Theme

How Bitcoin Took Over the World

Examining the evolution of Bitcoin through a coming of age story and lots of data!

By: Evan Moore
5/1/2024

What is Bitcoin?

I first discovered Bitcoin in 2017 after it's first large price movement - Bitcoin went from $1,000 to $19,000 in nine months. I, like many people, wasn't allured by the underlying technology or utility of Bitcoin, but by the absurd price movement. In 2017 I was a sophomore in high school and although I tried to understand Bitcoin, when someone asked me about it all I could say about it was “Uhh it’s decentralized, and uses blockchain technology”, of course, I didn't understand what these technical terms meant. However, I continued to explore Bitcoin and cryptocurrencies in general, and as I did so I became even more invested in it (not literally, I didn't have any money) and more confused.

To me, Bitcoin being decentralized meant that no one controlled it and blockchain technology was a new way of storing data that prevents people from hacking it. There is a lot more to both of these concepts, but this generally is correct. I also found the concept of Bitcoin mining very interesting. I envisioned computers in mines on the internet searching for Bitcoins like they were diamonds or gold.

Bitcoin is a decentralized digital currency that operates on a peer-to-peer network. In other words, Bitcoin operates without a central authority, such as a government or financial institution, and transactions are directly conducted between users on the network.

Transactions made on the peer-to-peer network are recorded on a distributed ledger. The distributed ledger is made up of blocks that contain batches of transactions that are all verified by Bitcoin miners. Blocks are immutable and appended onto each other chronologically, thus forming a blockchain.

The blockchain ensures the integrity of transactions, no double payments, and consensus among network participants without a central authority. Additionally, it facilitates the verification of ownership and the transfer of digital assets like Bitcoin securely and efficiently. Bitcoin uses a proof-of-work consensus mechanism. This means miners compete to solve complex mathematical puzzles to validate transactions and create new blocks on the blockchain. When a miner successfully validates a transaction, it receives a Bitcoin as a reward.

There are a limited number of Bitcoins (21 million) and scheduled halving events that occur after a certain number of Bitcoins has been mined. After these events, the rewards for miners are cut in half, effectively making Bitcoin more scarce. Bitcoin technology is extremely transformative and has lots of potential to change how currency is used across the world, but Bitcoin gained popularity because of wealth creation.

Wealth Creation

Bitcoin's exponential growth in value has transformed the fortunes of many early investors, propelling them into the ranks of billionaires and millionaires. The now legendary Bitcoin Pizza story, where Laszlo Hanyecz famously exchanged 10,000 bitcoins for two Papa John's pizzas in 2010, underscores the staggering appreciation of Bitcoin's worth over the years. At that time, when Bitcoin was valued at less than a cent per coin, few could have predicted its meteoric rise to around $60,000 per coin today.

As shown in the chart above, Bitcoin's price has climbed to astronomical levels since it inception, and many investors found was to capitalize. This unprecedented wealth generation has not only captured the attention of financial markets but has also sparked a frenzy of interest among the general public. Discord groups and online communities dedicated to Bitcoin abound, where members proudly share their success stories and discuss investment strategies. Moreover, Bitcoin's prominence on social media platforms has further fueled its popularity, cementing its status as a symbol of wealth creation and financial opportunity in the digital age.

As I previously mentioned, I too was entranced by the meteoric rise of Bitcoin. So I bought some, and I, like many others, bought at the peak, and by 2019 was down over 60% from my initial investment. So I took my losses and forgot all about Bitcoin. Bitcoin is not a one-sided story, lots of people have lost significant amounts of money. However, Bitcoin is like a rubber duck in a bathtub; no matter how many times it goes under, it keeps popping back up.

