What’s all the fuss about bitcoin? If you haven’t heard about it, don’t worry, you soon will. It’s a digital currency which has seen over a 1,000% rise in value this year. Yes, that's the right number of zeroes and bitcoin is making millionaires out of its early investors. The big question now is whether it’s just a bubble or, if not, how can WE get a piece of the action?
First some background. The picture here gives a false impression. Bitcoin doesn’t have actual coins or notes. It isn’t stored in banks or controlled by governments (which is part of its appeal). You can buy bitcoins, keep them in a digital wallet and use them to buy and sell goods and services electronically (although this is quite difficult in practice at the moment). The major difference to hard cash is what happens with the record of your transaction. It’s not kept by the bank as a statement on your personal account. Instead, all the transactions of all the bitcoins in existence are publicly kept in a long tail (known as the ‘blockchain’) which is processed by a group effort of bitcoin “miners” across the globe. These miners are rewarded for their work with, you guessed it, bitcoins.
The currency has picked up a bad reputation because, so far, the identities of the buyers and sellers on bitcoin transactions have been obscured. This makes bitcoin an easy way to launder money or trade drugs. But the government has now said it will start regulating bitcoin which might give it more respectability and encourage more people to use it.
On top of that problem, the value of bitcoin regularly halves as well as doubles. One bitcoin is worth (at the time of writing) $14,750, an astonishing and probably unsustainable rise from around $600 a year ago. But, back in September it lost almost 50% after China cracked down on its “improper use”.
Many people think that bitcoin is a bubble which will collapse, resulting in huge losses. Others think it’s the future of money. Personally I’m very annoyed I didn’t get in on the trend earlier. However, I lean more towards the bubble opinion than the evangelism approach. That said, I recognise that bitcoin could indeed become a mainstream payment technology in the not so distant future. There are other cryptocurrencies, so called because the blockchain is protected by super-complex ciphers, knocking about too, the best known being bitcoin cash (a breakaway from bitcoin) and ethereum.
Skinted Minted Mum is by no means recommending anyone should invest in these new currencies. But, imagining if you were truly minted and had money which you could afford to lose, what would you do?
First, you could buy actual bitcoins. Each one is currently worth about $14,750 or over eleven grand in sterling but bitcoins are divided into smaller parts called satoshis. You need to have a wallet (the Telegraph recommends blockchain.info) and then to visit a broker such as Coinify or Bittylicious.,
Secondly, you could invest in a fund which invests in bitcoin or other cryptocurrencies. There are some available through online fund shop Hargreaves Lansdown. Or you could take the picks and shovels approach to the new gold rush by investing in the shares of companies who will benefit from the success of bitcoin such as Nvidia (graphics design for bitcoin) and tZero, an exchange. These do tend to be American shares but UK technology funds (again see the investment fund shops, Fidelity also has one) may also hold them.
Finally, for a long term and more realistic savings plan, see our SMM beginner's guide to investing here.