Amid criticism, Bitcoin's future cast into doubt
By Aurilia End, AFPPARIS -- Once the preserve of cyber geeks or of dodgy traders, the virtual currency Bitcoin can now not only be used to buy goods online but also pay for a degree at the University of Nicosia.
December 16, 2013, 12:16 am TWN
Yet the newfound popularity of the currency, which was worth almost nothing until April 2011 and which now trades at around US$1,000, may well prove its undoing.
Market watchers and regulators are at odds over how the Bitcoin should be handled, but as the currency gains prominence, voices warning against its use are getting louder.
France's central bank has slapped it down as “highly speculative” while China's said it should not be used as a currency and banned its banks from providing services and products related to Bitcoin.
The European Union's banking watchdog also issued a warning to the digital currency's users, telling them: “You should be fully aware and understand their specific characteristics.”
Although Federal Reserve chief Ben Bernanke said such virtual currencies “hold long-term promise,” his predecessor Alan Greenspan was unable to give an intrinsic value to the currency.
Launched in 2009 as the invention of a mysterious computer guru who goes by the pseudonym Satoshi Nakamoto, Bitcoins are created through a complex mathematical formula.
Unlike hard currencies, it is neither backed up by a country's economic activity nor issued by a national authority.
Bitcoin's official website said “all that is required for a form of money to hold value is trust and adoption.”
“In the case of Bitcoin, this can be measured by its growing base of users, merchants, and startups. As with all currency, Bitcoin's value comes only and directly from people willing to accept them as payment,” it said.
With about 12 million Bitcoins in circulation at the moment, total market capitalization stands at about US$10.57 billion. The formula used to create it limits its circulation at 21 million Bitcoins.
Germany decided to legalize it as a currency, so as to be able to tax it, while the Bank of America's Merrill Lynch unit touted it as a significant tool for e-commerce.
After all, the digital currency can be transferred directly between smartphones or any other type of computers.
However, this also raises concerns that it would be used for criminal or terrorist activities.
'Highly speculative' Currency Poses 'Certain financial risk'