Bitcoin must be regulated to stop it being used to bankroll terrorists and criminals, Theresa May today said.

Her Chancellor Philip Hammond also backed calls for reform, warning that the world needs to 'be cautious about Bitcoin'.

It comes amid concern cryptocurrencies are being used as a safe haven for international drug and arms traffickers.

While there is growing alarm that digital money is wreaking havoc in the international markets amid signs the bitcoin bubble - the biggest in history - is bursting.

Chancellor Philip Hammond (pictured in Davos today) also backed calls for reform, warning that the world needs to 'be cautious about Bitcoin'

Speaking at the Davos summit today, Mrs May said: 'Cryptocurrencies like Bitcoin, we should be looking at these very seriously, precisely because of the way that they can be used, particularly by criminals.'

She added: 'It is something we do need to look at.'

WHAT IS BITCOIN AND HOW DOES IT WORK? What are Bitcoins? Bitcoin is a cryptocurrency – an online type of money which is created using computer code. It was invented in 2009 by someone calling themselves Satoshi Nakamoto – a mysterious computer coder who has never been found or identified themselves. Bitcoins are created without using middlemen – which means no banks take a fee when they are exchanged. They are stored in what are called virtual wallets known as blockchains which keep track of your money. One of the selling points is that it can be used to buy things anonymously. However, this has left the currency open to criticism and calls for tighter regulation as terrorists and criminals have used to it traffic drugs and guns. How are they created? Bitcoins are created through a process known as ‘mining’ which involves computers solving difficult maths problems with a 64-digit solution. Every time a new maths problem is solved a fresh Bitcoin is produced. Some people create powerful computers for the sole purpose of creating Bitcoins. But the number which can be produced are limited – meaning the currency should maintain a certain level of value. Why are they popular? Some people value Bitcoin because it is a form of currency which cuts out banking middlemen and the Government – a form of peer to peer currency exchange. And all transactions are recorded publicly so it is very hard to counterfeit. Its value surged in 2017 – beating the ‘tulip mania’ of the 17th Century and the dot com boom of the early 2000s to be the biggest bubble in history. But the bubble appears to have now burst and questions remain over what market there is for it long-term. Some shops and restaurants are accepting for purchases, but overall this is a tiny part of the market of the real economy. While there are concerns Bitcoins can be hacked. Advertisement

And Mr Hammond said there is a need to regulate the newly-invented currency before it destabilises the global economy.

Bitcoin saw its value surge 17 times last year - beating the 17th Century dutch 'Tulip Mania, the South Sea bubble and the dot com bubble of the early 2000s to become the biggest economic bubble in history.

But its value has plummeted this year - tumbling by 50 per cent in just a matter of weeks.

As the bubble pops, Mr Hammond warned that governments around the world need to come up with some regulation of the new currency to stop it spiking wildly.

Speaking to Bloomberg in Davos, he said: 'I am interested in Bitcoin and the Bank of England as you know among the central banks has been leading on looking at Bitcoin. It is a very interesting, new development.

'I think we should be cautious about Bitcoin and possibly we do need to look at the way we regulate this environment before the amount of outstanding Bitcoin becomes large enough to be systemically important in the global economy.

'It is not there yet but it could get there soon.

'What is really important is that in regulating cryptocurrencies we don't inadvertently constrain the potential of the technology that underlies it, the blockchain technology, which has a wider and more important application.'

Mr Hammond said the regulation of Bitcoin and other cryptocurrencies will be up for discussion at the G20 in November.

Investors around the world scrambled to put their money into the new cryptocurrencies over the past 12 months .

But as quickly as the price surged, its value tumbled again.

Bitcoin was invented in 2009 by someone calling themselves Satoshi Nakamoto – a mysterious computer coder who has never been found or identified themselves.

The currencies are generated by computers and cannot be traced - meaning that criminals and terrorists have used it to try to evade the authorities and hide their cash.

There are growing signs that legitimate banks are increasingly looking to move into the new technology - with the Bank of England is looking at creating its own Bitcoin currency.

Some shops and restaurants are accepting for Bitcoins purchases, but overall this is a tiny part of the market of the real economy.

While there are concerns Bitcoins can be hacked.