Bitcoin's Rise in Popularity

Taking a step back, how did Bitcoin gain enough popularity to reach its high in 2018? Since its creation by the anonymous Satoshi Nakamoto in 2009, Bitcoin initially garnered attention from tech enthusiasts and early adopters. However, its utility remained limited until more individuals began mining it, expanding the network and driving interest. The emergence of the Silk Road in 2011, an online marketplace notorious for facilitating illegal transactions, played a pivotal role in Bitcoin's journey, as it became a platform for buying and selling illicit goods. This notoriety propelled Bitcoin into the mainstream consciousness.

Subsequently, investment funds took notice of its potential, further fueling its legitimacy by the early 2010s. From 2013 to 2015, lots of new cryptocurrencies were minted (DogeCoin: 2013, Ripple: 2013, Ethereum: 2015), each with its unique utilities, and ultimately continuing to spread the popularity of Bitcoin. However, the massive price movement from 2016 to 2017 catapulted Bitcoin into the spotlight, attracting widespread attention and speculation. From 2017 to 2020, the introduction of meme coins, non-fungible tokens (NFTs), and the influence of social media further amplified Bitcoin's traction, with influencers promising a potential for wealth creation.

The COVID-19 pandemic in 2020 provided another catalyst for Bitcoin's popularity. People were stuck indoors with stimulus checks and found Bitcoin appealing. Since then, the crypto landscape has continued to evolve rapidly, with the introduction of more cryptocurrencies, the rise of NFTs and social media engagement, and growing institutional adoption, all contributing to Bitcoin's enduring appeal and widespread adoption.

As you can see in the chart below showing Google searches for Bitcoin and Gold, Bitcoin interest is now reaching record levels, and will soon surpass gold.

Following the Bitcoin drop in 2018 I had not thought about Bitcoin until COVID-19 hit. Simutaneoulsy Bitcoin price shot up and I was left in the dust again. However, this time I told myself I would buy and hold. That did not happen, and I sold shorty after buying. But two new interest of mine quickly arose: NFT's and memecoins. Both inherently hold no value and provide no utility, but they are so cool!

Finally, Bitcoin price receeded again in 2021 and 2022 and I lost all interest again... that is until the most recent pop!! \t New paragraph While retail investors played with their memecoins, NFT's, and other cryptocurrencies from 2012-now, Bitcoin miners slowly grew their arsenals of computers across the world.

Bitcoin Mining

Bitcoin mining is a global phenomenon, with operations spread across major world powers and increasingly gaining popularity in smaller countries. For instance, Kazakhstan has witnessed a significant surge in Bitcoin mining, with its share rising from 1% in 2019 to 14% in 2021. This decentralization of mining activity reflects the widespread adoption and interest in cryptocurrencies worldwide. Furthermore, the integration of cryptocurrencies into national economies is becoming a topic of consideration for some countries. In a landmark move in 2021, El Salvador became the first nation to officially adopt Bitcoin as its national currency, signaling a potential shift towards broader acceptance and utilization of cryptocurrencies in traditional economic systems

Is Bitcoin Here to Stay?

Bitcoin is the 9th largest asset in the world, yet it's future remains uncertain despite its surging popularity and increasing investment inflows. While it continues to attract significant attention and investment, there are lingering doubts and concerns surrounding its long-term viability. Critics, including notable figures like Jamie Dimon, CEO of JP Morgan Chase, express skepticism about Bitcoin's sustainability and its acceptance by governments. Dimon publicly addressed his doubts about Bitcoin recently, “I will personally never buy Bitcoin, and I do think it’s a risk if you are a buyer” (CoinDesk).

Regulatory scrutiny, security vulnerabilities, and the potential for market manipulation are among the factors contributing to the uncertainty surrounding Bitcoin's future. As the landscape of cryptocurrencies evolves and regulatory frameworks develop, the fate of Bitcoin will depend on its ability to navigate these challenges and establish itself as a resilient and widely accepted asset class in the global financial ecosystem.

Thank you for reading!

Sources and More

I created my charts in RStudio and touched them up in Adobe Illustrator. This website is coded in React, Nextjs, Tailwindcss, and DaisyUI.