The Bitcoin Story · Module 4 · 2013 to 2017 · 35 min
Bitcoin survived the collapse of its biggest exchange and a long argument about its own rules, and came out with more users, new upgrades and a split into two coins.
What you will learn
Explain what a fork is and why Bitcoin forked in 2017.
Describe why the Mt. Gox collapse changed how people think about storing coins.
Recognise the signs of a boom-and-bust cycle.
The lessons
Lesson 1: Mt. Gox and holding your own keys
By 2013 Mt. Gox handled a very large share of all bitcoin trading. In February 2014 it stopped withdrawals and then filed for bankruptcy. A very large number of customers’ coins were reported missing, and many people lost money.
The lesson people took is a saying you will hear often: not your keys, not your coins. If you leave coins on an exchange, you are trusting the exchange to keep them safe and give them back.
Holding your own keys, for example in a wallet you control, removes that trust but adds a different responsibility. If you lose your keys, nobody can restore them. Cold storage, which keeps keys offline, is one way people reduce the risk of being hacked.
Remember: Every way of holding crypto has a trade-off. The trade-off is between trusting someone else and being responsible yourself.
Lesson 2: The block size debate, SegWit and Bitcoin Cash
Each block can only hold a limited amount of data, so only a limited number of transactions fit into each one. As more people used Bitcoin, fees rose and payments slowed, and the community argued about what to do.
One side wanted bigger blocks, so more transactions fit. The other worried that bigger blocks would make it too costly for ordinary computers to run the network, which could make Bitcoin less open.
SegWit, an upgrade that uses block space more efficiently, was activated in August 2017. On 1 August 2017 a group that wanted bigger blocks split away to create Bitcoin Cash, a fork, so there were then two chains with a shared history. A fork like this is permanent. Anyone who held their own bitcoin keys before the split also ended up with the same amount of Bitcoin Cash.
Remember: A fork happens when a community cannot agree. Both sides had real arguments.
Lesson 3: The 2017 boom
The 2016 halving took place on 9 July 2016, cutting the reward to 12.5 bitcoin. Through 2017 the price climbed steeply, passing $1,000 again and then reaching a peak near $19,800 on 17 December 2017.
Newspapers and television covered it every day. New buyers arrived, many hoping to catch the rise, and the first wave of ICOs (token sales by new projects) appeared, mostly on Ethereum. Early 2018 brought the fall. By the end of 2018 the price was down about 80 percent from the top.
A sharp rise in attention followed by a sharp fall is a pattern, not a rule. The best protection is to be wary when everybody around you suddenly seems certain.
Remember: The loudest moment of excitement was also the peak. That does not always happen, but it has happened before.
Key dates
When
What happened
Why it matters
October 2013
The Silk Road marketplace is shut down by US authorities
Shows that Bitcoin’s record is public, not secret
27 November 2013
Bitcoin first crosses $1,000
A first big price milestone
February 2014
Mt. Gox halts withdrawals and goes bankrupt
Many customers lose coins; not your keys, not your coins becomes a saying
January 2015
The price falls to about $200
A long, quiet low after the 2013 peak
9 July 2016
The second halving: the reward falls from 25 to 12.5 bitcoin
New coin creation slows again
1 August 2017
Bitcoin Cash splits off from Bitcoin
A permanent fork after the block size argument
August 2017
SegWit, an upgrade that makes better use of block space, is activated
Settles part of the argument without a split of the main chain
17 December 2017
The price peaks near $19,800
The first huge mainstream moment, followed by a long fall
Key terms: fork, block size, SegWit, hack, cold storage, ICO. Open the glossary
Module quiz
4 questions. Tap an answer to see if you are right and why.
1. What did the Mt. Gox collapse in 2014 teach people?
Hence the saying: not your keys, not your coins.
2. What is a fork?
A fork can be a planned upgrade or a split after a disagreement.
3. What happened on 1 August 2017?
A group that wanted bigger blocks created Bitcoin Cash.
4. Roughly where did the price peak in December 2017?
Near $19,800 on 17 December 2017, followed by a long fall.
Do it yourself
On paper, draw the August 2017 fork as a line that splits into two. Label each branch and write one reason each side gave.
Not financial advice. This lesson is history and education only. Prices are rounded and shown only to explain how big the swings were.