How Bitcoin Went From Nerd Money To A GLOBAL Movement

What is Bitcoin? What does Bitcoin do? Is  it perfect? It's anonymous and untraceable.   Criminals can trade drugs and guns online with  Bitcoin. The whole Bitcoin market is about a   billion dollars that the US government would  shut it down. Hello, Bitcoiners. It's good to   be with you. I paid with Bitcoin Cash using my  Bitcoin.com wallet here in a giant supermarket. Bitcoin. When I say Bitcoin, you say what? Pizza. Hello and welcome to part two in our series on  Bitcoin and the fight for the future of money.   In the last episode, we explored the decadesl  long buildup to Bitcoin's creation and left   off during its infancy. At that point, most of the  world had never heard of Bitcoin and only a small   group of cryptography nerds were experimenting  to see if it could actually work. And that is   where we pick up from today. We'll be looking at  this small group of enthusiasts and exploring the   strange and sometimes controversial early years  that ultimately helped bring Bitcoin to a wider   audience. Now, you'll recall that one of the first  people involved with Bitcoin was Hal Finny. Before   Bitcoin's release, Finny regularly chatted with  Satoshi Nakamoto on the early Bitcoin forums. When   Satoshi first announced Bitcoin on those early  forums, people were skeptical. They'd seen similar   experiments fail before. But Finey was fascinated  by the idea. So when Satoshi released the Bitcoin   client software on the 9th of January 2009, Finny  downloaded it almost immediately. In a March 2013   blog post called quote Bitcoin and me, Finny said  he was probably the first person besides Satoshi   too downloaded. Over the following days, Finny  reported bugs while Satoshi fixed them. Then on   the 12th of January 2009, just 3 days after the  software launched, Satoshi sent Phiney 10 BTC,   marking the first Bitcoin transaction between two  people. Now 10 BTC is a lot of money today, but at   the time they had no recognized dollar value. They  were effectively worthless. The point was simply   to test whether the system worked. Of course,  for Bitcoin to become more than just a twoperson   experiment, it needed others running the software  and a small group of enthusiasts beside Finny   downloaded it. But throughout 2009, the Bitcoin  community remained tiny. In November that year,   Satoshi launched a dedicated Bitcoin forum and  it became the place where users reported bugs,   proposed changes, debated mining, and asked  basic questions about how Bitcoin should work.   It effectively turned Bitcoin into a small  open-source project being built in public.   But even with only a handful of nerds keeping  nodes online, fixing code, mining coins,   and debating what Bitcoin might become, one thing  was clear. It could survive beyond its creator.   And this is where Bitcoin takes its first weird  turn. You see, Satoshi had poured his efforts   into creating Bitcoin and stabilizing its code  so the network could grow. But in December 2010,   just over two years after publishing the  white paper, he made his last known public   post on the Bitcoin forum before stepping  away from Bitcoin entirely. The last known   interaction with Satoshi came in April 2011 when  he emailed fellow developer Mike Hearn saying,   quote, "I've moved on to other things. It's  in safe hands with Gavin and everyone."   He then emailed Gavin Anderson a few days  later to hand the project over. After that,   Satoshi disappeared forever. With more than 1  million mind BTC to his name, he is technically   the richest person in crypto and indeed one of  the richest people on Earth. Yet to this day,   nobody knows who he is. And not a single  Bitcoin from that fortune has moved. Now,   in Bitcoin's earliest days, it could still be  mined on a normal computer. The original block   reward was 50 BTC and competition was minimal.  Enthusiasts could simply download the software,   leave their computer running, and generate BTC.  It was only when people began experimenting   with graphics cards that Bitcoin mining became  increasingly competitive over time. And today, if   you tried mining Bitcoin on a normal computer, it  would probably catch fire. But in the beginning,   there was no industry around Bitcoin mining or  around Bitcoin itself. And what's more, Bitcoin   had a problem. Nobody knew what one BTC was worth.  One of the first attempts to give Bitcoin an   economic value came from an anonymous user called  New Liberty Standard. On the 5th of October 2009,   the site valued $1 at exactly 1,39 BTC and three  sats. That meant one BTC was worth around 0.076, not dollars, cents. But where did this valuation  come from? Well, New Liberty Standard used a cost   of production formula. Take the average annual  electricity cost of running a computer with a   good CPU. Divide it by 12 for the monthly cost.  