Bitcoin... big con?
All you need to know about virtual currency...
YOU can use it to buy pizza, cars, flights, even a house – yet Bitcoin is branded a licence to launder money and a threat to tackling organised gangs.
The virtual currency began as a geeks’ plaything but is becoming more mainstream and its value has rocketed tenfold this year.
It is closing in on $13,000 (£9,725) and means early investors the Winklevoss twins – famous for their legal battle with Mark Zuckerberg – are Bitcoin billionaires.
Cameron and Tyler bet $11million (£8million) four years ago. It has soared nearly 10,000% after last week’s price surge.
Jamie Dimon, boss of bank JP Morgan is among the critics, predicting Bitcoin will “blow up.” But now his own bank is saying it could eventually rival gold as an investment.
Here we look at how Bitcoin started and ask if it is a fad that will leave carnage – or the currency of the future...
Q: What is Bitcoin?
A: It’s the best known of a group of cryptocurrencies. They exist only in cyberspace and are encrypted, meaning they’re secure and untraceable. Its popularity has led to copycats – sometimes called altcoins.
Q: So they’re not like the coins in my purse or wallet?
A: No. They are essentially lines of computer programming code. But once purchased they can be exchanged for some goods and services – like normal money – with all transactions online-only.
Q: How can I get them?
A: Bitcoins can be bought directly from individuals or special websites called exchanges that swap them for regular currency. There is even a growing network of nearly 100 Bitcoin ATMs in places as diverse as a vaping store and a chip shop.
Q: Who created the first Bitcoin?
A: It was invented in 2009 by a computer programmer who called himself Satoshi Nakamoto, but whose identity is a mystery.
His idea was to allow “online payments to be sent directly from one party to another without going through a financial institution”.
They exploded on to the scene in 2013, following a dramatic rise in
Q: What is behind this rapid rise?
A: There is a growing awareness, there are plans for Bitcoin to be tradeable on more mainstream platforms and investors are piling in, hoping to make money when interest rates are so low elsewhere.
Q: What determines the value?
A: Like many things, it is supply and demand. New Bitcoins are released at a rate of about 25 every 10 minutes. They are released following a mathematical process called mining where people use computer processing power to generate the code.
But the flow will dry up as they have been designed to ensure that no more than 21 million of them will ever exist. Today, around 16 million are in use.
Q: Where are Bitcoins stored?
A: Once you’ve bought a coin, or a portion of one, the line of code is written down in a ledger, known as a
Bitcoin is a highly speculative investment. Putting money in it is a form of gambling MARTIN LEWIS MONEY SAVING EXPERT
blockchain. However, if you lose the code you have lost your money.
Q: What can I buy with Bitcoins?
A: A growing number of firms are accepting Bitcoin as payment, either directly or through intermediary websites.
Among the biggest names is Microsoft but you can also buy Xbox video games and order pizzas using the currency.
Q: Why have there been so many warnings about Bitcoin?
A: This is partly because of fears that investors will lose a packet. Firstly, Bitcoin has no central bank that stands behind it and it is not regulated by any state.
THREAT WannaCry demand
Secondly, experts reckon the bubble could burst. Legendary US investor Warren Buffett says of Bitcoin: “Stay away from it. It’s a mirage, basically.” UK finance expert Martin Lewis said: “Bitcoin is a highly speculative investment. Putting money in it is a form of gambling.”
Q: Why else are people worried?
A: Because Bitcoin is being exploited by criminals and hackers.
The fact that transactions are untraceable makes it a dream come true for drug dealers and money launderers. It is also the currency of choice for cyber criminals.
It is telling that online crooks who launched the massive WannaCry ransomware attack earlier this year, which crippled part of the NHS as well as businesses in 150 countries, demanded Bitcoin payments for organisations to be able to regain access to their systems.
Criminals’ cash can be transferred across borders and withdrawn from Bitcoin ATMs in any currency or spent on the dark web – difficult-to-find websites where it is impossible to track the user.
The Treasury this month announced a crackdown on Bitcoin to tackle money laundering and tax dodging.
Under the plans, online platforms where Bitcoins are traded will be required to vet customers and report suspicious activity.