Bitcoin market capitalization, May 2012–April 2013. Graphic:

By Felix Salmon
3 April 2013

(Medium) – A few days ago, the value of all the bitcoins in the world blew past $1 billion for the first time ever. That’s an impressive achievement, for a purely virtual currency backed by no central bank or other authority. It’s also temporary: we’re in the middle of a bitcoin bubble right now, and it’s only a matter of time before the bubble bursts.

There are a couple of reasons why the bubble is sure to burst. The first is just that it’s a bubble, and any chart which looks like the one at the top of this post is bound to end in tears at some point. But there’s a deeper reason, too — which is that bitcoins are an uncomfortable combination of commodity and currency. The commodity value of bitcoins is rooted in their currency value, but the more of a commodity they become, the less useful they are as a currency.

Still, it’s worth taking a look behind the bitcoin bubble, because there are fascinating implications for anybody who cares about payments, or currencies, or trust.

First, though, let’s go back to the night of Sunday, 12 June 2011. That was the date of the first big bitcoin heist: a theft of such simplicity and audacity that it might well be considered the perfect crime. A man — we know him only as “All In Vain” — went to bed that night with his Windows computer turned on and connected to the internet. On that computer was a wallet containing 25,000 electronic coins. When he woke up on Monday morning, the wallet was still there. But the money was gone.

Those 25,000 coins were, at the time, worth some $500,000; today, they are worth about $3.5 million. If All in Vain had noticed the theft within a couple of minutes of it happening, it’s conceivable that he could have got his money back. But he was asleep — and ten minutes after the theft occurred, it was utterly permanent and irrevocable. The only way All in Vain could get his money back would be if the thief were to simply transfer it back into his wallet. [more]

The Bitcoin Bubble and the Future of Currency



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