The price of bitcoin and other cryptocurrencies has been rising rapidly in recent times. The origin of “Bitcoin Pizza Day,” which is celebrated on 22 May every year, probably best illustrates how fast bitcoin – the world’s most popular cryptocurrency – has appreciated in value.
A little over seven years ago when bitcoin had been around for about a year, programmer Laszlo Hanyecz bought two Papa John’s pizzas by paying in bitcoin. The bill was US$25. Using the exchange rate prevalent at that time, Hanyecz had to pay 10,000 bitcoin – that’s worth about US$72 million today.
Although the prices of bitcoin and other cryptocurrencies have skyrocketed, the cryptocurrency market has a dark side too. MWR InfoSecurity, a firm that specialises in cybersecurity, points out that virtual currencies are allowing criminals greater freedom to operate. Some cybercriminals have even demanded ransom in cryptocurrencies. A recent poll commissioned by Citrix, an American software company, found that British IT managers were stockpiling bitcoin to pay ransom demands in case their computer systems were hacked.
But despite the fact that some criminals are taking advantage of the anonymity that virtual currencies offer, bitcoin, ripple, and many of others are gaining widespread acceptance. Japan, for example, has legalised bitcoin exchanges and brought them under money laundering/know-your-customer rules. About a third of worldwide trade in ethereum, the second-most popular virtual currency, takes place in Korea – the country is home to three of the world’s top five ethereum exchanges.
Cryptocurrencies are also increasingly being used for commonplace transactions. A few months ago, a London property developer announced that tenants could pay their deposits in bitcoin, and said that it would also accept rent payments in the cryptocurrency.
However, many people (including some Wall Street titans) think that soaring virtual currency valuations are a bubble that will eventually burst. Larry Fink – the CEO of the world’s largest asset management firm, BlackRock – recently called bitcoin an “index of money laundering.” Jamie Dimon – the CEO of JPMorgan, the biggest US bank – has also slammed bitcoin, labeling it a “fraud” and predicting that it will “blow up.”
Most observers seem to agree, though, that the blockchain technology on which virtual currencies are based holds great promise, and has the potential to disrupt many well-established industries including financial services.
Are cryptocurrency prices rising because the technology that they are based on is so valuable? Or are prices shooting up due to speculators looking to make quick profits? Whatever the reason, early investors have made tremendous returns. The gains that cryptocurrencies have made in the last year have beaten other asset classes by a wide margin.
Here we examine how the top five (in terms of market capitalisation) cryptocurrencies have fared in the last 12 months, to see how rich you would be if you had invested US$1,000 in these digital currencies a year ago.