EXPLAINER | Bitcoin, the world's first and biggest cryptocurrency

accreditation
0:00
play article
Subscribers can listen to this article
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.
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.
Getty Images
  • Bitcoin struck a record high this week. 
  • Thousands of other cryptocurrencies have since been created, led by the likes of ethereum, ripple and tether.
  • In the beginning, bitcoin was used mainly on the "dark net" but it has since gained popularity - and even become legal tender in El Salvador.


Bitcoin, which struck a record high above $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.

What is bitcoin? 

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 31 October, 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.

How to obtain bitcoin?

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.

How much is it worth?

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

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

It recovered to hit $15 000 in late 2020 and in April rocketed to a record $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 $50 000 in September.

It rose back above $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.

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.

What can bitcoin buy? 

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.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
16.14
-1.3%
Rand - Pound
21.36
-0.4%
Rand - Euro
18.26
-0.4%
Rand - Aus dollar
11.30
-0.4%
Rand - Yen
0.14
-0.4%
Gold
1,783.48
0.0%
Silver
22.55
0.0%
Palladium
1,816.00
0.0%
Platinum
936.31
0.0%
Brent Crude
69.88
+0.3%
Top 40
64,307
-0.4%
All Share
70,808
-0.3%
Resource 10
66,503
-1.6%
Industrial 25
93,791
+0.1%
Financial 15
13,982
+0.7%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot