Forward the Original Title‘减半、周期与轮回：一部比特币发展史’

Introduction

In the crypto world, a day is like a year in human terms. Bitcoin has completed its fourth halving in its historical process, marking a cycle as a century in some sense.

Bitcoin evolves in four-year cycles, each phase refreshing the world’s understanding. From its initial role as a payment currency to becoming a store of value and digital gold, whether it’s disrupting sovereign currencies or the mainstream financial systems, it has consistently soared to mythic rises amid skepticism.

Just as science dawned in medieval Europe, shrouded by theology and ignorance, the truth could not be halted. Adam Back, Nick Szabo, Satoshi Nakamoto, Hal Finney, Vitalik… a succession of evangelists have followed one another, benefiting the pioneers and granting eternal life to the believers.

Bitcoin is not only a cryptocurrency but also a digital currency, and perhaps the Noah’s Ark during a financial tsunami. For this great ship, it’s worth observing how it was built from the ground up.

1. What is Bitcoin Halving? Why is Halving Necessary?

1. Halving

Bitcoin halving, also known as “Halving,” refers to a pre-coded event in the Bitcoin protocol that occurs every 210,000 blocks, approximately every four years. Halving reduces the amount of digital currency produced per unit of time, mainly by lowering block rewards.

The total supply of Bitcoin is capped at 21 million units, and once this number is reached, the production of new BTC will cease. Bitcoin halving ensures that the amount of Bitcoin mined from each block decreases over time. By 2140, all Bitcoins will be mined, with a total amount slightly less than 21 million.

This process is designed to control the issuance of new Bitcoins and maintain their scarcity, thereby ensuring a limited supply of Bitcoin. Essentially, halving cuts the reward given to miners by half.

On April 20, Bitcoin underwent a halving at block height 840,000, reducing the block reward from 6.25 Bitcoins to 3.125 Bitcoins.

Public data shows that currently, miners bring about 900 Bitcoins to the market each day. After the halving, this number will drop to around 450 BTC.

The impact of halving is significant, as it typically leads to market fluctuations and increases speculative activity in the cryptocurrency field; it reshapes the mining industry, reducing miners’ profit points; and stimulates technological innovation and community development within the blockchain ecosystem. However, the halving event can also hedge against inflation, enhancing Bitcoin’s appeal as a long-term investment asset.

2. Why Halving?

Satoshi Nakamoto published the Bitcoin whitepaper on October 31, 2008, and the genesis block of Bitcoin was created on January 3, 2009. Halving is designed to control the supply of Bitcoin in circulation. By reducing the block rewards, the rate at which new Bitcoins enter the market slows down. This helps to prevent inflation and ensures the stability of Bitcoin’s value.

By the halving event on April 20, 2024, the inflation rate of Bitcoin is expected to decrease from about 1.75% to just 0.85%.

The creation of Bitcoin was primarily due to concerns over some countries’ unrestricted issuance of currency. Satoshi Nakamoto envisioned a currency that would be free from any control, allowing value transfers directly between any two nodes, thereby designing this peer-to-peer transaction system.

Economic theories of supply and demand suggest that if the circulation of a commodity is not limited, severe inflation can occur, significantly reducing the price of the commodity. Conversely, if the supply decreases while demand remains the same or increases, the value of the asset may rise.

This halving mechanism is also studied by institutions. The referenced graph represents the Bitcoin stock-to-flow ratio model, which examines the annual mining output and the total stock in an attempt to predict Bitcoin’s future value. Backtesting has proven that it can very accurately simulate past price curves.

According to the model, Bitcoin’s scarcity is the main driver of its price. Understanding the potential relationship between price and scarcity, holders realize the value of Bitcoin as a tool for storing value.

In terms of block time, the Bitcoin mining algorithm is programmed to find a new block every ten minutes. As more miners join the network and add more hashing power, the time required to find a block would decrease. To maintain the target of 10 minutes, mining difficulty is recalculated approximately every two weeks. With the rapid growth of the Bitcoin network over the past decade, the average time to locate a block has consistently been around 10 minutes (approximately 9.5 minutes).

