Bitcoin is an entirely electronic, non-physical, non-governmental medium for exchange within admittedly limited audiences. These audiences are generally limited to internet merchants and traders who have the technological ability to use Bitcoin over the Internet medium. (Without the Internet, without computers, there is no Bitcoin.)
Bitcoin is gaining increasing acceptance as a medium for exchange and certainly has piqued increasing curiosity if not actual interest from segments of the investing community and the financial news media.
Bitcoin is designed to eliminate the need for trust and resulting risk of reversal in conventional non-physical transactions, by serving as "an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.
“See Satoshi Nakamoto, "Bitcoin: A Peer-To-Peer Electronic Cash System," 2009, at 1. Nakamoto saw Bitcoin as a way to circumvent the traditional role of financial institutions as needed third parties in electronic transactions. Nakamoto identified the transaction costs of such third party activities and the problem of an increased need for (and dependence on) trust of the counterparty because of the risk that a transaction would be reversed after completion.
"With the possibility of reversal, the need for trust spreads." Nakamoto at 1. "These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party." Nakamoto at 1.
Read More: Bitcoin - Fad or the Future