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Bitcoin History Part 9: Mt. Gox Is Born

Bitcoin History Part 9: Mt. Gox Is Born

“Hi everyone, I just put up a new bitcoin exchange. Please let me know what you think.” With those innocuous words, one of the most notorious sagas in Bitcoin’s early history began. The name of the exchange was Mt. Gox and it was to play a pivotal role in Bitcoin’s rise – for a while, at least.

Also read: Bitcoin History Part 8: When 1,500 BTC Cost Less Than $1

Magic and Mayhem

Bitcoin History Part 9: Mt. Gox Is Born
Jed McCaleb

Mt. Gox wasn’t the first bitcoin exchange to launch, yet it actually predates Bitcoin. Jed McCaleb registered the mtgox.com domain in 2007 and ran it as “Magic: The Gathering Online eXchange” for years until reading about Bitcoin in 2010. The programmer was shrewd enough to recognize that a bitcoin exchange would be a better use for his domain, which by that point had lain dormant for years, after its original business proved to be a flop.

When McCaleb announced his newly repurposed platform on the Bitcointalk forum on July 18, 2010, initial reaction was muted. Many forum users who tried the site were unimpressed, and wondered why they might want to use Mt. Gox when they already had Bitcoinmarket.com, the first exchange of its kind. McCaleb had a simple answer to this: Gox was “always online, automated, the site is faster and on dedicated hosting and I think the interface is nicer.” He was to be proven right.

‘Can’t Wait to See Bitcoin Hit $10’

In its early days, Mt. Gox ran into the same problem that had affected Bitcoinmarket.com – Paypal. As one of the few fiat onramps that could be easily integrated, Paypal was a necessary evil for early Bitcoin-based platforms, but it soon began to cause more problems than it solved. “I’m really hoping bitcoin makes a huge dent in [Paypal],” fumed McCaleb. “It annoys me so much that they get 5.9% for running one UPDATE statement in their database.”

As McCaleb refined the site, its liquidity grew and traders warmed to Mt. Gox. “I love your exchange. Best I have seen yet,” enthused one. In August 2010, however, one forum user posed a potential problem to McCaleb: “What happens if someone hacks the website and finds a way to send themselves everyone’s BTC balances?” McCaleb laughed the question off at the time, replying: “Not sure. If it is a bug in bitcoin you will probably have to take it up with satoshi :).”

After running the exchange for eight months, McCaleb posted an announcement on March 6, 2011, titled “Mtgox is changing owners.” It read: “I created mtgox on a lark after reading about bitcoins last summer. It has been interesting and fun to do. I’m still very confident that bitcoins have a bright future. But to really make mtgox what it has the potential to be would require more time than I have right now. So I’ve decided to pass the torch to someone better able to take the site to the next level.” It continued:

MagicalTux has already contributed a lot to the bitcoin community and in many ways he will be better at running the site than I was …. Thanks to everyone that has supported mtgox so far. Can’t wait to see BTC hit $10!

At that, McCaleb was gone, off to focus on a cryptocurrency named ripple. In his place came the new steward of Mt. Gox, Magical Tux. Or as he is better known today, Mark Karpeles.


Images courtesy of Shutterstock.


Bitcoin History is a multipart series from news.Bitcoin.com charting pivotal moments in the evolution of the world’s first and finest cryptocurrency. Read part eight here.

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Bitcoin History Part 8: When 1,500 BTC Cost Less Than $1

Bitcoin History Part 8: When 1,500 BTC Cost Less Than $1

How much is one bitcoin worth? In fiat currency terms, that’s a constantly shifting answer, but ever since the beginning, the following has held true: one bitcoin is worth as much as the buyer is willing to pay. Today, that’s likely to be a few thousand dollars, but back in the day, the reverse was more likely to be true: for one dollar, you could buy several thousand bitcoins.

Also read: Bitcoin History Part 7: The First Major Hack

Calculating Bitcoin’s Exchange Rate

Bitcoin History Part 8: When 1,500 BTC Cost Less Than $1Once an asset has a universally agreed exchange rate, tracking its rising and falling price thereafter is a simple matter. But when no one’s really sure what the market is willing to pay for an emerging asset, it can be hard to reach consensus on valuation – especially when there are no exchanges to facilitate price discovery. This was the dilemma that early Bitcoin adopters faced in early 2010.

‘We are in a sort of “chicken and egg” situation at the moment,” noted Bitcointalk forum member The Madhatter. “In order for an exchanger to sell bitcoins … to someone, they need customers who have dollars and want coins … I mean, why would an exchanger sit around and accept bitcoins that are generated on your computers? They are going to just blow out their float of dollars and fold.” A couple of months prior, the first rudimentary exchange rate for BTC had been calculated by influential forum user “NewLibertyStandard” (aka NLS). Their pricing system was based on the amount of energy required to mine BTC – or “BC” as it was still often referred to at the time.

A Simple Model to Get the Ball Rolling

“New Liberty Standard is doing fantastic and logical work to help ‘set the ball rolling’,” praised forum user “BitcoinFX” on Feb. 5, 2010, adding: “I’m currently compiling a Neural Network model that takes into account other factors such as the finite number of Bitcoins, daily Gold and Silver fixings, other currency pairs and daily exchange rates and the average number of Bitcoin users etc. I’m of course factoring in the New Liberty Standard. This will be a very adaptable model to help calculate and predict future exchange rates and I will share it with our growing community.”

Today, the pricing models used to predict future bitcoin prices have become infinitely more sophisticated, but even in 2010, it’s evident that some adopters were thinking beyond mere extraction costs, and trying to envisage a world in which Bitcoin broke away from its power pegged price and attained a value determined by an array of external forces.

Bitcoin History Part 8: When 1,500 BTC Cost Less Than $1
Bitcoin prices, as quoted on the New Liberty Standard website in 2009

While NLS’s methodology has long since been retired, an archived web page reveals the BTC prices their system set back in 2009, explaining:

Our exchange rate is calculated by dividing $1.00 by the average amount of electricity required to run a computer with high CPU for a year, 1331.5 kWh, multiplied by the the average residential cost of electricity in the United States for the previous year, $0.1136, divided by 12 months divided by the number of bitcoins generated by my computer over the past 30 days.

In Dec. 28, 2009, according to NLS, $1 would have gotten you 1,578.77 BTC. Not bad.

Bitcoin History is a multipart series from news.Bitcoin.com charting pivotal moments in the evolution of the world’s first and finest cryptocurrency. Read part seven here.


Images courtesy of Shutterstock.


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The post Bitcoin History Part 8: When 1,500 BTC Cost Less Than $1 appeared first on Bitcoin News.

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