They have only been around since 2009, but bitcoins are already attracting a lot of attention. What are they and do they have a future? Read on for 10 things you should know about bitcoins.
1. Bitcoins are a virtual currency. There are only a limited number in circulation, they have no intrinsic value and no central bank backing. In fact, the only thing supporting them is the belief in their value. In spite of this, people are using them and the bitcoins market is already worth over US$ 1 billion.
2. Although it is a virtual currency, bitcoin ATMs have started popping up, causing some controversy, particularly during the recent crisis in Cyprus and the subsequent loss of trust in established financial institutions.
3. Around 78% of the currency is not in circulation, with people hoarding bitcoins and stashing them away. This has serious implications for the currency’s stability and future, and makes it distinctly undemocratic.
4. An increasing number of young entrepreneurs have been investing in the currency, believing it could be the economic future. The Winklevoss twins are among some of the high-profile investors.
5. There have been mixed reactions to the currency from countries around the world, with a growing amount of scepticism. Many are concerned that bitcoins could be used by money launderers and for the transfer of illicit materials.
6. There have already been examples of people using bitcoins for illegal purposes. Forbes recently ran an article about a criminal who relied on the currency to support his black market drug website.
7. Some countries have been cracking down on bitcoins. Following a presentation by a bitcoins team, the Bank of Thailand outlawed the currency, meaning it is illegal to use it in the country.
8. Other countries have been more open to its use, and Germany has even recognized bitcoins as a currency unit. As a result of this move, the German government can gain revenue from taxes it collects from bitcoins.
9. New York’s financial regulators subpoenaed 22 companies dealing with bitcoins in order to gather more information before deciding whether to regulate the currency. As there are a considerable number of “bitcoin players” in the United States, regulation there could have a ripple effect across the global market.
10. The success – or at least popularity – of bitcoins has led to rival virtual currencies from competitors seeking to create similar products but without many of the problems associated with bitcoins.
Read a blog by Gene Frieda, global strategist for Moore Europe Capital Management, on The trouble with bitcoins.
Author: Ethan Huntington is a Senior Associate, Global Agenda Councils, World Economic Forum.
Image: Bitcoins created by enthusiast Mike Caldwell are seen in a photo illustration at his office in Sandy, Utah, September 17, 2013. REUTERS/Jim Urquhart