The one-dollar mark, and a dark use
In February 2011 the price of one bitcoin matched one US dollar for the first time. Just nine months after Pizza Day, the price had risen more than 250-fold.
The same month saw the birth of a website that would stain Bitcoin's reputation for years: Silk Road, a darknet marketplace where illegal drugs and other goods were sold for bitcoin. The FBI shut it down in October 2013 and arrested its operator, but the image of Bitcoin as "money for criminals" lingered.
As Chapter 1 explained, every Bitcoin transaction is public. In the Silk Road investigation, blockchain records were used as evidence. Law enforcement today generally regards cash as far harder to trace.
The first bubble, and the weakness of exchanges
In June 2011, after a wave of media coverage, the price shot up to about $30. Right afterwards Mt. Gox was hacked. A compromised account dumped a huge sell order and the exchange's price briefly crashed to $0.01. Over the following months the price sank to around $2, and many declared Bitcoin finished.
This was the first example of a pattern that would repeat again and again: Bitcoin itself was not broken; the company holding people's bitcoin was.
2013: the $1,000 mark and China
In November 2012 the first halving arrived exactly as programmed, cutting the reward from 50 to 25 BTC. In spring 2013 the banking crisis in Cyprus, where depositors' savings were seized, drew new attention to Bitcoin.
In autumn 2013 trading exploded in China. The price passed $1,000 in November and peaked at about $1,150 in early December. Then China's central bank barred financial institutions from handling bitcoin, and the price turned down.
The Mt. Gox collapse: the biggest loss in history, from Tokyo
In February 2014 Mt. Gox, then the world's largest exchange and based in Shibuya, Tokyo, abruptly halted withdrawals. On 28 February it filed for bankruptcy protection in Tokyo, announcing that about 750,000 BTC belonging to customers plus 100,000 of its own, roughly 850,000 BTC in total, were missing. At the time that was worth around $450 million, and about 7% of all bitcoin in existence.
The cause was years of hacking combined with careless management. About 200,000 BTC were later found in an old wallet, but repaying creditors would drag on for nearly a decade. The scandal made headlines in Japan, cementing the idea that Bitcoin was shady, yet it also prompted the Japanese government to start writing rules.
Mt. Gox customers had left their bitcoin on the exchange, meaning they did not hold their own private keys. After the collapse, "Not your keys, not your coins" became a rallying cry in the Bitcoin community.
February 2014 · Mt. Gox
850,000BTC gone. About 7% of all bitcoin in existence at the time.
Quiet growth: 2015 – 2016
The price fell into the $200s in early 2015 and stayed low for more than a year. But during this "winter" the technology and the ecosystem matured.
- In July 2015 Ethereum went live, a blockchain that can run programs, not just track money. It marked the real beginning of the world of cryptocurrencies beyond Bitcoin.
- In July 2016 came the second halving (25 → 12.5 BTC).
- In August 2016 the Hong Kong exchange Bitfinex was hacked and about 120,000 BTC were stolen. Exchange risk had not gone away.
Japan writes it into law
On 1 April 2017 Japan's amended Payment Services Act took effect. Drafted in response to Mt. Gox, it defined virtual currency as a form of property value usable for payments and required exchanges to register with the Financial Services Agency.
This was one of the earliest regulatory frameworks anywhere, and for a time Japan accounted for a large share of global bitcoin trading. Electronics chains and restaurants accepting bitcoin made the news around this time.
2017: the great boom and the split
2017 was the year Bitcoin became mainstream news. The price went from about $1,000 in January to nearly $20,000 in December. In Japan the word "okuribito," someone who made a hundred million yen, became a buzzword and crypto exchanges ran TV ads. In December, bitcoin futures began trading on US exchanges, and traditional finance could no longer look away.
At the same time, a bitter dispute was tearing through the community. With more users, transactions were backing up and fees were soaring. Two camps formed over how to fix it.
- "Make blocks bigger so they hold more transactions." Quick, but the ledger grows heavy and ordinary people find it harder to run a node.
- "Keep blocks small and get smarter." Use an upgrade called SegWit, and move small, fast payments off the main chain with the Lightning Network.
The two sides never agreed. On 1 August 2017 the big-block camp split off onto its own chain. This kind of split is called a fork, and the new currency was named Bitcoin Cash. The same month, SegWit activated on Bitcoin.
1 August 2017
A fight over the rules
split the chain in two.
With no administrator, the only thing that decides whether Bitcoin's rules change is which rules users and miners keep using. After the fork, the great majority stayed with the original Bitcoin. The episode proved, for better or worse, that nobody can change the rules unilaterally.
Logarithmic scale (each gridline is 10×). Values are approximate.
| When | Price (USD) |
|---|---|
| Feb 2011 | ≈ $1 |
| Jun 2011 | ≈ $30 |
| Nov 2011 | ≈ $2.5 |
| Dec 2012 | ≈ $13 |
| Apr 2013 | ≈ $230 |
| Dec 2013 | ≈ $1,150 |
| Dec 2014 | ≈ $320 |
| Dec 2015 | ≈ $430 |
| Dec 2016 | ≈ $960 |
| Dec 2017 | ≈ $19,500 |
Chapter summary
- Bitcoin crossed $1 in 2011 and climbed through repeated booms and busts.
- Silk Road gave Bitcoin a criminal image, though it is in fact easy to trace.
- The 2014 Mt. Gox collapse lost about 850,000 BTC and taught "Not your keys, not your coins."
- In 2017 Japan defined virtual currency in law, one of the first countries to do so.
- Behind the 2017 boom, a dispute over the rules split off Bitcoin Cash.