Bitcoin: Everything you need to know up to now

Business News & Views - March 12th, 2014

Bitcoin has received a great deal of media attention lately, due to a whirlwind of events happening in the past few weeks.

Naturally, it could make those of us not invested in the bitcoin interested in what this business is all about. So, we’ve compiled a timeline and summary of the stories behind the company that has created buzz around the world, based here in Shibuya, Tokyo.

What is Bitcoin?

No coins, no paper; no dollars, yen, or euros. What exactly is it? Bitcoin is a digital currency and a peer-to-peer payment system with no centralized bank. Bitcoin lives as a computer code. Financial transactions are created and traded electronically across borders without government regulation. In short, bitcoin is billed as “the people’s internet currency.”

How was it created?

Bitcoin was launched in 2009 by a developer who goes by the name “Satoshi Nakamoto,”—the name is said to be an alias, and the real identity of the creator has yet to be definitively determined. However, there has already been a great deal of speculation into Nakamoto’s true identity (see below). Bitcoin itself is a form of “crypto-currency,” (currency that is kept secure by encrypting it into unreadable formats for protection). Only those who possess a secret “key” can decipher the message, or in this case, the currency.

How does it work?

In order to acquire a bitcoin, you can buy one on an exchange site, have one transferred to an account in exchange for services, or mine them. Mining, one could say, is similar to traditional gold mining, but instead of panning for gold next to a river, bitcoin mining involves solving a complex math problem. Once the problem is solved by the “winner,” 25 new bitcoins are created. As of March 2014, there are 12.46 million bitcoins in existence. However, the limit of bitcoins to be made is capped at 21 million. Bitcoins are stored in a user’s “digital wallet” online or stored on a user’s computer.

Why would you use a bitcoin?

Bitcoin allows financial transactions to be made anywhere in the world at any time, with no local currency exchange rates, and with lower fees than PayPal or a credit card. There is also no government regulation on the transactions, making it more “off the grid.” They are believed to be used mostly for “black market” services, but companies such as WordPress and reddit are now accepting bitcoins as a form of payment. Other online services participate as well. You might also buy a bitcoin to gamble on the value of it: The value of one bitcoin has ranged from $100 to $1,200 at its peak, based on traditional supply and demand.

What is Mt. Gox?

Mt. Gox made headlines this past month as it is the world’s largest bitcoin exchange site. With the downfall of this company brought on by hacking and theft, significant awareness and debate has been raised about this “crypto,” digital currency.

Here’s the storyline:

February 7 » Problems begin to circulate when the bitcoin exchange site, Mt. Gox, halts withdrawals from its trading account, restricting users access to their money.

February 24 » Mt. Gox CEO Mark Karpeles deletes all of Mt. Gox’s tweets and resigns from the board of the Bitcoin Foundation, a group seeking legitimacy for the digital currency.

February 25 » Mt. Gox site abruptly goes down.

February 26 » CEO of a Bitcoin exchange site in Singapore, First Meta, is involved in a mysterious death. The case is believed to be a suicide and no foul play is suspected; however, investigation is still pending.

February 28 » Mt. Gox files for bankruptcy in Japan. An estimated 750,000 bitcoins were stolen, amounting roughly to $500 million. Records showed that debts at Mt. Gox totaled more than 6.5 billion yen ($65 million), surpassing its assets of 3.8 billion yen. Mt. Gox releases an official statement on its site.

March 2 » Another exchange site, Flexcoin, goes out of business after 61 million yen worth of bitcoins reportedly stolen.

March 6 » Speculation grows over the need for authorities or government to regulate the digital currency. However, Prime Minister Abe releases a statement stating that the government does not see bitcoin as a form of currency and will not regulate it. “Bitcoin are neither Japanese nor foreign currencies and its trading is different from deals stated by Japan’s bank act as well as financial instruments and exchange act,” according to the document. On the same day, Newsweek claims a 64-year old Japanese American from Southern California, Satoshi Nakamoto, is behind the founding of Bitcoin.

March 7 » Dorian Satoshi Nakamoto denies claims and says he has nothing to do with the currency exchange. Newsweek backs the story.

March 9 » Mt. Gox CEO’s exchange site is hacked and evidence of fraud is allegedly uncovered.

March 11 » Mt. Gox files for U.S. bankruptcy in addition to its previous bankruptcy filing in Japan.

March 20 » A quarter of Mt. Gox’s bitcoins that had been declared lost were found in a virtual “wallet” that the company had used previously.

Where we stand now » Once thought of as the currency that will forever change the entire global financial system, Bitcoin is now the subject of a raging debate between strong believers and equally strong skeptics on the future of decentralized digital currency. Stay tuned for more!

Main image: Flickr/ antanacoins