The risks of 'Uber' currency Bitcoin

Photo_Web_Bitcoin_080514

Bitcoin, invented in the wake of the global financial crisis by a mysterious computer guru, is a form of cryptography-based e-money that can be stored either virtually or on a user's hard drive, and offers a largely anonymous payment system.

PARIS - "Think of countries with weak institutions and unstable national currencies. Instead of adopting the currency of another country - such as the US dollar - some of these economies might see a growing use of virtual currencies. Call it dollarisation 2.0," said the head of the International Monetary Fund, Christine Lagarde, recently.

Economists also suggest bitcoin could be of interest to developing countries where individuals often find it easier to access the internet than traditional bank accounts.

READ: Bitcoin hits record high

Nevertheless, central banks and the big financial institutions are concerned that virtual currencies can be used for illicit purposes and are highly speculative by nature.

"It&39;s the exact definition of a bubble," the head of Swiss banking giant Credit Suisse, Tidjane Thiam, warned recently in comments that immediately sparked an uproar on social media among bitcoin&39;s supporters.

The head of the French central bank or Banque de France, Francois Villeroy de Galhau, warned in the summer: "People are using the bitcoin today are clearly doing it at their own risk and at their own peril."

&39;No intrinsic value&39; 

Nobel laureate, Jean Tirole, also insisted that the current bitcoin boom was a "bubble".

"It&39;s something that has no intrinsic value," he told AFP on the sidelines of a conference in Paris this week.

"It could collapse from one day to the next. I would be completely against French banks, for example, investing in bitcoin."

READ: Zimbabweans turn to bitcoin for survival

Euler Hermes economist Subran called on the financial authorities to make potential investors more aware of the risks.

"There&39;s a lot of money to be made. And a lot of money to be lost," he said.

"We&39;re seeing more and more people wanting to venture there, but they&39;re not fully aware of the risk."

Bitcoin has regularly suffered abrupt falls, for example, in cases of friction between the members of the community who oversee it and the members who produce it, when the regulatory authorities issue any warnings, or if there are data hacks.

But more often than not, bitcoin quickly makes up any losses and some investors are predicting it will soon top the $10,000 (R141,000) level. Back in 2011, it had struggled to pass $1.