Most people in IT will have heard about bitcoins, and I imagine a lot of people here will have heard about them too. For the uninitiated, they are an electronic decentralised cryptocurrency, with semi-anonymous transactions, a small amount of monetary expansion (which will decrease to zero as time goes on) and absolutely no central bank that can generate them at will. These scream out as the perfect modern libertarian currency.
So why is it all going wrong?
Currently, bitcoins seem to be skyrocketing in price, from around $10 just 4 month ago to the wildly unstable $147 when I checked today. Yesterday, it was around $115.
Currently, the currencies problem is that it lacks mainstream acceptence outside of speculation, as the main place that coins are spent it seems is The Silk Road. Since the coins are increasing in price by the hour, the currency seems to be increasing due to people being unwilling to part with their coins rather than newcomers adopting them en masse.
So, what lessons can we learn from looking at Bitcoins; would we see the same stuff happen with a gold-backed currency like Austrian Economists advocate? Are we instead watching the currency of the future preparing to overthrow the failed currencies of the central banks? Personally I think the whole thing is a proof of concept rather than a proper currency, but its interesting to observe all the same. I feel somewhat bad for the people who are about to lose their money though.