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Introduction

Course overview

Bitcoin's Pioneering Era

Course overview

  • The Wild West of finance
  • Course outline
  • Details
  • Thanks
This course aims to cover the first part of the second phase of the Bitcoin history (2011–2014). It follows the first phase (2008–2011), known as the “proof-of-concept” phase, characterized by Satoshi’s presence and the project’s relative discretion, and it preceded the third phase (2014–2018), marked in particular by the blocksize war—an internal conflict that tore the community apart for several years. We'll try to capture the originality of this period, and how it represents a necessary step in the construction of Bitcoin.

The Wild West of finance

The story we tell here focuses on the period from the departure of Satoshi Nakamoto in spring 2011 to the creation of the Bitcoin Foundation in September 2012. This part of Bitcoin's history corresponds to the era known as "the Wild West of finance", which was characterized by the absence of regulation due to the unprecedented nature of this innovation that is cryptocurrency. By this time, Bitcoin had been proven feasible and was receiving increasing media coverage. During this period, the use of Bitcoin spread to people who weren't interested in cryptocurrency in the first place. Illegal use cases multiplied, giving this “sinful phase” (to borrow the term used by the French sociologist Maël Rolland) a distinctive character.
The term "Wild West" was used again and again by industry players and journalists of the period. As early as November 2010, Gavin Andresen referred to the era as "the Wild West days of open-source currency" and said he expected "people will get burned by scams, imitators, Ponzi pyramid schemes and price bubbles". In an article published on Reuters on April 2, 2012, journalist Naomi O'Leary wrote that "Bitcoin has become the Wild West of finance, with a proliferation of websites offering loosely regulated replicas of the services familiar to those in the financial industry." From 2013 onwards, this reference to the Wild West spread throughout the community, appearing in positive form in the mouths of Erik Voorhees and Charlie Shrem, the two main representatives of the BitInstant exchange company, or being evoked in a more pejorative way by the likes of Brian Armstrong, co-founder of the Coinbase platform. It had also been taken up by Bitcoin detractors, such as Benjamin Lawsky, Superintendent of the New York State Department of Financial Services, who in August 2013 referred to cryptocurrencies as "a virtual Wild West for narcotraffickers and other criminals".
The Far West has a strong image in the American imagination, and by extension throughout the Americanized West, thanks in particular to the Western, a film genre that was very popular in the mid-20th century. It represents an ideal of independence, both for its positive attributes (freedom) and its negative ones (danger). It's the original foundation of the "American dream": to be able to settle down in an unknown land and strive to succeed, building wealth from very little. It was only natural that Bitcoin should be compared to this space of freedom, through its independence from the political system in place: Bitcoin allowed for everything, the best and the worst. The comparison particularly inspired Erik Voorhees, who, in a 2013 interview, argued that Bitcoin was the new frontier, the intermediary between established civilization and unexplored lands. He said:
"Absolutely, Bitcoin is the Wild West of finance, and thank goodness for that. It represents a whole legion of adventurers and entrepreneurs, of risk-takers, inventors and problem-solvers. It is the frontier. Huge amounts of wealth will be created and destroyed as this new landscape is mapped out. I believe the effects of this adventure will be profound, for while the 'Wild West' was a uniquely American phenomenon, Bitcoin is a global one."
It was not without reason that the blogger Jimbobway referred to the development of Bitcoin mining in 2010 as a "digital gold rush", an analogy that has been repeated by others in the years since. In 2013, journalist Alec Liu also referred to it in an article for Motherload about Yifu Guo, the inventor of one of the first functional ASICs. In a movement that continued until at least 2014, individuals could mine bitcoins themselves thanks to increasingly sophisticated tools, until specialized equipment became widespread and the first industrial-scale farms were developed.
The "Wild West of cryptocurrency" was a period during which, as Michael del Castillo explained, "bitcoin was thought to be both unregulated and unregulatable". This characteristic meant that uses ordinarily frowned upon by the general public - illegal, immoral, or likely to become so - were the first to flourish.
We saw drug trafficking take center stage with the Silk Road platform, which enjoyed its heyday during this period, monopolizing up to 20% of the chain's business in 2012. Founded by a young Texan by the name of Ross Ulbricht, it was the first online marketplace to use Tor and Bitcoin. It enabled users to purchase products of all kinds, including drugs, hence its nickname, the Amazon of drugs. Ross Ulbricht himself considered that Silk Road was not "Wal-Mart, or even Amazon.com", but that it was "the Far West" and that there were "as many crooks as honest businessmen and women". The platform began to gain traction in June 2011, following an article published on Gawker, to the point that it attracted the attention of the authorities.
In addition to Silk Road, Bitcoin became a currency for vice and crime in general, acquiring a reputation that would later be particularly hard to undo. Online gambling developed considerably, with the creation of poker, betting and casino platforms of all kinds. Numerous hacks took place, leading to astronomical losses and the bankruptcy of major companies in the ecosystem such as Bitcoinica. Multiple scams were perpetrated, following the example of the Bitcoin Savings & Trust pyramid scheme, which collapsed in August 2012.
On the financial side, exchange platforms grew enormously, initially operating without a banking license or any know-your-customer (KYC) procedures. They bridged the gap between state currencies and bitcoin, sometimes via alternative systems such as Liberty Reserve. Leveraged speculation emerged at this point. Online exchanges like GLBSE enabled projects to develop by issuing shares without registration with the authorities. Finally, the monetary freedom brought about by Bitcoin enabled many individuals to launch their own cryptocurrencies, with more or less good intentions depending on the project.
Bitcoin attracted all kinds of atypical profiles and non-conformists. For Naomi O'Leary, Bitcoin users were "an odd assortment of uber-geeks, anarchists, libertarians, scammers and forex traders". In 2017, in a nostalgic article dedicated to "The Last Days of Bitcoin's Wild West", libertarian Bruce Fenton referred to the Bitcoin community as "the most interesting and eclectic group of geeks, geniuses and rebels I had ever seen".
A theme related to the Wild West that was used at the time was that of piracy. Indeed, piracy itself occupies an important place in American history (17th-century buccaneers in the Caribbean spring to mind). The idea of an independent man sailing the seas was particularly telling to early cryptocurrency enthusiasts, and so some of them appropriated this imagery, for better or worse. In early 2012, Ross Ulbricht called himself Dread Pirate Roberts, after the colorful pirate from the film The Princess Bride. Similarly, Bitcoin Savings & Trust manager Trendon Shavers used the pseudonym PirateAt40, in reference to Jimmy Buffett's song "A Pirate Looks At Forty".
A final striking feature of the period was probably the age of Bitcoin's main promoters: most of them were indeed young, even very young. Many of them were millenials, members of Generation Y: born between 1981 and 1996, they were between 16 and 31 in 2011 when Satoshi disappeared for good. Their relative youth made them particularly enthusiastic, so they were the fuel with which Bitcoin was able to take off. Nevertheless, they were also particularly immature and reckless, especially when it came to regulatory response. Even though they were supervised by members of the previous generation (who were often more discreet), they made a considerable number of mistakes, which led some of them to suffer repression from the authorities or end up behind bars.

