Bitcoin has hit a record high valuation as a virtual currency at over $1,200 (£976). On Thursday, 2 March, it rose four per cent in value, equalling the price of gold – and then went on to surpass it.
At the beginning of the year Bitcoin exceeded $1000 (£814) for the first time since 2013. Bitcoin is now seen as a comparatively stable currency in comparison to more volatile physical money.
However, it was not always this way – the currency had a rocky road to the top. More recently, China’s government attempted to crack down on the use of Bitcoin in January this year. However, this has evidently been to little avail, with the currency as popular as ever worldwide. The attempts to root out this form of online trade arose against the backdrop of the fall in the Chinese yuan in a country where Bitcoin is widely used.
The currency is made, stored and exchanged over the internet. It has no central bank, and thus makes circumvention of regulation easy. There is no one concentrated authority with control, and its users do not have to submit to trust in a single all-powerful organisation. The savings of Bitcoin investors are for the most part guaranteed because there is no intervention on behalf of a central governor, nor any fiscal policy externally controlling interest rates, for example.
When physical cash shortages are feared, or under uncertain economic circumstances, Bitcoin tends to rise in value: for example when 500 and 1,000 rupee notes were removed from circulation in India, or in the wake of the Brexit vote closer to home. That is not to say that Bitcoin in itself is not a high risk option. In 2014, there was a sharp plummet in its value to an all-time low of $334 (£272).
Security is also quite reliable by virtue of each coin having its own individual code unique to its owner. All transactions are logged on a massive public database known as the blockchain, on which the participating parties are required to provide pseudonyms. This allows for a degree of anonymity while retaining some accountability. Bitcoins cannot be falsified without an inordinate amount of computational energy, making the enterprise ultimately unprofitable.
Blockchain takes a lot of processing power and, since there is no centralised headquarters, it requires the participation of many private individuals who voluntary help run the vast network. Not that there it is a completely fruitless endeavour; Bitcoin mining, as it has become known, is actually quite a lucrative business. Those who take part rent out their PC’s capabilities and are paid in virtual currency for the extra energy costs they accrue.
There is, however, significant controversy surrounding Bitcoin. Some have called for it to be removed from circulation, yet others predict that it will be the currency of the future. Its association with the dark web’s Silk Road, online drug dealing and buying of weapons, and the tax evasion it facilitates, cannot be ignored. Whichever side commentators take, it looks like Bitcoin will be lasting, but perhaps its popularity will not surpass existing national currencies.