As the cryptocurrency Bitcoin surged in value, some are concerned that it could become a tool of exchange.
Here’s what you need to know about it. 1:33 UK central bank sets up bitcoin fund to manage cash for banks 1:21 Bitcoin is becoming a digital currency with potential to become a new currency for global transactions, but is it really a currency?
In a report released by the Bank of England, it suggested the currency could be a ‘central bank currency’ and a ‘money transmitter’ for banks and financial institutions.
But is it a currency in the sense that it can be used to buy goods and services in the same way that cash is used to purchase goods and service?
Is it also a currency for transfers between countries?
‘Yes, it is,’ said Simon Walker, a professor of economics at Cardiff University, to the BBC.
‘It’s a digital payment system, it’s a currency.
It can be exchanged between countries and between financial institutions.’
He added: ‘It is a currency with a legal tender status and it can have value in the global marketplace.’
But there are concerns about its stability.
‘There’s always a risk of people taking the wrong side of this coin,’ said Walker.
‘And when you have that risk you can never be sure that the system is stable.
‘The thing about Bitcoin is that the value of the value it is now, the value that it is going to be in the future, is going do quite well, but the currency itself is subject to a lot of uncertainty.’
Walker, who is also a member of the British Bankers Association, said the ‘virtual currency’ was being used as a ‘fraud weapon’ by criminals.
He said: ‘Bitcoin is a money transmitter.
It has no intrinsic value, and so it has been used to commit fraud.
It is being used by criminals to make money.’
2:25 Bitcoin may not be a currency but the cryptocurrency has value and can be traded 1:10 The currency is not a virtual currency but it is a virtual unit of account, meaning that the person or company that uses it has a legal right to use it as currency.
But the bank warns that the currency is subject the risks of fraud and the risk that its value will fall.
It said: ‘[The value of] Bitcoin as a currency is still subject to volatility and is subject both to the risk of theft and to the risks that the network could be compromised.
‘A number of different factors may cause Bitcoin to fluctuate in value over time, such as the rate of transaction in the network, and the level of supply and demand for Bitcoin.
‘Such fluctuations could affect the level and quality of Bitcoin’s transactions, leading to fraud or the theft of Bitcoins.’
In recent years, there have been a number of cases of people using the virtual currency as currency in exchange for goods and other goods, as well as illegal activities such as money laundering.
The currency has also been used by individuals to purchase drugs, weapons and stolen vehicles.
Walker, however, said that while Bitcoin was becoming a ‘virtual unit of value’ in the wider world, it had potential to change the way people transact in the digital economy.
‘As the technology advances, the potential is there to be able to create a digital money that is used as currency, and it is certainly not a new concept,’ he said.
‘We think it is in the right direction.’
But, as the Bank notes, it has yet to develop a formal regulatory framework that will define Bitcoin as money and its exchange.
This means that the Bitcoin economy is still in its early stages, and will likely be a long time before any major institutions, including the Bank, issue any regulations.
‘This is something that we need to get into full compliance with in order to be ready for the future,’ Walker said.