Monday 5th August, 2013

According to Financial News, a Zurich-based private equity fund is this week due to sign a deal to invest $200 million in Avalon, a company that produces computer servers which “mine” the virtual currency called bitcoin.

The deal signals the latest escalation of what has become known as the internet’s first gold rush. The deal will also involve Taiwanese microchip-maker Taiwan Semiconductor Manufacturing Co, which is set to supply the state-of-the-art microchips that will power the hardware.

Bitcoin is a virtual currency that exists online and were invented in 2008 by a computer programmer who goes by the pseudonym Satoshi Nakamoto and describes it as a peer-to-peer electronic cash system. Bitcoins are created through a process called mining, in which computers solve complex mathematical algorithms to earn the currency.

The private equity fund – called the Phoenix Fund – is set to sign the deal on Tuesday in Amsterdam.

The Phoenix Fund is understood to be backed by a small number of individuals, including Joe Lewis, the billionaire foreign exchange trader who teamed up with hedge fund manager George Soros to bet against sterling in 1992. The deal has been put together by Andrew Laurus, a former government bonds salesman at Lehman Brothers, who is also an investor in the fund.

As part of the deal, Avalon will gain access to TSMC microchips based on 20-nanometre processes, which are much faster than other chips. TSMC recently won a contract to supply chips to Apple. The increased processing power should give Avalon an edge in solving the algorithms that control the supply of bitcoins.

The total number of bitcoins will be limited to 21 million. The number of new coins that can be created is halved every four years until the year 2140. There are about 11.5 million bitcoins in current circulation, according to Blockchain, a website that monitors bitcoin transactions.