Bitcoin currency value

Interest in digital coin system spikes dramatically after banking crisis in Cyprus, nearly tripling in value since last month

Both the volume being traded and the amounts being paid have suddenly risen, apparently as interest in the system has been spiked by the banking crisis in Cyprus – which had the spillover effect of making people in some southern European countries worry that their banking deposits might not be safe.

Some are thought to have converted that money into Bitcoins, driving a rapid rise in the apparent value of the “coins” – actually cryptographic solutions to complex equations.

As a result, the value of a Bitcoin has risen from just $13.50 in January, and around $30 a month ago, to more than $140 – though the price is fluctuating rapidly. The total value of the Bitcoins in circulation only broken through the $250m mark in January. Last November, each Bitcoin was worth $10.83.

Bitcoin’s market price since last month Photograph: blockchain.infoThe maximum possible number of Bitcoins that can exist is 21m, meaning that at present prices the currency would be worth just over $3bn. Trades can be made with fractions of Bitcoins, providing flexibility that enables transactions.

The price of each Bitcoin began rising abruptly on Tuesday 19 March, going from $47 then to $72 by 23 March. That matches the period of the Cyprus bailout almost exactly: its banks shut on Friday 15 March – and then the Cypriot government announced over the next two days that they required a bailout and that all savers’ deposits would be tapped. Though that was later revoked, with only larger deposits being subject to a 10% requisition, savers in other countries with troubled finances had already acted.

Bitcoin’s usefulness is its lack of the need for a central bank – and that the peer-to-peer network backing it allows transactions to continue as long as there are people willing to exchange the coins for something of value (or to donate them). For Europeans worried about the possibility that their banks might shut, trapping their savings inside, and not open until some amount had been skimmed from them, that makes Bitcoins suddenly attractive.

The interest, and the exponential rise in value, means that it is now worthwhile for people to devote computing power to try to “mine” Bitcoins by finding the solutions to the cryptographic challenges that underlie each coin. As Bitcoins become more valuable, the return on computing power should grow – except that Bitcoins are designed so that as more come into circulation, it becomes harder to “mine” new ones. A distributed algorithm ensures that about 1 Bitcoin is created every 10 minutes – but not more.