I already expressed my opinion about Bitcoin: it seems cool, but will hardly work in the real world, where real people with real fears and paranoia live. Not to mention the resistance it will face from banks and governments.
Now it has become clear how Bitcoin doesn’t talk well with the current established banking system.
Tradehill, the major Bitcoin exchange that shut down last month citing regulatory problems, has filed a lawsuit against the payment startup Dwolla. […] some of Tradehill’s users transferred funds to Tradehill from their banks using Dwolla, purchased Bitcoins, and then disputed the original Dwolla withdrawals with their banks. Dwolla responded by deducting the funds from Tradehill’s account. […] This put Tradehill in a bind because while Dwolla only claimed to offer irreversible transactions, Bitcoin transactions really are irreversible. So when Dwolla began reversing previously confirmed transactions, the company had no way to recover the lost funds. Tradehill says it lost $94,000 due to chargebacks, and another $70,000 when Dwolla blocked Tradehill from withdrawing its remaining funds by accusing the Bitcoin exchange of fraud.
The problem is that bank and credit card transactions are reversible in case of fraud. Bitcoins transactions are inherently irreversible. One of the strengths of the distributed system is turning out to be a weakness, or at least an unfixable usability problem.