Imagine a currency you can’t hold in your hands; a single coin is currently worth over £10,000, more than ten times what it was worth this time last year. That is bitcoin. According to Google’s Year in Search 2017, bitcoin was the second most popular news search in 2017, with ‘How to buy Bitcoin’ being the third most popular ‘How To…’ search. The word floats around the Internet, but most people don’t really know what it is.
The technical answer is that bitcoin is a cryptocurrency. Whilst that explanation may mean something to programmers or financial experts, it meant nothing to me this time last week, so let’s strip away all the jargon for a moment.
A cryptocurrency is the name given to an entirely digital currency so, at its simplest level, a bitcoin is a line of code that has monetary value. Where it differs from other currencies is in the fact that it is entirely anonymous to use, it’s not controlled by a government or bank and, as such, there is no organisation dictating when more bitcoin is made, how much is made, or keeping track of it. Yet here we are at the end of 2017 with the price of bitcoin having surged by almost 1,200% since this time last year.
In January 2017, China began investigating bitcoin exchanges in Beijing and Shanghai; warning investors to be cautious when investing in digital currency, yet anxieties eventually wore off with Japan declaring it a legal currency in April. Despite suffering minor crashes after crackdowns in China, bitcoin ultimately recovered and began to gain more and more traction until, at the beginning of December, the Commodities Futures Trading Commission approved the trading of bitcoin futures, essentially allowing people to bet on the future price of bitcoin without actually touching the currency itself. The launch of bitcoin futures is likely to encourage increased investment and participation in bitcoin trading and, as such, the price of bitcoin spiked; resulting in criticism from several bodies including the European Central Bank who claimed it threatened Europe’s financial stability.
There are a number of issues facing bitcoin moving forward, however. The sudden increase in investors as the price spiked meant that bitcoin miners – the people who keep track of transactions – are in demand. Similarly, the blockchain system which acts as a ledger for these transactions can only record 3 to 7 transactions a second which means that, with the increased amount of investment, processing these transactions is like waiting for a lake to drain through a funnel. This has ultimately led to bitcoin transaction fees surging from an average of $2 to $37.
There’s also the problem of finding businesses that accept bitcoin as a form of payment. The biggest names on this list include Microsoft, Subway, WordPress, and Virgin Galactic. Aside from these big names, you can’t expect to go buying everything with bitcoin. It may be this way in the future, but right now bitcoin’s place within the global economy is still being established and challenged. The market remains incredibly volatile, with the potential for bitcoin to lose £500 from their value and then spike again in a matter of hours.
By Rebecca Cornish