A new on-line currency, the bitcoin, has been created and is in circulation. Basically, it is currency created through a computer algorithm that can be used for on-line purchases and is free from any national government. There is a lot of talk that it will become the currency of drug dealers and criminals. Newsweek has a short article on it here and the Economist blog has a larger post on it here.
I am not sure what will happen to this currency. I suspect not much. The amount to be put in to circulation will be small (21 million coins, even at a price of $18 per coin, is not much of a base for a currency). However, the bigger issue is whether this currency can offer anything (except hiding illegal activity) that most people would want in a currency that is not already available. I know that Internet people will say that this is a new form of currency - however, the idea of private entities creating their own currency is not a new idea. More importantly, the fixed amount of bitcoins will likely result in hoarding, hence raising its value - but leading to a form of deflation. Or, it could simply be too difficult to use and be utterly worthless. Either way, it will be interesting - although not very useful.
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