I've told this story a few times lately… when friends, family or coworkers bring up Bitcoin, since it's been in the news more than a “bit” lately. I'm wondering if any other tech enthusiasts have a similar story and if this is a shared experience for many of us. I'm not currently invested in Bitcoin, or any crypto now. Even if I was, I would say that I am not. If you aren't much into Bitcoin/Crypto, here are the key things you need to know about what's happened over the last 16 years, as concisely as possible:
2008 - 1 BTC = 0 USD
*August 18*: The domain name "Bitcoin.org" is registered.
*October 31*: A person or group under the pseudonym Satoshi Nakamoto publishes the Bitcoin whitepaper titled "Bitcoin: A Peer-to-Peer Electronic Cash System."
2009 - 1 BTC = .01 USD
*January 3*: The Bitcoin network comes into existence with Satoshi Nakamoto mining the first block of the blockchain, known as the Genesis Block.
*January 12*: The first Bitcoin transaction occurs when Satoshi Nakamoto sends 10 Bitcoins to computer programmer Hal Finney.
2010 - 1 BTC = .01-1 USD
*May 22*: The first notable retail transaction using Bitcoin takes place when 10,000 BTC are exchanged for two pizzas, an event now celebrated as Bitcoin Pizza Day.
2011 - 1 BTC = 1-30 USD (this was when I was watching the price all day)
Bitcoin begins to gain more widespread attention, and its value starts to increase significantly.
2012 - 1 BTC = 1-12 USD (I’m beginning to lose interest at this period)
Bitcoin's popularity continues to grow, with more businesses and consumers beginning to accept and use the cryptocurrency.
2013 - 1 BTC = 1-230 USD (big spike in April going from $10 to $230 in a couple of days)
*March*: Bitcoin experiences a fork due to a discrepancy in block size that is resolved by miners downgrading their software.
*December*: Forbes names Bitcoin the year's best investment.
2014 - 1 BTC = 200-600 USD
*December*: Bloomberg labels Bitcoin the year's worst investment, highlighting the cryptocurrency's volatility.
2015 and 2016 - 1 BTC = 200-600 USD
Lots of speculative investors coming in. Exchange rate bounced around a lot and people were starting to talk about it more often.
2017 - BTC skyrockets to $17,000 in late 2017
*August*: Bitcoin undergoes a hard fork, resulting in the creation of Bitcoin Cash.
Bitcoin's value surges, reaching unprecedented highs and drawing significant media attention. Bitcoins are trading for ~$17k USD per BTC at one point during the spike.
2018-2021 - 1 BTC = $3,000-$30,000
The explosion in 2017 prompted the rise of crypto bros and a whole industry. Lots of controversy in the media. Warren Buffet said it has no value and never will, but many governments and institutions started investing. This was not something to ignore.
2021 - 1 BTC = $30,000-$65,000
*October 19*: The first Bitcoin exchange-traded fund (ETF), ProShares Bitcoin Strategy ETF (BITO), begins trading on the New York Stock Exchange.
*November 14*: The Taproot upgrade is activated, marking a significant advancement in Bitcoin's technology.
2022 - 1 BTC = $16,000-$35,000
*November*: FTX, a leading cryptocurrency exchange, declares bankruptcy, impacting the crypto market.
2023 - 1 BTC = $16,000-$42,000
*January 21*: The Ordinals protocol is launched, allowing unique numbers to be assigned to each satoshi and creating a new wave of interest in Bitcoin.
2024 - 1 BTC = $40,000-$72,000
*January*: The Securities and Exchange Commission approves the first 11 spot Bitcoin ETFs, simplifying investors' access to crypto markets.
*April (anticipated)*: Bitcoin is expected to undergo another halving event, reducing the block reward for miners and potentially impacting its price. There has typically been a surge in the weeks leading up to the halvings.
