If you don’t already know, Bitcoinsare a decentralized peer-to-peer currency that doesn’t rely on traditional banks and doesn’t represent any commodity. They are essentially just numbers living on a file in your computer and only have value if people or companies are willing to accept them as payment.

The origins of Bitcoins are steeped in mystery. In 2008, a developer using the pseudonym Satoshi Nakamoto posted a paper online describing the theoretical workings of the currency. Then in 2009, he released the open-source Bitcoin client and issued the first coins.

Mainstream companies like WordPress and the dating site OkCupid now accept the crypto-currency, but it’s the unregulated and streamlined nature of Bitcoin that makes it potentially suited to the online gambling industry.

Bitcoins single-handedly do away with problems that have plagued the online poker industry for years. First and foremost, they eliminate the need for payment processors who act as middlemen, charging exorbitant rates to accept deposits and facilitate player withdrawals.

Operators in high-risk, non-regulated jurisdictions can pay fees as high as 15% and, even months later, are still at risk of incurring charge-backs that come with huge fines attached. The finality of Bitcoin transactions ensures that no transfer can be reversed. And since Bitcoin fees are user-determined, they are substantially less than traditional industry rates.

There are essentially two ways to acquire Bitcoins of your own. The easiest is through exchanges like MtGox, where you can buy, sell, and cash out Bitcoins into a multitude of currencies. The second and more difficult method is to mine your own. Using computer processing power to solve increasingly complex mathematical problems, users can unlock coins until the maximum global limit of 21,000,000 has been awarded.

Gambling operators are already well aware of the advantages Bitcoins bring to the table and have not wasted any time setting up shop. One site, SatoshiDice, has exploded in popularity and reportedly profited $500,000 in just six months of operation in 2012. Bitcoin online poker sites are starting to emerge as well.

But apart from the obvious advantages, there are several drawbacks to using the virtual currency. For one, buying, storing, and spending Bitcoins is not as simple as depositing into Paypal. Users need a certain level of technological understanding, which many do not posses. That means the Bitcoin community, while growing, is relatively small, which translates into limited options for making purchases and lower player liquidity on poker sites.

Apart from the learning curve, the unstable exchange rate of Bitcoins is enough to scare many away. In late 2011, the price of one Bitcoin crashed from $30 to less than $2. The price has since recovered to $122 as of today.

While Germany recently recognized the Bitcoin as a legal “unit of account,” the virtual cash is making government regulators increasingly nervous. They believe users are exploiting the anonymous nature of the currency for criminal activities such as money laundering and point to drug trafficking sites that are already in operation. A U.S. Senate committee recently launched an inquiryinto the currency, looking to law enforcement agencies and financial regulators for more information. PocketFives reported about a crackdown in May.

The increasing popularity and far-reaching applications of Bitcoins are making the crypto-currency impossible to ignore. “Bitcoin is not a payment solution, it’s not the latest hack around the traditional banking system – it’s a new currency. It’s a game changer,” Bryan bmicon Micon evaluated.

What do you think about Bitcoins? Leave a comment here and let us know what your experience has been.

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