Bitcoin - not quite a currency
Bitcoin isn't a currency.
It looks like a currency, it sounds like a currency, but it isn't a currency.
For those unfamiliar with it, bitcoin is a system of electronically stored units, called bitcoins, which can be exchanged over the internet.
Additional bitcoins are issued in return for "mining" - data processing done by the computers that keep the heavily encrypted system going.
Much of the publicity surrounding bitcoin centres on its attractiveness for those involved in the drug trade and other clandestine activities.
As Bitcoin's web site says, "Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment systems."
But while bitcoins may appeal to money launderers and arms dealers, its attractiveness goes beyond that.
One aspect of its appeal is that it is not controlled by any government.
It's a sentiment that seems to resonate with the anti-government sentiment that's fashionable in some circles these days.
But it's right at this point that bitcoin fails the currency test.
At school and at university we are told a plausible story that currencies exist because they are a "store of value" that make trade convenient and allow societies to move beyond bartering one commodity directly for another.
But why do we in Australia use Australian dollars rather than, say, US dollars or clam shells.
The answer is simple.
When we earn an income, in whatever currency, we have to pay tax.
And we have to pay tax in Australian dollars.
If we don't, we go to jail.
That's why the Australian dollar is a currency and bitcoin is just a commodity.
The other aspect of the bitcoin's appeal is its limited supply.
The system is designed so that the supply of bitcoins rises at a predetermined rate, currently 25 bitcoins every 10 minutes.
That pace will slow, step by step, until supply reaches 21 million, a little less than twice its current level, in 2140.
That's a powerful attraction for those filled with libertarian zeal, who see the recent expansion of bank reserves by central banks like the US Federal Reserve as just more evidence of the malign nature of government.
Fiat money - money which is money simply because the government says it is - is routinely held up as a fraud or a scam, with governments debasing their money by expanding its supply willy-nilly, setting the scene for hyper-inflation.
But, to the rescue, here comes bitcoin, whose supply is fixed.
What better way to circumvent the fraudulent, money-debasing ways of the bureaucrats in (insert your nation's capital here)?
The problem - one that economists will spot right way - is that the idea that rapid growth in bank reserves inevitably causes inflation, even if it were true, applies to economies.
Economies, with governments and a real currency.
And bitcoins aren't tied to any economy.
Their value rises and falls according to the whims and fancies of those who might speculate in the market for them.
They are more like a precious metal than a currency, except even then, precious metals often have real uses.
Bitcoins, as University of Queensland professor John Quiggin put it recently, "are the most demonstrably valueless financial asset ever created".
Their fixed supply may give them the allure of "hard currencies", like the Deutschemark or Swiss franc of old.
But if no-one wants them, and no-one has to own them, their fixed supply will still be way too much and their value will fall to zero.
They will have become completely debased, without the involvement of any government.