Published April 08, 2013
Amid calls of a bubble, more than $2 billion dollars worth of the digital currency known as bitcoins now circulate the internet -- an amount that exceeds the value of the entire currency stock of countries like Montenegro, Guinea, and 40 other countries.
So what is a “bitcoin,” and why would anyone use it?
Unlike traditional currency, bitcoins are not issued by a government or even a private company. Instead, the currency is run by computer code that distributes new bitcoins at a set rate to people who devote web servers to keep the code running. The bitcoins are then bought and sold for regular U.S. dollars online.
Bitcoin is in high demand right now -- each bitcoin currently sells for more than $190 U.S. dollars -- which bitcoin insiders say is because of world events that have shaken confidence in government-issued currencies.
“Because of what's going on in Cyprus and Europe, people are trying to pull their money out of banks there,” Tony Gallippi, the CEO “BitPay.com,” which enables businesses to easily accept bitcoins as payment, told FoxNews.com.
In Cyprus, the government is considering taking a percentage of all citizens’ bank accounts to solve its fiscal woes. That has led Cypriots -- and other Europeans worried about the same thing happening to them -- to take their money out of banks.
“So they buy gold, they put it under the mattress, or they buy bitcoin,” Gallippi said.
Bitcoin demand has also increased, Gallippi says, because last week U.S. regulators issued the first official guidelines for private digital currencies. Prior to the regulations, the legal status of the currencies was in doubt.
“Now people can see that it's not illegal, that it's not banned,” Gallippi said.
Companies that exchange digital bitcoins for real money will have to comply with the same regulations as traditional currency exchangers -- namely, they must verify the identity of anyone exchanging money for bitcoins and report large transactions to the government.
Using bitcoins to purchase goods, however, is specifically exempted.