Bitcoin is one of the many different types of digital currency and is created by complicated computer-based algorithms.
Bitcoin is a ‘decentralised’ currency, which means that there is no central authority or bank that sets the price or controls Bitcoin.
Bitcoin operates entirely as a peer-to-peer industry, where the participants interact directly with each other to create and exchange bitcoin.
The value of Bitcoin is not derived from a physical commodity nor does a government or central bank ascribe a value to it; instead, the value of Bitcoin is what a buyer and seller agree that it is worth when it is exchanged between them or when it is used to pay for a good or service.
Bitcoin can be obtained by mining i.e. the creation of Bitcoin, or by purchasing Bitcoin using a legal tender.
‘Mining’ is the process used to create new Bitcoin. Mining is performed by a special group of users on the Bitcoin network known as miners. The miners solve mathematical algorithms and each solution also adds a new block to the blockchain and unlocks additional bitcoins.
Approximately every ten minutes a new block is created and added to the blockchain through the Mining process. This block verifies and records any new Bitcoin transactions. The creation of the new block means that the Bitcoin network has then confirmed those transactions.
Bitcoin is stored on a public ledger called the blockchain in what is known as a ‘Bitcoin Wallet’, a type of software where Bitcoins are stored. A Bitcoin Wallet acts in much the same way as a bank account – you can deposit, store and transfer Bitcoin from the Bitcoin Wallet.
Bitcoin can be used to pay for online purchases; every transaction is recorded on the Blockchain which is a public ledger, this means that each time Bitcoin changes hands from one user to another this is recorded where it can be viewed by anyone and this prevents users from selling bitcoin they don’t have.
The Blockchain records the transaction history and ownership of every single bitcoin.
Bitcoin is also known as a ‘convertible digital currency’, which means that it can be easily and readily exchanged for legal tender. Much of the growth of value in Bitcoin is attributed not to its ability to be used for digital purchases but in its value as an investment, with the price of Bitcoin surging in the past 12 months.
At this stage, Bitcoin is not considered a financial product for the purposes of the Corporations Act 2001. ASIC considers that Bitcoin does not meet the definition in section 763A of the Corporations Act 2001 as it is not:
ASIC has concluded that bitcoin is not a financial product and therefore you do not need an AFSL to act as a Bitcoin adviser, buyer or seller.
Yes, the AML/CTF regime will apply to digital currency exchange (“DCE“) providers as they are considered reporting entities under the AML/CTF Act and Rules.
A DCE provider is an individual, business or organisation that exchanges:
as part of operating a digital currency exchange business.
The AML/CTF Act defines a digital currency as a ‘digital’ representation of value that functions as a medium of exchange, a store of economic value, or a unit of account. Digital currency is also defined as being publicly available, interchangeable with money, able to be used for consideration and is not government-issued. Bitcoins are encompassed in this definition.
This means that DCE providers will need to be registered with ASIC and subject to the following ongoing compliance and reporting requirements:
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