Day: July 2, 2015

How Bitcoin Mining Works

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In traditional fiat money systems, governments simply print more money when they need to. But in bitcoin, money isn’t printed at all – it is discovered. Computers around the world ‘mine’ for coins by competing with each other.

How does mining take place?

People are sending bitcoins to each other over the bitcoin network all the time, but unless someone keeps a record of all these transactions, no-one would be able to keep track of who had paid what. The bitcoin network deals with this by collecting all of the transactions made during a set period into a list, called a block. It’s the miners’ job to confirm those transactions, and write them into a general ledger.

Making a hash of it

how bitcoin mining worksThis general ledger is a long list of blocks, known as the ‘blockchain’. It can be used to explore any transaction made between any bitcoin addresses, at any point on the network. Whenever a new block of transactions is created, it is added to the blockchain, creating an increasingly lengthy list of all the transactions that ever took place on the bitcoin network. A constantly updated copy of the block is given to everyone who participates, so that they know what is going on.

But a general ledger has to be trusted, and all of this is held digitally. How can we be sure that the blockchain stays intact, and is never tampered with? This is where the miners come in.

When a block of transactions is created, miners put it through a process. They take the information in the block, and apply a mathematical formula to it, turning it into something else. That something else is a far shorter, seemingly random sequence of letters and numbers known as a hash. This hash is stored along with the block, at the end of the blockchain at that point in time.

Hashes have some interesting properties. It’s easy to produce a hash from a collection of data like a bitcoin block, but it’s practically impossible to work out what the data was just by looking at the hash. And while it is very easy to produce a hash from a large amount of data, each hash is unique. If you change just one character in a bitcoin block, its hash will change completely.

Miners don’t just use the transactions in a block to generate a hash. Some other pieces of data are used too. One of these pieces of data is the hash of the last block stored in the blockchain.

Because each block’s hash is produced using the hash of the block before it, it becomes a digital version of a wax seal. It confirms that this block – and every block after it – is legitimate, because if you tampered with it, everyone would know.

If you tried to fake a transaction by changing a block that had already been stored in the blockchain, that block’s hash would change. If someone checked the block’s authenticity by running the hashing function on it, they’d find that the hash was different from the one already stored along with that block in the blockchain. The block would be instantly spotted as a fake.

Because each block’s hash is used to help produce the hash of the next block in the chain, tampering with a block would also make the subsequent block’s hash wrong too. That would continue all the way down the chain, throwing everything out of whack.

Competing for coins

Butterfly Labs Bitforce mining rigSo, that’s how miners ‘seal off’ a block. They all compete with each other to do this, using software written specifically to mine blocks. Every time someone successfully creates a hash, they get a reward of 25 bitcoins, the blockchain is updated, and everyone on the network hears about it. That’s the incentive to keep mining, and keep the transactions working.

The problem is that it’s very easy to produce a hash from a collection of data. Computers are really good at this. The bitcoin network has to make it more difficult, otherwise everyone would be hashing hundreds of transaction blocks each second, and all of the bitcoins would be mined in minutes. The bitcoin protocol deliberately makes it more difficult, by introducing something called ‘proof of work’.

The bitcoin protocol won’t just accept any old hash. It demands that a block’s hash has to look a certain way; it must have a certain number of zeroes at the start. There’s no way of telling what a hash is going to look like before you produce it, and as soon as you include a new piece of data in the mix, the hash will be totally different.

Miners aren’t supposed to meddle with the transaction data in a block, but they must change the data they’re using to create a different hash. They do this using another, random piece of data called a ‘nonce’. This is used with the transaction data to create a hash. If the hash doesn’t fit the required format, the nonce is changed, and the whole thing is hashed again. It can take many attempts to find a nonce that works, and all the miners in the network are trying to do it at the same time. That’s how miners earn their bitcoins.

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Is Bitcoin Legal?

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Bitcoin is of interest to law enforcement agencies, tax authorities, and legal regulators, all of which are trying to understand how the cryptocurrency fits into existing frameworks. The legality of your bitcoin activities will depend on who you are, where you live, and what you are doing with it.

Bitcoin has proven to be a contentious issue for regulators and law enforcers, both of which have targeted the digital currency in an attempt to control its use. We are still early on in the game, and many legal authorities are still struggling to understand the cryptocurrency, let alone make laws around it. Amid all this uncertainty, one question stands out: is bitcoin legal?

The answer is, yes, depending on what you’re doing with it.

Read on for our guide to the complex legal landscape surrounding bitcoin. Most of the discussion concerns the US, where many of the legal dramas are currently playing out. Alternatively, you can access our comprehensive Regulation Report for worldwide expert commentary here.

What are the concerns about bitcoin?

is bitcoin legalGovernment agencies are increasingly worried about the implications of bitcoin, as it has the ability to be used anonymously, and is therefore a potential instrument for money laundering. In particular, law enforcers seem to be concerned about the decentralized nature of the currency.

As early as April 2012, the FBI published a document highlighting its fears around bitcoin specifically, drawing a distinction between it and centralized digital currencies such as eGold and WebMoney. It voiced concerns that while US-based exchanges are regulated, offshore services may not be, and could be a haven for criminals to use bitcoin for illicit activities without being traced.

Bitcoin was the only form of currency accepted on Silk Road, an anonymous marketplace that was only accessible over the TOR anonymous browsing network, and which was closed by the FBI in October 2013. Silk Road was commonly used to sell goods that are illegal in many countries, including narcotics. This prompted US Senator Charles Schumer to call for the site to be shut down, explicitly linking it to bitcoin, which he called a “surrogate currency”.  The US Drug Enforcement Administration seized bitcoins from a US resident for purchasing a controlled substance in June 2013.

Who regulates it?

Regulators will vary on a per-country basis, but you can expect to see national financial regulators interested in bitcoin and other virtual currencies, potentially along with regional regulators at a sub-country level.

FinCEN

In the US, the Financial Crimes Enforcement Network (FinCEN), which is an agency within the US Treasury Department, took the initiative. It published guidelines about the use of virtual currencies. FinCEN’s March 18, 2013 guidance defined the circumstances under which virtual currency users could be categorized as money services businesses (also commonly known as money transmitting businesses or MTBs). MTBs must enforce Anti-Money Laundering (AML) and Know Your Client (KYC) measures, identifying the people that they’re doing business with.

CFTC

The US Commodity Futures Trading Commission (CTFC), which looks after financial derivatives, hasn’t announced regulation yet, but has made it clear that it could if it wanted to.

SEC

The US Securities and Exchange Commission (SEC) hasn’t issued solid regulations on virtual currencies, but its Office of Investor Education and Advocacy published an investor alert to warn people about fraudulent investment schemes involving bitcoin. In particular, it warned of Ponzi schemes, after charging Texas resident Trendon T Shavers (aka ‘pirateat40’), founder and operator of Bitcoin Savings and Trust, with allegedly raising 700,000 bitcoins by promising investors up to 7% weekly interest.

Legislative branch

The SEC case has forced the legislative branch of government to consider bitcoin’s legal status. Shavers had claimed that he could not be prosecuted for securities fraud, as bitcoin wasn’t money. However, Judge Amos Mazzant issued a memorandum arguing that bitcoin can be used as money.

In August 2013, the US Senate wrote to several law enforcement agencies, inquiring about the threats and risks relating to virtual currency. The letters included this one to the Department Of Homeland Security, fretting about the lack of a paper trail for regulators and enforcement agencies to follow for virtual currency transactions. It requested policies and guidance related to the treatment of virtual currencies, and information about any ongoing strategic efforts in the area.

November saw responses from the various agencies. The Department of Homeland Security was the most worried about the criminal threat from illicit use of bitcoin, while the Department of Justice, the Federal Reserve and the Department of Justice all acknowledged the legitimate uses of virtual currencies. The SEC argued that “any interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies” were considered securities and thus fell under its remit.

US states

United States of America flagEach US state has their own financial regulators and laws, and each approaches bitcoin differently. California and New York have been particularly aggressive in their pursuit of bitcoin-related organizations, for example, while others, such as New Mexico, South Carolina, and Montana, don’t regulate money transmitting businesses. A list of state approaches to money transmitter laws can be found here.

In May 2013, California’s state financial regulator issued a letter to the Bitcoin Foundation, a nonprofit organization designed to promote bitcoin, warning it that it may be a money transmission business, and threatening people there with potential fines and jail time.

Then, in August 2013, the New York Department of Financial Services issued subpoenas to 22 bitcoin-related companies, although these letters were more conciliatory, asking for a dialogue to develop appropriate regulatory guidelines for the digital currency industry. Since then, New York has acted more positively, with the state’s Superintendent of Financial Services, Benjamin M. Lawsky, announcing that it willaccept applications for digital currency exchanges. Lawsky indicated that these businesses will be regulated under new New York regulation, which he committed to having in place by the end of the second quarter of 2014.

Private sector companies (banks)

Several banks have stopped accounts owned by people operating bitcoin exchanges. Inat least one case, this was because the bank was unhappy that the company involved did not have a money transmitting business (MTB) account.

The US Senate addressed the issue of banking and federal regulation in a set of hearings held in November. The hearings were exploratory in nature and may not lead to legislation, but feedback from agencies included acknowledgements that there were legitimate uses for the coin.

