Bitcoin (BTC) is a worldwide digital (or “virtual”) currency.

    Bitcoins are created and exchanged through a decentralised peer-to-peer computer network. This means that the currency is not controlled by a central authority or government, and can be accessed by anyone with an internet connection.

    How are bitcoins used?

    Bitcoins are stored in a ‘digital wallet’ (which is essentially free software you can download from the internet) and can then be sent to or received by anyone who has an account within the network.

    Using the currency is fast, anonymous and has transaction costs close to zero. You can also convert bitcoins to normal currencies through dedicated exchanges.

    Bitcoins can be used to buy a range of items (some regular businesses now accept payment in bitcoins) but you could also buy and sell the currency to profit from changes in its value.

    How does the value of bitcoins compare to other currencies?

    When bitcoins were first launched, $1 could have been enough to buy over 1,000 BTC. Bitcoins have significantly increased in value since then and continue to grow in popularity, but as with any currency, their value can fluctuate.

    Critics argue that the value of bitcoins fluctuates so wildly that its legitimacy as a currency should be questioned.

    What are the risks with bitcoins?

    Concerns have been raised about the role of bitcoins in some black market activities and growth of the currency could be hindered by regulators clamping down on its use.

    There have been some reported incidents of bitcoin theft as a result of hacking and questions have also been raised about the taxability of the currency.

    To learn more about bitcoins, how they can be traded like commodities or currencies, and the risks of trading with them, read the lessons in our dedicated bitcoins module: