Bitcoin has just made headlines by topping the value of gold for the first time in its history. Experts believe that Bitcoin is surging in value thanks to high demand from buyers in China and they expect the value of the cryptocurrency to hit the £3,000 mark by the end of 2017.

Bitcoin

Bitcoin is Volatile

This upward trend in value is in sharp contrast to 2014 when Bitcoin prices collapsed, but with Bitcoin now the currency of choice for people looking for ways to channel money anonymously, it’s unlikely that Bitcoin will fall in value in the short-term. Indeed, there is hope that Bitcoin will soon be recognised as a legitimate currency, which is helping to push its value up. Nevertheless, Bitcoin remains a volatile investment, so prices could just as quickly fall over the next few months.

The value of Bitcoin fell last year after reports in the media suggested China moving to outlaw its use. Beijing did try to crack down on Bitcoin trade at the beginning of the year, amidst concern that large amounts of money were being illegally channelled out of China, but although the currency dropped temporarily, it soon picked up again.

Governments Can’t Control Bitcoin

When a currency rises sharply in value, it has an inflationary impact on the economy. A strong currency might sound like a good thing, but in reality it causes a significant drag on the economy, affecting interest rates, prices in the supermarket, and capital flow into and out of the country. Bitcoin is different because it is unregulated. Governments can’t control Bitcoin, even though they would like to. The price of Bitcoin is purely down to supply and demand, so as more people trade using Bitcoin, its value rises.

Will Bitcoin Soon Be Recognised as a Legitimate Currency?

China’s leading search engine, Baidu, recognises Bitcoin and allows people to use Bitcoin to pay for certain services. In the US, the Federal Reserve has indicated it may be open to the idea of Bitcoin as a legitimate currency in the future.

More Facts about Bitcoin

Until recently, very few people had heard of Bitcoin, but it is well on the way to becoming mainstream. Bitcoin was invented in 2009. The idea was to create a mathematical payment system where payments could be transferred electronically, instantly, with virtually no transaction fees. Unlike pounds and pence, Bitcoin is not a “real” currency. Rather, it’s a cryptocurrency, or virtual currency.

Bitcoin are produced by computer algorithms, a process known as Bitcoin mining. A computer on a network solves a mathematical problem. For every problem the computer solves, a block of bitcoins is generated. Bitcoin miners earn bitcoins, which are stored in an electronic wallet. This is completely anonymous, so you are protected when making a Bitcoin transaction online.

Very few mainstream businesses accept Bitcoin, but this could change in the future. However, if you have some Bitcoin in your virtual wallet, you can use it to pay for a trip on Richard Branson’s Virgin Galactic space venture.