There are a few major issues regarding synthetic or virtual currencies like Bitcoin.
The headline “advantage” is that inflation (general running of the printing press) does not debase its value like normal fiat currency.
In my opinion the disadvantages outweigh this argument though. Firstly, the idea that supply is going to be limited to a very finite quantity causes problems – sure it might preserve the intrinsic value of the coin/currency, however extrapolate this into decades into the future and what happens? There is a risk that it’s transferability and general acceptance in transactions could be diluted.
Secondly, the issuers could simply keep manufacturing more and more Bitcoins. This may reduce the risk of issues with transferability, but completely contradicts the primary argument “for” Bitcoins.
Thirdly, the lack of identifiable ownership is a problem on a few fronts. There are a few legal issues here – such as who actually owns them (what if the Bitcoin software had a glitch and record of your holdings were wiped – how would you contest that you actually owned them?). Anonymity of ownership is, of course, of more benefit to the illegal trade than legal trade.
I would expect that governments will work to outlaw – or at least have some kind of registration and compliance system to govern the trade of synthetic currency. This doesn’t necessarily mean it has to come under the tax system. It could continue to operate under (what is essentially) a barter system.
Would I be investing in Bitcoin? Hell no.
The idea that something makes a great investment just because it can (theoretically) hold its value to inflation is ridiculous. That’s the same pitch made by gold-bugs. And it’s a lame at best. I’ve heard the anecdotes of people (apparently) buying a Bitcoin for $20 then using it to buy a car (etc etc etc)…. but seriously, if that’s the best we can do we might as well invest in Powerball tickets (insert anecdote about a $10 ticket winning $300 m etc etc etc….)
That’s my take on it anyway. It’s an interesting idea, but needs registration, regulation and wide-spread acceptance to be viable…
Heh. If someone deletes your bit coin wallet, that’s it no redress. The FBI is currently sitting on the dread pirates roberts bitcoin wallet. With one swoop they can wipe out 5% of all bitcoins, and there is no way to regenerate them. It doesn’t take too many of those before your digital currency becomes illiquid due to lack of currency.
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