Use caution before joining bitcoin frenzy

Personal Finance


The total value of all bitcoins in existence (roughly 16.6 million) stands at about $86 billion. Add in the other few hundred cryptocurrencies and it’s a $155 billion market.

Yet these new assets comprise just a fraction of the world’s multitrillion currency market. And as a new asset with a smaller pool of investors, cryptocurrencies are subject to wild swings in value. In the last week alone, for instance, one bitcoin has ranged from Thursday’s high of more than $5,200 to a low of about $4,200.

It’s also largely unpredictable which digital currencies will have staying power. Like any new market — remember all those dot-com busts? — it can take years for a shakeout and for lawmakers and regulators to figure out their oversight approach. Already, the anonymity that comes with these digital transactions raises concerns about money laundering and the funding of illicit activities.

Another major difference is that bitcoin’s creation, value and integrity come from complicated, mathematical wizardry, known as “blockchain” technology, which regulates the creation of new units and essentially ensures the security of every transaction involving the digital currency.

Basically, new bitcoins come into circulation via so-called miners, who use dedicated computer hardware and software to help create new bitcoins. (See chart below.) When 21 million units are reached, expected in 2040 or so, no more bitcoins will be created.



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