A decade of Bitcoin

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Raja Nazeem-ul-Amin assesses an alternate global currency

A novel idea

Bitcoin is a fascinating piece of ingenuity that has few parallels in the vast field of commerce. It came from nowhere and then gained global acceptance as if it always existed. The urge underpinning its invention was to create an exchange mechanism that was free of regulation. It came into existence through an anonymous, academic style paper and soon progressed to become one of the world’s most volatile and closely watched financial instruments. Nothing could however restrain the flight of this amazing crypto-currency from becoming a fad. The virtual currency now is a decade old.

Bitcoin came into being on the last day of October 2008 in a very novel way as someone by the pseudonym Satoshi Nakamoto published a nine-page paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. The objective of the writer was very clear as he wanted to create a system that can send payments “directly from one party to another without going through a financial institution”.

The urge behind this idea was to bring to fore a global currency that was independent and not regulated by any central controlling authority. The idea also was to make it commonly accessible in a unique way.

The first issue of Bitcoin took place in January 2009
with a chunk of 50 Bitcoins that were bunched into a single unit and the first lot was appropriately named ‘genesis block’

The first issue of Bitcoin took place in January 2009 with a chunk of 50 Bitcoins that were bunched into a single unit and the first lot was appropriately named ‘genesis block’. It indeed was a work of genius cutting through the restrictions of normal regulatory regimes. The blocks kept on building and were attached to the one that preceded them and the process was propagated as a blockchain.

The first transaction occurred when Satoshi Nakamoto sent ten Bitcoins to computer scientist Hal Finney as a test. As another first, the value of the new currency was deduced in October 2009 from its cost of production. The electricity costs were considered high as Bitcoin operations involve massive banks of interconnected processors but it was found that the real-world value of Bitcoin could easily offset the costs.

To own the Bitcoins was to ‘mine’ them setting a chain of computer use to solve difficult puzzles releasing the currency from a block. The puzzles get more difficult with rise in the number of users, making their mining progressively more expensive. The first transaction arrived when a virtual currency developer in Florida got a pizza delivery and convinced the delivery-man to accept 10,000 Bitcoins for the merchandise he had delivered.

The virtual exchange
Heavy blow

The real value of this payment was worth $41 but with the escalation of the value of the currency, the current value of those two pizzas could have been in excess of $30 million. The first transaction on May 22, 2010 became legendary as the ‘Bitcoin Pizza Day’.

In a surprising move, Nakamoto, whoever he or she may be, announced withdrawal from the project in December 2010 ceasing all Bitcoin operations a few months later. The mystery of the identity of Nakamoto could never be resolved and it was also not known how many Bitcoins became his/her property. In another surprising incident Nakamoto briefly appeared in an internet chat room in 2014 for the sake of denying the purported news given by Newsweek regarding unmasking the identity of the creator of the currency.

The next massive fluctuation in the fortunes of the virtual currency came when the main Bitcoin exchange based in Tokyo known as Mt. Gox filed for bankruptcy in February 2014 after malfunctioning for more than two weeks. This exchange counted for nearly 80% of all Bitcoin operations and described its reason for bankruptcy as being hacked and in the process losing some $477 million in crypto-currencies.

The Frenchman running the exchange is still facing legal proceedings in Tokyo. This gentleman known as Mark Karpeles was also placed under arrest for a brief period during the investigations. He has pleaded not guilty to embezzlement and data manipulation charges.

2017 proved very uneven for the currency after its value soared from $1000 in January to $19,511 in December that was rated as its all-time high. The rise in value was unbelievable as there was nothing substantial to show for the inflation of its price to that high extent. The currency was traded madly but then the bubble burst shortly afterwards with Bitcoin’s value fluctuating wildly over the course of following weeks. Currently, it is holding about a third of its record value and is experiencing much more modest trade volumes and price swings which many analysts see as a sign of maturity. On the other hand are those who predict the unprecedented fluctuation in its value as the impending sign of doom predicting the end of the currency.

Bitcoin has desperately pinned its hopes on the approval of the US Securities and Exchange Commission (SEC) of its own exchange-traded fund (ETF) that is considered to be a financial security similar to a stock that would track Bitcoin’s value. ETF has become the most favoured trading mechanism and if SEC approves it in content then Bitcoin would surely get a new lease of life and its value as a viable investment fund would be enhanced.

Raja Nazeem-ul-Amin is Minister/Vice Chairman Board of Investment Gilgit-Baltistan

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