The first permanent settlement in Iceland by Norsemen is believed to have been established in Reykjavík by Ingólfur Arnarson around AD 870; this is described in Landnámabók, or the Book of Settlement. Ingólfur Arnarson is said to have decided the location of his settlement using a traditional Viking method; by casting his high seat pillars (Öndvegissúlur) into the ocean when he saw the coastline, then settled where the pillars came to shore. Steam from hot springs in the region is said to have inspired Reykjavík's name, which loosely translates to Smoke Cove (the city is often referred to as the Bay of Smokes or Bay of Smoke) The original name was Reykjarvík with an additional "r" that vanished around 1300.
Reykjavík is not mentioned in any medieval sources except as a regular farm land but the 18th century saw the beginning of urban concentration there. The Danish rulers of Iceland backed the idea of domestic industry in Iceland that would help to stimulate much-needed progress on the island. In 1752, the King of Denmark donated the estate of Reykjavík to the Innréttingar Corporation; the name comes from Danish "indretninger", meaning enterprise. The leader of this movement was Skúli Magnússon. In the 1750s several houses were constructed to house the wool industry that was to be Reykjavík's most important employer for a few decades and the original reason for its existence. Other crafts were also practiced by the Innréttingar, such as fisheries, sulphur mining,agriculture, and shipbuilding.
The Danish Crown abolished monopoly trading in 1786 and granted six communities around the country an exclusive trading charter, Reykjavík was one of them and the only one to hold on to the charter permanently. 1786 is regarded as the date of the city's founding; its 200th anniversary was celebrated in 1986. Trading rights were still limited to the subjects of the Danish Crown however, and Danish traders continued to dominate trade in Iceland