Then divide that by the number of BTC mined over   the previous 30 days. This marked the first time  Bitcoin was given a real dollar value. But that   wasn't new Liberty Standards only milestone. One  week later on the 12th of October, they bought   5,050 BTC from Marty Malme for $52 via PayPal.  This is the first known transaction to exchange   Bitcoin for fiat currency. Oh, and Marty Malme  wasn't just some random nerd on the internet. He   became Bitcoin's first developer after Satoshi.  At just 20 years old, he first got in touch with   Satoshi in May 2009, offering to help. Mami went  on to exchange roughly 260 emails with Satoshi   more than anyone else in the Bitcoin community,  and he also set up the bitcoin.org website and   the original Bitcoin forum, which later became  Bitcoin Talk. But back to Bitcoin's monetary   value. Even though each BTC was worth less than a  tenth of a cent, the fact that someone was willing   to exchange dollars for bitcoins meant something  hugely important. Those coins now had measurable   value outside the software itself. Someone  somewhere was willing to give up something   valuable for it. Bitcoin was no longer just an  idea. It was an asset people could buy, sell,   and transact with. From there, the milestones kept  coming. By early 2010, users were trying to build   a proper market. A forum member called DW Dollar  announced Bitcoin Market, describing it as quote,   "a real market where people will be able to  buy and sell bitcoins with each other. Trading   began in March 2010, making it the first ever  cryptocurrency exchange. People who had never   mined a block could now buy coins, while miners  finally had somewhere to sell what they produced.   And then came one of the most iconic moments  in Bitcoin's history. On the 18th of May 2010,   programmer Llo Hex posted the following  message on the Bitcoin forum. Quote,   "I'll pay 10,000 bitcoins for a couple of pizzas,  like maybe two large ones so I have some left over   for the next day. I like having leftover pizza  to nibble on later. Now, what's funny is that   one of the replies said, quote, "10,000? That's  quite a bit. You could sell those on Bitcoin   market for $41 right now. Good luck on getting  your free pizza." Well, as it happens, luck was   indeed on Lazlo's side. On the 22nd of May, 4 days  after posting the request, another user arranged   for two Papa John's pizzas to be delivered to  Lazlo's house. Lazlo posted back, quote, I just   want to report that I successfully traded 10,000  bitcoins for pizza and attached a photo as proof.   This transaction became so iconic that the 22nd of  May is now Bitcoin Pizza Day. An anniversary that   can be celebrated by anyone who loves Bitcoin,  pizza, or both. But the transaction went down in   the history books for a few reasons. First, it's  utterly insane that somebody ordered food through   a Bitcoin forum. Second, it marked the first known  purchase of a realworld item using BTC. And third,   those 10,000 BTC are worth hundreds of millions  of dollars today, making those two Papa John's   the most expensive pizzas ever. To be fair, they  looked delicious. And Lazlo says he doesn't regret   a thing. He's just glad to have made history. And  you've got to respect that. The point, though,   is that a digital token created by strangers on  the internet had now been accepted in exchange   for something real. Bitcoin was starting to  behave like money. So, Bitcoin now had a price   and had been used as a medium of exchange  for the first time ever. The next step was   for these weird internet money nerds to create  a digital economy where Bitcoin could function.   But before we dive into that, I need to tell  you about the Coin Bureau's weekly newsletter.   That's where our research team breaks down the  biggest stories shaping the crypto market and   highlights the key catalysts for the week ahead.  It's completely free. So, what are you waiting   for? Sign up using the link below or scan this  QR code. And now back to Bitcoin's new internet   economy. The Bitcoin forum had become the town  square for the project. People posted software   updates and mining experiments, but also bought  and sold things. In January 2010, the pseudonmous   New Liberty Standard I mentioned earlier started  a thread simply titled Marketplace. There,   users discussed exchanging bitcoins for everything  from household supplies to movies, software,   and MP3s. Some ideas were more sensible than  others, but all of them were experimental.   With no company deciding what Bitcoin was for,  users were effectively inventing the economy as   they went. Deciding on how to use Bitcoin was one  challenge. Getting BTC into newcomers hands though   was another. So in June 2010, developer Gavin  Anderson, the same Gavin I mentioned earlier, came   up with a brilliant, albeit slightly ridiculous  solution, a Bitcoin foret. Users could visit,   complete a simple capture, and receive five BTC  for their efforts. Anderson stocked the forcet   with,00 of his own BTC, believing that people  needed coins to experiment with. Satoshi loved   the idea and said he'd planned something similar.  