A Tale of Bitcoin and the $220 Million Controversy

Written by Gurleen Pannu, Pragya Khanna and Divik Dodeja

Introduction to Bitcoin:

Fig.1. Bitcoin/US$ price 2016-21

Bitcoin is the first and arguably the most successful decentralized digital currency to have gained adoption in the world. Users can send or receive payments in bitcoin through a peer-to-peer (P2P) network, which is supported by its underlying blockchain protocol. It was conceptualized in the form of a whitepaper in October 2008 by Satoshi Nakamoto, whose identity remains unknown to this day. In January 2009, the first transaction of ten bitcoins was sent from Nakamoto to the late Harold (Hal) Finney, a frequent contributor to the Bitcoin community and a renowned cryptographer who is responsible for the creation of the reusable proof-of-work (PoW) algorithm used in all Bitcoin transactions. This event marked the genesis of the Bitcoin network and led to the subsequent expansion of the digital currency ecosystem with the proliferation of other digital assets.

At inception, the purpose of Bitcoin was to eliminate many of the problems created by transacting through financial intermediaries, including costly fees, long processing times, and the inevitability of fraudulent transactions. Built on the foundational principles of consensus, transparency, and immutability, Bitcoin’s increasing acceptance as a method of payment reflects changing attitudes towards traditional forms of money and incumbent financial institutions (e.g., central governments and commercial banks).

More recently, Bitcoin has evolved to become the star of a rising digital asset class. It dominates as the largest network by a wide margin, accounting for more than half of the overall market cap across all digital currencies. In addition, its characteristics have led to the emergence of its different use cases, some of which include being an alternative store-of-value asset to gold and a potential hedge against global financial crises.

Why is the price of Bitcoin rising?

Bitcoin achieved a remarkable rise in 2020 in spite of many things that would normally make investors wary, including US-China tensions, Brexit, and, of course, an international pandemic. From a year low on the daily charts of US$4,748 (£3,490) in the middle of March as pandemic fears took hold, bitcoin rose to just below US$30,000 by the end of the year. Since then it has climbed to all-time highs above US$38,000, making headlines day after day and driving up the prices of other cryptocurrencies at the same time.

One reason for the massive price rise is that there has been a big influx of investors from large scale institutions such as pension schemes, university endowment funds, and investment trusts. This was not the case during the last bull market in 2017, in which the bitcoin price rose about 20-fold to almost US$20,000, only to slide back to the low US$3,000s a year later.

In 2017, the cryptocurrency ecosystem was dominated by individual retail investors, many of whom were attracted to bitcoin’s scarcity and the fact that it stood outside the global financial system. The 2017 bull market had all the signs of a classic financial bubble and investors were buying in “fear of missing out” (FOMO).

The move mainstream:

This time, big names such as billionaire investor Paul Trudor Jones and insurance giant MassMutual have invested heavily, while even former naysayers like JP Morgan now say that bitcoin could have a bright future. This all helps to increase trust in the cryptocurrency and indicates that it is becoming more mainstream.

Bitcoin has also been backed by a few large consumer-facing payment names. Paypal customers to buy, hold and sell bitcoin directly from their PayPal accounts. Rival digital payment firm Square Reported in November that more of its Cash App users are buying the digital currency, and buying more on average than before. The number of vendors accepting bitcoin as a form of payment is growing rapidly. Visa has been warming to bitcoin. In October it announced a handful of bitcoin-related credit and debit cards with leading crypto exchange Coinbase. With more and more ways of using bitcoin, it should mean that more people will want to hold it.

Bitcoin has also become much more mature since the days when it was used mainly as a method to purchase drugs on the dark web on the silk road. Bitcoin digital wallets, keys, and exchanges are easier to access and there is a lot more reliable information out there than before.

The introduction of financial products such as bitcoin futures and options, as well as blockchain-related funds, has allowed investors who might otherwise have been fearful of volatility to get involved. Bitcoin futures mean that investors can speculate on falling prices by “going short” on the cryptocurrency. Nobel laureate Robert Shiller has suggested that the 2017 bubble could have been linked to the fact that there were no bitcoin futures at the time

The carnage brought by COVID-19 has led to huge stimulus packages from governments around the globe and many central banks printing more money. This could drive up inflation, which in turn lowers people’s purchasing power. Indeed the US Federal Reserve last year signaled it would be slightly more tolerant of rising prices when it relaxed its 2% inflation target.

