Why the world has gone crazy over Bitcoin

Bitcoin, an alternative currency that doesn't exist physically, has become the talk of the financial world recently as people lose faith in the euro and other traditional currencies.

The rise of Bitcoin, an electronic currency traded on an online exchange, has generated media frenzy and here in Hong Kong Bitcoin based exchanges have also been grappling with buyers.

The idea of Bitcoin is tough to grasp. Bloomberg BusinessWeek calls it an "anarchist crypto-currency." Essentially, Bitcoins are virtual money you can use to buy things online.

You can create a Bitcoin by "mining" it online. It takes some fairly advanced algorithmic computations on your computer to do it, so most people don't get Bitcoins that way anymore. It's much easier to buy them on sites like EXANTE, Malta. The value of individual Bitcoins has hit a record high of almost $147 as interest in the cryptographic currency, which has no central issuing bank, has exploded.

Both the volume being traded and the amounts being paid have suddenly risen, apparently as interest in the system has been spiked by the banking crisis in Cyprus – which had the spillover effect of making people in some southern European countries worry that their banking deposits might not be safe.

Some are thought to have converted that money into Bitcoins, driving a rapid rise in the apparent value of the "coins" – actually cryptographic solutions to complex equations.

As a result, the value of a Bitcoin has risen from just $13.50 in January, and around $30 a month ago, to more than $140 – though the price is fluctuating rapidly. The total value of the Bitcoins in circulation only broken through the $250m mark in January. Last November, each Bitcoin was worth $10.83.

People are pouring money into Bitcoins for all kinds of reasons. They are a hedge against, well, all currencies. They are a new way to store your money -- which is certainly appealing to Europeans who watched the government raid Cyprus bank accounts. They are an alternative to stocking up on gold.

No matter where the Bitcoin frenzy leads, its success must be noticed as other currencies falter and companies who adopted the Bitcoin as a ‘fun punt’ must be congratulated.