History of cryptocurrency

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By :  ,  Financial Writer

There are thousands of cryptocurrencies, with various functions and characteristics. While some cryptos are created for specific uses, most if not all serve as a volatile speculative asset for cryptocurrency traders

Creation of bitcoin: 2008 – 2009

Bitcoin is the first cryptocurrency ever developed. It was introduced in a 2008 paper published by the anonymous author Satoshi Nakamoto. In the paper, Satoshi introduced the concept of blockchains and their associated cryptocurrency as a way for people to anonymously send and receive currency instantaneously without the need for traditional financial institutions.

The paper also outlined how crypto mining works, a process in which new tokens of a cryptocurrency are released by the computers verifying transactions on the blockchain. The first bitcoin was mined by Satoshi in January 2009. All other cryptocurrencies can in one way or another trace inspiration back to bitcoin and Satoshi’s paper, even though the current implementation of cryptos and blockchains now reach far beyond what Satoshi first outlined.

First sale of bitcoin (BTC): 2010

While the first bitcoin was mined in 2009, the crypto wasn’t used for a real-world purchase until more than a year later. In May 2010, Florida man Laszlo Hanyecz paid 10,000 BTC for the delivery of two Papa John’s pizzas, worth about $25 at the time. This transaction was the first recognition of BTC as currency with monetary value. Prior to the pizza sale, bitcoin was traded only on speculation with users having no data on the value of the cryptocurrency. The transaction put a single Bitcoin’s value at $0.0025.

Litecoin (LTC) and emergence of crypto market: 2011

After the creation of bitcoin, alternative cryptocurrencies – often called altcoins – began popping up. Litecoin was among the first altcoins and is certainly the most significant of the early alternatives.

Litecoin’s creation was inspired by bitcoin’s associated blockchain technology, and operationally it functioned similarly to the original. The altcoin’s codebase was copied from bitcoin and tweaked to create faster transaction speeds with lower related fees. Since its creation, Litecoin’s value has surpassed $300 three times. As of April 2023, it trades at around $90 per coin.

Bitcoin crashes: 2011 – 2013

Over the next few years Bitcoin’s value rose significantly from $0.0025 to more than $32 in early June 2011. Its value was on par with a troy ounce of silver, but any confidence bitcoin enthusiasts had in the asset was dashed soon after. On June 19, 2011, the largest bitcoin exchange in the world was hacked. Millions of dollars’ worth of BTC was stolen from hundreds of accounts. Within a day the value of BTC fell to $0.01.

The value of bitcoin would rise and fall several more times in the next two years as wallet hacks and bitcoin Ponzi schemes became more frequent. These called into question Satoshi’s original claim that blockchain technology made cryptocurrencies virtually unexploitable.

More organizations accept bitcoin: 2013 – 2014

Despite notable hacks, crashes, and even government seizures, more and more services and organizations began accepting bitcoin. Companies like OkCupid, Foodler, Baidu, Overstock.com, Zynga, Dell, and Microsoft announced they would allow bitcoin payments.

Dogecoin (DOGE) released: 2013

As more and more altcoins were developed, the ease at which these assets could be created and the reasons for their creations increased. This led to the creation of dogecoin, arguably the first memecoin to be ever developed.

Memecoins are cryptos developed around an idea or joke popularized online. Dogecoin was created as a joke, in their own words, by Billy Markus and Jackson Palmer. To make this clear, it was designed with a Shiba Inu on the coin, as seen in the “doge” meme the coin was named after.

The first month of Dogecoin also exhibits the quick rise and fall of many cryptocurrencies. Within ten days the coin’s value rose over 300% from $0.00025 on December 10th to $0.00095 by December 19th. Just three days later, the value dropped 80%. Before December was over, millions of Dogecoins were stolen from the associated crypto wallet platform Dogewallet.

Despite this setback, Dogecoin rebounded fairly quickly. In January 2014, Dogecoin’s trading volume briefly surpassed that of all other cryptocurrencies combined, including bitcoin. Dogecoin would continue to be a favorite among crypto enthusiasts, receiving frequent praise from Tesla and Twitter CEO Elon Musk and even support from Ethereum founder Vitalik Buterin.

Ethereum (ETH) goes live: 2015

Ethereum is a decentralized blockchain developed by Vitalik Buterin and Gavin Wood. Ether is the name of its native cryptocurrency, although the blockchain’s name is frequently used in reference to the crypto.

Ethereum was developed to allow for the creation of new and alternate applications to blockchain technology beyond forms of money and payment.

