If you were reading this six months ago, you probably wouldn’t have heard of Bitcoin, the virtual online currency. It was used by geeks, who loved the idea of a crypto-currency beyond the control of any government, and some buyers of drugs and guns.
But once the price of Bitcoin started to soar at the beginning of the year, so did mainstream interest, raising the question: are we witnessing the birth of a new universal means of exchange – a gold standard for the 21st century?
Bitcoins are ‘mined’ on the basis of a mathematical formula which controls the supply and supposedly ensures that the currency can never be debased by inflation.
The explosion in the Bitcoin price may have been its undoing. Having begun the year at $13 per Bitcoin, on April 10 it spiked at $266 before plunging to $105.
The price rise attracted mainstream investors – and with them, scrutiny from US financial authorities. Regulators warned such entities should follow traditional anti-money laundering rules, and on May 17 the US Homeland Security Department froze two accounts of a major operator in the Bitcoin market, raising questions how easily investors can cash their digital currency into dollars.
Bitcoin may not be a new ‘gold standard’, and may not survive the scrutiny of US regulators. But it is likely that this is just the vanguard of efforts to create a stable alternative means of exchange for the internet.
‘Bitcoin or something like it has a real place in the world,’ says Jon Rushman, Professor of Practice at Warwick Business School. ‘Imagine a world where foreign exchange did not matter and monetary policy did not exist. This would free up all the talent currently focused on those issues.’