Longread: First Days of Cryptocurrencies
Detailing the historic creation and rise in popularity of the first modern cryptocurrency — Bitcoin — and beyond
With the seemingly infinite number of cryptocurrencies which exist in today’s market, you must’ve wondered what the first cryptocurrency actually was. If you’ve been following the crypto industry for some time now, or have done your own research, then you’ll know that Bitcoin is considered to be the first modern cryptocurrency in today’s new digital asset industry — but have you ever wondered how it all came to be? From its early inception in 2009 to its meteoric rise in value by 2017, a lot had to have happened in those years for the currency to become what it is today. So then, let’s get straight into it, as we go over how Bitcoin and other early digital assets received so much hype and became so popular after all.
This is not financial investment advice.
This article will discuss how Bitcoin — the first modern cryptocurrency — became so popular in the first place.
Dawn of Cryptocurrency
Bitcoin wasn’t the first idea for a potential cryptocurrency and was preceded and influenced by several projects like ecash, B-money, and Bit Gold. To get a good idea of how far Bitcoin has come, you should be familiar with what this space looked like before it even existed. A form of digital currency called ecash was developed in 1982 but was never fully adopted, still serving as a crucial component for future creations such as hashcash.
One of the earliest predecessors of today’s most popular cryptocurrency Bitcoin is B-money. This was created in 1998 by computer scientist Wei Dei and aimed to serve as an “anonymous, distributed electronic cash system.” However, B-money never actually launched and remained an equivalent to today’s white paper, but was instrumental in Bitcoin’s development and creation.
Bit Gold was another early idea for digital money proposed by Nick Szabo. Although first speaking about Bit Gold in 1998, Szabo fully described the system in 2005 on his blog. Although Bit Gold never completely emerged in the digital money space, Bitcoin’s pseudonymous creator attributed his creation to “Wei Dai’s b-money proposal […] on Cypherpunks […] in 1998 and Nick Szabo’s Bitgold proposal,” back in 2010.
Bitcoin is considered to be the first modern cryptocurrency but wasn’t the first idea for a digital currency. Projects like ecash, B-money, and Bit Gold serve as precursors for today’s cryptocurrencies and significantly influenced the emergence of Bitcoin.
Although the concept of Bitcoin dates back to 2007, it wasn’t until 2009 that the first Bitcoin transaction took place. In fact, it all started when the domain name www.bitcoin.org was registered in 2008. Later that year, a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published by pseudonymous Satoshi Nakamoto, detailing what would become Bitcoin’s underlying blockchain technology.
Finally, in January of 2009, the Bitcoin network was born once the Genesis Block of Bitcoin was mined into existence. Since then, Bitcoin has gone through many evolutions and changes to get to its present stage. The “birth” of Bitcoin was actually quite long. It started with the inception of the website to eventually executing the mining of the all-important Genesis Block of Bitcoin. Through all of these progressions, the network finally went live in 2009.
As Bitcoin underwent major changes and progressions in the following years to grow into a usable cryptocurrency, it wasn’t until 2010 that Bitcoin was actually used to make a real-world purchase. In this case, a programmer from Florida named Laszlo Hanyecz offered to purchase pizza for 10,000 BTC! At the time of the purchase, the 10,000 BTC was worth close to $25, but imagine how much more money he would have made if he’d kept that! That’s pretty expensive for pizza.
Bitcoin was created and established in 2009 when the network finally went live following the inception of the Genesis Block. The first Bitcoin transaction was made by programmer Laszlo Hanyecz when he purchased pizza for 10,000 BTC.
How It Became Popular
So why did people end up using and buying into the cryptocurrency in the first place? In early 2009, Nakamoto released Bitcoin to the public, and a group of enthusiastic supporters began exchanging and mining the currency. By late 2010, the first of what would eventually be dozens of similar cryptocurrencies — including popular alternatives like Litecoin — began appearing. The first public Bitcoin exchanges appeared around this time as well, kickstarting what would turn out to be today’s cryptocurrency industry.
However, just like any successful industry, nothing is made possible without the help of the people involved. Early investors of Bitcoin can be classified into groups of idealists, millenials and true investors. The idealists sought to come up with a solution for the “double spend’ problem facing digital money. As such, the solution was the Bitcoin blockchain — a cryptographically secured public ledger that records transactions anonymously and is kept as multiple copies on many different users’ computers.
The original narrative for Bitcoin’s value was built into Nakamoto’s original “white paper.” This claimed that Bitcoin would be superior to existing forms of electronic money such as credit cards, providing benefits like eliminating chargebacks to merchants and reducing transaction fees. Resultantly, those who strongly believed in this initiative were some of the first to adopt the technology and invest in the idea, sparking the first wave of interest and potential in the technology.
In addition to those who strongly believed in the potential of Bitcoin to become the next revolutionary breakthrough, there were also young, tech-savvy investors who aligned themselves with the “Californian ideology” of believing in technology and entrepreneurship to shape the world. Many bought small quantities at a low price and were somewhat puzzled to find themselves sitting on significant investments when the price had multiplied. This group of young investors coined phrases like “hodling” and “the price is going to moon!” which quickly gained popularity as it spread through the web, further developing a community of like-minded investors which gave Bitcoin so much popularity early on.
Finally, there were the day traders and serious investors who also played a role in maintaining Bitcoin’s early hype. On the one hand, we have the day traders who sought to exploit the volatility of Bitcoin’s price by buying and selling quickly to take advantage of short-term price movements. Like speculators in any other asset class, they have no genuine interest in the broader implications of the price movements. Their only desires were to buy and sell Bitcoin in any given day when they could take advantage of the high volatility early on.
On the other hand, there were also long-term investors who wanted to take advantage of the possibility that this would be a “bubble” that was bound to “pop” sooner or later. Although the general “bubble” narrative when it comes to financial terminology has a negative connotation, this had actually incentivized long-term investors to get involved early on to ride the positive wave. For some, this ended up working in their favor as they saw their early cash positions multiply significantly. The idea of price bubbles might not have been the biggest reason to invest in Bitcoin, but it sure helped some people make a lot of money down the road.
The early investors of Bitcoin were the main proponents of its newfound popularity. These investors can most likely be classified as idealists, millenials, and true investors.
Bitcoin wasn’t the first idea for an online digital currency, but it’s most certainly one of the best-known digital currencies today. A lot of factors had to have been at play for the cryptocurrency to take off and gain all the hype that it had. From technological adoption to early investments by differing investors, Bitcoin was truly the first modern cryptocurrency to usher in this new age of digital assets. Many people saw the potential of Bitcoin early on, whether it be from a technological or investment perspective. Irrespective of this, the culmination of all these people and their own interests for Bitcoin is what truly sparked and maintained its value for years to come, resulting in today’s impressive and continuously-growing cryptocurrency market.
Did you invest in Bitcoin early on? Which type of investor do you see yourself as? Let us know in the comments!