The Wild Wild West ― Chasing Bitcoin

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Welcome back everyone for our second chapter of Chasing Bitcoin, the Token Metrics blog that uses Bitcoin’s history to glean insights on its future. Starting with the present, bitcoin is still hovering above $60k at the time of writing and has a solid monthly TM grade of 80%. Our AI is optimistic for the next 30 days, and I don’t like to fade our AI. In today’s telling of the Bitcoin story, we’ll discuss some major additions to the bitcoin ecosystem including the advent of the first exchanges and the infamous Silk Road Marketplace. But before we can do this, no story of Bitcoin is complete without mentioning the first real-world purchase made with the currency.

On May 18, 2010, Lazlo Hanyecz posted on a message board offering to pay anyone 10,000 BTC to call Papa Johns and order two large pizzas to his address in Jacksonville, FL. 4 days later, after many jokes at his expense about him starving to death waiting for his pizza, Lazlo received his pies which were ordered by Jeremy Sturdivant. As promised, Hanyecz sent 10,000 BTC to Sturdivant. Today, those two pizzas are worth over $300 million per pie, making them the most expensive pizzas ever purchased. May 22nd is now celebrated as Bitcoin Pizza Day by bitcoiners all over the world.

A few months later we saw one of the first major bitcoin exchanges, Mt. Gox, go live in July 2010. Founded by Jed McCaleb, he originally purchased the domain name to be used as a place for buyers and sellers to trade Magic: The Gathering Online trading cards. Hence the origin of the name, Mt. Gox, “Magic: The Gathering Online Exchange.” When Gox was founded the price of bitcoin was under $1 and in its heyday the exchange saw BTC prices over $100. By 2013, Mt. Gox was responsible for 70% of all bitcoin transactions and was the clear leader in terms of bitcoin exchanges. However, a strong start does not mean a strong finish or a lasting presence in crypto, especially during the wild-wild west-like times of the early 2010s. In a later post, we’ll discuss how Mt. Gox rapidly lost its dominance as a Bitcoin exchange and almost took the entire Bitcoin network down with it.

2010 proved to be a big year for Bitcoin as it was also the year Bitcoin legend Gavin Andreesen launched the first bitcoin faucet. In June, just before Mt. Gox was launched, Andreesen built a website that would dispense 5 BTC for free to anyone who visited the site and completed a Captcha response. Users were able to visit and redeem 5 BTC for free once per day! Andreesen knew that BTC was almost impossible to obtain for the majority of internet users and he knew people needed to get skin in the game for the network to grow. With this knowledge, Andreesen determined that he would donate 1,100 BTC from his own wallet, to begin with. Eventually, other early bitcoin adopters and a few whales donated their BTC to the faucet and by the time the faucet was taken down at the beginning of 2011, nearly 20,000 bitcoin had passed through Andreseen’s wallet. Most of these probably weren’t hodled until the present day, and many were sold on Mt. Gox, but the faucet was still massively successful in onboarding people to the Bitcoin network.

Perhaps the most infamous, but also one of the most important parts of the Bitcoin story is that of the Silk Road Marketplace. Ross Ulbricht, a Texas man with a degree in physics and an anarchist world-view, launched the Silk Road in February 2011 under the pseudonym “Dread Pirate Roberts” based on the novel and film The Princess Bride. The marketplace used Tor browser technology to allow buyers and sellers to view and shop for black market goods anonymously. There were over 10,000 items sold on the Silk Road for bitcoin, and over 70% of these products were illegal drugs. In total, the Silk Road processed over 1.2 million transactions and revenues from these sales totaled over 9.5 million bitcoin, creating over 600,000 bitcoin in commissions for Ulbricht and other admin. So while the Silk Road is considered by some to be a stain on the Bitcoin network, it was responsible for a significant portion of the transactions on the network during the period and was proof that Bitcoin could handle the demands of a major online marketplace.

That brings this chapter of Chasing Bitcoin to a close. Thank you for reading and make sure to tune in next time when we talk about the first BTC halving event and the launch of the great American crypto exchange, Coinbase.

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