Bitcoin: Too Good to Be True?

Bitcoin, the

that has been sweeping the internet, appears to have hit a bit of a roadblock in recent days. For those unaware, Bitcoin is a peer-to-peer technology and digital currency. Users trade Bitcoin files over a peer-to-peer network for tangible goods and services. The demand for Bitcoins has exploded within the last year, appreciating over 200,000%.

and valuable because they allow users to transact digitally, over the internet, without bank accounts or credit cards. Further, although a record of every Bitcoin transaction is stored on every computer running the software (to prevent counterfeiting), Bitcoins allow for a high

. This has led to their infamous use on the illicit drug trading website Silk Road, a fact that has drawn the attention of two powerful Senate Democrats. Yet, despite the digital currency's powerful market abilities, it seems as if flaws in the technology have been exposed. On Thursday, Slashdot reported that one Bitcoin user had lost $500,000 worth of Bitcoins. A computer hacker managed to get into the user's Bitcoin wallet and steal the files. What's worse is that, because of the anonymous nature of Bitcoins, it will be virtually impossible for the user to get his Bitcoin files back. Additionally, on Friday, Gizmodo reported that Symantec

discovered a virus designed specifically to scan computers for unencrypted Bitcoin wallets, then steal the Bitcoins. If security becomes a growing issue going forward, the value of the Bitcoin might plummet.

that has often been cited regarding the Bitcoin, is its inflation-resistant nature. Inflation is an undesirable quality in a currency because it erodes purchasing power. If a currency is strong and faces little inflationary pressures, the currency might be highly desirable. However, if Bitcoin users are in danger of losing their Bitcoins at any given time, the currency is no longer a store of purchasing power. In that case, the lack of security is effectively worse than a high rate of inflation. Hopefully, the Bitcoin development community can rectify this problem and improve on this promising technology going forward.