How bitcoin grew up and became big money

Illustration by James Bareham / The Verge

Depending on how you count its birth, bitcoin turned 10 years old today. The first lines of code were committed to the bitcoin blockchain on January 3rd, 2009, a few months after the publication of the original whitepaper. These lines of code, known as the “genesis block,” are credited to the person or persons known as Satoshi Nakamoto.

On January 12th, Nakamoto sent 10 bitcoin to Hal Finney, and a new finance counterculture was born. At this point, the bitcoin’s worth was negligible. Users essentially gave each other bitcoins as rewards for good comments in forums. The first “real” transaction took place on May 22nd, 2010. Laszlo Hanyecz bought two pizzas for 10,000 bitcoin, or about $30. (At current prices, 10,000 bitcoin would be worth $38 million. I hope that pizza was tasty.)

For most of its life, bitcoin drew from three main overlapping communities: the small community of original investors and true believers, the blockchain technology aficionados, and the speculators who are just here to make some money, ma’am. Lately, another community has emerged: old-fashioned stodgy finance types.

Originally, bitcoin was money with a philosophy: instead of a central bank, it had programming and Nakamoto’s whitepaper, both of which suggested skepticism about ordinary financial institutions. But Nakamoto vanished. As the digital currency took off, the system that was supposed to work without trust developed trust issues. And as the bitcoin’s price has risen, it’s become another investment vehicle for the financial system it was meant to replace. 10 years later, bitcoin is part of the system it was meant to overthrow.


If you had asked me 10 years ago, I would not have imagined finance could have a counterculture. But in 2008, as the banking crisis was in full swing, a group of anarchists, libertarians, and other dissatisfied tech-savvy true believers created one. (There had been other attempts at digital cash, but none of them truly took off.) In August 2008, someone registered bitcoin dot org as a domain; on Halloween that year, a paper went up describing a decentralized system for electronic transactions that didn’t rely on trust. The original Satoshi Nakamoto white paper begins (emphasis mine), “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

You can see the influences of the banking crisis on bitcoin’s ideology: first of all, it’s a specific distrust of financial institutions. Beyond any number of other breaches of trust that took place during the financial crisis, a money market fund called the Reserve Primary Fund did something very scary: it broke the buck. If you had invested $1, you’d get 97 cents back. This was because the money market fund had invested in Lehman Brothers, a financial firm that had just gone belly-up.

Money market funds, at the time, were considered as safe as an actual savings account; $3 trillion had been invested in them as of September 2008, according to USA Today. But they aren’t as safe as savings accounts, which is why they had better rates of returns — as investors found out, to their surprise and dismay. (Regulations around money market funds have subsequently changed.)

Contamination from the Lehman bankruptcy spread into the wider financial markets, making it clear how closely banks were tied together. There are several ways to respond to this: one is to strengthen financial regulations, tweak the system, and leave it running, hopefully in a more stable way. Another response is to create a new system without these specific hazards. Suddenly, a lot of people were in the mood to take bitcoin seriously.

Bitcoin highlights how fundamentally bizarre money is. In some sense, money isn’t “real” in the way that a tree is. It’s a human invention, a value token that makes exchange easier. But it’s real enough — people fight and die for it, empires fall for lack of it, and I would personally go homeless if I did not use it to pay my rent. Money is like Tinkerbell in Peter Pan: it’s real if enough people believe in it. And in 2009, a lot of people were looking for alternatives to the mainstream financial system that had catastrophically failed. The core of banking, as most people understand it, is money. But what does money look like when the bankers are taken away? Of all the previous attempts at internet-based currency — and there were many — bitcoin was the one that broke out as the best possible alternative to society’s collective anxieties around the financial system.


Bitcoin is structured in a way that reveals its ideology. The idea of a peer-to-peer money network hews back to old-fashioned Silicon Valley disruption. You don’t have to pay a fee to send money to a third party like a bank or Western Union. But the original ideology is even more radical than that: if you believe that the state is simply a designated force for violence, then it’s possible to also believe that fiat currency — for instance, the dollar — is an enforced state monopoly. Bitcoin upends that monopoly, serving in part as a currency-based way to hate the government.

Even the term “mining” conveys some of this thought: many investors see bitcoin as a commodity, like gold. (Let’s genuflect at the gold standard and keep it moving.) There’s also the finite nature of bitcoin: under the current protocol, there can only be 21 million bitcoin in the world. More than 17 million have already been mined. The rest will be released at a predictable mining rate, which has slowed as more of the supplies have come into existence. No central bank or president can make that system run any faster or goose inflation to suit their political agenda.

The other key technology for dodging banking institutions — and the state — is the distributed ledger. Anyone can access the public parts of the “blockchain,” a ledger of all transactions made over time. No institution, at least in theory, is required to ensure trustworthy transactions. If you can keep your wallet anonymous, they don’t even need to know who you are.