Course outline

This course is divided into four parts, focusing respectively on the economic construction of Bitcoin during the great bubble of 2011 (4 chapters), its technical development (3 chapters) and the excesses that flow from its free and uncensurable nature (4 chapters). In all, it comprises 11 chapters, which are listed below (the relevant period is indicated in parentheses):
  • Silk Road, the Amazon of drugs (January-November 2011)
  • Mt. Gox takeover (March-August 2011)
  • Bitcoin and political activism (March-November 2011)
  • The first bear market (June 2011-April 2012)
  • Enhanced use of Bitcoin (March 2011-November 2011)
  • The rise of mining pools (February 2011-September 2012)
  • The battle for Pay to Script Hash (August 2011-April 2012)
  • The emergence of alternative cryptocurrencies (April 2011-August 2012)
  • Legal and illegal trade (January-September 2012)
  • The currency of vice: gambling and sex work (August 2011-August 2012)
  • The currency of crime: piracy and scams (March-September 2012)

Details

Reading the first course on the history of Bitcoin (entitled The history of the creation of Bitcoin) is a prerequisite, especially if you're completely new to the subject. Although the narrative isn’t entirely chronological, this second course picks up where the previous one left off, around spring 2011. You can click on the following link to follow the first course:
The History of Bitcoin's Creation
The History of Bitcoin's Creation
The History of Bitcoin's Creation
Intermediate
4.8(89)

Discover the history of the origins, launch, and early developments of Bitcoin.

4.8(89)
The History of Bitcoin's Creation
The History of Bitcoin's Creation

Discover the history of the origins, launch, and early developments of Bitcoin.

Ludovic LarsLudovic Lars
Intermediate
10 hours
4.8(89)
All dates and times are given in the UTC time zone (corresponding to the Greenwich meridian) and may therefore differ from American dates.
In addition to the sources given directly in the hyperlinked text, we have drawn on the following reference works:
We also drew inspiration from the documentary films covering this part of the Bitcoin history, namely:
Finally, we made use of a number of archives and content available on the Internet, including:

Thanks

Many thanks to Loïc Morel for his careful proofreading!