Bitcoin, the ‘new gold’ – but what on earth is it?

Photo: The Telegraph

So I’m starting to hear a lot about these Bitcoins. What are they?

A money supply, or a virtual currency (though purists will argue about the definition of currency). Basically, you can use Bitcoins to buy stuff online. Bitcoin is not the first such system, but it is by far the most successful.

Can I just conjure up some free Bitcoins online then?

Not exactly. Each Bitcoin is a piece of code generated through very slow computer processing, known as ‘mining’, requiring various hardware and software. So there is a cost, and the price has previously moved in relation to that. Most users buy them.

Still, it has been argued that the system offers a built-in bounty to those who would attempt to subvert it.

So how would I buy some of my own Bitcoins?

You choose a virtual wallet from one of the various providers. This means you can start to receive coins from other users, and send them onwards. You can buy Bitcoins on specialist online currency exchanges, and they also change hands over online marketplaces such as eBay.

What are the downsides?

You mean apart from the fact that it could all be a bubble about to burst and you could lose any money invested? People are already talking about how to ‘short’ Bitcoins – effectively trying to make a profit by betting on the price collapsing.

The whole system raises questions about its integrity, not least because the only reason the supply is finite is because the rules say so – as opposed to there being a physical limit to mining Bitcoins, as with gold.

Sebastien Galy, a currency analyst at Societe General, notes that Bitcoin has already been effectively revalued. “With far more rapid advances in the technology of processing than mining, the rules have already been changed to stop some form of mining which were too effective,” he wrote this week.


The Telegraph has the full article

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