BITCOIN What is bitcoin? Put simply, bitcoin is a digital currency. It can be used to make electronic payments face to face or over the internet just like a debit or credit card. Bitcoin is different to ordinary money. It is often referred to as a decentralised, peer-to-peer cryptocurrency Decentralised: This means no single person or organisation controls bitcoin (unlike sterling which is run by the Bank of England). Changes to bitcoin are implemented by consensus within a thriving community of developers and users. Peer-to-peer: This means transactions are processed by passing information between individuals. In essence, with bitcoin you are your own bank! Cryptocurrency: Refers to the military grade cryptography which protects and secures the bitcoin network. This prevents malicious users from fraudulently creating extra bitcoins for themselves. For maths enthusiasts, the techniques used are public key cryptography and elliptic curve digital signatures. The protocol governing how bitcoins are generated means there would be no need for a “central bank of bitcoin” similar to the Bank of England. This is either a strength or a limitation, largely depending upon one’s personal politics! It’s just data, how can it be worth anything? The exact same is true of regular “fiat” money like pounds and dollars. The vast majority of sterling in existence does not exist as notes or coins but simply as numbers in an account. The simple reason these currencies have value is they are scarce, useful and hard to counterfeit. The difference between bitcoin and fiat money is that teams of accountants audit fiat banks to make sure they haven’t cheated and created their own digital money, whereas bitcoin is “audited” automatically by computers (known as bitcoin miners, so called because they are rewarded for their efforts with new bitcoins). Strong cryptography which underlies all bitcoin transactions prevents fraud at a user level. The bitcoin protocol will only ever allow 21 million bitcoins to be produced (and at a steady, predictable rate). Bitcoins have value because they are inherently secure, sufficiently scarce, and a large community of users consider them useful for buying and selling a rapidly increasing number of goods and services. Keep an eye out for this logo! Advantages of bitcoin Bitcoin’s fully automated nature makes transactions very cheap. One could quite easily send millions of dollars worth of bitcoin around the world within minutes for a fee of a few pence. Remittance charges to some countries on the other hand can exceed 10%! Likewise credit card fees in the west can often exceed 3%, this can be an exorbitant amount for large purchases. Advantages for merchants are that no chargebacks exist with bitcoin. Chargeback fraud costs businesses millions of pounds per year, an estimated 0.5% of all revenue in 2013*. This is very significant to small-margin online trade and time consuming for small business owners. * cost-fraud-2013.pdf

Economics of bitcoin Bitcoin is often referred to as a deflationary currency (the opposite of inflation). If bitcoin adoption expands at a rate faster than bitcoins are produced, the price of goods in bitcoin will gradually decrease (not to be confused with the deflationary spiral that fiat currencies are vulnerable to). Using bitcoin Bitcoins are stored in a bitcoin wallet. Your wallet is an entry on the bitcoin ledger system known as the blockchain. Your wallet has an address which is used to send/receive funds which might look something like this: 1PZ5ebvdt43dvRRgRNgBhsq2PwAKN4X6W Because these are little verbose QR codes are often used: Smartphones are a great way to carry small amounts of bitcoin publicly to pay for meals/goods where they are accepted (think of it like carrying cash). To send bitcoin, a user needs to use their private key, a long alphanumeric code which is usually accessed with a password (think PIN number). Storing bitcoin Bitcoins are phenomenally secure provided they are stored correctly, for larger investments a technique called cold storage should be used to keep bitcoin safe. More can be found on this at Buying bitcoin Bitcoins are often traded amongst individuals or purchased via bitcoin exchanges (similar to forex only much lower fees!) Be sure to use a UK based exchange to avoid overseas transfer fees when paying sterling into your trading account. A growing number of towns and cities also sport Bitcoin ATMs where one can simply pay in cash and have the equivalent amount in bitcoin sent to the wallet of their choice. Find out more Introducing Starting a revolution in money This is actually the bitcoin address of the RNLI (Royal National Lifeboat Association). Why not send them something for your first transaction! They are the first major UK charity to accept bitcoin.