstamp resumed trading on 9 January after increasing security measures and
assuring customers that their account balances would not be impacted.

In March 2015 21 Inc announced it had raised 116 million USD in venture funding,
the largest amount for any digital currency-related companies.

As of August 2015 it was estimated that 160,000 merchants accept bitcoin
payments. Barclays announced that they would become the first UK high street bank
to start accepting bitcoin, with a plan to facilitate users to make charitable donations
using the cryptocurrency outside their systems. They partnered in April 2016 with
mobile payment startup Circle Internet Financial.