It itself is a fiat currency, purchase with another fiat currency.
I don't even get the purpose, other than pure speculation and gambling.
This is basically a "startup" operation, and bit-coins are basically shares in this venture, so speculation and gambling occurs, just as it does on FOREX and every other currency exchange in the world. You own dollars, and every day you hold them you are also engaging in such speculation and trading as the dollar index moves around.
The purpose is the same one as the dollar, the Euro, the Yuan etc... its to provide a symbol or token for a given amount of for which may be exchanged in the future for a largely similar amount of value. It is a form of money.
How does it differ from other fiat currency
1) Its distributed. Anyone, anywhere may run a Bit-Coin server, maintain accounts, and charge to assist with transactions. Likewise ANYONE, ANYWHERE in the world, can compete to "mine" more of the currency by solving a mathematical problem. Providing the algos are really secure ( and yes they have made this one hard to crack) the distributed nature basically prevents "cheating" - one entity cannot just start "making more" - unlike the Fed who can just print money . This is more like the gold standard where there is only so much gold above ground and only so much coming out of the ground in a given period. Its just the ,mining done is virtual.
2) Its secure. When they shut down Silk road, the fed's Siezed the bit coin assets. Only, you see, they didn't. (And I believe still haven't, but someone may correct me) In order to get to bitcoin assets you have to have the encrypted key. If you don't have it , you can't remove them, transfer them, or exchange them. Because of the decentralized nature of Bitcoin, there is no one to threaten or pressure into "handing over the keys" like they would do to your local bank. They may eventually find a way around that (NSA snooping, quantum computing etc) but it will still be a lot more work for them to get at your funds than if you keep them in a bank where Obamacare allows them legal access to your accounts. (Which s again in line with the theory that the Obama administration is TRYING to kill the dollar by making it in every American's best interest to removing their funds, buy a gun and defend it themselves. )
If Bitcoin were setup and run by individual the States, it could easily replace the Fed and probably work very, very well. The only thing really lacking is credibility and faith, the sort that a real, legitimate govt, could give it. One of the first, best decisions to turn over to Asimov's robots would be the fiat, because the machines can make currency decisions without bias and without manipulation.
