A Brief History of Cryptocurrency
In 2008 the U.S. economy and much of the global economy was in turmoil. On Wall Street, financial behemoths like Lehman Brothers, Merrill Lynch, AIG and others were literally melting down in what became the worst financial crisis since The Great Depression of the 1930s. Lehman Brothers declared bankruptcy and the U.S. government stepped in with a giant bailout package to stop the rest of the dominos in the chain from collapsing.
Against this backdrop, a software developer by the name of Satoshi Nakamoto published a white paper outlining cryptocurrency as a decentralized means of exchange that guaranteed user anonymity, provided a mechanism of incorruptible record-keeping based on cryptography, and limited the amount of currency available. In that paper, Nakamoto made the case for an internet-based currency not subject to the fees and permissions of a third party – such as a bank or financial institution. He devised a system that allowed people to send and receive value to anyone with a Bitcoin address, much in the same way we send and receive email.
Cryptocurrencies Have a Finite # of Coins
Unlike government-controlled currency such as the dollar or euro which can be printed at will, the amount of a cryptocurrency that will be made available over a specified period of time is defined upon the release of a new cryptocurrency and cannot be changed. For example, there will never be more than 21 million bitcoins. This feature helps cryptocurrency hold its value, mimicking the finite supply of precious metals like gold or silver.
In 2009, Nakamoto (believed to be a pseudonym for an individual or a group) released Bitcoin and a very small group of early adopters began exchanging and mining the currency. However, from 2009 through early 2010, bitcoins had no value at all. In April 2010, the first public exchanges for bitcoins came online and the value of a bitcoin stayed below 14 cents. In 2011, as bitcoin became popular as a way to send money quickly and anonymously, the price of a bitcoin hit $1 for the first time.
Hundreds of Cryptocurrencies Exist
Although Bitcoin was the original cryptocurrency, others were quick to follow using the same principles as Bitcoin. Ripple launched in 2011 and Litecoin followed in 2012. There are now hundreds of cryptocurrencies in circulation. Some cryptocurrencies such as Ethereum have since joined the marketplace and are making innovative use of the blockchain technology at the heart of cryptocurrency to offer ‘smart contracts’ that cannot be altered or broken.
Merchants Began Accepting Bitcoin for Payment in 2012
In 2012, WordPress became the first major merchant to accept Bitcoin for payment, followed by Expedia, Microsoft and other well-known brands. The adoption of Bitcoin by companies like those shown below helped increase the credibility of cryptocurrency over time.
Governments Tend to Treat Cryptocurrencies Like Commodities
While major corporations have begun adopting the use of cryptocurrency for payment, governments have been more reluctant to weigh in. In 2013, Germany became the first country to take a legal stance on cryptocurrency when it recognized Bitcoin for legal and tax purposes.
In 2017, Japan became the first country to consider bitcoin as a legal form of payment, with several public institutions accepting the currency for payment. India has recently begun regulating bitcoin and may be the next to legalize it. Many countries, such as the U.S. set laws regarding cryptocurrency, but consider it to be a commodity (like stocks), rather than a currency. There are only six countries, including Bolivia, Ecuador and Vietnam, where cryptocurrency is illegal.
Cryptocurrencies are Highly Volatile
The use and acceptance of cryptocurrencies led to a dramatic increase in values in 2017 and they remain highly volatile.
However, while there are still many cryptocurrency skeptics, many leading experts are predicting that cryptocurrency is here to stay and expect value to continue to rise. Checkout this video predicting an even more dramatic rise in the price of Bitcoin over the next 10 years.