Byte(ing) Into Bitcoin

The Trump Jump -

Bitcoin has gone crazy (again) as its price has risen once more by a breath catching jump. On the US election night, as it became clear Trump had won, the price of bitcoin, jumped by 10%. Since mid-October it has surged by nearly 50%.

The currency is more volatile than most things and there are plenty of stories of people making and losing millions.

Bitcoin Performance (£)

While there has been a breath-catching rally - there are plenty of times the currency has collapsed.

For instance in November 2021 1 bitcoin=£47,000. By January 2022 it had collapsed to around £31,000 and then proceeded to fall to £16,000 by June 2022.

So in the space of less than a year, it lost around 50% of its value.

But those who are tempted by the currency look more at the longer-term trend, which is impressive.

In November 2019 1 bitcoin=£6,500

In November 2024 1 bitcoin=£72,000

That's a rise of over 1,000% in 5 years. By comparison, the FTSE 100 has risen by around 30%.

So over the past 5 years, Bitcoin has done around 30 times better than the stock market. But the stock market has been a lot calmer in that there haven't been the heart-stopping swings that have occured in the bitcoin market.

Q: OK - that's what the fuss is all about - what is this thing?

Bitcoin, often described as a cryptocurrency, is a virtual currency. That means there are no physical coins or notes. It's a bit like an online version of cash. You can use it to buy products and services, although not many shops accept Bitcoin.

Q: Who Invented it?

Bitcoin's inventor is thought to be a Japanese man called Satoshi Nakamoto - but it might not be.

Very little is known about him - and some people even think there could be more than one person behind its creation.

You can cut bitcoins into bits - a satoshi is the smallest monetary unit a bitcoin can be split into. One bitcoin is made up of 100,000,000 satoshis - named after the supposed inventor.

There is no reason yuo cant invent your own crytpo currency - the Adamski or the FiJan (after Jane and Fi on our Times Radio programme)

Q: So if there is no Bank of England or similar printing them, how do bitcoin magic into existence?

Good question

It's like completing a maths test where the prize for getting it right is not a gold star but a huge pot of money.

People called - miners compete to be the first to solve a complex numerical problem using super-fast computers. The one who does gets rewarded in new bitcoins.

Q: What makes it different from normal currencies?

Bitcoin doesn’t have a central issuing bank in the same way that pounds do, with the Bank of England issuing new bank notes and coins every so often. It is independent from government and that is partly why it appeals to free-marketeers and those who don't like government intervention in the economy.

In some ways - it doesn't feel real - because it is not like the currencies we have come to know and love/hate like the pound/euro/dollar etc. But although such currencies can be held in your hand - they are also curiously insubstantial. What is a £? It only has value because we say it has and could be replaced overnight with fishcakes - if we all agreed to do that.

And the fishcake idea is not so far from the truth. In the Yap islands in Micronesia they ndecided that miney should be human sized chunks of stone.

Yap stone money was about 7 foot high. Photo Source

They couldnt be carried around so you promised people bnitsfo your stone to buy things with. One stone got lost in the sea- but it didnt really matter as no one carried it around - so as long as you knew it was there - it could still function as money. The pound is not so wildly different from that stone idea. So once you start thinking about it - crypto currency like bitcoin, is not so huge a jump from what we use today, as you might first think.

Q: How Do I Spend Bitcoin?

In October 2020, the online payment merchant PayPal said it would facilitate purchases using bitcoin, although I'm not sure it ever happened or not. I have never tried it myself and wouldn't suggest it, but it is interesting to see more people thinking about crypto as a usable currency rather than an investment.

Q: What is the appeal of bitcoin?

Bitcoin has a hard cap on the whole number of coins that will ever be minted. With national currencies, the government can increase supply whenever it wants. So in theory at least, cyrpto currencies are sometimes seen as a protection against govermnment created inflation.

Q: Losing them

If you forget or lose your password/key, you can lose all your money forever. There have also been thefts from websites that let you store your Bitcoins remotely.

James Howells, an IT engineer from Newport mistakenly threw away a hard drive containing more than £150m of bitcoin and has tried to put together an £11m proposal to excavate the landfill site he believes it is in.

Q: Is it also the currency choice of criminals?

The ability to hife the identity of the currency holder has made them increasingly attractive to criminals, and particularly to hackers who demand ransoms after breaking into companies.

In 2020, at least $350m in crypto ransoms was paid out to hacker gangs, according to Chainalysis, a research group.

But at the same time, every transaction in a cryptocurrency is recorded on an immutable blockchain, leaving a visible trail for anyone with the technical knowhow. So in theory it might be traced - but the name on the account is probably a pseudonym, so in practice tracing payments can be near-on impossible

However, at some point, virtual money is sometimes turned into hard cash. Criminals can then use a “Treasure Men” hired via the DarkWeb to turn the money into walking around cash.

How To Buy It

There are exchanges on which it can be purchased. But beware of a lack of regulation. If toy are trading on a site which isn't regulated or controlled by a reliably government authorised body, the exchange could go bust with all your cash. So be very careful.

Our look at bitcoin is on Monday's Money Matters on Times Radio.

If you have a questions please contact me here or on X , BlueSky or Insta at @adamshawbiz