From: Out-Law.com
FOCUS: Virtual currencies have existed before but few have captured the imagination of the public and the financial services world like bitcoin. But is it money? Is it regulated? Will it help e-commerce? We look at the answers to these pressing bitcoin questions.
To discuss bitcoin properly we need to distinguish between a bitcoin, and the bitcoin system which gives each ‘coin’ its value. They are intertwined, but distinct.
The ‘coin’ is essentially the result of a chain of digital signatures wrapped up in encrypted code. The bitcoin system is a decentralised virtual payments system that enables transactions to be made. It is the public storing of the signature chains that in theory protects the integrity of each coin by ensuring that it can’t just be duplicated, multiplied or double spent. This is vital because, unlike traditional currencies, the bitcoin is not underwritten by any government or bank.
Is bitcoin money?
Bitcoin isn’t the same as national currencies and the ‘coins’ cannot be equated to physical coins or paper notes (fiat money). No institution ‘prints’ bitcoins and no single organisation controls its distribution.
It’s not money in the traditional sense because there is no institutional guarantee underpinning it. The Bank of England stands behind the pound, the European Central Bank behind the euro. Laws then regulate ‘other means’ of money creation and the issuing of ‘electronic money’ (e-money).
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