But as the last decade has made clear, removing trust as a component in one part of the financial system means that trust problems pop up somewhere else, which is how the counterculture formed. In order to make your investment in bitcoin worthwhile, you had to convince others that the investment was worthwhile too. Bitcoin communities sprang up on platforms like IRC and Reddit.

The most significant community for early bitcoin, though, was dark web marketplace Silk Road. Founded by Dread Pirate Roberts — who would later be revealed as Ross Ulbricht — the promise of Silk Road was also essentially libertarian. The idea was that anything could be traded, regardless of whether the state viewed it as legal. The trade was dominated by marijuana, fake IDs, benzos and other prescription drugs that were all facilitated by bitcoin. When the Silk Road was seized by the US government in 2013, that seizure included 144,336 bitcoins that belonged to Ulbricht.

The closure of Silk Road was the end of bitcoin’s beginning. It was perhaps the moment it became clear that removing financial institutions from money would not necessarily mean a more trustworthy environment, and it also didn’t guarantee protection from the state. When Mt. Gox filed for bankruptcy, that would solidify bitcoin’s trust problems.

Mt. Gox (“Magic: The Gathering Online eXchange”) wasn’t originally founded for bitcoin, but it launched a bitcoin exchange early in 2010. Mt. Gox let people buy bitcoin and sell using bank transfers; in 2011, its founder, Jed McCaleb sold it to Mark Karpelès. The early years of Mt. Gox demonstrated that online currency meant new risks: “hacks, outages, a run-in with the US government, and a $75 million lawsuit,” Adrianne Jeffries wrote for The Verge.

A protest outside Mt. Gox headquarters in 2014.

Mt. Gox filed for bankruptcy in 2014 after clients complained that they couldn’t withdraw their bitcoin. Its failure could have been catastrophic; Mt. Gox was responsible, by some estimates, for 70 percent of all bitcoin ever traded as of February 2014. “Behind the scenes,” Jeffries wrote, “Karpelès had discovered that an attacker had slowly been draining all of Mt. Gox’s bitcoins without being noticed. The company filed for bankruptcy in February 2014, citing $64 million in liabilities.” Bitcoin’s price skyrocketed in the years that followed, which let at least some of the creditors cash out at 2014-era rates, but that wasn’t the real problem. The promise of bitcoin was that your money wouldn’t be held hostage by a failing bank, but that’s exactly what had happened.

Mt. Gox and the other exchanges function essentially as the bitcoin version of commodity exchanges, simplifying the experience of trading bitcoin. They allow people to set the rate for bitcoin (and other cryptocurrencies), move from fiat currency (state-issued, like dollars) into cryptocurrency, and buy and sell cryptocurrencies. Their existence made it easier for ordinary plebs to get into bitcoin, and they brought new kinds of security risks, too. Some of the troubles Mt. Gox had early on plagued later exchanges like Coinbase and suggested that digital money had new problems that paper-based money did not. While you could break into my house and steal the $40 sitting next to my laptop, this is time-intensive for little reward. Figuring out how to hack the exchanges, however, could lead to tens of millions of dollars from a single breach.

Regular banks and exchanges aren’t immune to hacking, but they pour money into making themselves harder targets. Bitcoin exchanges, however, “may not have had the capital on hand, time, or even the technical ability to ramp up security features fast enough to ward off potential attackers,” John Sedunov, an assistant professor of finance at Villanova University, told The Washington Post in 2018.


But even as Mt. Gox melted down and the Silk Road got busted, bitcoin continued to enter the mainstream. At the end of 2014, Microsoft began accepting bitcoin payments, according to Cointelegraph. In 2015, bitcoin was a cover story in The Economist. During this period, other cryptocurrencies — also based on the blockchain — began to emerge, the most important of which was Ethereum, launched in 2014, with an initial coin offering (ICO) that raised $18 million.

Ethereum was the beginning of another big shift in the community: the change in focus from bitcoin per se to blockchain as a technology. Using the blockchain, Ethereum lets users write applications and make money from their work. The best-known application is the “smart contract.” (Though this technology bills itself as a way of replacing lawyers, it is incredibly difficult to get lawyers out of anything once they’ve dug in. Just saying!) Here’s a very reductive way of establishing a smart contract: let’s say you and I have agreed that if I write you a history of bitcoin, you’ll send me $10 on my birthday this year. We can do that via a legally enforceable contract, which involves lawyers, notaries, and so on — or we can do it via Ethereum. In the latter case, you put $10 worth of smart coins in escrow, and when the terms of the contract are met, those coins are released to me. If I don’t meet the terms of our agreement, the coins are released back to you.

