Bitcoin: What's going on in cryptocurrency and should you care?

But is this technology reserved for the rooftop bars of Shoreditch and the Elon Musks of the world – or will it trickle down into the purses (digital or otherwise) of East Anglia?

• What is Bitcoin?

Bitcoin is a digital currency created in 2009.

The virtual currency is decentralised – it is not distributed by a government – and its transactions take place online.

If someone wanted to buy something in Bitcoin, they would sign their digital signature before having the transaction verified by a team of miners.

This entire transaction is then recorded on a public ledger – the blockchain.

New bitcoins enter into circulation when miners have the right combination of transactions and computational expertise to discover them.

At the time of writing around 20m bitcoins are in existence, though around 900 new Bitcoins are mined every day.

• Why has Bitcoin been back in the media so much recently?

Bitcoin has started making headlines again because its stock has been hugely volatile for the past couple of weeks.

It dropped 30pc in one day in mid-May after reports of increasing regulation of the market, and Elon Musk announced Tesla would no longer be trading in the currency because of environmental concerns.

• Might people have money in Bitcoin – or Bitcoin-related technologies – and not realise?

The answer is possibly, but unlikely. Aiden Watts is a Norwich-based investment manager for Brewin Dolphin, one of the UK’s leading wealth managers.

He said: “It’s possible that people will have their money invested in cryptocurrencies and not know – but it is unlikely. Many asset managers wouldn’t even invest in cryptocurrencies – let alone Bitcoin – because they’re so volatile and the risk is simply too great. There are also restrictions on what we can trade on behalf of other people.”

Aiden Watts of Brewin Dolphin (Image: Brewin Dolphin)
He went on: “There is also the age-old phrase of ‘If you don’t understand it, don’t invest in it.’ And that’s a good idea to some extent.

“Of course not everyone will understand the technologies within their portfolio because the average investor won’t have the insight around an American pharmaceuticals giant on the cutting edge of BioTech, but that’s why they have experts to handle the portfolios for them.

“What I do think however is that people shouldn’t be making decisions based on a recommendation they’ve heard in the pub. When it comes to making money in an asset as volatile as this market the best way to come away with a small fortune is to start with a large one.

“I also wonder what will happen when it’s all mined. There’s only about 20 million Bitcoins available and the vast majority have been mined – what happens when they all have been?”

• Is Bitcoin that interesting or are there other technologies to follow?

Bitcoin is the headline-grabber masking its much more interesting infrastructure, blockchain, Mr Watts said.

He said: “Blockchain is an interesting technology and its one I can see gaining popularity in the future. That’s because it’s decentralised – it’s not tied to any government or bank or technology, and that’s exciting for a lot of people.”

• But aren’t the government launching their own digital currency?

“The government has launched a taskforce to start looking at creating a digital currency. It is strange because the Bank of England governor Andrew Bailey has said ‘cryptocurrencies have no intrinsic value.

Coins displayed next to a bitcoin ATM in Hong Kong. The price of the virtual currency has taken a hit in the last week. Picture: AP/Kin Cheung.

"Buy them only if you’re prepared to lose all your money.’ Then in the next breath, they’re announcing a taskforce to start looking at a central bank digital currency,” Mr Watts said.

“It’s a stark warning about cryptocurrencies because essentially they’ve only got value if anyone wants to buy them off you – you can’t walk into a coffee shop and pay in Bitcoin.

"But, if the Bank of England and the Treasury is looking at creating a currency to operate in blockchain then that does indicate that this technology is something the public will potentially see more of in years to come.

“Part of what gets people excited about cryptocurrencies is the fact that its not linked to a government though or regulatory body. It’ll be interesting to see how the market reacts to the proposition.”

• Is Bitcoin really that bad for the planet?

Bitcoin does appear to be bad for the planet purely because of the energy which goes into mining more of it.
The University of Cambridge’s Centre for Alternative Finance estimates that as of this year the industry had reached 147.8 terawatt hours.

The Centre for Alternative Finance added that Bitcoin now represents an estimated 0.59 per cent of global electricity production, or enough to power all the kettles in Britain to boil water for 33 years.

There is a chance that because buying into Bitcoin is so high (around £30,000 at the time of writing) cryptocurrencies will just move wealth distribution issues to a new frontier.

Mr Watts: “I do think it’s only a very select number of people who even have access to this kind of currency. What I do think is people in the pub should be wary when they’re listening to people claiming to have earned thousands on stocks like Bitcoin – because the people who lost their money aren’t in the pub.”