Bitcoin has exploded in the past 12 months, with the cryptocurrency recently topping $A70,000 per coin in Australia.
Richard Branson, Floyd Mayweather Jr and Jack Dorsey are among the most notable investors, with Bitcoin now the world’s largest cryptocurrency by market capitalisation – it has a current circulating supply of 18,590,300 Bitcoins.
While cryptocurrency might be on the rise, there are many people who still don’t understand the emerging payment method.
To help Australians better understand Bitcoin, ANZPJ has pulled together everything you need to know.
What is Bitcoin?: Cryptocurrency explained
Bitcoin is one of many so-called cryptocurrencies, which allow people to bypass banks and traditional payment methods.
Not issued or controlled by a single company or person, the Bitcoin is a shared ledger of transactions run by a decentralized network of computers around the world.
Each transaction made with Bitcoins is transferred to a decentralised network and ‘mined’ into the Blockchain, with ‘digital keys’ needed to unlock and spend funds.
Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions by law in Australia.
Find out more about the tax treatment of cryptocurrency in Australia on the ATO’s website.
Bitcoin Australia: Where can I buy cryptocurrency?
To own Bitcoin, a ‘digital wallet’ application must be downloaded onto your smartphone or computer to receive or exchange payment of the virtual currency.
A Bitcoin wallet can be easily downloaded from the Apple or Google Play stores, with all transaction encrypted with cryptography – though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed, only wallet IDs.
Marketplaces known as “Bitcoin exchanges” allow people to buy or sell Bitcoins using different currencies. Some of the most popular exchanges in Australia include CoinJar, BTC Markets, swyftx and CoinLoft.
New laws implemented by Australia’s financial intelligence agency and anti-money laundering and counter-terrorism financing regulator now require digital currency exchange providers operating in Australia to meet Government compliance and reporting obligations.
As there is no server or central authority needed confirm the transaction, funds are sent faster and at a lower cost than traditional banking methods. International transfers of Bitcoin are becoming more popular from those wishing to avoid high fees and higher exchange rates.
Mining for Bitcoin is the final way people in Australia can own their own cryptocurrency – by verifying transactions across many different networks, miners can earn new, never-before-discovered bitcoins as a reward.
Who decides what a Bitcoin is worth?
The price of Bitcoin fluctuates constantly and is determined by open-market bidding on Bitcoin exchanges, like the way that stock and gold prices are determined.
Elon Musk sent the cryptocurrency’s value to skyrocket after Tesla announced it would accept Bitcoin as a form of payment, with the company also purchasing $1.5 billion worth of bitcoin.
Where is Bitcoin accepted?
Argentine, Venezuela and other countries with high inflation have started to accept Bitcoin as their local currency to avoid losing savings to inflation.
Locally, a pizza store in Victoria’s Mornington Peninsula and a skincare company in Brisbane are just two of many places accepting Bitcoin in Australia, according to Coinmap.org.
Most industry experts and observers are fairly skeptical about whether cryptocurrencies will replace more traditional payment methods or national currencies in Australia.
“The value of bitcoin is very volatile, the number of payments that can currently be handled is very low, there are governance problems, the transaction cost involved in making a payment with bitcoin is very high and the estimates of the electricity used in the process of mining the coins are staggering”, the Governor of the Reserve Bank said.
“When thought of purely as a payment instrument, it seems more likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions.
“The current fascination with these currencies feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment.
The Reserve Bank of Australia has also announced that it’s researching a crypto-based digital currency, and Bitcoin has been accepted as collateral by Australian courts. For more information about these risks see ASIC’s MoneySmart website.
Bitcoin and the property market
The first known Australian property listing to accept Bitcoin was in 2017, when a vendor selling a family house in Melbourne’s outer east said he was willing to accept Bitcoin as payment.
Consumer Affairs Victoria confirmed it was legal for the deposit or settlement amount to be paid in any asset or security agreed between the buyer and seller, including Bitcoin.
A four-bedroom home in the Sydney suburb of Surry Hills was listed in 2018, with the owners willing to accept the asking price of AU$5m in Bitcoin.
In 2020, buyers of a Reservoir house were given a chance to pay in cryptocurrency.
While its unclear if any of these sales have been made in cryptocurrency, there is some examples overseas.
In 2014, an undisclosed buyer bought a villa in Bali for 800 bitcoins, which equated to $500,000 at the time. Two months later a suburban home in Kansas City sold for the same amount.
Who created Bitcoin?
Bitcoin was invented by someone, or a group of people, called Satoshi Nakamoto.
Only, no one knows who Satoshi Nakamoto really is. The true identity of the creator of Bitcoin remaining one of the biggest mysteries of the modern world.
Theories include Nakamoto being a rogue artificial intelligence or a front for groups such as the NSA, CIA and Yakuza.
None of this has ever been proven. What we do know is that in October 2008, Satoshi published the original whitepaper, describing his blueprint for a “A Peer-to-Peer Electronic Cash System.”
In January 2009 he released version 0.1 of the source code and launched the cryptocurrency by mining the genesis block.
What are the alternatives to Bitcoin?
- Ethereum (ETH)
- Litecoin (LTC)
- Cardano (ADA)
- Polkadot (DOT)
- Bitcoin Cash (BCH)
- Stellar (XLM)
- Binance Coin (BNB)
This explainer is provided to facilitate the conceptual understanding of Bitcoin. It does not constitute advice, or a recommendation, to buy, trade or invest in Bitcoin or any other cryptocurrency. Any investment of use of Bitcoin will be at your own risk. Find out more here.
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