Most of us have heard of bitcoin – there was even a bitcoin lottery launched in Ireland at the end of 2017. However, despite the buzz, you may still be wondering what bitcoin really is.
Is Bitcoin money?
Money is any item or record that is accepted as payment for goods and services, so bitcoin certainly falls into that category. The difference with cold hard cash is that bitcoin is a virtual currency. You have an online wallet of digital tokens that can be sent electronically.
Around 6 million people have a Bitcoin wallet. One bitcoin is currently worth around €14,400, and each bitcoin can be split up to eight decimal places.
Bitcoin was created in the wake of the 2008 global financial crisis to operate outside of central governments, banks and financial institutions.
Bitcoin is different from conventional payment networks like Visa and Mastercard, as it’s not run by a bank, company or person. The system is instead run by a decentralised network of computers around the world that keep track of all Bitcoin transactions. It’s like the Wikipedia of payments, and it’s called a blockchain (read more about blockchain here).
Is it just for criminals?
One benefit of Bitcoin is anonymity as there is no central authority to collect the name and identity of Bitcoin holders. This can attract criminals who prefer to use an anonymous digital currency over cash.
However, the majority of transactions are not criminal in nature. Most people are buying and selling Bitcoin because the price has exploded recently, leading people to invest in the hopes of profiting on future rises.
What are the advantages?
People in countries with high inflation, like Argentina and Venezuela, have bought Bitcoin with their local currency to avoid losing their savings to inflation.
Bitcoin can also be transferred much more easily across international borders. Funds can be transferred in minutes compared with days or weeks through a bank.
Why has the price exploded?
The price of Bitcoin fluctuates according to open-market bidding on Bitcoin exchanges, similar to the stock market and gold prices. The price of Bitcoin has surged by 500% in 2017.
Bitcoin is being increasingly accepted in a range of countries. In Japan over 260,000 shops accept Bitcoin as payment. Russia, the Philippines and India are looking into potentially regulating the currency too.
Of course, people investing in Bitcoin leads to the price rising much faster. As more people get on the bandwagon, the online world is divided on bitcoin. On one side, those who think the price has much further to go, and on the other, those who are sure there will soon be a crash in the price of Bitcoin.