THE BLOG
04/10/2013 09:16 BST | Updated 03/12/2013 05:12 GMT

Bitcoin: Testing the All Publicity Is Good Publicity Theory

News broke today of a raid by the FBI of Silk Road, a site allowing users across the world to purchase illegal drugs. Pretty shocking right? Well not for world's press, interestingly the reporting around the piece has focused not on the existence of a well known platform selling illegal drugs, but instead looked at the effect on the payment system used on the platform, Bitcoins.

The BBC's headline is a great example 'Bitcoin value drops after FBI shuts Silk Road drugs site'. Now I know my place and know that one shouldn't question the Beeb's prioritise. So, I thought I'd have a delve into the real story, that of the coins not the crims, and give a quick lowdown on the story of the Bitcoin.

Launched on the back of a 2008 white paper written under the pseudonym "Satoshi Nakamoto", Bitcoins are virtual tokens, each with their own unique code. With a finite number of the coins available like Gold the price of the coins is largely dictated by the buyers' belief, or indeed lack of belief, in their potential future value.

The coins have been the subject to increasing public attention with a number of high profiles supporters, Ashton Kutcher and the Winklevoss brothers (famous for suing Mark Zuckerburg) are just two of their high profile supporters, with even presidential candidate Al Gore calling the idea "pretty cool".

Beyond the celebrity endorsements however the story has been rather a mixed one for this digital upstart. Positively, the coins are starting to be mentioned, if not fully recognised by financial authorities, with Germany's finance ministry lending much confidence in the currency, giving them the classification of 'unit of account'. On the downside, since the coins were launched the market in their trade has seen a level of volatility not really present in the trade of equivalent "resources" like gold. Most significantly, a crash in April saw the value of Bitcoin drop from £169 to £84 in just six hours. The cause of this fall was started by panic selling caused by the main exchange for the coins, MTGox being targeted by hackers who caused a bump in trading by creating numerous fake accounts.

For many today's raid will simply push the coins further into the murky black waters of the internet where only hackers and developers dare to delve. I mean why trust a currency whose most publicised users are drug lords and drug takers? Good question, thanks. For some investors however, today's episode is being seen rather more positively, with them seeing the incident as proof that the coins aren't as volatile as they once were. The cause of this hope is a significant fightback in the value of the currency after an initial drop upon the announcement of the raid. The buyers price initially dropped from £86 to £68, before climbing back to £75.

The question is, after so much mixed press will the currency ever be able to go mainstream. I know my mum wouldn't use it but I thought I might, after today I'm not so sure...