Is online currency a safe investment?

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A graph showing the value of bitcoin growth over time
A graph showing the value of bitcoin growth over time

While not many people seem to have heard of it, a new online-only “currency” called Bitcoin has seen its value rise rapidly recently.

Designed primarily with online trading in mind, two things set Bitcoin apart from other currencies. For starters, there is no government or central bank behind it – it was created by individuals and is now run as an online international cooperative. The rules behind Bitcoin were put in place in 2009 by Satoshi Nakamoto, about whom very little is known. However, anyone can create new Bitcoins.

The designers though have put an upper limit on the number of Bitcoins that can be created – they are ruling out in advance the type of quantitative easing (QE) or money printing that has worried savers throughout the developed world. They fear the QE will eat away at the real value of familiar currencies. Another downside though is cyber-security threats.

Bitcoin’s creators realise that, for anything to be valuable, it has to have some scarcity. So Bitcoin has been made difficult to create. You need powerful computers to do so, and the process is continuously being made harder. But even if someone found a way to make more Bitcoin easily, there is a limit of 21 million on the number that can exist. Each unit of the currency is tracked by the computer network to ensure that the limit cannot be breached.
It trades online at sites including eBay. Prices can vary greatly although the price has gone through the roof recently.

Some foreign exchange dealers say with technological progress, digital currencies are a logical step forward.