MARKETS frequently froth and bubble, but the boom in bitcoin, a digital currency, is extraordinary.Although its price is down from an all-time high of $2,420 on May 24th, it has more than doubled in just two months.Anyone clever or lucky enough to have bought $1,000 of bitcoins in July 2010, when the price stood at $0.05, would now have a stash worth $46m.Other cryptocurrencies have soared, too, giving them a collective market value of about $80bn.Ascents this steep are rarely sustainable.More often than not, the word “bitcoin” now comes attached to the word “bubble”.But the question of what has driven up the price is important.Is this just a speculative mania, or is it evidence that bitcoin is taking on a more substantial role as a medium of exchange or a store of value?Put another way, is bitcoin like a tulip, gold or the dollar—or is it something else entirely?Should the Lions pick all 15 players from one team?A new front in the legal fight over Donald Trump’s travel banQatar Airways wants a 10% stake in American AirlinesIreland and Afghanistan become the first new Test nations in 17 yearsWhy calculating a British parliamentary majority is so trickyHumanist nuptials are popular in Scotland but only beginning in UlsterStart with the case that this is nothing more than a virtual tulipmania, a speculative hysteria in which a rising price encourages ever more buyers, no matter what the asset is.

Bitcoin’s recent trajectory certainly seems manic.Retail investors have piled in.Many already familiar with bitcoin investing have moved on to bet on alternatives, such as Ethereum, and “initial coin offerings” (ICOs), in which firms issue digital tokens of their own.It looks like a scammers’ paradise, yet unlike tulips, bitcoins have real uses.They now buy everything from pizzas to computers.So if a tulip isn’t the right analogue, how about gold?Bitcoins certainly seem to bear more than a passing resemblance.Goldbugs mistrust governments and their money-printing tendencies; so too do bitcoinesseurs: no central bank is in charge of bitcoin.But a store of value should not bounce around as much as this one does: bitcoin swung from more than $1,100 in late 2013 to less than $200 a year later, before climbing, in fits and starts, to its current dizzying heights.Rather than being just a form of digital gold, bitcoin aspires to loftier goals: to be a means of exchange like the euro, yen or the dollar.

Regulators are starting to take bitcoin seriously.Some of the price surge can be explained by Japan’s decision to treat bitcoin more like any other currency.Yet the bitcoin system is operating at its limits and its developers cannot agree on how to increase the number of exchanges the system is able to handle.As a result, a transaction now costs nearly $4 in fees on average and takes many tedious hours to confirm.For convenience, a dollar bill beats it hands down.If bitcoin and the other cryptocurrencies are unlike anything else, what are they?The best comparison may be with the internet and the dotcom boom it created in the late 1990s.Like the internet, cryptocurrencies both embody innovation and give rise to more of it.They are experiments in themselves of how to maintain a public database (the “blockchain”) without anybody in particular, a bank, say, being in charge.Georgia, for instance, is using the technology to secure government records (see article).And blockchains are platforms for further experiments.

Take Ethereum, for example.It allows all kinds of projects, from video games to online markets, to raise funds by issuing tokens—essentially private money that can be traded and used within these projects.Although such ICOs need to be handled with care, they could also generate intriguing inventions.steam bundle bitcoinFans hope that they will give rise to decentralised upstarts taking aim at today’s oligopolistic technology giants, such as Amazon and Facebook.This may seem like a dangerous way to generate innovation.convert sms to bitcoinInvestors could lose their shirts; a crash in one asset class could spread to others, creating wobbles in the financial system.bitcoin uk capital gains taxBut in the case of cryptocurrencies such risks seem limited.bitcoin nwo

It is hard to argue that those buying cryptocurrencies are unaware of the risks.And since they are still a fairly self-contained system, contagion is unlikely.If there is such a thing as a healthy bubble, this is it.bitcoin mining hosting ukTo be sure, regulators should watch out that cryptocurrencies do not become even more of a conduit for criminal activity, such as drug dealing.bitcoin op beursBut they should think twice before coming down hard, particularly on ICOs.Being too spiky would not just prick a bubble, but also prevent a lot of the useful innovation that is likely to come about at the same time.Investors are piling into the digital currency, which is not issued by a central bank but is conjured into being by cryptographic software running on a network of volunteers’ computers.This week the price of a Bitcoin soared to above $1,000, from less than $15 in January.Having long been favoured by libertarians, gold bugs and drug dealers, Bitcoin is attracting some surprising new fans.

Germany has recognised it as a “unit of account”.Ben Bernanke, chairman of the Federal Reserve, told a Senate committee on virtual currencies that the idea “may hold long-term promise”.A small but growing band of shops and firms accept payments in Bitcoin.Some like the way it allows funds to be transferred directly between users, without middlemen.Others are attracted by the potential for anonymous transfers, or by the fact that the number of Bitcoins in circulation has a fixed upper limit—so there is no way a central bank can inflate their value away by issuing more.Should the Lions pick all 15 players from one team?A new front in the legal fight over Donald Trump’s travel banQatar Airways wants a 10% stake in American AirlinesIreland and Afghanistan become the first new Test nations in 17 yearsWhy calculating a British parliamentary majority is so trickyHumanist nuptials are popular in Scotland but only beginning in UlsterBut the recent price surge, driven by Chinese investors stashing money offshore, looks like a classic bubble.

Hoarding means that Bitcoin is currently more of a speculative asset than a currency.And a crash is not the only risk Bitcoin users face.As the price rises, Bitcoin theft is increasing, both from individuals and from online exchanges that store the coins and convert them into other currencies.Around $1m in Bitcoins was recently stolen from BIPS, a European exchange.GBL, a Chinese Bitcoin exchange, abruptly vanished in October, taking $4.1m-worth of deposits with it.The system itself is straining at the seams (see Technology Quarterly).The amount of computing power consumed by its transaction-verification system, which has the side-effect of “mining” new Bitcoins, is mushrooming: it now far exceeds that of the world’s 500 fastest supercomputers combined.At the same time Bitcoin’s method of recording and processing transactions, and compensating those who verify them, is becoming unwieldy.Adjusting Bitcoin’s protocols, however, requires getting the volunteers who maintain its software to agree on the necessary changes, and the Bitcoin community to adopt them, before anything goes wrong.Excitement about Bitcoin, and concerns about its limitations, have prompted the emergence of many other cryptocurrencies, or altcoins.

Litecoin, for example, retains Bitcoin’s limited money supply but offers faster transactions and is intended to prevent a computational arms-race among miners.And whereas Bitcoin was created by a mysterious figure known as Satoshi Nakamoto, who vanished in 2010, Litecoin’s creator, Charles Lee, makes no secret of his identity.Peercoin has no money-supply limit, built-in inflation of 1% and a more energy-efficient mining process, though, as with Bitcoin, its creator is unknown.Anoncoin and Zerocoin, meanwhile, strive for complete anonymity—which Bitcoin lacks.And so on.We’ve heard this song beforeBitcoin, then, is merely the first and, for the time being, the best-known example in a new category.In many ways it is akin to Napster, the pioneering file-sharing service that upended the music industry in 1999 by allowing internet users to call up almost any song at will.Though Napster, unlike Bitcoin, was illegal, it demonstrated that there was enormous demand for what it provided, prompting many other services to spring up in its wake.