The Bitcoin history and its influence in the financial revolution

Bitcoin initially started as a domain, registered under Bitcoin.org on 18 August 2008. The decentralized digital currency was pioneered by an unknown person or group of people using the name Satoshi Nakamoto. With its implementation being released as open-source software, the currency came to use when Nakamoto created the Bitcoin network by mining the starting block of the chain, known as the genesis block, on the 3rd of January 2009.

Being the first cryptocurrency, Bitcoin's rise and influence in the crypto space was crucial in paving the way for thousands of new cryptocurrencies that have since been created. Though having its fair share of ups and downs, its steady rise in popularity has enabled it to become an essential store of value; comparable to the likes of gold, even being referred to by some as the "digital gold". This is because price fluctuations would encourage buyers to purchase Bitcoin for the potential increase in prices when sold later.

Through its use of blockchain technology, Bitcoin demonstrated the potential to optimize global financial infrastructure and a more effective means of transferring assets than existing financial systems.

Hal Finney, creator of the first reusable proof-of-work system in 2004, became the receiver of the first Bitcoin transaction. He was given ten Bitcoins from Nakamoto on 12 January 2009 upon downloading the Bitcoin software on its release date. Furthermore, Bitcoin was initially designed to be a digital replacement for cash, as shown by its first known commercial transaction in 2010, where programmer Laszlo Hanyecz bought two Papa John's pizzas for 10,000 Bitcoins from Jeremy Sturdivant. However, the volatility that would soon affect the currency, later on, rendered that original intent useless.

According to blockchain analysts, Estimates stated that Nakamoto had mined at least one million Bitcoins before disappearing in 2010 when he gave the network alert key and control of the code repository to Gavin Andresen. Andresen, who later became the lead developer at the Bitcoin Foundation, then aimed at decentralizing control.

From 2011 to 2012, Bitcoin usage eventually wound its way toward black markets, becoming its first significant user. Black market sites such as Silk Road started to exclusively accept Bitcoins as payment dealing 9.9 million in Bitcoins, which were worth about $214 million at the time. 

Unlike the two years following its launch, when the Bitcoin price would barely reach zero, the cryptocurrency saw its first surge in 2011. This time around, Bitcoin rose to $30 on the Mt. Gox exchange, which was 100x from the year's starting price of $0.30. Despite that, it fell to $5 by the end of the year. Such fluctuational patterns would continue to repeat themselves later on, even more so in 2013 when it saw another big surge. The price, which started at $13 beginning of the year, rose to a peak of $1,100 by December. All of this caused Bitcoin's market cap to exceed $1 billion for the first time. Yet despite that bull run, it would take over three more years for Bitcoin price to reach $1000 again, eventually falling out at -85% off its record high later on.

Breaching the previous $1000 mark in January of 2017, the price soared to about $20,000 by December. Reaching such heights eventually brought mainstream news outlets into the mix, making the general public even more aware of cryptocurrency. This rapid price increase was also a reflection of retail investors entering the market for the first time. Around this time, research provided by the University of Cambridge estimated that there were 2.9 to 5.8 million unique users using a cryptocurrency wallet, with most of them dealing in Bitcoin. 

Bitcoin's price later rose to $46,000 in August 2021, down to approximately 23% from its previous 2021 peak of $60,000, which is also its current record.

Bitcoin’s influence on other cryptocurrencies

Encompassing the status as the first-ever cryptocurrency, Bitcoin has considerable influence on its counterparts, mainly since they bear a significant amount of resemblance to its predecessor. What further fuels its influence is the large number of investors who invest in Bitcoin to trade it with other altcoins and try to increase profit margins. As such, investors tend to compare altcoin prices with Bitcoin to understand the crypto market as a whole better.

 Bitcoin has also been reported to command more than 50% of the total cryptocurrency market cap in recent weeks. Therefore, it is common for many altcoins to move in patterns similar to that of Bitcoin. That being said, as Bitcoin prices rise, the same is then valid for other digital currencies. When Bitcoin declines, other altcoins drop down in value as well. It should also be noted that altcoins can tend to fall harder than Bitcoin due to its market domination. Since it's more established, investors might feel reluctant to invest in newer, smaller cryptocurrencies when the market takes a turn for the worse, for example.

Bitcoin's potential impact on current financial systems cannot be addressed without highlighting how it is implemented; through blockchain technology. One of the critical aspects of blockchain technology is decentralization. With decentralization, financial transactions can be carried out without central banks or governments. This means that any individual can access the blockchain and have a copy of the public ledger, provided he has the means for it. Each transaction can then be verified through this replication over a distributed network. Therefore, if any criminal or malicious organization wants to remain undetected, they would have to tamper with all the copies on the blockchain. Distributed ledgers are also shown to automatically record transactions in real-time, reducing the chances for fraud or any other suspicious transactions to occur. As a result, traditional banks might find this aspect of blockchain appealing as it could fundamentally change the existing framework in which financial systems operate better.

Another possible means to incentivize local or international commercial banks to adopt blockchain technology could be by reducing costs and value transfers. This brings to mind that commercial banks often need a lot of monetary investments to acquire centralized databases, as the costs of maintaining and purchasing terminals are high. On the other hand, additional labour costs are associated with bookkeeping and settlement work. Thus, blockchain can offer a solution to such dilemmas through decentralization and blockchain automation. Such use can help build a model with relatively fewer costs and transparency.

Secondly, blockchain technology can also show its efficacy in managing risks. For example, operations adopted by commercial banks to track and monitor loan use are known to not be as suitable and efficient at times. In addition, global regulation of capital circulation can prove to be even more of a challenge. Blockchain technology can offer its multi-centred feature that treats each user as a single node in the blockchain, which would then allow direct peer-to-peer transactions between borrowers and lenders to take place, thereby eliminating the requirement for credit guarantees by banks or any other intermediaries. This would also increase efficiency in managing funds and lower credit risk, brought by asymmetrical information. 

Although all the potential blockchain technology has to offer to optimize current financial systems, the development is still not as ripe as it needs to be. There are still many hurdles in place, most of them pertaining to regulation and privacy concerns. However, big financial institutions are rushing towards experimentation and investing more resources in technological development. This means that banks in the future might have more innovative profit models in place to develop and offer financial products.

Final Thoughts

Bitcoin started a revolution in the digital market as the first-ever cryptocurrency. Through its open-source implementation, thousands of other cryptocurrencies entered the market, following in its footsteps. As such, other cryptocurrencies like Ethereum, Binance, Polygon Matic, and PolkaDot would never have found their way into the crypto space if it were not for Bitcoin’s underlying success. Over the years, it has become an essential store of value. It is one of the most popular mediums for investment opportunities, inviting a steady pool of investors worldwide. Not only that, but it also paved the way for non-fungible tokens to enter the crypto space, which eventually went on to take the digital world by storm.

Furthermore, its use of blockchain technology has displayed an immense potential for optimizing financial systems and reducing certain risks associated with financial operations used by commercial banks. Bearing all these merits, Bitcoin has laid a foundation for cryptocurrencies to operate in and popularise their use. It has also shown that blockchain technology has plenty of room for innovation as many financial institutions are rushing towards more research and developing the technology further.

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