Bitcoin is an online digital currency. It was introduced in 2009 as an electronic alternative to traditional money. Because of this, Bitcoin is a truly decentralized currency totally independent of any government entity.
Bitcoins can be used just like any other currency (at least online). You can buy things with them and use them settle debts - assuming the other party in the transaction accepts Bitcoins.
Like any other currency, the value of Bitcoins fluctuates depending on demand. Bitcoin has gotten a lot of attention lately because it's value has skyrocketed. They are currently worth about $140, up from lesss than $5 a few months ago.
Most consider the recent price increases unsustainable and a Bitcoin bubble. I agree and even put my money where my mouth is by spending half of my Bitcoins this week (I only had 40). But since I bought them for $11 and their value when I spent them was $123, I made quite a profit - at least in percentage terms.
This brings me to one of the features of Bitcoins. Because the currency is virtual and independent of government regulation, my Bitcoin gains are not traceable by the IRS or any other government agency.
This makes Bitcoins a potentially good choice for tax evasion, money laundering and other illegal activities. Governments around the world are aware of this and studying how to deal with this aspect of alternative currencies.
Bitcoins have become one of the most popular forms of alternative currency with more than $1 billion in circulation around the world. Many believe it will become widely used and some VCs are betting big on Bitcoins and the emerging ecosystem of companies supporting their use.
Our advice to small businesses is to ignore the hype and Bitcoins for now. Too few people know about them or use them to bother with them at this time.
But if you find Bitcoins interesting and want to learn more, The New Yorker has a good article covering Bitcoins in more detail.