The cryptocurrency known as Bitcoin surged another 6% Wednesday, reaching a new high for 2015. In fact, the cryptocurrency price increased by more than 20% to above $490 on Wednesday before settling back down at $425. And that is compared with about $250 only one month ago. Market experts value the total shares of existing bitcoins at more than $7 billion.
Bitcoin is a new currency created in 2009 by an anonymous mathematician.
Banks are not required to conduct bitcoin transactions between private individuals and/or entities and therefore no middle man is involved. Transactions can be conducted without using names and there are no fees.
In addition to the benefits of anonymity, international payments are cheap and easy because bitcoins are not connected to any country or subject to any country’s regulations.
Bitcoins are created when people compete to “mine” the currency using computers to solve complex, complicated math puzzles. Presently, it is estimated that a winner is rewarded with 25 bitcoins approximately every 10 minutes.
Explanations have swirled over the last few days as analysts try to determine the reason for the spike in the value of Bitcoin. One theory is that an upcoming auction of bitcoins seized by United States Marshals contributed to the rise in value. Moreover, some believe that an increased demand from China illustrated by online Chinese testimonials for the “social financial network” called MMM caused the hike in value.
New members of MMM must buy bitcoins to join the scheme, which was created by a convicted and imprisoned Russian securities fraudster, Sergey Mavrodi.
Once purchased, the bitcoins are then sent to other members of MMM as “mutual aid.” Participants in the scheme are promised a 30% monthly return. They also receive bonuses for posting online testimonials and referrals.
Wen Qiang, one of the many MMM loyalists, posted on YouTube that, “on October 31, I received 20% interest and [a bonus] as a recommender, for a total of $7,750. I truly experienced the greatness of 3M and the sincerity of all the participants.”
MMM is essentially a pyramid scheme that promises its participants huge rewards based on recruitment. Such schemes always collapse, leaving most investors with major losses. But, those who exit the schemes before they implode come out big winners.
MMM claims that since the scheme involves money transfers between private parties, it is wholly legal. Mavrodi claims on his website that MMM operates in 60 countries and serves to stand against “established financial order.” He states that, “This is a community of ordinary people, selflessly helping each other, a kind of the Global Fund of mutual aid. The goal here is not the money. The goal is to destroy the world’s unjust financial system.”
Adam White, vice president of Coinbase, one of the largest Bitcoin exchanges, believes that another catalyst for the currency’s increase in value comes from Europe. Recently, the European Court of Justice ruled that Bitcoin is exempt from the region's "value added tax.”
Whatever the reason, consumers are using and trading bitcoins more and more. Despite its shady reputation, bankers are expressing growing interest in the underlying blockchain technology.
White points out that, “There has been a steady increase in the number of transactions processed on the bitcoin blockchain.” According to the bitcoin tracker Blockchain.com, in the last two years, the number of bitcoin transactions has increased from 50,000 per day to about 140,000 daily.
White also adds that in the United States, between 300,000 and 500,000 bitcoins are traded each day, while in China, about 1 million to 1.2 million bitcoins are traded daily.