Ads 468x60px

About Me

Darren Winters is a self made investment multi-millionaire and successful entrepreneur. Amongst
his many businesses he owns the number 1 investment training company in the UK and Europe.
This company provides training courses in stock market, forex and property investing and since
the year 2000 has successfully trained over 250,000 people.

Monday, 16 June 2014

Is Bitcoin the Future of Money?

Cryptocurrencies are digital or virtual currencies which use complex encryption techniques for security purposes to make them hard to counterfeit and to ensure that the currency is not sent to multiple people at the same time. Once the first cryptocurrency was created there needed to be a clearing facility set up in order to track it. In order to prevent corruption by those who created the currency it was decided to make this clearing house a process that happens on computers globally.
Bitcoin was the first cryptocurrency to be created in 2009 by Satoshi Nakamoto. It was followed by Namecoin in early 2011 and Litecoin six months later and Peercoin after that and there are now many competing cryptocurrencies. Funds are transferred between two parties through the use of public and private keys for a minimal fee. The price at which a cryptocurrency trades is based on supply and demand making them highly volatile.

A set amount of Bitcoins are released on a certain date and to earn a bitcoin involves solving a puzzle or ‘mining’. This has been one of the reasons why cryptocurrencies have not gained greater interest and are most popular among people who possess technically advanced computer skills. Additionally, more recently, it has become possible to buy cryptocurrencies from others who have mined them.

Bitcoin rose to the forefront, and having started with the value of pennies, reached a high of around $900 per bitcoin, in effect creating millionaires of those who had been in since the start. This increase in interest was partly attributable to Ben Bernanke, the then Chairman of the Federal Reserve Bank in America who said that cryptocurrencies may hold long term promise. More recently the value has fallen to around $437.
The only country where the currency is not recognised as a legal currency is Iceland where there is a freeze on foreign exchange. However, in Russia it is illegal to use any currency other than the Russian rouble to purchase goods and in China the use of cryptocurrencies by financial institutions has been banned.
Cryptocurrencies are held and traded electronically and as such could be vulnerable to hacking. In 2011 Bitcoin’s database was hacked into and 2 million Bitcoins were created which had the effect of practically reducing the value of the cryptocurrency to zero. There is no one central body regulating cryptocurrency exchanges and it is possible for a trading platform to simply shut down and for investors to be left out of pocket. Cryptocurrencies do not give investors any protection or insurance, such as the Financial Services Compensation Scheme, should an institution become bankrupt.

The most recent adverse headline in February 2014 involved Mt. Gox, the world’s largest Bitcoin exchange at that time. The company shut down without warning and refused to answer inquiries from investors. The company claimed that it had over a number of years been the victim of systemic cyberattacks in which Bitcoins had been stolen. Some investors have however claimed that the missing Bitcoin was in fact the result of fraud by Mt. Gox. The company has filed for bankruptcy protection in both Japan and the US and a judge in Tokyo is overseeing an investigation into the exchange’s closure while its CEO Mark Karpeles is wanted for questioning in the US. The company claimed that $473 million, or 7% of all the Bitcoins in the world, had been stolen, causing the price to fall by 65.5%.
Dogecoin Foundation created the Dogecoin, a fun cryptocurrency, with the intention of raising funds for charities and other notable causes. The co-creator Jackson Palmer donated $30,000 worth of Dogecoin to the Jamaican bobsled team to help fund their trip to the Olympic Games in Sochi in 2014, and others have undertaken a campaign to provide drinking water to parts of Kenya that are drought stricken. However bad news also struck the company when millions of coins were stolen after a hacker gained access to their platform. Following a campaign by the Dogecoin community on social media websites enough money was donated to cover all the coins that were lost in this incident and the Dogecoin continues to trade today.
One of the major concerns of authorities have with cryptocurrencies is the potential for their use for money laundering purposes and tax evasion due to the anonymity of the electronic trading and difficulty in tracking payments. In the US Bitcoin is considered to be property for tax purposes instead of a currency which means that they will be subject to capital gains tax and businesses there must comply with anti-money laundering regulations. There have even been Bitcoin ATM machines installed in the United States.
Cryptocurrencies cannot normally be exchanged for ‘legal tender’ or fiat currencies although it may be possible to trade them for other cryptocurrencies.

There are many exchanges set up to handle the cryptocurrencies and competition has been strong, however demand for cryptocurrencies has fallen. This year a number of exchanges in Beijing have closed down and just this week CryptoAltex Exchange an online coin exchange website announced that it will be shutting down soon due to a lack of volume and interest. They have requested that users withdraw their funds as soon as possible.

There are signs that cryptocurrencies are becoming more widely acceptable and this week Apple announced a change to its policy whereby it will allow software developers to include virtual currency transactions in their programs.

In the UK, HMRC have said that cryptocurrencies will be exempt from VAT because they are considered to be “transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debt, cheques and other negotiable instruments”. This has encouraged the cryptocurrency businesses in that the UK authorities may look favourably upon the industry.

London is also hosting a CryptoCoin Conference later this month as part of London Technology Week and in July will host the 2 day CoinSummit allowing virtual currency entrepreneurs and potential investors in the virtual currency industry to gather. This week the FCA has announced an initiative whereby innovative firms will be offered the opportunity to work with them in order to develop new technologies that are compliant with regulations in the UK. Whilst the FCA has said that it has no intention of regulating Bitcoin there is the possibility that Banks in the UK could embrace cryptocurrencies which could result in the UK becoming an attractive location for such companies to set up their operations.
Whilst Bitcoin is a long way from replacing traditional currencies it has taken one very small step towards that potential goal. It however remains inaccessible to most ordinary people.


Post a Comment

Blogger Templates