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The History of Bitcoin, the First Cryptocurrency | Investing

Bitcoin (BTC) was the first cryptocurrency ever created back in 2009, and it remains the most popular and valuable digital currency in the world today. Bitcoin is a blockchain-based decentralized digital currency powered by a network of users who verify and record transactions without relying on a central authority or intermediary.

Bitcoin is an alternative to fiat currencies, such as the U.S. dollar, that are controlled by governments and central banks. Transactions are verified via a process known as a proof-of-work consensus mechanism. Bitcoin miners compete to verify transactions by solving complex mathematical functions using powerful computers.

Some Bitcoin enthusiasts simply see the crypto as a fun asset for trading and speculation, while others believe it could ultimately become the universal currency of the digital world. There’s no question Bitcoin has had a meteoric rise in popularity since its inception, but the first 13 years have also exposed several key flaws and shortcomings of the world’s most popular digital asset.

Here’s an overview of several of the key eras in Bitcoin’s brief history and how they may affect its future:

  • When did Bitcoin start?
  • Bitcoin price history.
  • 2022 Bitcoin crypto winter.
  • Bitcoin price predictions.

When Did Bitcoin Start?

It’s no coincidence that Bitcoin was born during one of the most chaotic financial environments in U.S. history. During the global financial crisis of 2007 to 2009, distrust of banks and central governments was at a peak.

Bitcoin was created in 2009 by a person or group of people using the pseudonym Satoshi Nakamoto, the name which appeared on the original 2008 Bitcoin white paper that first described the blockchain system that would serve as the backbone of the entire cryptocurrency market.

Over the years, several people have stepped forward claiming to be the real Satoshi Nakamoto, but none could provide sufficient evidence to support their claims.

The Bitcoin blockchain was officially launched when the first Bitcoin block, the genesis block, was created on Jan. 3, 2009. In the first seven months following Bitcoin’s launch, Satoshi reportedly mined up to 1.1 million Bitcoins. At August 2022 prices, those coins would now be worth about $22 billion.

Joshua Peck, founder and chief investment officer of cryptocurrency hedge fund TrueCode Capital, says early Bitcoin enthusiasts were captivated with its design, even if they weren’t exactly certain of what it was going to actually be.

“It had some economic value, but I was looking at it more from an engineering perspective thinking that we could use it for secure message passing or getting strong cryptography into the hands of everyday users, so the financial value was somewhat secondary,” Peck says.

The first reported real-world financial transaction involving Bitcoin took place on May 22, 2010, when a Florida man negotiated to pay 10,000 BTC for two Papa John’s pizzas priced at about $25. That transaction valued the price of one Bitcoin at roughly a fourth of a cent. To this day, the Bitcoin community celebrates Pizza Day on May 22.

“Over time, the financial value became more broadly understood and, of course, today it has become the cornerstone of the fastest-growing asset class of my generation,” Peck says.

Bitcoin Price History

Bitcoin first became available to buy, sell and trade on online exchanges in 2010. In April 2011, the price of Bitcoin crossed the $1 threshold for the first time.

Bitcoin also faced its first competition in the crypto space in 2011. Litecoin (LTC) was launched in October 2011. The Ethereum blockchain went live several years later in 2015.

As Bitcoin’s price continued to rise, so too did its visibility, popularity and volatility. By November 2013, Bitcoin prices reached $1,000. Bitcoin prices and trading volumes really started to snowball in late 2017 – with prices hitting $10,000 per coin for the first time in November 2017 – and reached about $20,000 in December 2017.

One of the driving forces behind the parabolic rise in Bitcoin prices was an announcement by CME Group Inc. (ticker: CME) that it would be launching Bitcoin futures contracts in December 2017. These contracts represented the first Bitcoin-related financial product offered by a regulated U.S. financial institution.

Jarek Hirniak, founder and CEO of Generation Lambda, says Bitcoin followed a common innovation trajectory known as the Gartner Hype Cycle. According to the model, as a new technology such as Bitcoin gains visibility, expectations initially soar to an unreasonably high level.

“At first, most people ignore it, and then suddenly everyone gets more excited until it becomes obvious that promises can’t keep up with reality,” Hirniak says.

“Such a situation and lack of liquidity, combined with little regulation, made it ripe for market manipulation.”

In late 2017, excitement, hype and a crypto market frenzy created the perfect storm for an asset bubble. Many startups took advantage of the cryptocurrency boom to raise money via initial coin offerings, or ICOs. In 2017 and 2018, more than 800 ICOs raised roughly $20 billion in funding. The ICO space was plagued by outright frauds and scams, and the value of many of these ICO tokens collapsed within a year.

By the end of 2018, the bursting of the crypto bubble had dragged Bitcoin prices back down to less than $4,000 per coin.

