Bitcoin is the world's most successful digital currency, now valued at over $1billion US. What makes this currency significant in contrast to regular currency, is that the quantity of digital coins - or currency units - is fixed. Unlike mints and central banks which can print and produce more money, there are a fixed number of Bitcoins which need to be mined or found. Currently about half are in use.
The real benefit of digital currency, which also includes the Royal Canadian Mint's MintChip, is the anonymous nature of the transactions. A BitChip can be used to buy goods and services in the same way online, but without the exchange of personal information (i.e. banking information). While there are obvious underground businesses which will benefit from this aspect, it also creates a direct line between producer and consumer.
The NY Times has a good recap of the economics of the currency. Our concern is how consumers and retailers will use digital currency. Online is a growing channel for retail, it will be interesting to watch the evolution of digital currency consumer acceptance. Wordpress and Coworking Space in Ontario are all accepting Bitcoin already.