While Ethereum was the most meaningful of these companies, plenty of other ICOs came into existence: NXT Neo, Spectrecoin, Stratis, and EOS among them, often tied to specific businesses and products. The expanded universe of blockchain technology — a term absolutely no one agrees on, incidentally — took shape as various governments woke up to these new cryptocurrencies as taxable, potentially regulatable investment vehicles. In 2017, the US Securities and Exchange Commission (the money cops) announced that under some circumstances, financing events for digital currencies would be regarded as securities, and it proceeded to file suit against a string of scammy coin projects for violating securities law.

Now, depending on your attitude, this is potentially a way of legitimizing cryptocurrency (“it’s so real that the government is choosing to regulate it as an investment vehicle!”) or a betrayal of the initial government-free promise upon which the Nakamoto entity launched bitcoin. Increasingly, though, bitcoin had left behind its original community of true believers.

During 2017, bitcoin’s price surged more than 1,000 percent, which may explain why it was the focus of such intense interest by people who, you know, make money professionally. (Later, a University of Texas finance professor suggested that half of this rise was due to market manipulation.) On December 17th, 2017, bitcoin hit its all-time high of $20,000. Cryptocurrency-related crime surged as well — even though, by August 2018, a DEA agent told Bloomberg that the majority of bitcoin transactions were by speculators, rather than the black market types that dominated bitcoin during the Silk Road days.

2018 was rougher for those speculators, as bitcoin fell off 80 percent from its high the year before. And as its price fell, most people’s interest waned, but not that of finance professionals who can make money when assets increase or decrease in value.

As of this writing, cryptocurrencies generally — and bitcoin specifically — were being traded by the likes of venture capital firms (with boosters like Tim Draper of Draper Fisher Jurvetson and Marc Andreessen of Andreessen Horowitz), hedge funds, mysterious bitcoin “whales,” and mainstream investors like George Soros. Goldman Sachs, in particular, has reportedly considered entering the space. Pending exchange-traded funds (ETFs) could let investors trade cryptocurrencies like stocks, tying digital currencies ever closer to the system they were initially meant to replace.

Outside of the financial community, bitcoin’s unexpected popularity has come with a cost. So many people are mining bitcoin that the powerful chips used by scientists have doubled in price, making it more difficult for astronomers, among others, to do their jobs. Bitcoin mining also consumes a lot of energy and produces a lot of emissions, which is making climate hawks nervous.

No one has discovered who Satoshi Nakamoto was or is, though many have tried. There have been several pretenders to the crown, but no one has ever provided the definitive proof: trading Nakamoto’s bitcoin. The crisis in confidence in the banking system appears to have passed. But the biggest winners from the new bitcoin era may very well be the people the system was designed to bypass: institutional investors and banks.

Correction: An earlier version of this piece referred to ETFs allowing cryptocurrencies to be traded on exchanges. In fact, no such proposals have yet been approved by the SEC, although a number are pending. The Verge regrets the error.


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And as its price fell, most people’s interest waned, but not that of finance professionals who can make money when assets increase or decrease in value.

It’s important to note that this is especially true of Bitcoin (and other cryptocurrencies) because the unregulated nature of the exchanges make them highly susceptible to market manipulation (particularly pump & dump schemes) which would constitute securities fraud in traditional markets.

There have been academic papers that have studied the link between issuance of Tether and spikes in Bitcoin’s price, with the strong implication that this is intentional market manipulation.

Tether is particularly useful for this scam since it is ostensibly pegged to the USD (and is thus a stable store of value), but it’s actually very difficult (impossible?) to exchange large sums of the token for actual fiat, so people are mostly just taking Tether at their word that it’s backed by USD.

So Tether can issue large sums of tokens, sell them through Bitfinex, buy Bitcoin with the USD proceeds, send the price surging, forcing short sellers to cover their calls, putting more real USD back into the system. They can then sell the excess BTC (and make money short-selling it short on the way back down!) and can use all the USD they now have sloshing around to back their original Tether issuance (legitimizing it). Or they can just pocket the cash.

As of this week, New York appointed a cryptocurrency task force to look in to this more. Most of the licensing and exchange offices in US are located in NY.

Material for Michael Lewis’ next book.

A factitious inventor; a fraudulent name; an invaluable tool for crooks and cons; a social frenzy thoroughly pre-documented by Charles Mackay and Lawrence Weschler ("Boggs: A Comedy of Values").

Seriously, what’s next? A cult religion named Algorithmology?


Did it?

I think the author forgot the title about halfway through writing the article.

Bitcoin crazy, amirite?

Bitcoin is still our dumbest invention of the last 10 years. It solves zero problems and causes many.


The only thing I could even see the Blockchain ever being useful is some kind of alternative Mesh Network that Tech Savvy individuals could use, and even then that sounds stupid as all hell.

Blockchain/Crypto basically turned into the ".com" of the 2010s, but on a much smaller scale.

