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The Rise of the Bitcoin: Virtual Gold or Cyber-Bubble?

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The Bitcoin virtual currency, used to pay for goods and services directly over the Internet, carries fees lower than those charged by banks and credit card companies

Credit: FOFOA

Bitcoin virtual currency is booming as it is used to pay for goods and services directly over the Internet without requiring intermediaries such as banks or credit card companies.

Bitcoin transactions carry fees that are lower than those charged by financial institutions, and they rely on cryptography to prevent double spending, counterfeiting, or theft. However, the number of available bitcoins is finite, and is expected to reach the 21-million maximum by 2140; this makes them commodities whose value appreciates as more users drive demand.

There is no precise explanation for what is driving the currency's exponential rise, with some crediting a change in the network's programming that reduced the number of bitcoins issued daily. Wall Street analysts tracking bitcoin say there is still no sign the currency is attracting major investors, and critics say those paying high fees for bitcoins are investing in a phantom currency with illusory value.

Also worrisome is the growing use of bitcoins to launder money, and the difficulty of keeping tabs on such transactions. "In a way it is like ... Monopoly money being used rather than your respective currency, not knowing who owns the bank and who is the dog, the car, the top hat or thimble," says the U.S. Drug Enforcement Agency's Rusty Payne. "Bitcoins are virtually untraceable."

From The Washington Post
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