Bitcoin is a digital currency first issued in 2009. The system uses peer-to-peer networking and cryptography, without a central authority. Bitcoins are created by a process called “mining”, where users perform work and receive Bitcoins as payment. To prevent long-term inflation, the total number of Bitcoins will cap at 21 million. And yes, you can actually use Bitcoins to purchase stuff from some retailers who accept them.
Bitcoin is, however, having some problems. Hackers have had some success (link 1, link 2) at stealing the digital currency, and there’s also a piece of malware that uses compromised computers to mine Bitcoins. (Note that these hackers aren’t attacking Bitcoins themselves, which are protected by strong cryptography; instead, they’re going after the software that people use to manage their Bitcoins.) Of more import is the wildly-fluctuating exchange rate against the dollar. What’s the point of purchasing Bitcoins with cash, only to subsequently have their value plummet? Of course, this is a problem with any currency, but Bitcoins have had some severe drops.
Update: Not everyone agrees with my assessment that Bitcoin is failing. See the comments for details.
Update #2: I’ve modified the title of this post, as well as the first sentence of the second paragraph, to do away with the notion that Bitcoin is failing. I still think, however, that it has been having problems.