The UK government is investigating the role that virtual currencies such as Bitcoin will play on the current (and future) global financial system.
With results due in autumn, the assessment will cover the benefits and risks of unregulated digital currencies.
The investigation will also examine the dangers of ignoring the rise of virtual currencies, allowing other markets to capitalise on them as they become more popular.
The increasingly high-profile currency has become popular with some sites and retailers, but isn’t regulated by any financial body.
The review was announced at the launch of new financial technology body Innovate Finance in London’s Canary Wharf by chancellor George Osborne. The newspaper says a study that details the role virtual currencies could play in British business is due in the autumn.
Since there is no registry of these addresses, people can use them to protect their anonymity when making a transaction.
How Bitcoins work
Introduced in 2009, Bitcoin lets users pay for goods and services from a computer or phone, independent of any bank. Each virtual coin is represented by a unique number.
These numbers are created through a process called “mining”, which involves a computer solving a difficult mathematical problem with a 64-digit solution.
Each time a problem is solved the computer’s owner is rewarded with bitcoins.
To receive a bitcoin, a user must also have a Bitcoin address – a randomly generated string of 27 to 34 letters and numbers – which acts as a kind of virtual postbox to and from which the bitcoins are sent.
Watch this video explaining how Bitcoin works below: