The Rise and rise of Bitcoin
The story behind the world’s newest and potentially most powerful currency.
When he discovered the crypto-currency in 2011, it opened up an uncharted world of new possibilities for him to explore.
“It’s fascinating to imagine what it means to have global decentralised money,” he says.
In this two-part documentary, we go inside the complex world of Bitcoin to explore the social and political impact of an open-source digital currency and ask if it could create a monetary paradigm shift that will forever change the world.
What is Bitcoin and who invented it?
Bitcoin, much like the internet in 1994, is not easily explained or understood. Its advocates compare the technical innovation with that of the World Wide Web. But while the internet changed the way people communicate, Bitcoin changes the way people view and use money.
|My concern is how the governments will react. They can’t kill or stop Bitcoin, but they could impede it and they could get in the way of its development.|
Bitcoin was created to provide an alternative to the banking system. It is an open accounting system that allows thousands of computers from around the world to track ownership of digital tokens – the Bitcoin – as part of a purchase transaction.
All transactions are visible to Bitcoin users and, once verified, are logged in a public ledger called the “blockchain”. The “blockchain” records every Bitcoin transaction since the launch of the system and every user has a copy of the transactions.
This is the primary difference between Bitcoin and the current finance banking system. While physical currency is issued through a central authoritative agency, Bitcoin is a peer-to-peer system.
Bitcoins are awarded to “miners” – computers specialised in processing and verifying Bitcoin transactions – as a reward for their work. This is how new Bitcoins are released into circulation.
Satoshi Nakamoto is the founder of Bitcoin. An online profile with a currently unconfirmed physical identity, Nakamoto first announced the development of the Bitcoin system in an online forum in late 2008. Despite his cryptic online presence, programmers and developers around the world immediately recognised the intelligence behind Nakamoto’s peer-to-peer design, and worked with him to further develop Bitcoin.
In October 2009, a first exchange rate was published, listing the value of 1,309 Bitcoins at $1. Bitcoins were cheap and throughout the following year they continued to trade for fractions of a cent.
The first known transaction with Bitcoin occurred in 2010 when a Florida resident offered 10,000 Bitcoins to anyone who would order him a pizza. One user in London agreed, making a long-distance phone call to a Papa John’s and cementing the first Bitcoin transaction in history.
Bitcoin was gaining momentum, but in order for it to thrive, the coins needed to be more widely accessible.
Tokyo-based Mt Gox was the first Bitcoin exchange on the market. By November 2010, four million Bitcoins had been mined. The exchange rate briefly spiked to 50 cents a coin. The market awoke and Bitcoin started to look as if it had real potential as a global currency.
The renegade currency
Just a month later, the Bitcoin community received the attention it was looking for, albeit in all the wrong ways. As WikiLeaks released top secret US diplomatic cables to the world, and major financial institutions proceeded to block all transactions to WikiLeaks, one news article suggested that Bitcoin would be the perfect solution to the blocked donations.
|I don’t know how the government will react to Bitcoin. But I spend thousands of dollars on lawyers every day just to make sure that I’m not going to go to jail.|
Satoshi Nakamoto slowly disappeared from all forums – and was never heard from again.
Just months later, the Silk Road anonymous market was launched. This was an online black market dealing in highly illegal substances, including drugs and other illicit goods. Silk Road dealt exclusively in Bitcoin, taking advantage of the near impossibility of tracking transactions.
The Bitcoin exchange price continued to climb. By February 2011, it reached parity with the US dollar, sparking an influx of new users and speculators.
In June 2011, after hitting $31, Bitcoin exchange dropped dramatically. The Mt Gox system was hacked, driving the price even further into the ground. As the value of Bitcoin hit the $2 mark, speculators labelled it the end of the dream.
Bitcoin today and for the future
In 2012, after months of stagnation, hacks and online theft, Bitcoin slowly climbed its way back on to exchange market boards.
By 2013, recognised websites such as Reddit and WordPress announced Bitcoin as legitimate means for transactions.
Months later, as Cyprus suffered the biggest financial crisis in its history and banks withdrew money from account holders, Bitcoin thrived. Bitcoin ATMs were set up around the island, validating Bitcoin evangelicals’ faith in the currency.
But while Bitcoin seemingly ensures users’ privacy and offers a more democratic financial alternative to conventional banking, the same privacy offers anonymity to illegal activity – such as the Silk Road market.
Regulators at the US Treasury have been wary about the possible dangers of Bitcoin, including possible funding of armed groups and money laundering – claims that are countered by many in the Bitcoin community and considered a means to control and suffocate the currency.
So, will Bitcoin weather the storm or fall victim to the “system”?