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Currency rising

The Star/ANN | Tan Kit Hoong | Wednesday, Apr 16, 2014

Picture this - a high speed car chase with a slew of journalists trying to keep up with a celebrity as they hound him around Los Angeles, California.

The only problem is that inside the lead car isn't Brad Pitt or even Christian Bale, but a rather unassuming 64-year-old man of Japanese descent named Dorian Nakamoto.

The car chase started when Newsweek claimed in an article that he was the mysterious ­creator of Bitcoin who goes under the ­pseudonym Satoshi Nakamoto, after which a slew of journalists flocked to his home for comment.

Whether he is indeed the fabled founder is still unclear but the media storm revolving around Bitcoin's creator is a sign of how much interest it's generating in technology circles.

In this article we take a look at the concept of Bitcoin and how this so-called cryptocurrency works.

Real world, virtual ­currency

Today, currency or money is produced by the national banks of each country and is accepted as legal tender to be exchanged for goods or services. While we take it for granted, currency is a pretty abstract concept made real by a few pieces of paper and metal which we can exchange for products that have value to us.

It used to be that countries like the United States backed up its ­currency with gold reserves but since 1971 this is no longer the case and now its value is determined by governmental regulation or law. This form of money is also known as fiat currency.

Then we have credit cards and online payment gateways like Paypal which make it possible to conduct a transaction without ­actually exchanging hard cash.

However, when you drill down to it, the system is always based on currency produced by the national banks.

Over the past few years, though, a strange revolution on the Net has started a form of currency known as Bitcoin, ­created by private ­individuals ­without national bank or ­government involvement.

In fact, the actual creator of Bitcoin itself has been shrouded in mystery - although credited to Satoshi Nakamoto, the name is believed to be a pseudonym and while a few individuals have been identified, none have been definitively proven to be the elusive ­creator.

V for volatility

Being digital, Bitcoin itself has no built-in intrinsic value, except what its users assign to it. As such, the price of Bitcoin can vary quite a bit.

As a sign perhaps that the ­currency is gaining more ­acceptance, the value of Bitcoin has gone up in the last few years - today, the price of a single Bitcoin hovers at around RM1,300 (S$502), although it has gone up as high as S$1,931.

When it first started, a single Bitcoin was worth very little, and slowly rose to US$1 (about S$1.25) and finally to its current value.

However, if you're thinking of buying Bitcoin as a form of investment, do be aware that the sheer volatility of Bitcoin does mean that your virtual currency could be worth nothing in the future, or it could be worth a lot.

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