What about a gift of cryptocurrency this Christmas?

WHAT about a gift of cryptocurrency this Christmas?

It could be the perfect present for the tricky person who has everything. And if the meteoric rise of Bitcoin -- the darling of digital currencies -- continues, it could prove to be the gift that keeps on giving. But it could also end up worthless if the current boom turns to bust.

* WHAT IS BITCOIN?

BITCOIN is a virtual currency, the first of a new form of money held only online that can be used either to spend like 'cash' or as an investment a little like a commodity such as gold.

Gift of cryptocurrency
gift of cryptocurrency

Bitcoin, like other similar electronic currencies that have followed (Ethereum, Litecoin, Zcash and Dash), are stored online in a 'digital wallet' and then spent on goods and services. Alternatively, you can exchange it for a traditional currency such as sterling. This can be done using a special pre-payment card that converts the cryptocurrency when a purchase is made.

HOW DOES IT WORK -- and how do i buy it as a gift of cryptocurrency?

WHEN Bitcoin was invented in 2009, it was aimed at techies who 'mined' for it using ' Blockchain ' technology. Blockchain allows transactions to be managed cheaply, securely and anonymously in a kind of devolved online ledger with records of transactions held on thousands of computers.

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To release coins a 'miner' had to verify each transaction by solving a complex maths problem. But today, the Bitcoin revolution has extended beyond the techies and miners. Cryptocurrencies can now be purchased from specialist exchanges such as Coinbase , Kraken, Bittylicious and Bitstamp.
You can usually pay for the currency by credit or debit card or bank transfer.

Exchanges are likely to make a charge for each purchase of cryptocurrency. For example, Coinbase charges 3.99 per cent for card purchases.

Oliver Isaacs , a technology investor and expert in cryptocurrencies, says: 'You can send a currency to another person's digital wallet so a Christmas present could be on the cards.' .

WHY HAS BITCOIN'S VALUE BOOMED?

The number of Bitcoins in circulation will never exceed 21million. About 16million have already been 'mined'.

The limit was set by a mysterious coding genius with the pseudonym Satoshi Nakamoto
, the creator of Bitcoin. This aims to ensure it will always have scarcity value. The recent price rise -- a nine-fold leap since the beginning of this year alone to $11,000 (£8,000) at one point last week for a single Bitcoin -- is partly due to growing interest from institutional investors and hedge funds.
But it is possible to purchase as little as a one hundred millionth of a Bitcoin (0.1 Bitcoin) -- called a Satoshi.

WHERE AND HOW TO SPEND IT?

A NUMBER of online and physical shops accept Bitcoin -- from pubs and florists to holiday booking websites and charities.
Shoppers can pay online or use an app on their phone. They need to set up a virtual wallet first to store their coins. This acts like a bank account for receiving or using virtual currency -- but without any consumer protection.

TAX IMPLICATIONS

LIKE any other investment, anyone who sells a holding of cryptocurrency at a profit can trigger a capital gains tax charge if profit exceeds the annual capital gains tax allowance of £11,300. Isaacs says: 'Anyone receiving income paid in Bitcoin will also be taxed accordingly.

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