The Chancellor of the Exchequer, George Osborne, is due to unveil a plan which could see the British government exploring the role that digital currencies such as Bitcoin could play in the existing financial system and whether they need to be regulated. The measures included in the plan are intended to make Britain the global centre of financial innovation.
The growing popularity of Bitcoin has sounded alarm bells in the regulated financial system and as it is not controlled by a central bank it is therefore much more difficult to regulate.
A Bitcoin is a new type of money, it is completely virtual and can be used to buy products and services just like an online version of cash but is currently limited by the small number of shops and retailers that will accept it.
Currently there are 3 main ways to get a Bitcoin:
– You can buy Bitcoins using real money. The current value of one Bitcoin is approximately £500.
– You can sell something and receive payment in Bitcoins
– Or they can be created using a computer, this is called â€œminingâ€
Bitcoins have become popular due to the fact that some people like the fact that Bitcoin is not controlled by the government or banks, which in turn means there are no taxes or bank fees to pay, at least for now.
People can also spend their Bitcoins anonymously and although the transactions are recorded publicly, unless someone knew your Account number it would be almost impossible to check on your transactions.
Every transaction is recorded publicly so it’s very difficult to copy Bitcoins or make fake ones or even spend ones you don’t own.
It is possible to lose your Bitcoin virtual â€œwalletâ€ or delete your Bitcoins from your phone or PC and lose them forever. This is one of the main drawbacks of the current system and there have also been thefts from websites that let you store your Bitcoins remotely.
At the moment the value of Bitcoins goes up and down a lot, so it’s impossible to say whether it’s safe to turn your ‘real’ money into Bitcoins.
Speaking at London’s Canary Wharf , the Chancellor said that it is “only by harnessing innovations in finance, alongside our existing world class knowledge and skills in financial services, that we’ll ensure Britain’s financial sector continues to meet the diverse needs of businesses and consumers here and around the globe”.
He also announced the government is to investigate the potential for virtual and digital currencies such as Bitcoin to encourage innovation in the UK’s financial sector, while also examining their potential risks.
More than 60,000 online retailers now accept virtual currencies worldwide and the growing popularity has seen backers of the currencies push for greater mainstream adoption. However, their use has also been linked to illegal activity online.
BBC technology correspondent Rory Cellan-Jones said: “Enthusiasts say it is the future of money, detractors claim that it is extremely volatile and is used mainly by drug dealers and money launderers.
“Now the government says it will examine whether this and other virtual currencies should be regulated, how they could help stimulate innovation – and their potential risks.”