You've probably read about Bitcoin. If you're tech savvy, you might have used it. Fans hail it as the new global currency, which is why governments are turning their minds to doing something about it.

In real currency terms, its price has fallen from about $US1200 in December, to $US700 now. Next week it might be $US50 or $US1500. That's what you can expect from an independent digital currency.

You set up a Bitcoin "wallet", use "normal" money to buy some Bitcoins, and you're free to use your Bitcoin balance at any business that will accept them as payment. The computing power required to create Bitcoins in the first place limits the total supply.

Sounds like nirvana for those looking for a currency free from manipulation and destruction by governments. Some are buying Bitcoins, speculating the price will keep rocketing upward. But will it succeed?

While I don't like governments controlling our money and economies, I doubt it. To explain why, let's consider the necessary elements of money.

Firstly, money has to be a "unit of account". It's easy to count the number of Bitcoins needed to buy or sell something, so here it get's a tick.

Next, it needs to be a "store of value". Unless the baker can sell bread for Bitcoins, confident in the knowledge they will buy him a certain amount of sausages, it's pretty useless. Despite its volatile price, Bitcoin is getting close in this regard.

Where Bitcoin falls down is the need for a currency to be a "medium of exchange". For something to work as money you need to be able to receive it one day and use it at an undetermined time and place down the track.

It needs to be accepted for a range of goods and services, transportable, costless to store and easy to protect.

Many commodities (like rice and barley) failed as currencies because they weren't easily carried and could be eaten by vermin. Historically, fiat (paper) currencies like ours have failed because they can't be protected from the government that prints it.

This is where gold comes in. It's heavy, sure, but each ounce carries a lot of purchasing power. It can be transported, stored and rats find it extremely difficult to digest. Best of all, it can be kept hidden from governments, even when they attempt to confiscate it.

Recent actions by the Russian and Chinese governments highlight Bitcoin's failings on this last point. You can have all the crypto-security in the world but you can't just pick up a Bitcoin and stick it in your pocket, or bury it.

So it's always at risk of government bans and cyber theft, which means it's unlikely to last as a store of value, or be commonly accepted either.

Gold keeps coming back because it's got millennia of history behind it. In comparison, Bitcoin's life (five years) is a rounding error.

As a tiny market with a global fan base, Bitcoin's price could do anything from here. Maybe it will collapse or be worth $US10,000 in six months. Nothing would surprise. But if you're looking for an alternative to government-printed currencies to see us through the coming decades and centuries, you'll need to keep looking.

Richard Livingston is the managing director of Intelligent Investor Super Advisor.

This article contains general investment advice only (under AFSL 282288).

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