Bitcoin Triples Again

Image Source: Bitcoinme.com

Jack Hough
Smart Money

The online currency has minted off-line millionaires. But for how long?

The world's fastest-gaining currency has tripled in price again. Last week, SmartMoney reported that the Bitcoin had exploded from an exchange rate near zero to more than $10 in about a year, making it one of the top-returning assets of any kind. On Wednesday the currency topped $30.

If returns like those seem otherworldly, perhaps its because Bitcoin is a world unto itself. To recap, it's is a purely online currency with no intrinsic value; its worth is based solely on the willingness of holders and merchants to accept it in trade. In that respect, it's not so different from fiat currencies like the dollar or Euro, but whereas governments back such money, Bitcoins lack central control.

In another way, the appeal of the Bitcoin echoes the appeal of gold. Instead of a central bank, a computer algorithm dictates their supply. Today there are six million Bitcoins, a number that will grow at a steadily slowing rate until it approaches 21 million, but no more. As with gold, some see such limited supply as built-in protection against inflation that could result from runaway government budget deficits. Gold, of course, has been a store of value for thousands of years and has at least some industrial use, whereas Bitcoins are brand new and exist only on the Internet.

For some early adopters, Bitcoins have turned from a hobby into a windfall. MtGox.com, the main exchange for users swapping Bitcoins for dollars and other currencies, charges buyers and sellers a fee of 0.65% for its brokerage service. (The name stands for Magic the Gathering Online Exchange, but the Bitcoin dabbler who bought the domain didn't bother to change it.) As recently as a few months ago, the site generated just pennies a day in income. By Wednesday it was making more than $40,000 a day.

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