You may have noticed reports about Bitcoin’s value recently – its price is headed into the stratosphere.
The crypto-currency’s recent meteoric price rise over the summer has seen one Bitcoin go from being worth $1,500 in early May to more than $5,000 over the weekend, before dropping to $4,654 at the time of publication.

And that has got all kinds of people interested – people like Andrew Beckwith, a DJ who goes by the name Supersede. “I play restaurants, lounges, nightclubs, corporate events,” he says.

But he also invests. Beckwith has just taken his first step into the world of crypto-currencies, having converted $100 into Bitcoin.

“I don’t know how far it’s going to grow,” he explains, “but if something is growing at hundreds of per cent, that’s a pretty valuable return.”

Bitcoin is notorious for its volatility, but the recent peaks are unprecedented. In late 2013 its value jumped from around $100 to $1,000 – a bigger percentage increase – but it is worth more than four times that today.
“Recently there’s been a lot more talk in the media and others have been investing,” explains Kiran Varughese, another amateur investor, who works for an elevator company in Dubai.

A friend’s experiments with Bitcoin piqued his curiosity so he clubbed together with another pal to invest $1,000 in August. If they lose it, he says they won’t be too worried – the potential for a big return within the next few years is too tantalising for Varughese to resist.

But are investors like Varughese and Beckwith taking too much of a risk by buying into Bitcoin, and other crypto-currencies like Ethereum, Litecoin or Dash? Is there something about these digital currencies that underpins their soaring prices or are they simply subject to whims in the market that can make fortunes but also devastate them?

While the market capitalisation of all crypto-currencies now stands at $150 billion, they still occupy a strange space in the world of finance.

“Every year Bitcoin continues to exist is something to take note of,” says Garrick Hileman, a research fellow at the Cambridge Centre for Alternative Finance at the University of Cambridge. “It’s a significant achievement for Bitcoin to have survived the many setbacks and challenges that it has faced.”

One of these challenges occurred recently when Bitcoin split in two. It happened after the Bitcoin community became divided over how to allow more transactions to be processed with the currency. Because Bitcoin has no over-arching authority that controls it, any decision to alter the system that underpins it needed to gather enough support from Bitcoin users to go ahead. The system itself is called the blockchain – a huge digital ledger that records every single Bitcoin transaction in history.