Approximately every 10 minutes, a block is produced in the Bitcoin network, and a certain number of Bitcoins are continuously mined. By setting the Bitcoin reward to halve every 210,000 blocks, the inflation rate of Bitcoin can be effectively gradually reduced, thus preventing severe inflation.

Satoshi Nakamoto wrote in 2009, “From this perspective, Bitcoin is more like precious metals; it does not maintain its value by adjusting the supply, but rather sets a predetermined supply limit, allowing its value to change accordingly. As the number of users grows, the value of each token also increases. This can create a positive feedback loop; as the user count increases, the value gradually rises, thereby attracting more users to profit from the upward price trend.”

2. Bitcoin Halving and Bull Market Cycles

Market participants often view Bitcoin halvings as precursors to bull markets, due to the fact that the BTC price has invariably reached new highs after each of the three previous halvings. Many investors hold the same expectations for the halving that occurred on April 20, 2024.

Essentially, Bitcoin undergoes a halving every time a total of 210,000 blocks are added to the BTC blockchain. Historically, each Bitcoin halving has been followed by a significant and sustained price increase.

Halving Schedule:

First Halving (2012): The first Bitcoin halving occurred on November 28, 2012, reducing the mining reward from 50 bitcoins per block to 25 bitcoins.

Second Halving (2016): The second halving, which took place on July 9, 2016, further reduced the block reward to 12.5 bitcoins.

Third Halving (2020): The third halving occurred on May 11, 2020, where the reward was decreased to 6.25 bitcoins per block.

Fourth Halving (2024): The most recent halving on April 20, 2024, lowered the reward to 3.125 bitcoins per block. Future halvings will continue until the maximum supply of 21 million bitcoins is reached, which is expected around the year 2140.

As of today, Bitcoin has undergone four halvings, often referred to within the industry as halving cycles. Historically, the BTC price has seen sharp increases around each halving event.

The above text discusses the cyclical nature of Bitcoin since its inception, focusing on the halving cycles and their impact on Bitcoin’s market cycles.

First halving cycle: November 28, 2012, to July 10, 2016. This halving cycle led to two bull markets in April and November 2013. During the first bull market, the price of Bitcoin rose from $12 to $288, an increase of 2300%. In the second bull market, the price rose from $66 to $1242, an increase of 1782%.

Second halving cycle: July 10, 2016, to May 12, 2020. This halving cycle resulted in a bull market in December 2017, where the price of Bitcoin increased from $648 to $19800, an increase of 4158%.

Third halving cycle: May 11, 2020, to April 20, 2024. This cycle led to two bull markets in April and November 2021. In the first bull market, the price of Bitcoin rose from $8572 to $69000, an increase of 741%. In the second bull market, the price rose from $15476 to $737770, an increase of 376%. Given the current price of Bitcoin, the crypto market remains in a bull market phase.

Historically, the price of Bitcoin often experiences significant fluctuations around halving events. In the months leading up to a halving, market expectations and speculation about potential price increases due to reduced future supply often drive the price up. After the halving event, Bitcoin usually experiences significant bull markets.

As can be seen from the chart above, before each Bitcoin (BTC) halving, the market experiences a bear market trough for about 1.3 years. Subsequently, it takes approximately another 1.3 years for the market to reach its peak, making the entire fluctuation process about 2.6 years long. Additionally, based on past BTC halving events, the BTC price bottoms out approximately 477 days before the halving occurs. Furthermore, from the day of the halving to the peak of the next bull market cycle, it typically takes an average of 480 days.

For instance, after the 2012 halving, the BTC price rose from $12.25 to $127 within 150 days. Similarly, after the 2016 halving, the BTC price increased from $650.63 to $758.81 within the same timeframe. Lastly, after the 2020 halving, the BTC price significantly rose from $8,821.42 to $10,943.00 within 150 days.

Looking back at previous halving events, Bitcoin also encountered pullback periods. In 2016, the market experienced a sharp sell-off from around $760 to $540 just before and after the halving, with a pullback of approximately 30%. The 2019 event saw an even larger pullback of about 38%.

This year is no exception, as up to the time of writing, the Bitcoin price has already retraced about 14%.

