Bitcoin is an idea developed by Satoshi Nakamoto for an independent, fully de-centralized P2P currency. Technical details of how it is generated are described in a White Paper titled Bitcoin: A Peer-to-Peer Electronic Cash System
I have argued (elsewhere) that bitcoin is a deflationary currency. As the user base increases, and the difficulty to generate bitcoins is also increasing, relative scarcity will make each single coin more and more valuable.
This may be a good thing for the early adopters, who are sitting on bitcoins and have not spent them. It isn’t good for the stability of a monetary system however, as there is a constant pressure for price changes, in this case it is a pressure for prices to increase. In other words, prices for things, as expressed in bitcoin, will automatically keep increasing.
This is however not the only point in bitcoin’s disfavor. According to a recent article on the trustcurrency blog, bitcoin is
a rube-goldberg machine for buying electricity
quote: In the end, BitCoins create a perverse incentive to consume energy to “create money.” Here is why.
quote:How much energy does it require to mine the average BitCoin? — With my “older computer,” the hash rate averages around 2000 khps on a microprocessor going full-bore consuming about 65W. The current difficulty shows that a new BitCoin can be mined by a computer at this speed on average every 113 days. So, 113 days × 24 hours = 2712 hours. 2712 hours × 65W = 176280 Wh or 176.28 KWh. The average cost of a KWh in the United States is 10.45 cents. So we’re looking at spending $18.42 to create 50 BTC (at the moment). So the electrical cost is about $0.36/BTC.
Not really the greatest incentive to save electricity in times of a possible future energy shortage…
Another argument against bitcoin is of course the absence of any mechanism to adjust to fluctuations in the level of demand. It is quite clearly made by theundergroundeconomist…