HACKED OFF: Bitcoins grow in popularity, value

IT'S BEEN another tough year for investors.

The All Ordinaries Accumulation Index, a reliable measure of share investment performance, resulted in a 0.6% return for the 2015-2016 financial year.

When compared with the 20-year average of 10.8%, this is a staggeringly dismal performance.

Super funds didn't perform much better, with analysts revealing that Australia's largest funds struggled to scrape together an average return of 2.3%.

When contrasting these results with the performance of the most popular virtual cryptocurrency, bitcoin, the results couldn't be more different.

Bitcoin appreciated in value 242% during the 2015/16 financial year.

Most of my family and friends share two common reactions when virtual currencies are concerned - uncertainty about whether something worth money that's not real is in fact real and fear as to whether something that's bought and sold online can be trusted.

Aside from its appreciating value, bitcoin is unlike any other currency most of us would have been exposed to.

The border one crosses for bitcoin isn't a physical one, but a virtual one. It's a currency that has a value that can be used to transact online.

Mainstream retailers in the US, such as Target, Amazon, Victoria's Secret and even Subway, are among a growing number of global brands offering a bitcoin payment option.

Bitcoin was not issued by a central government bank or regulator. Its precise creation in 2007-2008 is somewhat of a mystery.

Be that as it may, bitcoin now has a market capitalisation of around $AU14billion, with one bitcoin worth just short of $AU900.

What makes the currency so unique is its security design. Since bitcoins cannot be physically deposited into a bank, the currency is held in software called a "digital wallet".

These wallets can be stored within a "blockchain", which is the epicenter of all things security for bitcoin. It is a database that acts as the public ledger of all bitcoin transactions.

The "blocks" record when and in what order transactions enter and are logged in the blockchain ledger.

It's beginning to sound like a medieval board game, but it's a board game that's growing in popularity and value.

At last count there were 19 bitcoin ATMs in Australia where one can withdraw and deposit money that converts to bitcoin.

Our country represents the fourth most populated bitcoin ATM country in the world, only surpassed by the US, Canada and the UK.

If you want to know more, visit bitcoinvalues.net.

* Dr David Lacey is a Senior Research Fellow at USC and managing director of IDCARE.

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