TECH

Bitcoin Digital Currency Loses Half Its Value In A Single Day

11/04/2013 12:49 BST | Updated 11/04/2013 13:01 BST

The scourge of centralised central banking, digital currency Bitcoin, dropped in value by $160 (£104) in one day after a sudden panic sell-off - but it's still worth 6.5 times what it was two months ago.

Bitcoin's value spiked at $266 (£173) before falling to $105 (£68) on Wednesday. It recovered slightly after its hefty fall to end the day on $130 (£84).

Last year its value was stagnating at $5 (£3.24).

bitcoin

Bitcoin was created in 2009

Experts are divided on why the currency experienced such a sudden drop. Some fear that the open-source project is in the middle of a "bubble" that could burst and plunge traders into turmoil.

But others say the sudden drop in price is largely down to an expansion of interest in the idea, not a flaw in its structure.

BitCoin's main exchange, MtGox, said that the sell off made them "a victim of our own success" after triple the usual number of trades were made in 24 hours.

The rather astonishing amount of new account opened in the last few days added to the existing one plus the number of trade made a huge impact on the overall system that started to lag. As expected in such situation people started to panic, started to sell Bitcoin in mass (Panic Sale) resulting in an increase of trade that ultimately froze the trade engine!

The European Central Bank (ECB) investigated Bitcoin last year and concluded it does not pose a threat to the stability of traditional currencies despite.

The ECB did however, say it could "challenge" government financial authorities in the future.

The world's most widely used alternative currency has thrown the traditional idea of money on its head.

Whilst starting out life as a way for people to trade illicit materials on the so-called "dark-web" it has gradually gained credibility in its four-year lifespan.

Traditional currencies are issued and regulated from a central bank, and rely on trust between the payer and the payee to uphold and recognise their value.

Bitcoin uses decentralised peer-to-peer networks for distribution and replaces trust, which can be abused, with powerful cryptography.

Someone with an incredibly powerful computer capable of solving a complex algorithm will be rewarded with 50 Bitcoins in a process called "mining".

As more Bitcoins are mined the algorithm increases in complexity so that roughly 25 can be mined every ten minutes.

Only 21 million Bitcoins can ever be produced produced which creates a relative scarcity which in turn gives them value.

People can then buy and sell Bitcoins on-line at dedicated exchanges and use them to purchase goods in an ever-expanding number of traders.