WEB & TECH / JAN. 24, 2014
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Virgin Galactic Accepts Bitcoin Payments but will it Ever be a Mainstream Currency?

Richard Branson described it as 'fascinating' and has said that his commercial space-flight carrier, Virgin Galactic will accept Bitcoin as payment for flight bookings. But what is Bitcoin and does it matter to you?

Bitcoin is an open source peer-to-peer electronic money system, also known as a crypto-currency. It uses a de-centralised network of computers to record and verify transactions by solving cryptographic puzzles. The result of the transactions are then recorded on something called the Blockchain, an encypted global ledger of all Bitcoin transactions. Solving these puzzles is known as mining, because users who allow their computers to be employed solving the cryptographic puzzles are rewarded with Bitcoins.

Those miners who got in early, after Bitcoin first emerged in 2009, have done remarkably well because the currency has rocketed in value. In 2013, for example, Bitcoins rose from being worth around $50 each to over $1000.

Sadly, for anyone thinking of quitting their job and taking up Bitcoin mining full-time, it's probably already too late. The system is designed to reduce the number of Bitcoins issued over time. This is done by reducing the number awarded to miners for solving each puzzle, and by making the puzzles themselves more difficult to solve. So to make any serious money as a miner now, you'd need the kind of industrial-strength workstation that would require the kind of investment most of us could never afford. 

While Bitcoin has become hugely popular as a means of trading on certain parts of the Internet, thanks to its tiny transaction fees in comparison to other forms of electronic money, its association with the so-called Dark Net and deals involving weapons and drugs have meant that the authorities in many countries are wary of it.

In December, This Is Money reported that 'There are also concerns that the anonymity of Bitcoin will attract international money launderers, drug barons and other criminal users.' But the Washington Post pointed out that the anonymity of Bitcoin users was an illusion. 'Sophisticated analysis of past Bitcoin transactions could reveal patterns that unmask the identity of users,' it said. 

Where Bitcoin goes from here will depend greatly on how it’s treated by central banks and financial regulators. In December, China's central bank prohibited the country's financial institutions from dealing in the currency. That in turn led to Alibaba, one of the world's largest online marketplaces, banning the use of Bitcoin.

Other countries have taken a less drastic approach. In the UK, for example, HMRC met with what the Daily Telegraph described as 'representatives of the Bitcoin community' in December to discuss how it treats Bitcoin for tax purposes. The result is that HMRC is expected to drop the requirement to charge VAT on the currency and reclassify it as an asset or private money. 

That's the kind of development which will be welcomed by Bitcoin supporters, who see it as an important part of the future of digital transactions. 

Meanwhile, issues like the lack of a lender of last resort, the fact that it's not legal tender, and the fact that few businesses currently accept it as payment means that it will be a while yet before it gains the kind of popularity that would be needed in order to use it to pay our salaries.

Image by Mark Greenberg and Virgin Galactic.

 

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