Bitcoin rocketed to nearly £12,000 at one point this week – and the world has become obsessed, with Google searches for ‘buy Bitcoin’ overtaking searches for ‘buy gold’.
The value of Bitcoin has shot up 50% since September, and has risen more than tenfold in value this year – sometimes going up hundreds of pounds in a day.
If you had bought £1,000 of Bitcoin in 2012, your coins would now be worth £909,000.
Most people who buy it are no longer aiming to use it, but hoping it’ll be an investment, according to experts – with Yahoo now offering a page where you can track the value of cryptocurrencies, live.
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Many investors and central banks have warned that the price of Bitcoin could well collapse – but fans such as security software pioneer John McAfee have claimed coins will be worth $1m each by 2020.
So what is Bitcoin, how do you buy one, and is it really safe to invest?
What is Bitcoin?
Bitcoin is a digital currency, one of several known as ‘cryptocurrencies’, which can be stored online or offline, and used to buy things electronically.
You store your coins (known as BTC for short) in an online ‘wallet’, which you can access via a PC browser or app.
People refer to bitcoins as fractions of a Bitcoin – so, for instance, £10 is 0.000838BTC (at time of writing).
The currency was released in 2009, but has boomed in the past two years as it’s become more mainstream.
Unlike normal currencies, it’s not issued by a central bank, or allied to one country: it’s global and there is no central authority.
It’s known as a ‘cryptocurrency’ because transactions take place directly between users – rather than via a bank – protected by cryptography.
Coins can be created very slowly by ‘mining’ (making a powerful PC do complicated mathematical equations) but also bought and sold online via ‘brokers’.
How do you buy it?
Buying Bitcoin is a little more complicated than buying foreign currency, and it can be difficult as there are stringent security measures at most sites which sell Bitcoin.
You’ll need your passport to use many Bitcoin brokers, and many brokers also insist on bank transfers, rather than debit or credit card purchases.
To use Bitcoin, you’ll need a wallet (it’s like a Bitcoin bank account) which you can access either via your internet browser or an app.
There’s several to choose from including BTC, Coinbase and Bitgo: we tried the popular Blockchain.info.
You enter your email address and a password, and the service creates a Bitcoin address for you (a long number, which you’ll need to trade the currency).
It’s worth remembering that if you can’t remember your password, it’s possible to lose Bitcoins entirely, and there’s no central bank to offer a refund.
Buying the coins
Next, you’ll need a broker (a bit like buying foreign currency). You’ll need your Bitcoin address, a long number which you can find in your Bitcoin wallet software or app.
There are dozens of brokers, from Coinify to Coinjar to Coinfloor, and signing up can be laborious (many insist on a passport, and almost all use stringent security measures such as apps to generate access codes).
Many services insist on bank transfers, rather than debit cards, although services such as Coinjar and Coinify allow debit card purchases.
Banks tend to be pretty wary about Bitcoin transactions, so your debit card might be rejected – but if you phone and authenticate that it’s you, it should work.
You’ll then see your balance in your wallet, and can sell, trade or buy more.
What can I do with it?
Most people who buy Bitcoin are doing so as an investment, hoping that its value will continue rising.
There are persistent rumours that companies such as Amazon might soon accept Bitcoin, but you can already use it to buy online from companies such as Microsoft.
You can also buy gift cards for retailers such as Amazon via sites such as Gift Off.
You can also withdraw it as cash via certain specialist cashpoints known as Satoshi Points, which are available in cities such as London.
Is it safe?
Many experts have warned that Bitcoin is a ‘bubble’ – ie the current prices are unsustainable, and will collapse.
‘The investment rates are still volatile so it is still a risky investment – but the investments provide short term return results,’ says Rob Kelly, Director of Marriott and Kelly Accountancy Ltd.
It’s also quite possible to lose Bitcoins, by simply forgetting a password, or losing a device, Kelly warns.
Kelly says, ‘Bitcoin doesn’t come with a safety net or regulations as of yet, so if you lose your Bitcoins, there is no guarantee that they will be reimbursed.
‘The Bitcoins need to be unlocked by a digital key, which cannot be reset. This has the advantages of making them extremely secure, but if you forget the password, all of your Bitcoins will be inaccessible.’
Is it ethical?
Bitcoin often used to be described as ‘untraceable’ – which it isn’t – but it has been associated with criminal activities, particularly drug sales on the dark web.
It’s still used by criminals, with recent reports suggesting that London drug dealers were using Bitcoin cashpoints to store cash online without using a bank account.
Kelly says, ‘Many argue that Bitcoin is unethical because if of its beginnings in the dark web where it had huge influence and significance, as well as its association with the Silk Road.
‘Many people are having a hard time trusting it as a currency because it isn’t physical. Bitcoin is fast becoming an acknowledged currency, and like with everything, it is wise to learn as much as you can about it.
Being unregulated can leave the currency vulnerable, and our accounts vulnerable to cyber attacks, and there are more sustainable online currency options. To make Bitcoin as ethical as possible, it will need to be regulated, by a governing body but this may take away the initial attraction and value.