THE next phase of Bitcoin’s extraordinary development has been marked by the launch of its first ever futures contract.
As of 3pm on December 30, the value of Bitcoin in GBP was £9,507.02 and $12,847.33 in USD. Experts believe the launch of Bitcoin futures could legitimise the digital currency as an asset class – and drive up its value.
What is Bitcoin?
Bitcoin is a virtual currency that was created in 2009 by an unknown computer whizz using the alias Satoshi Nakamoto.
Individual Bitcoins are created by computer code.
The total value of all Bitcoin in existence is now more than £112billion.
Transactions are made without middle men, so there are no transaction fees and no need to give your real name.
More businesses are beginning to accept them and in some parts of the world you can even buy pizza with Bitcoins.
You can set up a virtual wallet websites like Blockchain to store, keep track and spend your digital money.
You are also able to purchase Bitcoin through an online exchange or Bitcoin ATM.
To find merchants that accepts Bitcoin in the UK click here.
Bitcoins aren’t printed, like pounds, dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world.
It’s the first example of a growing category of money known as cryptocurrency.
Bitcoin is attractive to some users because of its anonymity, as well as its lack of government control.
The website Silk Road was closed in 2013 following raids by the FBI and other agencies amid allegations of drug dealing with authorities seizing millions of dollars worth of Bitcoin during the raids.
How do Bitcoins work?
The value of Bitcoin, like all currencies, is determined by how much people are willing to exchange it for.
To process Bitcoin transactions, a procedure called ‘mining’ must take place, which involves a computer solving a difficult mathematical problem with a 64-digit solution.
For each problem solved, one block of Bitcoin is processed.
In addition, the miner is rewarded with new Bitcoin.
To compensate for the growing power of computer chips, the difficulty of the puzzles is adjusted to ensure a steady stream of new Bitcoins are produced each day.
There are currently about 16 million in existence.
The Bitcoin protocol – the rules that make Bitcoin work – say that only 21 million Bitcoins can ever be created by miners.
However, these coins can be divided into smaller parts with the smallest divisible amount one hundred millionth of a Bitcoin.
This is called a “Satoshi”, after the founder.
To receive a Bitcoin, a user must have a Bitcoin address – a string of 27-34 letters and numbers – which acts as a kind of virtual post box.
Since there is no register of these addresses, people can use them to protect their anonymity when making a transaction.
These addresses are in turn stored in Bitcoin wallets, which are used to manage savings.
What is mining and how does it work?
The creators of Bitcoin designed the system so there would only ever be a limited supply of bitcoins to be mined (a maximum of 21 million).
To ensure the longevity of the system, the cryptographic problems involved in the mining get progressively harder, meaning it takes longer to earn them.
Miners are turning to more powerful computers to complete these tasks and earn bitcoin.
As a result, mining (and on the flipside, bitcoin transactions) are sucking up greater and greater amounts of electricity.
Bitcoin transactions now use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to Dutch bank ING.
The bulk of Bitcoin “mining” is done in China, where energy costs are comparatively cheaper than in places like the UK or US.
What will happen with Bitcoin’s futures trading?
This latest development could have a huge impact on Bitcoin’s ultimate success.
Futures, as they are known, allow two parties to exchange an asset at a specified price at an agreed upon date in the future.
The combined value of every bitcoin currently in existence is around $274bn – more than most major companies.
In theory, investors will now be able to bet against Bitcoin – which could help find the currency’s true value.
Where can I buy Bitcoin and how much is it worth?
Several marketplaces called “Bitcoin exchanges” allow people to buy or sell Bitcoins using different currencies.
Japan-based Mt Gox is the largest Bitcoin exchange. It was launched in July 2010, and by 2013 was handling 70 per cent of all Bitcoin transactions.
People can also send Bitcoins to each other using mobile apps or their computers in the same way people send cash digitally.
The value of Bitcoin has fluctuated wildly since they were introduced and have reached a record high.
In 2013 when they first came to public attention, the value soared by 10,000 per cent before the price crashed.
A year ago in September 2016, a Bitcoin was being traded for around £469.
In October 2017, a Bitcoin is traded for more than £4,000, according to currency tracker XE.com.
Is Bitcoin the future of online trading?
No one knows what will become of Bitcoin as it is mostly unregulated, but that could change as governments are concerned about taxation and their lack of control over it.
So its’ USP – the anonymity – could eventually prove its downfall.
While it keeps Bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them.
That’s why it has become the currency of choice for people online buying drugs or other illicit activities.
And not many governments will put up with that for long.
However, it is increasingly used in shops and restaurants – with a fraction of a bitcoin used to buy a pizza, for instance.
And people selling their houses have even said they are willing to accept the cryptocurrency.
Daniel Roy put his £1.65million townhouse in Peckham, South London, on the market for 500 bitcoin in September 2017.
The following month a newbuild family home in Colchester, Essex, was marketed for 82.55 bitcoin, equivalent to around £25,000 less than if paying in sterling.
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