All About Bitcoin: History, Inventor, Price, BTC vs. Other Currencies

As a crypto trader or investor, it is good that you know some of the basic concept of this innovative blockchain (Bitcoin), from which other cryptocurrencies emerged. This will help you know the real value of Bitcoin and blockchain technology at large. In this article, you will learn the following: history of Bitcoin, its inventor, its remarkable price histories, BTC vs. other cryptocurrencies vs. US dollar (USD), etc.

History of Bitcoin

The money that we use every day has three fundamental traits: it is tangible, regulated by a central authority, and it can be faked. Bitcoin embodies none of these traits. It is digital, no one is regulating it, and it is impossible to counterfeit.

Although it is named Bitcoin, there are no actual coins that you can hold if you buy this digital currency. It is free-flowing because there is no one controlling and monitoring its footprints. In addition, it is not affected by the traditional currency factors such as deflation or inflation because market demand completely defines its value.

And finally, you can’t reverse Bitcoin transactions. Once you initiate the process, you cannot retract it. The transactions can be done with total concealment of your identity, and the cost is very minimal compared to banks. Slowly, Bitcoin is now becoming as popular as other currency values. But, with no backing from the government, this cryptocurrency is only as relevant as deemed necessary by its users and receivers (consumers and merchants).

Historical Background of Bitcoin

In 2008, Satoshi Nakamoto published a white paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System,” which describes how this cryptocurrency works. After only several months, the first version of Bitcoin was released. The first Bitcoin transaction was recorded between Satoshi Nakamoto and Hal Finney, a known personality in the world of cryptography. The exchange rate between USD and BTC in June 2009 was only 1 BTC = 0.0001 USD. The exchange rate was based on the cost of running a PC to generate Bitcoins.

Very few people were aware of the existence of Bitcoin, and most of them were coders, programmers, and cryptographers who were constantly discussing the promise of the currency of the future in online forums. Eventually, an exclusive forum was created, which has helped coders to easily coordinate with each other to take part in the development of the open-source code through Github.

The Bitcoin protocol was considered as a breakthrough innovation in the field of cryptography, even though it is founded on early innovations. The cypherpunks, a community of experts in cryptography, played a vital role in recognizing the ingenuity of Bitcoin and helped in its development.

By 2010, the ecosystem supporting Bitcoin was mostly used for recording transactions. This is the early phase of the Blockchain technology. Payment processors and wallet services were still non-existent, and there was also no actual user interface. This restricted transactions between people who were aware and had the technical skills to initiate codes for the blockchain. For instance, a programmer in Florida initiated the first commercial Bitcoin transaction – 10,000 BTC for just two pizzas in the Silicon Valley, coins that are worth over $400 million today.

But the prototype of a market ecosystem started to rise. By the early months of 2010, the first exchange became accessible for anyone who wanted to trade Bitcoins. An article describing Bitcoin was published on Slashdot, a popular technology website, which stirred the interest between early adopters. After this, Mt. Gox launched another platform for exchange, which became a major trading channel for Bitcoins for at least two years.

NOTE: BTC has a total supply of 21,000,000 Bitcoins. This a total of 21 million BTC can be mined. As Bitcoin gets closer to its limit, its price will keep skyrocketing provided the demand is constant or increasing.

Bitcoin as an Emerging System for Virtual Payments

By 2011, Bitcoin started to become an emerging system for virtual payments, even though its usage is still restricted by the aspirations of early followers. The anonymity feature of the cryptocurrency made Bitcoin an enticing channel for digital black markets. It also gave rise to the Silk Road, which was an online store for illegal items (mainly prohibited drugs), which used Bitcoin as a method for payment. Unfortunately, the illicit online platform was among the early introductions of Bitcoin to the public, which has prompted the government to investigate the currency for its involvement in drugs and money laundering.

It also resulted in media coverage with Time, Bloomberg, and Forbes writing about the cryptocurrency. Politicians warned their constituents about Bitcoin, and it also became the subject of academic discourse. Some TV shows also aired episodes covering or mainly focusing about Bitcoin.

By this time, other commercial services also began to emerge. WikiLeaks began accepting donations in the form of Bitcoin. Bitpay, which allows merchants to accept Bitcoin through a phone app, was also launched. More Bitcoin exchanges were open, which allow people to trade BTCs for other cryptocurrencies as well as fiat currencies.

