Winklevosses Turn Up in Bitcoin Turmoil

PHOTO: Tyler Winklevoss and Cameron Winklevoss attend EPIX and Vanity Fair present the premiere of "Everything Or Nothing: The Untold Story Of 007" after party at Metropolitan Club on Oct. 3, 2012 in New York City.
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The Winklevoss twins, whose legal battles with Facebook co-founder and CEO Mark Zuckerberg were made famous by the movie "The Social Network," are now in the news for spending some of that settlement money on bitcoins.

Bitcoin is a decentralized, purely electronic alternative "currency" created in 2009. Interest in bitcoins has increased, in part, from U.S. and international investors' growing concerns over the euro crisis that has gripped Cyprus and the European Union.

Bitcoins have become popular because they are controlled by an open-sourced algorithm, not under the influence of any nation, particular body or government. That algorithm--meant to control the supply of the digital exchange method--has been the subject of controversy because of wild daily swings in the stated value of the so-called currency.

Tyler Winklevoss told the New York Times, "We have elected to put our money and faith in a mathematical framework that is free of politics and human error."

The twins said they own about $11 million worth of the digital currency, though with the gyrations it's not clear if that's a current value. Attempts by ABC News to contact the brothers were not successful.

Of course this wouldn't be a Winklevoss story without a little tough luck. This week, bitcoin hit its all-time high of more than $240 U.S. dollar exchange rate, but plunged to under $90.

"People say it's a Ponzi scheme, it's a bubble," Cameron Winklevoss told the New York Times. "People really don't want to take it seriously. At some point that narrative will shift to 'virtual currencies are here to stay.' We're in the early days."

Gabriel Sukenik is the director of Coinapult, a free service that allows users to send bitcoin currency to anyone with email or mobile text messaging. On the topic of the famous twin's new investment in bitcoin, Sukenik said, "If the Winklevoss' see a future where more people are using bitcoin than today, then why wouldn't they want to invest?"

Sukenik does see a future in the digital currency. "Just as people have trust in the physical qualities of gold, a lot of people are starting to have trust in bitcoin's mathematical qualities," he said. Sukenik says the way in which bitcoin can be transferred peer to peer, and usually without fees, gives it a one-up on almost all other forms of currency.

"Even if we were just talking about the money moving protocol of bitcoin, it's valuable...There's no need for Western Union, PayPal, or even a bank," he explained. "As you're seeing, venture capital firms are looking at this. They're considering the currency transfer aspect, too."

There are over 11 million bitcoins in existence today, with 25 new bitcoins being created every 10 minutes. The formulation by which new bitcoins are created is complicated. It involves computer algorithms running for long periods to create the currency.

The formula dictates that the quantities released would regularly be halved (the last time being when the total number reached 10.5 million last year) until the preordained circulation number of 21 million bitcoins is reached in 2140, according to a report by Wired.

But at its heart, there's nothing backing bitcoin at all. No government guarantee to pay, no gold or silver, no land or property.

Even Bitcoin warns on its site: "Bitcoin should be considered as a high risk asset, and you should never store money that you cannot afford to lose with Bitcoin."

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