First documented around 2009 in Sacramento, CA at the Casino Royale (by EY, Erle, Mailman, Columbian Paul, Matt G, AC Danny, and HK who is featured in the attached video winning one of the largest bomb pots streamed at 5/5).
The purpose of the bomb was originally a fun conclusion to a game. However it became a way to create action within a game. It soon spread to Reno, the rest of California, Vegas, and the rest of the world. It has become tradition to do one on each dealer change. Some games even have a separate button that rotates just for the bomb pot so that each player has a chance to be in position for the bomb pot. When the regular button and bomb pot button are in the same place some degenerates do something call an eclipse which doubles the normal bomb pot bet.