Bitcoin briefly soars to record $147 high, driven by Cyprus bank flap
Attraction of non-gov currency draws punters
Virtual currency Bitcoin soared to a record high of nearly $147 yesterday as Euro-spurred interest continued to boost its exchange rate.
The e-cash fell back later in the day to $117, but the value of all Bitcoins in circulation is still well on its way to $1.4bn.
The online dosh has rocketed from just $10 last November as the crisis in Cyprus and the spreading lack of faith in governments and currencies in the wake of austerity and recessionary pressures push folks to invest in something out of the control of The Man.
Bitcoins aren't government-backed and don't have a central bank, leading some investors to treat it as a kind of online version of gold or silver - a safe haven for their cash.
However, that general lack of oversight is also the main problem that critics have of the system, claiming that Bitcoin offers criminals an untraceable way to launder their ill-gotten gains.
Individual Bitcoins exist as a digitally signed solution to a complex mathematical algorithm. New Bitcoins are 'mined' by calculating solutions for unsolved algorithms. A detailed explanation is available on the Bitcoin website (PDF, page 4) and Wikipedia also has a non-brain-melting version.
The value in the system was in the sheer time needed to solve the algorithms and create each unique Bitcoin. In addition, there is a limit of 21 million Bitcoins that can be mined. Creating a limit on the total quantity of Bitcoins puts it into the same monetary league as gold, with finite supply creating greater demand.
But, unlike gold, there's no physical reason why there can't be more Bitcoins; that's just the current rule. Right now, estimates reckon there are nearly 11 million Bitcoins in existence.
As with all new things, particularly online new things, analysts are divided on whether Bitcoins are the greatest thing since sliced bread or the latest ephemeral bubble destined for a loud pop. Meanwhile, as more savvy investors get involved and start looking for ways to short the currency - i.e. bet on the price plummeting - regulators are starting to sit up and take notice.
The Financial Crimes Enforcement Network (FinCEN) in the US, which enforces laws against money laundering, has already said that a number of parties in the Bitcoin biz qualify as money service businesses (halfway down) so they need to register with the government, collect info on their customers and take active steps to combat money laundering. ®