In the face of this threat, investments like bitcoin are being considered a store of value. The maximum number of bitcoin that will ever exist is set at 21 million (unless the protocol changes), and There are already about 18.5 million in circulation.

The supply of new coins is also slowing down because the reward that bitcoin miners receive for verifying transactions on the blockchain halves roughly every four years – it fell from BTC12.5 to BTC6.25 last May. This scarcity is comparable to that of precious metals.

Even central banks are embracing cryptocurrencies. Russia, China, Canada, the EU, and many others are either already working on central bank digital currencies (CBDCs) for their countries or publishing white papers detailing their intentions to do so. This is an obvious sign that the powers that be in the old financial world are seeing cryptocurrencies as the future. Meanwhile, the US Federal Regulator has allowed that retail banks can carry out payments with stablecoins, which are cryptocurrencies pegged to traditional currencies.


In the past few days, IronKey has been talked about quite a bit because of the story of Stefan Thomas, the German programmer who risks losing bitcoins worth $220 million because he lost the password to the IronKey which holds the private key to his Digital Wallet.

So what is an IronKey exactly?

IronKey is termed as “The World’s most secure flash drive” and rightly so as it would rather die than give away information, all thanks to a series of built-in protections. Developed by Dave Jevans and Gil Spencer between 2005 and 2007, it is currently sold by Kingston Digital under the original name of “IronKey”.

The user’s data is stored securely in the flash memory which is protected by strong military-grade AES-CBC mode encryption. The data in the drive is protected by password attacks. Any physical tampering with the device can trigger it to initiate its self-destruct sequence immediately. Entering the wrong password for 10 consecutive attempts can result in permanent loss of data with no chances of recovery. Thus, it is virtually impossible to recover data from an accidentally lost IronKey USB stick.

Although some people have attempted to open it without tampering with the data, no one has so far been able to disassemble it without losing its data.

Due to its intensive security and encryption features, it has also been approved by various countries for storing sensitive government and military information, in some cases also to the level of Top Secret.

Fig: Interior of a Basic IronKey Flash Drive

Programmer has two guesses left to access $220m bitcoin wallet:

Elaborating on Stefan Thomas’ case, it was almost a decade ago when he was rewarded with 7,002 bitcoins as a reward by an early Bitcoin fanatic for making an animated video, “What is Bitcoin?”

The problem is that Mr. Thomas years ago lost the paper on which he wrote down the password for his IronKey (explained in detail above), which gives users 10 guesses before it seizes up and encrypts its contents forever. He has since tried eight of his most commonly used password formulations — to no avail.

Since then, as Bitcoin’s value has risen and sunk and he could not get his hands on the money, Mr. Thomas has soured on the notion that people should be their own bank and hold their own money. “This whole idea of being your own bank — let me put it this way: Do you make your own shoes?” he said. “The reason we have banks is that we don’t want to deal with all those things that banks do.”

Hence the biggest issue one encounters is that Bitcoin has no company to produce or store passwords. According to Satoshi Nakamoto, the virtual currency’s creator, the point behind Bitcoin was to allow anyone in the world to open a digital bank account and hold the money in a way that no government could prevent or regulate.

What does the future hold for bitcoin?

Bitcoin’s use in everyday life has always had a chicken-egg problem: Very few use or accept it because … for one thing, very few use or accept it.

Cryptocurrency’s future outlook is still very much in question. Proponents see the limitless potential, while critics see nothing but risk. But there are certain applications where cryptocurrency is a viable solution. For instance, people living in countries with weak currencies may be better off investing in Bitcoin than buying local stocks and bonds. The more utopian scenarios for crypto, whether proponents realize it or not, rely on the notion that crypto remains concurrently fringe and mainstream. Though that will be a hard trick to pull off, we can expect it to expand in the coming times.


  1. $220M in Bitcoin May Be Encrypted Forever on IronKey

  2. What is IronKey?


  4. Programmer has two guesses left to access £175m bitcoin wallet



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