Throughout its history, Bitcoin has faced numerous challenges and milestones that have shaped its role in the financial landscape. From its inception as an idea in a whitepaper to becoming a globally recognized digital asset, Bitcoin's journey has been marked by innovation, controversy, and significant growth. Fortunes have been made and lost. People like me surely created and lost many coins to the ether in those early years.
How/when I got into Bitcoin
This was the early days of Minecraft. I remember exactly when I was into Bitcoin and when I stopped being as into it because those days were so intertwined with the world takeover of Mojang's smash hit construction/survival game. When my computer wasn't running Minecraft or Bioshock for me, it was doing SETI file analysis and then later, some bitcoin mining. This was no ordinary computer either. As a PC gaming enthusiast who finally had some spending money (having just started a full time internship at SAP), around 2008/2009 I put together a gaming PC which at the time had a cutting edge GPU AMD Radeon 4870 originally, then upgraded to an AMD Radeon 6870x2 in 2011). So this was exactly the kind of hardware that, when applied to bitcoin mining at this very specific point in time, put me in a good position to process lots of transactions quickly as part of a mining pool, and make some bitcoins in exchange. If that sentence was non-sense to you, please continue on to the next section and it should make more sense.
What is bitcoin mining? Why was it so easy 15 years ago, and why is it so hard now?
Mining bitcoins means validating transactions on the Bitcoin blockchain by solving complex mathematical problems using specialized computer hardware. Back when I was first getting into it, regular personal computers could effectively do it. To maximize your returns you'd join a bitcoin mining pool and get a share of the pools rewards based on your contributed throughput. All Miners (or pools) are competing to be the first to solve each problem and add a new block of transactions to the blockchain, for which they are rewarded with bitcoins. Bitcoins become more difficult to mine over time due to the halvings, which increase the number of transactions that must be processed in order to earn a reward. Only 21 million bitcoins will ever exist, as eventually the difficulty will become essentially infinite1.
Fifteen years ago, Bitcoin mining was easier due to several factors:
1. Less Competition: Initially, fewer miners were participating in the network, making it easier for individual miners to solve blocks and earn rewards.
2. Lower Difficulty: The complexity of the mathematical problems, known as proof of work, was lower in the early days of Bitcoin, requiring less computational power.
3. Different Hardware: In the early days, miners could use CPUs (central processing units) and later GPUs (graphics processing units) for mining. These were less specialized and expensive compared to today's ASICs (Application-Specific Integrated Circuits), which are highly efficient but costly.
Today, Bitcoin mining is much harder due to:
1. Increased Competition: The number of miners has significantly grown, leading to intense competition to solve blocks.
2. Higher Difficulty: The Bitcoin network adjusts the difficulty level every two weeks to ensure that blocks are mined approximately every 10 minutes, making it more challenging as more miners join.
3. Specialized Hardware: Modern mining requires expensive ASIC miners that are specifically designed for mining Bitcoin efficiently, increasing the barrier to entry for individual miners.
The evolution of Bitcoin mining from a simple process that could be done on personal computers to a highly competitive industry requiring specialized equipment and significant energy consumption has made it much harder and less profitable for individual miners today compared to 15 years ago. But given the time when I was doing it, it was much easier to accumulate Satoshis (fractions of a bitcoin, usually represented like .000000125 BTC). Even easier was buying BTC for USD (I think back then 1 BTC cost between $2.50 and $15 depending on the hype cycles). But I never bought any. Never sold any either. I was really only into it as a thing to have my computer do when I was away from home or not using it. I don't remember exactly how many I had, but it was more than 1 BTC, and less than 5. Do the math with todays BTC-USD exchange rate and feel my pain.
Why and when did I lose interest?
