Bitcoin is a fantasy. The Internet’s currency—a secure, private, decentralized type of money that makes possible anonymous and virtually costless transactions across borders—contains the seeds of its own destruction. More than anything else, it resembles a Ponzi scheme—and the wild claims made on its behalf reveal a great deal about a libertarian strain of thinking with deep roots in the American psyche.

As Farhad Manjoo relates in his entertaining (but dubious) foray into the market, bitcoin is the brainchild of a person (or persons) called Satoshi Nakamoto. Computer users can “mine” bitcoins by instructing their computers to solve complex problems generated by the bitcoin network. As more bitcoins are produced, the problems become more complex, requiring more computer power to solve them, and this limits the total number of bitcoins that can be created over time. Bitcoins are themselves simply strings of numbers. Once you own a bitcoin, you can transfer it to someone else (as a gift or to purchase goods) over the Internet. You can also convert it into dollars or other currencies on various exchanges. A central registry keeps track of where the bitcoins are located, so you cannot spend a single bitcoin over again by trying to transmit the identical code.

The currency was launched in 2009. It has traded for less than 1 cent. As recently as a year ago, a bitcoin was worth less than $5; this week the price of a bitcoin reached $266, an increase of more than 1,000 percent over the last three months, but then yesterday plunged to $105 before finishing off at $165 last I looked. More than 11 million bitcoins circulate, and so their aggregate value is fluctuating between $1 and $2 billion—a tiny fraction of the trillions of dollars in currency but not bad for the infant brainchild of an anonymous brain.

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