There’s a brand new currency which looks set to change the way we do business on the internet, but can it really challenge the status quo?
What exactly is the Bitcoin?
Developed in 2009 by a mysterious individual who goes by the name of Satoshi Nakamoto (although many people believe that ‘he’ is actually a group of people), the Bitcoin is the world’s first cryptocurrency, meaning that this digital money is encrypted to ensure that it is securely created and managed.
Is it a genuine currency?
Because it is such a new concept the Bitcoin is not currently traded on the foreign exchange, but all that could change thanks to a new ruling by a US Judge in August 2013. In a case against a suspected Ponzi scheme operator Judge Amos L.Mazzant ruled that the Bitcoin is a valid currency and therefore subject to laws governing other currencies.
Who creates and manages the Bitcoin?
Uniquely amongst currencies, the Bitcoin is not managed by any centralised group or country. Known as a P2P (peer to peer) currency it is ‘mined’ and distributed by the people who make up the online network community.
‘Mining’ or creating Bitcoins is done via complex algorithms which create blocks of Bitcoins to a pre-determined formula. There is a finite number of Bitcoins which will ever be mined the number is set at 21 million, at which point Bitcoin mining will cease and no more will be produced. This guarantee serves to reassure investors that there will never be excess amounts created to devalue the currency.
Since the Bitcoin currency is not controlled by any country, nation or government it is not subject to the fluctuations which can occur with physical currencies, which could make it a good bet for the foreign exchange investor. However, it is important to note that despite this the value of the Bitcoin has already proved to be quite volatile, therefore it would be prudent for investors to proceed with caution.
The Bitcoin does have the advantage of being the first digital currency to really capture the public’s imagination and this puts it ahead of potential competitors. Opponents argue that the fact that it is a digital currency makes it an easy target for fraud and other illegal activities, but it is still too soon to be able to predict with any certainty whether or not this will be the case.
Certainly foreign exchange investors will be watching the progress of this brand new currency with great interest. The idea of a virtual P2P currency seems to have found favour with a huge number of internet users and only time will tell whether the Bitcoin will become a serious contender in the world’s financial markets.