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Bitcoin has only existed since 2009 but now plays a role in international trade, so how should lawyers advise a business that wants to use it? Angus McFadyen, a lawyer specialising in payment and technology at Pinsent Masons, explains more about this new type of money.
Earlier this month, the price of Bitcoin fell by 8.6% to $128 after the US federal authorities seized over $3m of the online currency after shutting down Silk Road, an online marketplace which allegedly allowed over $1bn of illegal services and drugs to be bought with the currency.
What is Bitcoin?
Bitcoin is a transparent, peer-to-peer payment network, and is now accepted by some real-life businesses as well as popular online services such as WordPress and Reddit. However, it is still very much in its early stages, and can be strongly affected by relatively small events.
It’s a digital currency based on cryptic formulae and rules. It has been around for a few years but is still pretty niche in the UK. The basis of it is that a Bitcoin is created every time a computer solves a mathematical puzzle, so more and more are issued, but every time a puzzle is solved it gets harder and harder. You could make a comparison with gold, in that gold can be mined but it gets harder to find it and get it out of the ground as more is extracted.
Where can it be spent, and how do you translate it into money?
There are a relatively limited number of places where it can be spent. It’s often used in gambling.
One of the key benefits is it allows you to send money (or its equivalent) internationally quickly and without paying bank fees, so its seen as a great way of moving money around the globe. However, it has been seized on by crim
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