The origins of Bitcoin: Ethereum and ICOs

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This series looks back on the history of Bitcoin. Read parts one, two, three, four, five, six and seven.

In 2016, cryptocurrency really started to gain attention on a global level. It was still not understood by many, but regulators began to take more notice and the idea of a digital currency began to see implementation in different parts of the world. It was also the beginning of a split for Ethereum, as well as one of the darker sides of the Bitcoin ecosystem—the initial coin offering (ICO).

January of that year found the network rate of Bitcoin jumping over the one-exahash per second mark for the first time. This showed the potential, before developers began overanalyzing things, of Bitcoin to handle large amounts of transactions and proved that a digital currency solution was feasible. 

In March, just two months later, Japan’s government saw the value of Bitcoin and announced that it could have a similar function to that of fiat, helping to expand adoption. The largest online marketplace in South Africa, Bidorbuy, supported the idea, as well, and began accepting crypto that same month. 

Over the next several months, crypto saw its ups and downs. The Bitfinex exchange took a massive hit when it was hacked and around $60 million worth of BTC was stolen. As awareness of crypto continued to grow, the number of available ATMs grew, as well, reaching 771 in September 2016 – twice what had been seen 18 months earlier. Now, according to BTC Wires, there are over 5,000. 

Bidorbuy wouldn’t be the only entity to start accepting crypto payments in 2016, as the Swiss Railway upgraded their ticket machines to deal in crypto. The automated machines began to include a scanner that would be used to scan the BTC address onto a smartphone app. 

Ethereum and the Ether crypto first came about in 2013. It would offer smart contract solutions, one of the main components of the original Bitcoin design, via transaction-based state transitions. Ethereum took the original Bitcoin and modified it almost completely, ultimately creating a blockchain solution that was a lot of different than what had originally been intended. This led to an issue in 2016 that saw the exploitation of a flaw in the smart contract software that led to the theft of $50 million worth of Ether. It also led to the creation of two split Ethereum chains, the original, now known as ETH, and a second, Ethereum Classic (ETC).

Notably, it was the Ethereum community which first demonstrated that the legacy protocol for a blockchain project could be issued a new ticker symbol even though it represents the original approach. Ethereum implemented a hard fork in its code in order to restore 3.6 million Ether tokens that were stolen from The DAO venture capital fund. This move was done after a vote and “rolled back” the Ethereum chain and transactions to their state before the theft of DAO tokens. Some Ethereum community members rejected this hard fork on the principle that the blockchain should not be subject to change in this manner, and decided to keep using the original “unforked” version of Ethereum. This created a competing Ethereum chain—which acquired the new name Ethereum Classic, and was issued a new ticker symbol ETC used by exchanges. But Ethereum Classic actually represents the original Ethereum protocol, even though it uses a new name and new ticker symbol. It was in fact the other chain that actually forked away from the original protocol, but managed to keep the original Ethereum name and ticker symbol. Likewise, BTC may have kept the original ticker symbol and “Bitcoin” name, but current BSV actually represents the legacy Bitcoin protocol and the original Bitcoin.

Before cryptocurrency really started to take off, ICOs first saw daylight in 2013 when Mastercoin sought to raise money for its project. Ethereum also held its own ICO the following year, raising around $2.3 million in less than a day. The substantial injection of funds ICOs were receiving led to expanded interest in the activity, as well as expanded fraud. There have been a great number of pump-and-dump schemes, as well as plenty of other scams, from ICOs that were never intended to legitimately fund projects. As awareness and regulations have grown, though, crypto enthusiasts have become more savvy and aren’t as easily victimized by the ICO fraudsters. As the Bitcoin ecosystem evolves, frauds and scams will become even less of an issue, and fiat will continue to see the same high levels it has since it was first invented.