2022 Bitcoin Crypto Winter

The next major boom in Bitcoin popularity came during the COVID-19 pandemic in late 2020. Extended shutdowns of entertainment and leisure businesses such as sports and casinos coupled with multiple rounds of government economic stimulus payments left many younger Americans with extra disposable income and time on their hands, which helped fuel another surge in Bitcoin prices in late 2020.

The ProShares Bitcoin Strategy ETF (BITO), the first Bitcoin exchange-traded fund, or ETF, to launch on a major U.S. exchange, began trading in October 2021. The BITO ETF launch was followed by several other cryptocurrency futures ETF launches, including the Valkyrie Bitcoin Strategy ETF (BTF), the VanEck Bitcoin Strategy ETF (XBTF) and the Global X Blockchain & Bitcoin Strategy ETF (BITS).

Bitcoin broke out to new all-time highs of more than $20,000 in December 2020 and eventually made it as high as $68,990 in November 2021.

Unfortunately, persistently elevated inflation prompted the Federal Reserve to begin aggressively tightening monetary policy in early 2022, triggering sharp sell-offs in cryptocurrencies and other risky assets. To make matters worse, the sharp declines in crypto prices in early 2022 triggered a liquidity crisis that led to the collapse of the $10 billion crypto hedge fund Three Arrows Capital and the bankruptcies of crypto lenders Celsius and Voyager Digital.

Crypto market volatility also led to the $60 billion collapse of Luna and its associated stablecoin Terra USD (UST) and caused the world’s largest stablecoin Tether (USDT) to briefly lose its peg to the U.S. dollar in May 2022.

Omid Malekan, author and adjunct professor at Columbia Business School, says the rapid rise in crypto prices in 2021 along with aggressive central bank tightening set the 2022 crypto winter in motion.

“The collapse of Luna and UST blew a hole in the balance sheet of major players and led to cascading failures of crypto lenders like Celsius and over-leveraged hedge funds, accelerating declines,” Malekan says.

Bitcoin Price Predictions

As of this writing, one Bitcoin is worth about $20,000. Its value is well off its 2021 high of more than $68,000, but it is still higher than its 2018 lows of less than $4,000.

Even after its 2022 sell-off during the crypto winter, Bitcoin remains one of the best-performing financial assets over the long term. However, Bitcoin’s extreme volatility remains a hurdle if it is ever going to gain acceptance as a truly universal currency.

At this point, Bitcoin remains a high-risk speculative investment, and there is no clear way to assess its intrinsic value or predict where its price is headed next. Still, Bitcoin bulls remain convinced that the future is bright for the world’s preeminent cryptocurrency.

“It’s hard to predict the future – particularly for something as volatile as Bitcoin – but so long as general adoption continues, digital assets of all kinds normalize further and regulators create sensible guardrails, then prices should appreciate in the long run,” Malekan says.


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What is Cryptocurrency | U.S. News

What Is Cryptocurrency?

Cryptocurrency is a class of digital currencies, most of which are secured via decentralized computer networks.

Cryptocurrencies are different from fiat currencies such as the U.S. dollar, which are backed by federal governments and central banks.

Cryptocurrencies are essentially private, digital currencies. Cryptocurrency investors see it as a store of value and a means of payment or exchange, like other forms of currency, but without relying on the policies of a central government. Bitcoin and other cryptocurrencies allow entities anywhere in the world that are connected to the internet to transfer value within minutes without the need for a bank or other intermediary.

How Does Cryptocurrency Work?

Transactions in Bitcoin, Ethereum and other leading cryptocurrencies are verified and secured via a blockchain framework that uses a network of nodes that independently records each transaction and updates a public ledger. This ledger system creates many different copies of the same transaction record, which provides a deep level of security. The blockchain software is “open source,” meaning anyone can download the software and contribute to the public ledger. Once all the computers in the network agree on a transaction, it is permanently recorded in the blockchain.

Different blockchains use different methods of verifying transactions. Bitcoin uses proof-of-work, or PoW, verification, in which cryptocurrency miners compete to verify transactions by solving complex mathematical puzzles using powerful computers. In return, the miners earn newly minted cryptocurrency. Proof-of-stake, or PoS, cryptocurrencies choose transaction validators based on the number of coins they have staked, or locked up, to the network.

Cryptocurrency investors access their currency via a special password called a private key. Investors must enter their private key to send or receive cryptocurrency. Crypto investors store these keys in cryptocurrency wallets. Wallets can be either hardware devices similar to USB sticks or mobile app software that users can access on their phones. Wallets connected to the internet are known as “hot” wallets, while wallets not connected to the internet are “cold.”

