Beyond bitcoin: A guide to cryptocurrency

Simple money transfers: Imagine you wanted to sell your friend a vase. Would it be better to go directly to them and exchange the vase for cash, or would it be better to hire a lawyer and go through the courts to formally transfer ownership and eventually possession of the vase to them?

With cryptocurrencies, you don't have to go through a third party, like a financial institution or organisation like PayPal, to give someone money in exchange for property. You just give it directly to them, and the transaction gets logged onto the blockchain. The simplicity of cryptocurrencies is probably the biggest benefit.

No or low fees: The simplicity and lack of third parties means things like transfer fees either don't exist or are very low. The miners, the people who run the computations to register a transfer, are compensated for their work by 'mining' currency as they complete transfers, so there's no need to give them any more money.

Faster international transfers: International money transfers using cryptocurrencies are completed quickly. As the system has become more complex, transfer times have slowed, but they are still faster than traditional methods. Again, this is because you go through a few computers, instead of going through several banks, companies and governments (along with their working hours and holidays) to transfer currency.

More accessible: There are an estimated 2.2 billion people who have access to the Internet, but not to traditional banking systems. For these people, cryptocurrencies can be life savers, as they can exchange money with the Internet-enabled phones they already have.

Hackers: The first and most obvious risk is that, as cryptocurrencies are digital, they are susceptible to hackers. The robustness of the blockchain formula prevents hackers from attacking the currency systems themselves, but individuals can find their virtual accounts have been hacked and drained of funds. This is the digital equivalent of someone breaking into a bank account. Since, however, no central authorities, banks or other regulated industries are involved, there is nothing the victim can do. If someone drains your bank account, your bank will refund your money. With cryptocurrencies, the money is just gone.

Lack of protection: Similarly, if a person is defrauded – say, they bought an item that was never shipped – the more anonymous nature of most cryptocurrencies means the victim cannot seek redress from either the fraudster or a financial institution with a duty to protect customers from fraud.

Volatile currency rates: Bitcoin only has value because people want to use it. There is no supply of gold or silver backing up the currency, and there isn't even value in its physical makeup, like there is in the metals used to produce coins, since the currency is only digital. Because of this, bitcoin's value can fluctuate wildly, depending on the demands of the market. That means that you could earn or lose money quickly, especially if you put a significant amount of money in bitcoins, as happened back in 2010.

Cryptocurrency transactions are traceable, but your name is kept private. The transactions have to be traceable; that's how the miners can verify transactions and ensure the balance adds up.

However, according to Bitcoin.org, "the identity of the user behind an address remains unknown until information is revealed during a purchase or in other circumstances." The transactions are easily traceable, but the user's identities are not – especially if you use a new public address every time you receive bitcoins.

That doesn't mean it's completely anonymous, however. While your name and photo aren't attached to the transaction record, it is possible, with some work, for a transaction to eventually be traced back to you, or at least your IP address. That's why we say cryptocurrency is "somewhat anonymous" and not just "anonymous".

The city government of Zug, in Switzerland became the world's first locality to accept bitcoins. Still, although residents can pay government fees worth up to 200 Swiss francs, most local businesses still don't accept the currency. Travelers on the Swiss national railway, Swiss Federal Railways, can buy tickets using bitcoin, however.

In short, they'd lose control of their currency. And as Mayer Amschel Rothschild, founder of the banking dynasty said, "Give me control of a nation’s money supply, and I care not who makes its laws." Governments have a reason to want to control the money in their borders.

Governments print and distribute money, sometimes creating more of their currency in times of economic hardship, in order to maintain a stable, growing economy, and they are loathe to give up that control, especially to a volatile young currency like bitcoin.

Generally, countries and governments don't accept bitcoins, but businesses are more willing to take some moderate risks to allow customers to spend money the way they want to. As a result, there are many lists on the internet of companies that accept bitcoins, and the lists are growing constantly. Web-based companies like Reddit, Wikipedia, NameCheap and make natural early adopters of cryptocurrency, but many real-world retailers also accept bitcoin. Subway, Dell, Tesla and the San Jose Earthquakes (a Major League Soccer team) all accept bitcoins. Even small retailers like Grass Hill Alpacas (a farm in Massachusetts), The Pink Cow (a diner in Tokyo) and the Old Fitzroy (a pub in Sydney) accept bitcoins.

Perhaps surprisingly, the answer is yes, sort of. CoinBase gives employees the option of being paid in bitcoins. Canadian startup Wagepoint manages companies' admin and payrolls, and they offer a service where they pay employee wages in bitcoins. As of 2014, they paid CAD$75,000 in bitcoins to customers' employees, and 80% of those employees opted to have their entire wage in bitcoins.

The list of companies offering wages in bitcoins is still very small, but many companies are using the option as a draw for potential employees – especially in the hyper-competitive tech industries where many early bitcoin adopters work.

It depends, really. With cryptocurrency, transfer times have been increasing as the mathematical problems at the heart of the blockchain keep getting harder.

Still, this chart (below) from 2016 shows how much shorter transaction times can be with systems that use blockchain technology.

Source: Raconteur

Blockchain.info created the interactive chart below which shows that while transaction times are increasing, they still only take minutes or hours. It still takes days to transfer funds through more traditional routes.

Source: Blockchain.info