2009: Bitcoin’s Experimental Era

By the end of 2009, there were fewer than one hundred people mining bitcoin, yet they collected nearly 2,500,000 bitcoins as mining rewards, all of it at the lowest possible difficulty rating—level one. Bitcoin started out very slowly, with a handful of cryptographers, goldbugs, geeks, and libertarians who thought this avant-garde system of code could indeed change the world. Hal Finney calculated that the unit price would either go to zero or, if it succeeded to its fullest extent, could reach as much as $10 million per bitcoin, which would put the overall value of all bitcoin at roughly ten times the market capitalization of gold at the time.

What kept the difficulty ranking so low? After all, the difficulty level today is around 90 trillion—meaning that it takes ninety trillion times the computing power to solve the computer problem as it did fifteen years ago—and yet the reward is only 1/16th the amount of bitcoin (3.125 BTC every ten minutes instead of fifty). For starters, not only were there very few miners in the beginning but there were also very few users. Therefore, many blocks in 2009 were sealed with zero transactions in them (in reality, “empty blocks” still have one transaction: the one that sends the miner reward from the coinbase to the winning miner or mining pool).

All mining in 2009 was still done with CPUs—ordinary personal computers, often laptops, pushing their math processors to the point of heating up as difficulty eventually rose. GPUs came in 2010 and Satoshi pleaded with the GPU miners to stop the arms race, as he thought it was too early to take mining out of the hands of the average, less technical user.

A few key milestones of this flagship year:

? Bitcoin.org website and BitcoinTalk. The domain name Bitcoin.org was registered on August 18, 2008, more than two months before the white paper’s appearance. It then launched shortly after the publication of the white paper. The website’s development was aided by a young Finnish college student, Martti Malmi, who offered to help Satoshi write copy for the fledgling enterprise in exchange for bitcoin. He also agreed to mine twenty-four hours a day, so there would be at least two computers on the network at all times.lv ? BitcoinTalk (www.bitcointalk.org) is a traditional, moderated online forum for message threads about Bitcoin and various bitcoin-related subtopics. BitcoinTalk is where many firsts occurred, including conversations leading up to the first bitcoin exchange. It is also where the deal to buy two pizzas for ten thousand bitcoin was initiated.

? The first bitcoin exchange. New Liberty Standard (2009–2011) was the first centralized bitcoin exchange, using PayPal to sell bitcoin for cash. Since there was very little price discovery available in this nascent market, the exchange itself did an analysis of mining costs, tacked on a small profit, and came up with a fair market value of 1,309.03 bitcoin for each US dollar, less than 1/10th of a penny per bitcoin.

? On October 5, 2009, the first sale of bitcoin took place on New Liberty Standard, where Martti Malki sold 5,050 of the bitcoin he was paid by Satoshi for his help for $5 on PayPal. That amount of bitcoin is worth more than $300 million as of the writing of this chapter.