Sigh ... where to start?
For more background on Bitcoins see this story from Wired Magazine (Wikipedia does a terrible job describing this process).
Heh, and I though for the most part the wikipedia article on Bitcoin was getting to be halfway decent. (Excluding the "it's a ponzi schem" brewhaha).
The whole premise of this type of private network is to create anonymity online (see TOR Project).
Bzzzzt. No, but thank you for playing.
The whole premise is to be decentralized so that the currency cannot be corrupted by political or other ambitions.
That means it is impossible to trace an online transaction.
Using the term from Jon Matonis, Bitcoin offers user-definable anonymity. If you want it to be anonymous, you have options available to you that can help protect your privacy. But every transaction is traceable in the public ledger.
And therein lies the flaw of the Bitcoin concept: transaction anonymity attracts illicit activity.
Cash is used for a lot more illicit activity than bitcoin is. Is that a flaw? Lots of people might think so. But an even greater number of people will not give up cash, for various reasons including the property of it being able to used privately.
Unfortunately one explanation that stands out is the increased demand for illicit drugs online. Quite sad actually.
SatoshiDICE is by far the single largest component of transactions, then speculation, then about an order of magnitude smaller you might find the number of transactions associated with illicit activity.
But I guess it is easier to explain it away with the most sensationalistic component even after showing numbers that don't justify it being all that significant.
Nevertheless Bitcoin is the 2012 winner for the best performing currency against the dollar.
As it was in 2010 and 2011 as well.