Bitcoin Regulation Report

What this means to you

The legality of bitcoin depends on who you are, and what you’re doing with it.

There are three main categories of bitcoin stakeholder. Someone may fall under more than one of these categories, and each category has its own legal considerations.

Users

These are individuals that obtain bitcoins, and either hoard them or spend them. Under the FinCEN guidance, users who simply exchange bitcoins for goods and services are using it legally.

FinCEN: “A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter.”

Miners

According to the FinCEN guidance, people creating bitcoins and exchanging them for fiat currency are not safe.

FinCEN: “By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter.”

Miners seem to fall into this category, which could theoretically make them liable for MTB classification. This is a bone of contention for bitcoin miners, who have asked for clarification. This issue has not to our knowledge been tested in court.

Exchanges

Exchanges are defined as MTBs.

FinCEN: “In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.”

Taxation

US tax formIn 2009, the US Internal Revenue Service (IRS) posted information about the tax applications of using virtual currencies inside virtual economies, arguing that taxpayers can receive income from a virtual economy and could be required to report it as taxable income. However, it based this largely on guidance related to bartering, gambling, business, and hobby income.

However, the IRS has not yet posted guidance on ‘open flow’ virtual currencies that can be used outside of virtual economies. In a 27-page report [PDF] published in May 2013, the US General Accounting Office (GAO) called for more guidance from the IRS on this issue.

The IRS responded that its guidance could now be taken to cover virtual currencies as used outside of virtual economies. It added that it was also looking at the potential tax compliance risks posed by anonymous electronic payment systems, and was working with other federal agencies on the topic.

In June 2013, the director of an IRS unit that investigates cyber threats also told theFinancial Times that the use of “cyber-based currency and payment systems” to hide unreported income from the IRS is a threat that it was “vigorously responding to”. And at Senate hearings in November, FinCEN director Jennifer Shasky Calvery confirmed that the IRS would be releasing more guidance on virtual currencies. In short, don’t expect to evade taxes by earning bitcoins instead of fiat currency.

What is the industry doing?

The industry has responded to growing regulator concerns in several ways.

  • Several companies created a committee to form a self-regulatory body calledDATA, designed to encourage open conversation with regulators.
  • The Bitcoin Foundation formed committees to offer legal guidance, steer policy, and liaise with regulators.
  • Exchanges have been attempting to secure MTB licenses at the state and federal levels, and some have avoided doing business with US customers until this is resolved.

Other countries

Few governments have announced any explicit intention to prevent bitcoin use completely. However, around the end of 2013 and start of 2014 there were a series of warnings and directives from central banks and regulators to varying degrees of severity. They ranged from the simple “be careful, bitcoin is neither regulated nor officially a currency”, to blocks on financial institutions and even raids on bitcoin businesses.

Many claim to be worried about the effect that large-scale bitcoin adoption might have on the stability of the financial system, especially if prices are volatile.

Currently, Iceland, Bolivia, Ecuador, Kyrgyzstan and Vietnam are the only countries that seem to have some level of bitcoin ban in place – see the list below for more details; while others such as Russia and Thailand seemed to have outlawed digital currencies then backtracked.

North America (non-US)

Canada

Canada flagCanada has announced that it will tax bitcoins in two ways. Transactions made for goods or services will be treated under its barter transaction rules, while its “Transactions in Securities” document says that profits made on commodity transactions could be income or capital. It confirmed these rules in November 2013.

In late March 2014, the Canada Revenue Agency (CRA) published a new documentoutlining its position on the taxation of digital currencies, which highlighted out the differences between personal and business activities.

In essence, Canada will view the matter subjectively, on a case by case basis. When authorities deem the activities were undertaken for profit, the taxpayer’s income will be taxed with reference to the taxpayer’s inventory at the end of the year. Barter transactions are allowed, but the CRA states that the value of goods or services obtained by bartering digital currencies must be included into the taxpayer’s income, if business related. Losses through theft or embezzlement may be deductible.

South America

Bolivia flagBolivia

El Banco Central de Bolivia, the central bank of the South American nation, has officially banned any currency or coins not issued or regulated by the government, including bitcoin and a list of other cryptocurrencies including namecoin, peercoin, Quark, primecoin and feathercoin.

Issued on 6th May 2014, the new policy states: “It is illegal to use any kind of currency that is not issued and controlled by a government or an authorized entity.” The bank went on to say that citizens are prohibited from denominating prices in any currency that is not previously approved by its national institutions.

Brazil flagBrazil

In April 2014, the Receita Federal, Brazil’s tax authority, established how it would treat the holding and usage of bitcoin and other digital currencies. Taking a stance similar to the one announced by the US Internal Revenue Service in March, Brazil is treating digital currencies as financial assets, with the Receita Federal imposing a 15% capital gains tax at the time of sale, however, there are some key differences that have been generally viewed positively by bitcoin users in the country.

Those who sell less coins with a value of less than 35,000 reals (R$), which is almost $16,000, will not have to pay the tax. This means that bitcoin users in Brazil won’t have to calculate capital gains taxes when making small consumer purchases. The Receita Federal is also requiring annual account declarations from those who possess more than R$1,000 in digital currency holdings.

Colombia

Colombia flagThe Superintendencia Financiera de Colombia (SFC) may be close to outlawing bitcoin transactions in the South American country, a newspaper claimed on 20th March 2014. The report said that the SFC, in conjunction with Banco central de Colombia, Colombia’s central bank, and the Ministerio de Hacienda y Crédito Público, the executive body responsible for budgetary concerns, is preparing to issue a document outlining the government’s stance on bitcoin and bitcoin-related activities.

A source connected to the Colombian Ministry of Finance told El Tiempo that the ban may very well focus on bitcoin handling activities, rather than outright purchase by consumers. CoinDesk is monitoring the situation and will update this guide as the story develops.

Ecuador flagEcuador

In July 2014, the National Assembly of Ecuador effectively banned bitcoin and other decentralized digital currencies while, in a novel move, establishing guidelines for the creation of a new, state-run currency. The law gives the government permission to make payments in ‘electronic money’, but digital currencies like bitcoin will now be prohibited

Mexico

Mexico flagOn 12th March 2014, the Bank of Mexico issued its first statementon the issue of cryptocurrencies. The bank warned the public via a statement on its website about the “the inherent risks of acquiring these assets and using them as substitutes for conventional methods of payment”. The warning was generally similar to those issued by many of the world’s central banks in recent months.

However, most notable were potential restrictions for domestic financial institutions, that some reports implied might strangle bitcoin businesses. Translations of the statements suggest that financial institutions regulated in Mexico “are not authorized to use or carry out any operations with [digital currencies]”. Whether that means banks may not deal directly in cryptocurrencies, or may not have relationships with companies that deal in them, is not yet clear.

Europe

European Union

EU flagThe EU’s banking regulator, The European Banking Authority (EBA), issued a warning statement on 13th December 2013 warning of investment risk, but focusing mainly on issues of fraud, tax evasion and other crime connected to virtual currency use.

More recently, in July 2014, the EBA published an ‘opinion’ warning financial institutions to stay away from digital currencies until the industry is regulated. In the document, which was addressed to the EU council, European Commission and European Parliament, the EBA set out new requirements for the regulation of digital currencies and also instructed financial institutions not to buy, hold or sell digital currencies until new rules are in place.

Belgium

Belgium flagThe National Bank of Belgium has no intention of intervening in bitcoin business or regulating it, says the Belgium Bitcoin Association. On 16th January 2014, however, the central bank issued a joint warning with the Belgian Financial Services and Markets Authority (FSMA) that digital currencies are not issued by any central authority, and as such are at risk of volatility, fraud, and business non-acceptance.

Bulgaria

Bulgaria flagBulgaria’s National Revenue Agency (NRA), the government organisation in charge of administering state taxes and social security contributions in the eastern European nation, has issued new taxation guidelines for digital currency. In a post on 2nd April, the NRA indicated that income from the sale of digital currencies such as bitcoin will be treated as income from the sale of financial assets and taxed at a rate of 10%. Effectively, earnings from bitcoin trades will be taxed on the same level as ordinary income and corporate income in Bulgaria.

Cyprus

Cyprus flagLong an offshore financial services hub, Cyprus has entered the bitcoin fray with enthusiasm and aims to be a hub for bitcoin business in the EU and surrounding territories. It is also home to the world’s first brick and mortar bitcoin savings institution, Neo(and its payment processing partner Bee). Still, the Central Bank of Cyprus issued a statement on 7th February 2014 warning about bitcoin’s volatility and reminding citizens it is not recognized as legal tender.

Denmark

Denmark flagSo far the Danish authorities have stopped short of regulating digital currencies, although a stern warning was issued in which bitcoin et al. were compared to “glass beads” – a reference presumably to an ancient method of trading baubles of little worth.

More significant is the nation’s stance on the taxation of bitcoin for general transactions. Because it is not considered “real”, physical money, bitcoin is considered a private asset and any gains are tax exempt; similarly, losses are not deductible. However, for companies whose sole business is related to trading or speculating in digital currencies, gains will be taxed. By how much remains to be seen.

