Bitcoin has smashed through barriers in rapid succession as its stratospheric rise continues. On Wednesday it went past $11,000, having surpassed $10,000 less than a day earlier.
This has caused many financial experts to warn of a dangerous bubble, while other commentators say that bitcoin still has much further to travel. Some have speculated as to whether it could hit £1m.
30 November – Bitcoin’s wild price movements continued on Thursday. The cryptocurrency slumped from a new record high of $11,342 to $9,295 in a matter of hours on Wednesday night, before quickly regaining much of the lost ground to trade as high as $10,787.99 in Asian trading hours on Thursday.
29 November – Bitcoin dropped almost $700 in a matter of minutes, falling from $11,365 to $10,686, according to the Coinbase exchange. It was trading tantalisingly below $11,000 at 17:15 GMT – that’s still a 9 per cent gain in a single day.
Meanwhile, Hamish McRae warns investors that the bitcoin boom “will end in tears”.
29 November – Nobel Prize-winning economist Joseph Stiglitz has become the latest economist to question the fundamentals behind the cryptocurrency’s remarkable ascent.
On Wednesday he said that “bitcoin is successful only because of its potential for circumvention, lack of oversight”.
“So it seems to me it ought to be outlawed,” Mr Stiglitz said in an interview on Bloomberg Television. “It doesn’t serve any socially useful function.”
It has now surged more than 12-fold as buyers shrugged off increased warnings that the largest digital currency is an asset bubble.
“It’s a bubble that’s going to give a lot of people a lot of exciting times as it rides up and then goes down,” Mr Stiglitz added.
Earlier in the day bitcoin broke through the $11,000 barrier for the first time ever.
Michael Rauchs, a cryptocurrency expert at the University of Cambridge told The Independent that bitcoin technology is revolutionary and here to stay. “The system can act as a payment network that has no down time, it’s operating 24/7, it doesn’t care where and to whom you send money,” he said.
“I would put it in the same category of revolutionary new technologies like the internet,” he said.
“These world-changing systems tend to be accompanied by bubbles in their early stages. What’s happening now is completely normal.”
What is bitcoin?
Bitcoin is a digital currency created in 2009 by a mysterious figure using the alias Satoshi Nakamoto. It can be used to buy or sell items from people and companies that accept bitcoin as payment but it differs in several key ways from traditional currencies.
Most obviously, bitcoin doesn’t exist as a physical currency. There are no actual coins or notes. It exists only online.
“Real-world” currencies like the dollar are managed by a central bank such as the US Federal Reserve or the Bank of England which manage the money supply to keep prices steady. They can print more money or withdraw some from circulation if they think it’s needed.
Where does bitcoin come from?
Bitcoin has no central bank and isn’t linked to or regulated by any state. The supply of the cryptocurrency is decentralised – it can only be increased by a process known as “mining”. For each bitcoin transaction, a computer owned by a bitcoin “miner” must solve a difficult mathematical problem. The miner then receives a fraction of a bitcoin as a reward. The use of problem-solving in this way is the reason bitcoin is known as a cryptocurrency.
A record of each transaction, using anonymised strings of numbers to identify it, is stored on a huge public ledger known as a blockchain.