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Bitcoin interest-bearing accounts were conceived 10 years ago, but it took 8 to catch on

Bitcoin interest-bearing accounts were conceived 10 years ago, but it took 8 to catch on

Bitcoinica, a bitcoin exchange founded ten and a half years ago, implemented the first interest accruing mechanism for bitcoin deposits. This was before the multitude of protocols developed by the decentralized finance (defi) community that allow crypto assets to earn a return. While Bitcoinica was the pioneering exchange, it failed after a total of 62,101 Bitcoin were stolen in a series of thefts. It took another eight years before crypto accounts again bore attention.

Bitcoinica was the first to provide interest-bearing Bitcoin accounts in 2012.

While yield-gathering defi protocols and interest-bearing cryptocurrency accounts are currently trending topics, few are aware that the concept was first proposed more than a decade ago. Midway through February of 2012, the now-defunct Bitcoin exchange Bitcoinica came up with a concept that earned interest on bitcoin deposits. Zhou Tong, a young bitcoin enthusiast who introduced the idea, is 18 years old and launched the exchange the year before. In its first day of operation, Bitcoinica saw 3,724.12 BTC moved, equivalent to $71.56 million at the current exchange rate.

Bitcoin interest bearing accounts were conceived 10 years ago but it took 8 to catch on 2 2022

A month after Mt. Gox’s collapse in August 2011, Bitcoinica became the second-largest bitcoin trading platform by volume. On February 13, 2012, the creator of Bitcoinica announced, “We are delighted to report that we have launched the public test run of our interest system.” We’re the first company on the internet to give a return on Bitcoin deposits. This essay is meant to serve as an explanation of how the system functions: “If you deposit $10,000 with us and the interest rate is always 4.17, you will get $4.17 each day or $1,644 per year (with compound interest).

Bitcoin interest-bearing accounts were conceived 10 years ago, but it took 8 to catch on

Many of the interest-bearing protocols of today come from the field of decentralized finance (defi), which is very different from what Bitcoinica is providing with its interest-bearing account. Bitcoinica was a centralized platform for trading bitcoin, much like the crypto exchanges of today such as Coinbase, Crypto.com, and many more.
Much like Celsius, Bitcoinica provided interest-bearing payments but ultimately failed due to financial constraints. Interest was accrued on Bitcoinica accounts every hour, and payments were made at the end of each day. Zhou Tong stated at the time that “Bitcoinica has been working excellent for the last [five] months, and we’re the fastest growing bitcoin firm ever.”

Soon after introducing its interest-bearing accounts, Bitcoinica was hacked and lost 43,554 bitcoins, then worth $837.17 million at the time. Then, on May 11, 2012, more than a month later, hackers stole 18,547 bitcoins from Bitcoinica, at the time equivalent to around $356.50 million.

After Bitcoinica’s Fall, Cryptocurrency Returns Matured After 8 Years

After the scandal that surrounding Bitcoinica’s founder Zhou Tong and the inexplicable hacking, interest-bearing accounts through Bitcoinica never truly gained popularity. In August of 2012, Bitcoinica was taken down, and the company went into liquidation shortly thereafter. On the day when Zhou Tong first proposed the idea of a Bitcoin interest-bearing account, one of the first comments requested the inventor to guarantee the security of users’ assets.

The Bitcoinica founder was requested to allay users’ concerns by explaining why their accounts could not be hacked and how their funds would remain secure. Despite Zhou Tong’s assurances that the exchange will be secure in the future, it was hit by two of the most notorious hacks in cryptocurrency history (along with the issues surrounding Mt. Gox).

After more than eight years, interest-bearing cryptocurrency accounts have become commonplace in the cryptocurrency market. In addition, defi protocols make it possible to profit from crypto assets without storing them in a centralized exchange, making them both private and noncustodial.

Like Bitcoinica, though, interest-bearing crypto platforms are not immune to failure; Celsius is one such lender that has just collapsed. Defi platforms are more vulnerable to failure, such as the Terra blockchain ecosystem, than centralized ones like Celsius and Bitcoinica.

Users of the defi leveraging the lending application Anchor Protocol were hit hard by the subsequent bank run after the UST de-pegged from the $1 parity. In the past, several defi applications have been hacked or suffered rug pulls, leaving defi customers who were hoping to increase their interest with nothing but a memory of their lost funds.

 

Royal Seed
Royal Seed is a brand new contributor to Alltechcraft, and his writings focus on cryptocurrency news and platform reviews. We highly suggest keeping up with his most recent writings, since they are both quite insightful and fascinating. (Follow him on [email protected]_nba )