For the un-initiated, Bitcoins are an anonymous, decentralised, ‘crypto-currency’, absent of regulation or legislation. Combined with having no real physical existence, the unique properties of Bitcoins have led to increased attention in the media.
Bitcoins can be acquired either through ‘mining’, (the lending of computing power by individual miners to process Bitcoin transactions which are recorded on the public ledger or ‘blockchain’), or they can be purchased from Bitcoin exchanges. At the time of writing, an individual Bitcoin has a trading value of just over 350 GBP but reached its highest value of just under 750 GBP in November 2013. Bitcoins are now accepted by over 1000 merchants including fashion websites, pubs and online dating services. However, Bitcoins have become associated with the ‘dark web’, linked to the sale and purchase of illicit substances and money laundering due to their virtual quality and thus limited traceability.
In addition to the volatility of the market, Bitcoin theft by hackers is a real possibility. On 28 February 2014 one of the top three Bitcoin exchanges, Mt Gox, filed for bankruptcy with reports suggesting that the site was shut down after it discovered that nearly 744,000 Bitcoins (approximately £210m) had been stolen due to a security loophole.
Despite the risks associated with this virtual currency, 2014 has been declared by some as the year of the Bitcoin wannabe. Litecoin, Peercoin and Anoncoin are all alternative crypto-currencies, albeit with much lower currency units and values. Large companies and financial institutions are also trying to move into digital currency, for example, eBay recently applied for a patent for its ‘Gift Token’ idea which can be used to make purchases without a Paypal account. JP Morgan has also made repeated patent claims for a digital currency regulated by the bank but to date these have all been rejected or cancelled.
Digital currency could be the way forward for online purchasing. However, it may be a long time before a safe, secure means of anonymous online payment is possible.