The Bitcoin code also underwent a significant change. Satoshi Nakamoto primarily managed the codebase maintenance, but he has never appeared in public and never talked to anyone from the community, except through online forums. By April 2011, Nakamoto appointed Gavin Andreson to manage the project. Andreson immediately appointed four other cryptographers to help him in maintaining the codebase, and they also developed several structured ways to update the fundamental Bitcoin and Blockchain code. It was also in 2011 that Litecoin was introduced as the first alternative cryptocurrency.

During 2011, the financial markets were doing well, but people were not happy. In September, the Occupy Wall Street began and soon Occupy protests were demonstrated in major cities around the world. The world saw the possibility of living in a world where we don’t need to depend on the banking system.

By the year’s end, more and more people became ambivalent about using virtual currency. Bitcoin was seen by the public as the currency of the future, while the government perceived it as a tool for purchasing illegal items and for money laundering. By 2012, Bitcoin was riding along the trend for being legitimate in most areas, which had conflicting impact. It became a valuable target for online thieves and hackers. One example is the hacking of Mt. Gox, which has led to the loss of thousands of BTCs.

Black markets using cryptocurrency for payment transactions still operate with an estimated $20 million worth of BTC revolved around Silk Road in 2012. Meanwhile, a popular gambling site, Satoshi Dice, flooded the whole platform with very minimal gambling bets, which ignited a forum on dealing with micro transactions.

In general, the cryptocurrency community was experiencing the effects of having no centralized regulatory body. There were also no allocated funds to help in the development of the core codes, and there are no dedicated places to resolve issues.

As a result, the Bitcoin Foundation was created, which mainly works to conduct education and outreach, represent the currency to the governments of the world, and to manage the fund to develop the technology. Later on, the Bitcoin-central.net, a popular Bitcoin exchange in Europe, was granted licenses similar to banks.

As it attracted the attention of more states, the legality of Bitcoin became a major concern. The public is using it like a fiat currency, trading it similar to a stock or bonds, and downloading it like a digital product. The Silk Road and online gambling was a major concern for governments, and some merchants stopped accepting Bitcoin because of legal issues.

A Change in Perception for Bitcoin

Broadly, 2012 was around the time governments saw the potential of a bankless society. Mainstream media such as Forbes published several articles focusing on the use of Bitcoin for international remittances. WordPress began accepting Bitcoin, citing the limitations of conventional payment processors that hinder bloggers outside the US and UK to participate in the blogosphere.

2013 was a year of volatility for Bitcoin where two significant fluctuations in the Bitcoin price were experienced by consumers. The first fluctuation happened in early 2013, when the European Union and Cyprus entered into a bailout deal, which included a levy on bank accounts with huge deposits. This has ignited account holders in Cyprus to purchase large amounts of BTC. As a result, the price of Bitcoin doubled almost overnight, and the Cyprus experience became a precedent for using BTC as a means to conserve currency value.

Bitcoin managed to survive a huge crisis in terms of legitimacy in 2013 when Silk Road was shut down by the federal government and its founder arrested. All assets of Silk Road were seized, and it has resulted in a wider association of Bitcoin to the black market. This led to a fast dropping of price, but it immediately recovered.

In the global arena, governments started to become more serious about Bitcoin. However, not all responses were in favor of the cryptocurrency.

The United States government heavily regulated Mt. Gox as a financial transmitter firm, and moved some of its assets. It also established among the earliest regulations governing the usage of Bitcoin via a guidance report for people who are using, trading, and managing digital currencies. Specifically, the exchanges should comply with the policies of the state on money laundering. The US Senate also called a senate hearing to discuss Bitcoin, and to the surprise of many, Congress declared its position as being open to the long-term potential of Bitcoin.

Meanwhile, after its prior approval, China decided to ban all financial institutions and citizens from using Bitcoin.

The next wave of Bitcoin’s volatility happened in November 2013. In only 30 days, the price of Bitcoin jumped from around $100 to more than $1300. This resulted in higher awareness for Bitcoin, and it once again enticed media outlets. In only a short span, Bitcoin moved from an effective virtual currency to a technological breakthrough. The price fell again in the later part of the year, but it never went below $200.

The rise of Bitcoin resulted in the emergence of alternative digital currencies, which are similar cryptocurrencies based on an improved or a separate underlying protocol. The first was Litecoin, which was introduced in 2011, but only after two years, hundreds of alternative coins were introduced in the public. Some are scams, while some became quite successful and are still being traded today, such as Litecoin, Manero, and Ether.

