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From revolution to asset - what's next for bitcoin?

Bitcoin began as a way to subvert reliance on banks, but it has steadily gone mainstream. Few investors could baulk at their enormous returns, but some are wondering what the future holds...

Wednesday 6 December, 2017
Bitcoin is a peer-to-peer digital cash system that can be used to make anonymous - but also totally transparent - payments without the need for assistance from financial institutions, i.e. banks.
Bitcoin is a peer-to-peer digital cash system that can be used to make anonymous - but also totally transparent - payments without the need for assistance from financial institutions, i.e. banks. Foto:dpa-Jens Kalaene

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Pizza, holidays, online dating service subscriptions, alpaca milk and limousine hire – these are all things you can reportedly buy with the digital currency bitcoin.

Once the exclusive terrain of hard core computer enthusiasts, bitcoin – a peer-to-peer payment with a dedicated currency created in 2009 by an anonymous cryptographer known as 'Satoshi Nakamoto' as a way to bypass the need for banks - has long since gained traction beyond its small core of initial acolytes.

Given that its value has skyrocketed in recent years, it's hardly surprising that the world is sitting up and paying attention. A few years ago one bitcoin was worth US$12, over the weekend the value of a coin neared the US$11,000-mark – before plunging dramatically back to US$9,000.

Many businesses, often those run by cryptocurrency believers, began accepting bitcoin years back.

Leuchtstoff, a cozy coffee shop full of sagging vintage sofas and young, hip clientele bent over Mac laptops in Berlin's trendy south-east neighbourhood Neukoelln, is one such case. Its owner, Niels Goettsch, started accepting bitcoin payments in 2013. As two Leuchtstoff employees, David Krause and Moritz Geipel, told dpa, it was mainly intended as a bit of a fun.

"It was just really funny ... a bit of a conversation starter," said Krause. He says that people use it so seldom (about once a month), it's really more about the novelty factor.

When they do, it's simply done by smartphone, using a conversion app to work out the price. The customer just sends the right amount to the owner's private bitcoin wallet, the equivalent of a bank account. It then goes down in the cafe's books – with a special note saying the customer paid in bitcoin – and taxed like any other income.

In the past two years, a slew of major online retailers such as Amazon and eBay (or rather its payment service sister company, PayPal) have also started accepting payment in bitcoin.

Yet for many bitcoiners, the project has more to do with the ideas that underpin the technology than making money.

"An interest in profit wasn't decisive," said Lennart, a construction engineering student, of his 500-euro (592-dollar) bitcoin investment made in June.

For him, blockchain technology, whereby all transactions are simultaneously saved on all computers in a network onto a publicly viewable 'ledger', makes bitcoin safer than currency controlled by banks.

For one thing, it is unhackable: there's no central structure to break into as everything is open. In addition, no one person controls bitcoin – unlike regular currencies, which are under the thumb of central banks.

"The system is also very democratic, there are hardly any obstacles to getting involved. Anyone can get a bitcoin wallet within seconds and carry out transactions without help from banks," he said.

While some see it as laudable, others see bitcoin – often used by criminals due its anonymity – as dangerous. Both China and South Korea have already banned it.

Benjamin Kirschbaum, a lawyer at Winheller chambers in Berlin and cryptocurrency specialist, also told dpa that it is far from a safe investment.

"Anyone wanting to invest in bitcoin must be aware of the speculative nature of the investment. It is advisable to approach it as you would gambling in a Las Vegas casino: only take money in with you that you can afford to lose," said Kirschbaum.

In the past, he explains, there were enormous profits to be made. Now, with prices as high as they are, it's hard to say whether it's still worth investing.

Bitcoin's untested nature and the hype that surrounds it makes it volatile.

"I doubt anyone can predict where bitcoin will stand in five years. It could become a payment method accepted the world over ... Or it could, for example, become totally worthless due to a technical glitch," said Kirschbaum.

While corporate interest is growing, according to the lawyer, most are drawn to blockchain technology or other cryptocurrencies like altcoins or ether, rather than bitcoin itself.

Kirschbaum says these offer interesting payment processing prospects for merchants in the digital economy – without bitcoin's erratic market behaviour.

Lennart, for example, has already switched to altcoins. He believes wholeheartedly that cryptocurrency will be part of the future, but thinks the speculation surrounding bitcoin makes it capricious.

Bitcoin fans Krause and Geipel are sad to see bitcoin grow ever more professional and commercialised - after all, its founder intended it to be a method of bypassing financial institutions.

"As soon as it becomes clear you can make money with it, the market forces get going," said Krause as Geipel nodded along, "It is a shame that it's going away from what it once was."


Baffled by Bitcoin? Here's what you need to know 

Are you intrigued by the promise of untold riches from bitcoin investments but still totally clueless as to what it actually is? Here's some things you need to know before deciding whether to plunge into the world of cryptocurrencies.

What is bitcoin? 

Bitcoin is a peer-to-peer digital cash system that can be used to make anonymous - but also totally transparent - payments without the need for assistance from financial institutions, i.e. banks.

When was bitcoin created and by whom?

The digital currency began life in 2009 as the brainchild of an anonymous cryptographer known by the pseudonym 'Satoshi Nakamoto'. There are many theories as to Nakamoto's identity, but no one knows for sure.

Where is bitcoin kept?

Bitcoin is entirely digital. In other words, there are no coins or notes. Bitcoin owners keep it in their 'wallet,' the equivalent of a bank account.

What is blockchain?

Bitcoin is based on a technology known as blockchain. Blockchain saves each and every bitcoin transaction on a publicly viewable digital 'ledger' that forms a long chain of information. All transactions are saved simultaneously on every computer in the network – referred to as nodes.

Where does bitcoin come from? 

Many people either purchase bitcoin with regular currency or accept payment with it. However, it is possible to obtain bitcoin by 'mining' it, which allows use to create new units of the currency. Mining bitcoin involves verifying other people's transactions using specialised software. In theory, anyone can do it on their computer. In practice, mining bitcoin requires powerful computer hardware to be be truly worthwhile – the costs of running mining software may outweigh profits.

- DPA (Reporting by Ella Joyner).

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