all about cryptop referances
While decentralized finance (defi) has created a plethora of protocols that allow cryptoassets to collect a return, a decade and a half ago a bitcoin exchange called Bitcoinica introduced the first interest-accruing system for bitcoin deposits. Despite being the first to test the waters, Bitcoinica eventually went bust after a series of hacks that saw approximately 62,101 bitcoins stolen from the exchange, and interest-bearing crypto accounts did not return until eight years later.
These days, interest-bearing accounts and return-collecting defi protocols are all the rage in the world of cryptocurrency, but most people don’t know that the idea was introduced more than a decade ago. In mid-February 2012, the now-defunct bitcoin exchange Bitcoinica developed an idea that allowed bitcoin deposits on the exchange to accumulate interest. The idea was announced by 18-year-old Zhou Tong, a bitcoin enthusiast who founded the exchange the previous year. Bitcoinica saw 3,724.12 BTC, worth $71.56 million today, traded during the trading platform’s first 24 hours of operation.
In September 2011, Bitcoinica was the second largest bitcoin trading platform by volume behind Mt Gox. “We are happy to announce that we have started the public test run of our interest system,” wrote the Bitcoinica founder on February 13, 2012. “We are the first site to offer interest for Bitcoin deposits. This post is intended to explain how the system works – Assuming you deposit $10,000 with us and the interest rate is always 4.17, you will get $4.17 every day or $1,644 every year (with compound interest).
A good number of today’s interest-bearing protocols originate from the world of decentralized finance (defi), which is quite different from Bitcoinica’s interest-bearing account offering. Bitcoinica’s concept is similar to what centralized crypto exchanges such as Coinbase, Crypto.com and many others offer today, as Bitcoinica was a centralized bitcoin trading platform.
Bitcoinica was similar to Celsius, in a way, as it offered interest-bearing payments, but eventually went under due to financial difficulties. Bitcoinica’s interest accounts were calculated every hour, and payouts were distributed after each day was over. “Bitcoinica has been doing well lately [five] months and we are the fastest growing bitcoin business ever,” Zhou Tong wrote at the time.
After Bitcoinica interest-bearing accounts were introduced, the very next month Bitcoinica was hacked and lost 43,554 bitcoins worth $837.17 million using today’s exchange rates. Then more than a month later, on May 11, 2012, Bitcoinica was hacked again, losing 18,547 bitcoins, worth about $356.50 million today.
The interest-bearing accounts via Bitcoinica never really took off after the controversy surrounding Bitcoinica founder Zhou Tong and the mysterious hacks. Bitcoinica was eventually taken offline, and in August 2012 the company went into liquidation. Interestingly, on the same day that Zhou Tong announced the BTC concept of interest-bearing accounts, one of the first comments asked the founder to reassure the community that their money was safe.
“Soothe our fears and tell us why Bitcoinica won’t be hacked and tell us how our money won’t be stolen out of thin air?” asked the individual Bitcoinica founder. While Zhou Tong promised to keep the exchange safe, the trading platform’s two breaches were considered some of the most controversial hacks in crypto history, besides the Mt Gox scandals.
It took more than eight years to see crypto interest bearing accounts finally take hold in the digital currency industry. Also, with defi protocols, returns can be earned in a private and non-custodial manner without holding crypto assets on a centralized exchange.
Like Bitcoinica, however, interest-bearing crypto platforms can fail, and Celsius is one such lender that went bankrupt in recent times. While Celsius and Bitcoinica were centralized, defi platforms can also go under, like when the Terra blockchain ecosystem imploded.
When the UST was decoupled from the $1 parity, defi users leveraging the lending application Anchor Protocol had to deal with the bank run that followed. Other defi applications have been hacked or seen carpet pulling, and defi users looking to gain interest have lost all their money.
What do you think of the first bitcoin interest-bearing accounts offered by Bitcoinica more than a decade ago? Let us know what you think about this topic in the comments section below.
Image credit: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or an endorsement or recommendation of products, services or companies. Bitcoin.com does not provide investment, tax, legal or accounting advice. Neither the company nor the author is directly or indirectly responsible for damages or losses caused or alleged to be caused by or in connection with the use of or reliance on content, goods or services mentioned in this article.
