The history of cryptocurrencies is also the history of the Bitcoin, the world’s first decentralized cryptocurrency. It was introduced in 2008 by an anonymous developer name Satoshi Nakamoto. The name Satoshi Nakamoto however is believed to be a fictitious name for a group of developers who worked on the genesis block. Satoshi Nakamoto is the name on the original Bitcoin Whitepaper, and it is the identity credited for inventing the Bitcoin however, an actual developer named Satoshi Nakamoto has never been identified.
In 2008, Nakamoto posted a paper titled “Bitcoin: A peer to peer Electronic Cash System” to a cryptography mailing list. In the whitepaper, Nakamoto described the Bitcoin as a system for electronic transactions that does not rely on trust. His/her/their underlying message was that the trust, oversight and accountability that has characterized commerce and exchange through out history would be replace by a system in which there would be no need for a transaction agent to know anyone.
After the dissemination of the whitepaper in 2008, Nakamoto mined the first block of Bitcoins referred to as the “Genesis Block” in 2009. This block of bitcoin contained 50 Bitcoins and was released on January 3rd, 2009 onto a platform called Sourceforge. The Genesis block contained the following message from Nakamoto “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. Although he/she/they did not include the meaning of the message, Bitcoin enthusiasts believe that he/she/they were referring to a need to cut middle men such as banks and other financial intermediaries from the cycle of transaction because of the level of corruption in the financial sector at the time. Nakamoto believed that there was a need to create a more people driven currency. The Genesis block is referred to as block 0 and every other Bitcoin block trace its lineage back to block 0.
On May 22, 2010, Laszlo Hanyecz made the first real world transaction with Bitcoin. He paid 10,000 Bitcoin to Papa John’s Pizza for two delivered pizza. In today’s terms. Mr. Hanyecz paid 104,395,000 USD for two boxes of pizza!!!!!!! In his defense, in 2010, Bitcoin had no value so the idea of trading it for two boxes of pizza was cool. The Bitcoins were transferred to a British man who offered to buy the two boxes of pizza for Laszlo Hanyecz in exchange for the 10,000 Bitcoins.
Now let’s consider how cryptocurrencies are released. The Initial Coin Offering (ICO) is the cryptocurrency equivalent of an Initial Public Offering (IPO). An ICO is a method of fundraising used by startups wishing to offer products or services usually related to cryptocurrencies.
When a cryptocurrency startup wishes to raise money through an ICO, it usually creates a whitepaper which will outline what the project entails, the amount of funds that need to be raised, how many units of the cryptocurrency the founders will keep, what type of money will be accepted and how long the ICO campaign will run.
During the ICO, supporters of the whitepaper will buy some of the project’s token with other fiat or digital currency. The coins issued during the ICO are referred to as tokens. In a situation where the money raised does not meet the minimum funding requirement for the project, the money raised may be returned to the project’s supporters and the ICO will be deemed unsuccessful.
After the ICO, the value of the coin issued is largely determined by market forces, i.e. supply and demand. The greater the demand of the coin in relation to its supply, the greater the value of the supply.
Unlike Fiat currencies and stocks, cryptocurrencies are largely unregulated. ICOs are prone to fraud and scam artists looking to take advantage of poorly informed investors. The market for cryptocurrencies is highly liquid but investor must be careful and conduct adequate research before investing in any of the cryptocurrencies.
Thank you for reading. Please stay tuned for more articles.
Kenton, W. (2020, May 22). Who is Satoshi Nakamoto. Investopedia. https://www.investopedia.com/terms/s/satoshi-nakamoto.asp
Chohan, U. W. (2017). A History of Bitcoin. Discussion Paper Series: Notes on the 21 St Century, 1–10. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3047875&download=yes
Sherry, B. (2019, June 25). What is the Genesis Block in Bitcoin Terms? Investopedia. https://www.investopedia.com/news/what-genesis-block-bitcoin-terms/
Frankenfield, J. (2019, November 4). Initial Coin Offering (ICO). Investopedia. https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp#:%7E:text=ICOs%20act%20as%20a%20way,token%20issued%20by%20the%20company.