Money problems: A brief history of Bitcoin
Threat Intel’s ‘History of…’ series will look at the origins and evolution of notable developments in cybersecurity.
Bitcoin has received a lot of attention lately, due to it being the payment method of choice of the people involved in two of the most high-profile ransomware attacks of recent times — the WannaCry and Petya outbreaks.
It has also sparked increased interest in recent weeks, due to the occurrence of a “fork” in the cryptocurrency’s blockchain.
So, what is Bitcoin? And is it purely used by criminals or has it other applications in the modern world?
Bitcoin first entered the public consciousness in 2008 when Satoshi Nakamoto, the mysterious father of Bitcoin, published a white paper exploring the concept of a “purely peer-to-peer version of electronic cash”.
In creating Bitcoin, Nakamoto implemented the blockchain technology on which Bitcoin — and now most other cryptocurrencies — are based.
Blockchain is the key technology that enables Bitcoin users to securely and irreversibly transfer cryptocurrency across the internet from one person to another without any need for a “trusted third party” — such as a bank or credit card company — to act as an intermediary to validate the transaction.
A blockchain, as its name implies, is made up of a chain of blocks. Each block represents a record of transactions made by bitcoin users and is linked to previous blocks in the blockchain using cryptographical hashing.
Approximately every 10 minutes or so, a new block is generated by a miner on the Bitcoin network and shared with peers on the network. Due to its design, changing what’s been written to the blockchain is practically impossible; this is what makes Bitcoin a secure medium of transfer.
Who invented Bitcoin?
The idea for Bitcoin was first publicly mooted in a groundbreaking white paper written by Satoshi Nakamoto in 2008. The first bitcoins were mined by Nakamoto in January 2009.
Indeed, the history of Bitcoin is made more interesting by the mystery that surrounds its invention. The true identity of Nakamoto is still unknown. He is believed by some to be a Japanese man in his late 30s, but many journalists and others have claimed that this is unlikely to be true, with various individuals having been “identified” as Nakamoto over the years. However, no true identity has ever been definitively established. There has also been speculation that Nakamoto is not one person but several people, with some people claiming that Bitcoin is too well designed to be the work of one individual.
Whoever Nakamoto is, he/she/they is believed to be extremely rich, with it estimated that Nakamoto mined approximately 1 million bitcoins in the early days of the currency — at current exchange rates, that would equate to more than US$3.4 billion.
How does Bitcoin work?
You can acquire bitcoins by buying them at a Bitcoin exchange; accepting them as payment for goods or services, or by earning bitcoins through becoming a Bitcoin miner.
Bitcoins are “created” by Bitcoin miners: in a similar way to how governments print money, miners create blocks and are rewarded with new bitcoins ,which increases the number of bitcoins in existence. But unlike government printed money, the supply of Bitcoin is strictly controlled and limited by the system itself. Nowadays, Bitcoin miners use specially designed hardware called ASICs to solve difficult math problems, and are rewarded with a certain number of bitcoins in return for this “proof of work”. Bitcoin mining adds transaction records to Bitcoin’s public blockchain. This blockchain is used to confirm that transactions have taken place and to ensure that bitcoins aren’t used in more than one transaction, to tackle the problem of double spending.
Prior to the invention of Bitcoin, double spending — people spending digital tokens more than once — was a major problem that plagued the wider adoption of digital currency.
There are currently just under 16.5 million bitcoins in circulation, with the maximum number of bitcoins that can ever be produced set at 21 million.
Anonymous
For some people, its relative anonymity is one of the major selling points of Bitcoin. People store their bitcoins in a Bitcoin wallet: a digital wallet that is only identified by a number. This grants Bitcoin transactions a degree of anonymity that other methods of funds transfer may not offer: as there is no need to reveal details such as your name or address, the transaction cannot be easily linked back to any user.
However, people may run the risk of revealing their identity when they want to convert bitcoins from their Bitcoin wallet into fiat currency but, as there are infinite ways to “wash” currency in the cacophony of the blockchain, it is often easy for people to hide their trail.
Who uses bitcoins?
Bitcoin is becoming more accepted as a currency by legitimate businesses, however, it is also popular on the dark web and with criminals.
It is used on the dark web to purchase things like drugs and weapons, while it is also the favored method of payment for ransomware criminals, such as those behind WannaCry. In fact, the hardcoded Bitcoin wallets associated with WannaCry were emptied last week, with those who withdrew the money no doubt “washing” it thoroughly before making any attempts to cash out.
While people are increasingly aware of Bitcoin, and other cryptocurrencies, it has yet to be accepted as a method of payment by most well-known retailers. For example, web behemoths such as Amazon and ASOS do not accept the cryptocurrency. Whether or not this will change in the future, as people become more accustomed to cryptocurrencies, remains to be seen.
Pros and cons
As with any new(ish) technology, or any type of investment, there are risks involved when it comes to Bitcoin, and other cryptocurrencies. Early investors in Bitcoin who have chosen to cash out in recent times would have made a decidedly healthy profit: in 2009, one bitcoin was equal to US$1, now one bitcoin is worth thousands of dollars. However, as mentioned above, there is some uncertainty around the cryptocurrency at the moment, with the main Bitcoin blockchain having “forked”, leading to the creation of a new cryptocurrency that’s being called Bitcoin Cash. Most analysts do not currently believe this “fork” will have too much of a long-term effect on Bitcoin’s value but, as is often the case with cryptocurrencies, it is hard to know what the future holds.
The initial impact of the fork has seen the value of bitcoin hit a record high of more than US$3,000.
One of the perceived pros of Bitcoin — and other cryptocurrencies such as Ether — is the irreversible nature of the transactions and the anonymity provided by them. However, this could also be considered a con as it means that if an individual’s Bitcoin wallet is hacked — which has happened — it is impossible to trace or recover the stolen bitcoins. Similarly, user errors such as using the wrong wallet address when transferring funds between wallets are also irreversible, meaning that users have to take extreme care when carrying out transactions.
What about other cryptocurrencies?
Bitcoin is the world’s first, and still most popular, cryptocurrency. It is also by far the most highly valued.
However, other cryptocurrencies do exist, and some have gained more traction than others in recent years. Some of the other more popular cryptocurrencies include Ether, ZCash, Monero, and Dash. Some of these cryptocurrencies are considered to be superior to Bitcoin in many ways — such as how much faster their transactions are or how much more privacy they offer users — but while some of them are taking off they still lag some way behind Bitcoin when it comes to adoption, and value.
What is the future for Bitcoin?
It is hard to say what the future of Bitcoin — and other cryptocurrencies — will be. Some people say it is only a matter of time before we are all using cryptocurrencies in our daily lives, but at the moment the widespread adoption of such technologies by the average consumer is still a long way off.
The future of Bitcoin — much like the identity of its creator — remains a mystery.
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