Now, of course, giving away five BTC sounds insane   today, but back then it was a practical way  to get people to try this obscure internet   money. Bitcoin's culture became increasingly  grassroots and chaotic. From there, developers   built primitive wallets and trading tools, while  miners shared new hardware and more efficient ways   to generate BTC. Users created price trackers,  merchant directories, and Bitcoin services.   Slowly, an improvised industry formed around it,  run by small teams and individual programmers.   These developments made Bitcoin easier to use, but  also created a problem that would become serious   later. Although the protocol removed the need for  intermediaries, users were voluntarily handing   coins to unregulated websites simply because they  were more convenient. Meanwhile, the range of   people interested in Bitcoin was growing. Some  were driven by cipher punk values while others   simply thought it was clever. But a growing group  saw an opportunity to build businesses around it   or integrate it into existing ones. And just like  that, real infrastructure started forming around   this internet funny money. Now, while Bitcoin  was still searching for a use case, it found   one that would reshape both its growth and its  reputation. In early 2011, an online marketplace   called Silk Road appeared on the dark web, which  was basically a marketplace for drugs and other   illegal goods and services. Ross Olrich, who ran  Silk Road under the name Dread Pirate Roberts,   built the site around Bitcoin payments.  Buyers could deposit BTC into their Silk Road   accounts and use it to purchase their uh goods.  Because Bitcoin was designed to operate outside   the traditional financial system, it became a  natural fit for all the dodgy dealings going on   there. After all, credit card companies can block  payments and banks can close accounts. But Bitcoin   can be sent directly from person to person without  either institution getting involved. Notably,   Silk Road tried to make users harder to identify  through tour and its own transaction mixing   system. Bitcoin itself was never truly anonymous  since transactions are permanently recorded on a   public blockchain. Still, Silk Road gave users a  way to move value online without revealing their   identity. And before long, the Bitcoin economy  exploded. US prosecutors later said Silk Road   generated more than 9.5 million BTC in sales  during roughly 2 and 1/2 years of operation   while collecting over 600,000 BTC in commissions.  But while lots of BTC was moving through the site,   it would be wrong to say Silk Road alone created  Bitcoin's market. What it did do, for better or   for worse, was to display Bitcoin's realworld  use case. Not because people could buy drugs,   but because Bitcoin could be used in an online  marketplace. Still, Bitcoin was now connected to   criminal activity and dark web marketplaces.  And that connection dragged Bitcoin into the   public spotlight. In June 2011, Gawker published  an article about Silk Road and the article was   shared far and wide. A broader audience suddenly  became aware of Bitcoin's use in the drugs trade,   causing traffic on Silk Road to rise. Within  a week of that article being published,   BTC's price more than tripled to around $27.  Politicians were starting to notice, too. and US   Senator Chuck Schumer publicly called for action  against Silk Road, appealing to authorities like   the DEA and the DOJ. It wasn't until October 2013,  though, that the Silk Road website was shut down   by the FBI. Anyway, Bitcoin had become associated  with criminal activity and dark web marketplaces,   a reputation that would follow it for years.  But Silk Road also demonstrated the power   of permissionless digital money, albeit in  perhaps the messiest possible way. Strip away   the nefarious stuff and you're left with a digital  currency that allows legitimate users to transact   without a financial gatekeeper. Now, Silk Road  could only grow because another part of Bitcoin's   economy was growing alongside it, exchanges.  As you'll recall, Bitcoin Market.com became the   first crypto exchange in March 2010. But another  exchange launched that same year and quickly came   to dominate the space. That exchange was Mount  Gaus. Now, originally, Mount Gox had absolutely   nothing to do with crypto. It started as a website  for users to trade Magic the Gathering cards   online. In fact, Mount Gaus, Mtox, is actually an  acronym for Magic the Gathering online exchange.   The domain for the website was originally acquired  by programmer Jed MB in 2007. However, he later   sensed an opportunity and repurposed Mount Gox as  a Bitcoin exchange in July 2010. Around 7 months   later, Maleb handed over the exchange to Mark  Carpellis where it became the center of Bitcoin   trading. For ordinary users, exchanges changed  Bitcoin completely. Mining required technical   knowledge and increasingly powerful software.  