Estonia

Estonia flagEstonia’s central bank has not issued a formal statement on bitcoin but one of its managers wrote to Bloomberg on 31st January 2014 calling bitcoin a “problematic scheme”, warning investors assumed all risks and reminding people that bitcoin businesses have been known to disappear overnight with customers’ money.

Finland

Finland flagFinland issued a regulatory guide to bitcoin in September 2013, which imposed capital gains tax on bitcoins, and taxes bitcoins produced by mining as earned income.

In January 2014, bitcoin was classified as a commodity after the Scandinavian country’s central bank declared that it did not meet the definition of a currency.

France

France flagThe French Senate held hearings into bitcoin and digital currencies in mid-January 2014 that were considered mostly investigatory and positive in tone. The focus was mainly on the opportunities presented by the new technology and how existing laws and organizations could be used to catch wrongdoers. Making bitcoin illegal was not an option, according to observers, and France needed to catch up to neighboring countries in its approach.

More recently, on 5th April, the French Ministry of Economy and Finance said that, while bitcoin is not officially recognized by the state, revenues generated from digital currency transactions are subject to taxation.

“All taxpayers are required to declare all their revenues, including those originating from abroad. This said, there is a certain tolerance [from the state authorities] regarding minor and irregular revenues, for instance from occasional sales,” a spokesperson for the French ministry told Le Monde.

Germany

Germany flagGermany is perhaps the most advanced country when it comes to regulating bitcoin and virtual currencies. Although some issues remain unresolved, the German government has exempted bitcoin transactions held for over one year from 25% capital gains tax. It also categorized bitcoin as a form of private money. In early January 2014 the Bundesbank repeated a warning that bitcoin was “not an alternative to national currencies”, and values were “highly speculative”.

Greece

Greece flagGreece, quite remarkably, has also taken time out from its years-long government spending-related financial crisis to warn youabout the dangers of bitcoin.

Iceland

Iceland flagOne of only two countries to have instigated a ban on bitcoin and other digital currencies due to capital controls resulting from the banking crisis of 2008. Personal ownership does not seem to be an issue, rather buying (importing) bitcoins from outside the country is illegal because it constitutes a movement of capital out of the country. Furthermore, selling products or services for cryptocurrencies is also prohibited

The locally created digital currency auroracoin recently made headlines with its ‘Airdrop’ to all Icelandic citizens and is not illegal due to its provenance within the country.

However, Iceland’s Economic and Trade Committee of Parliament recently met to discuss taxation of auroracoin and to see whether it falls within the capital controls that restrict bitcoin. At the same time they warned of the risks of using the altcoin, which they said is not a currency or regulated by the central banking authorities. Frosti Sigurjónsson, Chairman of the committee, even went as far as to say: “There is evidence however that this is a case of [a money] scam and illegal” on his blog.

Lithuania

Lithuania flagLithuania, wedged between the European Union and its largest trading partner, Russia, issued a warning at the end of January and hinted at a ban on non-government currencies, but later tempered the statement by saying new regulation was “under discussion”.

The Netherlands

Netherlands flagHolland in typically liberal style has tacitly assented to the use of digital currencies by issuing guidelines on their tax status. Logically, bitcoin and other cryptocoins are treated as any other currency for tax purposes.

Slovenia

Slovenia flagSlovenia is one of the more permissive governments towards digital currency use, though regulators there issued a statement on 24th December 2013 to remind people that bitcoin is considered neither a currency nor a financial instrument. The country’s Tax Administration and Ministry of Finance also said that bitcoin is subject to income tax like any other non-monetary income, and would be calculated based on the bitcoin-Euro exchange rate at the time of transaction. Selling bitcoin would not be subjected to capital gains tax.

Sweden

Sweden flagSweden’s Finansinspektionen financial regulator now considers bitcoin as a means of payment, following guidance issued last year. Exchanges must register with the regulator and meet the requirements faced by other financial institutions.

Russia

Russian Federation flag“The official Russian currency is the ruble. The use of any other monetary instruments or surrogates is forbidden,”announced Russia’s General Prosecutor’s Office in early February 2014. “The anonymous payment systems and crypto-currencies, including bitcoin […] are monetary surrogates. As such, their use by private citizens or legal entities is not allowed.” So, bitcoin and other digital currencies seemed to have been are banned in Russia to the shock of the bitcoin world.

However, on 6th March, Russia seemed to soften its stance in a letter from the central bank to an individual who had asked for clarification. In it they said that a meeting of top Russian financial authorities in February did not result in a bitcoin ban, but rather was devoted to “combating crimes in the sphere of the economy devoted to the use of anonymous payment systems and cryptocurrencies on the territory of Russia”. Furthermore, the goal of the meeting was also to “develop a unified approach to the determination of the legal status of cryptocurrencies”.

The exact status of cryptocurrencies in Russia is still a grey area, however, on 1st August 2014 the Ministry of Finance announced proposals to ban the issuance of bitcoin and any operations involving cryptocurrency. If approved, the ban will likely see those who break the new laws end up in jail.

Ukraine

Ukraine flagDespite the unstable political situation in early 2014, Ukraine’s central bank has still managed to issue statements on digital currencies, saying related businesses “must register with the agency and abide by existing laws related to the management of electronic money”.

United Kingdom

United Kingdom flagMeetings with policymakers in the UK in September 2013 suggested that bitcoin-based businesses would not have to register with regulators, at least for the time being, while they consider their regulatory position. For a while, the UK suggested that bitcoins wouldn’t be treated as money, but would instead be classified as single-purpose vouchers, which could carry a value-added tax (sales tax) liability on any bitcoins that are sold.

However, this idea was reversed in guidance issued on 3rd March. Although the UK tax department, HMRC, stepped back from explicitly recognising bitcoin as a currency, its approach effectively treats it like any other form of payment for tax purposes: “In all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrency.”

Most recently, on 6th August 2014, Chancellor George Osborne announced a new initiative that will explore the potential role of cryptocurrencies in Britain’s economy. Osborne said he has commissioned the Treasury to produce a programme of work on cryptocurrencies, examining their potential risks and benefits. The results, due to be published in the Autumn, could pave the way toward a new regulatory framework for cryptocurrencies in Britain.

As a UK Crown dependency, the Isle of Man is self-governing and has also made moves over recent months to set itself up as a regulated but bitcoin-friendly jurisdiction. In July 2014, the island’s Financial Supervision Commission clarified the application of existing regulations on bitcoin, indicating that digital currency businesses will not be subject to a conduct of business or prudential regime by the commission unless they engage in activities regulated under the Financial Services Act of 2008, such as money transmission services. The commission also said it is in the process of drafting a new bill that will provide it with the ability to oversee how digital currency operators comply with AML/CFT legislation.

Asia

China: People’s Republic of China

China flagChina’s authorities have had arguably the biggest impact on bitcoin adoption and values in the past months. In early December 2013, the People’s Bank of China (PBoC) issued a statementwarning of  bitcoin risks and banning financial institutions from engaging in bitcoin business themselves or transferring funds to/from bitcoin exchanges. Another statement just days later also blocked third-party payment processors from dealing with exchanges, and the price of bitcoin worldwide crashed from its record high of over $1200 by about 50%. The moves have had adramatic effect on the market share of large bitcoin exchanges in the country.

In mid-January, a PBoC official claimed there is no move to suppress or discriminate against bitcoin in China, and exchanges have been allowed to remain open for business. There does seem to be an official campaign to limit bitcoin trade to the fringes, however, and China’s state-owned business TV channel broadcasted a documentary the same week full of dire warnings about risks to investors from price volatility.

China: Hong Kong

Hong Kong flagHong Kong’s Secretary for Financial Services and the Treasuryissued a warning about risks associated with bitcoin on 9th January 2014. The Special Administrative Region (SAR) of China and financial hub has remained otherwise hands-off in its approach to bitcoin, saying it does not pose a risk to the financial system if it is not widely adopted.

Indonesia

Indonesia flagIndonesia’s central bank, Bank Indonesiaissued a warning on 16th January 2014 that bitcoin was not regarded as a currency and accepting it as payment might even break national currency laws. No subsequent action against exchange businesses has been taken as yet, however.

India

India flagIndia’s central bank is said to be “watching” bitcoin. In a series of dramatic moves, the Reserve Bank of India (RBI) issued a warning about bitcoin in late December 2013, which was followed almost immediately by exchanges choosing to suspend operations. One exchange had its premises raided and another was paid a “friendly” visit by tax officials to investigate how digital currencies could be managed and taxed. Some exchanges have since re-opened for business.

Japan

Japan flagAt present there are no laws covering cryptocurrencies in the country. However, since the collapse of bitcoin exchange Mt. Gox and the attention that garnered from the international media, Japan seems to have been pressurised into taking some action.

Initially it appealed for a coordinated effort from the international community to agree on regulation. More recently, Japan’s ruling party, the Liberal Democratic Party (LDP) has launched an committee to investigate cryptocurrencies, and issued a statement saying it is “not a currency, but taxable”. Currently the situation seems to be that bitcoin will be treated as a good and is subject to taxation if transactions fulfil standing tax requirements. Gains on exchange rates are taxable too.

The government has also blocked related banks from “brokering bitcoin transactions or opening accounts holding the virtual unit”. Exactly what constitutes a ‘bitcoin account’ remains unknown, but it presumably refers to one with a known bitcoin service likeBlockchain.info or Coinbase.

