What Is Bitcoin?

Get the Bit between your teeth: a history of Bitcoin.
On paper, bitcoin sounds like a rather ridiculous concept. An open-source method of finance, it has no ownership or underwriting financial institution. Instead, it is governed by its individual users. Rather like PayPal, it’s used to pay for goods and services online, but unlike PayPal it doesn’t rely on real-world bank accounts or funds.
Bitcoin is an entirely independent electronic currency that can be bought and sold like any other stock or commodity. One bitcoin is currently worth almost £150. Its origins are shrouded in mystery, with internet links leading to a 37-year old called Satoshi Nakamoto. However, persistent rumours maintain that this is a fiction concocted by the real co-founders who wish to remain anonymous.
Irrespective of who actually devised it, bitcoin arrived in 2009 as a fully-formed digital currency whose every transaction is recorded for posterity in a public online ledger known as the blockchain.
Currency is acquired by buying it, exchanging it for goods and services, or earning it by undertaking payment processing work – a process known as mining. Whenever a payment is made in bitcoin, nodes distribute an electronic receipt of the transaction with private key signatures. This new transaction is then recorded in the blockchain using payment processing software hosted by volunteers. During each transaction, cryptographic keys are used to protect individual user identities; even though the transaction will be recorded, no information is gathered about the various parties involved. Perhaps inevitably, this has made bitcoin a favoured method of payment among less scrupulous individuals, and it is widely associated with the murkier transactions of the dark web.
It’s claimed that an in-built redundancy will prevent more than 21 million bitcoins ever being created. However, these units of currency can be subdivided into one hundred millionths – called Satoshis – to facilitate small-value transactions. Funds are stored in an electronic wallet which retains the digital credentials for any currency and facilitates future spending or transfer.  The value of bitcoins compared to real currencies has fluctuated wildly in recent years, attracting speculative market traders while making it difficult to use for conventional purchases. Indeed, debate rages online about whether bitcoin can even be described as a legitimate currency, or whether it’s actually a medium of exchange or a tradable commodity.
It’s unclear whether a fraudulent transaction in bitcoin would be regarded as falling outside the law, since the UK’s legal system has (perhaps unsurprisingly) been slow to acknowledge its existence. However, there is a strong incentive for merchants to accept bitcoin because there are no processing fees involved. Uptake has been slow thus far, although companies like Microsoft and Expedia will take payments in bitcoin and certain not-for-profit organisations welcome bitcoin donations. Some airlines have recently started accepting payments, and a list of UK companies that will accept bitcoin can be found here.
Bitcoin offers tangible benefits in terms of international transactions, particularly in countries with an unstable economy. It’s ideal for regular overseas travellers since no exchange rates or processing fees are required to use it in far-flung countries. That would be of benefit should bitcoin become a global phenomenon, although international recognition remains patchy outside Western Europe and North America. Domestically, residents of Glasgow and the Isle of Man can use bitcoin ATM machines to exchange Sterling for bitcoin currency, while online brokerages allow people to buy and sell bitcoins in any quantities.
When it was launched, many people predicted bitcoin would rapidly become the future funding method for online transactions. That hasn’t happened as yet, and public awareness remains low. Its future as a mainstream currency will largely depend on whether bitcoin remains associated with illicit activities on the dark web, or whether its champions can encourage mainstream firms to embrace this very modern financial platform.
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