Mt. Gox finally shut down its operations in 2014, which had a large impact on the legitimacy of Bitcoin because the platform had been the most successful and the longest-running exchange for cryptocurrencies. It was the foundation of the community and the whole Bitcoin ecosystem. The shutdown was abrupt, and leaked records revealed that the platform lost around $40 million worth of BTCs. Critics of Bitcoin were quick to declare that Bitcoin was a sham, and it really influenced the ability of the virtual currency to safely operate without any regulation or oversight from a central authority.

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Bitcoin and Government Regulations

As a response, the governments began to implement regulations. The tumultuous end of 2013 resulted in the sudden awareness of the people about the volatility of Bitcoin. China ordered their banks to close the accounts of Chinese digital currency exchanges, although the majority of them cited legal flaws to continue their operations. The IRS mandated that Bitcoin should be taxed like a property, and the state of New York launched its Bitlicense, which is a legal licensing structure for commercial firms who want to receive and accept digital currencies. This was massively criticized by the community because the character of Bitcoin as an unregulated currency was deemed fading.

Meanwhile, Bitcoin gradually seeped into the business world, and many huge retailers started to accept Bitcoin payments. This includes Microsoft, Dell, Newegg, Tiger Direct, and Overstock. PayPal’s subsidiary also announced its ongoing integration of Bitcoin on its payment platform.

People also started to see Bitcoin as a digital currency by using the underlying technology for other areas. This resulted in a rise of applications using blockchain beyond the scope of digital currency. This was termed Bitcoin 2.0, in which people can use blockchain technology to keep all forms of data. This included Factom, which built a layer of data over blockchain to enable a secure, verifiable, and simple method of keeping records. Maidsafecoin was also another protocol added to permit distributed storage of files to be added on blockchain, while Ethereum was a platform used by software developers to run projects on a distributed channel.

This signified the emerging notion of what early adopters had envisioned—that the cryptocurrency will become the bedrock of the evolution of the World Wide Web. Today is similar to the 1990s, and in the next few years, the blockchain technology could disrupt everything. The seed was planted, but alongside it, the reality that it will take time.

In spite of these developments, the price of Bitcoin started a gradual decline in 2014, which even plummeted below $200 in early 2015 and was really idle for months. One major cause of the decline was the introduction of new virtual currencies. The market share of Bitcoin declined from 96% to 76% in December 2014. Another factor was the sobering realization that revolutionizing the financial markets will take some time. Despite its idealistic sense of being unregulated, Bitcoin is not above the law, and it can be very complicated to paddle through financial law. Yes, Bitcoin can be disruptive, but it could be a slow disruption.

However, the basic platform continued to operate. There were still attacks every now and then, which included a substantial loss of $5 million worth of BTCs from an important exchange in early 2015.

World governments continued to study the effects of this technology while also reiterating that Bitcoin is not above the law. Silk Road founder, Ross Ulbricht, was sentenced to life imprisonment without parole, and the CEO of Mt. Gox, Mark Karpele, was arrested by Japanese authorities.

The most important shifts were initiated by the banking industry. Many financial executives started talking about distributed ledgers and blockchains instead of the digital currency. Microsoft also introduced its blockchain services, which provided a platform for businesses to try blockchain and explore how they can use it for the various areas of their operations.

This in turn flamed the rising interest in Bitcoin among the general public as well as financial traders and investors. The price of Bitcoin started to increase again as people began realizing that Bitcoin and the blockchain technology has a promise. The protocol of Bitcoin was built to process about seven BTC transactions for every second. The blockchain blocks were not big enough for storage. Bitcoin users realized that it was only a matter of months before the whole blockchain would reach its limit, and if nothing were done, it could affect the growth of the currency.

This resulted in a massive debate on whether to expand the size of the blocks to allow more transactions or to find a new position for the Bitcoin blockchain as a layer for settlement while permitting other services to initiate transactions. Without a governing authority, Bitcoin forums do not follow orders, have no public sanctions, and adhere to no democratic rules. The Bitcoin Foundation started hosting events, and online forums such as Bitcointalk and Reddit became public discussion boards.

The debate was fierce, and no agreement was reached. This was a major blow to the legitimacy of Bitcoin as a currency. People considered Bitcoin’s inability to resolve a simple challenge of expanding its size, and wondered if it was capable of dealing with other problems. People also began talking about other alternative currencies that could be as viable as Bitcoin.