Bitcoin

Bitcoin is by far the most popular cryptocurrency in the world, with a market capitalization that at times has reached $1 trillion. Bitcoin was the first cryptocurrency, having started trading in 2009. Since its launch, Bitcoin’s price has skyrocketed, but it has experienced several periods of busts along the way. In addition to being the most popular cryptocurrency, Bitcoin is also the most useful. Bitcoin is accepted as payment at more than 7,600 global merchants, according to Cryptwerk. Bitcoin also made history in June 2021 when El Salvador became the first country in the world to make Bitcoin legal tender.

Altcoins

Bitcoin was the first cryptocurrency, but thousands of other cryptos have sprung up since Bitcoin was launched. These other cryptocurrencies are collectively known as altcoins. Ethereum is by far the most popular altcoin and is second in value to Bitcoin. The Ethereum blockchain was the first to introduce smart contracts, code that allows it to run decentralized applications, or dApps. Litecoin was created in 2011 with a focus on faster transaction confirmation times than Bitcoin. Solana is a relatively new cryptocurrency that features a unique system of proof-of-history, or PoH, and PoS transaction verification that consumes far less energy than Bitcoin, making it a potentially greener alternative. While Bitcoin is currently the cryptocurrency market leader by a wide margin, altcoins account for most of the global cryptocurrency market cap.

Stablecoins

Stablecoins are a subset of cryptocurrencies that attempt to peg their value to an external reference, such as the U.S. dollar or the price of gold. Stablecoins are backed by a reserve asset, making their price movements far less volatile than other cryptos. Cryptocurrency traders often rely on the stability of stablecoins to move in and out of other cryptocurrencies quickly without paying large fees. Popular stablecoins include Tether and USD Coin, both of which are pegged to the price of the U.S. dollar.

Digital Tokens

Digital tokens are assets that are similar to cryptocurrencies but are issued by a specific project to serve a purpose within that project. A token may represent an ownership stake in the project, a method of payment within the project’s ecosystem or a right to participate in the project’s network. Like coin tokens at an arcade, digital tokens have little value or utility outside of the specific project for which they are created. A nonfungible token, or NFT, is a type of token that represents ownership of a unique item, such as a digital collectible or piece of art.

Why You Need To Know About Cryptocurrency

Some cryptocurrency investors see crypto as the future universal mode of global commerce. Others see cryptocurrency as the standard currency of the internet. Still others see cryptocurrency as an investable asset class and an alternative to gold as a store of value and a hedge against inflation. Cryptocurrency also could grant financial freedom to people living in parts of the world with limited or no access to banks.

Up to this point, cryptocurrency hasn’t come close to replacing fiat currencies as the world’s preferred way to make financial transactions. However, cryptocurrency has become extremely popular as a speculative investment. The price of Bitcoin is up more than 5,000% in the past five years, while the price of Ethereum is up more than 50,000% in that time.

Pros of Cryptocurrency

Cryptocurrency is useful in making cross-border financial transactions, which can otherwise be difficult and costly. It also has a high degree of anonymity, which makes it difficult for specific transactions to be traced back to individual users. Blockchain technology provides both security and transparency, given that all transactions are publicly recorded in the ledger. Cryptocurrency also allows users to complete transactions free from the interference of governments, banks or other central authorities. Finally, up to this point, cryptocurrency as an asset class has also been an extremely good long-term investment.

Cons of Cryptocurrency

Most top cryptocurrencies are extremely volatile, making them unreliable stores of value in the short term. Decentralization may protect against government interference, but it also means there is no central cryptocurrency bank or Federal Deposit Insurance Corporation to prop up the value of a cryptocurrency if it is falling or reimburse investors if cryptocurrency is lost or stolen. While global governments can’t prevent users from making cryptocurrency transactions, they can potentially restrict or tax cryptocurrency transactions and even make them illegal entirely. Finally, although the list of global merchants that accept cryptocurrencies as payment is growing rapidly, most stores and financial institutions still don’t accept cryptocurrencies, limiting their usefulness as an alternative to fiat currencies.

Creator of Cryptocurrency

Bitcoin was created by a person or group of people named Satoshi Nakamoto, the pseudonym listed on the 2008 white paper that described how Bitcoin would work. Over the years, several people have publicly stepped forward claiming to be the real Satoshi, but none have provided sufficient evidence to prove their identities. In the first seven months after Bitcoin’s creation, Satoshi reportedly mined as much as 1.1 million Bitcoins. Those Bitcoins would be worth more than $50 billion as of December 2021.

FAQs

No. The cryptocurrencies themselves have a high degree of security thanks to the decentralized, public nature of the blockchain. However, cryptocurrency keys and wallets can be lost, stolen or hacked.

Not entirely. There is no personal identifying information attached to the public blockchain ledger, but software firms such as Chainalysis and Elliptic have successfully helped federal investigators track down cryptocurrency criminals and tax cheats.

No. Cryptocurrency trades are subject to both exchange fees and network fees. Most cryptocurrency exchanges charge fees of between 0.1% and 1% of the value of the trade.


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