Quoted from Vitalik Buterin on Reddit:
"BTC -> ethereum convertibility can be done fine; the hard part is the
ethereum -> BTC conversion. There would need to be some kind of
sidechain protocol that can "understand" receipts being created on the
The BTC Relay implements an SPV Client on the Ethereum blockchain.
Essentially, the contract keeps track of the longest chain of block headers, under the assumption that it would be difficult to forge a fake chain fast enough to keep up with the real chain. The contract does not validate that each transaction is valid, but does check that the block header ...
I'm not an expert. But you can implement any currency in Ethereum. So nothing prevents you to do so.
However, everyone (at least every miner) would have to agree at some point and make a migration process. Something which freezes bitcoin network transactions forever, and the only possible transaction is paying TO "someone" who grants the owner of the sender ...