BITCOIN arrived with a bang this year. The crypto-currency was created just eight years ago by an anonymous inventor, but its value has gone up 1,000 per cent in the past 12 months alone, with one unit trading at more than £12,000 during this week.

You can even buy a Scottish version of Bitcoin as an alternative to the pound. The creators of Scotcoin have recently raised £80,000 to help promote the digital currency as a store of value and as “an emerging means of acquiring goods and services, online and instore”.

Scotcoin has attracted investors from all over the world and was used to fund a property purchase earlier this year – the first in the world to be bought through crypto-currency.

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The two bedroom flat in Glasgow was bought by businessman Peter McGowan for 10 million Scotcoin – the equivalent of £60,000 – from David Low, head of intellectual property at the Scotcoin Project.

The community interest company behind Scotcoin has also been working with two Scottish fintech firms on new blockchain systems – the complex digital ledgers that allow crypto-currency transactions to complete – whose aim is to make Scotcoin cheaper and easier to trade.

Willie Fleming, director of Scotcoin, said: “We have some of the best tech graduates and foremost crypto-currency leaders right here in Scotland, and people have a lot of goodwill towards Scotcoin, as they know we’re reinvesting in tech jobs right here at home.”

But are digital currencies encouraging reckless speculation? The price of Bitcoin has proved volatile, with more than £2,000 wiped off its value in just 24 hours in late November after reaching a record high of £8,467.

Sir Jon Cunliffe, deputy governor of the Bank of England, recently warned that “investors should do their homework and think carefully” before investing in crypto-currencies.

The UK’s financial watchdog has also spelled out the risks of investing in initial coin offerings, otherwise known as ICOs, where investors are offered digital tokens in exchange for their investment of crypto coins. These digital tokens can represent a share in the company or a voucher for future services, but they can also offer no tangible value at all.

Indeed City regulator the Financial Conduct Authority has called ICOs “very high-risk, speculative investments” that people should invest in only “if you are an experienced investor…and prepared to lose your entire stake”.

The research firm GlobalData warned this week that Bitcoin investors tend to be “speculative by nature with little or no trading experience” and motivated by the desire for quick profits. But those who have stuck with crypto-currencies over the long term have seen their patience rewarded. Anyone who bought £100 of Scotcoin two years ago would have seen its value rise to over £20,000 by June this year.

Bitcoin was originally designed to be an alternative payment method that could sit outside the traditional banking system.

There is a finite number of Bitcoins available and unlike national currencies, their supply cannot be increased by central banks. This is one reason why Bitcoin has become a hot commodity.

Kit Carson, head of banking and fintech at GlobalData, said: ‘‘With only 21 million bitcoins able to be mined, you have a classic situation here where limited supply generates market excitement, high demand and prices go up.”

Mr Carson argued that investors need to beware because Bitcoin differs from national currencies, which are based on the “clearly understood and transparent” measure of economic performance.

“Nobody knows what the levers are for Bitcoin or whether it is a currency to be traded or an asset to be held onto,” he added.

But fans of crypto-currency say it is crossing over into the mainstream, with the first Bitcoin futures market set to be established in the US within weeks. This means Bitcoin will be traded on regulated financial exchanges for the first time in its history.

While Scotcoin can be bought via its website, Bitcoin must be purchased from specialist online exchanges. They also sell other crypto-currencies, such as Ether and Ripple.

You can invest some of your pension in either Bitcoin or Ether through a so-called exchange-traded note offered by Swedish firm XBT Provider, which opened up the funds through online investment giant Hargreaves Lansdown this year.

A word of warning though: these are complex products and only suitable for sophisticated investors who are adept at self-investing their pension.