However, according to the Bitcoin stock-to-flow ratio model mentioned earlier, after the 2024 BTC halving, the BTC price could rise to over $100,000. Crypto research institutions PlanB and Glassnode both predict that the BTC price will exceed $100,000 in 2024. Pantera Capital has made an even more specific forecast, suggesting that at the end of the bull market cycle, the BTC price will reach about $149,000 by 2025.

Historically, Bitcoin cycles usually begin 12 to 18 months after the peak of the previous bull market, with new historical highs occurring a few months after the halving. However, this cycle’s halving might be influenced differently due to the ongoing developments with the U.S. Bitcoin spot ETF, potentially mitigating the effects of the halving.

Investors should also note that the post-halving increase in Bitcoin price is associated with significant macroeconomic events. For example, in 2012, the European debt crisis highlighted Bitcoin’s potential as an alternative store of value during economic turbulence, leading to its price rise from $12 in November 2013 to $1,100.

During the initial coin offering (ICO) boom in 2016, over $5.6 billion was injected into altcoins, indirectly benefiting Bitcoin, which saw its price rise from $650 to $20,000 by December 2017.

Particularly noteworthy is that during the COVID-19 pandemic in 2020, massive stimulus measures heightened inflation concerns, likely driving investors toward Bitcoin as a hedge, which led to its price rise from $8,600 to $69,000 in November 2021.

This information indicates that while halvings help to reinforce the narrative of Bitcoin’s scarcity, macroeconomic factors also have a significant impact on Bitcoin’s price. Given the high risks associated with the crypto market, investors should proceed with caution.

3. The Epic History of Bitcoin

To fully understand each cycle triggered by Bitcoin halvings, it is essential to revisit the epic history of Bitcoin’s development.

Like many great innovations, Bitcoin did not emerge out of nowhere; it was built upon the achievements of its predecessors, requiring both a technical and a philosophical foundation.

Pre-Bitcoin Technological Developments

The birth of Bitcoin was predicated on breakthroughs in cryptography and digital currencies:

1976 Asymmetric Encryption: On November 1, 1976, cryptographers Whitfield Diffie and Martin E. Hellman published the groundbreaking paper “New Directions in Cryptography.” This paper transitioned cryptography from symmetric (same key for encryption and decryption) to asymmetric encryption. This innovation paved the way for secure digital signatures and the public-private key pairs essential for encrypting transactions, which are vital to Bitcoin’s functionality.

1977 RSA Algorithm: One of the earliest practical public-key cryptosystems, RSA, was named after its creators: Ron Rivest, Adi Shamir, and Leonard Adleman.

1989 DigiCash: Established by David Chaum, DigiCash was among the first attempts at a fully anonymous, secure digital payment system. Based on blind signature technology and public-private key pairs, DigiCash, despite its innovative approach, failed due to its centralized nature. However, it was a significant precursor to the development of cryptocurrencies like Bitcoin.

With the expansion of the internet, the late 1990s and early 2000s saw a flurry of digital currency innovations:

1996 e-gold: Created by Douglas Jackson and Barry Downey, e-gold allowed users to electronically transfer the ownership of gold. Its centralized structure became a focal point for legal challenges, particularly in terms of money laundering. Combined with security issues, these factors ultimately led to its dissolution.

1997 Hashcash (Proof-of-Work System): Invented by Adam Back in 1997, Hashcash introduced a proof-of-work system initially designed to combat spam emails and denial-of-service attacks. This proof-of-work concept was later incorporated by Satoshi Nakamoto into the Bitcoin consensus mechanism.

1998 B-money (Distributed Ledger): Chinese-American scientist Dai Wei proposed the B-Money digital currency protocol, envisioned as a decentralized, anonymous electronic cash system. One approach was for all participants to keep a copy of all transactions, ensuring collective and transparent verification. This protocol was a rudimentary form of a distributed ledger, which Satoshi Nakamoto referenced in creating Bitcoin.

1998 Bit Gold: Invented by Nick Szabo, inspired by the real-world process of gold mining, Bit Gold introduced a proof-of-work mechanism. Participants had to demonstrate a proof of work to create a new currency unit called a “bit.” Once this work was verified, the new “bit” would be added to a chain, linking it with previous bits to form a public, tamper-proof record. Szabo also proposed a Byzantine fault-tolerance algorithm to prevent double-spending. Although Szabo detailed the principles of Bit Gold, it was never fully developed or launched as a functional model.

