Digital currency Bitcoin has long been the domain of a small community of web geeks and crypto-enthusiasts. But as its value reaches new heights in the midst of what appears to be a crumbling financial system, many are wondering whether the future of the global economy lives online.
One of the primary appeals of Bitcoin, which was founded in 2009 by an unknown person, or group of people, going by the name Satoshi Nakamoto, is that it is decentralised and unregulated - no government agency controls it, nor is it tied to any commodities. Rather, it exists in a finite amount, unlike conventional currencies of which more can be printed up at any time. Its value is therefore determined by principles of demand. With just under 11 million Bitcoins in circulation - 10,952,975, to be exact - its economy has a market capitalisation of around $1 billion (£660 million).
Yesterday, the value of one Bitcoin surpassed $100 (£66), up nearly 200 per cent from just a month ago, when Bitcoins were being exchanged at a value of $35 (£23). In January, Bitcoins were trading at less than $15 (£10) each.
While we don’t know definitively what has triggered the sudden spark of interest in Bitcoin, there is much speculation. For one, a mounting mistrust of centralised banks and financial regulations, fuelled in large part by the troubles on Wall Street over the past few years, makes non-traditional currencies more viable. And, more specifically, the recent financial crisis in Cyprus has given the public even fewer reasons to hold banks and governments in high regard.
As the Internet continues to seep into more and more aspects of our lives, digital currency could play a growing role in how financial transactions, both large and small, are carried out. Major web services such as Wordpress, Reddit, Etsy and Mega accept Bitcoin as a form of payment, and the US treasury recently released official guidelines for the use of virtual currencies, giving Bitcoin yet more votes of confidence.
Still, there are reasons to beware. A handful of hacks targeting Bitcoin users and exchange services have suggested that the system is not as safe as it purports to be. Plus, the sudden, steep rise in Bitcoin value is leading many to cry ‘bubble’, unsurprisingly. “When you compound utopian wishfulness with the anxiety of being left behind, you’ll have a bubble,” Paul Ford rightly warned, writing in Businessweek..