In 2010, Zhao Tong, a 16-year-old Chinese teenager, decided to buy Bitcoin for $10. His curiosity and passion led him on a journey to explore the world of cryptocurrency, which was still very new at the time. Zhao saw the potential of a global digital currency that could bypass the barriers of traditional currencies and be exchanged anywhere in the world.

The First Challenges

Buying Bitcoin wasn’t easy in 2011. Exchanges were still unstable, and Mt. Gox, the largest Bitcoin exchange, suffered frequent outages. At one point, Mt. Gox even experienced a price crash that sent Bitcoin from a few dollars to $0.01 shortly after Zhao invested. But he kept faith in the currency, despite the volatility and security issues with the exchange.

The Birth of Bitcoinica

Zhao Tong is a self-taught programmer. With limited programming knowledge but full of enthusiasm, he built Bitcoinica in just four days. Bitcoinica differs from other exchanges because it allows margin trading. This means that users can bet on the future price of Bitcoin, giving investors the potential for higher returns if their predictions are correct. Instead of simply buying and selling Bitcoin like regular exchanges, Bitcoinica allows users to bet up to 50 BTC of Bitcoin instantly.

Not long after its launch, Bitcoinica became a sensation in the cryptocurrency community and achieved an impressive trading volume of up to $40 million per month, second only to Mt. Gox. In the first two weeks, Zhao made $10,000, equivalent to 2,000 BTC at the time – an impressive amount for a 16-year-old.

Development and Doubt

Despite Bitcoinica’s rapid growth and large user base, there were some skeptics. Many questioned Zhao’s age and experience. Critics doubted whether a teenager like him could keep thousands of users’ BTC safe. These doubts were not unfounded, as the cryptocurrency industry at the time lacked robust security measures, let alone regulatory and oversight standards.

The Transfer and the Hacks

In late 2011, Zhao began to feel the pressure of running Bitcoinica while balancing his studies and exam preparation. As a result, he decided to sell Bitcoinica to Wendon Group, a group that was willing to continue developing the exchange. After the acquisition, Wendon Group hired veteran Bitcoin developers, including Amir Taaki, a well-known hacktivist in the Bitcoin community. They conducted audits and invested heavily in Bitcoinica, even spending $1 million to buy the domain name Bitcoin.com, demonstrating their ambition to develop Bitcoinica into a powerful exchange.

However, just a few months after the transfer, in March 2012, a series of incidents occurred. Bitcoinica was hacked, resulting in the loss of 43,000 BTC. The situation became worse when the exchange was hacked twice more that month, resulting in the loss of another 48,000 BTC. At that time, there were no hardware wallets or multi-signature security measures, making it extremely difficult to protect Bitcoin from cyberattacks. As a result, Bitcoinica fell into chaos, and users' trust in the exchange was severely shaken.

The Aftermath and Legacy of Bitcoinica

The hacks have outraged the Bitcoinica user community. Many people have lost large fortunes, including Roger Ver, a prominent investor in the cryptocurrency community. Zhao, although no longer running Bitcoinica, has had his reputation damaged. The phrase "Zhao Tonged" has emerged as a sarcasm in the community, referring to investors who have lost their assets due to security flaws or poor management.

Zhao eventually left the crypto world after investing 1,000 BTC in an extremely rare Casascius gold coin, of which there are only three in the world. The coin is now worth over $60 million. It was Zhao’s final move before leaving the crypto industry behind with little to no trace.

Lessons Learned

The Bitcoinica hack has left a harsh lesson for the cryptocurrency community. Exchanges continue to be the target of hackers, and the Bitcoinica hack alone is the third largest loss in Bitcoin history. Serious investors today are advised to use hardware wallets or multi-signature security services to minimize the risk of loss.

Today, it is estimated that over 1 million Bitcoins, worth around $65 billion, have been lost due to exchange hacks. Bitcoinica is a painful testament to the need to take asset management seriously and with care. It is a reminder that it takes more than passion to thrive, but also solid security measures and knowledge to protect assets.