By the Blouin News Technology staff

Bitcoin becomes popular with investors

by in Enterprise Tech.

Pile of Bitcoins is shown here after Software engineer Mike Caldwell minted them in his shop in Sandy, Utah. Getty/ George Frey

Pile of Bitcoins are shown here after software engineer Mike Caldwell minted them in his shop in Sandy, Utah. Getty/ George Frey

Virtual currency Bitcoin is becoming popular with tech investors. Investor Chris Dixon (who’s backed Skype, Oddcast, Invite Media and others) said at the TechCrunch Disrupt conference on April 29 that he was interested in investing in products that can serve the virtual currency, such as Pay with Bits, which facilitates exchange and payments in Bitcoin currency over smart and dumb mobile phones for a small percentage-based fee. On the same day, U.K.-based IG Group said it would add Bitcoin to its trading portfolio.

Bitcoin became popular as Cyprus faced a financial crisis; residents looking for a safe-haven used it to store their wealth and conduct transactions with those abroad.  Shortly after, in early April, the currency had a severe fluctuation. Relatively steady since its debut in 2009, it surged to a value of $266 per Bitcoin and before plunging back to $54. The short-term panic did little to destabilize the perception of Bitcoin as a widespread currency in the future. Businesses continued to accept the currency. PayPal President David Marcus publicly said said the company is considering adding Bitcoin to its list of accepted currencies.

Dixon sees the virtues of Bitcoin not in its being a new currency but in its being an anonymous, more secure payment system. Unlike peer-to-peer systems such as PayPal, Bitcoin works without a link to a checking account. That makes, as Dixon put it, transactions possible with untrustworthy people. The low fees and lack of authentication requirements make it easier to create a financial startup around Bitcoin than creating one with actual money, Dixon also said. (Vide the many startups that convert national currencies into Bitcoin: BitInstant, Coinsetter and Coinbase.)

But some statistics say Dixon’s view might be too optimistic. A study published on April 26 says that 45% of Bitcoin exchanges close without refunding user money. Exchanges that handled more transactions were more likely to stay open, but also frequently subjected to hacking attempts. And because of the lack of regulation that allows anonymous transactions, in the event of a hack, Bitcoins used by someone other than the user cannot be recovered.

Bitcoin might have many advantages over national currencies, but security events such as Bitcoin ponzi-schemes — where those robbed had no information about the thieves other than their screen names — limits the currency from becoming a tool for all transactions. Still, all this investor interest is bound to create a bubble.