I lost interest in Bitcoin somewhere in the 2012-2013 period. I just wasn't patient enough to see it become what it has today. Back in the early 2010's, it seemed like a fun hobby that wouldn't really go anywhere. The only practical uses for cryptocurrency were investment/speculation (which I failed to see at the time or I would have kept better track of it), and purchasing illicit goods or services un-traceably (which thankfully I wasn't doing). I was a new Business Analyst at Cencora (then AmerisourceBergen) and there were so many new things to learn about with SAP software, E-Commerce, Healthcare Distribution, technical documentation, testing, programming etc... I spent more time on my work laptop and less on the personal computer that I had built in college. By the time Bitcoin had started to really increase in price between 2013 and 2015, I had forgotten my Bitcoin Wallet ID and password2, had gotten married to my wonderful wife, and had become a father. At this point, BTC was exchanging for somewhere around 250-600 USD for each Bitcoin. So I try to comfort myself these days by remembering that even if I had kept access to my Bitcoins and had continued mining, I certainly would have not had the foresight and discipline to hold on to my stash, and would have sold it for a couple grand in the mid 2010's at best, when the price growth stagnated. I wouldn't have been able to keep up with the mining as the hardware became more specialized, and that would have accelerated my loss of interest. In hindsight, there is no scenario where I would have foregone that apparent windfall, in the hope that those Bitcoins would have sold for $17k each in 2017, $60k each in 2021, or even $70k each today in March 2024. Still hurts to think about sometimes, but sure makes for a good story.
When the last coins are mined (currently this is expected to happen around 2140), the Bitcoin ledger will still need to be processed and maintained. At that point, transaction fees will serve as the primary incentive for miners to continue processing transactions and securing the network. Miners will rely on transaction fees rather than block rewards to sustain their operations and secure the Bitcoin network.
A Bitcoin wallet ID and password are essential components for accessing and managing a Bitcoin wallet, which is a digital tool that allows users to store, send, and receive Bitcoin. Here's a breakdown of what each term means:
Bitcoin Wallet ID
Definition: A Bitcoin wallet ID, often just referred to as a wallet address, is a unique identifier that serves as a virtual location for sending and receiving Bitcoin. It is analogous to an email address but for Bitcoin transactions.
Format: It typically consists of a string of letters and numbers, about 26-35 characters in length, and can look something like this: 1BoatSLRHtKNngkdXEeobR76b53LETtpyT. This address can be shared publicly to receive Bitcoin from others.
Usage: It's important to note that for privacy and security reasons, it's recommended to use a new wallet address for each transaction.
Bitcoin Wallet Password
Definition: The password for a Bitcoin wallet, often part of a broader security measure known as encryption, is created by the user to secure their wallet. It's crucial for accessing the wallet's contents and performing transactions.
Security: The password encrypts the wallet's private key, making it inaccessible to others without the password. If the password is lost, the Bitcoins stored in the wallet may be irretrievable.
Best Practices: It's recommended to use a strong, unique password and to keep it safe. Some wallets also support additional security measures like two-factor authentication (2FA) or multi-signature transactions for enhanced security.
Additional Security Measures
Private Key: Apart from the wallet ID and password, a critical component of a Bitcoin wallet is the private key. This is a secret number that allows Bitcoins to be spent and is kept hidden and protected by the wallet's password.
Recovery Phrase: Many wallets also provide a recovery phrase or seed phrase, usually a series of 12 to 24 words, which can be used to recover the wallet's contents in case the password is lost. This should be kept secure and private.
In summary, a Bitcoin wallet ID (or address) is used to receive Bitcoin, and the wallet password (along with the private key) is used to secure and access the wallet. Both are fundamental to the operation and security of a Bitcoin wallet, emphasizing the importance of careful management and protection of these credentials.
I was offered some bitcoin years ago but was too inexperienced to understand it fully. I passed because back then to me it just seemed almost like a scam compared to traditional currency. I still have little regret there…but agree that, looking back I probably didn’t have the patience to allow it to flourish.
My follow up question for you Dan is this: How do you think Quantum computing is going to change the landscape of bitcoin?
Thank you, Dan! I used to be skeptical about Bitcoin and never had any interest in learning about it. However, the way you explained it is excellent, and now I feel educated about crypto :)