Mike Caldwell, of Casascius, makes models of Bitcoins at his home in Sandy, Utah, US, on Friday. Photo: CFP

Some say it is just a game for geeks, and others say it is a dangerous fraud.



But whatever the perspective on it, there can be no doubting the amount of global attention now being devoted to trading in Bitcoins, the world's leading "virtual currency."



Bitcoin, created by pseudonymous developer Satoshi Nakamoto in 2009, has made headlines around the world recently, after its meteoric rise in price suddenly turned into an equally precipitous drop.



Its value surged to a record high of $266 a unit on April 10 from approximately $40 in early March, but within just a few days it had plummeted back to as low as $54, according to statistics from Tokyo-based Mt.Gox KK, the world's largest Bitcoin exchange.



Despite the risk, there are still plenty of believers in the currency. After all, its value has increased 5,100-fold since it started to be publicly traded in 2010. It's also popular in China.



"It seems everyone around me has been asking about Bitcoin these days," Duan Hongbin, a financial commentator who has been trading in the currency for two years, told the Global Times Sunday.



According to data from btcchina.com, an exchange for trading Bitcoins with yuan, its trading volume surged from a few coins a day about two months ago to 14,749 coins as of 6:44 pm Wednesday, worth about 7.8 million yuan ($1.3 million).



Early adopters



When Duan first bought into Bitcoins in 2011, they were worth $20 each, and had a relatively low profile. "People thought it was crazy to spend a few hundred yuan to buy one," Duan said.



But he believed in the concept behind the currency, so he gradually bought 100 Bitcoins, even though at one point its price fell to as low as $4.5.



"Bitcoin is not just another virtual currency. It's special as it does not rely on a centralized body to issue currency and manage transactions. Instead, it is underwritten by a peer-to-peer network," Duan said.



Bitcoins are "mined" through intensive calculations carried out on computers to crack certain codes.



"I was struck the first time I saw the concept - a cash system supported by technology instead of human brains," said science fiction writer Liu Zhipeng.



Liu bought his first Bitcoin for $35 in 2011, and eventually spent 50,000 yuan ($8,085), about 80 percent of his total assets at that time, on Bitcoins.



"It is the people who favor the concept behind Bitcoin that supported its initial development," Duan said.



However, as well as tech enthusiasts, drug dealers, gamblers and corrupt officials have also been drawn to Bitcoins, hoping to take advantage of the peer-to-peer network to launder their money, Duan noted.



Growing popularity



As more people started to buy into the currency, more online stores and sites including Amazon and WordPress started to accept payment in Bitcoins. Its value increased from a few cents to a few dollars, and gradually climbed to dozens of dollars.



But it came as a surprise earlier this month when its price suddenly increased by more than 10 times to over $200.



Duan said the sudden surge was mainly due to the limited supply of Bitcoins, heightened speculation and weakening confidence in paper money.



The production rate of Bitcoins was halved in February, and the lower supply boosted prices and attracted speculators, whose participation also inflated the price, Duan said, noting the economic crisis in Cyprus was also a factor.



"People's confidence in government-backed currencies is already weaker due to the threat of inflation, as governments continuously pursue monetary easing policies. But the Cyprus crisis added insult to injury, prompting people to seek a better way to store value, and some rushed to buy Bitcoins without thinking carefully," Duan said, adding that the rising number of stores accepting Bitcoins made people feel that the currency was a safe option.



Bitcoin's price surge seemed as though it could make a fortune for investors such as Duan, who established the first Bitcoin hedge fund in China. But following the crash, the future suddenly seems less bright.



After the crash



As suddenly as the Bitcoin bubble inflated, it burst. After the price surged to $266 in the morning of April 10, it plunged over 60 percent to $105 just a couple of hours later.



"When it was put under the spotlight, it no longer seemed to be a good investment," Liu said. "Bitcoin is extremely vulnerable to speculation," he noted.



Currently, Bitcoin is traded in a non-stop global market, with no price limit or volume restrictions, making it prone to volatile price swings. The currency was also hit by hacker attacks on the Mt.Gox Bitcoin exchange, Duan said.



But the core risk of investing in Bitcoin lies in the foundation of its value.



"As a decentralized currency, Bitcoin is not guaranteed by laws or force, but wholly built on the voluntary trust of every participant. It has value only when owners trust other people's willingness to accept Bitcoins for payment," Duan said. "If the trust vanishes, you will have nothing left."



Currently, it is hard to say how long that trust will last, and Bitcoins have already faced the threat of several copycat versions.



"If a superior digital currency system emerges to replace Bitcoin, or if some genius finds a way to create additional Bitcoins, its value is gone," said Lu Zhengwei, chief economist at Industrial Bank.



If Bitcoin cannot be used as a reliable means of storing value, its function as a form of electronic payment will fade away, said Lu.



The future of Bitcoin is not only in the hands of the markets. Some are also concerned that governments could make Bitcoin transactions illegal, as it is sometimes used to facilitate drug dealing or money laundering.



The US government is showing cautious support for the currency at present, but no one knows whether its attitude will change if Bitcoin is involved in more illegal cases.



In China, Bitcoin's future is less rosy as it might pose a threat to the country's capital control policy once its market value reaches a certain level.



The future of Bitcoin is uncertain, but it could point to the future of the global monetary system.



"The true meaning of Bitcoin lies beyond itself," Lu said. "It made us think that one day we can use technology to better calculate money supply and put a lid on inflation."