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It might have come off as a Halloween prank — if anyone outside a small group of cryptography enthusiasts had even seen it. The blueprint for Bitcoin — real, internet money circulating beyond the reach of banks or governments — hit inboxes Oct. 31, 2008.
Fourteen years later, Bitcoin has emerged from obscurity into a major, if enigmatic, role on the global stage. Leading financial firms offer Bitcoin in retirement accounts, and some countries use it as legal tender, even as it has suffered devastating losses.
Bitcoin has demonstrated a remarkable staying power in its short lifespan, but it faces a raft of questions in the wake of its latest boom and bust. Regulators around the world are circling. And a new generation of cryptocurrencies led by Ethereum are offering credible alternatives.
Garrick Hileman, a visiting fellow at the London School of Economics whose research focuses on blockchain and cryptocurrencies, says Bitcoin’s resilience may be a reason for hope.
“It’s been battle-tested in a way that no other cryptocurrency ever has … both in terms of its longevity and how much value it's been securing over that time,” Hileman says. “Nothing else comes close.”
In 2008, pseudonymous author Satoshi Nakamoto released a white paper that laid out an intriguing vision amid a global financial crisis.
Posting on an obscure cryptography mailing list, Nakamoto suggested the internet could allow regular people to reclaim autonomy from centers of financial power such as banks and governments.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party,” Nakamoto wrote in the nine-page document laying out Bitcoin’s basic mechanics.
If the rhetoric wasn’t polemic, the basic idea — for some — seemed downright revolutionary.
In essence, Bitcoin users would keep records of transactions in a way that would make them difficult to fabricate, duplicate or reverse. When one user would send Bitcoin to another, everyone in the network would be able to view that transaction, record it and attempt to update an immutable shared ledger known as a blockchain.
Bitcoin launched in earnest in early 2009, but at first it circulated mostly among a hard-core group of users who hotly debated what it could best be used for, what it was worth and how to persuade people to use it.
Pizza and drugs
In 2010, Bitcoin made the leap from online experiment to real-world medium exchange. Among the seminal moments was one now-infamous pizza order.
A Florida man named Laszlo Hanyecz offered to send 10,000 Bitcoin to anyone who would arrange for two pizzas to be delivered to his house. That sum would be worth about $200 million today.
Before long, Bitcoin settled into a role in the underground online economy. Seizing on the fact that Bitcoin payments can be harder to trace than online bank transactions, people began using it as payment on the dark web, sometimes for illicit products such as drugs.
In 2014, the online marketplace Silk Road was broken up by the federal government in a highly publicized case. Months later, the major exchange Mt. Gox suffered a breach in which hackers made off with nearly $475 million worth of Bitcoin.
Bitcoin’s price, which had at one point exceeded $1,000, fell below $400. The cryptocurrency wouldn’t hit four digits again until 2017.
Bitcoin bulls return
Bitcoin’s next bull run began in 2017, coinciding with increased interest in the crypto's underlying blockchain technology.
More merchants began accepting Bitcoin as payment, and many new cryptocurrencies emerged with ideas about how to improve on Bitcoin.
While some of the new crypto endeavors have stuck around, others died out with the hype, which began to recede in 2018 amid increasing regulatory scrutiny. Bitcoin persisted as the most valuable cryptocurrency, but its price, which had approached $20,000, fell below $4,000.
To the moon — and back
Bitcoin roared back in 2021 as government stimulus programs intended to steer the global economy out of the COVID-19 pandemic left consumers flush with cash. Investors poured billions into risky assets such as cryptocurrency.
Bitcoin’s price at one point exceeded $65,000, and its total market capitalization exceeded $1 trillion. But again, the good times wouldn’t last.
Economic policymakers slammed the brakes on easy money to battle inflation. This move led to drawdowns in many investment classes, including stocks. But the collapse of cryptocurrencies was particularly punishing: By fall 2022, Bitcoin was trading around $20,000 — close to where it was at the end of 2020.
Nonetheless, the latest bull run brought in many people who had been skeptical about crypto.
Catherine Valega, a certified financial planner with Green Bee Advisory in Winchester, Massachusetts, says she has seen questions about crypto from clients decline. But the volume of interest in 2021 pushed her to learn enough about Bitcoin that she now believes it can have a place — albeit a small one — in an otherwise diversified portfolio.
“If you are a crypto believer, you sort of think it’s similar to the early days of the internet or the early days of the iPhone,” Valega says. “It remains to be seen how it shakes out, but the technology is pretty incredible.”
The path forward
Aside from the economic factors that have dragged on risky assets in recent months, several factors could affect whether Bitcoin ever approaches the highs encountered in 2021.
Other cryptocurrencies have capabilities Bitcoin doesn’t, and many of them use a more efficient protocol to verify transactions. One of the main criticisms of Bitcoin has centered on the environmental impact of mining, which uses more energy than some countries do.
Regulators around the world are still making sense of the cryptocurrency craze of 2021 and its fallout. It remains to be seen whether governments crack down on cryptocurrency or whether they become more permissive and allow more types of trading.
Bitcoin began during the Great Recession, but there hasn’t been a prolonged economic slowdown in the time Bitcoin has been widely circulating.
Hileman says Bitcoin’s path forward might be hard to predict given the relative lack of historical data about the factors that affect its price.
“Fourteen years. It seems like a long time, but compared to stocks, which have traded for hundreds of years, or bonds, that's a drop in the bucket,” Hileman says.
The author and editor owned Bitcoin and Ethereum at the time of publication.