As a guy who spends his time under a rocks:
What are bit coins and why are libertarians turned on by them?
This is the short version of a complicated answer.
Bitcoins, or BTC, are an electronic currency developed by an anonymous coder, meant to exist apart from government-owned money. They exist exclusively in the online world (though limited amounts of coins and bills have been made), and are meant to be transferred between accounts that are identified by a semi-random alphanumeric string. As of November last year, I think, about 33,000 online retailers and 1,000 actual physical stores accepted Bitcoins. They're popular among hipsters and libertarians because, in theory, they take currency out of the hands of the government and allow you to maintain your privacy.
To maintain security, every single transaction is recorded as a block, and the blocks are made into a blockchain that is basically the record of every transaction ever made with Bitcoins ever. Most people maintain a "wallet" that holds their Bitcoins, but others are Bitcoin miners who let their computers act as points to upload to the blockchain in return for earning some Bitcoins for their work. This requires their computers to maintain a copy of the blockchain, which is I believe around 15 gigabytes in size now. The blockchain is far too complex to hack and create Bitcoins, but people regularly get scammed or have their wallets compromised from poor security on their part or the part of others who maintain their money.
Bitcoin is basically loaded with problems out the yin-yang. For one, the exchange rate is so massively fluctuating that in the time it takes you to determine how much a particular item costs in Bitcoins, the dollar value of a Bitcoin will have changed. The collapse of Mt. Gox and the loss of all of the Bitcoins it was holding caused a 37% drop in the value of the currency. If this were something as prominent as the dollar, the United States economy would have collapsed.
Another problem is that the Bitcoin doesn't have a true value as currency. 33,000 online retailers and 1,000 stores sounds pretty big....until you think about the global scale. Only a tiny fraction of businesses accept Bitcoins, and they need to exchange them for their own native currency (usually American dollars) after receiving them. Bitcoins are only worth something in relation to their dollar equivalent, not as a currency themselves. It's common for Bitcoins to be traded as a commodity, rather than treated as a currency. But even Bitcoin selling isn't as profitable as it seems, as you need to find someone willing to give you real money in exchange for your funny money. Doesn't matter if you have $50,000 worth of Bitcoins if nobody wants to buy them from you.
Another problem is the mining itself. It sounds like it should be profitable, but there's a hard limit on how many millions of Bitcoins can ever be mined as part of a check on the system. In order to keep every Bitcoin from being mined near-instantaneously, it becomes harder and harder to mine Bitcoins as time goes on. At the beginning, you could easily acquire them before they had a large value and now you could sell them for a profit if you kept them. But as it gets harder to mine the currency, the cost of electricity for the mining begins to overtake it. Someone on another forum calculated how much he could make from Bitcoin mining with his desktop PC, and he found that he'd spend about $2.59 in power for $0.17 in Bitcoins. The only miners making a profit are the ones with very expensive, ruinously hot machines that do nothing but mine Bitcoins, and they need huge amounts of air conditioning as well to avoid overheating the whole house. You'll make more profit selling computers than mining with them. And it'll only get less profitable as time goes on.
Basically, Bitcoins are funny money. They have little to no intrinsic value of their own, and a tiny minority of retailers accept them. The wildly changing value of Bitcoins means that it's very easy for people to lose confidence in them, and the ease with which your money can literally disappear if a place like Mt. Gox goes down lowers confidence even more. And money, especially money without something tangible backing it, relies on confidence to exist. Bitcoin is essentially floating on nothing but positive thoughts right now, and it won't take a whole lot to topple it and render a lot of people very poor and very angry.
Bitcoin was designed with the intent of no centralized authority being able to "take control", so I don't see how regulations would have helped.
That's the entire
point. Bitcoin was designed so that no centralized authority would have control, and nobody could put regulations on it. And specifically because of that attempt at freedom, it's on extremely shaky ground. At best, Bitcoin is a commodity only worth its dollar value, a value that changes in literally seconds depending on how much people trust it. At worst, it's a fiat currency without enough trust by the people to keep it afloat in bad times.
