From a value below $1, its first known value in 2010, Bitcoin’s present value is now $6200. Photo: Bloomberg
When iconic US investment bank Lehman Brothers Holdings Inc. filed for bankruptcy in 2008, it shook people’s faith in banks so much that a new class of asset, which did not have the backing of any formal bank, came into being. Bitcoin, the most popular cryptocurrency, first found a mention in November 2008, about two months after the Lehman crisis.
A decade later, cryptocurrencies have become one of the most debated financial assets, globally and in India, in terms of risk and returns.
From a value below $1, its first known value in 2010, Bitcoin’s present value is now $6200, down about 70% from about $20,000 in December 2017, when it peaked.
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The birth of Bitcoin
On 1 November 2008, a techie by the name Satoshi Nakamoto wrote in an email to a cryptography mailing list: “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party. The paper is available at Bitcoin.org/Bitcoin.pdf.” The technical paper is still available on the link.
The main properties of the system, Satoshi said, would be that the electronic transactions would be peer-to-peer and would not need to be sent to a financial institution. The system was designed to be completely de-centralised, meaning that the users of the currency would not need to repose their trust in a central authority, such as traditional central banks. In another post in early 2009, Satoshi said that everything in the newly-built system is based on crypto proof instead of trust.
Satoshi also expressed dissatisfaction that central banks and banks have repeatedly breached the trust of the people who deposit money with them by lending the money in credit bubbles while keeping very little as a reserve. “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust,” Satoshi wrote.
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The 1st transaction
A couple of months after floating the idea of this cryptocurrency, Satoshi created 50 Bitcoins with the very first transaction on the blockchain at 18:15:05 hours on 3 January 2009. The system is so designed that the initial 50 BTCs can’t be used or spent.
The transaction had an embedded message, including a timestamp, that indicated the Bitcoin founder’s possible nudge to finally make Bitcoin live. The message read “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. The message referred to a headline of a news article that appeared that day in The Times in the UK that talked about a second bailout for the banks.
When Bitcoin and the concept of decentralised cryptocurrency started gaining popularity in 2011, other cryptocurrencies also started coming up. Litecoin was among the first cryptcurrencies to come up in 2011. Ether or Ethereum, another popular one, came into existence in 2015. At present, there are a few hundred cryptocurrencies being traded worldwide, and a new “Initial Coin Offering” is announced every few days.
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The idea probably came into effect due to Satoshi’s dissatisfaction with the existing financial system. Satoshi wanted Bitcoin to be a currency, which could be used for peer-to-peer transactions without having to trust a third party like a central bank. However, over the years, Bitcoin and some other popular cryptocurrencies have turned more into an asset rather than a currency.
In fact, some service providers, in several countries, started accepting some cryptocurrencies, including Bitcoin, in exchange of their services. However, having an extremely volatile value has been the biggest concern around cryptocurrencies, which makes it an unsafe option for the retail investors.
First Published: Thu, Sep 13 2018. 09 52 AM IST