Technical problems trigger panic sales on the Bitcoin market. The exchange rate sometimes loses more than half of its value. The Internet payment method is still considered an alternative to the euro. By Daniel Eckert
Electronic money from exchange tutorials
A cold shower for speculators, and what a shower. Investors who got into Bitcoins in the past few weeks are currently experiencing their first crash. On Wednesday evening, the price of the Internet currency briefly passed the 200 euro mark, and it has been falling rapidly since then. The prices fell to around 100 euros by Thursday afternoon – a loss of more than half within a few hours.
“It was probably inevitable that such a course correction had to come about,” says Oliver Flaskämper, head of the electronic trading platform Bitcoin.de. Many newcomers have recently not even dealt much with the idea and technology of digital money.
“Then it was all about the quick profit.” The many purchases would have resulted in rapid price increases, but this resulted in an increasing number of “shaky hands” in the market.
Product of a mysterious programmer
“Shaky hands”, that is how the late stock exchange master André Kostolany used to call speculators who sell their positions at the slightest setback and thus accelerate the downward trend. “The Bitcoin market has now had to experience that too,” says Flaskämper.
The world’s largest Bitcoin exchange Mt. Gox explained the crash in a Facebook entry as follows: The trading system had failures because it could not cope with the influx of new users. The number of transactions tripled within 24 hours. The result was a panic reaction among some Bitcoin owners, which caused the price to collapse.
Bitcoins have been around since 2009. They go back to the mysterious Japanese programmer Satoshi Nakamoto. However, the name seems to be a pseudonym. Who is really behind Satoshi Nakamoto remains a mystery. The aim was to create a digital currency that enables anonymous payment on the Internet. The basis of the means of payment with the abbreviation BTC is an algorithm that constantly generates new units on networked computers.
Encryption technology makes piracy impossible with exchange tutorials
If you want to use Bitcoins, you have to install a so-called client on your computer. The Bitcoin assets are in an electronic purse or wallet. A key generated by the client ensures that no unauthorized person has access to the Bitcoin holdings in the wallet.
A highly developed encryption technology makes piracy impossible. After the crypto currency was originally only accepted by a few online shops, there are now more than 2000 places.
In order to prevent bitcoins from inflating, the creators came up with a special trick: The arithmetic operations that produce the bitcoins are becoming increasingly complex, so that the production (mining) of new “coins” becomes more and more time-consuming over time requires more and more computing effort.
Scarce cryptocurrency attractive to speculators
Bitcoins created once can be lost, but the total number of Bitcoins created is limited. Sometime around the year 2140, the last Bitcoin will be produced with the 21 millionth “coin”. Only a few units will be created as early as 2033. This scarcity makes the cryptocurrency attractive to speculators who bet that demand will continue to rise while supply more or less stagnates.
Bitcoins are in demand on the one hand from mostly young computer freaks, on the other hand from people who attach great importance to anonymity when doing online transactions. In an Internet survey, for example, nine percent of those surveyed stated that they had acquired drugs with Bitcoins.
However, interest in anonymous financial transactions is not only increasing on the Internet. Cash has also increased in demand in recent years. In the euro zone, banknotes in circulation have increased by almost two thirds since 2005, while the money supply M3 has grown by 37 percent and the economy has only grown by 23 percent.
Trust is the critical factor
The slump in the price of Bitcoins follows a rapid rise in the price. At the beginning of the year, a Bitcoin was still being traded for around ten euros. Speculators with good timing were able to increase their invested capital twentyfold in just a few weeks. The Cyprus crisis and the discussion about state access to bank deposits brought additional interest to Bitcoins.
The current price slide is not the first crash. Already in mid-2011 there was a first euphoria, and immediately afterwards the first slump. “The Bitcoin system itself has no problems,” says Flaskämper. No matter how far the price will fall now, Bitcoin will survive. Like him, some skeptics see a need in times of ultra-loose monetary policy for an alternative form of money that cannot be increased at will.
Trust is the critical factor. In contrast to the legal tender euro or dollar, there is no obligation to accept the anarcho money. Government agencies such as the European Central Bank or the American financial supervisory authority are critical of Bitcoins because of the possibility of using them for money laundering and drug deals. In case of doubt, users are dependent on selling their holdings via the electronic exchanges.
Internet exchange was not available in parts
It is therefore all the more bitter for Bitcoin investors that during the current crash, the electronic exchanges temporarily failed, so that trading was not possible. “Like many other Bitcoin services, we had major performance problems when the price fell,” admits Bitcoin.de boss Flaskämper. Mt. Gox said it was able to handle most of the transaction.
However, the website was temporarily unavailable. Now additional servers are to be installed to cope with the rush. Bitcoin.de announced that it would put additional servers into operation on Thursday “in order to improve accessibility and use of the marketplace.”
