Cryptocurrency bitcoin marks 10 years - Emirates24|7

Cryptocurrency bitcoin marks 10 years

Photo: AFP

October 31, 2008 marked the birth of bitcoin. Ten years on, the world's first cryptocurrency is at the forefront of a complex financial system viewed warily by markets and investors.

From its first evocation amid a global financial crisis, in a white paper written by Satoshi Nakamoto, an unknown pseudonym, bitcoin conveyed a political vision.

The "abstract" set out in the paper for bitcoin, currently worth about $6,400 per unit from a starting point of virtually zero, was for "a purely peer-to-peer version of electronic cash (that) would allow online payments to be sent directly from one party to another without going through a financial institution."

A decade on, this continues to be carried out via a decentralised registry system known as a blockchain.

Such ambition for a cryptocurrency was fuelled by the bankruptcy of US investment bank Lehman Brothers in September 2008, an event that discredited the traditional system of "a small elite of bankers... (that) establishes monetary rules imposed on everybody", according to Pierre Noizat, founder of the first French bitcoin exchange in 2011.

Following its creation, bitcoin evolved for several years away from the public eye, grabbing the attention for the most part of geeks and criminals -- the latter seeing it as a way to launder money.

After bitcoin surpassed $1,000 for the first time in 2013, it began to attract the attention of financial institutions.

The European Central Bank compared it to a Ponzi scheme, but Ben Bernanke, then head of the US Federal Reserve, hailed its potential.

A turbulent childhood

In early 2014, the cryptocurrency faced its biggest crisis to date, with the hacking of the Mt. Gox platform, where about 80 percent of all bitcoins were traded.

The result was a collapse in their value, leading to predictions of the virtual currency's death.

It took until early 2017 for bitcoin's price to fully recover.

That marked the start of a "turning point" according to Noizat, as the controversial cryptocurrency then rocketed to more than $19,500 by the end of the year according to Bloomberg data.

That meant bitcoin had a total capitalisation of more than $300 billion, according to the specialised website Coinmarketcap.

By January 2018 the value of all cryptocurrencies exceeded $800 billion, before the bubble burst.

The concept of a digital currency has progressed substantially thanks to bitcoin, cryptocurrency analyst Bob McDowall told AFP, pointing to the creation of 2,000 rivals.

According to Anthony Lesoismier, co-founder of investment fund Swissborg which offers portfolios based on blockchain, "the real revolution has been on a philosophical level".

But for economist Nouriel Roubini, decentralisation in crypto is a myth.

"It is a system more centralised than North Korea. Miners are centralised, exchanges are centralised, developers are centralised dictators," Roubini tweeted.

If the initial idea was for bitcoin to facilitate payments, a majority of observers recognise that it is used above all as a store of value or as a speculative instrument owing to volatility in its value.

"You need 20 years for this kind of... technology to take hold completely," said Noizat, who is banking on faster transaction speeds for bitcoin.

As it stands, about five to ten bitcoin transactions can be processed per second compared with several thousand for Visa cards.

Looking ahead, US market regulators are considering applications for bitcoin-based exchange-traded funds, which if approved by the Securities and Exchange Commission would see the virtual currency become part of a financial system it set out to bypass.

"We must cross some bridges in the short term" to generate the general public's interest and trust, said Lesoismier, who described himself as both an "idealist" and "realist".

Q&A:What is bitcoin?

Bitcoin is a decentralised virtual currency created from computer code in the wake of the 2008 global financial crisis.

Unlike a traditional currency such as the dollar, euro or yen, bitcoin has no central bank and is not backed by any government.

Instead, the unit is controlled and regulated by its community of users, who argue that this makes it more efficient than traditional currencies.

There are some 17.3 million bitcoins in circulation, while the total number can never exceed 21 million.

How does it work?

Bitcoin uses so-called peer-to-peer blockchain technology to create and trade instantly, across the globe.

A blockchain is an extremely secure ledger for recording transactions that is open to all who use it.

Transactions happen when heavily encrypted codes are passed across a computer network.

The network as a whole monitors and verifies the transaction in a process that is intended to ensure no single bitcoin can be spent in more than one place simultaneously.

And, just like conventional currencies, bitcoins can be exchanged for goods and services -- provided the other party is willing to accept them.

How to buy bitcoin?

Like other virtual units, bitcoin can be produced, or "mined", by banks of computers solving complex algorithms.

However, large-scale currency mining can be very expensive because it requires cutting-edge technology and vast amounts of electricity.

Bitcoin can be purchased also with traditional currencies over online trading platforms.

Users hold the cryptocurrency in a protected virtual wallet, and can then "send" it to one another using the blockchain technology.

But serious security questions linger after hackers managed to steal bitcoin from some online "wallets" in countries including Japan and South Korea.

Bitcoin and its cryptocurrency peers are meanwhile known to be used by criminals for transactions and money-laundering, posing a headache for regulators.

How much is one bitcoin worth?

At its birth, bitcoin was priced at virtually zero, before experiencing astonishing growth in 2017 to peak at a record $19,500 by the end of that year.

However, investors feared a speculative bubble and it has since crashed to stand at about $6,400 per unit following months of less volatile trading.

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