This Bitcoin Business Is Entirely Out of Hand

About $500,000 in Bitcoin currency was recently lifted by a hacker-thief. The story of the heist has moved quickly around the Web but, as the Atlantic Wire's Adam Clark Estes points out in a lengthy backstory of the two-year-old virtual currency, the money would have been worth far less only a few weeks ago. The currency, which is based on an economic model that guarantees anonymity to its users, has exploded in popularity only recently, driving up the exchange rate.

This hoax is another in a chain of stories cascading out of the recently pretty underground Bitcoin community, who were framed as the lynchpin in an anonymous, underground drug market called Silk Road in a June 1 story on Gawker -- the tech blog Launch had published a warning story about Bitcoin two weeks prior. Using Bitcoin, an anonymous peer-to-peer virtual currency, internet users could log onto Silk Road, a comparably anonymous peer-to-peer marketplace, and buy practically any drug in the world. (To say Gawker is built for such salacious scoops is an understatement.) The story garnered nearly half a million pageviews, and awash in media exposure, the value of the Bitcoin skyrocketed. One thing led to another, and then the U.S. Senate launched an investigation. But before going into too much detail about the status quo, a bit more about how Bitcoin works.

Bitcoin is sort of like that fake Federal Reserve experiment you did in your high school economics class, except it's real and a bit more utopian. The bank in the experiment -- in this case the pseudonymous creator of Bitcoin, Satoshi Nakamoto -- offered up a limited number of currency units to be purchased by investors, who could then trade the currency with each other or use the currency for transactions. Maintaining the currency's value would require the bank to forge more units to allow for the market to expand or to take units out of the market to control inflation. Theoretically, an automated system for creation and maintenance of the money supply could handle the risk of inflation in the absence of a central bank to control the money supply. At least that's what Milton Friedman argued, when he called for the abolition of the Federal Reserve.

Read the full story at The Atlantic Wire.