|Concern about the stability of Bitcoins, the virtual currency, rose yesterday after disruptive cyber attacks on two major service providers came alongside renewed warnings of a bubble.
Tokyo–based Mt.Gox, the dominant Bitcoin exchange, said its systems were attacked with a technique aimed at overwhelming targets with internet traffic and forcing them offline.
And Instawallet, a website that allows Bitcoin traders to store and spend their currency, shut down indefinitely after hackers gained access to its database.
The double blow failed to wipe out huge gains made by the currency since the beginning of March. Bitcoins were changing hands yesterday for more than $138, not far shy of the $147 record set on Wednesday. A month ago they cost around $30.
The value and volume of trading has risen since the Cyprus banking crisis, with speculators betting on more money coming into the Bitcoin market. Critics say that since the currency has no central issuer and is accepted by few businesses, it is ideal for money laundering.
They also suggest that the lengthy way in which new Bitcoins are generated by a computer algorithm creates a pyramid scheme effect, with early entrants the greatest beneficiaries. Later investors will take their money out and the bubble will burst. But the market is worth more than $1bn and is gaining attention from financial firms.
"With confidence in this Bitcoin potentially increasing, the market actually starts building up its intrinsic value as a means of exchange, which might eventually make it potentially more stable in the long term," said Sebastien Galy, a currency strategist at Societe Generale.