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  • Bitcoin Address: 3BWV2PzZAgzqQQQetShbq6esAVmFs7hf1C New virtual currency threatens the euro
« on: March 24, 2013, 02:37:25 PM »
New virtual currency threatens the euro

The virtual currency was introduced in 2009 by Japanese programmer Satoshi Nakamoto, who wanted to create counterfeit-proof money for the Web.

With all its other problems, the euro is also getting unexpected—and “underground”—competition from a new virtual currency. It’s called the bitcoin, and in case you haven’t heard, it is the most ambitious (and to-date, successful) attempt to create a new online currency, generated by the calculations of thousands of computers. Some say it amounts to a kind of anarchic money.

This week, as the euro crisis has reached Cyprus, the bitcoin (BTC) marked a record high on the largest online exchange, The exchange rate has approached 50 euros, more than doubling the value of the virtual currency within four weeks.

The latest run on bitcoins was caused by reports of a bitcoin fund being launched by Malta-based hedge fund called Exante. The Bitcoin Fund has an initial minimum subscription of $100,000 and a 0.5 per cent upfront subscription fee. Current assets under management in the Bitcoin Fund are $3.2 million. “Investor demand is rising quickly,” says Oliver Flaskämper, who drives “Many investors realise that the present market cap of around $520 million leaves a lot of room.”

Europeans alone have more than 5 trillion euros in their wallet files and accounts. Everyone can use bitcoins as long as they have a wallet app installed on a PC or a smartphone. What makes bitcoins particularly attractive is that users can use them for payment at an increasing number of places. More than 2,000 companies and organisations now accept the alternative currency, including pizza delivery outfits, but also gambling sites of dubious repute.

It has also been said that bitcoins are used in drug transactions. Unlike credit cards or online payment services like Paypal, bitcoin transactions are essentially anonymous which has aroused the suspicions of bankers and politicians alike. Bitcoin fans argue that cash was and remains the primary means of paying for drugs—and that nobody has aired the idea that cash should be abolished.

History of bitcoins

The history of the bitcoin has so far been marked by ups and downs. The virtual currency was introduced in 2009 by Japanese programmer Satoshi Nakamoto, who wanted to create counterfeit-proof money for the Web. It now appears however that the name is a pseudonym, and that nobody really knows who is behind the bitcoin idea.

Hype developed around the crypto-currency relatively quickly. In 2011 the first speculation bubble—that had driven the exchange rate to $30—burst. Then came a hacker attack on the major bitcoin exchanges. Users lost virtual coins worth several hundred thousand euros and confidence—and prices—collapsed.

Despite fluctuations, bitcoins remain an extremely interesting concept. They are created by highly complex calculations running on thousands of computers. Approximately every 10 minutes, 25 new bitcoins are created. The algorithm takes into account that at some point a maximum number of virtual coins will be reached—ostensibly around 2140, and from 2033 on no large quantities of new bitcoins will be made.

In that sense the bitcoin system bears resemblance to the gold standard. Unlike euros or dollars the amount of bitcoins cannot be increased at will. The virtual coins are interesting for investors betting on the inflation of paper money.

Bitcoins might even presage a whole new era. “Money is being re-invented,” Thorsten Polleit, chief economist at Degussa Bank, believes. He sees a future where different kinds of money will be competing with each other. “The banks are misusing the money monopoly they have, using money for political purposes. In the long run that will lead to devaluation”—and the demand for private mediums of exchange will increase, he says.
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