It is told pretty well here. It is a pretty funny story actually, like something out of a Charles Stross book:
http://www.guardian.co.uk/technology/2011/oct/18/bitcoin-value-crash-cryptocurrency
"With the value of Bitcoins dropping so low, and the computing power required to produce them growing steadily, it is becoming uneconomic to generate more except through the use of hacked computers in "botnets". Although there has been anecdotal evidence of their being used to generate Bitcoins, many botnets are hired out on a commercial basis to send spam or host phishing websites – and that may be more profitable, directly, than creating the currency.
"Hackers and members of the underground like Bitcoins because transactions involving them are almost untraceable, yet can be carried out between computers. That has proved both a blessing and a curse, though, after one user discovered in June that his computer had been hacked and 25,000 Bitcoins – then worth almost $500,000 – had been removed from the "wallet.dat" file on his machine. Because of their untraceability, he could not know who had taken ownership of them.
"A few days later MTGox itself was attacked when someone tried to sell more than 400,000 Bitcoins, which would have been worth about $9m. But that prompted a huge drop in per-coin value from more than $17 to $0.01 because there weren't enough buyers at the higher price. MTGox went offline and pledged to reverse the transactions.
"However, commentators had suggested that the biggest weakness about Bitcoin was that although many were being produced, their apparent value was based on small numbers of transactions within a small group – which is not an effective model for a viable currency. Although there are a number of websites that accept Bitcoins in exchange for real-world goods and services, it is very difficult to measure how many transactions have occurred."