Join Tom Geller for an in-depth discussion in this video What is bitcoin?, part of Up and Running with Bitcoin.
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You've probably heard Bitcoin called money, or a commodity or a store of value. The truth is, it can function as all of those things. But at it's base, it's something quite different. Let's start from the beginning. Bitcoin was first described in a paper that was announced in several places online on Halloween, 2008, written under the pseudonym Satoshi Nakamoto. It describes a way to use a cryptographically strengthened public ledger to record and protect transactions. Now, Bitcoin was only an idea then, but after two months of planning and software development, the first block of 50 coins was released.
This was known as the genesis block. A small development community turned that idea into a working system. One important part of that system, is a way to release Bitcoins over time, to reward those people who dedicate their computer power to making the system's infrastructure work. If things had stopped there, it would have just been an interesting experiment. And if fact, it remained just a curious toy of cryptography geeks for about a year and a half. During which time, someone paid 10,000 Bitcoins for a couple of pizzas. If that transaction were to take place as I record this, though, those pizzas would cost over $5 million.
A few things eventually brought Bitcoin wider attention and caused its value to rise. First, people started accepting it in exchange for real-world goods and services. It was mostly criminals in the early days, drawn by Bitcoin's ease of transfer and semi-anonymous nature. But soon, legitimate organizations such as WordPress and the Internet Archive accepted Bitcoin for donations and payments. Second, services appeared to give people ways to buy, sell, store, learn about and protect their Bitcoins. Although the quality of these companies varied and many failed, some were backed by experienced entrepreneurs with substantial capital.
And third, people in financially unstable countries started using Bitcoin as a way to store their wealth. When the government of Cyprus announced the plan to seize certain bank deposits in April 2013 for example, the price of Bitcoin soared to over $250 before dropping again to settle around 120. Now, as I'm saying these words, its value is several times that. As the value of Bitcoin rose, it attracted the attention of government regulators. Although there is no way they can effectively block Bitcoin per say, that hasn't stopped some of them from trying.
And they can crack down on important parts of its economy, such as exchanges that convert Bitcoin to dollars. It also attracted the attention of thieves. But although about a half a billion dollars worth of Bitcoin have been misappropriated or misplaced, nearly all of that has been because of common business fraud, or incompetence, or bad technical implementations. Besides a small bump or two early in Bitcoin's life, none has revealed a basic flaw of Bitcoin itself. And through all of these things, the hacking attacks, failed Bitcoin businesses, government threats, market changes, Bitcoin has always bounced back.
Its value has grown increasingly stable over time, while more and more merchants opt to accept Bitcoin, along with their national currencies. But if history's any guide, the one thing we can expect from Bitcoin, is more surprises.