Bitcoin (₿). Are you a fan of it or do you fear anyone asking your "accountant's hat" point of view about it? Whatever your standpoint, bitcoin is changing the way we look at money and the transfer of it between people & companies.
A beginner's guide
I'll try and keep this as simple as possible... Bitcoin is possibly the world's best known (but not only) cryptocurrency. That means it is a purely electronic form of cash. It is also decentralised; there is no central bank or administrator controlling its production and distribution. Instead, bitcoins are digitally transferred (i.e. people paid) directly between users through the use of a blockchain.
Bitcoin was invented (if a currency can be invented) in 2009 by an unknown person or group of people using the name Satoshi Nakamoto and released as open-source software, i.e. anyone can collaborate and contribute to the development of the software. It is not 'owned' by anyone. For more on the original concept read Satoshi's white paper on the subject.
The unit of currency is bitcoin with sub-units including millibitcoin (1/1000 of a bitcoin) and the tiny satoshi (1/1000000000 of a bitcoin). Bitcoins are kept in a wallet, or rather the details of the bitcoins you are currently holding are kept in the wallet. The actual coin code stays in the blockchain.
Like Sterling currency is physically created by the Royal Mint, bitcoins are created as a reward for a process called mining. Anyone can be a miner, if they have the computer processing power required, and their role is to help maintain the record-keeping of the currency in the blockchain. A form of peer to peer network effectively.
Hopefully, I haven't lost you yet!
Research produced by the University of Cambridge estimated that, in 2017, there were 2.9-5.8M unique users using a cryptocurrency wallet, most of them using bitcoin; a massive increase from 300,000-1.3M in 2013.
From an accountant's point of view
All this is interesting but is it something you need to start thinking about taking into account from an accounting point of view?
Economists certainly aren't convinced, or even in agreement. According to The Economist in Jan 2015, bitcoins are "hard to earn, limited in supply and easy to verify", which might make it a currency. But economists define money as a store of value, a medium of exchange and a unit of account and there are some that don't think bitcoin meets these criteria.
Also, it seems no one can agree on the merits of bitcoin - Forbes named it the best investment of 2013 whilst Bloomberg named it one of its worst investments of 2014.
Additionally, just like other currencies, bitcoin has its downsides:
- Security - the very nature of open-source software can open itself up to hacking and no one wants that less than when it comes to money.
- Image - let's face it, bitcoin hasn't had the best reputation in recent years with stories appearing the press every day about bitcoin being the currency of choice for hackers, kidnappers and the darknet.
- Volatility - bitcoin has shown it is just as susceptible to market fluctuations as traditional currencies are. Just read a recent article in The Express for proof.
The concept of bitcoin, and cryptocurrency in general, sounds all very altruistic and it may well become a universally accepted currency once it can get over the image and security issues. Some large blue-chip accounting organisations, like PwC and EY, are already getting involved in this new world, but, I think it may be a while before the majority of us need to start reporting on cryptocurrency in our daily roles.
But it definitely one to keep an eye on, as Facebook has identified, having just lifted the ban on cryptocurrency advertising on its site.
This blog was written by Becky Reid, Tattoo Ink Marketing.
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