The Japanese government is, however, generally curious about bitcoin and will not make any further statements on the matter until it has discussed matters with local bitcoin interests, a government representative has said.

Kyrgyzstan flagKyrgyzstan

The National Bank of the Kyrgyz Republic, the central bank of the Central Asian nation, has said that the use of bitcoin and other digital currencies as a form of payment is currently illegal under national law. Issued this July, the notice states that the only legal tender in Kyrgyzstan is the national currency, the som (KGS), and that as such, any use of bitcoin for payment violates this policy.

Malaysia

Malaysia flagMalaysia’s central bank, Bank Negara Malaysia (BNM), issued one of the shortest statements of its kind on 4th January, cautioning people to be careful when investing in bitcoin but otherwise saying simply, “The Central Bank does not regulate the operations of bitcoin”.

Singapore

Singapore flagSingapore is another major international financial services hub and appears to be one of the world’s most permissive environments for bitcoin. The Monetary Authority of Singapore has stated it “will not interfere” with bitcoin business, despite an earlier warning in September 2013 of the risks. In mid-January 2014 Singapore’s taxation authority, the Inland Revenue Authority of Singapore (IRAS) sent a statement to local brokerage Coin Republic with details on how bitcoin business would be taxed.

Bitcoin will be treated not as a currency, but as either a good or asset, said IRAS. As a good it would be subject to GST (VAT or sales tax) when traded to and from local currency by Singapore-resident businesses and goods purchased with bitcoin would also be subject to sales tax. As an investment asset, bitcoin would not be taxed as Singapore does not have a capital gains tax.

Most recently, on March 13th 2014, MAS announced it will regulate virtual currency exchanges and ATMs, in order to address potential money laundering and terrorist financing risks. Such intermediaries will have to verify the identities of their customers and report any suspicious transactions.

Taiwan (Republic of China)

Taiwan flagThe Financial Supervisory Commission of the Republic of China and the Central Bank of the ROC issued a joint statement at the very beginning of 2014 warning against bitcoin use in Taiwan. Regulators there have also said they will block any attempt to install Robocoin bitcoin ATMs.

Thailand

Thailand flagOn March 18th 2014, after flip-flopping on the issue for the last nine months, the Bank of Thailand issued its first clear statement on bitcoin, warning consumers that it is not a currency and that its use comes with inherent risks. The statement bears similarities to others issued from central banks around the world, but could be considered an improvement in the legal status of bitcoin users, as Thailand was widely considered to have implemented a bitcoin ban in the summer of 2013.

One issue in Thailand is not so much the legality of owning bitcoin, but whether exchanges qualify for a licence to trade in cryptocurrencies, which could be considered a foreign exchange activity and therefore illegal. Hopefully, the legal status of exchanges in the light of the new statement will become clear in coming days.

Vietnam

Vietnam flagThe second country in this list (and the world) to have banned bitcoin: Vietnam’s central bank forbade financial institutions from using digital currencies as a means of payment or from offering services in exchange for them back in February 2014. The country had previously warned against their use, stating that the government and State Bank did not recognize bitcoin as a legitimate method of payment.

All that considered, some small bitcoin businesses are still plying their trade in the Southeast Asian country and a bitcoin conference is to be held there in May.

Middle East

Israel

Israel flagThe Israeli Tax Authority was said to be considering a tax on bitcoin, but no further statements have been made at the time of writing. The Bank of Israel (BoI) and the Israeli Ministry of Finance issued a joint statement in February 2014 warning of investment risks as well as the dangers digital currencies posed as vehicles for fraud, money laundering and terror financing. However, the Israel Bar Association ruled in August 2013 that bitcoin “is an appropriate form of payment for attorneys” and authorized its members to accept it.

Jordan

Jordan flagThe Central Bank of Jordan has also issued a similar warning of digital currencies’ unregulated status in February 2014 and has prohibited banks, financial companies, payment processors and currency exchangers from dealing with them, particularly bitcoin.

Lebanon

Lebanon flagThe country’s central bank, the Bank of Lebanon, issued a warningstatement on 2nd January 2014 saying that bitcoin did not offer consumer protections, had a volatile price and was often used in criminal transactions. It advised people not to use digital currencies.

Oceania

New Zealand

New Zealand flagBoth the Governor and Assistant Governor at the Reserve Bank of New Zealand (RBNZ) issued personal warnings in mid-December 2013, warning of risks associated with volatility, but also commenting that the technology was “interesting”.

Australia flag

Australia

While the Governor of the Reserve Bank of Australia has previously warned of “speculative excesses”, the Australian Tax Office (ATO) has now provided businesses with guidelines on how it intends to deal with bitcoin, stating that income and profits derived from bitcoin transactions are taxable.

In a letter to an individual, the ATO said that transferring bitcoins to a private company in return for shares would count as income, and that transferring bitcoins to another party would be subject to Goods and Services Tax (GST). Bitcoin profits would also be subject to capital gains tax, it said.

Flag images via FreeCountryFlags.com

How to Accept Bitcoin Payments for Your Store

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One issue holding bitcoin back from wider adoption is the lack of businesses that accept the digital currency as payment. This is a chicken-and-egg problem. If more businesses had the ability to accept bitcoin, it might encourage consumers to start obtaining and spending it, and vice versa.

With this in mind, here is our guide to accepting bitcoin in a physical store.

Person-to-person payments

The easiest way to accept bitcoin payments is in-person, simply by getting your customer to send the correct amount of bitcoin (BTC) to your digital wallet. This is similar to thinking of it as a cash-in-hand payment.

burger-bear
A customer of Burger Bear, which uses a simple QR code system to accept bitcoin payment

This can be done via many smartphone apps, such as the Bitcoin Wallet app by Andreas Schildbach, on Android. There are also options available on the Windows Phone app store for users of that OS.

Some months ago, Apple removed all bitcoin wallet apps from its App Store. However, on 2nd June, the company rescinded this policy, once again paving the way for wallet apps on iOS devices. These are already starting to appear, with Blockchain,Coinbase and others apps now available. We can expect many more to arrive in coming months too.

To find out more about bitcoin transactions, see our detailed guide.

Another alternative is CoinBox which is specifically designed for merchants wanting a straightforward option to receive payments. In these scenarios, the merchant enters the price of an item or service into the phone, which then presents a QR code containing the amount to be paid and the address the funds are sent to. The customer scans the QR code with their bitcoin wallet app and the payment is sent.

Accept Bitcoin Today

All of these simple systems are ideal for small businesses testing bitcoin acceptance or for those doing odd-jobs for small amounts. Businesses which are larger in scale will likely look into a dedicated solution that fits in with their existing POS systems.

Merchant bitcoin point-of-sale (POS) solutions

There is also a growing number of commerce-specific options that aim to streamline the process of taking bitcoin payments. The following services offer a variety of POS solutions for merchants, both online and off.

BIPS

BIPS, short for the Bitcoin Internet Payment System, is a payment processor that allows merchants from all over the world to buy and sell bitcoin, and accept payments in bitcoin too. For bricks-and-mortar retail stores, BIPS offers a point of sale app for Android. BIPS also gives you the ability to store and archive invoices.

BIPS: Start accepting payments in bitcoin, in minutes.

For integrating with your website, there are plugins to interface with e-commerce options, such as BigCommerce, WooCommerce, Shopify, and others. There is also API access for those coding their own solutions.

CoinKite

CoinKite is a new startup that offers a bitcoin payment terminal looking exactly like the over-the-counter chip-and-PIN terminals we are so used to using in stores today. This handset reads a bitcoin-based debit card, also offered by CoinKite. The handsets can also serve as a bitcoin and litecoin ATM, as well as offer the option to print QR codes for customers to scan with their smartphone apps.

Coinkite Multi-Device POS

CoinBase

Coinbase is another payment processor that provides a point of sale app (Android) for bricks-and-mortar retailers. While it currently only supports US bank accounts as a funding source, it offers extensive e-commerce support. Not only does it offer an HTML code segment for easily inserting payment buttons into your website, it also provides plugins for WordPress, WooCommerce, Megento, and ZenCart.

Coinbase Point of Sale

BitPay

BitPay is an international payments processor for businesses and charities. It is integrated into the SoftTouch POS system for bricks-and-mortar retail stores. However,BitPay has an API which could be implemented into any other POS system with some coding work. BitPay has various tariffs that merchants can subscribe to, enabling features such as using the service on a custom domain (for online stores), exporting transactions to QuickBooks, etc.

Blockchain Merchant

Blockchain have also produced a merchant app for Android devices. Blockchain Merchant promises instant transactions, 0% fees on payments and it has multiple linguistic versions for use around the world.

Blockchain Merchant

Revel

As mentioned in our recent report: “Revel Systems offers a range of POS solutions for quick-service restaurants, self-service kiosks, grocery stores and retail outlets, among other merchants. POS packages start at $3,000 plus a monthly fee for an iPad, cash drawer and scanner.” It was recently announced that Revel will also include bitcoin as a method of payment in its POS software.

Revel ipad bitcoin point of sale

BitXATM

Germany-based startup BitXatm has announced the arrival of its Sumo Pro – a cryptocurrency ATM with a POS (point of sale) function that will appeal to merchants seeking to easily accept payments from customers in digital currencies.

