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A short history of Bitcoin

Updated Monday, 27th October 2014

It's origins may seem unclear but Bitcoin could be a practical demonstration of an electronic currency that shows us the future of money. 

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A photo of many physical Bitcoin coins. Creative commons image Icon Antana under CC BY-SA 2.0 licence under Creative-Commons license

What is Bitcoin?

Electronic currencies sound like a great idea, and at first sight it might seem odd that they haven’t already replaced coins and credit cards in our everyday lives. Rather than making ourselves vulnerable to crime and simple forgetfulness, we could have an electronic wallet stored somewhere on the Internet from which we could instantly send money to, and receive money from anywhere in the world.

What we sometimes forget is that computers don’t actually send data from one place to another – they make a perfect copy of that data in another location and then delete the original. And they can make those copies very fast. The danger of any electronic currency is that computers could make unlimited copies of money, or that the same money could be spent more than once, or that the transaction records could be altered long after the event – all of a sudden your expensive new car only cost a penny, or that cup of coffee now means you owe a million pounds. In short, the risk of total chaos in our financial system has restricted the uptake of electronic money.

Bitcoin might have solved these problems; its built-in protections against error and fraud mean that it is the first practical demonstration of an electronic currency and it may well show us the future of money. 

Where did Bitcoin come from?

Bitcoin’s origins lie in a scientific paper called titled Bitcoin: A Peer-to-Peer Electronic Cash System published on the Internet in 2008. The paper was published by a previously unknown author called Satoshi Nakamoto. To this day it is uncertain who exactly Nakamoto was or even if they ever existed; all that can be said about them is that they had a proficient understanding of mathematics and computer science. The paper’s proposal has been studied by some of the world’s acknowledged experts in the relevant fields and no significant problems found – whoever Nakamoto was, they were genuine. A number of mathematicians and cryptographers have been suspected of using Nakamoto as a pseudonym, but none have admitted to it and it is possible that Nakamoto is a name used by a number of people.

The following year, Nakamoto followed up their paper when they released the first application that allowed people to buy, sell and create new Bitcoins. In its first year, Bitcoins had essentially no value; they were curiosities passed around by dedicated cryptographers and people interested in alternatives to mainstream finance.

As far as we know, the first ‘real world’ purchase was made in May 2010 by a user called Laszlo who paid 10,000 Bitcoins for two pizzas. Shortly afterwards Bitcoin began the first of several dizzying increases in value – growing by 1000% in just five days. By February 2011, a single Bitcoin was worth approximately one US dollar. Since then Bitcoin has grown in terms of users, acceptable uses and in value – albeit with several crashes that have seen it lose large fractions of its value. The currency is used around the world, although by far the majority of users and businesses accepting Bitcoins are found in the United States of America.

 

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