According to
Smart Money, the cybercurrency bitcoin is experiencing a surge in popularity - and in value:
The best performing currency of the past year isn't Brazil's real, up 15% versus the U.S. dollar, or Australia's dollar, up 27%. It's the Bitcoin. A year ago one was worth half a penny. Thursday morning it hit $10.50. That's a gain of more than 200,000%.
What's a Bitcoin? It's a peer-to-peer system of electronic money that allows payments to be sent directly between two parties without the need for a financial institution...
There are about six million Bitcoins today. The number will approach 21 million beginning in the 2030s but never exceed it. The finite supply of Bitcoins might help explain the frantic demand for them...
Users get Bitcoins in one of several ways. "Miners" set their computers to work solving problems in exchange for coins. The more miners there are, the more difficult the problems become, which keeps the rate of supply stable. At recent exchange rates, high-end machines can produce $30 worth of Bitcoins per day, but consume a vast amount of energy in doing so...
Any fiat currency -- dollars, euros, Bitcoins -- gets its value from trust. Dollars can't be cashed in for anything; rather, we accept them as payment with the belief that others will accept them, too. That's another reason the price of Bitcoins has rocketed over the past year. Two years ago, almost no one accepted them for payment. Over the past year, a handful of early adopters began trading services for them -- mostly programmers offering things like website design and hacking consultation. In recent months, a handful of pioneers have begun selling real goods for the start-up money...
More than a dozen sites now sell goods for Bitcoins, including T-shirts, coffee and natural pet food. At least one, The Arms Locker, says it offers firearms. Another, Silk Road, is a forum for people selling recreational drugs. How can that be? Bitcoin transactions leave a record of times and amounts, but not identities...
It's not clear what regulators think of Bitcoin. The Constitution gives Congress the sole authority over U.S. money. In March, a North Carolina resident was convicted of minting his own Liberty Dollars to reduce reliance on and compete with the greenback. He faces up to 15 years in prison.
Bitcoins aren't U.S. currency, however, and Norman says the Bitcoin Consultancy doesn't operate in the U.S. And as with file-sharing software, Bitcoin operates as a peer-to-peer network, raising the question of how regulators could stop it if they wanted to. The FBI didn't respond to requests for comment.
It's not discussed in the article, but I suspect bitcoins offer a way for users and merchants to avoid a variety of taxes, both on income and on transactions. It will be interesting to see how this plays out.
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