2 years ago US$1 Today
Baffling surge in value of virtual
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
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
"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
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
"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."
GROWING, BITCOIN BY
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
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
Nakamoto succeeded where various cyber currency
visionaries in the 1990s and 2000s failed through the elegance of
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