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Fears over ‘bubble’ in bitcoin cryptocurrency

In 2010, Laszlo Hanyecz made the first purchase of physical ..

In 2010, Laszlo Hanyecz made the first purchase of physical goods using Bitcoin.

He paid 10,000 bitcoin for two pizzas.

Five thousand bitcoin per pizza seemed like a fair deal at the time.

Today, the same amount would buy you a Notting Hill mansion, valued at £17m. In fact, the sellers of 4 Stanley Gardens will only accept bids in bitcoin – not pounds or dollars.

It's a long journey for the currency, long favoured by hackers and libertarians, and the de facto currency of the black market of the dark web.

Bitcoin was released in 2009 by the elusive Satoshi Nakamoto, who remains unidentified today.

Image:The vendors of a £17m mansion in Notting Hill will only accept bitcoin bids

Jon Matonis, founding director of the Bitcoin Foundation, worked with Satoshi in 2010.

He said that the bitcoin breakthrough was solving one particular problem.

He said: "The double spending problem is when you have digital currencies and the holder of that digital currency can spend it multiple times without the recipient knowing that it had already been previously spent.

"It's one of the things that prevented digital currency and digital cash from taking off in the 1990s.

"So along comes bitcoin with Nakamoto consensus and in a decentralised way, everyone consolidates a consensus around the blockhain, which is a truth ledger of which bitcoins have been spent and which ones have not been."

The blockchain is what underpins bitcoin. It works because every computer that makes up the bitcoin network keeps track of every bitcoin transaction in the world, keeping everyone honest.

A poster in Moscow depicts communist leader Lenin as a champion of Bitcoin
Image:A poster in Moscow depicts communist leader Lenin as a champion of bitcoin

The foundational nature of bitcoin made it an attractive investment, as Dominic Frisby, the author of Bitcoin: The Future of Money?, told Sky News: "What bitcoin is, is a protocol. If you think when you type in a website address, you will see the words, HTTP before the website address – and that stands for hypterext transfer protocol.

"And that is the protocol by which information is exchanged over the internet.

"Now imagine if you could own shares in http, how rich would you become? Even now, 20 years after the internet entered the mainstream, it's growing all the time.

"Bitcoin is another protocol, but it's not to exchange emails, it's not to exchange information – the purpose of the protocol is to exchange payments.

"So effectively, you are owning stock in the internet of money. And how much money do we exchange?"

Investors piled in and the value of bitcoin soared, from pennies to thousands of pounds.

That makes some think the good times can't last forever.

Kadhim Shubber, a Financial Times reporter, is worried: "Bitcoin is definitely in a bubble. If you look at how much it's gone up every year, it's about 600%.

"You have to ask yourself the question, is it used by 600% more people, it 600% more useful?

"I think people should be worried and I think regulators should be worried. It's not just the wealthy and rich investing in these things.

"We're seeing celebrities endorse these projects, we're seeing ordinary people invest some of their savings, some of their income in these projects. And when it goes bust, those people are going to get hurt."

If you do have a few thousand bitcoin spare, and were looking to cash out – well, a very large house, made out of bricks and mortar, might be just the thing.

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