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In , financial history was made when someone bought a pizza. The meal cost 10, bitcoins and was the first time the virtual currency was used to buy something in the real world. The day is now celebrated every year by bitcoin enthusiasts as Bitcoin Pizza Day. Things have come a long way since then. In March this year, the price of one bitcoin climbed above the price of one ounce of gold for the first time.
In , there were fewer than 10, transactions in bitcoin. By January this year that number had trebled. Analysts put this down to the fact that investors think it will hold its value better than some other investments, as well as the fact that it has become increasingly popular in Asia. There is only a limited number of bitcoins in circulation and new bitcoins are created at a predictable and decreasing rate. A person holds their bitcoins in a bitcoin wallet - in a mobile app or computer - and can send and receive bitcoins through it.
They get the bitcoins in the first place by accepting them for a good or service, or from an exchange, where they swap real money for bitcoins at the prevailing exchange rate. Every bitcoin user has their own address - a bit like a bank account number - and controls all the bitcoins coming in and out of that address.
The bitcoin transactions run on a system called blockchain. This is a public ledger, which holds a record of every single transaction. The other person receives the bitcoins once the transaction is verified. You can spend them, either on the internet at places such as WordPress and Reddit, or at establishments that accept the currency. When you want to turn your bitcoins into real money, you trade them on an exchange. There is now a Bitcoin Visa Debit card which makes spending them easier. There is a limit to how many transactions can be processed in a given time-frame, and the increase in transactions has meant a slowing down of payments.
That problem is still not solved. But there are more mundane problems, like the fact that it suffers from price fluctuations.
Then there is the matter of how different countries treat the currency. Some treat it as a commodity, like oil or gold, but others treat it like money.
Some prohibit its use entirely. The EU wants to be able to identify bitcoin users in the name of preventing money laundering and terrorist financing. In addition, the whole system is not highly regulated. Partly, this is because any developer in the world can verify exactly how bitcoin works. The bitcoin protocol itself cannot be modified without the cooperation of nearly all its users, who choose what software they use. Even where regulation exists it is not always clear.
Some say that the uncertainty over regulations will get in the way of bitcoin growing. Bitcoin is not the only cryptocurrency, lots of others have entered the market - over of them. Even some of those who work intimately with bitcoin say it is going to be a failure. And a newly published study says that bitcoin and other cryptocurrencies are no passing fad. Alex Gray , Formative Content. The views expressed in this article are those of the author alone and not the World Economic Forum.
We are using cookies to give you the best experience on our site. By continuing to use our site, you are agreeing to our use of cookies. Alex Gray Formative Content. More on the agenda. Explore the latest strategic trends, research and analysis.
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