Bitcoin is like the internet of money. “You can think of the Bitcoin protocol like TCP/IP and HTTP which are the underlying protocols that make the internet itself possible. People built services on top of those protocols, such as Google, which allowed the entire ecosystem known as the world wide web to flourish.”
Bitcoin isn’t issued by a bank or government in the way pound sterling, the dollar and other currencies are. You can’t see them (there are no coins or notes to carry in your purse) and they’re not accepted in many outlets at the moment.
You can either mine them yourself (not easy for most people!) or buy them from a bitcoin trader or exchange platform. There are quite a few platforms around and more springing up all the time. Some are also disappearing. MTGox was the biggest Bitcoin exchange platform, but it was bankrupt by March 2014. Once you’ve bought the Bitcoin, they’re transferred to your virtual wallet.
The values have fluctuated dramatically. In February 2013 Bitcoin was trading at $20 each, but recently, one Bitcoin is worth over $17,000 (over £13,000). One main advantage is that you can make payments without involving the banks and it’s not controlled by any government. That means payments aren’t traceable in the same way that making a payment with a debit or credit card or by something like a direct debit, is. At the moment, while it’s easy to make untraceable payments in the real world (simply by paying someone cash), it’s much harder to do that online.
Some people say that because of this anonymity Bitcoin has become the currency of choice for drug dealers and other criminals. But it’s being used by a far wider community. Several computers and sites storing or trading Bitcoin have been hacked (including once called NiceHash which had $64 million of Bitcoin stolen recently) but experts say that the actual system has been tested for safety and encryption extensively.
Bitcoin has come to stay according to experts. The banking crisis and the rise of internet shopping has fueled demand for a new form of currency. Although a number of experts are concerned about Bitcoin’s rapid rise in recent months and believe we’re in a Bitcoin bubble, many also reckon that it has a long-term future.
If you’re going to invest any money in Bitcoin you have to be prepared for some stomach churning ups and downs in value. It might seem like a one-way bet, but so have many investments that have turned out to be anything but. Bitcoin may have a long term future as a form of currency, but that doesn’t mean you should pile into it as an investment. You should only invest what you’re prepared to lose and understand that – even if you can afford to buy a whole Bitcoin or a fraction of one. It may take some time to sell them if you want to cash them in.