Bitcoin’s popularity skyrockets in the wake of Cyprus collapse

Ben Axelson | By Ben Axelson |
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on April 02, 2013 at 9:56 PM

The still relatively unknown “bitcoin” saw a surge in popularity in the past few weeks when the total value of in-circulation ‘coins passed $1 billion. Businessweek attributes that surge in large part to the economic collapse of the island nation Cyprus a few weeks ago.

The bitcoin is a form of virtual currency used to make transactions online, and it has actually been around since 2009. They are generated by users dedicating their personal computer memory to “mining” for bitcoins.

Bitcoins are not backed by a government or a centralized bank. Rather, the computer space used to allow the transaction is what backs the value of the bitcoin. Every successful mining attempt deposits a small number of bitcoins into the “wallet” of the user who is dedicating the memory, according to Motherboard.

In spite of the recent spike in use and popularity, the bitcoin doesn’t show much momentum in Cyprus itself. According to Deutsche Welle, residents of Cyprus are far more interested in re-establishing their own currency, the Cyprus pound, than they are in exploring parallel currencies like the bitcoin.

But while the bitcoin may not be catching on in Cyprus, the boost in its value, which is around $90 per coin and rising, has caught the interest of other countries and enterprises.

According to Business Insider, a company called Bitcoin ATM currently has orders for more than 300 ATMs in over thirty countries. These machines would allow for the exchange of bitcoins for cash and cash for bitcoins at the current rate of exchange.

Western Union is reportedly considering accepting bitcoins, as well as other forms of online currency like those found in many gaming apps, according to The Wall Street Journal.

But while many are celebrating the new global interest in the bitcoin, some are worried that the increase in media attention could be detrimental to the bitcoin experiment.

According to New York Magazine, the explosion in the value of the bitcoin may actually create a problem for the fledgling currency:

“A huge rise in values seems good, if you’re used to looking at stock charts. But for a virtual currency that has no mechanism for adjusting supply relative to demand, it can be a kiss of death…People are hoarding bitcoins rather than spending them on stuff. Which makes sense. If you think your bitcoins will be worth twice as much next month as they are now, why would you spend them on online-dating services?”

Max Keiser, a columnist for RT, wrote that the bitcoin’s success will only last until governments find ways to regulate or prohibit it. He compares the right to use bitcoins to the right to bear arms, but argues that bitcoin users are rallying before the right is called into question.

Forbes contributor Timothy B. Lee, tried to find a middle ground. He said that while he believes the bitcoin is a bad currency due to its limitations, it does have the potential to replace conventional currency in applications where bitcoins work better.

“Bitcoins have some unique properties that no other financial instrument has. They combine the irreversibility of cash transactions with the convenience of electronic transactions. And, the lack of middlemen and regulations greatly reduces the barrier to entry. You don’t need to get permission from big banks or financial regulators to create a Bitcoin-based financial service. All of this means it makes sense to think of Bitcoin less as an alternative currency than as a new platform for financial innovation.”

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