Costing €2,900 (around $3,993), the stand-alone machine offers a generous 17-inch touchscreen and has the ability to accept any fiat currency. Additionally, it can accept or dispense any digital currency, according to the company’s website.

Paystand

California-based online payment processor PayStand provides US-based websites and mobile applications another way to accept payments such e-checks, credit cards and bitcoin. Paystand have recieved $1m in investment as part of its initial seed-funding round.

Paystand Bitcoin Merchants

Founded in 2009, PayStand aims to be a multi-payment gateway that eliminates merchant transaction fees, in part by supporting digital currency acceptance.

Coin of Sale

A new bitcoin POS system, Coin of Sale, is trying to make it easier for merchants to accept bitcoin payments for their goods and services.

Created by Singapore-based expat Thomas Forgac, Coin of Sale works with both Android and iOS devices. When users sign up for an account, they are automatically set up with an Electrum wallet.

The merchant must simply enter the amount of money that needs to be charged and the app will automatically generate a QR code for it. The customer then scans this QR code to complete the payment.

XBTerminal

XBTerminal provides a bitcoin POS device that allows the merchant’s customers to pay from any mobile bitcoin wallet by NFC or QR code. Payment from offline mobile devices is supported by bluetooth. Payments take place through the company’s platform and, if desired, bitcoin can be converted instantly to fiat currency at the time of sale.

The company also provides web apps and an online interface for its payments solution for those that wish to invest in third-party hardware.

DIY

With bitcoin, it is possible to forego the fees of using a payment processor or provider, and simply integrate payments into your own custom system. Those with a technical background have achieved this, such as Stephen Early, who integrated bitcoin payments into the POS system of his UK pubs single-handedly.

Get noticed

Whether you have an online or a bricks-and-mortar store, if you accept bitcoin, you need to publicize the fact. You can find a ‘bitcoin accepted here’ sign at the bitcoin wiki.

We Accept Bitcoin

A sign with more impact may alert customers to the fact you accept bitcoin.Cryptocables produces a range of neon and LED signage.

Bitcoin Accepted Here Neon Sign

Additionally, Coco Mats ’n More offers bitcoin-logoed doormats and ‘Bitcoin Accepted Here’ mats for merchants wanting to advertise the cryptocurrency as a payment option.

bitcoin-is-accepted-here-doormat

Credit card and PIN terminal images via Shutterstock

What Can You Buy with Bitcoin?

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This year has been something of a watershed, with a number of merchants – some of them retail giants with billions of dollars in revenue – deciding to accept bitcoin in exchange for goods and services. Many of them are online e-commerce sites, but an increasing number of bricks-and-mortar stores are also now accepting cryptocurrency.

While in the past trying to find a bitcoin-accepting merchant for the item you want was often tricky or even impossible, there are now growing options for people who don’t wish to pick their way through hundreds of listings just to find products vaguely approximating those they want.

The best way to find bitcoin-accepting merchants is via marketplaces and aggregatorsites that gather large numbers of supporting establishments together at once. CoinMap.org also offers a visual way to locate bitcoin stores in any geographical area, and new businesses are appearing all the time. However, CoinDesk has summed up some of the more notable examples of both online and real-world stores in the guide below.

Spending your bitcoin

In previous guides, we’ve told you how to mine bitcoin, and how to buy it. However you acquired your digital currency, if it’s not purely an investment, you’re going to want to spend it at some point. So, what can you buy with bitcoin?

Buying physical goods with bitcoin

Online e-commerce sites

Microsoft products pageGlobal computing giant Microsoft added bitcoin as a payment option for a variety of digital content across its online platforms in December 2014. According to the company’s payments information page, US-based customers can now use bitcoin to add money to their accounts, which can then be used to purchase content like apps, games and videos from its Windows, Windows Phone and Xbox platforms.

Dell, the multinational computer technology specialist, announced in July that it is accepting bitcoin through a partnership with Coinbase. As an introductory offer, people buying with bitcoin will get a price reduction of 10% on high-end Alienware PCs. With annual revenue approaching $57bn, Dell is roughly four times the size of DISH Network – the previous biggest bitcoin-accepting business.

Overstock became the first major retailer to accept bitcoin when it made the announcement back in January 2014. The firm offers everything from furniture to jewellery to electronics. Prices are in dollars but there is an option to pay in BTC on the checkout page. Initially a US-only offering, the firm opened up bitcoin purchases to over 100 countries in September.

Newegg, also a retail giant, is a Los Angeles-based company that recorded $2.8bn in annual revenue in 2013. It specialises in computer hardware and software, but also sells a variety of appliances and goods.

Showroomprive.com took the crown of largest European company to start accepting payment in bitcoin in September 2014. The merchant, which sells a variety of products including clothes, fashion accessories, cosmetics and homeware, is to accept bitcoin via European cryptocurrency company Paymium. At the time of the announcement, its websites in France and the Netherlands were accepting bitcoin, with other countries to follow over coming weeks. It has not yet announced a plan to integrate the digital currency with its mobile app platform.

TigerDirect, the online retailer of computers and consumer electronics now accepts payments in bitcoin. This is handy, perhaps, for miners who can buy kit with coin they have mined.

Monoprix is a major French retail chain that has announced plans to start accepting bitcoin payments on its merchant website this year. The company further indicated that it is also working on a mobile payment solution for physical stores and bitcoin could eventually be used there too.

Bitcoinshop.us offers products from air-conditioners to watches, all priced in bitcoin (and, as of July 14th 2014, litecoin and dogecoin too), for those wanting to make a purchase. The catch: it only ships to people in the continental US.

Memory Dealers carries a range of networking hardware equipment and computer memory. It has been a ‘bitcoin believer’ from the beginning.

AirBaltic, the Latvian airline, may be the first to accept payments in bitcoin, after starting accepting the cryptocurrency on 17th July. A company representative said that the bitcoin payment option is offered for basic class fares, excluding China, Indonesia, India, Iceland, Jordan, Japan, Lebanon, Malaysia, Russia, Taiwan and Vietnam. After initially and controversially charging a fee of 5.99 euros per bitcoin transaction, airBaltic changed its mind and now has no fee.

Air Lituanica, another Eastern European airline, is now accepting bitcoin for flight tickets as part of its ongoing bid to embrace new and innovative methods of serving customers.

CheapAir.com, the California-based online travel booking website, started taking bitcoin in November 2013 and announced in July that it has completed more than $1.5m in bitcoin sales on flights, around 200,000 hotels and Amtrak railway bookings via its platform.

BTCTrip is an online flight and hotel booking service that was one of the first in its industry to serve the bitcoin community. As of August 2014, the firm also accepts payments in dogecoin and litecoin.

The UK’s Theatre Tickets Direct has recently started accepting bitcoin, offering a ticket booking service for mostly London shows, such as West End theatre and musicals.

Honest Brew is a UK-based online beer platform that specialises in craft beers from its own and guest breweries – including quirky labels like Weird Beard, BrewDog and Pressure Drop.

Coco Mats ’n More offers bitcoin-logoed doormats for fans of the cryptocurrency, as well as ‘Bitcoin Accepted Here’ mats for merchants wanting to advertise the payment option.

CoinDesk frequently discovers interesting local sellers: Keystone Pet Place will handle all your pet’s needs, The Java Nomad will ship you fresh coffee beans from Bali andPersian Shoes will sell you handmade shoes and bags from Iran. Several local, niche merchants accept bitcoin only and will not/cannot accept fiat currency.

The good news is that there are hundreds of small retailers accepting bitcoin too. Coinmap and UseBitcoins.info keep up-to-date databases of these shopping destinations.

Bitcoin gift cards

eGifter cardsIf you can’t find physical or online stores that accept bitcoin directly for the item(s) your require, the easiest way to turn your digital currency into ‘real-world’ goods and services is via gift cards.

Plenty of gift card businesses accept bitcoins and these cards can be used at a surprising number of major retailers likeWalmart, Amazon, Target and Nike. For US customers, companies like GyfteGifteriTradeBTC and GiftCardZen have the widest range of options.

In the UK, Gift Off lets customers use 15 cryptocurrencies to buy gift cards for 177 retailers, such as Amazon, Marks & Spencer, Ryan Air, and American Apparel. The service is currently rolling out to the EU too, with France and Germany being first to receive a more limited number of gift card options. More countries and retailers are planned to follow soon.

Note: many gift cards are only valid in their country of issue, which is usually the United States (although overseas shoppers may still make purchases with gift cards from US retailers in many cases). Other countries have their own options; for example, Australians can see what’s available at Bitcoin Gift Cards. You will usually pay a little more to trade your bitcoins for gift cards (around 5-10% is normal) but on the upside, you don’t need to deal with exchanges or transfers.

Some sites, like Europe’s BitCC, will exchange bitcoins for disposable prepaid debit cards.

Physical stores that accept bitcoin

diamondbtcREEDS Jewelers, a large jewelery chain in the US, is one of the most notable merchants to accept bitcoin as a form of payment. The firm is headquartered in Wilmington, North Carolina, and has 64 retail locations in the eastern US, as well as an online presence. The retailer, which has been in business since 1946, is allowing its customers to pay using bitcoin both in-store and online.

