How was the first official exchange rate between Bitcoin and the US dollar calculated?
October 5, 2009, marks the historic date when the first official exchange rate between Bitcoin and the US dollar was calculated. It was established by the New Liberty Standard exchange: 1,309.03 bitcoins per 1 US dollar. This bitcoin-to-dollar exchange rate preceded the famous Bitcoin Pizza Day, when two pizzas were purchased for 10,000 bitcoins, by 229 days.
But how was that price determined?
New Liberty Standard used a calculation method based on the energy costs of mining bitcoins. Specifically, the value was determined by dividing $1 by the average annual cost of electricity required to run a high-performance CPU computer, also factoring in the average residential electricity cost and the average bitcoins production in a month.
According to the New Liberty Standard website:
“During 2009, the exchange rate was calculated by dividing $1.00 by the average amount of electricity needed to run a high-performance CPU computer for a year, 1331.5 kWh, multiplied by the average residential electricity cost in the United States for the previous year, $0.1136, divided by 12 months, and divided by the number of bitcoins generated by my computer in the last 30 days. I ordered a single-outlet power meter and will likely change the exchange rate to the average cost of production over a year. I aim to implement this starting from January 1st (of 2010).”
A few days later, on October 12, 2009, Finnish developer Martti Malmi recorded the first-ever Bitcoin sale, sending 5,050 bitcoins to the New Liberty Standard website for $5.02 via PayPal, thus establishing Bitcoin’s price and effectively making New Liberty Standard an exchange.