In 2016, the popularity of Bitcoin continued to increase with the network exceeding 1 exahash every second. Meanwhile, the Japanese Cabinet recognized cryptocurrencies such as Bitcoin as having the purpose and use of an actual money, and Bidorbuy—the biggest online marketplace in South Africa—started to accept Bitcoin payments for their customers. In Argentina, Uber began accepting Bitcoin payments after the government banned credit card companies from transacting with the company. Another major cyberattack occurred in August 2016 when Bitfinex was hacked that resulted in a loss of $60 million worth of BTCs. Bitcoin ATMs started to emerge around the world with around 800 ATMs worldwide. The Swiss Railway also updated its ticketing system so that riders can purchase tickets using Bitcoin.

By 2017, the number of merchants that are accepting Bitcoin continue to increase. NHK reported that they have recorded around 4.6 expansion rate among online merchants that are accepting Bitcoins. BitPay also announced that their transaction rate tripled, and cited usage of Bitcoin is increasing among B2B companies.

Bitcoin also gained more legitimacy among legacy financial companies and legislative bodies. For instance, Japan finally passed a law to enable Bitcoin as a legal method of payment, and Russia declared its interest to legalize usage of cryptocurrencies in the country. Skandiabanken, the largest online bank in Norway, already started the integration of Bitcoin accounts.

In the first and second quarter of 2017, the price of Bitcoin already exceeded the spot price for an ounce of gold, which was unprecedented. It also hit $2,000 in May 2017. The number of projects in GitHub related to Bitcoin also reached 10,000, while the exchange trading volumes continue to rise. In August 2017, the price of BTC reached $4,400.

Between 2017 and 2019, thousands of new cryptocurrencies were minted. Also people from different spheres of the economy began to discuss cryptocurrency regulation and its mainstream adoption. All these gave Bitcoin more exposure, and the price moved sideways for some time during this period, with price spikes. But in January 2018, Bitcoin hit its highest peak, around $17,525. But later (in December) that same year, the price dipped to around $3,236. Fast forward to the end of 2019, the price of Bitcoin was around $29,374.

The Corona virus pandemic of 2020 melted down the global economy because of the fear of inflationary pressure of the pandemic on U.S. dollar. But Bitcoin price reacted differently, as its price began to climb up. By the end of the year 2020, the price of Bitcoin was around $29,374.

The year 2021 was very favourable to Bitcoin (bull year), as it went as high as $68,000 in November 2021. But by quarter 1 of 2022, the price quickly dropped below $35,000. By second and third week of April 2022, the price of Bitcoin was hovering between the $38,000 and $41,000 region.

The potential of Bitcoin can never be neglected, as some experts predict that the price of $340,000 by 2025.

The Mystery behind Satoshi Nakamoto (Bitcoin Creator)

A person named Satoshi Nakamoto is credited as the inventor of Bitcoin, but no one has actually seen him. Hence, some people speculate that Satoshi Nakamoto is just a pseudonym used by a person or a group who authored the original white paper in 2008 and developed the first version of Bitcoin in 2009. Take note that the Bitcoin protocol requires people to use a birthday for registration, and it is known that Nakamoto signed up and used April 5 as his birthday.

Even though it can be enticing to go with the imagery of Nakamoto as a quixotic, lone genius who invented Bitcoin from nowhere, this type of innovation can never be created out of thin air. Most inventions, regardless of their “originality”, were actually built on pre-existing research. In the case of Bitcoin, there were many precursors such as the Reusable Proof of Work by Hal Finney, Bit-Gold by Nick Szabo, B-Money by Wei Dai, and Hash Cash by Adam Back. These early virtual currencies were created as early as 1990s.

The anonymity behind Bitcoin can be driven by two main motivations. First is of course the privacy. As the cryptocurrency gradually increases its popularity, which now transcends many facets of our global society, its creator will of course become an instant celebrity and will be under the scrutiny of the government and the media.

Second is safety. Considering its first year alone, there were around 33,000 blocks mined, which was rewarded with 50 BTC for every block. The total payout that time was 1.6 Million BTC, which is now worth more than $900 million. Because very few people were aware of the existence of Bitcoin that time, many speculate that most of these blocks were mined by Nakamoto, and so he is now a multi-millionaire. If you are worth $900 million, you can become an easy target for criminals, specifically because Bitcoins are more like cash and less like stocks, wherein the private keys required to authorize the transfer could be printed out then hidden somewhere.

