ooking at the negligible returns offered on cash investments, Edward Cunningham started searching for alternatives. Instead of going to the stock market or buying up gold bars, however, the 45-year-old from Sherborne in Dorset turned to the internet, and last September invested in the digital currency bitcoin. Since then his stake has more than doubled.

Bitcoin is a paperless, bankless, stateless currency which exists on computers, and carries with it a whiff of peril for investors. Cunningham admits to being nervous when he first signed up to trade in the currency, especially when he had to make his first deposit via a bank in Estonia. “It all turned out well and I bought my first coins for $225 each, well below today’s price of around $575,” he says.

The price of bitcoin has fluctuated wildly since it was launched in 2009. Six years ago, two pizzas were bought for 10,000 bitcoin. By 2013, each bitcoin peaked in value at $1,000.

Coupled with these enormous peaks and troughs have been hacking controversies. Earlier this month almost 120,000 bitcoin, worth around $78m, were stolen from Hong Kong-based Bitfinex, one of the most popular cryptocurrency exchanges, causing a 20% drop in the value of the currency.

 Investor Edward Cunningham is confident in his bitcoin  holdings
 Investor Edward Cunningham is confident in his bitcoin holdings
Despite such drops Cunningham is ahead on his investment and feels positive about the currency, which is now being used for payment by companies such as Tesla and Microsoft, and is confident his investment will grow further. So, is it time for others to follow his cryptocurrency lead?

What exactly is bitcoin?
Started by a small group of hackers, bitcoin is unlike traditional currencies in that it has no central bank, nation state or regulatory authority backing it up.

The coins themselves are made by computers solving a set of complex maths problems, and people who use their computers to make coins and record transactions are called miners.

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To spend it, users buy bitcoin and transact using exchanges such as San Francisco-based Coinbase. Rather than a central authority validating transactions, they are all recorded on a public ledger, called the blockchain.

Bitcoin has a finite supply of 21m of which more than 15m are in circulation, which supporters claim make it more stable than government-backed currencies that can be devalued by central banks printing money. They say this means its value will only rise over time, with some claiming the price could top $10,000 a coin. Bitcoin first came to the attention of many people after it was used on the online black market site Silk Road, known as a platform for selling illegal drugs.

“The coins are ‘manufactured’ using cryptography, which is spooky to most people. Bitcoin is also a reasonably anonymous way to carry out large cross-border money transfers, so has inevitably become linked to illegal goods and services,” says Dave Hrycyszyn, of digital agency Head, which advises companies on new technologies.

The lack of regulation appeals to some, but also means it has none of the stability mechanisms typically associated with a currency, which can make it volatile, he said.

You can pay using a bitcoin wallet app, and can even get a bitcoin debit card
Obi Nwosu, Coinfloor
How do I buy it?
Bitcoin is bought via online exchanges and platforms, with an increasing number of UK options. Fractions or “bits” can be bought instead of a whole bitcoin. Investment can start with as little as $10 on some sites. Bitcoin exchanges and brokers include Coinfloor, CoinCorner and QuickBitcoin. Transaction fees vary according to the exchange or broker, but typically range from 0.2%-1% of the currency bought, plus bank transaction charges. Fees of up to 1% can apply on sales.

Bitcoin are stored in a “digital wallet”, which can also manage transactions. It exists either in the cloud or on computers, and can be linked to bank accounts. If using an online wallet , investors must be sure they can trust the provider, because if hackers breach its server’s security measures the bitcoin could be stolen.

Typically, you can pay by bank transfer, mobile payments or with a Visa or Mastercard. There are also bitcoin ATMs, which allow for bitcoin to be exchanged for cash and vice versa, in London, Bristol, Brighton and Glasgow.

What can you buy with it?
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A growing list of firms accept Bitcoin, including Tesla, Microsoft, CheapAir.com and Britain’s first bitcoin pub, The Pembury Tavern in Hackney, London, where a pint of Milton Pegasus costs £3.70 or 0.0084 bitcoin.

Obi Nwosu, managing director of Coinfloor, says you can spend it wherever you see the “bitcoin accepted here” sign, either online or at local stores, with no transaction charges. “You can pay using a bitcoin wallet app, and can even get bitcoin debit cards that you can use anywhere that accepts Mastercard or Visa.”

You can also cash in your coins at any time and get real currency in return, for a small broker fee, he adds.

Should I invest in it?
Bitcoin has grown strongly but with plenty of volatility along the way. Over the past 12 months its price has risen from $220 to $575, according to figures from Coindesk – a return of 161%. It has also shown resilience, with the price rallying after the Bitfinex hack. Yet it remains well below its all-time spike of $979.45, which it hit on 25 November 2013. In short, this is not a safe haven: despite excitable claims the price could hit $10,000, where it goes next is anybody’s guess, so investors should approach with caution.

Lex Deak, chief executive of alternative investment aggregator Off3r, says investing in Bitcoin isn’t for the fainthearted. “You should only invest a small proportion of your money and be prepared for massive