Bitcoin is two things, a protocol, and a network consisting of lots and lots of hardware. The "coins" are really units of computer work that's necessary for the protocol to function. Bitcoin could replace large swaths of the banking system--really the electronic accounting systems and payment transfer systems. Wire transfers, ACH transactions, credit card transactions, pay pal transactions, all these things can be replaced with a cheaper system--a theoretically cheaper system.
Is it a better system? One of the problems with bitcoin is that transactions take about an hour to settle. Order a cup of coffee--wait an hour, get your coffee? This is a very unfortunate aspect of the current version of the protocol. Bitcoin probably isn't viable unless that's cut to seconds--perhaps that's feasible.
Is it cheaper? Well, cheaper than what? Bitcoin is really designed to obviate a trusted third party for settlement. With the current protocol, it takes many thousands of computers cranking away 24/7 to accomplish this. That's expensive. Compare that to the potentially low cost of a trusted third party hosting a webservice for payment settlement--a couple servers can handle millions of transactions at very low cost. Also, there are many middlemen involved to make the system work--paradoxically they are charging a lot more than a bank or brokerage might for various services.
I think aspects of the bitcoin system are totally ingenious and valuable--like the public ledger idea. However, the inefficiency of the network processing transactions is a big weakness.
Right now, the bulk of the bitcoin price is based on speculation. I'd say the speculation is really about whether the protocol can be improved; if a transaction time can be dropped to seconds, then bitcoin will go into wider use. Even then, it will be hard for bitcoin to beat a trusted third party service.
I think aspects of the bitcoin system are totally ingenious and valuable--like the public ledger idea. However, the inefficiency of the network processing transactions is a big weakness.
Right now, the bulk of the bitcoin price is based on speculation. I'd say the speculation is really about whether the protocol can be improved; if a transaction time can be dropped to seconds, then bitcoin will go into wider use. Even then, it will be hard for bitcoin to beat a trusted third party service.
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