CeX, a UK technology exchange and retailer, launched a one-store bitcoin-only payments initiative in Glasgow this May, as well as Scotland’s first bitcoin ATM. It has now rolled out ongoing bitcoin acceptance to 30 stores across Britain, with more to follow soon.

The Sacramento Kings NBA franchise accepts bitcoin for products including tickets, jerseys, hot dogs and beer. The team says it will accept the currency online and at the Sleep Train Arena, its home stadium.

The San Jose Earthquakes, a soccer club from California, implemented bitcoin integration at the team’s Buck Shaw Stadium on 25th May. Coinbase is acting as the stadium’s bitcoin payments processor, leveraging the exchange’s tablet app to accept payments. Game attendees can use bitcoin to buy tickets at the box office and additionally pay for concessions at certain locations and buy merchandise at the stadium gift shop.

Perhaps stretching the definition of a store, a private hospital in Warsaw, Poland, which is run by the Medicover Group, will soon let patients pay their bills in bitcoin. The medical facility is probably the first to accept payments for the full range of healthcare services, including major surgery.

Check out CoinMap.org for a large number of smaller bricks-and-mortar bitcoin stores across the globe.

Hotels and property

One of the dreams of the cryptocurrency community is to be able to travel – across borders, perhaps –and to be able to pay in bitcoin. This would avoid having to visit currency exchanges and pay their commissions and fees, while also avoiding the need to carry much cash around. Now the dream is starting to take off, with notable names starting to welcome bitcoin onboard.

Most notably, Expedia has announced it will soon accept bitcoin for all hotel bookings, making it the first major travel company to accept payments in cryptocurrency. Expedia said bitcoin will be integrated into the payment options for customers at check-out, sitting alongside payment methods like PayPal and Visa. If all goes well, the company says it may expand the payments option to other areas of its business, including flights.

A Holiday Inn hotel in Brooklyn, New York, is now accepting bitcoin payments in a pilot programme overseen by by bitcoin entrepreneur Charlie Shrem. The Park Slope Holiday Inn Express is located on Union Street in Brooklyn and bitcoin reservations are possible either by phone, online or in person. Again, if the pilot goes well, the chain should open up more hotels to bitcoin paying customers.

Spanish chain One Shot Hotels has been accepting bitcoin payments since 1st October 2014 for its two locations in Madrid (one with its own bitcoin ATM). New branches in Barcelona, Valencia, Seville and London are planned for the future and will accept bitcoin too.

Offering international investors the chance to buy UK properties with an extensive range of digital currencies, including bitcoin, Cai-Capital claims to be the first UK firm providing this facility. Targeting markets such as China, Russia and the Middle East, the Cheltenham-based company, which works in partnership with estate agent Hill-Mathieson & Partners, hopes that cryptocurrency payments will draw in new customers for the company’s sales, letting and property management services.

Bars and restaurants

Bars and restaurants that accept bitcoin remain the exception, rather than the rule. Luckily they’re usually great places to go. If you’re determined to spend your digital currency on a plate of fish and chips, or a cold beer, there are easy ways to find out where you can go.

Bitcoin.Travel is a respected site, offering a mappable list of accommodation, apartments, attractions, bars, and beauty salons around the world.Coinmap also maintains a worldwide database of establishments. 

If you’re in London, UK, the Pembury Tavern is well known, as is the Old Fitzroy pub if you’re in Sydney, Australia. If you make it to Tokyo, you’ll find local bitcoiners dining out on bitcoin at The Pink Cow.

For those who happen to be both peckish and located in London, a quick snack can be had for both bitcoin and dogecoin at the Burger Bear stall, which sells a range of artisan burgers and also caters for parties and events. The business has also just completed a crowdfunding campaign for more permanent establishment in the near future too.

When it comes to food and drink, there are other ways to spend bitcoins, even if a restaurant doesn’t directly accept them.

Foodler, a site enabling you to browse and order delivery and take-out meals from restaurants across the globe, has over 13,000 restaurants in 3,150 cities on its books. You can use bitcoins to pay for ‘Foodler credits’, which can be used at any of the restaurants.

Takeaway.com, a European online food ordering site which employs over 100 people and reported a revenue of over €100m in 2012, announced in November 2013 that its website in the Netherlands was accepting payment in bitcoin via payment processor BitPay.

Interestingly, we are starting to see nascent clusters of bitcoin-friendly establishments. For example, the Bitcoin-Kiez in Berlin is persuading local establishments in small numbers along the Graefekiez there to support bitcoin.

Similarly, in the Netherlands, all of the businesses (nine restaurants and an art gallery) along two canal-side streets in the centre of the Hague have collectively started to accept bitcoin. Unofficially the two streets running along the canal – Bierkade and Groenewegje – have also changed their name to ‘Bitcoin Boulevard’.

Payment platforms

Another development that has recently seen large numbers of merchants joining the bitcoin space en masse is the adoption of the digital currency by payments platform providers. These companies offer businesses the ability to easily accept payments from customers by a variety of means, such as credit/debit cards and PayPal. The good news for the crypto community is that they are also starting to roll out bitcoin services too. The merchant may not necessarily have made the bitcoin functionality live on their stores yet, but many will have and more are bound to follow.

Perhaps the biggest news of 2014 in this space was that, in September, PayPal announced partnerships with three major bitcoin payment processors – BitPay, Coinbase and GoCoin. The move means that online merchants will now be able to accept bitcoin via all three companies through its PayPal Payments Hub, a product that enables customers to accept credit cards, mobile carrier payments and other payment methods through a single integration.

Popular e-commerce platform Shopify added a bitcoin payment option for its sellers in late 2013. With a base of over 70,000 online stores, the number of goods that can potentially be purchased with bitcoin suddenly expanded significantly. Strangely, finding them is not currently very easy, because the Shopify.com marketplace page no longer exists, however there is a list of 75 stores now accepting BTC on their blog.

Commerce-as-a-service solutions provider Digital River, a company that processed more than $30bn in online transactions in 2013, announced in June that it was adding bitcoin as a payment option for its online merchants. The offering is now available to merchants using the Minnesota-based company’s SWREG solution for small and mid-sized businesses.

Similarly, Mollie, a payments platform in the Benelux region has potentially opened up over 10,000 merchants to bitcoin buyers.

Buying services with bitcoin

US satellite service provider DISH Network announced that it will start accepting bitcoin payments later this year. The Colorado-based company is one of the biggest content providers in America, with more than 14 million pay-TV subscribers. DISH says bitcoin payments will be made available to all customers who decide to make one-time payments on mydish.com starting in the third quarter of 2014, but it has not yet revealed an exact date. Once it does, it will become the biggest company to accept bitcoin to date. Last year DISH Network Corporation reported revenue of $13.9bn. The company has more than 30,000 employees.

Following its successful test with bitcoin micropayments provider BitWall back in February, the Chicago Sun-Times has announced that it has partnered with San Francisco-based bitcoin startup Coinbase to accept bitcoin payments for subscriptions. The announcement makes the Sun-Times the first US newspaper to accept bitcoin as a payment option.

A property listings site in the US gives a discount to users who advertise on the site and pay in bitcoin. The listings site, called RentHop, is offering landlords and agents who advertise properties in New York a discount of up to 60% if they pay for their adverts in bitcoin. RentHop customers pay for ads with credits purchased from the site.

How about paying for education with bitcoin? Orlando, Florida-based online interactive education specialist Treehouse now accepts bitcoin for its subscription web design and web development education services. The firm, which to date has raised $24.6m through six funding rounds, boasts 70,000 students who use the platform to learn valuable skills in languages and software such as Android, CSS, HTML, Java, jQuery, iOS and Ruby, among others.

And if you’re looking for friends or love, OKCupid, the matchmaking site, began accepting bitcoin payment way in April 2013, making it an extremely early adopter as far as large companies go. With four million users as of 2013, OKCupid is part of IAC, a media and Internet company whose holdings include Ask.com, Vimeo and Match.com. While OKCupid boasts of being completely free, it also offers an ‘A-List’ premium subscription that brings extra features which can be paid in cryptocurrency.

“The most dangerous global sorority of beautiful pin-up girls that has ever existed” is now accepting bitcoin for its membership subscriptions. SuicideGirls is a popular adult-themed online community that bills itself as a celebration of alternative lifestyles and female empowerment. Some 2,624 SuicideGirls provide photos, video and blog posts to the website. Further, the larger brand has expanded from photography and video to include comic books, magazines and books since its launch in 2001.

Web/tech services

Perhaps not surprisingly for a movement that requires a fair bit of technical know-how, bitcoin has garnered a lot of support from the online services community. Hosting companies in particular are willing to give your website or server a home on the Internet in exchange for bitcoin.

The bitcoin wiki has a good list. WordPress is among the most visible and popular sites, and will offer you a blogging presence online for payment in cryptocurrency. You can also go to BitcoinCodes to buy credits for Steam, Spotify, XBoxLive, PlayStation Network and AirVPN. Namecheap accepts bitcoin directly as payment for domain services. If you want a little more privacy online, several VPN (virtual private network) providers now accept only bitcoin after being blocked by credit card companies and PayPal.

