Yahoo Finance Bitcoin drama continues
Bitcoin, a new digital currency, lost more than US$160 (A$152) in value on Wednesday, just hours after hitting a record high.
The currency hit a new high of US$266 (A$252) before falling to US$105 and then bouncing back to US$130. At its low on Wednesday, the currency had lost some 60 percent of its value from the day’s peak.
The virtual currency went onto stage a sizeable comeback before getting slammed again.
What is Bitcoin?
Bitcoin is the new currency taking the world by storm and has seen its value surge more than 1000 per cent from around US$15 at the beginning of the year to current levels of around US$170 (check here for the most recent value).
Bitcoin is a decentralised, anonymous, digital-only currency that's lately got a lot of public attention and sparked a trading frenzy.
Not managed like a typical currency, Bitcoin belongs to no particular country, is not minted on plastic, paper or metal and under the control of no central bank.
The biggest question everyone has had about Bitcoin in recent weeks, aside from how it works, is whether or not it's in a bubble and ready to crash.
INTERACTIVE: Yahoo!7 currency converter
How Bitcoin works
Bitcoin was originally developed in 2008 by a computer developer using the pseudonym "Satoshi Nakamoto", who published a paper describing how it could work.
Bitcoin generation is based on a highly complex computer algorithm, programmed to generate a fixed number of Bitcoins per unit of computing time.
By 2140, the total number of Bitcoins in circulation will be capped at 21 million.
In other words, the Bitcoin system is self-sustaining, coded to prevent inflation, and encrypted to prevent anyone from disrupting its code.
Bitcoins can be bought with money and they also can be "mined".
There are around 11m Bitcoins in circulation, 25 new bitcoins are produced every 10 minutes, and they are traded through online exchanges like Mt.Gox.
The Motley Fool Australia explains that obtaining Bitcoins is similar to opening an account through a bank. “All a user has to do is visit Bitinstant and convert a local currency into the virtual money. The currency is traded just like any other.”
Wednesday’s wild ride
The record high and subsequent crash experienced on Wednesday was potentially sparked by a Reddit user who gave away thousands of dollars worth of Bitcoins.
A Reddit user under the name"Bitcoinbillionaire" had given away US$13,627.69896 worth of Bitcoins to Reddit users over the day, reported Business Insider.
The mystery donor signed off with a quote from Ron Paul, libertarian politician and one-time would-be presidential candidate: "It's no coincidence that the century of total war coincided with the century of central banking."
Related: Top Five Reasons To Invest In Currencies
