As we hurtle towards the end of another year, the breakout story has nonetheless been bitcoin’s meteoric rise. Not only has the digital currency moved from $1,000 to a little over $11,000, but a wake of innovation has followed closely behind. Initial Coin Offerings, respective regulations, proposed national cryptocurrencies, scams, and revolutionary technology have made up an extremely dynamic sector. That being said, an acute awareness of bitcoin’s history and current trends should better prepare us for its future.
Inception and Free Money
In an insightful article by Blockstream developer Rusty Russell, he breaks down the history of bitcoin into three epochs. The first includes the technology’s inception in 2009 by Satoshi Nakamoto, up until 2014 when transaction fees were raised.
This was more a wild west than it is today because of how new and “barely-understood” the technology was. Transactions were free, demand for the currency was extremely low, and the implications were opaque if visible at all.
Ultimately, this created a hotbed for scammers. The lack of central authority and supposed anonymity behind bitcoin was abused to spread misinformation or simply make “The permeation of real information extremely difficult.”
Another notable characteristic of this period was the severe of bifurcation and sectionalism in the community of early adopters. This was all wrapped up in the general pursuit of money and the “boosterism” of replicated models.
Fortunately for users in the current period, not everyone was seeking a cheap buck. As developers watched their creation wander off into chaos, they took quick care to real the currency back in. This was done in three ways and rolled out the carpet for the second era. Russell explains the need to charge fees and reduce minuscule transfers as such:
“The developers were aware, so added some configurable settings in the reference client to minimize the worst abuses. These rules did not change bitcoin, just the default behavior: they added a minimum fee, stopped relaying tiny payments, and enhanced the scripting language to reduce the size taken up by unspent outputs.”
Growing Awareness and New Policies
Roughly around 2014 and into the period Russell calls “Satoshi’s Subsidy,” we begin to see how the current bitcoin culture came to be. As interest in the technology grew, minor tweaks and edits made to optimize code were no longer enough to ease congestion. Not only that, but the volatility that we have become so accustomed to in 2017, made determining the transaction fee “difficult at best, and extremely difficult to present [users].”
The latter issue was dealt with by applying more complex and nimble algorithms to estimate fees. This helped to determine whether the data equivalent of “1000 pennies” was going to be sent by mail, or “a $100 bill.” The first being significantly more expensive than the second.
After that developers turned to a number of different improvements in order to run the network at capacity. Operations like block propagation through the expansion of nodes in the global network, the ability to substitute exchanges by increasing the transfer fee, and even “an opt-in block expansion.” […]
Read Full: Bitcoin’s History Predicts its Future