The best-known cryptocurrency, Bitcoin, has been around for 10 years and its history so far has been one of ups and downs. The financial world is still split down the middle over the future of the virtual currency.
Image: Imago/Reporters/Eureka
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Since its first mention on October 31, 2008, in an academic paper by an undisclosed person calling himself Satoshi Nakamoto, Bitcoin has seen truly tumultuous times.
What sounded like a sober statement to make in fact contained a revolutionary idea — creating a payment system with easy access by everyone that lenders, including central banks, would have no way of controlling. But the implementation of such a system remained vague.
"Right now, Bitcoin feels like the internet before the browser." (Wences Casares, founder of Banco Lemon in Brazil)
"Email to the internet is the equivalent of Bitcoin to blockchain; it brought the underlying technology to the masses." (Dennis Austinat, head of Germany, Austria and Switzerland at eToro)
It took another year until the first Bitcoin payment was recorded when a man in Florida made a pizza delivery guy accept 10,000 of the cryptocoins for two pizzas — worth roughly $41 (€36) at the time and $30 million (!) today.
Another memorable event was the rise and fall of what used to be the main Bitcoin exchange. It was based in Tokyo and was known as Mt. Gox. After being hacked, it was forced to file for bankruptcy in early 2014 after losing about $477 million in cryptocurrencies.
"If there's one positive takeaway from the collapse of Mt. Gox, it's the willingness of a new generation of Bitcoin companies to work together to ensure the security of customer funds." (Coinbase CEO Brain Armstrong)
Bitcoin - bastion or bubble?
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Bitcoin value soaring, and plummeting, beyond belief
That hacking scandal didn't stop Bitcoin's value rising from $1,000 per piece to well over $19,000 in December 2017.
You still can't sell the currency on a major financial exchange. It's exchanged like money, but it's not backed by any central bank.
ETF to decide on Bitcoin's future?
What Bitcoin's staunch supporters are hoping for most is an exchange-traded fund (ETF) as a security designed to track the currency's value. But such an ETF needs approval by the US Securities and Exchange Commission (SEC), which is no easy hurdle to take.
SEC approval would be a major breakthrough for Bitcoin as its reputation among big investors would be boosted immediately. However the commission has so far been reluctant to give the green light, citing risks of potential fraud.
"Stay away from it, it's a mirage. In terms of cryptocurrencies generally, I can say almost with certainty that they will come to a bad ending." (Warren Buffett, CEO of Berkshire Hathaway)
The truth is that nobody really knows right now whether the cryptocurrency can eventually live up to erstwhile expectations. But it's already turned some of its early fans into millionaires, and former millionaires into desperate hodlers [in the Bitcoin community, a hodler is a person who does not sell, but rather holds on to Bitcoins no matter what]. And maybe, he who laughs last laughs longest.
The booming cryptocurrency has a cryptic backstory and a perplexing modus operandi. Following a year of particularly tumultuous growth, DW asks where Bitcoin will go next. Can it sustain its incredible ascent?
Image: picture-alliance/dpa/J. Kalaene
Good time to start a currency
Introduced in 2009, Bitcoin was the world's first decentralized digital currency. It quickly gained traction amid lingering uncertainty in the wake of financial crisis. Designed to be as rare as gold, Bitcoin was created to have a maximum of 21 million "coins." Initially worth just a fraction of a cent, by February 2011 the currency had gained parity with the US dollar, then it really took off.
Image: picture-alliance/dpa/J. Kalaene
An anonymous founder
The name Satoshi Nakamoto is synonymous with Bitcoin. It is said to be the alias for an unknown IT whizz who invented the cryptocurrency. But despite claiming to be a 30-something Japanese national, it is generally thought that several computer science experts created the technology behind the digital coin. One rumor even suggested that Tesla chief Elon Musk is the real Satoshi, which he denied.
Image: Reuters/AAP/B. Macmahon
So no coins then?
Instead of being printed like dollars and euros, each Bitcoin is created on a global network of computers and verified by the system rather than a bank. There are no transaction fees. The smallest amount you can buy is a "Satoshi" or one-hundred-millionth of a Bitcoin. Purchases can be made anonymously and even at digital currency ATMs. When you buy Bitcoin, it is often stored in a digital wallet.
Image: DW/M. Sevcenko
Complex puzzles
To ensure that not too much Bitcoin comes into circulation, a process called mining was created where blocks of transactions could only be processed once a difficult math problem was solved by geeks. The puzzles are becoming so complex that bigger and bigger computers are being utilized to decipher them. That's led to concerns about the amount of electricity used to handle Bitcoin transactions.
Image: Getty Images/AFP/M. Zmeyev
Are Bitcoin fortunes legit?
Due to its anonymous nature, Bitcoin's success is likely being fueled by organized crime, including money laundering and the purchase of illegal goods. The currency is also being targeted by cybercriminals. A recent hack blamed on North Korea forced a South Korean digital currency exchange into bankruptcy. Reports suggest the "Islamic State" armed group used Bitcoin to receive funds to buy arms.
Image: picture-alliance/Zuma Press/M. Dairieh
Bitcoin leads, others follow
Bitcoin is the largest of all the cryptocurrencies and its incredible rise has spawned many imitators. Other large digital cash creators include Ethereum, Zcash, Bitcoin Cash, Ripple and Litecoin. As of November 2017, their number had swelled to 1,324. Hundreds of others have attempted and failed to launch their own digital coins. The market is now coming under increasing scrutiny by regulators.
Image: picture-alliance/NurPhoto/J. Arriens
Watch it skyrocket
2017 was a stratospheric year for Bitcoin. Worth close to $1,000 in January, some twelve months later it had scaled to an all-time high of $19,784. Despite much skepticism, the currency started to see serious interest from institutional investors. Two exchanges began Bitcoin futures trading, allowing speculators to punt on the incredible volatility in the value of the cryptocurrency.
Image: Reuters/D. Ruvic
Warnings abound
From central banks to respected investors, almost the entire financial establishment warned of a massive Bitcoin bubble, which they said can only end in disaster for holders of the digital currency. Among them was Nobel prize-winning economist Joseph Stiglitz who said Bitcoin "ought to be outlawed." Jamie Dimon, the CEO of JPMorgan Chase labeled those who buy the currency "stupid."
Image: World Economic Forum/Benedikt von Loebell
The shape of things to come?
Just before Christmas 2017, Bitcoin saw a dramatic rally, topping out at nearly $20,000 before losing a third of its value in just five days. More intense volatility followed early in the New Year, only to be reversed when it plummeted by almost half. Are we in for an even bigger rollercoaster ride if Wall Street adopts Bitcoin?
