Bitcoin is a type of digital currency that's created and held electronically. Unlike physical currencies such as pounds and dollars, bitcoins are not tangible, printed money, but exist exclusively in the digital space. Currently, Bitcoin is the most-well known form of 'cryptocurrency': the name given to digital currencies in which encryption techniques are used to verify transactions and regulate the generation of units.
The first mention of a ‘cryptocurrency’ concept was made by Wei Dai in 1998 on the cypherpunks mailing list – a subscription community set up in the early 1990s to discuss cryptography and its effect on society. Wei Dai spoke of the hypothetical creation of a new type of currency, with no central authority, which uses cryptography to control its transactions. However, it wasn't until 2009 that the first Bitcoin specification was proposed by software developer Satoshi Nakamoto. Since then, the ‘cryptocurrency’ community has never looked back, with a rapidly increasing number of developers working on Bitcoin.
According to Bitscan, as of February 2014, approximately 31 million Bitcoin transactions had taken place since the currency was first launched. Out of these transactions, over 25 million addresses (roughly equivalent to individual users) had been referenced. However, Bitscan’s research found that not every address referenced in the data is still in use – and in fact only 10% (2.5 million) of the addresses referenced actually contained any bitcoins as of last year, reducing the pool of active users to a significantly lower figure.
Acquiring Bitcoins isn't all that difficult. Bitcoins can be bought either from exchanges or from other Bitcoin holders via marketplaces. They can be paid for in a number of ways, including wire transfers, debit or credit cards, cash, or even other cryptocurrencies.
In order to acquire Bitcoin, you need to have a Bitcoin 'wallet': the loose equivalent of a bank account. Bitcoin wallets can be stored in a number of locations, including the hard drive on your computer, a portable USB-style stick, a ‘vault’ service, which helps protect bitcoins while users are offline, or a web-based service. In recent years we've seen the advent of 'multisig' wallets, which feature heightened security characteristics.
In a Bitcoin wallet, there is a set of 34-character Bitcoin addresses, which can be used to receive bitcoins, and each address has an associated 64-character private key used to spend bitcoins and authenticate transactions. With multisig wallets, each address has three associated keys, which means that a user will need any two of them to spend their funds; drastically improving the security of transactions.
Not so long ago, finding a merchant that accepted bitcoins was challenging and time-consuming, involving sifting through hundreds of listings. However, the tides are changing, and as the currency has gained exposure it has become easier to find Bitcoin-accepting merchants. The best way to find such merchants is through aggregator sites and marketplaces that pool participating vendors in one convenient source. CoinMap is a useful tool for locating Bitcoin-accepting stores in different geographical locations.
A growing number of ecommerce sites are also beginning to accept Bitcoin. For example, in 2014 Microsoft added Bitcoin as a payment option for US-based consumers making purchases via BitPay for Microsoft products such as games and apps for Xbox, Windows and Windows Phone platforms. In July 2015 Dell followed suit, announcing it was now accepting Bitcoin in partnership with Coinbase. Dell even attempted to attract consumers to use the currency by hosting an introductory offer of 10% off all its high-end Alienware computers.
As it's speedy to use, doesn't require any of the bureaucracy associated with traditional bank accounts, and typically doesn't come with any transaction fees, Bitcoin is unsurprisingly becoming a popular currency for online gambling – and more gambling sites are introducing Bitcoin as a payment option as a result. The current market leaders are BitCasino.io and FlutterClub.
With its growing mainstream appeal, Bitcoin is naturally of interest to tax authorities, law enforcement agencies and legal regulators. Currently, due to the decentralised nature of the currency, Bitcoin regulation varies from country to country. For example, in the US, the Financial Crimes Enforcement Network (FinCEN) took the proactive move of publishing guidelines about the use of virtual currencies such as Bitcoin in 2014.
However, it's worth noting that casino operators accepting Bitcoin must still comply with the gambling legislation set down in their countries of operation – so, for example, any Bitcoin casinos operating in Britain must obtain the appropriate licence from the UK Gambling Commission. These casinos should also adhere to basic industry standards of fair play, ensuring their Random Number Generators (RNGs) and software are tested for fairness by reputable institutions like eCOGRA.