The Untold History of Bitcoin: Originally Criticized Even by Cypherpunks in Its Whitepaper, It Went Through These Events Before Gaining Mainstream Acceptance
This book is excerpted with permission from "The Politics and Economics of Cryptocurrencies: How Bitcoin, Ethereum, Stablecoins, and Facebook's Libra Will Change the Global Financial System"
Table of Contents
The Bitcoin Whitepaper, Revered as the Bible of the Crypto Community, Once Faced Criticism
Initially, the response to the whitepaper was critical, with many pointing out flaws in Satoshi Nakamoto's plan. Nakamoto patiently addressed these criticisms, and as the discussions progressed, members of the cypherpunk mailing list became increasingly excited, focusing almost exclusively on Bitcoin-related topics. This led to an email from administrator Perry E. Metzger on November 17, 2008, titled "Suspending Bitcoin Discussion," requesting the burgeoning Bitcoin community to move discussions to a separate forum. The community indeed found a new platform: first migrating to another mailing list, then transitioning to the dedicated forum "Bitcoin Talk" established by Nakamoto in November 2009. Under hundreds of emails, forum posts, and private messages, Bitcoin evolved from a technical manifesto into a vibrant open-source project. On January 3, 2009, the Bitcoin network went live: Nakamoto mined the first-ever block, embedding a brief message in the block with a timestamp: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." This was a headline from the London Times, detailing Chancellor Alistair Darling's plan to rescue troubled banks Lloyd's and Royal Bank of Scotland. Bitcoin made its debut to the world as a stance against banks and government spending.
Bitcoin's subsequent success (even winning over critics who were initially skeptical) was mainly attributed to Nakamoto's realization of the cypherpunk vision using existing technology. Additionally, other factors played a role: in 2008, Bitcoin was not just a mature technology but also a tool that resonated with the spirit of the times. Bitcoin's core value was decentralization: eliminating "middlemen" to facilitate peer-to-peer direct transactions. The concept of decentralization first emerged in the theories of economists in the 1960s, describing the trend of reducing reliance on financial intermediaries like commercial banks and pension funds. However, with the rise of the internet, this term gained a broad disruptive connotation, becoming a phenomenon that could potentially impact many industries. Decentralization became a slogan of the dot-com era, and began to materialize after the bubble burst in the 2000s. When Nakamoto announced this news, many (not just cypherpunks) were ready to delve deeper into the significance of Bitcoin. They saw how the internet allowed us to purchase airplane tickets or book hotels without the need for traditional travel agencies as intermediaries; how e-commerce enabled manufacturers and buyers to transact directly, bypassing wholesalers and retailers; and even how social networks allowed politicians and public figures to connect with their followers, circumventing the media. Bitcoin promised to bring about a similar transformation in the realm of currency: no payment companies, no financial institutions, no central banks, only mathematical code. This vision of eliminating intermediaries also became the focus of most cryptocurrencies that emerged after Bitcoin.
A Rocky Journey: Bitcoin's Gradual Acceptance
Nevertheless, Bitcoin gradually gained mainstream acceptance: by mid-2010, on the few trading platforms available at the time, the price of one Bitcoin was less than $0.1, but the bleak scenario didn't last long. Jaya Klara Brekke from Durham University said, "WikiLeaks was an important milestone in Bitcoin's history." In November 2010, when Julian Assange (a former subscriber to cypherpunk) was blacklisted and unable to raise funds through traditional payment platforms, people on the Bitcoin forum began discussing whether to suggest that Assange accept Bitcoin donations. Wasn't this an excellent opportunity for Bitcoin to challenge state-supported payment censorship? At the time, Nakamoto, who was still active on the forum, strongly opposed this idea, fearing that associating with WikiLeaks would bring "negative publicity" to Bitcoin. Everyone quickly changed their stance, and no one reached out to WikiLeaks. However, a journalist who accidentally discovered this insider information quickly wrote online, explaining how, at least in theory, Bitcoin could provide a solution to WikiLeaks' plight. As a joke made by someone in the Bitcoin forum goes, "The genie is out of the bottle." Nakamoto's view was similar, as on December 11, 2010 (the day after Bitcoin and WikiLeaks were first reported), they wrote on the forum, "WikiLeaks has kicked the hornet's nest, and the swarm is headed towards us." Nakamoto then wrote an article on the forum and ceased to comment further. In an email to a senior Bitcoin developer, Nakamoto mentioned that they had "started focusing on other things." In June 2011, WikiLeaks began accepting Bitcoin.
2011 was a crucial year for Bitcoin, not just because of the WikiLeaks incident. Firstly, other cryptocurrencies mimicking Bitcoin emerged: developers used Bitcoin as a blueprint to create other forms of digital cash (sometimes referred to as "altcoins"), introducing new functionalities. Notable coins like "Namecoin" and "Litecoin" were launched in 2011. This field almost validated Friedrich Hayek's theory, evolving into a competition among various cryptocurrencies. Also in that year, 17-year-old Russian-Canadian computer engineer Vitalik Buterin became fascinated with Bitcoin and dedicated himself to publishing the professional magazine "Bitcoin Magazine." As we will see later, two years later, Buterin played a pivotal role in the invention of another cryptocurrency, "Ethereum," which triggered a paradigm shift in the entire cryptocurrency space. In 2011, Ross Ulbricht (a Texas-born libertarian) launched the illegal drug trading platform "Silk Road" on the dark web and used Bitcoin as the payment method. Timothy May's envisioned crypto-anarchist utopia finally materialized, but in the process, Bitcoin was labeled as a dubious currency associated with crime, a stigma it still struggles to shake off a decade later.
"Silk Road" may have introduced Bitcoin to a new audience purchasing drugs, and the news of Ulbricht's arrest in October 2013 propelled the global adoption of Bitcoin. A study published by the Royal Society in 2019 analyzed the changes in the online trading prices of Bitcoin from 2012 to 2018, also pointing out that Ulbricht's arrest might have been one of the main factors contributing to Bitcoin's popularity in the latter half of 2013. When Bitcoin peaked on December 4th, each coin's price had reached $1132, the study stated, "The closure of Silk Road symbolically released Bitcoin, making it a tool that more cautious investors were willing to try; previously, Bitcoin's illicit use had deterred those investors." However, several other factors were at play, such as the Eurozone debt crisis, leading many Europeans to seek alternative ways of preserving value outside government jurisdiction, and the growing interest in Bitcoin in China. The study also listed thirteen subsequent bubble phenomena, with one of the most explosive ones being Bitcoin's price reaching $19783.06 per coin in 2017. While these bubbles have since subsided, they are certainly not going to burst completely: as of July 2020, the total value of all Bitcoins worldwide is estimated to be around $118 billion. In a sense, the closure of Silk Road marked Bitcoin's pinnacle as a currency, but also marked the beginning of Bitcoin as a speculative investment tool, a trend that still prevails today (although this situation may change, especially with Tesla's announcement in early 2021 that they can accept Bitcoin payments).
Excerpted from "The Politics and Economics of Cryptocurrency," published by Truly Culture in November 2021
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