The Secret History of Bitcoin: How was the Bitcoin-to-Dollar Exchange Rate Initially Established?

Source: Hashpai

Author: LucyCheng

What is the price of a Bitcoin? In terms of fiat currency, this is an ever-changing answer; in theory, it is determined by the market. At the beginning of the story, the price of Bitcoin was entirely determined by the random will of buyers and sellers. The most classic example is the well-known "sky-high pizza" incident in the field. Bitcointalk forum user Laszlo used 10,000 BTC to buy two pizzas worth $25 from jercos, which gave Bitcoin a physical value for the first time, $0.0025 per coin.

Screenshot from: http://newlibertystandard.wikifoundry.com/

However, the exchange relationship between Bitcoin and the US dollar began as early as October 2009. Unlike Laszlo's randomness, the Bitcoin pricing method adopted by netizen New Liberty Standard has a specific calculation basis, which is the electricity cost. He used the electricity cost in the United States as a reference, divided the average electricity cost required for a computer with high CPU utilization to run for a year into twelve parts, and then divided it by the total number of Bitcoins produced in the past 30 days, and obtained the pricing result of 1 US dollar = 1309.03 Bitcoins.

Not only that, after determining the exchange rate of Bitcoin to the US dollar for the first time, New Liberty Standard also completed a transaction involving 5,050 Bitcoins for $5.02 on a small website established by early Bitcoin developer Martti Malmi, creating the initial price of Bitcoin, $0.001.

On February 5, 2010, netizens m0mchil and BitcoinFX discussed the NLS Bitcoin value calculation method on the Bitcoin forum.

This crude price calculation method was not generally accepted by the community at the time, and forum users led by m0mchail were the first to raise questions. They believed that the factors that affect the price of Bitcoin should be multifaceted; but some people agreed that this price measurement method was not wrong before Bitcoin had market influence. Now that the market size has expanded to hundreds of billions of dollars, the calculation method of the New Liberty Standard is indeed no longer applicable; the current supply and demand of Bitcoin, the attractiveness of Bitcoin to investors, and the direction of the global economy are the key factors affecting the price of Bitcoin.