The unit broke the $1,100 barrier on the Bitcoin Price Index, an average of major exchanges, to continue a dizzying rise that made it the best performing currency of 2016.

Bitcoin neared record highs on Thursday with the surging digital currency tipped to become a new safe haven asset as the world grapples with growing economic uncertainty.

The unit broke the $1,100 barrier on the Bitcoin Price Index, an average of major exchanges, to continue a dizzying rise that made it the best performing currency of 2016.

It has fluctuated wildly since it was created in 2009 and lost three quarters of its value when it plummeted from its previous BPI high of $1,165.89 in 2013.

And news of a major bitcoin theft by hackers in August 2016 sent its price plunging by more than 20 per cent.

But analysts say its volatility will ease as volumes grow and point to a strengthening U.S. dollar and tightening currency and capital controls, as well as the rise of the digital economy, as major factors.

The chaotic withdrawal of high value bills in India and restrictions on buying foreign currency in China as the yuan slides against the dollar have also stoked demand, analysts say.

Exacerbating the rocketing demand is a tightening supply of fresh bitcoins.

The currency was always meant to have a finite number created, and more than three quarters of the planned 21 million bitcoins have already been “mined”.

Encrypted digital coins are created by supercomputers and then traded online or exchanged for goods and services.

Vinny Lingham, a bitcoin expert and CEO of U.S. digital identity protection startup Civic, cited the strengthening dollar and uncertainty in emerging markets around U.S. President-elect Donald Trump as boosting the currency’s value. He has predicted bitcoin will be worth about $3,000 by the end of 2017.

“Bitcoin is reacting as a safe haven,” he said.

Bitcoin now has a total market capitalisation of about $18 billion — far more than other so-called “crypto-currencies” although a fraction of the value of other globally traded commodities.

Bitcoin: some key questions

This August 3, 2016 illustration shows a Bitcoin sign in Hong Kong.

What is a Bitcoin?

Bitcoin is a virtual currency that is created from computer code. Unlike a real-world currency such as the U.S. dollar or the euro, it has no central bank and is not backed by any government.

Instead, its community of users control and regulate it. Advocates say this makes it an efficient alternative to traditional currencies because it is not subject to the whims of a state that may wish to devalue its money to inflate away debt.

Just like other currencies, bitcoins can be exchanged for goods and services — or for other currencies — provided the other party is willing to accept them.

Where does it come from?

Bitcoin was launched in 2009 as a bit of encrypted software written by someone using the Japanese-sounding name Satoshi Nakamoto.

In 2016, secretive Australian entrepreneur Craig Wright said he was the creator, but some have raised doubts over his claim.

Also Read Craig Wright ticks the right boxes for being Bitcoin founder: Dominic Frisby

Other digital currencies followed but bitcoin was by far the most popular.

Transactions happen when heavily encrypted codes are passed across a computer network. The network as a whole monitors and verifies the transaction in a process that is intended to ensure no single bitcoin can be spent in more than one place simultaneously.

Users can “mine” bitcoins — bring new ones into being — by having their computers run complicated and increasingly difficult processes.

However, the model is limited and only 21 million units will ever be created.

What’s it worth?

Like any other currency, it fluctuates. But unlike most real-world analogues, bitcoin’s value has swung wildly in a short period.

When the unit first came into existence it was worth a few U.S. cents. Its price topped out at $1,165.89 on the Bitcoin Price Index, an average of major exchanges, in 2013.

At around 4.30 a.m. GMT (10 a.m. IST) on Thursday, a single bitcoin was worth about $1,140 on the BPI.

There are presently more than 16 million units in circulation. Some economists point to the fact that because it is limited its price will increase over the long run, making it less useful as a currency and more a vehicle to store value, like gold.

But detractors point to bitcoin’s volatility, security issues and other weaknesses as flaws that will eventually undermine it.

Why has its value risen in recent months?

Analysts have suggested a number of reasons, including investors buying bitcoins as a hedge against currencies that are weakening against the U.S. dollar.

Other reasons include the currency turning into a virtual safe haven at a time of global economic uncertainty sparked by factors such as Mr. Trump’s U.S. election victory, as well as country-specific issues such as the chaotic withdrawal of high-value notes in India, and Chinese controls on the purchase of foreign currency.

The currency may also have been strengthened by the rise of digital payments and the dwindling supply of new bitcoins.

What’s the future?

Some commentators say that like many technological developments, the first iteration of a product will encounter difficulties, possibly terminal ones. But the trail it blazes might smooth the way for the next crypto-currency.

Problems include an apparent vulnerability to theft when bitcoins are stored in digital wallets.

A major Hong Kong-based bitcoin exchange suspended trading in 2016 after $65 million in the virtual unit was reportedly stolen by hackers.

The virtual currency movement also faces legitimacy issues because of the way it allows for anonymous transactions -- the very thing that libertarian adopters like about it.

Detractors say bitcoin’s use on the underground Silk Road website, where users could buy drugs and guns with it, is proof that it is a bad thing.

If bitcoin does become more widely accepted, experts say, it could lead to more government regulations, which would negate the very attraction of the bitcoin concept.