2004 RPOW (Reusable Proof of Work): Developed by Hal Finney and inspired by Hashcash, RPOW was seen as a potential foundation for a payment system. RPOW facilitated the transfer and exchange of POW tokens between individuals, promoting their use as a form of P2P electronic cash. This is why, when Satoshi Nakamoto shared the Bitcoin whitepaper on the cypherpunk mailing list, Hal Finney was immediately interested. Finney was the first to run a Bitcoin node, the first miner, and the recipient of the first Bitcoin transaction.

Satoshi Nakamoto’s Ideological Background and the Inception of Bitcoin

The issue of currency has always been thought-provoking. If currency is the crown of social sciences, then the business cycle is the jewel in that crown.

In the classical era, numerous sociologists such as Cantillon, John Law, and Hume pondered over the origins of inflation and the pursuit of sound money.

Entering the modern era, in the process of seeking explanations for capitalist economic crises and business cycles, a group of economists known as the Austrian School emerged. The Austrian School believed that inflation is primarily a monetary phenomenon caused by the issuance of credit money, which distorts market price signals and leads to widespread misjudgments by businesses in the market, ultimately leading to a market clearing or economic crisis.

In the 20th century, with the advancement of the credit era and particularly the central banks, the inflation caused by fiat money eventually became like a tiger returning to the mountains. Humanity witnessed numerous instances of severe inflation, like the German Mark and the Kuomintang’s gold yuan certificates.

In the United States, a notorious case occurred starting with the Great Depression of 1929, as central bank fiat money feared the competition from sound money. During the Great Depression, on April 5, 1933, U.S. President Roosevelt issued Executive Order 6102, prohibiting Americans from owning gold, which was not repealed until 1975.

Satoshi Nakamoto must have been quite familiar with this dark period in American history. Perhaps this is why he used April 5, 1975, as his birthdate when registering a pseudonym with the P2P Foundation.

In 1974, Austrian School economist Hayek won the Nobel Prize in Economics, and in 1976, Hayek published “The Denationalization of Money”. Additionally, the American monetary school’s Milton Friedman criticized inflation in the late 20th century, along with the libertarians and the revival of the Austrian School in America driven by the Libertarian Party.

Looking back, if Satoshi Nakamoto grew up during the 80s and 90s, he would have been deeply influenced by Austrian School economics and embraced their monetary stance of “the separation of money and state”.

After experimenting with ideas from Adam Back, Dai Wei, Nick Szabo, Hal Finney, and others, Nakamoto began to stand on their shoulders, integrating their strengths to make his unique contributions.

In early 2007, Nakamoto started writing the code for Bitcoin. On November 17, 2008, he wrote in a post on a cryptography mailing list: “I believe I’ve solved all those small details while writing the code over the past year and a half.”

Then came 2008, and the shocking global financial crisis that once again made the world reconsider the issues of business cycles and inflation.

During this crisis, both Nakamoto and humanity were ready.

Bitcoin Development Timeline

2008

August 18: The domain name Bitcoin.org was registered by an individual using a privacy service to conceal their identity. The person remains unidentified, but many believe it to be Satoshi Nakamoto, the pseudonymous creator of Bitcoin. This website has become a central hub for Bitcoin information, including beginner guides, technical documentation, and news about the Bitcoin ecosystem. The domain is currently maintained by an open-source community.

October 31: Satoshi Nakamoto published the Bitcoin whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” on a cryptography mailing list. This paper’s most significant contribution was its decentralized mechanism called blockchain, which solved the double-spending problem. The Bitcoin network relies on a Proof-of-Work (PoW) system to verify transactions and maintain the integrity of the blockchain.

2009

January 3: Satoshi Nakamoto mined the genesis block of Bitcoin on a server in Helsinki. This block contained a message in the coinbase parameter, stating, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” This referenced a headline from The Times newspaper about the UK government’s plan to bail out failing banks.

