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What's the big deal with Bitcoin

An image symbolising bitcoin

Bitcoin has made constant headlines over the past year. It’s the gold rush of the century, albeit an invisible, intangible and very unpredictable form of gold. From beer to bus tickets, the cyber-currency is increasingly gaining a foothold. So what exactly is Bitcoin and why should you care about it?

Benefits of Bitcoin

Bitcoin is one of the first universal currencies. You don’t have to worry about foreign exchange rates and fees are extremely low, much lower than PayPal or credit card fees. Melbourne-based, all-terrain vehicle manufacturer Tomcar uses Bitcoins to pay overseas suppliers and save on bank fees.

Bitcoin also enables privacy. Its transactions are irreversible and don’t contain customers’ sensitive or personal information.

The virtual currency also has benefits for merchants. Sellers can easily expand into new global markets where credit cards aren’t available or fraud rates are unacceptably high.

Cryptocurrency caution

Bitcoin throws up a lot of risks. For starters, the virtual money still lacks mainstream acceptance as well as recognition or use by governments or major banks.

Bitcoin’s ‘irreversible transactions’ mean merchants don’t have to worry about fraudulent chargebacks. But it also means that they’re pretty much untraceable: there’s no way to get them back once they’re taken.

They’re also highly volatile, with their US dollar value soaring and plunging by hundreds of dollars per Bitcoin based on news and hype.

Another issue is association with criminal activities. Because Bitcoins don’t flow through normal channels such as banks, and are considered almost untraceable, they’ve been used to buy and sell illegal material ranging from weapons to drugs.

Security is another big risk. There have been multiple cases of hackers stealing Bitcoins from digital wallets, and unlike regular money there are no bank safety nets to reimburse you for fraud.

The future of Bitcoin

Bitcoins are certainly gaining a foothold, globally and in Australia. One Australian company plans to distribute 100 Bitcoin ATMs nationwide. Online company Overstock has become one of the first major retailers to allow Bitcoin transactions. Gaming company Zynga also accepts them in some of its games.

But the real question is what will happen to Bitcoin as regulators increasingly try to control its exchange and supply? Some believe that Bitcoin may end up the Napster or Myspace of virtual currency, pioneering the sector but eventually replaced by newer forms such as Dogecoin. Coinmarketcap already lists 88 different cryptocurrencies.

So should you buy Bitcoins? It depends what your purpose is. For most buyers it’s about speculation, caught up in the hype and hoping for the next massive spike. But given Bitcoin’s vulnerability to news and sentiment – such as the 40 per cent fall in its value after China issued a ban – it’s a hugely risky choice for your money.