As Stilgherrian writes at ZDNet, Bitcoin has a certain appeal. The digital currency claims to be almost untraceable. That makes it great for people who want to avoid paying taxes.
In practice, it isn’t impossible to trace Bitcoin transactions, but it is difficult enough to make life easier for legally dodgy purchases. There’s a website called Silk Road, which is like TradeMe for drug dealers. Silk Road transactions are all in Bitcoins. Last year the Economist reported some US$1.9 million a month passes through the site.
Bitcoins turn up elsewhere in the underworld. Mind you, only the bravest or most suicidal of souls would pay a mob hitman in Bitcoins and sleep soundly at night.
Bitcoin is as much a political idea as a currency. It makes it easier to bypass bankers and governments. If it takes off it will challenge government’s ability to govern. It is meant to disrupt.
That’s all well and good. But I’ll leave financial disruption and the dismantling of human civilization to others. I want money I can trust and use. Bitcoin has three huge disadvantages for practical day-to-day transactions.
First, you can’t use it in many places. BP won’t accept Bitcoin when you want to fill your car’s petrol tank. New World won’t let you buy a litre of milk with Bitcoin and it won’t get you far when shouting a round in the local pub. To be fair, all currencies were like this at one stage and it is possible the commercial world will accept the currency one day.
Second, that hard to trace feature which some see as part of Bitcoin’s appeal, makes it less safe in practice. If a transaction in dollars goes wrong, you can trace the money and put things right. A screwed Bitcoin transaction probably means you can wave your money goodbye. Bitcoin, by its nature, is attractive to crooks.
Third, Bitcoin is inherently risky. In mid-2011 the value of one bitcoin reached US$30 by the end of year it was down to US$2. As Juha Saarinen writes at iTnews, earlier this week the value rose sharply to US$147 before dropping to US$126 in an hour of trading.