Bitcoin, the digital currency that answers to no government or central bank and has no physical form – barring those over-photographed novelty coins – hit all-time highs of $1,169.04 on Coinbase and $1,167.52 on Bitstamp Thursday afternoon. 

According to Coindesk's Bitcoin Price Index (BPI), the cryptocurrency is still a few dollars from its record high of $1,165.89, which it reached in November 2013. (See also, Bitcoin Nears All-Time High, Then Crashes.)

But why is bitcoin testing fresh all-time highs? What drives the value of a currency recognized by no tax authority and accepted by only a handful of retailers? In late 2013, the answer appeared to be pure speculation. At that time, the Motley Fool felt compelled to address the question "Is Bitcoin Going to $1 Million?", apparently in response to a now-unavailable article arguing the case (to their credit, the Fools were level-headed about the matter).

In 2016, things are different. The infrastructure around bitcoin is more developed – the first bitcoin ETF is awaiting regulatory approval – and the market is (slightly) more liquid. While utopians still talk about the death of fiat currency at the hand of the avenging cryptocurrency, bitcoin has proved itself useful by fulfilling more modest fantasies. It is handy for getting around capital controls like those imposed by China, where the bulk of bitcoin trading occurs; in other words, it's a work-around for fiat currency, if not its kryptonite. (See also, Is Bitcoin Being Used for Chinese Capital Flight?)

Capital flight from China is only one contributing factor to bitcoin's rise. It is also basking in the reflective glow of the blockchain, the technological underpinning without which bitcoin could not exist – but which can carry on perfectly fine without bitcoin. The blockchain is software protocol, also called a distributed ledger, that allows parties that do not know or trust each other to perform transactions with reasonable assurance that everyone will receive what they're owed. At first there was one blockchain, and it was part and parcel of bitcoin, but soon enthusiasts began to create other blockchains to run other cryptocurrencies and to store other sorts of information: land titles, records of trades, contracts (some self-executing), you name it. (See also, What Is a Distributed Ledger?)

Banks eventually took notice, and 2016 saw a flurry of announcements regarding forays into blockchain technology by every major bank, as well other sorts of companies such as Microsoft Corp. (MSFT). While these projects mostly involve the creation of proprietary blockchains that are in theory divorced from bitcoin, the resulting flurry of media attention has helped boost the currency all the same. (See also, JPMorgan's Blockchain Trial Project.)

Finally, bitcoin is coming into its own as a hedge. Currencies come and go as wars, revolutions and other historical contingencies periodically sweep people's savings away. Traditionally, the response to a brittle currency like the euro was to buy gold and other tangible, portable stores of valuable. These still have their appeal, but now bitcoin is joining their ranks. It is anything but tangible, but that makes it harder for a customs agent to relieve you of it at the border. It can still be stolen, of course, as demonstrated by the spectacular hack of (or fraud at) Mt Gox that sent bitcoin crashing from $1,150 to $420 in December 2013. But in a world of nearly constant political and economic shocks – Brexit, Trump, the Italian referendum, the upcoming elections in France and Germany – the nervous and tech-savvy are beginning to load up on bitcoin, just in case.

There are a number of ways to measure bitcoin's record price. The highest price ever quoted on any exchange is $1,238.99 on Mt Gox. Many choose to ignore that price because the exchange is now closed, so there's no direct comparison available today. In addition, the price went higher on that exchange than on others because its management halted withdrawals. In any case, it's worth keeping in mind that the "all-time high" we've referenced above is not, in fact, the highest price anyone has ever paid for bitcoin.

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