Spoken like someone who doesn’t fully understand Blockchain/Crypto.

Blockchain/Crypto basically turned into the ".com" of the 2010s, but on a much smaller scale.

Aren’t you typing this on a .com from the 2010s? Oh the irony.

The only thing I could even see the Blockchain ever being useful is some kind of alternative Mesh Network that Tech Savvy individuals could use, and even then that sounds stupid as all hell.

The same was said of TCP/IP. You have to understand that as the tech matures, levels of abstraction can be built on top of the core foundation that lead to really useful things. Your modern web browser for example.

Money is like Tinkerbell in Peter Pan: it’s real if enough people believe in it.

The article should have started with that because it’s comedic… just like the concept of Bitcoin.

One error in this work. The statement:
"We can do that via a legally enforceable
contract, which involves lawyers,
notaries, and so on"
Is just untrue and shows a lack of understanding of the relevant issues. You can write contracts that are legally enforceable without any lawyers or notaries.

I’m not the brightest. Couldn’t explain to you what a portfolio is. But the story of Bitcoin has always interested me. I admire what it set out to achieve. Just because some people used it for nefarious purposes doesn’t mean it was all just a stupid endeavor. What makes the green dollar any cleaner? I don’t like hands in my pockets like the next man. Bitcoin was a glimmer of what could be possible where many failed.

Anyway, I enjoyed reading this article.

But the biggest winners from the new bitcoin era may very well be the people the system was designed to bypass: institutional investors and banks.

Ironic but that’s exactly what "Satoshi Nakamoto" wanted. To give some young people a chance at becoming large or safe investors themselves. To help some good but relatively poor millennials who were still being ripped off by some stupidly greedy Gen X’ers at the time.

True story. I knew the guy and did not steal from him.

Presents Bitcoin in an unrealistically rosy light, considering the price has cratered with no sign of a recovery.

Of course that is the ideal time to buy, but only if you have confidence in a rebound.

Note: tulips did not rebound.

When are people going to drop the tulip comparison? The "tulip craze" bubbled over one season in 1636-1637. Bitcoin has been growing for almost a decade. The "tulip craze" didn’t rebound, but bitcoin has rebounded time and time again. The price has cratered? You need to zoom out on your chart my friend. Bitcoin is up by factors of a hundred from 5 years ago. I’m not saying bitcoin is going to replace the entire financial system like some bitcoin evangelicals; but at what level of success are you going to actually admit it is a valid financial instrument that offers unique and useful characteristics? I guess I’m just sick of the tired old "tulip bubble" comparison when it has little to do with the reality of cryptocurrencies.

Isn’t that a good thing though? Prices were high because of speculation, and volatile because of it. As someone who hasn’t owned or used bitcoin, I’m fine with the idea of buying just enough for an immediate purchase. If the price was stable, I’d be more apt to keep more bitcoins on hand for future purchases without worrying about loosing money, regardless of what price it was at. Seems like it would be even more secure if the price was lower…less room for it to drop.

The idea of making money off of bitcoin always baffled me (unless you were a heavy duty miner). When I get my paycheck, I don’t hold on to it thinking that in a couple weeks the value is going to shoot up and that I’ll be able to buy twice as many groceries. How many people are successfully getting rich of currency conversions?

Correction: An earlier version of this piece referred to ETFs allowing cryptocurrencies to be traded on exchangs


They used to be Chang’s but now they are not.

Well, it always seemed patently obvious to me — and to anyone with any sense — that for Bitcoin, or cryptocurrency in general to succeed as a mainstream financial instrument, it would need to integrate itself as part of the existing regulatory national and international banking framework.

Only fanatics and conspiracy theorists ever believed in the fantasy of cryptocurrency overthrowing the existing world banking system.

Cyrpto doesn’t make any sense.

If the answer to the question of ‘what is the main use of your currency?’ is ‘speculation in an attempt to make money’, then you have failed at making a currency.

Yeah, unfortunately that has been unavoidable. I had hoped things would settle out and people would stop trying to manipulate it for quick profits, but that has proven unrealistic with the lack of regulation that would crack down on manipulation.
This is the libertarian experiment – a "free" monetary system with no government control or regulation. It has not gone well.

Most libertarians are fine with a government regulated currency though, though many would rather it be backed with a more tangible item than just ‘faith’.

This was never a ‘libertarian experiment’, this was a ’let’s make a quick buck and/or buy illegal stuff off the grid’ experiment, which is more anarchist than libertarian.

Its a small sample, but the libertarians I know all thought it was the future. While not based on something tangible, they liked that it was based on a limited resource.

Libertarians are rarely never right about anything.

Libertarians are a diverse group with diverse ideals, so that’s quite the claim to make.

I guess libertarians are wrong about having strong individual rights, being against nation building, and supporting free trade and enterprise.

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