Bitcoin is a revolutionary technology that facilitate a new way to do payments over the internet. Think of it as an open accounting system where thousands of computers in the world work together to track the ownership of the digital tokens. When you send to someone a bitcoin the transaction is broadcasted to the entire network. When its verified, its recorded in a public ledger called the blockchain. Inside there is the list of every bitcoin transaction that has occurred since the system began. All of this information is shared and maintained on the network so everyone can have the “book”.The peer-to-peer system is not controlled by a central authority. Instead, bitcoins that circulate among users are verified by computers that help to process the transactions in the network, known as bitcoin mining. Those Bitcoin miners are specialized computers that do the work required to verify and record transactions in the blockchain. Thanks to this verification they are rewarded a X amount of bitcoins and this is how new bitcoins are released into circulation. As there are only 21 million bitcoins that will ever exist and that the mining reward decreases as the time goes by. The result tends to be that bitcoin could be a predictable supply governed by scarcity making it somewhat like a digital gold.After reading the first part of this article: “An Introduction to Bitcoin and the history behind it” you must be excited and curious of what you are going to learn now. We previously discussed the origins of Bitcoin but now we want to focus on how it was launched and how did it spread? In addition to that we will have a closer look to the current situation of the money. We will search for important numbers and information concerning the circulation of bitcoins and where in the world the money is gaining the highest popularity. Finally, we will take a closer look of the Chinese behavior towards Bitcoin. Bitcoin Launching & ExpansionIn October 2008, Nakamoto publishes a “peer-to-peer electronic cash system” describing the Bitcoin currency. Among other things, it explains the way it avoids double spending to prevent the currency from being copied. After one month the Bitcoin project is registered on SourceForge.net hosting the first software-based online payment system. SourceForge is a community that helps the support, the development and the distribution of open source software and projects. The first block was mined, the 3rd of January 2009, by Satoshi itself. Called the genesis block (block 0) the mining reward was 50 bitcoins. However this reward can’t be spent due to a quirk (Bitcoinwiki, 2017). A few days after Satoshi sends a new mail with a link to the software encouraging people to use it and become part of the Bitcoin community, the version 0.1 is released. During less than a year, his creation only remained between a small group of early adopters. In November 2009, the New Liberty Standard publishes a Bitcoin exchange rate, 1’309,03 BTC = 1 USD.
“Using an equation dividing one dollar by the average amount of electricity to run a computer with high CPU for a year, multiplied by the average cost of electricity in the U.S, divided by 12 month divided by the number of bitcoins generated during one month.” (New Liberty Standard, 2009).
The first bitcoin transaction used for a tangible good took place in Florida. A programmer called Laszlo Hanyecz offered to pay 10,000 Bitcoins for anyone who would order him a pizza. A volunteer in England accepted the challenge and purchased two pizzas from Papa John’s, the exchange rate put the purchase price at around US$25 (Wallace, 2011). Bitcoin was gaining more and more popularity but in order for it to thrive the coins needed to be more widely accessible. In July 2010, a Tokyo based exchange named Mt.Gox was the first on the scene to take hold on the market place. Created by Jed McCaleb the company started its business selling Magic’s cards and then became a platform to exchange bitcoins. As volumes are growing the exchange rate hit 0,50 USD/BTC. During that time everything went much faster and trading volumes started to pick up. On the 28th of January 2011, 25% of all bitcoins have been generated. Shortly after, the bitcoin reached parity with the U.S dollar on the 9th of February. At that point bitcoin is spreading all over the world and starts to be known by a large number of people. Much of the people that are familiar with the virtual money are involved in forums discussing about Bitcoin or new technologies. For example a member of Bitcointalk.org proposed to sell his car in exchange of bitcoins.During the following month WeUseCoins published a viral video with over 6,4 million views making Bitcoin more and more famous.During the year of 2011 the democratization of bitcoins started to grow. Organizations and companies such as Wikileaks, the electronic Frontier Fondation started accepting bitcoin as donations. A French programmer called Mark Karpelès acquired 88% of Mt.Gox and becomes the CEO. Many new markets start to emerge such as Britcoin, Bitcoin Brazil, BitMarket.eu making possible the exchange of bitcoins into GBP, Brazilian Reals, EUR and other currencies. The 16th of April 2011 Time published an article called “Online Cash Bitcoin Could Challenge Governments, Banks”. The concept of Bitcoin is real, organizations and companies such as Wikileaks, the electronic Frontier Fondation started accepting bitcoin as donations.In June around 6’500’000 bitcoins are in circulation (31%), during this month the price of bitcoins increased to a peak of 31,94 USD. However, 4 days after the rate dropped to nearly 10 USD, the incident is known as the Great Bubble of 2011. Moreover, Mt.Gox is hacked and many accounts