Former Federal Reserve Chairman Alan Greenspan told CNBC on Wednesday that bitcoin reminds him of currency issued during America's Colonial past that ultimately proved worthless.

Greenspan compared the high-flying cryptocurrency to 1775 Continental currency that was worthless by 1782. In the in-between years, however, the money allowed patriots like George Washington to buy armaments and other supplies.

Continental money was so-called fiat currency. Declared legal tender by the Continental Congress, it derived its value from the amount of paper notes available and the demand for them rather than by the backing of a commodity such as gold or silver.

"A significant share of it was creating real goods and services" despite the fact that it was ultimately worthless, said Greenspan, who mentioned he was co-writing a book about American history.

Bitcoin is trading near record highs Wednesday, above $12,000 a share, having risen an eye-popping 1,200 percent this year. Whether this value is just ephemeral will depend on how many bitcoins there are to match demand, Greenspan said. Continental currency kept being issued to pay for Revolutionary War efforts and ultimately collapsed in value.

"Humans buy all sorts of things that aren't worth anything," Greenspan said. "People gamble in casinos when the odds are against them. It has never stopped anybody."

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