Bitcoins are a category of digital currency or crypto-currency
that has been developed as an alternative to traditional
currencies. The electronic money does not physically exist and is
not issued through a central bank. It is a virtual currency that is
used to buy goods and services online without incurring large
transaction fees or charges. Bitcoins are recorded through the
"Block Chain", which is a public ledger that records
every holder of every bitcoin ever in existence. Every transaction
is broadcast to the Block Chain, so any ownership claim can be
verified (although owners can remain anonymous).
Because there is no central bank with responsibility for
monetary policy, the supply of bitcoins is constrained through a
process known as 'mining'. Bitcoin miners must run
sophisticated algorithms in order to add more blocks to the Block
Chain and unlock the remaining supply of bitcoins. There will only
ever be 21 million bitcoins issued – as at February 2015,
slightly less than 14 million are in circulation.
ASIC's website, 'Money Smart', finds that these
currencies were an attractive option to users because they allow
the user to remain anonymous. However, the fact that it is not
guaranteed by any bank, makes it more volatile and it may not be
accepted in many places. Additionally, the anonymity of the
currency exposes it to the risk of being used for money laundering
and other illegal activities.
Read more about virtual currencies and the risks involved with
dealing in them
Senate inquiry into digital currency
In December 2014 ASIC made a
submission to the Senate inquiry into digital currency. The
submission discussed whether or not digital currencies, such as
bitcoins, are a financial product. ASIC ruled that digital
currencies do not fit within the current legal definition of a
'financial product' and therefore an Australian Financial
Services Licence (AFSL) is not required to deal in the
ASIC also considered the regulation of facilities associated
with digital currencies, such as those which enable the use of a
digital currency to make payments. ASIC found that these facilities
may be a financial product that is regulated by ASIC, but this will
depend on how the facility works and its particular terms.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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