You may have heard of it on the news but not sure what it is and why would it affect me? Didn’t it just go bust? So many questions!
What does the man on the street think of BitCoin? We asked the people of Kenilworth a few simple questions and got the following responses:
Some of the comments around this last question are most revealing: “Don’t understand it enough”, “Don’t know much about it”, “Not yet”, “It’s stupid”, “In a way”.
Interestingly the majority has heard of the currency but it seems there is a lack of good information, and certainly not enough to make informed decisions.
I would argue that contrary to popular belief Bitcoin is a not a “virtual” currency, it is a real currency just like the Euro, Sterling, Dollars or Yen. You can do all the same things with it that you can with regular money. You can withdraw it from an ATM, you can buy goods at shops with it, and you can exchange it for other currencies because it has a value.
It is not officially classified as a real currency yet as the definition of a currency is somewhat out of date:
A system of money in general use in a particular country:
“the dollar was a strong currency”
What is different about Bitcoin is that it belongs to nobody. There is no country or group of countries that regulates it or manipulates its value. A free global market sets the price. If nobody wants it then it will be cheap, if everybody wants it then it will be expensive. It was little known three years ago and with only a handful of places that you could exchange it and almost no retail shops supporting it. You could easily buy a Bitcoin for 5 pounds or less. Now a Bitcoin will cost you around 400 pounds. But don’t worry you don’t have to purchase a whole Bitcoin, you can buy 10 pounds worth if you like, or even just ten pence worth. It’s highly divisible.
This is all fine and good but why would I care about this? I have Pounds in my pocket, I have debit and credit cards that are accepted everywhere, and my savings are all held at the bank in a big safe vault. Well, Pounds you may have in your pocket but it’s becoming less important to do so. Debit and credit cards cost you money, they are not free services. Not only do they cost you money but they also charge the vendors that accept them, which inflate the prices of the goods you buy – a double whammy. Then there is the matter of your savings in your bank. Well they are not actually stored in a big vault. They are sold onto other companies and invested in schemes, which take on all sorts of risks with your money. If your bank collapses tomorrow, will you get your life savings back? Will the government get you your money back? Maybe, or maybe not! We have seen enough examples over the last few years from the financial crisis to the Euro crisis to know that “too big to fail” is not an option anymore and all our hard earned money is at risk.
Is Bitcoin the answer to this? No, absolutely not. But it is a step in the right direction. It is an internet-based currency that can be passed from any person to any other person anywhere in the world in a secure manner and with absolute certainty that they got the money. You keep your coins with you as if they were under your blanket and nobody can use them for any other purposes.
Where Bitcoin does become a game changer is in the area of global commerce. It is now possible to purchase goods or services from abroad and pay little or no money transfer fees. Also if you own a business and wish to purchase goods from abroad, that just becomes a whole lot easier. Consider another case; charities. It’s well known that anywhere between 10% and 60% of money donated to charities does not go to the intended recipients. Wouldn’t it be good if you could directly send two pounds to a Philippine Village that has just been ravaged by a flood? Well very soon this will be possible. The money won’t go to a big organization who have huge costs, it won’t pay the banks for the privilege of transferring the money, it won’t get lost as an accounting error, it won’t be held up by customs. The point is that with one click on my phone or computer I can send 2 pounds around the world instantly and directly to the person who needs it.
The state of play for Bitcoin right now is that is it making a quiet comeback after a rather wild series of price fluctuations last year. Generally the trend is up as more and more vendors accept the currency. Overstock.com started accepting BTC late last year and are getting 20-30k of sales in Bitcoin each day and it’s growing. On the down side – the largest Bitcoin exchange recently went bust – Mt.Gox. While the case is subject to lawsuits and speculation it seems clear that money and coins went missing from the company either by human activity or via some malware in their computer systems. Even though they were the largest exchange the Bitcoin community is still growing which shows the resilience and the passion that the community has to make it work. I’m sure there will be more events like this so for now, if you want to buy Bitcoins, go for it but my advice would be to buy them from a reputable exchange (such as Coinbase or Kraken) and then transfer them to your own wallet when bought.
The UK has classed Bitcoin as a currency therefore they do not charge tax on the value of the Bitcoins you hold but they will charge VAT as normal for any goods you purchase using Bitcion.
There is one more important thing you need to know. As Bitcoin gains popularity there will be other crypto or virtual currencies popping up. Some will be legitimate and some will be scams. Be very skeptical! As I write this Bitcoin and Litecoin are the two that I trust. Dogecoin has a following also. There may be others but I’m not touching them just yet.
Would you like to know more about Bitcoin?