Brief History of Bitcoin: The Beginning of DeFi
Published February 28, 2022.
Understanding the history of DeFi requires an understanding of the cryptocurrency genesis. Bitcoin was the first decentralized payment solution; some argue this could even be the first DeFi protocol. Regardless, the creation of Bitcoin led to the arrival of Ethereum, which lay the building blocks of DeFi as we know it today.
What Is Bitcoin?
Bitcoin is a digital currency that functions free of any central control of traditional banks or governments. It relies on a peer-to-peer network built on blockchain technology. Every transaction is recorded on the Bitcoin network and is publicly accessible by anyone with an internet connection. Users can access this cryptocurrency through crypto exchanges that help connect buyers and sellers.
Why Was Bitcoin Created?
The anonymous group or person, Satoshi Nakamoto, established Bitcoin in 2009 as a response to the financial crisis of 2008. Satoshi had the idea of disintermediating banks from their control over financial transactions.
Several years down the line, Bitcoin has evolved and is now hailed as an icon of decentralization and financial autonomy. Some investors also see Bitcoin as a hedge against inflation due to its deflationary structure and fixed supply of 21 million coins.
How Has the Value of Bitcoin Changed Over the Years?
The Bitcoin price chart currently sits around $38,000. However, this has not always been the case, as this cryptocurrency has always had a volatile price history. In the early days of Bitcoin valuation, the cryptocurrency was almost zero. However, all that changed when its price jumped from $0.09 to $29.60 within the span of a year (2010 - 2011).
Consistent price fluctuation has become synonymous with the Bitcoin market. Bitcoin has continued to experience several rallies and crashes throughout its existence as speculative retail investors and traders entered the space.
In 2017, the BTC price broke new heights by attaining a massive spike of $2,000 from $1,000. At this stage, mainstream investors, government institutions, and even traditional banks started to recognize the presence of bitcoin and started trying to adjust to the upwardly mobile prices that BTC reflected at the time.
A couple of years later, cryptocurrencies have grown in popularity across the board, with Bitcoin remaining the leader of this new class asset. Institutional investors have started taking an interest in Bitcoin, and as their money tricked in, the price soared, reaching highs of more than $60,000 in 2021.
How Is the Bitcoin Price Influenced?
The price of Bitcoin depends largely on perceived value, supply, and demand. Its price is not regulated by any individual, government, group, or entity. By design, there will only ever be 21 million bitcoins created, eliminating the mass production of bitcoins and curbing inflation.
Its deflationary mechanism means that the closer Bitcoin gets to its limit, the higher its price will be, as long as demand remains the same or increases. Aside from its in-built inflation control system, other factors that may influence the price of Bitcoin include:
- Fluctuations in supply and demand.
- Media attention on cryptocurrencies
- The implementation of regulations for managing Bitcoin's utility and scalability
- The cost of Bitcoin mining
- Synthetic products and Bitcoin derivatives
Will We Use Bitcoin for Years to Come?
Bitcoin's value proposition as a decentralized payment solution hasn't budged in the last twelve years. With governments around the world taking a harsher approach towards controlling the financial capabilities of their constituents, we may see more people flock towards Bitcoin and its offerings to counter government overreach and censorship.
As traditional investors and Wall Street bankers start to embrace Bitcoin, the lines between conventional financial assets and Bitcoin become blurred. Leading Wall Street investors allocate up to 5% of their portfolios to Bitcoin, which may indicate that the cryptocurrency has grown big enough that its market cap will catch up with gold in the future. Perhaps, one day, it could be worth more than gold!
El Salvador was the first country to adopt Bitcoin as its legal tender. If their experiment proves successful, we may see more nations that suffer from similar economic predicaments to El Salvador toe this line. This could bring Bitcoin to the level of true mass adoption, ushering in the age of the "hyperbitcoinized world."
However, there is still a chance that things will go downhill. Governments may frown upon the growth of Bitcoin since they cannot control it, and they may implement massive regulations that stifle its adoption rate. This type of heavy-handed regulation likely won't kill Bitcoin, but it could seriously tank its price, bringing about a long-term bear market.
Whether bullish or bearish, the future of Bitcoin remains unpredictable. The best thing investors can do is constantly do their research and keep up with the news to stay afloat in this space. In the end, the users and the Bitcoin community should brace for future challenges to the Satoshi experiment. Overcoming these obstacles will require innovation, perseverance, and education.