Bitcoin is for drug lords and terrorists?

I was at a diner party this evening and, due to my social ineptitude, I ended up steering the conversation to Android phones.  Eventually we touched on the new Google Wallet.  I expressed my disappointment in the concept which seemed little more than a glorified attempt to shoe-horn a credit card like payment system into a phone.  There seemed to be nothing new to me.  Now if only Google had chosen to make payment available with other, albeit less popular, forms of payment, like the amazing bitcoin currency.

For those who don't know, bitcoin is something new and old at the same time.  It is digital cash, or as the creators might put it, digital gold.  Instead of talking about the mathematics and technology behind it, which is very interesting, let's just discuss the properties.  Like cash, bitcoins can be traded between individuals as payment for goods.  Unlike cash, bitcoins can be traded over the Internet.  Like cash, no third party needs to know who gave what currency to whom; it's anonymous.  Unlike cash, no third party controls the circulation, printing, and distribution of currency at all (actually the entire community is the third party).  Like cash, bitcoins cannot be easily counterfeit.  Unlike cash, which can and has been copied, counterfeit bitcoins are largely accepted to be a practical impossibility (although shy of a mathematical proof, it is based on the same math as strong encryption).  Comparing to credit cards and PayPal, the main forms of payment over the Internet, bitcoins have much to offer.

After describing what a bitcoin is, the first response I hear is (as verbatim as I can remember it),

Hostess: "Wow, it seems like that would be good for drug lords."

Me: (Shocked) "Yeah, I guess... but I would say it's useful anytime you want to send money to people without any third party involved.  Like if you wanted to make contributions to someone your government didn't particularly like..."

Hostess: "Right, people could use it to send funds to al-Qaeda or the Taliban..."

Me: (Bewildered) "I was thinking more like sending donations to groups rebelling in authoritarian regimes, or... do you remember that whole Wikileaks thing?"

Hostess: "Yeah...?"

Me: "Well there was a movement to try to get it declared as a terrorist organization back when all that hit the fan, which would of made it illegal to donate funds to them.  Bitcoins would have made it possible to do so more safely, if you believed in what they were doing and wanted to give them money..."

Hostess: "oh... something, something, PayPal."

Me: "But that's part of my point.  Because a third party is involved, you open yourself to all kind of possible bad things.  Worst of all PayPal has a pretty notorious past when it comes to messing with their clients' transactions, like freezing or closing accounts at their discretion just because they don't like what you are doing."

Conversation continues about PayPal and eBay

No kidding.  I don't know what, if anything, I did to put bitcoins in the light of, useful for drug lords, criminals, and terrorists.  I guess it is just a case of if you aren't doing anything wrong, you should care if you have privacy or not.  Saying bitcoins would be good for drug lords is like saying cars would be good for drug lords because you could use them to smuggle drugs.  It's true, but kind of missing the point.