As bitcoin prices crash amid growing regulatory glare and emerging risks, the number of other virtual currencies present in the world-wide-web has reached 121 and one of them is trading above $100,000. The bitcoin rate at its largest exchange Mt Gox has crashed below $100 level amid certain "security issues", while its average price across all exchanges has also dropped to near $500 apiece.
But the number of bitcoin-like virtual currencies continue to surge despite rising volatility in prices, security issues, hacking attempts and continuing crackdown by regulators and law enforcement agencies in different parts of the world. Alternatives such as potcoin, olympiccoin, teslacoin, and pandacoin, grandcoin, phoenixcoin and astrocoin — named after animals, famous events, scientific terms and just about anything under the sun — are cropping up at a feverish pace.
One such alternative '42 Coin' is trading at nearly $104,000 apiece. At last count, 122 of them, including Bitcoin, were there. At this pace, the number of virtual currencies may soon be more than that of all real currencies of the world. However, prices of these virtual monies, backed by neither governments nor by any real assets, have started to show cracks. Bitcoin, the most popular among all of them and accounting for over two thirds of total virtual currency volume, has fallen the most to an average price of $550. The prices were at lofty highs of $1200 apiece in late 2013 after trading below $100 for most part of 2013.
According to market estimates, the collective valuation of all virtual currencies put together has dropped below $10 billion level, from about $13 billion at the beginning of this month. The slide can be attributed to panic selling of bitcoins after some popular platforms halted withdrawals while others were hacked by cyber criminals who stole coins worth millions of dollars. At end of December 2013, there were total 67 virtual currencies in the market, while the number was in single digit about four years ago as virtual currencies could not strike a chord among users amid a global financial crisis.
The renewed proliferation of new currencies is being linked to the complexities involved in the way bitcoin is 'mined' and the newer avatars are comparatively much easier to create, word-of-mouth publicity and a rush of speculators has ensured they are catching up much faster, traders said. The rapid growth of virtual currencies has also shone light on the illegal acts being committed with such systems.
From being used in Ponzi schemes, as ransom for holding files hostage in computers and to facilitating criminal transactions, virtual currencies are the medium of choice for anonymous faces looking for a way to transfer monetary values across the world without being detected.
The total value of bitcoin and other such virtual currency
The total value of bitcoin and other such virtual currency trades in India is estimated to be worth only a few crores of rupee as of now, but their usage seems to be growing and NRIs living abroad are expected to be dealing with virtual currencies in a big way. After RBI and other central banks across the world warned financial intermediaries about dealing with virtual currencies through traditional channels, the buzz around such denationalised currencies, which are not backed by any assets, had tempered for some time.
Still, virtual currencies are increasingly being used to pay for goods and services with retailers, restaurants and entertainment venues, while products like bikes and furniture are also being sold online for these currencies. At the same time, people are trading in bitcoin in hope of gains from price appreciation as well, while the internet is full of surveys and predictions by little-known research firms forecasting prices like $10,000 by 2014, $20,000 in a few years and even a rate of $100,000 eventually.
However, experts and regulatory officials feel different virtual currencies expose users to unintended risks and also losses arising out of scams perpetrated by cyber criminals looking to make a quick buck. While most platforms require users to upload images of government photo IDs (passport, driver's licence etc), proof of address documents (utility bill, vehicle registration etc) as well as online banking account details, the under-ground market is teeming with unscrupulous operators.
After suspending their operations for a few weeks amid growing regulatory glare, many bitcoin operators have cautiously resumed courting business from their clients and some new players have also come to fore in India. At the same time, many bitcoin operators and even some corporate houses have recently stepped up their lobbying for a clear regulatory framework on digital currencies in India.