January 12: The first recorded Bitcoin transaction: Nine days after Bitcoin’s launch, Satoshi Nakamoto sent 10 bitcoins to Hal Finney’s Bitcoin address.

February: Introduction of the first Bitcoin wallet, Bitcoin-Qt, which provided a user-friendly interface for early adopters to manage digital wallets for sending and receiving bitcoins. Starting from version 0.9.0, Bitcoin-Qt was later renamed Bitcoin Core.

2010

March 17: The first recorded Bitcoin price: Bitcoin was priced at $0.003 on the now-defunct bitcoinmarket.com.

May 2: The first recorded purchase using Bitcoin: Laszlo Hanyecz bought two pizzas from Papa John’s for 10,000 bitcoins, then valued at a few dollars.

July 18: Programmer Jed McCaleb founded Mt. Gox as a Bitcoin exchange. Originally bought in 2007 for a Magic: The Gathering online card exchange, McCaleb repurposed the domain for Bitcoin trading in 2010. Within less than a year, he sold the platform to French developer Mark Karpelès. By 2013, Mt. Gox was handling approximately 70% of all global Bitcoin transactions.

November 1: Creation of the Bitcoin logo by an unknown artist using the pseudonym “Bitboy.” The identity of “Bitboy” remains unknown.

2011

February: Launch of Silk Road, an online darknet market, prominently using Bitcoin as a payment method.

June: The first Bitcoin bubble and the first major Bitcoin theft occurred, with prices reaching $31 per bitcoin in June but plummeting to $2 by November due to a massive hack at Mt. Gox.

April 18: The first altcoin, Namecoin, was created as a fork of the Bitcoin protocol with similarities to Bitcoin, including the use of a proof-of-work mechanism. It aimed to provide a decentralized, censorship-resistant system for registering and managing domain names, as well as storing and transmitting arbitrary data.

2012

November 18: The first Bitcoin halving event occurred at block height 210,000, reducing the block reward from 50 to 25 bitcoins.

2013

March 18: Bitcoin’s market cap surpassed $1 billion for the first time.

May 2: Installation of the first Bitcoin ATM in Vancouver, Canada.

July 3: The first Initial Coin Offering (ICO) with Mastercoin, demonstrating the potential of token sales as a fundraising mechanism for blockchain development. Mastercoin was later renamed Omni.

December 18: The term “HODL” was coined on the bitcointalk.org forum in a post titled “I am HODLING.”

2014

February 25: Mt. Gox filed for bankruptcy protection following a hack that led to the loss of approximately 850,000 bitcoins, valued at around $450 million at the time.

2015

All year: Bitcoin scalability and block size debates occurred, culminating in the Scaling Bitcoin conferences in Montreal in September and Hong Kong in December.

2016

January 14: Publication of the Lightning Network whitepaper by Joseph Poon and Thaddeus Dryja, proposing off-chain state channels as a scaling solution for Bitcoin.

July 9: The second Bitcoin halving event reduced the block reward from 25 to 12.5 bitcoins at block height 420,000.

2017

August 1: The Bitcoin Cash (BCH) hard fork increased the block size limit from 1MB (4MB post-SegWit) to 32MB.

August 23: Segregated Witness (SegWit) activated at block height 481,824 on the Bitcoin mainnet, improving scalability by separating witness data from transaction data and increasing the effective block size limit to 4MB.

November: The Lightning Network went live on the Bitcoin mainnet, completing its first transaction.

2018 - 2023

2020: The third Bitcoin halving reduced the block reward to 6.25 bitcoins at block height 630,000.

2021: Taproot upgrade activated, introducing Schnorr signatures and smart contract improvements.

2024

January: The U.S. SEC approved 11 Bitcoin spot ETFs.

March: Stimulated by Bitcoin spot ETFs, Bitcoin’s price rose to $73,000, surpassing previous highs before a halving event.

This timeline highlights the key developments in the evolution of Bitcoin, reflecting its growth from a conceptual digital currency to a widely recognized financial asset with significant technological advancements.

4. As Dynasties Change, So Do the Talents

With the evolution of Bitcoin and the cyclical nature of cryptocurrency markets, the leaders in the crypto industry are quickly succeeded by new ones. It can truly be said that as one era passes, new talents emerge, each dominating the scene for a year or two.

