Tokyo – Bitcoin is a purely online currency created from computer code, in circulation since 2009. The identity of its creator or creators remains a mystery.
Unlike traditional currencies, it has no central bank and is not backed by any government.
Instead, its community of users control and regulate it via the block chain, a shared public ledger on which the entire Bitcoin network relies. It’s a mathematical process designed to provide anonymous and secure transfers.
To get started, users can install a bitcoin wallet on their computer or phone which generates an address, unique to each transaction.
They can use this to buy goods and services or other currencies.
Each transaction is validated by members of the community by tracing the origin of each bitcoin using special software. This is known as mining.
The process is intended to ensure that no single bitcoin can be spent in more than one place simultaneously.
Members of the network – known as miners – are pitted against one another as they race to solve increasingly complex cryptograms on extremely powerful computers. The fastest to do so are issued with new bitcoins as a reward for their efforts. This is the only way new bitcoins can be created.
There is a limit however to how many can be created, capped at 21 million units, and three quarters are already in circulation.
The cryptocurrency has a number of advantages: transactions are anonymous, transfers are almost instantaneous and free from charges: there is no price cap and no middleman.
Bitcoin is not without problems however: transactions are irreversible and it’s an extremely volatile currency, subject to wild fluctuations in price. Security is also an issue, with digital wallets stored in computers or phones vulnerable to theft by hackers.
The anonymous nature of bitcoin also makes it a popular currency for illegal transactions.