I’ve been following Bitcoin, the cryptographic currency, for a year or two, but I still learned a lot about it from this article by Felix Salmon. There’s two angles to Bitcoin: the technical angle (how does it work, why does it work) and the economic angle. Felix Salmon does an excellent job at covering the economic angle:
A few days ago, the value of all the bitcoins in the world blew past $1 billion for the first time ever. That’s an impressive achievement, for a purely virtual currency backed by no central bank or other authority. It’s also temporary: we’re in the middle of a bitcoin bubble right now, and it’s only a matter of time before the bubble bursts.
There are a couple of reasons why the bubble is sure to burst. The first is just that it’s a bubble, and any chart which looks like the one at the top of this post is bound to end in tears at some point. But there’s a deeper reason, too — which is that bitcoins are an uncomfortable combination of commodity and currency. The commodity value of bitcoins is rooted in their currency value, but the more of a commodity they become, the less useful they are as a currency.
If you read anything about Bitcoin and its future, read this.