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Ahh, bitcoin. Has there ever been a technology that is more talked about but less understood? It seems no one can quite work out whether bitcoin is the currency of the future or just a pyramid scheme to help tech bros get rich quick. We don't have the answer to that question yet, but we can help you know what to say when your nan tells you she's considering cashing in her pension and going all-in on cryptocurrency.

Here goes...


Alright, what is it then?

Bitcoin is a kind of digital money. But unlike normal cash, it isn’t printed by a government or stored in normal bank accounts. Instead, people who own bitcoin can directly transfer it between themselves without having to go through a third party (like a bank).

So I can pop to the shop and pay with bitcoin then?

Probably not, sorry. Unless you hang out at some seriously hipster cafés. Bitcoin hasn’t really caught on as a payment method because it takes ages to make transactions and its value is all over the place.

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Oh, that's no good. But it is an easy way to get rich quick, right?

Nope. The value of a single bitcoin is about 17 times more than it was at the start of the year, that’s true, but many economists think that this rapid growth is just a bubble, and the price is going to come crashing down again soon enough. You’re better off keeping your money in your old-fashioned bank account.

But what if I did want to get some... I’m asking for a friend.

There are plenty of places to exchange your pounds, euros and dollars for some virtual currency. Websites such as Coinbase are a lot like currency exchanges – they buy loads of bitcoin at a time and then sell it on to individuals. Other websites match you up with an actual person that’s selling bitcoin, and you can transfer money to them. In almost all cases you’ll have to pay a transaction fee and have your identity verified by providing some ID. And there’s always mining...

Mining sounds fun. I’ll see where I left my pickaxe...

Hold up, it doesn’t work like that. Mining refers to the way that the computers that run the bitcoin network verify transactions by running some complicated calculations. Basically, all these computers across the world record all the different bitcoin transactions that take place, forming a public record of every single time anyone has ever sent or received bitcoin. This is a really difficult task, requiring highly specialised (and expensive) computers, so the owners of these computers are rewarded with tiny fractions of a bitcoin as a payment for running the network. That’s mining.


Things just got way complicated. Why bother with a network – what’s wrong with a record held in the basement of my bank?

Probably nothing, to be honest. But fans of bitcoin like the idea that they can make transactions without anyone knowing who you are. If you want to make a transaction the old-fashioned way, using your debit card or a bank transfer, you essentially have to ask a bank or payment company (like Visa or Mastercard) to process it for you. This places a fair amount of power in the hands of those companies. Bitcoin transactions aren’t processed by any one individual – they’re processed by a network of people, so there’s no central authority that controls the flow of money. That, combined with the fact that it allows you to make anonymous transactions, makes bitcoin really useful for people that want to buy things without being traced.

So all these people talking about buying bitcoin, they’re actually drug dealers?

Maybe. It’s more likely that they’re just getting on the bitcoin hype train because of all the press around it recently. The problem is that as more people clamour to buy bitcoin, the price of the currency goes up, which means people are actually less likely to use it as actual money. The good thing about pounds and dollars are that they’re worth more or less the same from day to day. Bitcoin regularly goes up or down in price by thousands of dollars in a day, which makes it a bit useless as a thing to buy coffee with.

Okay. When is everyone going to shut up about it then?

Hopefully soon. If the price of bitcoin settles down, then there’s a chance that it might start to be more widely adopted as a currency. In the meantime, there are plenty of other currencies based on similar technology that people are getting even more excited about. Yay.