But an exchange let someone create an account,   deposit fiat, and buy BTC from another user. Mount  Gox held customer balances internally, allowing   trades to happen quickly without requiring both  sides to settle every transaction manually on the   blockchain. That convenience helped Mount Gaus  to grow remarkably fast. By mid 2011, it handled   around 90% of Bitcoin exchange transactions. By  2013, it had almost 1.1 million active accounts   across 239 different countries. Bitcoin had become  something people could speculate on. Thousands of   buyers and sellers could see its market price  moving in real time, and people began buying it   because they expected the price to rise. And  for some of Bitcoin's earliest adopters, the   once worthless coins they'd accumulated and held  on to were suddenly worth an absolute fortune.   A famous example was an early Bitcoin miner known  as Nightmb MB, who'd accumulated a massive 371,000   BTC. After the Silk Road article was published  and BTC hit $27, that stash was worth around $10   million. Let that sink in. A programmer holding a  pile of obscure digital coins had suddenly become   a multi-millionaire. But there was a catch in  this new exchange economy. Bitcoin itself was   decentralized, but the exchanges built around it  were anything but. That centralization created   concentrated points of failure, making them  easier targets for attackers. And in June 2011,   Mount Gaus suffered a major security breach. A  compromised account was used to trigger a violent   sell-off, sending Bitcoin's displayed price  from around $17 to just pennies before trading   was halted. Other users treated it as a fire sale  and bought BTC on mass, pushing the price back up.   But the damage was done. Thousands of users  quickly learned that owning a decentralized   currency didn't mean every service built around  it was decentralized or indeed safe. And that   lesson would become painfully important later  in Bitcoin's history. Now, exchanges also gave   Bitcoin something it had never experienced before,  proper boom and bust cycles. Through much of 2010,   one BTC was worth less than 14. By early November  though, it had reached around 36 cents. And from   there, BTC's price went crazy. In February 2011,  BTC crossed the $1 mark. That might sound trivial   now, but at the time it was huge. BTC now had  more value than one US dollar, the world's reserve   currency. Before long, more people noticed and  started buying Bitcoin, accelerating the feedback   loop. In early April 2011, one BTC was worth just  86. By the end of May, it had surged to $8.89. 89.   Then after Silk Road gained publicity that June,  Bitcoin rocketed to roughly $32 per coin. But   every boom has its bust and eventually the rally  collapsed. The initial drop was brutal, followed   by a long decline that took BTC to around $2 by  November 2011. Anyone who bought near the top   was sitting on paper losses of more than 90%. To  outsiders, it looked like the speculative bubble   had burst and the Bitcoin would simply disappear.  But it didn't. BTC recovered throughout 2012,   and in 2013, things really went crazy. Bitcoin  started the year at around $13, but by April,   frantic demand had pushed its price on Mount Gaus  as high as $266. The exchange struggled with the   influx of new users, causing trading to lag badly.  And then in one chaotic session, BTC plunged   as low as $15. Again, headlines emerged asking  whether the bubble had finally burst. And again,   Bitcoin just kept on trading. Each crash shook out  some short-term speculators, while a larger group   of people who had now heard of Bitcoin stuck  around. The back end of 2013 was insane. BTC   traded at around $215 at the start of November,  but by the 27th of November, it had crossed   $1,000 for the first time. A few weeks later,  prices fell sharply after Chinese restrictions   hit the market with Mount Gox quotes dropping  to around $572 after trading near $1,200. Now,   this volatility became one of Bitcoin's defining  features. Huge rallies attracted newcomers   convinced they discovered the future. Stories  spread of people spending just a few hundred   dollars on BTC only to become Lamborghini driving  millionaires in their early 20s. Those stories   drew even more people in, pushing BTC's price  yet higher. The crash that followed convinced   plenty of outsiders that the whole thing was  finished. And ironically, this pattern still   plays out today. Every bull market puts Bitcoin  on the map. And in every bare market, commentators   say it's dead. There's even a website tracking  how many times someone has written Bitcoin's   obituary since 2010. As I record this, Bitcoin has  been declared dead 475 times. And yet, 475 times,   those declarations have been proven dead wrong.  