Bitcoin, the world's first open source cryptographic currency, which has been on a tear since the beginning of this year, set a new record for itself yesterday afternoon as the price listed on the largest online exchange rose past US $92. With nearly 11 million Bitcoins in circulation*, this sets the total worth of the currency just over one billion dollars.
For a bit of perspective, that's how much Facebook spent on its acquisition of Instagram last April. But Bitcoin is not a company. It's a digital currency that runs on a global peer-to-peer network without the backing of a nation or any other central authority. The recent ascent has traditional economists scratching their heads.
“It’s something of a mystery that Bitcoin has a positive value at all since it wasn’t launched in the way a new currency is typically launched,” says Lawrence White, an economist who teaches the history of banking and money at George Mason University.
“Typically, if a country wants to introduce a new currency, they make it redeemable for the old currency at a fixed exchange rate and then after a while they cut off the link and retire the old currency. But they launch the new currency by giving people a sort of firm expectation of what it’s worth. Bitcoin didn’t do that. It just launched itself by its own bootstraps and we don’t really understand how that worked, as economists. “
Recent events suggest that many of the people who are using Bitcoin don't want a re-iteration of these old models. Much of the new interest in Bitcoin is coming from places like Cyprus whose desperate proposals for economic reform threaten to plunder the savings of its people.
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