Here are some key figures in the history of cryptocurrency who have made significant impacts:

Satoshi Nakamoto: The creator of the Bitcoin protocol and its related software, Bitcoin-Qt. His real identity remains unknown; he claims to be of Japanese descent but American. In 2009, he released the first Bitcoin software and officially launched the Bitcoin financial system. By 2010, he had faded into the background and handed over the project to other members of the Bitcoin community.

Vitalik Buterin: Known in the crypto world as “V God,” he is the founder of Ethereum. Initially a Bitcoin enthusiast, in 2011 he founded “Bitcoin Magazine.” He is the author of the most comprehensive Python library for Bitcoin, pybitcointools. Vitalik supported the idea of Bitcoin blocks being larger and originally wanted to make Bitcoin scalable, for instance through the creation of Colored Coins, which allowed users to issue their own tokens within the Bitcoin ecosystem. Ethereum, which supports larger block sizes, diverged from Bitcoin’s concept of ‘digital gold’ to become a “world computer.”

Craig Steven Wright: Known as “Fake Satoshi,” he is the founder of Bitcoin Satoshi Vision (BSV), a fork of Bitcoin Cash (BCH), and an Australian who claimed to be Satoshi Nakamoto. His claim was initially recognized by Gavin Anderson, a member of the Bitcoin core team, in 2016. However, he was unable to provide sufficient proof and eventually abandoned his claim, earning the moniker “Australian Satoshi.” Wright was also very active during the Bitcoin fork controversy, even threatening to destroy Bitmain financially, leading to the birth of BSV.

Chang Jia: Real name Liu Zhipeng, founder of China’s largest blockchain forum and media outlet, 8btc, and also a science fiction writer. He plays a significant role in the Chinese blockchain community and has long been dedicated to the promotion and theoretical study of blockchain technology. He proposed the “blockchain trilemma” theory and published China’s first Bitcoin book, “Bitcoin: A Real Yet Illusory World.”

Roastcat: Real name Jiang Xinyu, an influential figure in the history of Bitcoin development in China. He was one of the first in China to launch an ICO and a pioneer in Asic mining technology. By 2013, he had become a billionaire, controlling 20% of the network’s mining power. However, he disappeared between the end of 2014 and early 2015 and has not been seen since.

Jihan Wu: Known as a mining magnate, he is the founder of Bitmain, which at one point controlled over 50% of Bitcoin mining power. In 2017, during the debate over Bitcoin block sizes, he supported larger blocks and subsequently forked Bitcoin to create BCH, attempting even to usurp control of Bitcoin, though he ultimately failed.

Li Xiaolai: Originally a teacher at New Oriental, he was dubbed China’s Bitcoin tycoon. He first bought Bitcoin in 2010 and aggressively increased his holdings during the 2014 bear market, accumulating over 100,000 Bitcoins. In 2017, he cashed out all his Bitcoins, earning approximately 13.5 billion yuan, and publicly declared Bitcoin a scam.

Casey Rodarmor: Developer of the Ordinals protocol, enabling NFTs on Bitcoin, marking another significant effort to issue NFTs on Bitcoin after Colored Coins in 2012 and the derivative platform Counterparty in 2014. He also proposed the Rune protocol, which is set to launch on the day of Bitcoin’s fourth halving.

Larry Fink, CEO of BlackRock: In 2017, he professed himself a “true believer” in cryptocurrencies, and in 2023, BlackRock filed an application for a Bitcoin ETF. His statement that cryptocurrencies could surpass global currencies was a significant boost for Bitcoin’s mainstream acceptance, and BlackRock was among the first in the U.S. to dive into a Bitcoin spot ETF.

President Nayib Bukele of El Salvador: The world’s first president to openly support Bitcoin, making it the national currency of his country, and purchasing one Bitcoin every day thereafter, representing an innovative challenge to the current financial system.

Michael Saylor, CEO of MicroStrategy: His company holds more Bitcoin than any other, and Saylor is a significant influencer in the crypto space, reportedly owning over 120,000 Bitcoins.

