Part 1 – How Bitcoin Overcame Scepticism To Become a Mainstream Digital Asset

Donald Trump's election in early November, Bitcoin prices have surged by around 45%, from $69,000 to nearly $100,000 per coin. In his keynote speech at the Bitcoin 2024 conference in July, Trump promised to make the U.S. the ‘crypto capital of the planet’ and create a strategic reserve of Bitcoin. The claim has boosted investor confidence and driven up demand, and is quite a U-turn from his previous stance on the subject, citing on social media in 2019 ‘We have only one real currency in the USA … it is called the United States dollar!’

Earlier this year, Trump unveiled his new family cryptocurrency business, World Liberty Financial. Whilst details remain limited, it’s been suggested the new company will provide opportunities for people who cannot get financing from traditional banks. His administrative team are even considering creating a new role focused on cryptocurrency policy, lobbied by crypto industry representatives with a direct line to Trump, which would act as a liaison between Congress, the White House and third parties.

The expectation of more favourable regulations under Trump's administration has encouraged more people to invest in Bitcoin and other cryptocurrencies, and the new sentiment from the President has led to a more bullish outlook, leading to increased activity and rising prices.

The birth of Bitcoin

Whilst there were earlier attempts at creating digital currencies such as eCash, developed by David Chaum in 1990, and E-Gold created by oncologist Dr Douglas Jackson and attorney Barry Downey in 1996, both of these currencies, which relied on centralised entities, ultimately failed.

Bitcoin is considered the first decentralised cryptocurrency and was created in 2008 by an anonymous person or group using the pseudonym Satoshi Nakamoto. Nakamoto published a white paper titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, which proposed a digital currency that could be transferred directly between users without the need for intermediaries like banks. The first Bitcoin block, known as the genesis block, was mined on 3^rd January 2009, and had a reward of 50 Bitcoins.

Hal Finney, an American computer scientist, programmer, and cryptographer, received the first peer-to-peer Bitcoin transaction from Nakamoto on 12^th January 2009, of 10 Bitcoins. After this time the Bitcoin network continued to grow and over the next two years, as the software was improved, more people started mining and transacting with it. Nakamoto and other early developers worked on enhancing the technology and addressing any issues that arose. On 22^nd May 2010, the first real-world Bitcoin transaction occurred when programmer Laszlo Hanyecz paid 10,000 Bitcoins for two pizzas worth $41. In today’s money this would be worth over $700 million. The event, now known as Bitcoin Pizza Day, highlighted Bitcoin's potential as a tangible currency beyond speculative use.

Early controversy surrounding the currency

One of the main differences with Bitcoin is that transactions are traced to addresses (unique strings of characters), rather than individuals. Understandably, this anonymity raised concerns that it might be used to facilitate illicit activities like money laundering, fraud, drug trafficking, and other criminal activity.

Given the earlier failures in cryptocurrencies, and the lack of knowledge surrounding how Bitcoin worked, many people did not fully understand it, leading to scepticism and fear. In the early days there was also a lack of regulation and backing. This absence of government oversight made people question its legitimacy and long-term viability and there were fears about the security of digital wallets and the potential for hacking. Early media coverage often compounded this, reporting the negative aspects of Bitcoin, focusing on its use in illegal activities, price crashes, and security breaches.

Bitcoin's price has experienced extreme fluctuations since its inception, which has led to controversy. For example, in 2010, one Bitcoin was worth just a few cents, but by 2017, its price soared to nearly $20,000 before crashing again. Such high volatility led to nervousness around the reliability of Bitcoin as a mainstream currency.

Early bitcoin scandals

A couple of notable Bitcoin hacks and security breaches served to further compound the wariness surrounding cryptocurrencies.

Mt. Gox was a Tokyo-based cryptocurrency exchange that, by early 2014, handled over 70% of all Bitcoin transactions worldwide. It collapsed in February 2014 following a massive security breach that resulted in the loss of approximately 850,000 Bitcoins, worth around $450 million at the time. The incident exposed critical weaknesses in the exchange's security protocols and resulted in further regulatory scrutiny within the cryptocurrency sector, representing a pivotal moment for digital currency oversight. Two Russian nationals, Alexey Bilyuchenko and Aleksandr Verner, were charged by the U.S. Department of Justice for their involvement in the Mt. Gox hack.

The original Silk Road was an ancient network of trade routes connecting China and the Far East with the Middle East and Europe, established during the Han Dynasty in 130 B.C. It facilitated the exchange of goods, ideas, and culture between these regions until 1453 and had a crucial impact on the development of commerce in this region, establishing trade practices, enabling knowledge transfer and diversification of goods, and creating economic interdependence between the regions. An online darknet marketplace also titled The Silk Road operated from 2011 to 2013, facilitating the sale of illegal goods and services using Bitcoin. In 2012, James Zhong took advantage of a flaw in Silk Road's withdrawal system, creating multiple accounts and making rapid transactions to steal approximately 50,000 Bitcoins, worth over $3bn dollars. He succeeded in concealing his identity and the stolen funds for almost ten years until his arrest in 2021.  

Mainstream adoption of Bitcoin

Over time, Bitcoin gained traction and started to become more widely accepted by both businesses and individuals. Several factors contributed to its mainstream adoption such as improvements in blockchain technology and the development of more user-friendly wallets and exchanges, which made Bitcoin more accessible.

The overall market value of Bitcoin increased and continues to do so as more and more people transact, attracting more investors and increasing public awareness.

Governments also began to develop regulations and frameworks for cryptocurrencies, which has helped legitimise Bitcoin, leading to a rise in major corporates and financial institutions exploring the currency and it’s technology further.

Today, Bitcoin is widely recognised as a legitimate asset class. In the UK, the most popular exchanges for Bitcoin trading include Coinbase, Binance, Kraken, Bitrex and Bitifinex, with major banks such as Barclays, HSBC, and NatWest now allowing their customers to buy it. Cartwright recently sparked controversy as it announced the first UK pension scheme Bitcoin allocation of 3%, potentially paving the way for other pensions providers and investment platforms in the future.

Islay Robinson, CEO of Enness Global commented,

"The history of Bitcoin is fascinating given its volatile adoption curve. Many will no doubt be kicking themselves they didn’t buy-in early, but perhaps not as much as those who did so only to sell their holdings early on. With Trump’s proclamation of making the US the planet’s cryptocurrency capital the immediate future for digital currencies now certainly feels extremely encouraging."

Enness Global are one the leading high-value finance brokers specialising in all forms of crypto-finance, especially the utilisation of Bitcoin to unlock liquidity. To understand more please get in touch with us today.

 

Stay tuned for part two of this three-part deep dive into Bitcoin.