When the Bitcoin (BTC) currency was first described in 2008, it was more of an intellectual experiment, not to be seen as an actual electronic cash system.
Forward to 2013 and people are not only trading Bitcoins but also using them to pay for real services and products.
The question now is: will this unregulated currency continue to gain legitimacy or, is it just a fad?
The Renegade Currency
Currencies around the world have taken a number of knocks during the current financial turmoil and, as such, many people have lost faith in them as a commodity.
Or rather, they’ve lost faith in the governments and banks that control these currencies.
Bitcoin is the answer, not only to anarchists, but to many of the disenfranchised, as Bitcoins aren’t issued by a central bank or backed by a government.
In fact the virtual currency is governed by a computer program and all transactions are transparent.
Traders are also allowed to exchange the coins anonymously (which critics say is what makes it attractive to drug dealers and other unsavoury business people).
The BBC explains how BTC works by:”using publicly available software that operates via a network of about 20,000 powerful computers, units of the cyber-currency are created by the application of a mathematical formula in a process known as “bitcoin mining”.
Adding to the appeal of BTC is the fact that there will only ever be a limited number of coins – the system only allows for the mining of around 21 million – and as such they’re not subject to inflation.
The BBC also mentions that owners of the coins needn’t entrust them to banks for safekeeping; which also means that banks can’t lend them out.
Essentially the coins promise the kind of financial security and control that many find so lacking in the traditional financial structures at present.
Looking to the Future
Banks and regulators don’t seem quite sure what to about Bitcoins.
The CRA (Canada Revenue Agency) has issued a statement in which they indicate that BTC transactions are taxable and that such transactions need to be declared.
Across the ocean, The Guardian reports that the currency has become a preferred medium of exchange at bars and shops in Berlin.
To Trade or Not to Trade
That really is the question. Tech Week Europe reports that the currency was estimated to be worth of $266 which dropped to $105 and has since risen again to around $138.
It’s far from stable as the currency suffers like most concepts dependent on the internet: cyber attacks.
Wired reported on a study conducted by computer scientists Tyler Moore and Nicolas Christin in which they’ve determined that:
“Exchanges handling 275 Bitcoins’ worth of transactions each day have a 20 percent chance of being breached, compared to a 70 percent chance for exchanges processing daily transactions worth 5570 Bitcoins.”
As the current price increase (from $105 to $138) indicates; investors are eager to trade with the currency despite the safety issues.
However, these security concerns will need to be addressed before traditional financial structures will provide loans to BTC exchanges and the like.
For the private person interested in getting involved the advice is much the same as getting into Forex trading or the like: know the risks and proceed with caution.
License: Creative Commons
Pippa Green is a London-based blogger with a keen interest in finance and is currently in need of a forex trading platform.