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Things to know about ‘mysterious digital currency’ Bitcoin

TOKYO: Mark Karpeles, the former CEO of collapsed Bitcoin exchange MtGox, went on trial in Tokyo on charges stemming from the disappearance of hundreds of millions of dollars worth of the virtual currency from its digital vaults. 

Here are some key facts about the world’s most widely used crypto currency:

What is Bitcoin?

Bitcoin is a virtual currency created from computer code. Unlike a real-world unit such as the US dollar or euro, it has no central bank and is not backed by any government.

Instead, Bitcoin’s community of users control and regulate it. Advocates say this makes it an efficient alternative to traditional currencies because it is not subject to the whims of a state that may devalue its money to boost exports, for example.

Just like other currencies, Bitcoins can be exchanged for goods and services — or for other currencies — provided the other party is willing to accept them.

Where does it come from?

Bitcoin was launched in 2009 as a bit of encrypted software written by someone using the Japanese-sounding name Satoshi Nakamoto.

Last year secretive Australian entrepreneur Craig Wright said he was the creator of Bitcoin, but some have raised doubts over his claim.

Hundreds of other digital currencies followed but Bitcoin is by far the most popular, with an increasing number of merchants accepting digital currencies for payments.

Transactions happen when heavily encrypted codes are passed across a computer network. The network as a whole monitors and verifies the transaction in a process that is intended to ensure no single Bitcoin can be spent in more than one place simultaneously.

Users can “mine” Bitcoins — bring new ones into being — by having their computers run complicated and increasingly difficult processes.

However, the model is limited and only 21 million units will ever be created.

What’s it worth?

Like any other currency, it fluctuates. But unlike most real-world units, Bitcoin’s value has swung wildly in a short period.

When it first came into existence it was worth a few US cents. Several years later Bitcoin topped $1,000. It’s now worth more than $2,300, with commentators suggesting some are buying it as an alternative bet in times of global economic uncertainty.

The chaotic withdrawal of high-value notes in India, and Chinese controls on the purchase of foreign currency have also been cited for its meteoric rise.

There are presently more than 16 million units in circulation. Some economists say the limited number of Bitcoins mean its price will increase over the long run, making it less useful as a currency and more a vehicle to store value, like gold.

But detractors point to Bitcoin’s volatility, security issues and other weaknesses as flaws that will eventually undermine it.

What’s the future?

Some commentators say that like many technological developments, the first iteration of a product will encounter difficulties, possibly terminal ones. But the trail it blazes might smooth the way for the next crypto currency.

Problems include an apparent vulnerability to theft when Bitcoins are stored in digital wallets.

A major Hong Kong-based Bitcoin exchange suspended trading last year after $65 million in the virtual unit was reportedly stolen by hackers.

The virtual currency movement also faces legitimacy issues because of the way it allows for anonymous transactions — the very thing that libertarian adopters like about it.

Detractors say bitcoin’s use on the underground Silk Road website, where users could buy drugs and guns with it, is proof that it is a bad thing.

If Bitcoin does become more widely accepted, experts say, it could lead to more government regulations, which would negate the very attraction of the concept. – Agencies

 

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