The digital currency with no form and little regulation has seen its value jump from $40 USD to $72 in the last two weeks, and among certain circles, is being presented as a panacea for economic crises around the world.
Referring to the people in Cyprus at risk of losing their savings amid fears of a raid on banks, Jeff Berwick, a blogger who set up The Dollar Vigilante, said: “If these people had simply bought Bitcoins with their savings, not only would they currently have 100 per cent access to their funds, but also they would have enjoyed a parabolic move to the upside over the past months.”
So why isn’t everyone trading in Bitcoins? Channel 4 News answers a few questions on the currency gaining currency.
What is Bitcoin and where is it from?
Bitcoin, or BTC, is a form of currency, but one which is online, or virtual. Digital, decentralised, crypto-currency and simulated. But certainly not fake.
It was said to have been devised back in 2009 by a programmer who used the pseudonym “Satoshi Nakamoto” and had the same principle as paper money.
Though there are some physical forms, its main form is in data, not in pounds or pence. It bears no resemblance to any existing currency, and it is traded online, or peer-to-peer. In short, it is an alternative means of exchange for transactions which bypasses the banking system entirely.
It has no government controls, no financial regulation and it is only used by the network of users who create and exchange it for goods and services:a parallel universe banking system.
Will it unlock a supermarket trolley?
Certainly not. And neither will it work inside the supermarket. There is no pound or pence, or dollar, yen or rial, for that matter, although Bitcoin has value.
What users do is sign up to an online wallet service, and all transactions are carried out using it. Transactions are secured using encryption, as is normal for online activity.
So because Bitcoins are controlled by mathematical formula, there are a limited number in existence. While you can’t shop with Bitcoins at the supermarket, you can on websites such as WordPress and Reddit. The most famous Bitcoins store is the Silk Road (online, of course).
In the US, Pizzaforcoins.com lets Bitcoin savers pay for pizza deliveries.
Earlier this year, Taylor More, 22, became the first known person to pay for a house – a two-bed bungalow – in Alberta, Canada, using the equivalent of $405,000 in Bitcoin.
How much are they worth?
They’re said to be among the fastest growing currencies in the world. Their value has nearly doubled in the past couple of weeks as people begin to seek alternative currencies which are not controlled by conventional banks, institutions or governments.
The total value of all the world’s Bitcoins is said to be more than around £500m. There are about 10m in circulation, and the maths behind them ensure that there can only ever be 21 million of them.
As more and more investors begin to look for a safe haven, the way that gold became the thing panicked people flocked to in historic times of economic gloom, the value of Bitcoin is likely to increase. And it is now possible to download Bitcoin apps to mobiles and Jeff Berwick plans to install the first ever Bitcoin ATM – in Cyprus.
So we’re on the brink of a Bitcoin boom?
It might be more of a bubble. It is not the first time we have become excited about Bitcoin. Although it was devised in 2009, it was 2011 when it really started emerging, as a preferred weapon of the Occupy movement.
It works on the same principles as any other currency – it is essentially conceptual and fluctuates with demand and supply.
So in June 2011, it peaked at nearly $30 per “coin” on one of its main exchanges, MTGox, having started the year at 30c each.
The problem, as with any other market, was that people began to hoard it, which caused its appreciation in value. Which is not to say that the parallel universe started taking off – it crashed at $2 in November of that year.
Now it has gone up again massively in value, and there have been 52,017 transactions over the last 24 hours, with an average of 2,167 transactions per hour.
That is big, but obviously nowhere near the conventional exchange rates. As with most technological advances those who are good at technology use it to advance their latest invention.
So it is getting bigger on the blogosphere, or in the twittersphere – but there is a long way to go before it overtakes conventional currency.
Likewise, Bitcoin is minted – known as “mining” – by solving extremely difficult mathematical problems. So if you don’t have a powerful computer, let alone a computer at all, you can’t get Bitcoin.