BITCOIN, the virtual currency with no bank or government backing it, yesterday reached a record value, peaking at a price of $147 (£97) before falling back on security fears.
This put the total value of the Bitcoins in circulation at more than $1.6bn, as people looked to put their money into a perceived haven free from the negative effects of bank crises and loose monetary policy.
The currency – whose supply is controlled by a maximum limit of 21m coins entering circulation – has risen in value dramatically over the past weeks in line with Cyprus’s banking crisis. Many Cypriots are believed to have traded euros for the currency, driving up its value. This itself has sparked a wave of interest on social networks and internet chatrooms, which in turn has encouraged people to invest in Bitcoins.
At the start of the year, a Bitcoin was worth around $13. This rose to $35 at the start of March and $70 10 days ago. Yesterday the currency’s value went from $117 to $147, but dropped back dramatically as Bitcoin’s largest exchange suffered outages under the weight of extremely high trading.
Bitcoin – which was founded in 2009 by an anonymous developer known only as Satoshi Nakamoto – saw a surge in popularity in mid-2011 but a cyber attack which resulted in $500,000 worth of the currency being stolen led to a crash in June 2011.
The recent resurgence in its value has been triggered by new fears over the security of bank deposits, mainly due to both the threat of bank levies in Cyprus, draconian restrictions on moving money out of the country, and the collapse of the Laiki bank.
Other reasons given for its rise have included the threat of interference from central banks making traditional currencies less of a safe haven, although it has also been put down to a general curiosity about Bitcoin.
A HISTORY OF THE DIGITAL CURRENCY
BITCOIN came into existence in 2009, when an anonymous programmer known by the pseudonym Satoshi Nakamoto created a network that allowed internet users to “mine” the currency by solving complex mathematical problems using their computers’ processing power to produce coins. The currency was originally traded by bartering over the internet, but exchanges were soon set up and Bitcoin soon became seen by some as a viable monetary system in its own right. Advocates of the currency point to its freedom from government or central bank interference and self-supporting stability. They argue that since those with the computing ability to hack other people’s accounts or duplicate Bitcoins would be far better served by using their prowess to mine themselves - and that any move to destabilise the currency would cause that person’s own Bitcoins to depreciate in value – the currency is protected from hackers. Moreover, Bitcoin’s controlled supply – the rate at which it can be mined is slowly reduced over time and all mining will be stopped once 21m Bitcoins have been created – creates a security that other currencies do not have. However, these supposed advantages have not until now sent people flocking to Bitcoin. A short surge in the currency’s value in 2011 to just shy of $30 – put down to increasing chatter about the currency and its popularity as a payment method for online drug dealers – was cut short when a number of cyber attacks caused a crash. Bitcoin’s value stayed fairly flat for over a year before a recent rise which has roughly followed the Cypriot banking crisis. One entrepreneur has even invented a Bitcoin ATM he intends to install in Cyprus.
The currency has faced questions over security and legality, and the level of trading yesterday caused exchanges to go offline.