Ethics for IT Professionals/History of Cryptocurrency
The first blockchain based peer-to-peer cryptocurrency is Bitcoin. It was released in 2009 and now has a market capital of over 100 million dollars. The bitcoin system has over a million miners and users across the globe and has been rising in popularity as a method of transaction in many industries. Bitcoin was introduced in 2009 by Satoshi Nakomoto, which explains the Bitcoin currency as “a system for electronic transactions without relying on trust” but rather using encrypted blockchain technology to provide proof of transactions.
The first known transaction was by the programmer Laszlo Hanyecz who purchased pizza using Bitcoin in 2010. In 2010 Litecoin appeared on the stage as an improvement on Bitcoin. Even though bitcoin has kept its popularity throughout the world and as the first cryptocurrency many other cryptos have been created that use blockchain technology with various advantages and uses.
In 2012, the European Central Bank made these definitions to distinguish virtual currency from regular currency as follows:
- Unregulated digital money which is issued and controlled by the developer and is a generally accepted method of payment in the given virtual community (Andre Krisko, 2016)
- A currency that is not issued by a non-central bank or authority (Andre Krisko, 2016)
- May be transported, stored and used for payment to legal or natural persons alike (Andre Krisko, 2016)
This distinction is broad in defining cryptocurrencies but lacks in imagination as seen in the last ten years to categorize cryptos or how they can be used.
In 2014, Mt. Gox which was a Bitcoin exchange site filed for bankruptcy due to a defect in their system and many people lost hundreds of thousands of Bitcoins. This crashed the market and signaled for the first time how unreliable or new and challenging cryptocurrencies would be in the future. Because cryptocurrencies were not backed by any financial institution, everyone who invested at the time lost their money. Two years after this bankruptcy Japan introduced the first regulation on virtual currency. Following the bankruptcy of Mt. Gox came the bankruptcy filing of Cointerra, a company which manufactured specialized hardware for mining bitcoin and other cryptocurrencies.
The rise of cryptocurrencies, especially Bitcoin was also facilitated by the rise in online criminal activities and purchasing illegal goods. According to James Martin, the famous Silk Road which appeared in 2011 and Silk Road 2.0 in 2013, both used Bitcoin as a currency because it afforded anonymity and its encryption made it hard for investigators to track these transactions. Many countries who have been attempting to perform transactions while international financial organizations have sanctioned have also been using cryptocurrencies to circumvent these sanctions.
In 2015, Ethereum was launched by Vitalik Buterin gaining popularity especially in Russia. It offered an unlimited number of coins unlike Bitcoin which is capped at about 21 million bitcoins.
The creation of Bitcoin led to the widespread globalization of cryptocurrency mining as a form of earning income and also progressing the agenda of creating a decentralized currency and transaction system. The large number of cryptocurrencies have also created exchange markets in different countries and also globally, functioning as a way to exchange between traditional currencies and cryptos. Some exchange companies have pushed the boundary of exchange even further and are backed by government agencies, for example Coinbase which launched in 2012 is backed by the FDIC because it pools all the balances and holds this in USD banks, money markets. Such legal actions by major institutions to broaden the use of cryptocurrencies has created avenues for entrepreneurs to utilize cryptocurrencies.
- GateHub. (2020, May 19). Crypto Throughout the Years - a Short (Ish) History - Part 1 | GateHub. GateHub; GateHub. https://gatehub.net/blog/history-of-cryptocurrency-part-1/
- Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. SSRN Electronic Journal, 1–9. https://doi.org/10.2139/ssrn.3440802
- Ishikawa, M. (2017). Designing Virtual Currency Regulation in Japan: Lessons from the Mt Gox Case. Journal of Financial Regulation, 125–131. https://doi.org/10.1093/jfr/fjw015
- Edwards, C. (2015). News: Bitcoin price crash finds new victims. Engineering & Technology, 10(2), 19. https://doi.org/10.1049/et.2015.0220
- Martin, J. (2013). Lost on the Silk Road: Online drug distribution and the ‘cryptomarket.’ Criminology & Criminal Justice, 14(3), 351–367. https://doi.org/10.1177/1748895813505234
- Conway, L. (2021, March 15). Coinbase Review. Investopedia. https://www.investopedia.com/tech/coinbase-what-it-and-how-do-you-use-it/