A nine-page paper
On 31 October 2008, Halloween, a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" was posted to a cryptography mailing list. It was just nine pages long. The author was Satoshi Nakamoto.
The paper was the answer to the problem the previous chapter called unsolved: how to prevent double spending without an administrator. The trick was combining parts that already existed.
- Bundle transactions into a "block" every ten minutes and link each block to the previous one (the blockchain).
- Make creating a block require heavy computation (proof of work). Rewriting history would then require more computing power than the rest of the world combined.
- Reward the computers that do the work with new coins (mining). People then protect the network voluntarily, without anyone asking them to.
You can still read the paper at bitcoin.org.
The name sounds Japanese, but nobody knows who Satoshi really is. Their English was fluent and their activity hours matched the Americas or Europe, so the name is assumed to be a pseudonym. It is not even known whether Satoshi was one person or several. Many candidates have been named over the years, but no conclusive proof has ever surfaced. About one million BTC believed to belong to Satoshi have never been moved.
A newspaper headline inside the first block
On 3 January 2009 Satoshi created Bitcoin's first block, known as the genesis block. Embedded inside it was this line:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks Message embedded in the genesis block
It is the front-page headline of the British newspaper The Times on that day. It serves as proof that the block could not have been made before 3 January 2009, and it is widely read as a pointed comment on a financial system busy bailing out banks.
The first recipient: Hal Finney
On 9 January Satoshi released the software (version 0.1) for anyone to use. On 12 January, Satoshi sent 10 BTC to the cryptographer Hal Finney, the creator of RPOW from the previous chapter. It was the first Bitcoin transaction in history. A few days earlier, when he first started the software, Finney had posted a two-word tweet: "Running bitcoin."
At that point only a handful of people in the world were running Bitcoin. It had no price, and you could mine it easily on a home PC.
The first price, and two pizzas
In October 2009 a website called New Liberty Standard published the first bitcoin price, calculated from the cost of the electricity used to mine it: $1 = 1,309.03 BTC. One bitcoin was worth less than a tenth of a cent.
Then, on 22 May 2010, a transaction for the history books. Laszlo Hanyecz, a programmer in Florida, posted on a forum asking whether anyone would send him two pizzas in exchange for 10,000 BTC. Another user accepted and had two pizzas delivered. At the time, the 10,000 BTC were worth about $40. It was the first time anything in the real world was bought with bitcoin.
As the price rose over the years, those 10,000 BTC came to be worth hundreds of millions of dollars. 22 May is now celebrated around the world as Bitcoin Pizza Day. Hanyecz himself has said he was happy to get the pizzas and has no regrets.
22 May 2010 · Bitcoin Pizza Day
10,000 BTC= two pizzas.
At the December 2024 price of about $100,000 per bitcoin, that pizza bill comes to about $1 billion.
The first exchange, and the first big scare
In July 2010 the programmer Jed McCaleb turned Mt. Gox, a site originally built for trading collectible cards, into a bitcoin exchange. For the first time, swapping dollars for bitcoin was easy. The following year he sold it to Mark Karpelès, a French developer, and under him it grew in Tokyo into the largest exchange in the world.
In August of the same year the most serious bug in Bitcoin's history was discovered. An arithmetic flaw let a single transaction create 184 billion BTC, far beyond the 21 million cap. Satoshi and the other developers shipped a fix within hours and the chain containing the bad transaction was abandoned. The episode showed that a system with no administrator could still respond to a crisis, because the whole network cooperated on the fix within hours.
August 2010 · The biggest bug
184,467,440,737BTC created in a single transaction, against a cap of 21 million.
Developers shipped a fix within hours, and the whole network cooperated.
Satoshi leaves
Through 2010 Bitcoin slowly became known and more developers joined. Satoshi gradually handed responsibilities to others and stopped posting on the forum in December 2010. In the spring of 2011 a final short email said they had "moved on to other things," and contact ended.
Losing its creator turned out to be a strength. Bitcoin became a system that depended on no single person.
Logarithmic scale (each gridline is 10×). Values are approximate.
| When | Price (USD) |
|---|---|
| Oct 2009 | ≈ $0.0008 |
| May 2010 | ≈ $0.004 |
| Jul 2010 | ≈ $0.06 |
| Nov 2010 | ≈ $0.3 |
| Dec 2010 | ≈ $0.3 |
Chapter summary
- In October 2008 Satoshi Nakamoto's nine-page paper showed how to prevent double spending without an administrator.
- In January 2009 the first block was created and the first transaction went to Hal Finney.
- In May 2010, two pizzas for 10,000 BTC: the first real-world purchase.
- The Mt. Gox exchange made swapping dollars for bitcoin easy.
- At the end of 2010 Satoshi disappeared, and Bitcoin became a system that belongs to no one.