While decentralized finance (defi) has created a plethora of protocols that allow crypto assets to generate a return, ten and a half years ago a bitcoin exchange called Bitcoinica introduced the first interest accumulation system for bitcoin deposits. Although it was the first to test the waters, Bitcoinica eventually went bankrupt after a series of hacks that saw an estimated 62,101 bitcoins stolen from the exchange, and interest-bearing crypto accounts did not return until eight years later. .
Interest-bearing Bitcoin accounts were introduced by Bitcoinica in 2012
These days, interest-bearing accounts and yield-collecting challenge protocols are all the rage in the cryptocurrency world, but most people don’t know that the idea was introduced over a decade ago. . In mid-February 2012, the now defunct bitcoin exchange, Bitcoinica, developed an idea that allowed bitcoin deposits on the exchange to attract interest. The idea was heralded 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 in the first 24 hours of trading platform operation.
In September 2011, Bitcoinica was the second largest bitcoin trading platform by volume behind Mt Gox. “We are pleased to announce that we have started public testing of our interest system,” the Bitcoinica founder wrote on February 13, 2012. “We are the first website to offer interest for Bitcoin deposits. This article aims to explain how the system works – Assuming you deposit $10,000 with us and the interest rate is still 4.17, you will get $4.17 per day or $1,644 per year (with compound interest).
Much of today’s interest-bearing protocols come from the world of decentralized finance (defi), which is very different from Bitcoinica’s interest-bearing account offering. The concept of Bitcoinica is similar to what centralized crypto exchanges like Coinbase, Crypto.com, and many others offer today, as Bitcoinica was a centralized bitcoin trading platform.
Bitcoinica was similar to Celsius, in a sense, as it offered interest-bearing payouts, but eventually ran into financial difficulties. Bitcoinica interest accounts were calculated hourly and payouts were distributed after the end of each day. “Bitcoinica has been working very well since the last [five] months, and we are the fastest growing bitcoin company ever,” Zhou Tong wrote at the time.
After the introduction of Bitcoinica interest-bearing accounts, the following 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 around $356.50 million today.
Crypto Yields Took 8 Years to Mature After Bitcoinica Collapsed
Interest-bearing accounts through Bitcoinica never really saw the light of day 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 enough, on the same day that Zhou Tong announced the BTC interest account concept, one of the first comments asked the founder to assure the community that their funds were safe.
“Allay our fears and tell us why Bitcoinica won’t be hacked, and tell us how our money won’t be stolen out of nowhere?” the individual asked the Bitcoinica founder. While Zhou Tong pledged to keep the exchange secure, the two trading platform breaches were considered one of the most controversial hacks in crypto history, besides the scandals surrounding Mt Gox.
It took more than eight years to see interest-bearing crypto accounts finally gain a foothold in the digital currency industry. Additionally, with defi protocols, returns can be earned privately and non-custodially without holding crypto assets on a centralized exchange.
However, just like Bitcoinica, interest-bearing crypto platforms can fail, and Celsius is one such lender that has gone bust lately. While Celsius and Bitcoinica were centralized, defi platforms can also disappear, like when the Terra blockchain ecosystem imploded.
When the UST pulled out of the $1 peg, defi users leveraging the lending app’s pegging protocol faced the ensuing bank run. Other defi apps have been hacked or seen rug draws, and defi users looking to earn interest have lost all their money.
What do you think of the first interest-bearing bitcoin accounts offered by Bitcoinica over a decade ago? Let us know what you think about this topic in the comments section below.
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