Bitcoin is a distributed peer-to-peer digital currency that functions without any central authority, such as the Bank of England. The currency was launched in 2008 and is traded as complex numbered electronic vouchers within a global network of computers. Miners operate the computers that keep track of Bitcoins and create additional coins. They pool their computing power to spread the financial risk of their operations.
Bitcoins can be bought with near anonymity, which supporters say lowers fraud risk and increases privacy. But critics say that also makes Bitcoins a magnet for drug transactions, money-laundering and other illegal activities. The Bitcoin is a volatile currency – with the value of Bitcoins falling 6% in one week, although such a decline is regarded as being within the range of normal fluctuations for this volatile currency. Now the Bitcoin is gaining credence as a viable alternative for the costly wire transfers of an estimated £350 billion in remittances to families in the developing world.
Chancellor, George Osborne, signalled recently that the virtual currency Bitcoin could be regulated in Britain to make it easier and safer to use. The Chancellor said the world of finance ‘is changing in front of our eyes’ and laws had to keep pace with technology. He announced a major review that will explore the potential of virtual currencies and digital money, and examine how alternative payment systems, like Bitcoins, could be used to boost the economy and help shoppers in Britain.
The Chancellor said:
‘These alternative payment systems are popular because they are quick, cheap and convenient – and I want to see whether we can make more use of them for the benefit of the UK economy and British consumers.’
Aides to the Chancellor stressed that any move to regulate Bitcoin would be designed to make it easier and safer for people to use, rather than to drive it out of Britain.
Mr Osborne added:
‘I want to be alert to the risks that accompany any new technology. The review will look into whether regulation of the sector is required, so that virtual currency business can continue to set up in the UK, and for people and businesses to use them safely’.