Wednesday, October 19, 2011

Bitcoin Value Massively Deflates

Any currency is vulnerable to changes in supply or demand. Also, like any other commodity, if a bubble erupts, inflating value in a basically irrational way, a bursting bubble always is possible. And that seems to have happened to Bitcoin, the world's first peer-to-peer digital currency, which has "suffered" from massive speculation.

Bitcoin value fell below $3 in mid-October 2011, a 90 percent fall since the currency hit its peak in early June 2011.

Supporters argue that Bitcoin has fundamental advantages over conventional currencies. The system is designed to transfer funds without a central authority, freeing Bitcoin users from bank fees and government regulations. The Bitcoin protocol offers robust anonymity, and the protocol guarantees that there will never be more than 21 million Bitcoins in existence, which supporters have argued would give the currency a stable value.

Unfortunately, the currency's value hasn't proven stable in practice. Since few retailers actually accept Bitcoins, the currency's value has fluctuated primarily as a bubble-driven commodity.

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