Bitcoin: Price v hype

13 December 2013 | By Vanessa Barford | bbc.co.uk

rsz_bitcoin-chinaVirtual currency Bitcoin has attracted increasing media attention over the past year. It’s also soaring in value, with a single bitcoin surpassing $1,000 (£613) for the first time in November. So has the media hype driven the price hike?

To the average man in the street, Bitcoin is a complicated concept.

You might grasp what a typical currency is. The pound is influenced by a central bank – the Bank of England. When it puts up interests rates, or it’s expected to, the value of the pound might subsequently go up.

If the Bank of England prints more money, or there is speculation that it will, the value’s probably going to go down. Ultimately, the value’s determined between buyers and sellers on the international markets.

Bitcoin’s a bit different. There’s no central bank. It’s stateless. And the supply of Bitcoin is determined by an algorithm that allows computers around the world to “mine” the currency at a set rate per day. There’s a limit – about 21m – to how many can ever be mined and no way to issue a flood of new Bitcoins and devalue those already in circulation.

The currency’s value – according to about 60 exchanges around the world where Bitcoins are bought and sold – is volatile. Unlike with the dollar or the pound, prices can vary considerably from exchange to exchange, sometimes by as much as $200.

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