Nothing to knock bitcoin, but without government regulation, this kind of currency will run against, well, problems. For those of you unfamiliar, Bitcoin is set out to be a digital currency in which you can use it in lieu of USD, JPY, EUR, or whatever you use. Merchants can get an API to hook into their shopping system. Online bank-type things (think more Paypal than an actual bank) can trade in it just like anything else. There are exchanges (as in, stock market buy-sell orders) for it in which you can put buy and sell bids at various price points.
You get Bitcoin from the thin air at first from donating CPU cycles to the organizers of Bitcoin (BTC herein), and there’s some algorithm that determines how many coins gets dolled out over time. Unlike a total hoax, you can already trade BTC for actual dollars. People have paid in to speculate BTC as well as made some real money from it.
So what’s wrong?
For starters, it is difficult if not extremely so to counterfeit it. It’s not going to be a real issue at this point.
But I think it’s going to be a prime form of money laundering. Right now it isn’t, simply because the volume is so low. If you want to swish out $100,000, you would have to take your time since the volume is at just thousands of dollars a day. If you slap down $10000 at a time, you are going to disrupt the market. But in the future, if BTC is still around, that could be a serious mean of money laundering.
It already is just yet another digital currency that could be stolen via traditional methods: someone hacking your PC can get your BTC “banking” information. To leave out the nitpicky details, let’s just say that some key BTC info is stored in the main BTC client locally, which controls BTC authentication, account storage and send/receive functionality.
The system also have some major bugs, could be horrific if you run into them.
In practice, BTC is more like a “pay-for” cloud computing solution. You trade CPU cycles for speculative money. The CPU cycles goes to encode BTC transaction encryption, which help to run the system and make it more secure. The disclaimer here is that I do this with my home PC, I leave it running when I’m out to crunch cycles at a “mining pool.” It feels all too much like, say, EVE Online, where the potential to profit is alluring, but there are many risks. But if all you’re wagering is a couple KW/h, it’s not much of a gamble.