Much has already been written about the rise of a new digital currency, the Bitcoin. To some commentators, the Bitcoin is a new type of gold, representing the emergence of a borderless online world, free of annoying governmental interference and ridding the world of obsolete local currencies. To others, the Bitcoin represents just another bubble, or at worst, is the latest shift to a lawless, online "wild west."
But what is Bitcoin exactly? The Bitcoin is a digital currency based on an open source cryptographic protocol and not managed by any central governmental or financial authority. Bitcoins can be transferred through a computer or smartphone without any intermediate financial institution.
The value of a Bitcoin has fluctuated wildly, leading some to speculate that it is the conceptual equivalent of tulip bulbs in Holland in the seventeenth century, which witnessed the absurd valuation of the flowers' roots.
Apart from its sheer novelty, one part of the allure of the Bitcoin is that it can be used in transactions on the black market for all manner of contraband such as drugs and weapons. Another "benefit" to the Bitcoin is its ability to avoid governmental regulations. Consequently, it has become a hacker's dream come true.
Since each Bitcoin transaction is largely independent of any financial institution's intermediary involvement, it becomes difficult if not impossible for governments to restrict or regulate Bitcoin trade as they would traditional currency flow.
Recently, the U.S. Financial Crimes Enforcement Network (FinCen) issued a formal statement clarifying the scope of various recordkeeping requirements in the Bank Secrecy Act to different types of Bitcoin transactions.
One relevant question raised by some Intellectual Property owners is to what extent an increase in online Bitcoin transactions will even further complicate current efforts to regulate online commerce.
The answer is uncertain. However, given the challenges already involved in ensuring international banking compliance comports with intellectual property rights, the Bitcoin promises only more headaches ahead.
Ironically, the Bitcoin itself is already reportedly being counterfeited, and hackers are stealing them from online "wallets," raising questions about how realistic expectations are that it could possibly function as an actual currency.