have been compromised, forcing the company to drop the price of a bitcoin to 0,01 USD. This gave to many people the chance to discredit the virtual money and many sceptics appeared. In addition to that there is the FBI that is working very hard to close “dark markets” such as Silkroad. Those websites, selling illegal products/services are only accessible in the “dark net”. They only accept bitcoins for payments as it is an untraceable way of paying. Anyone using TOR (The Onion Router) browser can access such websites and surf into the “dark net”. Despite the fact that it can be used for illegal purposes, the software was primarily used for people to surf into the “dark web” anonymously. For example, reporters can leak documents or articles from countries where the censorship is high. In the following month more companies are hacked resulting in more losses.Despite all those events innovations and investments continue to rise. Conferences about Bitcoin are held in New Yok City, Prague and London. Bitpay a global bitcoin payment service provider launches the first smartphone e-wallet for bitcoins. In the end of 2011 the company claims that they have around 100 merchants using their services. By 2012, they have more than 1’000 active merchants (Browdie, 2012). WordPress that we actually use for this blog, is one of the major partnership that Bitpay made. A word press developer called, Andy Skelton said that:
“Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons. Whatever the reason, we don’t think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can’t control. Our goal is to enable people, not block them.” (Farivar, 2012)
In June 2012, the Coinbase is founded. This digital currency wallet and platform allows customers and vendors to transact with new virtual currencies. As the volumes of bitcoins continue to grow the reward of mining decrease to 25 BTC in the end of November.Even though, regular hacks attemps, technical issues and illegal uses of the digital money damage its reputation. The combined value of all the Bitcoins exceled 1 billion USD in March 28th of 2013 (Goddard, 2013). Shortly after, the value of the bitcoin on Mt.gox and other exchanges overpasses 100 USD. However, the money experience again a crash after reaching a peak of 266 USD/BTC caused by hackers. Something important to know is that once you lose your bitcoins there is nothing you can do to get them back. So it is very important to choose a secured e-wallet for your bitcoins.Coindesk is launched in May 2013 by Shakil Khan that was an investor to Spotify. The website is the world leader in news and information about cryptocurrencies. Few days later the first Bitcoin ATM appears. Making possible to buy or send the currency and to withdraw dollars from the bitcoins you have in your possession. Another important event is the seizure of MtGox funds by Homeland Security as the company failed to comply with U.S. financial regulations (Kirk, 2013).Bitcoin is recognized as a “form of private money” by the German Federal Ministry of finance in August 2013. Different ways of spending bitcoins for services and goods pop up, creating new opportunities for businesses. For example, PrimeDice.com generated 15 million USD after 3 months of running the first casino platform accepting bitcoins. Moreover, the value of the bitcoin is increasing pushing it above of 1’000 USD. During that time the volumes of bitcoins transactions is higher than Western Union. We could even see a University in Cyprus that started accepting bitcoins. Nonetheless Bitcoin is at his best momentum at that period, the Bank of China destabilizes the currency and says that it isn’t a money with a “real meaning”. Resulting in a drop of the value after being banned by China’s Central Bank (Bloomberg, 2013).Bitcoin In ChinaThe people’s Republic of China is a huge country with a population of over 1,3 billion. The country is governed by the Communist Party of China and its capital is Beijing. The state is leaded by Xi Jinping since November 2012 replacing Hu Jintao as General Secretary of the Communist Party. In China censorship has always been applied to content that the government didn’t wanted to make public. The reasons are mainly political but are also due to a control over the populace. Some websites, blogs and information cannot be accessed in China as the state considers them sensitive and as a possible threat espanolfarm.com. The government uses different technological tools designed to block the information from internet, also known as the Great Firewall of China. However, the entry of the Chinese market in 2013 is the driving force behind the Bitcoin’s explosion. This is the reason why we are going to focus on the case of the Chinese Bitcoin acceptance and his behavior over the last 4 years.2013 – 2014Bitcoin started making a lot of noise in China in 2013, when the China Central Television (CCTV) disclosed a 30min documentary dedicated entirely to the subject. Shortly after this exposure, in May, the number of computer programs downloads exceeded any other country. As you can see in the Figure 2, China represents at that time, 28% of the Global Downloads of Bitcoin Client in the world. A rush began, the Chinese tech community started constructing mining platforms on a large scale and investing on computer devices and hardware. In order for bitcoins to survive it needs a big network of users that run the software and that can be accessible by others using mining software. They are also called “bitnodes” they run the Bitcoin core program but don’t earn any reward for it. In other words, they keep the public transaction ledger (Blockchain) for the other users that verifies the transactions in the network.