The Bitcoin Story · Module 3 · 2010 to 2012 · 35 min
In its first three years Bitcoin went from a hobby for programmers to something with a price, exchanges, a first big crash and its first halving.
What you will learn
Explain what a halving is and why it happens.
Describe how exchanges appeared and why they carry risk.
Explain why early price swings were so large.
The lessons
Lesson 1: First prices and Pizza Day
For its first year Bitcoin had no market price at all. Early users mined coins on home computers and traded them mostly with each other.
Once exchanges opened, prices appeared. In February 2011 one bitcoin first reached one US dollar. The pizza purchase of May 2010 is told so often because it is one of the earliest clear examples of someone spending bitcoin on a real thing, and because of how large those 10,000 coins would be worth later.
Be careful with that second part. Looking back and counting what an early coin would be worth now is easy, but it says nothing about what any coin will be worth next.
Remember: A price is just what people are willing to pay at a moment. In 2010 almost no one was paying.
Lesson 2: Exchanges, a peak and a crash
An exchange is a website where people swap bitcoin for regular money. Mt. Gox began trading bitcoin in July 2010 and became one of the largest of its time.
Interest built through early 2011 and the price peaked near $32 on Mt. Gox in June 2011. Then it fell, and by November 2011 it was about $2, a fall of around 90 percent.
That cycle of excitement, a sharp rise, then a sharp fall would repeat many times. It is why people describe Bitcoin as volatile: its price can move very far in a short time in either direction. Exchanges also carry their own risk, because coins held there depend on the exchange staying safe and honest.
Remember: Volatility has been part of Bitcoin from the start. Nobody can promise which way it will move.
Lesson 3: The first halving
Bitcoin’s software creates new coins as a reward to the miners who add blocks. Satoshi built in a rule that the reward would be cut in half at fixed points, about every four years, or every 210,000 blocks. This is the halving.
Because of the halvings the total number of bitcoin is capped at 21 million. The first halving came on 28 November 2012, when the reward fell from 50 to 25 bitcoin per block.
A new block arrives about every ten minutes, so about 144 a day. That means new coin creation fell from 7,200 a day to 3,600 a day overnight. The table under Do it yourself, at the end of this module, shows every era.
Remember: The halving is a fixed rule written in the software. It makes new coins arrive more slowly over time.
Key dates
When
What happened
Why it matters
July 2010
Mt. Gox begins trading bitcoin
One of the first big exchanges, and later a warning story
February 2011
One bitcoin first reaches one US dollar
A first sign of wider interest
February 2011
The Silk Road marketplace launches
Bitcoin gets an early link to illegal trade that it still has to answer for
June 2011
The price peaks near $32 on Mt. Gox
A first speculative rush
November 2011
The price falls to about $2
Shows how fast prices can fall
28 November 2012
The first halving: the reward per block falls from 50 to 25 bitcoin
New coins now arrive at half the pace
Key terms: exchange, mining, block reward, halving, supply cap, volatility. Open the glossary
Module quiz
4 questions. Tap an answer to see if you are right and why.
1. What does a halving do?
It cuts the block reward in half about every four years, so new coins arrive more slowly.
2. What is the cap on the total number of bitcoin?
The supply cap is 21 million, built into the software.
3. How much did the price fall from its June 2011 peak by November 2011?
From near $32 to about $2, a fall of around 90 percent.
4. How many new bitcoin per day after the first halving (November 2012)?
The reward fell from 50 to 25, so about 144 blocks × 25 = 3,600 a day.
Do it yourself
Work out how many new bitcoin were created each day in each era. A new block arrives about every 10 minutes, so about 144 blocks a day. Multiply 144 by the reward.
Era
Reward per block
New bitcoin per day
2009 to 2012
50
7,200
2012 to 2016
25
3,600
2016 to 2020
12.5
1,800
2020 to 2024
6.25
900
From April 2024
3.125
450
Not financial advice. This lesson is history and education only. Prices are rounded and shown only to explain how big the swings were.