Bitcoin gambling sites

One of the biggest destinations for people’s bitcoin is online gambling. It’s fast, with an immediate return (or loss) and bets can start relatively small. When done properly, it’s also easy to prove that bets are fair – either by tracking payouts in the block chain, or by using external proof.

SatoshiDice has been the most popular online gambling site. Users mail money to one of a set of addresses, and in return they get a payout based on the probability of winning. Others include PeerBet – which accepts a host of cryptocurrencies other than bitcoin – plus Primedice.

Bullion traders

If you prefer your sound money in slightly heavier form, you have several choices.BitGold, a startup which recieved $3.5m in funding in 2014, offers a service which utilizes gold for payments and savings.

Amagi Metals has been trading bitcoins for precious metals since 2012. Based in Denver, the company sells bullion via its e-commerce site to almost anywhere in the world and says bitcoin is a great tool for promoting interest in financial responsibility.

Online bitcoin marketplaces and auctions

Online marketplaces are another way to spend bitcoins. They are effectively clearing houses that enable anyone to sell products to anyone else.

It all started with Silk Road, an underground marketplace that enabled people to sell illicit goods and services using bitcoin. The site, only accessible via the Tor anonymous browsing system, capitalized on the currency’s ability to facilitate anonymous trades (if you know what you’re doing).

Silk RoadSilk Road got shut down in October 2013 and promptly ‘returned’ a month later. If that’s not your game, there are more legitimate bitcoin marketplaces where you can spend your coins. Most of them are still in the fledgling stage and have a limited range of goods to offer, though.

Bitcoin Market and Cryptothrift are two category-driven sites, albeit sparsely populated. Flibbr allows you to search listed products by name. Reddit offers a subthread called Bitmarket, that allows people to list their goods as Reddit posts.

There are other, specialist sites popping up. BitPremier will sell your high-end luxury items for bitcoins, using an escrow service. It has an impressive selection of high-end listings including luxury cars, yachts, condos, antiques, and artworks. There is even an island for sale.

Tipping, or donating bitcoin to a cause

Feel like giving your bitcoins away to a good cause, or to reward an interesting comment? Here’s The Sri Lanka Campaign for Peace and Justice, a London-based NGO that campaigns for “justice, human rights and reconciliation” in Sri Lanka, and Sean’s Outpost – a homeless shelter in Pensacola, Florida.

You can also tip people for comments on reddit (see the guide here). And here is also alist of sites taking donations in bitcoin.

How to Buy Bitcoin in the UK

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So, you’ve heard all about the advantages of this amazing new financial technology called bitcoin, but how do you go about buying it in the British Isles?

While bitcoin makes sending payments between countries – or even continents – quick, cheap and easy, traditional banking systems have yet catch up. As a result, users buying bitcoin through a bank account report frustration with complex procedures, delays while funds arrive and high fees for international transfers.

Credit and debit cards will often incur charges too, and not all companies will accept them due to the risk of fraudulent chargebacks.

As a result, if you’re not paying with cash at a bitcoin ATM or from an individual at a meetup, buying bitcoin is best done by fast and free domestic bank transfer – if you can find a bitcoin business offering that option, that is.

The banking issue

The problem is, British banks are reluctant to service bitcoin companies so many exchanges are having to bank elsewhere in the EU. In these cases, you’ll have to put up with charges on international transfers like SEPA and often wait 2–5 days for your funds to arrive.

The British government has made some noises about turning the country into acryptocurrency-friendly environment. However, as it stands, a UK exchange providing SEPA bank transfers offers few advantages over any exchange in the EU – apart from being able to deposit in GBP, perhaps.

However, new banking partnerships are being forged that allow bitcoin exchanges add local deposit options for UK customers.

A note on price

Bitcoin is notoriously volatile – that is, the value can climb and drop significantly over short timeframes.

As a result, bitcoin buyers would do well to keep an eye on the price charts in order to make, hopefully, a timely purchase when the value is low. Indeed, many people earn money trading bitcoin, making the most of its volatility.

CoinDesk price chart (Oct 2013–Oct 2014)

CoinDesk’s guide to understanding price charts can be found here.

All that aside, for would-be owners of the digital currency, where can you buy bitcoin in the UK?

Bitcoin exchanges

Cryptocurrency exchanges offer a way to buy (and sell) bitcoin – and sometimes other digital currencies such as litecoin and dogecoin.

First things first, you’ll need to register and provide proof of residency (a copy of recent utility bill) and identity (a photo ID scan) for anti-money laundering (AML)/know-your-customer (KYC) compliance procedures before you can use the platform’s services.

Once that’s done, you’ll need to set up a bank payment using the details provided by the exchange, at which point you can fund your account and buy some bitcoin.

Note that it’s worth avoiding using the word ‘bitcoin’ in the payment reference too. While this may sound odd, jittery banks have been known to balk at anything to do with the digital currency, even closing some accounts in the past.

Bitcoin exchanges in the British Isles:

Coinfloor

A London-based bitcoin exchange with an emphasis on security, claiming 100% multi-signature cold (offline) storage for all its bitcoin holdings. Notably, Coinfloor is an HMRC-approved bureau de change. Currently, sterling deposits can be made only via SEPA bank transfer. Charges £5 to deposit GBP and £10 to withdraw. Fees for other currencies can be found here.

CoinCorner

An Isle of Man-based exchange that is something between a full exchange and a peer-to-peer (p2p) marketplace. Users deposit funds in a CoinCorner account and then buy and sell bitcoin, litecoin and dogecoin with other users. The exchange started accepting 3D Secure-enabled Visa and MasterCard credit and debit cards on 23rd October. Otherwise, fiat currency deposits are made via SEPA bank transfer. No fees are charged on deposits, but there is a £10 fee for GBP withdrawals.

The exchange recently introduced a mobile wallet app for iOS and Android devices.

Yacuna

A new London-based exchange. Users can buy, sell and trade with bitcoin, litecoin and dogecoin. Deposits can be made in cryptocurrencies or euros and British pounds by bank transfer. Charges £3 to withdraw GBP and €3 to withdraw euros.

Other exchanges to consider:

Although based in the US, Kraken recently partnered with a bank in Luxembourg to bring customers the option to deposit in pounds sterling, while dollars and euros are also accepted. Deposits are made via SEPA or wire transfer.

Safello is a European bitcoin exchange that offers multiple payment options in a variety of currencies including GBP.

Circle is also US-based and currently only offers bank transfers from that country. However, the company caters to the global bitcoin market by allowing users to pay with debit or credit cards.

For other options, see our general guide to buying bitcoin.

Bitcoin brokerages

Quickbitcoin

A London-based bitcoin brokerage enabling you to buy or sell bitcoins in any amount. Deposits can be made by UK Faster Payments or cash deposit at a bank. Also provides a bitcoin ATM at The Vape Lab, 232 Shoreditch High Street. For larger volumes (£2,000+), Quickbitcoin also runs an OTC marketplace. Accepts EUR and USD, as well as GBP, for larger amounts.

P2P marketplaces

These are peer-to-peer platforms that match individuals who wish to buy, sell or trade bitcoin and altcoins. They do not buy, sell or necessarily even hold cryptocurrencies themselves, unless as part of an escrow service.

Bittylicious

Provides a peer-to-peer platform for individuals to buy, sell or trade bitcoin and 11 altcoins, such as dogecoin, litecoin and feathercoin. Payments can be made via instant UK bank transfer, mobile payments such as PayM, PingIt and PYC, Visa/Mastercard, cash at UK corner stores or SEPA bank transfers.

BitBargain

Facilitates purchases of bitcoin and litecoin between individuals. A number of domestic banking transfer options are available, including: standard UK bank transfers, Barclays Pingit mobile payments, RBS Pay Your Contact, and Paym mobile payments (this is possible because transactions are between individuals and do not involve a bitcoin company). Fees are only charged on ‘extras’ like SMS messages.

CryptoMate

Cyptomate allows users in the UK to buy bitcoin, litecoin, ripple, dogecoin and many other cryptocurrencies. The service works using UK bank transfers (Faster Payments) and coins are sent once the order has been processed. The service aims to send currencies within 1 hour of purchase. Non-verified users are limited to £250 in purchases per day and once verified this is increased to a £1,000 daily limit.

LocalBitcoins

Matches bitcoin buyers and sellers to facilitate over-the-counter deals, offering an escrow service to protect the buyer. Users are charged small fees for wallet use and bitcoin transfers only.

BittyBot

A price comparison website that is updated every five minutes to show online traders from UK bitcoin merchants and marketplaces. Displays information such as the rating of the buyers and sellers, and the payment types accepted.

Bitcoin ATMs

Over the last year a number of bitcoin ATMs have appeared in the UK, mostly in London, with others popping up in Bristol, Brighton, Glasgow and the Isle of Man.

London ATM map
Bitcoin ATMs in London. See the interactive map here

All these machines allow you to insert cash and receive bitcoin in your digital wallet (buying BTC). Some models also let you send bitcoin and take out cash (selling BTC).

Visit CoinDesk’s up-to-date map of the world’s bitcoin ATMs here to find the installation nearest you.

Vouchers

Azteco

If you’re in London, New Goulston Street to be precise, Azteco offers a unique service selling bitcoin vouchers over the counter.

azteco-voucher

The customer decides how much bitcoin they want to buy and hand the attendant cash. The attendant then prints out a voucher containing a code that can be redeemed at theAzteco website. A 3% commission is charged on each transaction.

