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Bitcoin, the encrypted virtual currency that began in 2009 and reached $1-billion in total value this week. In October of 2011, a bitcoin was trading at around $5. Today, by contrast, a single bitcoin is worth just north of $140.Zach Copley

When government interference threatens the integrity of your savings – as happened March 16 in Cyprus when President Nicos Anastasiades announced stealing from all citizens' bank accounts would cure the country's banking ills – you might lose a bit of faith in fiat currency, vulnerable as it is to the whims of politicians and centralized banks.

Hence the buzz around Bitcoin, the encrypted virtual currency that began in 2009 and reached $1-billion in total value this week. In October of 2011, a bitcoin was trading at around $5. Today, by contrast, a single bitcoin is worth just north of $140.

Of course, it's not as if throngs of Cypriots are clamouring to exchange their euros for bitcoins, but the precarious nature of the financial system in the Euro zone has drummed up more interest in the digital money, even from Americans.

"Cyprus fuelled the fire of what people have felt since the financial crisis and the housing bust – mistrust of government, mistrust of banking," said Alan Safahi, Founder and CEO ZipZap, the largest cash payment processor for Bitcoins with more than 700,000 locations globally. "It's enough to drive people away from fiat currency."

By contrast, Bitcoin, as a decentralized currency that can be freely exchanged in a p2p fashion or between consumers and merchants, is disconnected from the undulations of traditional banking system and safe from the ramifications of changing interest rates and inflation. And with a cap at 21 million bitcoins that will be issued (there are currently 11 million bitcoins in circulation), some argue Bitcoin will behave with more stability.

That's why over the last six months, Jonathan Waller, a 29-year-old Brit working in Tokyo as a video game developer, has put 95 per cent of his savings into Bitcoin. He also run the Tokyo Bitcoin Meetup group, which has had a 400 per cent increase in size since last month in light of the attention garnered from Cyprus.

"I keep an eye on the worldwide financial situation, and this is what has caused me to look for places to keep my money safe," he said. "I'm terrified about the bond situation in the U.S. and Japan, and realize this is just the beginning."

Charlie Shrem, CEO of BitInstant, a New York company that allows clients to exchange between other currencies and bitcoins, likened this recent reinvigorated attention to Bitcoin to last year's uptick from European clients. With Spain vying for a major bailout and Greece on the fritz, the euro took over 9 per cent of the Bitcoin market with surges from Portugal, Italy, Greece, Spain and the Netherlands (the U.S. dollar maintains about 70 per cent of the market). In March because of the attention around Cyprus, Shrem saw 18,000 Bitcoin customers, up from 13,500 in February. Most, he said, are experimenting by buying less than $1,000 of bitcoins, testing the waters of digital currency.

"Cyprus is opening people's eyes to what Bicoin's utility is," said Shrem. That desired utility is a cloud-based safe-haven from the currency troubles. Plus, Bitcoin's identity as a digital open source nonpolitical unit of value makes it appear a safe to the new geeks who evangelize it and have faith in its cryptography.

But is it safe?

But in June 2011, the Mt. Gox Bitcoin exchange was hacked, and on Wednesday it crashed. Last May, Bitcoinica, another Bitcoin exchange, saw a cyber attack result in 18,000 stolen bitcoins ($90,000 at the time). EU governments guarantee bank accounts for up to 100,000 euros, but purloined Bitcoins have no such safety net. Still, a proposed a hostile takeover of your bank account, like in Cyprus, isn't too safe either.

Richard Henderson, a security strategist and threat researcher with Fortinet's FortiGuard Labs, says he's concerned by botnets, such as ZeroAccess, which are being use for "Bitcoin mining."

"ZeroAccess's main raison d'etre is to mine bitcoin for its owners," Henderson said. "FortiGuard has been monitoring ZeroAccess infections for quite some time, and we're seeing linear growth of infections on the scale of about 100,000 new IPs showing infections weekly."

Despite that risk, an online purchase is considered safer with bitcoin versus a credit or debit card, according to Denis G. Kelly, a leading identity theft and fraud prevention expert.

"When using payment cards, you are required to include your account number and your billing address," Kelly said. "With this information, identity thieves are off and running. Whereas with Bitcoin, their encryption renders it so that only the owner of the bitcoins can use them."

That, though, has given bitcoin some notoriety.

Because of the relative anonymity in using Bitcoin, people can use Bitcoin to purchase drugs and arms on such sites as Silk Road.

The commodity question

Of course, it's a cost-benefit analysis.

"Government over-regulation and the population's distrust of government in general is why so many have flocked to Bitcoin as an alternative," said Jeff Ifrah, a white collar crime lawyer in D.C. who specializes in online piracy. "Is there value in Bitcoin? Value is in part in the eye of the beholder and as long as there is a perception of value and a market for Bitcoin, it will remain a viable and stable currency."

But Bitcoin is in the nethersphere between commodity and currency; the commodity value is, in fact, tethered to its value as currency. And the paranoid who are participating in capital flight might do well to view Bitcoin not as a currency alternative but as a commodity investment.

"Look at it as any kind of speculative investment," ZipZap's Safahi said. "Only invest what you can afford to lose. There might be a little bit of bubble and it might be a little ahead of itself, but it's still a good value."

READERS: Would you consider putting savings into a digital currency?