The currency is not controlled by a central bank or government. Bitcoin is used to make peer-to-peer payments and there are around 11 million bitcoins in circulation. As the use of bitcoins has surged in recent months, the currency has experienced substantial volatility: the price of a bitcoin increased from $15 in January 2013 to $266 in April, a rise which has been attributed in part to the crisis in Cyprus and the impact of consumers losing confidence in the banking system.
However, what goes up can also go down: the price of a bitcoin crashed from $266 to $105 in a single day, and stands at around $128.
While Bitcoin is in its infancy, as the currency matures it could challenge the world of transaction banking in a fundamental way.
|Chris Skinner, chair of the Financial Services Club|
Still, Bitcoin faces regulatory pressures, which will also temper the pace of corporate adoption of the currency.
US authorities announced on Tuesday they had shut down Liberty Reserve, a digital currency system based in Costa Rica, claiming the company was being used to run a $6 billion money-laundering scheme.
|Jon Matonis, board director at the Bitcoin Foundation|
The currency has also been backed by the Winklevoss twins, famed for suing Facebook founder Mark Zuckerberg, who claim to own around $11 million-worth of bitcoins. Matonis observes that the current wave of investment might help Bitcoin companies to meet domestic regulatory hurdles.