Bitcoin has dominated the tech and financial headlines throughout 2017. It has attracted both good and bad press and yet Bitcoin is still not widely understood. This is partly down to the fact that people are still trying to work out its practical applications. In this post, we’ll attempt to answer a few burning questions.
What is it?
Bitcoin is referred to as a cryptocurrency. That’s to say, in theory, it’s just like any other currency only it doesn’t exist in any physical form. The object that stops any new Bitcoins being created or spent twice is an open source ledger that keeps a record of every single Bitcoin transaction. Like other currencies, Bitcoin has a market value vs other currencies. This value has increased astronomically throughout 2017, however it remains very volatile with many commentators predicting a crash in the near future.
How does it work?
You can invest in Bitcoin as you would any other currency. You can also ‘earn’ Bitcoins by being part of the network that manages the transactions – essentially, providing computing power to keep the system going. The open source ledger mentioned above is what keeps track of who holds how much Bitcoin and there are third parties who act like Bitcoin stockbrokers to help manage your money. Should you choose to sell your Bitcoin, you can then convert back to a regular currency. However some have found that currently this is a lengthy and shaky process.
Is it secure?
Bitcoin has been tied to hackers and other members of the cyber underworld as a means of funding their activities. Nevertheless the Bitcoin platform itself is seen to be secure. Interestingly, some of the third parties who manage Bitcoin ‘portfolios’ have been reported to have been hacked. In reality though, Bitcoin is no more or less secure than PayPal or pretty much any other online account you hold.
Can I buy things with Bitcoin?
The list of retailers who accept Bitcoin as a method of payment is very short at present which is part of Bitcoin’s problem. As with many developments, Bitcoin is taking a while to find its place in the world. In the future, it is expected that Bitcoin will work like a token or loyalty card points scheme whereby people can use their Bitcoins with certain businesses e.g. AirBnB.
Is it a good investment?
This is the million dollar question! And unfortunately, there’s still no definite answer. Bitcoin has seen a huge rise in value in 2017, but it’s very unclear as to whether that rise will continue or fall through the floor. In any case, Bitcoin isn’t showing any signs of going away – so if it does crash, it could be worth buying when it’s in a trough and reaping the rewards as it recovers and/or stabilises. It’s also worth remembering that an added risk is the currently difficult to get your money back and out of Bitcoin.