Mainstream media speculated some people to be the actual Satoshi Nakamoto. Top suspects are Vili Lehdonvirta, a well-known economic sociologist, and Michael Clear, an Irish cryptographer. Other media outlets also suggested that Nakamoto could be a group composed of three people—Charles Bry, Vladimir Oksman, and Neal King—who applied for a patent about secure channels of communication prior to the registration of the domain bitcoin.org.

Other suspects include Shinichi Mochizuki (a popular mathematician in Japan), Jed McCaleb (co-founder of Mt.Gox), and Gavin Andresen (Lead Developer of Bitcoin). In 2013, Techcrunch released an interview with cryptography researcher Sky Grey who claimed that Nakamoto is actually Nick Szabo, the creator of Bit-Gold based on textual analysis of the white paper in 2008.

Meanwhile, in 2014, Newsweek published a cover article featuring a 64-year-old Japanese American engineer named Satoshi Nakamoto who is living in California.

There are many other suspects, and all of them deny being the inventor of Bitcoin. But regardless of the anonymity of its creator, one thing is clear: Bitcoin is now an important innovation, which could change our world in the years to come.

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Price History of Bitcoin (BTC) from 2009 to 2015

According to research carried out by Investopedia, these are some of the key price movements of BTC from the year 2009 (when it was introduced) to the year 2015:

2009 to April 13, 2010: Increase from $0 to $0.9.
April 13, 2010 to June 7, 2011: Increase from $1 to $29.60.
By mid November, 2011: Decrease to $2.05.
May 9, 2012 to August 15, 2012: Increase from $4.85 to $13.50.
Beginning of January 2013 to April 8, 2013: Increase from $13.28 to $230.
By mid July 4, 2013: Decrease to $68.50.
By early October: Increase to $123.
By December 2013: Increase to $1,237.55 (but there was a sharp drop in price after 3 days to $687.02).
From 2014 to the Beginning of 2015: Decrease to $315.21.

Price History of Bitcoin (BTC) from 2016 to 2020

These are some of the key price movements of BTC from the year 2016 to the year 2020:

By end of 2016: Increase to $900.
Beginning of 2017 to mid-May 2017: Increase from $1,000 to $2,000.
By December 15, 2017: Increase to $19,345.49.
2018 to June 2019: Price hovered around $10,000.
By mid-December 2019: Decrease to $6,635.84.
By beginning of 2020 (COVID-19 pandemic year): Price was $6,965.72.
As at 31^st January 2020: Increase to $9,501.38.
Bitcoin also experienced a dip in price in March and April. By March 13, 2020, Bitcoin dropped to $4,916.78. By April 1, 2020, the price was $6,423.61.
But by August 2020, Bitcoin crossed $12,000.
By ending of September to the beginning of October 2020, Bitcoin price stabilized around $10,500 to $10,700.
By November 23, 2020: Increase to $19,157.16.
By December 2020: Increase to $29,000.

Price History of Bitcoin (BTC) from 2021 to Beginning of Q2 2022

These are some of the key price movements of BTC from the year 2021 to the beginning of April 2022:

By January 7, 2021: Increase to $40,000.
By April 12, 2021: Increase to a new all time high (ATH) of $63,000.
By June 19, 2021: Sharp decrease to $29,795.55.
By September 2021: Increase to $52,693.32 (but fell back to $40,709.59 within 2 weeks).
By November 10, 2021: Increase to another ATH of $68,990.90.
By early December 2021: Decrease to $49,243.39 (uncertainty about inflation and the emergance of a new COVID-19 variant, called Omicron caused the fluctuation in price of BTC
January 2022: Decrease to $37,928.58.
February 2022: Decrease to $37,803.59.
March 2022: Increase to $47,063.37.
April 1, 2022: Decrease to $45,528.41.

Remarkable Bitcoin Price Movement

These are some of the few biggest movement in price of Bitcoin.

April 2013 Crash

In early April 2013, Bitcoin was trading for as much as $237. It fell to $67 overnight. This sharp drop hit the market with a lasting effect, as it took over 6 months for the price to recover to previous levels.

2013 End of Year Rally

Bitcoin recovered fully from the April 2013 crash at the start of November 2017, and this marked the beginning of one of Bitcoin’s most notable bull runs. By the end of the month, the price had quadrupled, then it stabilized around the $700 mark by the new year.

