From the Bottom to the top with Bitcoin; A brief history
November 1, 2008, a research paper was posted on an obscure cryptography listserv describing a design for a digital currency. The paper was posted by a man named “Satoshi Nakamoto” and the digital currency was called Bitcoin.
No one had ever heard of Satoshi and the little information that could be found on him was very contradictory. In an offline profile, he stated that he lived in Japan and his email address was provided for free by a German service. Nakamoto was a puzzle but his paper provided a solution to a problem that had stumped developers for decades.
The idea of digital money that was untraceable, convenient and free from oversight by banks and governments has been in existence since the birth of the internet and hundreds of cyber-punks had dedicated themselves to creating a cryptocurrency with bad results.
For example, Ecash, an anonymous system which was launched in the early 90’s failed because it depended in part on credit card companies and the government. Others such as bit gold, b-money and RPOW also failed to launch.
The biggest challenge at the time was double spending . If a digital dollar is just information, free from the corporeal strictures of paper and metal, what’s to prevent people from copying and pasting it as easily as a chunk of text, “spending” it as many times as they want? The conventional answer involved using a central clearing house to keep a real-time ledger of all transactions. The ledger prevents fraud, but it also requires a trusted third party to administer it.
Nakamoto solved this problem by making the ledger public and therefore doing away with the need for a third party. Users willing devote CPU power to run special software of what was called the “blockchain” . Transactions would be broadcast to the network, and computers with the software would compete to solve irreversible cryptographic puzzles that contain data from several transactions.
The first to solve each puzzle would be awarded 50 new bitcoins, and the associated block of transactions would be added to the chain. The difficulty of each puzzle would increase with the number of miners, keeping production to one block of transactions about every ten minutes. Also, the size of each block bounty would halve every 210,000 blocks — first from 50 bitcoins to 25, then from 25 to 12.5 and so on. Around the year 2140, the currency would reach its pre-ordained limit of 21 million bitcoins.
On January 3rd in 2009, Nakamoto mined the first 50 Bitcoins himself and these were called the genesis Block.
For a year or so after that, Bitcoin remained the preserve of a tiny group of people. The small band of early bitcoiners all shared the communitarian spirit of an open-source-software project.
- Gavin Andresen, a coder in New England, bought 10,000 bitcoins for $50 (£32) and created a site called the Bitcoin Faucet, where he gave them away for the hell of it.
- Laszlo Hanyecz, a Florida programmer, conducted what bitcoiners think of as the first real-world bitcoin transaction, paying 10,000 bitcoins to get two pizzas delivered from Papa John’s. (He sent the bitcoins to a volunteer in England, who then made a credit-card order transatlantically.) A farmer in Massachusetts named David Forster began accepting bitcoins as payment for alpaca socks.
The deep web and the dark web
The deep web refers to any portion of the web that isn’t indexed by a search engine. Contents of the deep web include such material as the database of North Dakota’s Court records. Google and other search engines do not crawl through such databases and they are therefore invisible to most people.
The deep web, however, is hidden from the ‘surface web’ which search engines can find.
The dark web, as you may guess is where things get illegal, or illicit. The dark web is intentionally hidden and cannot be accessed using the standard browser. Dark web sites do not have addresses that are governed by the ICANN, or Internet Corporation for Assigned Names and Numbers which regulates domain names.
The domains that exist beyond ICANN are known as alternative DNS roots. Such sites end in .geek or .bit.
Dark Markets and Bitcoin
“Bitcoin was absolutely critical to the development of Silk Road and cryptomarkets more generally.”
Bitcoin provided drug dealers with the perfect cover. The dark market allowed the dealers to strip away the violence associated with storage, distribution and sale of narcotics.
Silk Road was an online marketplace where the only things sold and bought were drugs. To protect identities, it could only be viewed through an anonymising network called Tor, and only accepted payments in Bitcoins.
It’s not just the vendors who enjoyed the benefits of illicit e-commerce. Drug buyers could browse a vast catalogue of narcotics on their tablets or phones, with comprehensive reviews from fellow customers to provide an indication of quality.
Consumers were also safer because they didn’t have to interact with potentially violent gang enforcers, either. Instead, the postman drops off their latest dark market order at their doorstep.
- Silk Road was an “onion site” – what does that mean? The term identifies secretive sites which are hidden from regular browser searches. They can only be accessed using an encryption program called Tor which gives users “complete anonymity”,
- What did the site sell? It was the web’s “busiest bazaar for heroin, methamphetamines, crack, cocaine, LSD, ecstasy and all strains of marijuana.It also traded black market cigarettes and forged documents.
- Was it making money? Hundreds of thousands of dollars were transacted daily by the almost 60,000 daily visitors to Silk Road. The site also charged 10% Commision which went to the site’s Founder, who is now under arrest.
- Isn’t it anonymous? How did the FBI track him down? Roberts first came to the FBI’s notice when a user calling himself Altoid began promoting Silk Road on an online forum discussing magic mushrooms. Months later, Roberts/Ulbricht made a fatal slip by attaching his email address to an online posting enquiring about IT consultants with Bitcoin expertise.
There are currently 11 live dark markets among them Silk Road2.0 Agora, White Rabbit Anonymous, The pirate Market, DeepBay and Evolution, just to name a few.
Over 8 months, between 2011 and 2012, 1.35 million Bitcoins were exchanged on the dark market compared to 29.6 million on other exchanges during the same time period. Transactions on Silk Road accounted for 4.5% of all Bitcoins traded; though the actual number could be double that. During this time, 1 Bitcoin was worth $9 compared to $350 to $400 today.
Many have been expecting the government to crack down on the currency because it has been used for illegal activities ranging from drug purchases and money laundering to avoiding sanctions in Iran.
Dark markets have evolved beyond the drug infatuated Silk Road. For example, OpenBazaar is a peer-to-peer marketplace that lets vendors hawk their wares anonymously and without relying on a central platform. Vendors host their product listings on their own computers. Trade is conducted in bitcoin.
Last year when the currency started to gain public attention, Bitcoin jumped from $20 in January to a high of $901 in November. The meteoric rise caused the general public to jump on the bandwagon.
The demand was so high that one British man was discovered at a waste tip, looking for a computer hard drive he had thrown away which contained an extremely valuable number of Bitcoins. After digging through mountains of rubbish for several days he finally had to admit defeat – the valuable haul lost forever, discoverable only by the rats and seagulls.
Successes in the United States and Germany increased investor confidence and the genarl excitement over the cryptocurrency.
A year on, Bitcoin has grown impressively though the value is still volatile meaning a singular global online curre3ncy is still far off, despite believers predicting that the value of one Bitcoin will reach $10,000 by the end of next year.
Thanks to the internet, the world is becoming more and more connected and online shopping is slowly replacing the high street store.
The most likely scenario is that bitcoins could eventually be used every day as cash in a “wallet” stored in your email account. That could empower consumers to have their own online wallets with a currency they can use anywhere instead of having to sign up and give personal details to each online retailer.
It could add ease of use and eliminate some of the invasive online marketing that amounts to electronic junk mail. Such applications would be particularly helpful for Smartphone users, who could avoid inputting personal details when they make purchases.
Bitcoin, history, research