Bitcoin - a currency free of banks - might have a powerful appeal. But John Gray wonders whether it could become a victim of its own success.
Recent events on the small island of Cyprus were always going to have a large impact, but I doubt if anyone suspected the effect would be to boost the growth of a new kind of money.
When the new Cypriot president announced in mid-March of this year that the bailout of the country's banks would be funded by seizing a percentage from the accounts of all depositors, there was an outcry.
The Cypriot parliament refused to support the policy, which was withdrawn and replaced by a levy on substantial deposits, limits on withdrawals and controls on capital leaving the country.
European officials dismissed suggestions that seizing the assets of depositors would be any part of future bailouts. But the damage had been done. Within days of the Cypriot president's announcement, the price of the digital currency Bitcoin began a rapid rise. Fleeing banks and the risk of governments seizing savings, people were switching into a currency that exists only in cyberspace.
Cyber money of this kind has a powerful appeal. Traditional currencies such as the pound, the dollar and the euro are issued by central banks and - with the exception of the euro - each of them is backed by a national government. This may seem an advantage but nowadays currencies that are created and ultimately controlled by governments are less trusted than they used to be.
While the policies that were adopted in the wake of the financial crash may have saved the world from a rerun of the 1930s, they also mean that money is steadily losing its value as a store of wealth. With near-zero interest rates, small savers are robbed as surely as they would have been if the original Cypriot plan had been implemented, just more slowly.
Some try to find shelter in the stock market, but shares have not always given protection against rising prices, and many people can't afford to put their capital at risk in this way.
Some seek safety in gold, which functions more like a currency than a commodity and has the advantage of being a finite resource that cannot be created out of nothing like paper currencies. But while gold cannot be printed by governments, it has in practice been closely controlled by them.
It has even been claimed that the price of gold has been manipulated, with some suggesting the current sell-off has been somehow orchestrated - an idea that may be mistaken but doesn't seem quite so outlandish now that we know lending rates between banks were for a time rigged on an enormous scale. If you mistrust the financial system, it's not obvious that gold can offer a way out.
This is where Bitcoin - which some of its supporters describe as digital gold - comes in.
First devised and launched in 2009 by a mysterious figure going under the name of Satoshi Nakamoto, the cyber-currency is set up to be independent of monetary authorities and banks.
Using publicly available software that operates via a network of about 20,000 powerful computers, units of the cyber-currency are created by the application of a mathematical formula in a process known as "bitcoin mining". An upper limit of units is built into the software. Unlike currencies controlled by governments, which can be issued in unlimited quantities, only about 21 million bitcoins can ever be mined.
This means they can't lose value by inflation as all forms of paper money have done over time. Just as important, Bitcoin users needn't entrust their money to banks which will lend it out to others - at times recklessly. Equipped with cryptographic features that promise anonymity, this is a kind of money that seems immune to loss.
The appeal of Bitcoin comes from the belief that it enables those who use it to step outside the shaky structures of global finance. But is this faith well-founded?
The currency has been criticised as a tool of speculators and money-laundering and its value has oscillated wildly as a result of hacking. Some have condemned it as a Ponzi scheme or a speculative bubble, like the mania for tulip bulbs that raged for a few years in 17th Century Holland.
Others have pointed out that since the supply cannot be increased beyond a predetermined point, Bitcoin could be more deflationary in its effects than gold.
If it's successful, the currency will be hoarded and become more valuable than productive economic assets. Yet if these are some of Bitcoin's limitations, they are not the most fundamental. The true flaw of this and any other virtual currency is that it cannot deliver its users from the hazards and conflicts of the real human world.
The emergence of Bitcoin confirms that money need not be created by government. Anything people come to view as money can serve some of money's functions without any governmental authorisation.
Cigarettes are widely used in prisons as a medium of exchange, and paper currencies have been accepted as money even when they no longer had government backing. After the first Gulf War in 1991, dinars that had been withdrawn by the government of Saddam Hussein were used in Kurdish-controlled northern Iraq.
Called "Swiss dinars" because they were printed with plates from Switzerland, this illicit currency was soon worth far more than the government-backed dinars Saddam was printing in vast quantities. Swiss dinars remained in use until a new national currency was established following the American-led invasion of 2003 in which Saddam was overthrown.
A virtual currency such as Bitcoin attracts users because it's not subject to any government. At the same time, it needs a margin of freedom in which to operate, and this freedom will be at risk if the financial crisis worsens.
When these crises threaten to get out of hand, governments have a habit of confiscating not only the bank accounts but also the freedoms of their citizens. We're unlikely to see anything like the dictatorships that emerged from the chaos of the 1930s but it's entirely possible that democratic governments will feel the need for controls of the kind that European officials have imposed in Cyprus.
Bitcoin's users believe it can give them protection against such incursions. But governments today have formidable tools of electronic surveillance at their disposal, and it would be unwise to assume that virtual currencies are beyond their reach.
Bitcoin embodies a kind of cyber-anarchism; the idea that the decentralised networks of the internet will enable the ideal of freedom from government, which has eluded so many revolutionaries in the past, to be finally realised.
It's a philosophy that shares the fatal illusion of anarchism in all its varieties, the notion that most human beings actually want freedom from government. Invading personal freedom in times of crisis isn't always unpopular - far from it. Not only during the 20th Century but throughout history, human beings have turned to governments, and often to tyrants, for protection and security. The safety they are looking for may be just a mirage. That hasn't stopped them wanting it.
Believers in Bitcoin are confident that it can protect them not just from governments but also against humankind as a whole. Instead of relying on politicians and bankers, or the vagaries of democracy, Bitcoin's users put their faith in the laws of mathematics.
For them the cyber-currency is governed by an incorruptible formula that - like the eternal forms envisioned by Plato, immaterial abstract ideas standing outside of time - is untouched by human error and folly.
The trouble is that unlike the tranquil spiritual ether imagined by the ancient Greek mystic, cyber-space is all too clearly a human artefact. A site of unceasing warfare - abounding in worms and viruses, vulnerable to attack and decay, and needing scarce resources and energy to operate - the virtual realm of the internet is a projection of the human world with all its conflicts.
A virtual currency can't escape the dangers of actual societies. Cyber money may have many practical uses and provide an alternative to banks. It can't be a way out from history's intractable dilemmas.
How Bitcoin will develop cannot be known. Quite possibly it will crash and fail, be supplanted by rival virtual currencies or else shut down by governments because it is succeeding too well.
Whatever happens, this will surely not be the last attempt to find freedom in cyberspace. While the freedom Bitcoin promises is an illusion, it's one that will always have a grip on the human mind - the dream of finding some kind of talisman, a benevolent tyrant or a magical new technology, that can shelter us from power and crime and protect us from each other.