Controversial electronic currency Bitcoin has lost half its value on Wednesday due to a panic sell-off.
Bitcoin shot to mainstream financial attention this year after its value increased by up to 1,000% in 2013 on the back of the Cyprus financial crisis.
However, from a high of $260 (£169) for each Bitcoin, the value dropped to about $130 (£84) in just six hours.
The selling frenzy began as Bitcoin’s main exchange, MTGox, struggled to keep up with the volume of trade in the virtual currency.
In a statement explaining what happened, MTGox said the delays in trading had not been caused by a hack attack. In the past few weeks the exchange, and the bitcoin community, has been targeted by hackers looking to cash in.
Instead, said MTGox, the “rather astonishing” number of new accounts that had been opened in the past few days caused a bump in trading volumes that it was unprepared for. In one day, the number of trades in Bitcoins had tripled, it said.
This caused “lag” or delay, which meant that Bitcoins were not swapped between people as fast as needed.
“As expected in such situation people started to panic, started to sell Bitcoin in mass (panic sale) resulting in an increase of trade that ultimately froze the trade engine,” it said. About 80% of all the trade in Bitcoins goes through MTGox.
Engineers were working to improve the MTGox trading engine to handle the huge number of transactions, it said. The exchange added that it was planning to shut down for a couple of hours to add servers to help cope with the load.
What is Bitcoin?
Introduced in 2009 by a mysterious programmer known only as Satoshi Nakamoto, Bitcoin is a decentralised virtual currency, meaning neither does it exist in the physical world, nor does it have a central bank such as the Federal Reserve or the Bank of England.
Bitcoin uses peer-to-peer networking and digital signatures where the money supply is automated and given to servers known as ‘bitcoin miners’. Bitcoins, in blocks of 25, are awarded to these miners when their computer generates a 64-digit number from a complex algorithm. It is helpful to think of bitcoin more as a commodity being mined rather than a traditional currency of which central banks can always create more of.
Watch this BBC video explaining how Bitcoin works, and why it has become popular, here:
www.bitcoin.org
