The Rise of Bitcoin

Sasmeet Satyam

Since Donald Trump’s victory in the United States presidential election, Bitcoin has been a perpetual headline within the news regarding its recent exponential growth in value, which has placed Bitcoin's price just under the 100,000 USD mark. Bitcoin, a decentralised digital currency (cryptocurrency), operates in the absence of financial institutions and government, and therefore transfers of the currency are strictly peer-to-peer and are documented on a digital network known as a Blockchain.

Bitcoin was launched in 2009 by an anonymous developer who went by the name Satoshi Nakamoto, and initially held no real monetary value, with some users transferring Bitcoins to each other as a trivial recompense for good comments on forums. This was until a famous transaction that established the Bitcoins exchange rate; On the 22nd of May 2010 programmer Laszlo Hanyecz offered 10,000 BTC to anyone who ordered him two large pizzas, which were worth a mere 25 USD, this set Bitcoins' first market price to be placed at around 0.0025 USD.

So, what led Bitcoin's value to change so drastically in the past decade? Firstly, we must understand that Bitcoin has a fixed supply schedule: the number of Bitcoins is hard capped at 21 million, which means that only 21 million Bitcoins will ever be in existence. This limited supply made bitcoin seem more exclusive, in a way that made it look like materials such as gold and diamonds. Adopters of Bitcoin also saw it to potentially store value away from traditional financial institutions, leading to large companies and investment firms purchasing Bitcoin to use as either reserve assets or speculation investments, this use is particularly desirable since Bitcoin is seen by many as a hedge against inflation: due to it continuously rising price, Bitcoin’s growth could outpace that of inflation therefore when the dollar loses value from the effects of inflation, Bitcoin could become more expensive. This attracts investors as they would have to preserve their wealth and be resistant to economic uncertainty. This growth in demand for Bitcoins combined with its scarcity meant that its price began to surge.

These price surges led to the amplification of Bitcoin in media coverage, which increased awareness of Bitcoin growth and inevitably attracted more investors, new users and speculators, turning Bitcoin into a household name. This further generated Bitcoin’s demand resulting in its price being driven up further and a feedback loop being fuelled.

Another key factor in the growth of Bitcoin is the technological and network developments within Bitcoins. Firstly, the peer-to-peer network allows for transactions to be made without a trusted third party, this reduces risks associated with having an intermediary and gives more control to users over their own financial transactions, this low-risk method of transaction is made even more secure by the blockchain technology which records these transactions to ensure transparency and security. In addition to this, Bitcoin technology is constantly being upgraded leading to exchanges of Bitcoin being much more accessible and simpler, leading to an increase in Bitcoins appeal to a great percentage of the population.

Bitcoin’s journey from a niche experiment to a global phenomenon underscores the interplay of technological innovation, economic incentives, and media influence. Its limited supply, appeal as a hedge against inflation, and growing utility in financial transactions has cemented its status as a revolutionary asset. While its volatility and regulatory uncertainties continue to pose challenges, Bitcoin’s ability to disrupt traditional financial systems has redefined the way people perceive and engage with money. In the decade since its inception, Bitcoin has evolved from an obscure concept into a cornerstone of the digital economy. As advancements continue and societal understanding deepens, Bitcoin’s role in shaping the future of finance is likely to expand even further.