My previous Bitcoin post drew some ire from those saying it was a viable alternative to the broken financial system. From Slashdot:
"A fortnight ago the Bitcoin financial website Bitcoinica was hacked and the hacker stole $87,000 worth of Bitcoins. At the time the owner promised that all users would have their Bitcoins and US dollars returned in full, but one of the site developers has just confirmed that they have no database backups.
So the alternative is to run a deflationary currency off vulnerable servers without database backups. Ah but the existing banking system gambles with our money too, so it's fine!
Bitcoinica is/was a tool for financial speculators (primarily those who want to short with leverage).
It's not even used by most bitcoiners.
Bitcoin offers no magic solution to mismanagement by peripheral services which use it - but a deflationary system combined with massive divisibility and unfettered transferability is indeed revolutionary.
I'm not knocking other ways to spend CPU cycles - but Bitcoin is clearly a very interesting thing for many tech or econo-geeks to support with their time and hardware.
Bitcoin is a 'protocol' and more and more an 'industry', but it's not necessarily a 'replacement' for existing currencies. It opens up possibilities that simply didn't exist before. e.g Automated software agents on the net with their own spending & earning capacity.
A) Bitcoin is not deflationary. It is inflationary on an asymptotic schedule that approaches zero. Money supply does nt shrink, thus it is not deflationary.
B) Bitcoin is not 'run on vulnerable servers', it is run on a distributed peer-to-peer network like BitTorrent. The author seems to have confused one Bitcoin company (Bitcoinica) with the Bitcoin monetary system as a whole. Easy mistake to make I guess, the names are similar.
Bitcoin itself has never been hacked. And yes, it is an amazing alternative to the problematic fiat currency systems and banks mankind is currently stuck with. I'm very excited to see it progress and develop.
@watson regarding point A)
Neglecting occasional coin losses from the system, I think even a static supply is 'deflationary' in the context of either a growing economy, or growing user base.
Bitcion's deflationary aspect, by the way, is arguably a good thing. The fear of a deflationary currency system comes from experiences where the smallest unit became too large for certain every day trade items. Bitcoin's divisibility and ease of transfer make this a different kettle of fish. This is really something new - and the old depression-era arguments about deflation don't necessarily apply.