Last week, the formal launch of the very first Bitcoin exchange-traded fund raked in investment worth 550 million dollars on just the first day alone.
Crypto-mania is surging in Pakistan too: we reportedly rank third globally, behind India and Vietnam, in crypto adoption metrics.
Bitcoin, valued at 1.2 trillion dollars, exceeds the market cap of Tesla and Facebook, and is significantly bigger than payment giants Mastercard, PayPal and Visa put together.
Cryptocurrencies such as Bitcoin have taken the world by storm, bypassing state regulators, providing privacy and unprecedented returns on investments as well as a new vision of financial markets.
While most of these, such as Litecoin and Dogecoin, are little more than Bitcoin copycats, there are also some truly dazzling innovative offerings.
This ascent is breathtaking.
No one has ever met him or spoken to him, all communication was via forum posts and emails, which ceased shortly after Bitcoin was launched.
Today Bitcoin is the best-performing asset class of the decade, with cumulative gains exceeding 20,000,000 percent, far outperforming the stock market index Nasdaq-100, which registered gains of a mere 541 percent.
Only an estimated eight percent of the world’s money really exists as hard physical cash.
Another typical refrain: there’s nothing behind Bitcoin, it is not backed by gold or reserves.
The simple difference is this: we derive our trust and confidence in existing currencies — and in the larger financial ecosystem — as a result of government oversight and regulation.
In this sense, Bitcoin is far more than just a novel technology — it is an entirely different paradigm for money.
Taller than a man and weighing more than a car, these stones were too big to carry around and lay scattered around the island.
Transactions followed a simple protocol: if two tribesmen wanted to transact, they would assemble the entire tribe and formally announce transfer of ownership of a rai stone from one party to the other.
There is no bank or central authority which maintains records and processes transactions; it is the collective effort of a community of peers.
As Yap demonstrates, money can simply be public information about ownership of assets, subject to change with every transaction and is ratified by the community.
In the digital domain, Bitcoin currency units — referred to as bitcoins — are the equivalent of rai stones and our Yap tribesmen are now replaced by anonymous faceless internet users who run the Bitcoin software.
When someone wants to send me bitcoins, I give them my Bitcoin address so they know where to send them.
A digital signature can be easily verified by anyone who looks at it but it cannot be forged unless an attacker were to somehow access the user’s private key.
The transaction also includes a reference number to a prior transaction where Azra has received coins — in essence, Azra has to provide proof in her transaction that she actually possesses the coins that she is now spending.
Azra can still ‘double-spend’, meaning that she can easily create another perfectly legitimate transaction, sending those very same coins she sent to Bilal to someone else.
But on computers, as we are well aware, there is no limit to the number of times any file or object may be replicated.
In the real world, this is the job of central banks and clearing houses — they collect, validate and finalise transactions, toss out conflicting ones and prepare a single detailed record, an authoritative history of financial activity.
If the record is shared publicly, the community can police the transaction record as well and collectively reject inputs by malicious peers who try to authorise double-spends or insert invalid transactions in the record.
Every peer individually checks the proof, confirms that the included transactions are valid and then stores the block, linking it with previous blocks, forming a long chain.
This is the famous much-hyped blockchain, an immutable and authoritative record — a ledger of sorts — of all transactions that have been successfully processed by the network.
Hopefully this high-level description gives a sense of the immense scope and depth of the Bitcoin project, what Bill Gates describes as a “techno tour de force.” This is only half the story though.
Nakamoto is perhaps the only individual nominated not just for the Turing award, the Nobel prize for computing, but also for the Nobel Memorial Prize in Economic Sciences.
There is a common sentiment, going back centuries, that the financier class — the moneylenders, bankers and speculators — are an unmitigated evil responsible for quite a bit of misery in the world.
“And, to many of us, it appears that only a miracle can save it from the disaster that is now facing the world.
This line of thought can be unnerving for those who encounter it for the first time, it reads like the ultimate conspiracy theory, but it’s no surprise for those who read the business papers.
The UN World Food Programme described it as a “silent tsunami of hunger.” One newspaper referred to it as “he real hunger games.” The big banks netted millions in profits and they got away with it.
Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.
Nakamoto’s vision — to cut banks and governments out of the equation — hearkens back to the Austrian school of economics, which features prominent contrarians Carl Menger, Ludwig von Mises, Friedrich Hayek and Murray Rothbard.
Nakamoto never referenced this school of thought in his posts, but the parallels are striking.
In an interview in 1984, Hayek went one step further: “I don’t believe we shall ever have good money again before we take the thing out of the hands of government,” he said, his words taking on a prophetic ring.
At first governments and banks took little note of Bitcoin, it was too small, too radical, hard to understand and easily ignored.
At the global level, Venezuela and Iran are circumventing US sanctions by using Bitcoin for trade payments.
One investigation found that in 2020 more than 50 billion dollars’ worth of cryptocurrency assets shifted from China-based addresses to overseas.
With Bitcoin, the government estimates savings of around 400 million dollars, which go into fees for money transfer services such as Western Union.
Most of these are blockchain-based efforts but, unlike Bitcoin, are heavily centralised, falling under the purview of central banks who will likely control the mining process.
Unlike the case with physical cash, with central-bank digital currencies, the government gets a window into every transaction a citizen makes, along with the power to directly control transactions and blacklist users.
The investor community has fully jumped on board the Bitcoin bandwagon, which is only natural, considering its stratospheric price gains.
Bitcoin is the new digital gold, a safe haven asset for the new generation.
Bitcoin is a purely digital commodity without government backing or any clear stabilising factor, and its price is at the mercy of speculators and social media influencers.
Add to this the fact that there is an epidemic of new computer viruses and sophisticated malware, which infect users’ computers and can steal their Bitcoin credentials.
A popular solution to technical headaches is to use a cryptocurrency exchange, an online service which manages coins and payments on behalf of users — much like using internet banking.
In case of fraud or theft, our banks can reverse transactions, coordinate to track down criminals and sanction illegal businesses.
Bitcoin also has fundamental design limitations: it can only process about seven transactions per second, far less than processors such as Visa which routinely handle about 1,700 transactions per second.
More disturbing though are brand new problems that we never expected.
The FIA actively investigates cryptocurrency use among citizens to the point where the Sindh High Court has had to restrain them from harassment.
Users are keen to benefit from the global cryptocurrency boom but we need to protect them from fraud and prevent capital flight, money laundering and tax evasion.
In several cases, it may be more profitable to simply buy and hold bitcoins in the long run than to set up expensive infrastructure to mine them from scratch.
This seductive instinct — to innovate our way around pressing social problems instead of confronting them head-on — hurtles us ever deeper toward an algorithm-driven world.