Why Use Bitcoin?

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Bitcoin is a relatively new form of currency that is just beginning to hit the mainstream, but many people still don’t understand why they should make the effort to use it.

Why use bitcoin? Here are 10 good reasons why it’s worth taking the time to get involved in this virtual currency.

It’s fast

When you pay a cheque from another bank into your bank, the bank will often hold that money for several days, because it can’t trust that the funds are really available. Similarly, international wire transfers can take a relatively long time. Bitcoin transactions, however, are generally far faster.

Transactions can be instantaneous if they are “zero-confirmation” transactions, meaning that the merchant takes on the risk of accepting a transaction that hasn’t yet beenconfirmed by the bitcoin blockchain. Or, they can take around 10 minutes if a merchant requires the transaction to be confirmed. That is far faster than any inter-bank transfer.

It’s cheap

What’s that you say? Your credit card transactions are instantaneous too? Well, that’s true. But your merchant (and possibly you) pay for that privilege. Some merchants will charge a fee for debit card transactions too, as they have to pay a ‘swipe fee’ for fulfilling them. Bitcoin transaction fees are minimal, or in some cases free.

Central governments can’t take it away

Remember what happened in Cyprus in March 2013? The Central Bank wanted to take back uninsured deposits larger than $100,000 to help recapitalize itself, causing huge unrest in the local population. It originally wanted to take a percentage of deposits below that figure, eating directly into family savings. That can’t happen with bitcoin. Because the currency is decentralized, you own it. No central authority has control, and so a bank can’t take it away from you. For those who find their trust in the traditional banking system unravelling, that’s a big benefit.

There are no chargebacks

Once bitcoins have been sent, they’re gone. A person who has sent bitcoins cannot try to retrieve them without the recipient’s consent. This makes it difficult to commit the kind of fraud that we often see with credit cards, in which people make a purchase and then contact the credit card company to make a chargeback, effectively reversing the transaction.

People can’t steal your payment information from merchants

This is a big one. Most online purchases today are made via credit cards, but in the 1920s and ’30s, when the first precursors to credit cards appeared, the Internet hadn’t yet been conceived. Credit cards were never supposed to be used online and are insecure. Online forms require you to enter all your secret information (the credit card number, expiry date, and CSV number) into a web form. It’s hard to think of a less secure way to do online business. This is why credit card numbers keep being stolen.

Bitcoin transactions, however, don’t require you to give up any secret information. Instead, they use two keys: a public key, and a private one. Anyone can see the public key (which is actually your bitcoin address), but your private key is secret. When you send a bitcoin, you ‘sign’ the transaction by combining your public and private keys together, and applying a mathematical function to them. This creates a certificate that proves the transaction came from you. As long as you don’t do anything silly like publishing your private key for everyone to see, you’re safe.

It isn’t inflationary

The problem with regular fiat currency is that governments can print as much of it as they like, and they frequently do. If there are not enough US dollars to pay off the national debt, then the Federal Reserve can simply print more. If the economy is sputtering, then the government can take newly created money and inject it into the economy, via a much-publicised process known as quantitative easing. This causes the value of a currency to decrease.

If you suddenly double the number of dollars in circulation, then that means there are two dollars where before there was only one. Someone who had been selling a chocolate bar for a dollar will have to double the price to make it worth the same as it was before, because a dollar suddenly has only half its value. This is called inflation, and it causes the price of goods and services to increase. Inflation can be difficult to control, and can decrease people’s buying power. Bitcoin was designed to have a maximum number of coins. Only 21 million will ever be created under the original specification. This means that after that, the number of bitcoins won’t grow, so inflation won’t be a problem. In fact, deflation – where the price of goods and services falls – is more likely in the bitcoin world.

It’s as private as you want it to be

Sometimes, we don’t want people knowing what we have purchased. Bitcoin is a relatively private currency. On the one hand, it is transparent – thanks to the blockchain, everyone knows how much a particular bitcoin address holds in transactions. They know where those transactions came from, and where they’re sent. On the other hand, unlike conventional bank accounts, no one knows who holds a particular bitcoin address. It’s like having a clear plastic wallet with no visible owner. Everyone can look inside it, but no one knows whose it is. However, it’s worth pointing out that people who use bitcoin unwisely (such as always using the same bitcoin address, or combining coins from multiple addresses into a single address) risk making it easier to identify them online.

You don’t need to trust anyone else

In a conventional banking system, you have to trust people to handle your money properly along the way. You have to trust the bank, for example. You might have to trust a third-party payment processor. You’ll often have to trust the merchant too. These organizations demand important, sensitive pieces of information from you. Because bitcoin is entirely decentralized, you need trust no one when using it. When you send a transaction, it is digitally signed, and secure. An unknown miner will verify it, and then the transaction is completed. The merchant need not even know who you are, unless you’ve arranged to tell them.

You own it

There is no other electronic cash system in which your account isn’t owned by someone else. Take PayPal, for example: if the company decides for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you. It is then up to you to jump through whatever hoops are necessary to get it cleared, so that you can access your funds. With bitcoin, you own the private key and the corresponding public key that makes up a bitcoin address. No one can take that away from you (unless you lose it yourself, or host it with a web-based wallet service that loses it for you).

You can create your own money

In spite of the amazing advances in home office colour printing technology, most national governments take a fairly dim view of you producing your own money. With bitcoin, however, it is encouraged. You can certainly buy bitcoins on the open market, but you can also mine your own if you have enough computing power. After covering your initial investment in equipment and electricity, mining bitcoins is simply a case of leaving the machine switched on, and the software running. And who wouldn’t like their computer to earn them money while they sleep?

Understanding Bitcoin Price Charts

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Whether you already own bitcoin or plan to get some, sooner or later you’ll want to know how much the cryptocoins are worth when converted to your currency of choice.

Later, you may want to know whether to hang onto your coins or to sell them – hopefully making a little profit in the process. However, analyzing price charts and understanding trading terms from the financial world can be rather daunting, especially for the beginner.

This guide serves as a useful primer of the basics.

What is bitcoin’s current price?

The best place to find out the latest price of bitcoin (currency symbol: BTC or XBT) is the exchange you bought them from (Bitstamp, Bitfinex and BTC-e being the most popular exchanges at the moment), or Coindesk’s own Bitcoin Price Index.

Knowing bitcoin’s current price is one thing, but pretty soon you’ll want to know where prices will go in the future.

Methods for predicting price trends

Forecasting price movements of anything traded at an exchange is a risky probabilities game – nobody is right all the time. Many traders have lost lots of money, if not their life savings, into such attempts.

The two main approaches to predicting price development are called fundamental analysis and technical analysis. While fundamental analysis examines the underlying forces of an economy, a company or a security, technical analysis attempts to forecast the direction of prices based on past market data, primarily historical prices and volumes found on price charts.

Where to find bitcoin price charts

To perform technical analysis on bitcoin price and volume history, you’ll need bitcoin price charts that display data in a more readable manner than just plain number tables. Good places to start are the charts on Coindesk’s Bitcoin Price Index and Coinstackr’sinteractive bitcoin charts.

To start with: a simple price chart

The most basic type of price chart displays prices as a line:

coindesk-bpi-chart
Coindesk Bitcoin Price Index chart

Closing prices of any given period of time (a month, a week, a day, one hour, etc) are used to draw the price line. This kind of chart can be used to get a quick overview of what prices have been doing lately, but traders need more data to draw their conclusions.

Trader’s choice: the candlestick chart

The most widespread type of chart among traders is the candlestick price chart, as seen below (you can play with it here):

Coinstackr Price Charts
Coinstackr bitcoin price chart

Candlestick charts display more data than just the closing price: each ‘candle’ shows the opening price, the lowest and highest price of the given time-period as well as the closing price.

In addition, the color of the candle body indicates whether the closing price was higher than the opening price (usually a green bar, called an ‘up-bar’) or lower than the opening price (usually with a red body, called a ‘down-bar’).

Image via Wikipedia
Image via Wikipedia

The candlestick chart belongs to the family of OHLC (open high, low close) price charts, but there’s a multitude of other chart types/styles to suit any advanced trader’s preference.

Another type worth mentioning is the non-time based (NTB) range chart. Beginners may find them less intuitive and more difficult to grasp, however.

Candlestick price charts contain a lot of useful information for the skilled trader’s eyes, such as whether a candle’s spread is wide or narrow (illustrates the difference between high and low prices), where the closing price is relative to the high and low etc.

Together with the patterns that groups of candlesticks form, this is what traders base their trend biases on: either bullish (rising prices), bearish (falling prices) or ranging sideways.

Other popular platforms with many of these features are Bitcoinity, Bitcoin Wisdom,Zeroblock and TradeBlock.

Where to go from here

Now that you’ve had an introduction to reading (bitcoin) price charts, a good idea would be to start following bitcoin’s price development on a daily basis. You will inevitably start noticing certain regularities on the charts – most probably the trending behavior of prices. Later on you might remember that this was the point in time where you were drawn into the art of technical price analysis.

This guide is the first of a series contributed by , creator ofCoinstackr.com (@coinstackr).