Bitcoin now has a total market capitalisation of about $18 billion — far more than other so-called “crypto-currencies” although a fraction of the value of other globally traded commodities. And it nears record high as it becomes ‘safe haven’ asset.
What is a Bitcoin?
Bitcoin is a virtual currency that is created from computer code. Unlike a real-world currency such as the U.S. dollar or the euro, it has no central bank and is not backed by any government.
Instead, its community of users control and regulate it. Advocates say this makes it an efficient alternative to traditional currencies because it is not subject to the whims of a state that may wish to devalue its money to inflate away debt.
Just like other currencies, bitcoins can be exchanged for goods and services — or for other currencies — provided the other party is willing to accept them.
Where does it come from?
Bitcoin was launched in 2009 as a bit of encrypted software written by someone using the Japanese-sounding name Satoshi Nakamoto.
In 2016, secretive Australian entrepreneur Craig Wright said he was the creator, but some have raised doubts over his claim.
Other digital currencies followed but bitcoin was by far the most popular.
Users can “mine” bitcoins — bring new ones into being — by having their computers run complicated and increasingly difficult processes.
However, the model is limited and only 21 million units will ever be created.
What’s it worth?
Like any other currency, it fluctuates. But unlike most real-world analogues, bitcoin’s value has swung wildly in a short period.
When the unit first came into existence it was worth a few U.S. cents. Its price topped out at $1,165.89 on the Bitcoin Price Index, an average of major exchanges, in 2013.
There are presently more than 16 million units in circulation. Some economists point to the fact that because it is limited its price will increase over the long run, making it less useful as a currency and more a vehicle to store value, like gold.
But detractors point to bitcoin’s volatility, security issues and other weaknesses as flaws that will eventually undermine it.
Why has its value risen in recent months?
Analysts have suggested a number of reasons, including investors buying bitcoins as a hedge against currencies that are weakening against the U.S. dollar.
Other reasons include the currency turning into a virtual safe haven at a time of global economic uncertainty.
The currency may also have been strengthened by the rise of digital payments and the dwindling supply of new bitcoins.
What’s the future?
Some commentators say that like many technological developments, the first iteration of a product will encounter difficulties, possibly terminal ones. But the trail it blazes might smooth the way for the next crypto-currency.
Problems include an apparent vulnerability to theft when bitcoins are stored in digital wallets.
A major Hong Kong-based bitcoin exchange suspended trading in 2016 after $65 million in the virtual unit was reportedly stolen by hackers.
The virtual currency movement also faces legitimacy issues because of the way it allows for anonymous transactions — the very thing that libertarian adopters like about it.
Detractors say bitcoin’s use on the underground Silk Road website, where users could buy drugs and guns with it, is proof that it is a bad thing.
If bitcoin does become more widely accepted, experts say, it could lead to more government regulations, which would negate the very attraction of the bitcoin concept.