For those unfamiliar, Bitcoin is a digital currency that will soon teach a lesson in market forces. The idea is that users “mine” for Bitcoins, by which they mean automate the process of turning out said heavily encrypted strings of code.
Even the people running Bitcoin think it’s risky and it’s mostly an experiment in creating a secure, decentralized money system using digital technology, not a viable currency. As such, it’s fascinating to the kind of person who thinks the government is oppressing them by collecting income taxes, or those who want to buy weed on the Internet without getting the DEA’s attention (often these two intersect). Hence the rise of sites like The Farmer’s Market.
The problem is that Bitcoin is backed by, well, nothing. It basically runs on clapping your hands and believing, which makes it incredibly volatile, as enthusiasts are learning the hard way. Once it becomes too hard to mine blocks, people will simply stop caring and move on to some other fad, and Bitcoins will become worthless.
Not that this is stopping the FBI from freaking out over its anonymity.
Of course, the anonymity that comes hand-in-hand with Bitcoin is partially why its appeal has been so vast. Sure, you can use it to buy drugs on Silk Road, but you can also use it to buy food at Manhattan restaurants.
Though do so at your own risk–the FBI report also points to cases of fraud on Bitcoin users from other Bitcoin users.
In short, the government doesn’t like an anonymous currency it can’t track. Fortunately, economics will do what the FBI can’t around, oh, we give this until 2013.
(Image VIA Glenn Cooper on Flickr)