February 2014 Crash

Following the currency’s recent rally, there was bound to be tension in the Bitcoin price in the first months of 2014. This tension broke out when news aired that cryptocurrency exchange Mt. Gox had been hacked. This dropped the price of Bitcoin from around $800 to below $450.

2017 Bull Market and All Time High

2017 was a great year for Bitcoin price-wise, but the bullish price action went parabolic in the last few months of the year. Between November 1 and December 17, Bitcoin’s price skyrocketed from $6,600 to its All Time High (ATH) of over $20,000 — a more than three times increase.

2018 End of Year Dump

Contrary to the previous year, 2018 brought a prolonged bearish price dump for Bitcoin. Following the closure of a 10-month long price wedge, Bitcoin fell from as much as $6,700 to below $3,700 within the single month of November.

June 2019 Bull Rally

Following the dump in November 2018, Bitcoin spent several months slowly creeping up to the $8,000 mark. Then, in the month of June alone, Bitcoin rallied to almost $13,000, eventually stabilizing around $10,000 for the coming months.

Beginning of Year 2021 Bull Rally

In less than a month (from December 2020 to January 2021) Bitcoin price rallied all the way from $29,000 to above $40,000 in January 7, 2021. This was the sign of the bull season which saw its peak in 2021.

April 2021 Bull Season All Time High (ATH)

Bitcoin hit its new all time high price in April 2021. On April 12, 2021, Bitcoin price touched an ATH of $63,000, marking the peak of the bull season.

May-July Quick Dump in Price

From the ATH price of $63,000, the price of Bitcoin dropped by more than 50% in July 2021. On July 19, 2021 Bitcoin went as low as $29,795.55.

Another All Time High in November 2021

Another phase of the bull season began in September 2021, as BTC touched $52,693.32. 2 weeks later, it dropped to $40,709.59. On November 10, 2021 Bitcoin hit a new ATH of $68,990.90 before falling back to $49,243.39 in early December 2021.

NOTE:

Bitcoin experienced a huge global adoption in the year 2021. Some countries considered making Bitcoin their legal tender. El Salvador was the first country that took this bold step of making BTC her legal tender on June 9, 2021.
Other countries where the use of Bitcoin is legal include: Germany, Denmark, Island, France, Japan, Spain, United Kingdom, Mexico, etc.

Annual Closing Prices and Percentage Return of Bitcoin (2013 to 2019)

Below is the annual closing prices of Bitcoin and its ROI from 2013 to 2019.

Bitcoin annual closing price and ROI from 2013 to 2019 [Source: bitcoinprice.com]

Annual Opening Prices, Closing Prices & Percentage Return of Bitcoin (2009 to 2022)

The screenshot below displays the summary of Bitcoin closing prices on January 1st and December 31st of each year, starting from 2009 to 2022. It also displays the yearly percentage change (in dollars) and the percentage returns (based on the closing price of BTC on the beginning and end of each year).

btc yearly opening price closing price and returns 2009 to 2022 — BTC yearly opening price closing price and returns 2009 to 2022

NOTE: These dump and quick recovery of the price of Bitcoin proves that it has a very high potential in future.

Live Bitcoin Price Chart

Below is Bitcoin live chart showing the latest price of BTC, with its 24 hour highest and lowest price.

Bitcoin Price History Statistics: From October 2013 to April 2022

price statistics of btc per day from october 2013 to april 2022 — Price statistics of BTC per day from October 2013 to April 2022 – Source: statista.com

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Bitcoin vs Traditional Currency and Other Cryptocurrencies

Bitcoin is a breakthrough innovation, and it can actually replace our traditional currencies. But how is this digital currency so different from the money we use today? A $10 bill also has no other value other than what we agree as a society. And if the future society decides it wants to trust the Bitcoin system instead of the dollar model, then it can really become the currency of the future.

In essence, Bitcoin is quite different from the United States Dollars, for example, because it is not backed by the US state. This means that no institution has the power over this currency. The mere fact that the US government requires all payment to be in USD builds a direct demand for it. This demand cannot be easily replicated by cryptocurrencies.

But if we look back at our history, the involvement of a government in the monetary system goes deeper than merely demanding tax payments in its preferred currency. Understanding this history is beneficial for us to understand the possible restrictions of virtual currencies such as Bitcoin. In general, governments have the inherent right to control our financial systems. It is important to take note that the state values the system of seigniorage for its revenue, so it is quite impossible to let this revenue source be replaced by a private money source like Bitcoin.

