Bitcoins: A New Currency on the Rise

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Amidst a new financial crisis threatening the stability of the Eurozone, central banks trying to keep their currencies in check to boost their local economies, and governments tightening their grips to protect the integrity of the financial markets, one financial instrument in circulation around the world is on the rise and poised to become the next “hot” asset.

No, it is neither minted by any central bank or government nor created by the same brilliant minds that created these complex funds that dragged us all into the 2008 financial crash. This one’s created by a computer code that it’s safe to say it is a hundred percent fiat money but is readily convertible to cash in different denominations, including the dollar, pound, or euro.

Bitcoins in a Nutshell

Created in 2009, bitcoins or BTC’s are a virtual currency now used by a growing number of organisations and business establishments for receiving and sending payments for online as well as physical transactions. Unregulated by any central bank, BTC’s are created by “mining” – that is, by solving a complex mathematical problem using computer algorithm – for computer blocks created by a computer network founded on cryptography.

I don’t want to dwell on the technicality of how Bitcoins are “minted” but I rather would like to focus more on the fact that a lot of people want to get their hands on this computer-generated money enough to sell a house for it.

People buy and sell Bitcoins in exchanges just like they would with existing national currencies but with little or no fees to pay. The transaction is done through a secure computer network using Bitcoin wallets that account holders guard against online theft just like any other online data.

Currently, there are nearly 11 million Bitcoins in circulation around the world with an estimated total market value of over US$804 million. What makes bitcoins interesting at this time is the fact that the value of one bitcoin has shot up to all-time high in the wake of the Cyprus crisis. From US$4.73 in April 2012, the price of one bitcoin has steadily increased to US$73.29 after 11 months, with the sharp rise noted earlier this month when all eyes were on Cyprus as it battled to prevent a credit default.

Bitcoins, Anyone?

With its nature as a non-political economy unregulated by any centralized law enforcement agency, acquiring Bitcoins is an enticing option for those who want to keep their money from the hands of governments under pressure of finding means to raise more funds to support their economies.

It is not a sanctioned currency, nor a legally recognized financial instrument or mode of payment and is not kept in banks but on a computer network but one that is increasingly being used by a growing number of establishments as payment for goods and services, including WikiLeaks and pizza parlors in the US.

One can argue, however, that Bitcoins is only as good as it can be accepted as an alternative currency but that same philosophy is behind every known tender since the Romans created the first coins.

The rise of value of Bitcoins at a time when Cyprus is fighting for the survival of its banking system may simply be a total coincidence or an indication that holders of wealth are increasingly getting interested in using alternative non-conventional avenues to hide their money away from the prying eyes of finance ministers.

With the Eurozone setting a precedence of levying bank deposits to bail out banks and the respective economies where they are based and central banks setting policies that effectively devalue their currencies to promote domestic growth and protect local businesses, holding Bitcoins, which had risen in value in the past months seem to be a logical decision.

But Bitcoin.org, the network that supports the Bitcoin economy, nonetheless, warned that the electronic currency is a “highly risky asset” one should never place bets into with money he cannot afford to lose.

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