Virtual currency bubble begins to burst

Sign up for a free trial of News Direct's animated news graphics at http://newsdirect.nma.com.tw/Reuters.aspx

For story suggestions please contact tips@nma.com.tw

The value of Bitcoin, a digital currency that was created four years ago, suffered a sudden crash in value this week. Bitcoins have surged in value almost 20-fold this year, but plunged 60 percent on Wednesday in just five hours. They hit US$266 earlier in the day, dropping to $105 in afternoon trading before bouncing back the next day, fluctuating around 35 percent below the $266 high point.

Bitcoin is a currency created by an anonymous hacker. It aims to eliminate the need of a third-party to mediate online transactions. Bitcoin users trade anonymously as the currency is transferred between addresses. Each address is a randomized string of 25 to 34 characters.

Cash is required in order to acquire Bitcoins. Users can exchange traditional currencies, such as US Dollars, Australian Dollars and Euros for Bitcoins via online trading accounts. Another way of acquiring Bitcoins is through "mining". Bitcoin-mining means users have to generate the number that the Bitcoin network is looking for by running a software called Bitcoin Miner. Twenty-five Bitcoins will be rewarded to each successful decryption.

The total number of Bitcoins will never exceed 21 million. Currently, there are around 11 million Bitcoins in circulation and 25 new bitcoins are produced every 10 minutes.

This animation explains how Bitcoins are acquired and how to perform online transactions.