2 years ago US$1 Today US$130

Baffling surge in value of virtual coin

London - A currency surging in value at a breathtaking rate last week belongs to no nation and is issued by no central bank. It can be used to buy gold in California, a hamburger in Berlin or a house in Alberta. When desired, it can offer largely untraceable transactions.

The coin in question now has a global circulation worth more than US$1.4 billion (S$1.7 billion) on paper. Yet almost no one, it seems, knows the identity of its creator.

The currency is bitcoin, a kind of cyber-money initially traded among hackers and cryptologists. Two years ago, one bitcoin was worth less than US$1. Two months ago, the price for one unit surged above US$20 on a profiferation of cyber-exchanges from Tokyo to Moscow.

A sudden burst of interest sent its value soaring to a record US$147 last Wednesday,.but it fell after a series of hacker attacks. Yet, as of last Thursday, bitcoin was still trading above US$130.

In Singapore, a unit of bitcoin was being sold at $182 to $185 as of yesterday.

Will all that crash and burn in a cyber-version of a financial bubble? Critics say quite possibly.

Will the authorities - already concerned about the use of bitcoins to buy drugs and launder money online - step in to regulate it? There are signs that may already be happening.

For now, its diverse group of users, ranging from the Free State Project and WikiLeaks to environmentalists and professional gamblers, call its surge a revolution in "financial free speech".

"Some people say it's anti-capitalist but it's more non-conformist," said Mr Jonathan Harrison, a former gold trader who ditched his London flat to join a group of virtual currency obsessives living in a dilapidated commune. "It can't be manipulated by governments, changed by monetary policy. I call it digital gold."

No one knows what, exactly, is behind the currency's staggering climb that started earlier this year and accelerated in recent weeks. Some cite a change in the network's programming in December that cut the number of bitcoins released each day. Others say new interest from Russians and others looking for safe havens after bank account seizures in Cyprus is behind the climb.

"What's behind that billion-dollar value? Nothing, except some people would claim a billion dollars worth of burned electricity," said Mr Ben Laurie, a software engineer and visiting fellow at Cambridge University.

Though critics warn current buyers will themselves burn if the price collapses, bitcoin's rise already has early merchants ruminating about what might have been.

George's Famous Baklava in New Hampshire, for instance, sold a pan of dark chocolate pastry online for 14 bitcoins last year, a sum worth about US$1,890 today.

"I'm already looking back on that and smiling," the company's owner, Mr George Mandrik Skouras, wrote in an e-mail.

"In a way it is like...Monopoly money being used rather than your respective currency, not knowing who owns the bank and who is the dog, the car, the top hat or thimble," said Mr Rusty Payne, a spokesman for the US Drug Enforcement Agency. "Bitcoins are virtually untraceable."

Washington Post

GROWING, BITCOIN BY BITCOIN

Bitcoins were created in January 2009 by "Satoshi Nakamoto", a pseudonym used by a programming whiz, or a group of them,whose identity remains one of the great mysteries of hackerdom.

Nakamoto unveiled bitcoin to a mailing list of computer super geniuses who were invited to form a network of bitcoin "miners".

They can excavate bitcoins by using computers to solve complex mathematical puzzles, with units of the cyber currency seen as a reward for the electricity spent on the algorithms.

Nakamoto succeeded where various cyber currency visionaries in the 1990s and 2000s failed through the elegance of bitcoin design.

More bitcoms are created all the time. But over time, fewer and fewer will be generated. The finite number - bitcoins will max out at 21 million by 2140, compared with the roughly 11 million in circulation today - makes them a commodity that increases in value as more and more users fuel demand.

To avoid counterfeiting, bitcoins are accounted for on public ledgers. Holders of bitcoins - stored using an electronic "wallet" software downloaded from the web - are kept anonymous unless they disclose their identities.

Yet, there is no centralised authority regulators can home in on, to shut the system down.

World, The Sunday Times, April 7, 2013, Pg 28