AMA: Long-time DU lurker and democratic supporter, know everything there is to know about bitcoin

[Rassah]

71. Using correct terms,..

It's actually a virtual asset system. Credit implies you trade IUOs, like certificates issued by someone, which you can exchange back for stuff with that someone. For example, gold-backed USD was a credit system, in that each dollaw was an IUO (credit) for some amount of gold. Now each dollar is an IOU for some part of US debt.
Bitcoins are not issued by anyone, since they are "mined" for and created by the system as a whole, and they are not backed by anything, since no one owes you anything in exchange for them. So they are basically a digital asset, like digital gold or something. Like all things of value, bitcoin's value is derived simply from the fact that people are willing to trade for it, and it's benefits over existing assets are that it's entirely digital (was designed for the web from the ground up), borderless, and not associated with any group, government, or country. They are basically a totally neutral form of money designed for the global internet economy. One big benefit of it being an asset over a credit is that you can own it independently of anyone else. For example, if you own dollars, euros, stocks, bonds, or backed securities, you are entirely dependent on the issuer of that item. So currencies can fluctuate or be ceised (as they were in Cyprus), or issuers could default on the IUO, as happens with stocks, bonds, etc. On the other hand, if you were to own an asset, like real estate, precious metals, or Bitcoin, that asset depends entirely on you to secure and trade with. With Bitcoin being digital, it means you can take something that can be valued as much as a whole house, stick it on a USB stick, and carry it around with you.

At present not a lot of places take bitcoins, but more and more companies are starting to accept them alongside their local currencies, since they allow anyone in the world to sell stuff to anyone else in the world with very little friction or fees.