Gadget Blog

THEN A LICENCE TO PRINT MONEY?
“A revolutionary electronic currency is shaking the global money tree. It began as a toy for geeks but is now making millions for investors – and criminals.



NOW STUCK IN A BOOM AND BUST CYCLE

Although we’re no nearer to finding out the identity of the enigmatic “Satoshi Nakamoto”, the mysterious inventor/s of Bitcoin, its value has continued to rise.

And fall. And rise. If you’d bought just one Bitcoin back when T3 looked into it in December 2011, it would have set you back $15 (about £10). In April 2013, it was worth an incredible $260 (£170). In May 2013, however, it was down to $144 (£93) The e-currency has climbed to heights not imagined by financial forecasters, outperforming market expectations but, woah boy, is it unpredictable.

One of the main reasons for this virtual currency hitting headlines is the failure of traditional ones. The recent financial meltdown in Cyprus sparked fears that high-earning, domestic bank accounts would be raided. In Cyprus – and in Spain, which potentially faces similar problems – punters began trading Euros for Bitcoins.

This panic buying inflated the currency’s value, creating a classic bubble suddenly there were plenty of Bitcoin buyers, but little availability.

Of the 11 million Bitcoins currently in circulation – 10 million shy of the total number there will ever be, due to the mathematically created currency’s self-limiting nature – more than three-quarters are stockpiled by investors, with

the most high-profile hoarders being Tyler and Cameron Winklevoss, Mark Zuckerberg’s Facebook foes,
who hold one per cent of the global supply.

A study by Israel’s Weizmann Institute of Science found that 78 per cent of Bitcoins are being kept under 
a virtual mattress, taken out of circulation as investors hold on to them rather than exchange them for services.

According to the currency’s online transaction log, the only place that Bitcoins are being spent in any great
number is on the gambling site SatoshiDICE. 

This void in availability has encouraged a surge in cyber crime as hackers target private investors and the
online exchange Mt. Gox, which handles much of the worldwide Bitcoin trade. The Tokyo-based platform 
was hit by a cyber attack in April 2013, with hackers seemingly bent on encouraging “panic selling”, so they
could buy up cheap Bitcoins before waiting for the currency to recover and cashing out. 

This would almost certainly have worked, because Bitcoin was suddenly earning mainstream media column
inches, attracting a flood of new investors. However, bent investors would have needed to cash in their chips
promptly as this new-found popularity sparked a market crash in April – the second in the currency’s four-year history – and its value on Mt. Gox plunged 70 per cent. “The rather astonishing amount of new accounts opened in the last few days made a huge impact on the overall system that started to lag,” read a Mt. Gox statement. “As expected in such situations, people started to panic, selling Bitcoin en masse, resulting in an increase of trade that ultimately froze the trade engine.” The computer glitches provoked frenzied selling that forced values to plunge. However, Bitcoin rallied and at the end of the most eventful week in its life stabilised at around $100 per unit – still six times its 2011 worth.

As long as the currency remains difficult to spend, it will continue to follow a boom and bust cycle. In one
attempt to get the currency moving, media entrepreneur Jeff Berwick plans to install Bitcoin ATMs in Los Angeles and Cyprus, where there is still serious distrust of government-backed money. The new holes in the wall wi convert your cash into Bitcoins, stored in a virtual wallet.

Yet it is a currency that remains exciting because it is not controlled by any government. Former Facebook exe Chamath Palihapitiya has described it as “Gold 2.0… a huge, huge, huge deal”. For the same reasons, Nicolas Pottier, CEO of Nyaruka – a company that focuses on bringing software expertise to developing nations – sees it helping developing-world businesses thrive.
Bitcoin may still have a way to go before it makes an impact on the established stock exchanges, but it’s
certainly no longer just funny money for the geeks.