History of Bitcoin
“Be your own bank” is a common battle cry in the Bitcoin and Blockchain scene. But why should you want to be your own bank? One of the answers could be observed in 2008, when the US investment bank Lehman Brothers misspeculated, filed for bankruptcy and triggered a global financial crisis.
As a result, a lot of other banks had to be supported (rescued) with taxpayers’ money to restore trust among each other and keep the flow of money in the system going. In addition, some banks had become so systemically relevant over time that they could not simply be allowed to go bankrupt without completely losing control. The phrase “too big to fail” was heard often in the financial world.
A lot of idealists therefore criticize the current banking system for the fact that control over money is centrally in the hands of a few powerful institutions. The question is whether such a centralized system can be secure and trustworthy in the long run. How, for example, does a centralized system guarantee that no changes are made to the cash books? How does it protect itself against an incident (fire etc.) or cyber attack? How can it guarantee that only authorized persons have access to sensitive data? Such dangers and uncertainties could be reduced, if not eliminated, with a decentralized solution.
Shortly after Lehman Brothers filed for bankruptcy in 2008, a nine-page script appeared on the internet under the pseudonym “Satoshi Nakamoto”, outlining a new virtual currency: “Bitcoin: A Peer-to-Peer Electronic Cash System”. The founding document describes the technical and economic foundations of the currency in detail. Funds should be transferred directly from participant to participant (peer-to-peer) using cryptographic techniques. The term Bitcoin was born. It is an artificial word consisting of the words bit and coin.
The founding document is full of mathematical formulas, written in English. This leads to the assumption that the author, or the collective of authors, is probably rooted in the university world of computer scientists or mathematicians. The only known fact is that Nakamoto’s Bitcoin network first produces 50 Bitcoins as digital currency and limits the maximum number of all Bitcoins ever available to 21 million units. On January 03, 2009, the *Genesis block was created and on January 12, 2009, the first Bitcoin was exchanged between two users.
*The Genesis Block is the very first block within the block chain. Unlike all other blocks, it was not calculated by the network, but instead was created before the official release of Bitcoin, and it is firmly anchored in the source code.
Independent from central banks and states
The Bitcoin concept is a real innovation and there has been nothing similar in the history of money. Unlike other currencies, there are no bills or coins in Bitcoins. It is rather an abstract unit of value that can nevertheless be traded on exchanges and exchanged for other currencies. Also new is that the money is not managed and controlled by a central bank, but rather decentrally via the computers of Bitcoin users according to certain algorithms. The money is held in storage with the help of digital wallets.
There can be no inflation with Bitcoin, because the total quantity is constant and limited to 21 million units. The independence from states and central banks is one of the greatest advantages and weaknesses of virtual money at the same time. Unlike with Euros, US dollars, Yen, etc., there can be no centralized money supply control and policy. This freedom from manipulation is often seen as an advantage over real currencies in an era of loose monetary policy. On the other hand, the lack of control has certainly also contributed to the high volatility and bubble formation.
Bitcoin currently tends to be more volatile than conventional currencies. For the central banks themselves, the lack of access is a thorn in their side. They observe the development of the Internet currency as intensively as they do suspiciously.
Last Updated on 16. February 2021