While Bitcoin seems to gathering virtual steam -- and could soon be dispensed at some ATMs or accepted at your local coffee shop -- experts warn that the currency’s instability and hype could soon leave bitcoin owners with a big hole in their online pocketbooks.

Bitcoin is a form of virtual money that can be used to buy or sell real objects: kitchen utensils on Overstock.com, tickets to the Sacramento Kings basketball team, or even contraband like drugs, guns or sex. In past, some of those illegal items could be purchased on the now-closed virtual marketplace, Silk Road.

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Bitcoins were invented in 2009 by a secretive software developer that calls himself Satoshi Nakamoto; some believe he is a U.S. programmer. Additional coins are "mined" by having computers solve increasingly difficult math problems. Nakamoto made it so the number of bitcoins that could be mined would be limited 21 million coins. As of Feb, 2014, there are about 12.4 million bitcoins in circulation, according to Blockchain.

Bitcoins are traded over the Internet and like gold, the value of an individual bitcoin on any given day varies. The advantage of bitcoins is, like cash, they are passed directly from buyer to seller without going through a bank, clearinghouse or government agency. That makes bitcoins ideal for keeping transactions secret, while avoiding taxes at the same time.

Bitcoin’s popularity has led to some businesses to start accepting it as a legitimate form of payment including Tiger Direct electronics, Richard Branson’s Virgin Galactic space flights and marijuana dispensaries in Washington State.

“The idea is to have an economy that is truly free,” said Edward Castronova, professor of telecommunications at Indiana University and author of the forthcoming book, Wildcat Currency: The Virtual Transformation of the Economy.

“And bitcoin delivers on that,” he said.

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The problem is that bitcoin is that owners still face big risks, according to Castronova.

“There are certain features that make it great for secrecy people and digital enthusiasts, but I don’t see much reason for the average person to get excited about bitcoin in their daily lives,” Castronova said. “Right now it’s harder to use than the dollar.”

Researchers in the Department of Informatics at UC Irvine want to develop a secure physical coins and bills based on bitcoins that have NFC tags embedded in them to verify validity. Katie Dees/ZUMA Press/Corbis

To purchase bitcoins, users buy them from one of several digital exchanges, then set up a software program on their computer that operates like a virtual wallet or pocketbook.

In the past few days, Tokyo-based bitcoin exchange Mt. Gox has frozen withdrawals because it hasn’t been able to fix a software bug that could allow thieves to steal its customers’ digital money. For now, bitcoin owners are stuck and many worry their money could have evaporated. While the value of bitcoins on some exchanges is more than $570, Mt. Gox bitcoins' value dropped to below $100 this week for the first time since July, but they have no real value since they can’t be traded.

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Such a drastic drop in value is tough-luck for bitcoin owners because the currency isn't backed by a government guarantee. That’s a big difference between dollars and bitcoins, according to Joseph Bailey, professor of information systems at the University of Maryland.

“Most of us transact in U.S. dollars and don’t think how important it is in guaranteeing the transaction,” Bailey said. “One of the issues of bitcoin is the volatility of how much it is worth.”

Even for bitcoin traders on the so-called dark Web of illicit online marketplaces, the advantage of secrecy may be losing out to the fear of rip-offs. In October 2013, FBI agents shut down the Silk Road marketplace and took its $3.5 million worth of bitcoins. In November, the similar Sheep Marketplace lost $6 million to hackers, while last week, a revived Silk Road claimed it lost $3.5 million in bitcoins it had in escrow to hackers, according to CNN.

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Indiana’s Castronova believes that bitcoin is an example of a virtual currency akin to frequent-flyer miles, loyalty programs or other imitators like “Doge Coin,” that are experiencing a lot of hype right now, but just aren’t quite ready to replace dollars, euros or Chinese yuans anytime in the near future.

“Bitcoin is Myspace,” Castronova said, referring to the nearly defunct social media site of the early 2000s. “There’s a Facebook coming, but I don’t think it will look like bitcoin.”