Silicon Valley and Wall Street are taking note of bitcoin, which has drawn prominent investors like the Winklevoss twins, Nathaniel Popper and Peter Lattman report on Friday in The New York Times.
The twins, Cameron and Tyler â€" Olympic rowers, nemeses of Mark Zuckerberg â€" are the first prominent figures in the largely anonymous bitcoin world to publicly disclose a big stake. They say they own nearly $11 million worth. Or at least $11 million as of Thursday morning, when trading was temporarily suspended after the latest and largest flash crash left a single bitcoin worth about $120 and the whole market worth $1.3 billion. At one point, the price had plummeted 60 percent.
To skeptics, the frenzy over the bitcoin network, which was created by anonymous programmers in 2009, looks more like the mania for Dutch tulip bulbs in the 1600s than the beginnings of an actual currency. “To say highly speculative would be the understatement of the century,†said Steve Hanke, a professor specializing in alternative currencies at Johns Hopkins University.
Whatever else it is, bitcoin has become the financial phenomenon of the moment. In addition to the Winklevoss twins, Silicon Valley investment firms, while not holding bitcoins, are starting to show interest in the technology. On Thursday, a group of venture capitalists, including Andreessen Horowitz, announced that it was financing a bitcoin-related company, OpenCoin.
The Winklevosses say this week’s tumult is just growing pains for a digital currency that they believe will become a sort of gold for the technorati. “People say it’s a Ponzi scheme, it’s a bubble,†said Cameron Winklevoss. “People really don’t want to take it seriously. At some point that narrative will shift to ‘virtual currencies are here to stay.’ We’re in the early days.â€
While little is known about the creator of bitcoin, or whether it even was a single person, the work involved serious programming chops, building a system that could live on borrowed computer space around the world. It was determined that only a finite number of bitcoins could be created â€" the count is currently around 11 million. New coins are “mined†by programmers who solve mathematical riddles and can sell their coins on upstart exchanges.
For now, there are few places where bitcoins can be used. One marketplace is an online bazaar, Silk Road, where narcotics are reportedly the main wares for sale. But bitcoin believers imagine a future where the e-cash can be used at their local Starbucks. The Winklevosses have paid in bitcoin for the services of a Ukrainian computer programmer who has worked on their Web site.