Changpeng Zhao: Founder of Binance, he used the money from selling his house to bet on Bitcoin at $600 in 2014. He founded the now largest cryptocurrency exchange, Binance, in 2017 and chose a global path after China cracked down on local exchanges, a decision that proved successful. However, this also led to legal challenges with the U.S. government. Zhao is praised not just for running an exchange but for helping grow the industry by investing in and incubating many projects.

The history of Bitcoin has seen many come and go, but some have persisted, passionately evangelizing in the early days and later actively participating in the industry’s development. The history of crypto will remember those who actively engaged, and their belief in Bitcoin has rewarded them handsomely.

5. From Payment Currency to Digital Gold: The Co-option of Anarchism

Since its inception in 2008, Bitcoin has almost reached its sixteenth year. Born out of the financial crisis of 2008, Satoshi Nakamoto introduced Bitcoin in response to rampant inflation due to excessive money printing, aspiring to establish a financial system independent of any nation-state. Originally, Bitcoin was conceived as electronic cash, with Nakamoto hoping it would be adopted for everyday use like traditional currency.

However, in its first two years, Bitcoin was virtually worthless. The price of one Bitcoin was less than half a cent, and no merchants were willing to accept it as payment. It wasn’t until May 2010 that Bitcoin began to be used for purchasing goods, when an early miner, Laszlo Hanyec, famously traded 10,000 bitcoins for two pizzas.

Bitcoin’s role as a means of payment really took off on the dark web. In 2011, the establishment of the Silk Road on the dark web turned Bitcoin into its primary currency, largely due to its anonymity and the difficulty in tracking it, which met the needs of the dark web perfectly.

Early data reveals that in the first three years after Bitcoin’s creation, 30% of its transactions were linked to the dark web. By 2014, the average daily transaction volume of Bitcoin on the six major dark web markets reached $650,000. Linked with money laundering, drug trafficking, and human trafficking, Bitcoin became synonymous with these illicit activities. Statistics up to January 2018 indicate that approximately 25% of Bitcoin users and nearly half of all Bitcoin transactions were associated with illegal activities.

With the disappearance of some dark web sites, the most commonly used cryptocurrency for money laundering shifted from Bitcoin to Tether, due to its stable price. As the price of Bitcoin skyrocketed and its volatility increased, its utility as a medium of exchange diminished, gradually transforming it into a tool for storing value. After the major block size debate in 2017, Bitcoin solidified its status as “digital gold,” and in practice, it has continually been proving this status.

As some sovereign national currencies collapsed, Bitcoin emerged as a superior alternative to conventional fiat currencies in certain countries.

In September 2021, Bitcoin became the official legal tender in El Salvador, making it the first “Bitcoin nation.”

The newly elected president of Argentina has been promoting the benefits of Bitcoin and cryptocurrencies at various public events. With Argentina suffering from long-term inflation, its citizens have actively been buying Bitcoin, making Argentina one of the countries with the highest cryptocurrency adoption rates in the world. Inflation rates in Argentina rose from 254.20% in January 2024 to 276.20% in February.

These examples show that Bitcoin is indeed fulfilling Nakamoto’s original vision of combating inflation. However, some sovereign nations have also been embracing Bitcoin, which means the initial intention of operating independently from mainstream financial systems is no longer feasible. Nowadays, some governments are actively regulating and embracing Bitcoin, integrating it into the mainstream financial system. This is most evidently seen in countries that have approved Bitcoin spot ETFs, especially with the significant impact of the U.S. approval.

Throughout the years, Bitcoin has gradually shifted from being a means of payment to an investment commodity akin to gold, and the global attitude towards it has evolved from hostility to compulsory regulatory research and active acceptance.

Previously a plaything for geeks, after nearly sixteen years, the narrative of Bitcoin has evolved from a payment currency to digital gold, eventually being co-opted by the mainstream financial system.

Meanwhile, Bitcoin itself has been changing, having experienced the block size debates, forks, and a continuous emergence of new features like script enhancements on its platform.

Various factions have staged all sorts of conflicts over Bitcoin for their own interests, but none of these have truly shaken Bitcoin, which remains formidable.

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