World's first and biggest cryptocurrency

London - Bitcoin, which struck a record high above US$66 000 on Wednesday, has been on a roller-coaster ride since becoming the first cryptocurrency 13 years ago.

Following wild price swings, bitcoin has over the past year increasingly won support from small and large investors - and it became legal tender in one country.

Created following the 2008 global financial crisis, bitcoin initially promoted a libertarian ideal and aspired to overthrow traditional monetary and financial institutions such as central banks.

The founding white paper, published on October 31, 2008, was penned by Satoshi Nakamoto, a pseudonym whose identity remains unknown.

The eight-page document included the key goal of processing online payments between two parties without passing via a financial institution.

A first block of 50 bitcoins was created in January 2009, which has risen to 18.8 million units currently in circulation.

No more than 21 million can be created, helping bitcoin's price to trade way above its rivals.

Thousands of other cryptocurrencies have since been created, led by the likes of ethereum, ripple and tether.

There are two ways to get hold of bitcoin. Historically, individuals have "mined" for it by using computers to solve complex mathematical puzzles.

As bitcoin's price soared, so did the number of miners.

Mining requires huge amounts of energy, meaning the cost of accessing a bitcoin can exceed the gain, notwithstanding the environmental impact amid global efforts to tackle climate change.

The alternative way is to buy a whole or fractions of bitcoin on an exchange platform using traditional currencies.

Purchased funds are held in protected virtual wallets, but with hacks still possible, some investors have decided to hold portfolios offline.

EXTREME VOLATILITY

Initially worth almost nothing, bitcoin exceeded US$1 000 in 2013, causing it to attract the attention of financial institutions.

Since then it has experienced extreme volatility, reaching almost US$20 000 in 2017 before plunging.

It recovered to hit US$15 000 in late 2020 and in April rocketed to a record US$64 870 on the back of a speculative wave.

Yet two months later, it was trading at less than half that amount, before climbing back above US$50 000 in September.

It rose back above US$60 000 last week as the launch of the Bitcoin Strategy ETF, a new exchange-traded fund linked to bitcoin futures rather than directly to the currency, approached its Tuesday listing on the New York Stock Exchange.

The ETF should be a more accessible vehicle for mainstream investors, and could therefore boost trading in the cryptocurrency.

OBSTACLES

But bitcoin's volatility coupled with drawn-out transaction times remain obstacles to the cryptocurrency's adoption as a means of payment.

With transactions in bitcoin taking between a few minutes and several hours, some of its supporters are seeing the world's first cryptocurrency as a future digital store of value, rather than a means of payment.

This would put it in competition with gold, a traditional haven investment and which is held in great amounts by bitcoin's nemesis, central banks.

In the beginning, bitcoin was used mainly on the "dark net", or side of the internet hidden by mainstream search engines, to buy illicit products.

Over time, as it gained in popularity, some restaurants and shops based largely in large cities began to accept it as a means of payment.

And almost one year ago as the pandemic fuelled online buying, payments group Paypal began allowing its US users to carry out transactions using bitcoin.

In countries where galloping inflation slashes the value of traditional currencies, especially in Africa and Latin America, bitcoin is gaining popularity especially among the younger population.

El Salvador took one step further, making bitcoin a legal tender in September, the first country to do so.

But China has cracked down on trading and mining cryptocurrencies. – Nampa/AFP