Drivers and risks of the cryptocurrency boom

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AN HOUR AGO Hannah Murphy in London 51 comments
The mushrooming prices of cryptocurrencies are prompting volatility-starved investors to examine ways to join the biggest speculative boom since the dotcom fever.

The best known, bitcoin has in the space of 24 hours this week broken the $10,000 milestone and powered towards $11,500, having only touched $2,000 for the first time earlier in the year.

What is a cryptocurrency?

Sometimes known as coins, cryptocurrencies are a 21st century creation — a mixture of digital assets, huge amounts of computing power and a network of servers on which to store shared data.

Unlike everyday money, they are decentralised — meaning they are not issued or guaranteed by a central bank and therefore fall outside the purview of regulators. The currencies are secured against hacking by cryptography and can be converted into real-world money anonymously. This has attracted some criminal elements, a point emphasised by regulators and critics.

Apart from bitcoin, other cryptocurrencies have risen dramatically this year, including Ethereum, Ripple, Litecoin and Dash. They have different characteristics, which allow users to treat them very differently. That, in turn, partly underpins their appeal and valuations. Bitcoin sees itself as an alternative to central bank currency; Ethereum as “crypto-fuel” that is not to be used as a currency. Ripple is software aimed at financial markets, such as foreign exchange.