Now, in 2013, Bitcoin had caught the eye of   governments who could no longer dismiss it as a  hobby for nerds. The first major US regulatory   framework arrived in March 2013 when the Financial  Crimes Enforcement Network or Fininsen issued   guidance on how existing anti-moneylaundering  rules applied to digital currencies. This was   a major shift. Bitcoin had suddenly entered a  world of financial rules that early hobbyist   services had barely considered. Mount Gaus soon  learned what that meant in practice. In May 2013,   US authorities seized funds from an account linked  to its American subsidiary while investigating   whether the business was transmitting money  without the required registration. But here's   where that matters. Nobody could send agents to  Bitcoin HQ because there is no Bitcoin HQ. But   exchanges were different. They had companies,  bank accounts, and identifiable operators.   The more they became a bridge between BTC and  conventional money, the more exposed they were   to regulators. And then came the biggest collision  yet. On the 1st of October 2013, the FBI arrested   Ross Ulrich and shut down Silk Road. Prosecutors  later seized almost $174,000 BTC worth more than   $33 million at the time. Bri was later sentenced  to two life terms plus an additional 40 years   without the possibility of parole. Now, that  sentence was highly controversial. Critics argued   it was far harsher than sentences given to violent  cartel leaders or major financiers of criminal or   terrorist organizations. Many also argued that  Olrich was punished like a direct distributor   when really he only hosted the website. Whatever  the case, Silk Road was gone. Bitcoin, however,   certainly wasn't. Law enforcement had successfully  shut down a centralized marketplace and seized a   large stash of BTC, but it hadn't infiltrated  Bitcoin itself because, well, Bitcoin simply   can't be infiltrated. Anyway, the following month,  Bitcoin was being discussed in the US Senate.   Congressional committees held the first public  hearings on virtual currencies with officials   from Fininsen, the Justice Department, the Secret  Service, and the Bitcoin industry giving evidence.   Notably, lawmakers openly discussed criminal  risks alongside legitimate use cases. Now,   those hearings arguably gave Bitcoin a degree  of legitimacy, even as officials discussed all   the illicit activity. Either way, Bitcoin had  gone from an obscure mailing list project to   a genuine topic of federal financial policy all  in less than 5 years. The state had noticed and   there was no going back. Now, at the same time  as regulators were trying to understand Bitcoin,   its supporters were building institutions of  their own. In September 2012, developers and   entrepreneurs launched the Bitcoin Foundation  with a mission to quote standardize, protect,   and promote Bitcoin. To be clear, the foundation  wasn't created to control the network. That   was never possible. But its existence meant  Bitcoin now had developers maintaining software,   companies building services, and advocates  explaining the technology to policymakers.   Businesses were also appearing far beyond the  original forum community. By November 2012,   WordPress had begun accepting Bitcoin for paid  upgrades, marking the first time a well-known   company accepted BTC as payment. Bitcoin payment  processors were also emerging, helping other   merchants to accept BTC. By September 2013,  payment processor Bitay said more than 10,000   businesses across 164 countries were using its  services to accept BTC. By the end of that year,   the company said it had processed over $100  million in Bitcoin payments that year. Even   while Silk Road dominated the headlines, perfectly  legal commercial activity was expanding. Bitcoin   was becoming useful to people with no interest in  dark web markets or cipher punk ideology. To many,   it was simply a cool new form of digital money.  And serious investment money was flowing into it,   too. In December 2013, US crypto exchange Coinbase  announced a $25 million funding round led by Andre   Horowitz. At the same time, it was the largest  investment in a Bitcoin company to date. The   people surrounding Bitcoin now included venture  capitalists and startup founders alongside miners,   programmers, and ideological believers. Some  wanted a new form of money. Others saw a payment   system and others an investment opportunity.  But they didn't need to agree on Bitcoin's   purpose. The more people swarm towards it, the  harder it became to ignore. By the end of 2013,   Bitcoin was still tiny. And honestly, its  reputation was a total mess. But crucially,   it had survived. The question now would  be whether it could actually survive long   term. And that is what we'll be covering in part  three. So, thank you for watching and stay tuned.