At present, cryptocurrencies are effectively not relevant if you compare it with the USD, which is a global payment system. However, those who are expecting the expansion of Bitcoin to a global scale are also considering the possibility that Bitcoin will not remain exclusively in the private domain. Once it becomes wide and large, this currency will definitely entice the government as signified by the declaration of the US Senate to be open for the long-term purpose of digital currencies.

Meanwhile, the concept of private currency as a solution to the inefficiencies of the barter system has minimal historical importance. For instance, although people usually believe that precious metals such as silver and gold were used gradually by the private sector as another medium for value exchange, in practice, people are not sure if the metallic component of currency coins are equal to its agreed value.

Coins were only widely accepted as a medium of exchange when governments had standardized its production. The Roman Empire, for example, practiced the currency system. After its downfall, however, people gradually returned to the barter system. Advocates of Bitcoin also believe that the verification and security problems in Bitcoin are less likely to impact a virtual currency. This area is yet to be seen in our future.

Bitcoin enthusiasts have also cited their commitment to limit the supply of digital coins, but currency experts are not completely relying on these claims. They oppose the interest of those who are regulating these currencies, so trusting them may not be the best thing to do.

Factors that made Bitcoin Different from any Traditional Currency

In spite of certain exceptions, there are several factors that make Bitcoin quite different compared to our current financial systems:

Decentralized System

Fiat currencies such as USD, EUR, and JPY are under the regulation of a central government agency, usually through the central bank. Hence, their production can be regulated. The creation and transaction involving Bitcoins are regulated by a code, open source, and will largely depend on the P2P nature of the ecosystem. No central governing body can interfere in the Bitcoin processes.

Value

Take note that a currency is only accepted as a currency if it has an agreed value. Any currency such as the Japanese Yen represents value because the Japanese government, its people, and the international community agree that this currency has value. Bitcoin follows the same principle.

Bitcoin is created through mining. The effort behind the activity provides the currency its value, while the changing demand and supply results in the fluctuation of value.

The concept of work providing value to a currency is known as POW (Proof of Work) model. This is also known as proof of stake in other forms of virtual currencies. The Bitcoin ecosystem generates value if the transactions are recorded in the public ledger as producing a block also requires work.

Virtual

Traditional currency is signified by an actual object (bills, coins) to represent value. But Bitcoin is digital, and due to this, you can keep the value using a digital wallet. Hence, there is no actual object that can represent Bitcoin.

Pseudonymity

Bitcoin owners keep their assets in a secured wallet. The confirmation of the account holder is kept in an encrypted place that they can control, but not associated to the person’s identity. The connection between the Bitcoin and its owner is pseudonymous rather than anonymous as the ledgers can be accessed by anyone. Hence, these ledgers can be used to access data about people who are part of the Bitcoin ecosystem.

Cryptographic

Secure transaction is a main feature of Bitcoin. This feature is used to control the production of coins and to verify transactions.

Adaptive Scaling

Bitcoin is designed to allow one block of transaction to be mined in 10-minute intervals. The algorithm adapts after 2016 blocks, which is about 2 weeks, to make the mining more difficult or easier depending on the time that it took for the blocks to be mined. The mining is easy if it only takes 10 days to mine the blocks. Hence, the system will increase the difficulty.

You should not worry if at this point you are a bit confused about how Bitcoin works. It can be a challenge for beginners to understand these basic concepts of Bitcoin. Moreover, each chapter of this book will help you learn more about Bitcoins until you become more aware on how this cryptocurrency can become the currency of the future.

Why you should not Compare USD to Bitcoin

Two decades ago, when the World Wide Web was only beginning to gain ground, it was in a similar condition as Bitcoin today. The Internet was slowly replacing common methods of communication such as snail mail and typewriters at a gradual pace.

These were not immediately replaced, but their relevance is slowly fading. As we pass through the 21st century, mainstream media has joined the Internet Revolution, which has caused media outlets, especially newspapers, to change their landscape and scope. As the Web increased its scope and influence, it was not commonly compared to the relevance of Time Magazine or the New York Times.

In the 1990s, very few people were aware of or even using e-mail, but after only 20 years, millions of people around the world are now using it for personal and business use. In essence, Bitcoin is now following this lead by creating its own technology for blockchain over the Web’s current virtual blockchain.

