E-currencies reach a major milestone

FOR SOME, Bitcoin is an unregulated rogue currency for pornographers and drug dealers. For others, it is a victory for economic freedom, and a way of protecting business transactions from what they see as the inherent volatility of the banking system. But despite its contentiousness, the controversial e-currency is in rude health. Yesterday it reached a crucial milestone – its “halving day”.

As a safeguard against inflation, built into the Bitcoin code is a function that reduces the rewards for uncovering its block solutions by half, once a certain number of Bitcoins have entered into circulation. If that sounds complicated, it’s because it is. Bitcoins were originally the preserve of mega boffins and tech-savvy traders. The currency was first released in January 2009 by a developer using the name Satoshi Nakamoto.

As the arrival of halving day proves, Bitcoins are becoming more and more widespread. Over the last three years it has become the world’s most widely used alternative currency and its been tarred with a fair amount of controversy along the way.

Unlike regular bank accounts, which require proof of address and identity, all that is needed for a Bitcoin account is an IP address. As a result, many see it as a haven for the sale of illegal goods over the internet. Earlier this year, the currency gained notoriety alongside a website named Silk Road, where vendors offer to send heroin, LSD, and 9mm Beretta handguns in the post in exchange for Bitcoins. And it doesn’t end there.

There is also a Bitcoin stock exchange, where companies can make initial public offerings and pay dividends with it. One website offering Bitcoin options trading was “listed” this month for an implied valuation of half a million dollars. Perhaps the most infamous of these sights is Bitcoinica, a platform offering margin trading, short selling and stop orders run by 17-year-old Chinese high school student Zhou Tong (pictured).

The lack of regulation is not only attractive to criminals. Bitcoins are not issued by a central bank or national mint. Instead, the currency is run by a peer-to-peer network in accordance with the internal software, a system attractive to many hardline economic libertarians.

As one City trader notes, “Bitcoin is not run by people with hot sexual appetites for hotel maids. It is not run by corporations. It is not governed by people with budgets to meet. It is governed by a mathematical formula.”

12 January 2009
First Bitcoin transaction from Satoshi to Hal Finney.

5 October 2009
Exchange rates published by New Liberty Standard.

6 February 2010
Bitcoin market established.

11 July 2010
Bitcoin v0.3 release mentioned on tech news website Slashdot.

6 November 2010
The Bitcoin economy passed US $1 million.

20 August 2011
First Bitcoin conference and World Expo held in New York.

22 July 2012
One millionth topic reply was posted on the unofficial Bitcoin forum.

28 November 2012
Bitcoin reaches halving day.