A Bitcoin is a type of digital currency and is able to be traded for real goods, mostly at online e-commerce sites. Bitcoin are generated by computers solving complex calculations called "mining" and use data encryption to regulate the generation and transfer of funds.
The currency was devised by Satoshi Nakamoto in 2008 and released in 2009. Since then it has had a chequered history including:
- exploitation of bad chains which allowed large numbers of Bitcoin to be created
- technical glitches causing a fork in the chain so for six hours two Bitcoin networks operated at the same time
- ruling by the Chinese government in 2013 that it was illegal for Chinese Institutions to accept Bitcoin
- the arrest of two men in 2014 for money laundering and allegedly trading Bitcoin for use on black market websites
Is Bitcoin a legitimate currency?
There is considerable debate whether Bitcoin is a legitimate currency as it suffers from extreme volatility so is not a good store of value. Bitcoin are also not supported by a central government so are unprotected.
In its recent tax ruling the ATO gives its view that Bitcoin and other electronic currencies are not financial transactions and are liable for GST in the same way as barter transactions.
Will I trade in Bitcoin?
Given the volatility and propensity for exploitation, I would be reluctant to trade in Bitcoin in the immediate future. My view may change over time if Bitcoin becomes more recognised as a mainstream currency.
Guide to Using Bitcoin in Small Business
The Australian government has further information for small business considering accepting Bitcoin for payment of services at www.business.gov.au