Bitcoin: Way of future or path to ruin?

Bitcoin, hailed in some quarters as the future of currency, is having a rough week, with a flurry of rumours that China will shut down exchanges and the head of a major U.S bank calling bitcoin a “fraud.”

Plummeting prices have again raised questions about the wisdom of owning it, if not its legitimacy. The digital, or cryptocurrency, tumbled 15 per cent Thursday to about $3,300 against the U.S. dollar. Bitcoin, which has had bouts of volatility in the past, has shed about a third of its value since Sept. 1. But it’s still up $600 compared with last year at this time.

Bitcoin is a digital currency created and exchanged without the involvement of banks or governments. Transactions allow anonymity, which has made it popular with people who want to keep their financial activity, and their identities, private. The digital coins are created by so-called “miners”, who operate computer farms that verify other users’ transactions by solving complex mathematical puzzles. These miners receive bitcoin in exchange. Bitcoin can be converted to cash when deposited into accounts at prices set in online trading. So, is this bitcoin’s swansong? Not necessarily. In mid-July, the value of bitcoin was $1,900 per dollar, dropping from $2,500 at the end of June. Users forced a change in the computer code, which was designed to improve capacity on the increasingly clogged network. The manoeuvr worked, helping to avoid a split in bitcoin and driving the value up to roughly $2,800 by the end of July. Bitcoin’s value has fluctuated since then. One of China’s biggest bitcoin exchanges announced that it will cease trades following reports that Beijing will order all Chinese exchanges to close. And on Tuesday, JPMorgan Chase CEO Jamie Dimon called bitcoin a fraud, saying that if any of his traders were dealing in the currency, he’d fire them.