 "Explained: Bitcoin's history and biggest controversies")
Bitcoin experienced a record high on 5 March.
The cryptocurrency’s prices rose above $69,000 (Rs 57.19 lakh), surpassing the all-time high of $68,999 set in November 2021, after plummeting in 2022 due to a market meltdown. However, it crashed again on Wednesday morning.
Bitcoin has seen a price increase of over 300 per cent since November 2022, experiencing a spectacular rebound this year amid strong demand from new US exchange-traded funds and a looming reduction in growth of the token’s supply.
Bitcoin is now worth approximately $1.3 trillion (Rs 107 trillion), accounting for a significant portion of the $2.6 trillion (Rs 215 trillion) cryptocurrency market, as per a Guardian report.
According to the New York Times, Bitcoin’s recent surge has also been powered by investor excitement for a new financial product linked to the digital currency. In January, US regulators authorised a group of cryptocurrency companies and traditional finance firms to offer exchange-traded funds, or ETFs, that track the price of Bitcoin. The funds make it simple for people to invest in cryptocurrency markets without directly owning the virtual currency.
According to Bloomberg Intelligence, as of last week, investors had poured more than $7 billion (Rs 5,80,16 crore) into investment products, accelerating Bitcoin’s rapid rise.
As we hear about Bitcoin’s revival, let’s take a look at the history, mystery, and controversy surrounding the most well-known cryptocurrency.
Impact Shorts
More ShortsBitcoin’s birth remains a mystery
More than 15 years after its invention, no one has been able to name its founder.
The foundations of the virtual money were laid in a nine-page “white paper” released 31 October 2008 by Satoshi Nakamoto. It theorised “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.”
And it would be free from the control of central banks, traditionally the only institutions who can create money.
But is Satoshi a real name or a pseudonym or a team of people? Various theories have emerged over the years but the mystery remains.
Craig Wright, an Australian entrepreneur and computer technician, has claimed since 2016 to have written the white paper and a trial is underway in London to determine if he’s telling the truth.
Since its creation, bitcoin has been accused of being the currency of choice on the dark web for illegal payments that leave no trace. It is notably the currency that hackers generally demand to be paid in during ransomware attacks.
When the Bitcoin collapsed
The world of cryptocurrencies has also been shaken in recent years by high-profile bankruptcies and the dramatic fall of several star entrepreneurs.
Changpeng Zhao, who was head of the world’s largest cryptocurrency platform, Binance, has pleaded guilty to violating anti-money laundering laws in the United States.
His main rival, FTX, went bankrupt at the end of 2023, and its founder Sam Bankman-Fried was found guilty on several counts, including fraud, conspiracy, and money laundering.
Two experts at the European Central Bank (ECB) claimed in a blog last month that “bitcoin has failed on the promise to be a global decentralised digital currency and is still hardly used for legitimate transfers.”
“The latest approval of an ETF doesn’t change the fact that Bitcoin is not suitable as means of payment or as an investment. The fair value of Bitcoin is still zero.”
Acceptability around the world
If many bitcoin investors are only there for speculative purposes, it has gained some respectability in recent years.
US financial regulators at the beginning of January approved bitcoin “ETFs” — or exchange traded funds — which allow a wider public to invest indirectly in cryptocurrency, without having to hold it directly. This decision was the main reason for the price surge that led to Tuesday’s new record.
El Salvador in September 2021 became the first country to accept bitcoin as legal tender. But the crypto money hasn’t won over the country’s population.
According to a study by Central America University (UCA), 88 per cent of Salvadorians never used it in 2023.
Some merchants have said they will accept it as a means of payment, including billionaire Elon Musk who declared in 2021 that he’d sell Tesla cars for bitcoins — before changing his mind, arguing that its production was too polluting and that he’s only accept it when it was less polluting.
The technology Bitcoin uses
Bitcoin is based on blockchain technology, a virtual ledger that allows information to be stored and exchanged in a secure, secret and unmodifiable manner. Each transaction is recorded in real time, in a tamper-proof register.
Bitcoins are created — or “extracted” — as a “reward” when powerful energy-sucking computers solve complex problems. So-called “miners” validate the transactions to create bitcoins.
To prevent uncontrollable growth, Satoshi Nakamoto limited the global number of coin units to 21 million, a level that should be reached around 2140.
And every four years, the reward for “miners” is cut in two. The next “halving” is planned for April, which will slow down the rate that new bitcoins enter the market, further boosting their scarcity — and their value.
With inputs from AFP
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