From Silk Road to ATMs: the history of Bitcoin

A shop in Hong Kong displaying a Bitcoin sign. Photograph: Philippe Lopez/AFP/Getty Images

Bitcoin is a digital currency started in 2009 by a mystery figure named Satoshi Nakamoto, whose true identity is still unknown. It is unlike traditional currencies because it has no central bank, nation state or regulatory authority backing it up.

The “coins” are made by computers solving a set of complex maths problems. To spend them, users buy bitcoin and conduct transactions with them using exchanges such as San Francisco-based Coinbase. Rather than a central authority validating transactions, they are all recorded on a public ledger, called the blockchain.

Bitcoin don’t actually exist but are digital keys are stored in a digital wallet, which can also manage transactions. The wallet exists either in the cloud or on computers, and can be linked to bank accounts. If using an online wallet, investors must be sure they can trust the provider, because if hackers breach its server’s security measures the bitcoin could be stolen.

Typically, you can pay by bank transfer, mobile payments or with a Visa or Mastercard. There are also bitcoin ATMs, which allow for bitcoin to be exchanged for cash and vice versa, in London, Bristol, Brighton and Glasgow. A growing list of firms accept Bitcoin, including Tesla and Microsoft.

Bitcoin has a finite supply of 21m – of which more than 15m are in circulation – which supporters claim make it more stable than government-backed currencies that can be devalued by central banks printing money. However, it has been very volatile and has quadrupled in value in the last nine months to more than $5,000 for each bitcoin. It lost 10% on Wednesday when Jamie Dimon of JP Morgan described it as a fraud.

Bitcoin is often used as an anonymous way to carry out large cross-border money transfers, so has become linked to drug dealing and money laundering. It was used on the online black market site Silk Road, a platform for selling illegal drugs.

On exchanges, fractions or “bits” can be bought instead of a whole bitcoin. Transaction fees vary according to the exchange or broker, but are typically up to 1% of the currency bought, plus bank transaction charges. Fees of up to 1% can also apply on sales.

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