The Skinny on Bitcoin

Ileana Johnson Paugh of Canada Free Press wrote this article.

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Bruce

'Currency circulating today, not backed by gold or silver since August 1971, is fiat currency, created and authorized by governments as their official currency. It has value only because the government says it does and there is faith in that particular government that prints the currency.
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Users love Bitcoin because it offers privacy from government intrusion, lowers transaction costs, and affords long term protection of loss of purchasing power from inflation. Inflation has been a serious concern lately. Escalating prices, coupled with endless quantitative easings by the Fed are reasons for that apprehension.

The price of Bitcoin as virtual money can be volatile, theft and fraud are serious fears, and a “long term deflationary bias encourages the hoarding of Bitcoins.”
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From the regulatory standpoint, Congress does not know how to grasp and include Bitcoin under federal securities law and under foreign exchange trading. Two Senate hearings were held:
•November 18, 2013, Senate Committee on Homeland Security and Governmental Affairs, “Beyond Silk Road: Potential Risks, Threats, and Promises”
•November 19, 2013, Senate Committee on Banking, Housing, and Urban Affairs, “The Current and Future Impact of Virtual Currencies”

The rub is that Bitcoin is not redeemable for another commodity, it is not legal tender like the U.S. dollar, it is not backed by any government (may or may not be a good thing), and supply is not determined by a central bank (may or may not be a good thing).
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If Bitcoin takes off, its existence might interfere with the Fed’s monetary policy by impacting the quantity of money, velocity of dollar circulation, and potentially interest rates.

Bitcoin use appears attractive and desirable because of lower transaction costs, more privacy, and no loss of purchasing power due to inflation. However, Bitcoin’s purpose as a medium of exchange is questionable due to its price volatility, Bitcoin is no legal tender, and hacking into Bitcoin account holders can be a problem.'