Bitcoin: Is the virtual currency the new gold standard?
The virtual currency has been making waves since 2009, but the financial crisis in Cyprus has seen people rushing to invest. Are these encrypted files really the future of cash? Chris Beanland reports.
Last Tuesday, at the Cleveland Arms pub in a genteel side street near Paddington Station, a dozen people met to talk revolution. It wasn't the first – and it certainly won't be the last – revolution plotted over pints of beer and bags of crisps.
But this gathering of the London Bitcoiners Group marked the point at which something changed. The point at which one hacker's dream – to create a new type of virtual currency to replace sterling, dollars and euros and lay waste to existing financial structures – began to come spectacularly true.
Trader and Bitcoin enthusiast Jonathan Harrison was there. "Cryptocurrencies will create a global revolution in finance," he enthuses. "Governments will lose control of the money supply and the power that comes with it."
The Bitcoin story is packed with delicious twists of subterfuge and intrigue. It began in 2009 when pseudonymous hacker "Satoshi Nakamoto" developed the idea. Other digital currencies have been tried, such as e-gold, Litecoin, Ripple and Linden Dollars in the computer game Second Life, but nothing has captured the imagination like Bitcoin, which can be spent directly in some places or traded for other currencies. Hackers from around the world supported the open-source software that allows Bitcoin to exist, unlike other currencies, without a central bank able to manipulate its value by printing more notes in tough times.
The economic crisis in Cyprus shot Bitcoin into the mainstream. Internet entrepreneur Jeff Berwick aims to open the world's first Bitcoin ATM in Cyprus within weeks. March saw frenetic Googling sessions by people all over the world desperate to discover how this digital, encrypted "crypto" currency works. The answer is more simple than you'd imagine – a fixed amount of 21 million Bitcoins are being slowly released or "mined" until 2030. Each has a unique numerical code and they can exist as a physical coin the size of a 2p piece printed with a holographic number, in online "wallets" or even in bonkers "brain wallets" where you memorise set codes. Popular sites to trade them include Blockchain.info and Localbitcoins.com.
With a stream of recent cash crises of confidence, the price of Bitcoin has risen dramatically. When the online trader Mt. Gox started tracking Bitcoin in July 2010, one was worth 3p. Now one is worth £64. Bitcoin is the world's fastest growing currency – but is this a Bitcoin bubble? The market for it has topped the symbolic $1bn USD mark – it's now worth more than the currency stock of 20 separate countries including The Seychelles, Liberia and The Gambia.
Amir Taaki was also at the Cleveland Arms last week. He's one of the main developers of Bitcoin – he also lost out on $500,000 by flogging a batch of Bitcoins when they were worth peanuts. But he's sanguine. "500k is only enough to improve a single life," he joshes. Taaki, 25 and buzzing with optimism, is more interested in changing the world. "Last September, my bank accounts were closed and I was blacklisted. I've been depending on Bitcoin, travelling the world without using money changers or banks."
Taaki believes that Bitcoin "is the currency of the resistance; informal markets of people, not corporations. It's a true global free market".
Bitcoin's advocates, such as renegade business broadcaster Max Keiser, posit that governments could lose control of individual state economies and people could live outside conventional financial and taxation systems. Banks could shut. In a capitalist society where everything has a fixed price, the cost of resistance could be high: Bitcoin's Young Turks seem set on a collision course with some powerful people who have a lot to lose.
"These people – states and established financial institutions – will move against Bitcoin because Bitcoin strikes at the root of current power structures," reckons Frank Braun, a German tech consultant and privacy advocate who appears in public wearing a surgical mask and dark glasses. "The latest FinCEN regulation is a prime example of that." FinCEN is America's Financial Crimes Enforcement Network – a bureau of the US Treasury which aims to counter money laundering.
Last month it issued new guidelines to regulate "virtual currency" trading. It could be the thin end of the wedge. The White House has a score to settle: when the US piled pressure on Wikileaks in 2010 and 2011, it was to Taaki's "currency of the resistance" that the group turned when their conventional methods of banking were blocked. "Within a day their VISA, MasterCard, PayPal, Swiss bank and Amazon accounts were closed," points out Taaki.
"Wikileaks was unable to continue soliciting donations – except through Bitcoin. It was their lifeline."
Rebecca Burn-Callandar, editor of Managementtoday.co.uk, has other worries. "A brave new currency unregulated by markets, banks or governments is dangerous. Bitcoin is the province of hackers and the technorati now, but the real risks come when ordinary people – hammered by low interest rates and the whims of government – become entranced by it." Yet there is something about Bitcoin, something which increasingly entrances those from both ends of the political spectrum.
"From anti-capitalists to hardcore capitalists, people are all trying to give Bitcoin their spin," notes Frank Braun. "I just talked to a guy in his 60s from a high-inflation country who put all his retirement money into Bitcoin and gold." The media seems fixated on Bitcoin being the currency of choice on the mystical Silk Road – the Amazon of recreational drugs. But what's more intriguing is how Bitcoin will change the way we use money to buy and sell everything else. A new economic system could evolve. Is The City rattled?
"City traders have mixed feelings," says mischievous City Boy author Geraint Anderson. "On the one hand they'll be quaking in their boots about a rapidly-growing currency they currently can't manipulate, trade or make commission from. On the other, they'll welcome any innovation that will facilitate the acquisition of high-quality cocaine after the market shuts."
Bitcoins: how to pocket them
What you need? To start collecting bitcoins, you need a digital wallet downloaded from weusecoins.com, which will store your money for you.
How to get digital coins: Mining for new bitcoins is competitive and requires specialist hardware, so most bitcoin users get their coins from online currency exchanges. MtGox is the most popular, allowing you to trade bitcoins in exchange for sterling. Bonus Programmes such as Bitvisitor offer coins in exchange for taking surveys or visiting websites.
How to get physical coins: Coins and bills can be bought using digital bitcoins on casascius.com or bitbills.com. Both sites take a small production mark-up.
How to spend them: There are plenty of participating online merchants. Coindl.com sells music, ebooks and other digital goods and bitmit.net is the ebay of the bitcoins world. A limited number of independent restaurants and B&Bs even accept the currency – bitcointravel.com can point you in the right direction.
- 1 Germanwings crash: Captain of doomed plane was only 'on board because he changed job to spend more time with his children'
- 2 Ohio Democrat Teresa Fedor speaks out during abortion debate to reveal she has been raped – and is interrupted by laughter from Republicans
- 3 Gamers confess the worst things they've done in The Sims
- 4 Germanwings crash: 'Andreas Lubitz planned to marry pregnant girlfriend', claims German report
- 5 Germanwings plane crash: Transcript reveals passengers 'screamed for over five minutes' before plane crashed into mountain
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
iJobs Money & Business
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Day In a Page
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station