The increasing influence of Bitcoin on currency systems as well as worldwide commerce is set to be in comparison with the depth of the Web’s natural ability to evolve the way we all communicate.

Despite being a breakthrough technology, Bitcoin is not reinventing the wheel so much as it is setting the accepted wheel in the Internet world in a thrilling new perspective. However, this may take several years, or even decade before we are able to see how cryptocurrencies can go. Nevertheless, it is moving onward and upward, and a lot of people are now starting to gain interest.

Meanwhile, Bitcoin scared a lot of authorities including governments and the banking industry. This scare was so great that the technology was banned in some areas. . As discussed in Chapter 1, the prohibition of Bitcoin in China caused a crash in the BTC marketplace. It has also gone through the mess at Mt. Gox where bots were allegedly pumping the BTC price, which created a market bubble.

Other crucial factors include the Silk Road shutdown, the licensing controversy in New York, and the IPO of Alibaba. Despite all of these, Bitcoin not only managed to survive these ordeals, but conversely thrived and caught the attention of the largest retailers and companies in the world such as Microsoft, Dish Network, Dell, PayPal, and many more.

To put it simply, snail mail and e-mail are both used as a means of communication. But this is where the comparison ends. Nowadays, probably because of uncertainty, the value of Bitcoin is often compared to the United States Dollar, which is the reserve currency of the world and the most established, most distributed, and most liquid currency today.

People compare Bitcoin to the USD, because they are both regarded as currencies. However, the value of Bitcoin is now beyond that. Currency is just one of the many uses of Bitcoin. Its price is increasing by at least 400% per year. It is possible to send 100 bits of data inside a Bitcoin. You can send a small percentage of a Bitcoin to someone for your business transactions. There is also a market cap in the production of Bitcoin. Bitcoin distribution is completely decentralized, and it is also not restricted by any geographical limitation.

On the other hand, the US Dollar is somewhat similar to the Presidents of the United States—almighty, but they had their time in the world where they once ruled. Now, they are only part of our history.

The value of USD is established at this point solely based on its liquidity and strength as world currency. However, many financial experts believe that it is set for a substantial crash. The Recession in 2009 was only the beginning. The status as a world currency usually lasts only at a maximum of 70 years, and the USD has held this status for more than seven decades now. The influence of the US military force around the world, with more than 100 military bases, is the primary factor that sustains the USD. However, this may not last for long.

An important step in the downfall of the USD as a world currency is the establishment of the BRICS Development Bank, which is composed of Brazil, Russia, India, China, and South Africa. This organization now controls 40% of the currency reserves and population of the world. It was also surprising that the United States was strangely silent when BRICS declared that they are now working with each other without using the USD.

For many years, these countries have been working on bilateral trade agreements without using the world reserve currency. These countries believe that the US dollar has lost its intrinsic value, and it is only a matter of time before it collapses. Meanwhile, the value of Bitcoin rises year after year. Famous financial experts such as Robert Kiyosaki, Ron Paul, Mike Malone, Jeff Berwick, and Peter Schiff believe that the world economy will collapse once the USD falls. Even the legendary George Soros, who made $1 Billion in forex trading, believes that Bitcoin is only a prelude to what will be the ultimate demise of the USD.

But does this mean we will stop using the dollar as our currency? That is unlikely to happen in the next two to three decades. But once it collapses, and falls to its intrinsic value, cryptocurrencies such as Bitcoin will experience an inverse relationship to the market. Its value will significantly rise against the USD as it continues to fade away. The only thing that will stop this from happening is if the Bitcoin ecosystem shuts down.

Hence, comparing the value of Bitcoin to the value of the US dollar is not considered relevant. Even if Bitcoin replaces the USD as the reserve currency of the world, it is irrelevant to measure Bitcoin in dollars because they are thriving in completely different systems. Bitcoin thrives in a decentralized financial system, while USD thrives in a centralized financial system.

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Conclusion

You have learnt all about Bitcoin: historical background, inventor, remarkable price histories, BTC vs. other cryptocurrencies vs. US dollar (USD), etc. Bitcoin remains a very valuable digital asset with powerful potential, though with a volatile price structure. The information in this article is just for educational purpose, and it’s never in any way a financial or investment advice.

Feel free to drop your question or contribution about Bitcoin in the comment section below. Enjoy!

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