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Bitcoin's Rising Value Could Be Good News, But Might Not

MARY LOUISE KELLY, HOST:

This year, the price of the digital currency bitcoin has gone up more than 1,200 percent. A single bitcoin is now worth more than $13,000.

KELLY MCEVERS, HOST:

NPR's Uri Berliner is here with us now to talk about it. Hey, Uri.

URI BERLINER, BYLINE: Hey, Kelly.

MCEVERS: So explain what's happening. Why is this happening?

BERLINER: Well, there's a lot about bitcoin that's very opaque, like exactly who's buying and who's selling. But lately there's been this frenzy. Investors just keep pouring in, buying bitcoin, especially in Asia, in countries like Japan and South Korea.

MCEVERS: Right. So it seems like this kind of obscure thing, but people feel pretty strongly about it - right? - pro and con.

BERLINER: Yeah. There's a lot of passion. If you just mention bitcoin to people in the financial world, you're going to get an earful. So Jamie Dimon - he's the CEO of JPMorgan Chase. He famously called bitcoin a fraud. But at the same time, there's a lot of big money in it like hedge funds. And the Winklevoss twins - remember them from the early days of Facebook?

MCEVERS: Uh-huh.

BERLINER: They've been major backers of bitcoin. So - and later this month, there are going to be two major exchanges in the U.S. that will let people trade in bitcoin futures.

MCEVERS: So just quickly remind everyone what exactly bitcoin is.

BERLINER: It's a digital currency. It was created right after the financial crisis, so it's still new. No government in the world controls it, nor does any bank. You basically buy and sell bitcoin on digital exchanges.

MCEVERS: And then of course here's the big question. Is this a bubble? Is this 1,200 percent increase a bubble?

BERLINER: So I'm going to lay out the arguments for and against. Here's the bubble argument. The value of bitcoin has skyrocketed more than 1,200 percent just this year alone. Nothing can go up the way it has. And the skeptics say it's got to crash. And they point out that bitcoin's got this pretty sketchy history of being used by criminals and hackers. And you can't really use it like regular money. You can't use bitcoin to go out and buy a burger.

The argument for why it's not a bubble - bitcoin is based on a revolutionary technology. Users say it's got this very effective system for verifying transactions. And bitcoin believers point out that this currency's not tied to the whims of any government. And they say that's a good thing.

MCEVERS: So I mean, should people invest in bitcoin?

BERLINER: Well, people normally invest in things like stocks, bonds and real estate, things that have been bought and sold for a very long time, so there's history to fall back on. That gives you a sense of how risky these assets might be. Remember; bitcoin has only been around since right after the financial crisis, so it had some really dodgy early moments and then this incredible run-up in prices. But really there's no guardrail with bitcoin. There's no history or track record to fall back on.

MCEVERS: We've been hearing that bitcoin uses a lot of energy. What's that about?

BERLINER: Well, the whole bitcoin ecosystem gobbles up a huge amount of computing power. That's because all bitcoin transactions need to be verified. It's a complicated process using software and high-powered computers. And there are these servers around the world dealing with bitcoin. Now, just how much energy the bitcoin system uses is hard to say, but there is one estimate that says it's about as much as the entire country of Denmark.

MCEVERS: NPR's Uri Berliner, thank you.

BERLINER: You're welcome. Transcript provided by NPR, Copyright NPR.

As Senior Business Editor at NPR, Uri Berliner edits and reports on economics, technology and finance. He provides analysis, context and clarity to breaking news and complex issues.