With a few years ether would grow to become the second-largest cryptocurrency in market cap behind bitcoin. As of April 2023, it remains in that position. Ethereum has made numerous improvements to its blockchain technology, many of which became global financial news. We cover the Ethereum merge later in this timeline.

ICOs gain popularity: 2017

Ethereum, or ether, was the first major cryptocurrency to debut via an Initial Coin Offering (ICO). An ICO works similar to an IPO, with new crypto companies raising funds through the sale of crypto tokens at a specified launch date.

The very first ICO was held by Mastercoin in 2013, but the fundraising method didn’t become common practice until 2017. By then, new offerings grew to about rate of about 50 per month and with a total of $3 billion raised since 2013.

Like investors who participate in IPOs, buyers of an ICO are indicating a bullish perspective that the value of the cryptocurrency will rise above the price they bought in at. However, unlike traditional stocks, new cryptocurrencies are initially worthless. ICOs are thus riskier for investors than IPOs. The price and number of tokens offered in an ICO may be set before the event or dynamically change based on the amount of money received.

ICOs receive significantly less regulation than IPOs, and thus many ICOs have been scams resulting in a rug pull. In these situations, a development team overhypes the use cases or inherent value of their cryptocurrency, only to later disappear with the funds invested and leave the investors with worthless tokens.

It’s important to do your due diligence before buying any financial asset, but especially so when putting money into new cryptocurrencies.

Bitcoin cash debuts: 2017

On 1 August 2017, bitcoin cash was created through a hard fork from the main bitcoin blockchain. A hard fork describes the creation of a new token or blockchain based on the original, but incompatible after the fork. The altcoin was developed to facilitate larger blockchain nodes and faster transaction speeds. Bitcoin can on average process seven transactions a second, while bitcoin cash can process 100 with much lower fees compared to bitcoin.

However, whether these improvements were required is debatable. Bitcoin continues to work well enough and already holds such a large store of value that bitcoin cash never saw large adoption like its original. This discrepancy was reflected in the price of bitcoin cash compared to bitcoin. The former began trading at $240 while bitcoin was trading at $2,700.

Bitcoin cash reached a high of $4,355.62 on 20 December 2017 but fell to $519.12 by 23 August 2018.

USD coin: 2018

In May 2018 technology company Circle launched a cryptocurrency pegged to the US dollar. This type of crypto pegged to a more traditional financial asset is known as a stablecoin. While not the first stablecoin, USD Coin (USDC) is one of the most popular because of its rigorous management by the Centre consortium and its reserves attested for by law firm Grant Thornton, LLP.

Stablecoins are thought to maintain the benefits of peer-to-peer transactions first outlined by Satoshi’s whitepaper without the high risk inherent in traditional cryptocurrencies.

Other notable stablecoins include Tether, which has a higher market cap than USDC but has been fined by regulators for failing to verify asset reserves, and Terra, which infamously collapsed in May 2022 and lost nearly all of its $45 billion market cap within a week.

Bitcoin passes $60,0000: 2020 – 2021

Since its introduction in 2009, bitcoin has experienced extremely volatile price swings. The sharpest BTC movement occurred from 2020 to 2021 when BTC’s price rose from about $5,000 in March of 2020 to over $60,000 in March 2021 – a rise of 963%. The period was the most famous bull market for crypto to date, spurned by institutional adoptions of cryptocurrencies.

During this time period, Tesla bought $1.5 billion worth of bitcoin and announced they would accept BTC payments. Mastercard and PayPal also both integrated BTC and select other cryptos into their transaction networks.  

Crypto bubbles

Bitcoin’s bull market did not last long. Despite rising further to $69,000 by November, it crashed to just $18,000 in December 2021. The crash parallels the larger global market amid high inflation, rising interest rates, and the threat of war between Russia and Ukraine. Such a meteoric rise and fall in bitcoin further proves just how volatile the crypto market can be.

Correlation between BTC and the S&P 500 hit a 17-month high in March 2022, demonstrating that the more adopted cryptocurrencies are by traditional financial institutions, the more intertwined those markets become. This move works against the idea that bitcoin and other major cryptocurrencies like ether can be a hedge against inflation.

Many analysts think the bitcoin collapse is partially responsible for the collapse of the previously mentioned stablecoin Terra. Stablecoins Terra and Luna were backed by USD, but the creators added bitcoin to its reserves in March 2022. Unfortunately, this tie-in was ill-timed as the collapse of the stock market and bitcoin with it brought the ‘stablecoins’ to a crash.

Bitcoin ETF: 2021

A bitcoin ETF is an exchange-traded fund consisting of bitcoin and related assets that allows investors and traders to speculate on the value without directly holding bitcoin. Proshares Bitcoin Strategy ETF (BITO) was the first bitcoin-linked ETF approved by the SEC. It was listed in October 2021 on the New York Stock Exchange.

Specific benefits of bitcoin ETFs include eradicating the need for complicated security passcode systems used for cryptocurrency wallets, the ability to buy fractionals of high-priced cryptocurrencies, and easier mechanics through the more widely understood ETFs.

El Salvador accepts BTC as legal tender: 2021

In June 2021 El Salvador announced it would recognize bitcoin as a legal tender. The move was done in hopes of improving economic opportunities for citizens, many of whom lack access to traditional banking services. In fact, a higher proportion of El Salvador citizens have access to smartphones than bank accounts, and more than 20% of the country’s GDP comes from remittances.

The adoption of BTC as legal tender is aimed to reduce the amount El Salvadoreans pay in wire fees, curb money laundering and corruption, allow for easier monitoring of transactions by the government and potentially attract foreign investment. While these factors haven’t changed since the adoption of bitcoin, El Salvador’s rising political instability since the decision has made it impossible to tell whether crypto as legal tender could create positive economic change in the country.

China bans crypto: 2021

Not every country has had a positive approach to crypto. Countries like Nepal, Morocco, Bolivia, and Egypt have all banned crypto. But the largest country to institute a ban on crypto is China, which first banned local exchanges in 2017.

By September 2021, the country banned all things crypto. The Chinese government claims the blanket ban is to prevent cryptocurrencies influencing the nation’s economic development. Given the developing connections between cryptocurrencies and the wider economy, it’s not surprising countries with more delicate economies might worry about the effects of crypto volatility. If this timeline has proven anything, it’s that the crypto economy can change on a dime.

Ethereum merge: 2022

One of the biggest developments in crypto this decade, the Ethereum merge marked a major shift in how the blockchain validates new ether coins. The merge refers to Ethereum’s consensus mechanism switch from Proof-of-Work to Proof-of-Stake. The original Proof-of-Work mechanism consumed a large amount of energy and costs, which only grew as the Ethereum network became more complex. The new Proof-of-Stake mechanism is thought to have a lower barrier to entry for crypto miners as well as significantly lower energy costs.

Despite the significant improvements to the Ethereum blockchain, ether’s price did not receive a boost from the upgrade. In fact, the price dropped slightly immediately after the merge. Analysts suspect the drop was caused by day traders who sold the actual bump in price caused by the merge, ultimately erasing any price gains ether might have made. The events of the merge may signal that despite the improvements to blockchain technology or adaption by various countries, most users still see cryptos as a speculative asset.

FTX bankruptcy: 2022

FTX was a cryptocurrency exchange and hedge fund that had grown to become the third-largest crypto exchange by volume before a liquidity crisis caused it to collapse. The exchange had severely mismanaged its reserves, which were intended to back its native cryptocurrency FTT. This left FTX unable to pay out investors attempting to sell FTT.

In early November 2022, FTX filed for bankruptcy and CEO Sam Bankman-Fried resigned. Bankman-Fried was later indicted on eight counts of securities fraud and money laundering. He was released on a $250 million bond, the largest in history.

The collapse of FTX was the largest and loudest crypto crash to date. It sent ripples cross the industry. BlockFi, another crypto exchange, filed for bankruptcy in part due to its reliance on credit from FTX to stay afloat earlier that year. A number of celebrities and professional athletes who had promoted FTX were also sued on the grounds of participating in fraud with FTX. Some of the defendants include Shaquille O’Neal, Naomi Osaka, Kevin O’Leary and Larry David.

The collapse of FTX proves that no matter how big crypto has gotten, even its biggest players can fall in a matter of days. On the upside, events like this have prompted other exchanges to become more rigorous and transparent in their accounting to maintain faith in their establishments.

What’s next for crypto in 2023?

Like the price of bitcoin, this timeline of cryptocurrency has featured soaring highs and crushing lows. No doubt more of both are to come. While it’s impossible to predict future price performance of any asset, there are ample opportunities to trade on crypto volatility.

You can learn more about trading cryptocurrencies with City Index in our Trading Academy. Then, log in or open an account to start trading. City Index also provides demo accounts that allow you to practice trading in a matter of minutes with 10,000 virtual funds. 

Related tags: Insights Bitcoin USD Ethereum

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