In the view of many HN members, Bitcoin is a Ponzi scheme. In the view of other HN members, Bitcoin is an experimental crypto currency, the use of which is unlikely ever to expand beyond idealistic hackers, online gamblers, and underground characters.
In my view, Bitcoin is likely to gain wide adoption worldwide over the long haul -- that is, over a period of many years or even decades. Its price is therefore bound to rise far above current levels over time.
Many people don't realize how small Bitcoin is. It's trading in the $1M range. That's like few hundred people playing with their savings - low liquidity = high volatility - talking about this as something significant/newsworthy is silly.
Bitcoin looks pretty liquid to me in relation to its float.
According to the latest stats at http://www.bitcoinwatch.com, the market value of all bitcoins currently in existence is just under $100 million; so, trading volume of $1 million per day means that around 1% of Bitcoin's entire float turns over every day, around 30% of the float turns over every month, and the entire float turns over about once every three to four months. That's more liquid than a lot of publicly traded stocks with similar float.
PS. moonchrome, I'm not sure how your comment relates to my post, which is about trends over the long run ("many years or even decades"). Why are you responding with a comment about current trading volumes?
Bitcoin trading volume over a 30 day period is more than $20 million dollars, which is incredibly notable for an open-source currency which isn't managed or operated by anybody. The technology involved and the implications of its growth are very significant/newsworthy.
The fact that it's trading at $10 again is also very significant to the Bitcoin community, it hasn't done that in more than a year. And it'll probably reach 12 by the end of the year before it stabilizes again.
>trading volume over a 30 day period is more than $20 million dollars
Again - as a currency this is insignificant. I agree that bitcoin is a great technical accomplishment but talking about it's price as it has any meaning outside of a few hackers playing traders is not realistic.
One of the world's large credit card networks processes on the order half a trillion dollars in a typical 30 day period. So bitcoin has a way to go yet before it's volume is significant compared to other ubiquitous electronic payment methods.
Consider that they need to grow by a great many orders of magnitude to become globally economically significant, yet consider that the supply of bitcoins is relatively fixed.
How smoothly do you think that is going to work?
If you believe in the future bitcoins, you also have to believe that their value will have to eventually sky rocket by several orders of magnitude. If you believe this you should hoard every bitcoin.
So if you actually believe in bitcoins, why would you ever spend one?
If you don't believe in bitcoins, why would you ever accept one?
"So if you actually believe in bitcoins, why would you ever spend one? If you don't believe in bitcoins, why would you ever accept one?"
Because you have to, and there is no other realistic or better choice.
As such, it's interesting to see when and how such situations arise.
"Bitcoin Seeks New Life in Africa: A digital currency without a central bank could be ideal for economies where the mobile phone is king but the banking systems are weak."
Spending a Bitcoin doesn't mean you have a net decrease in the number you have. You could and probably should keep a spending balance in USD at an exchange and buy specifically to make purchases. This is actually more beneficial to the Bitcoin community since it shields it from being overly damaged by Bitcoin price decreases. I spend and accept bitcoins because it's a very easy way to transfer value.
If you don't think we should be discussing bitcoin -- which is very different from any other currency out there -- simply because it hasn't reached the trading volume of Visa... I don't know what to tell you. Demonstrates pretty clearly the narrow window of information you're willing to consider.
(This on a website for hackers and startups. Pfft.)
I'll agree with you on that, but I think a good point was raised. As an inherently deflationary currency, particularly once the maximum number of bitcoins are created, wouldn't the natural thing for people believe it will eventually be incredibly valuable be to hoard them? I'm not saying that a deflationary currency cannot ever work, but with an inflationary currency, there is greater worth in spending one's money on goods or investments that will accrue worth at a greater rate than the inflation, no?
This is exactly the last thing BitCoin needs to be successful as a currency. After the speculative bubble last year it started to make some headway as the price remained relatively stable. Now in the past 2 weeks we've seen its value appreciate by 50%, something that just doesn't happen with traditional currencies. It's dangerously reminiscent of what happened last year and shows that the BitCoin economy is still very susceptible to manipulation.
If it was just organic growth in the currency I wouldn't say there was an issue but if you look at the transaction volume it's clear that the surge in trading that occurred both a week ago and just recently is what is responsible for the latest increases in value. I don't have enough evidence to say that the price has been deliberately manipulated upwards, and indeed the increase could just be a reflection of the higher demand, but it does call into question how stable BitCoin can be.
I'm not an advocate against BitCoin, far from it, but I honestly believe that a highly valued BitCoin is the worst thing it can have as a fluctuating value doesn't benefit users of the currency. The only people who benefit from a high price are the speculators and investors, those who are at odds with BitCoin being a proper currency.
>in the past 2 weeks we've seen its value appreciate by 50%, something that just doesn't happen with traditional currencies
You do not see deflation with fiat currencies because the issuers of the currency print more to counteract deflation. Gold however is prone to extended periods of deflation, and that does not prevent gold being useful as a medium of exchange and as a vehicle for investment or savings. (The reason gold stopped being used as a medium of exchange is that paper money is more convenient, not because of its vulnerability to deflation.)
If your reply to this comment is that Bitcoin cannot be compared to gold because gold has "intrinsic" value whereas Bitcoins are just an artificial construction, you do not understand monetary assets.
True, gold has probably not deflated as rapidly as Bitcoin has over the last 2 weeks. That would be because the fraction of the world's savings invested in gold is much higher than the amount invested in Bitcoins. If a greater percentage of the world's savings come to be held as Bitcoin, Bitcoin's price would probably act more like gold does now.
Indeed I agree that a changing price doesn't necessarily mean that the currency is useless as a medium for transporting wealth just that when the exchange rate is volatile it's much more attractive to see BitCoins as a speculative vehicle. That's what drove the bubble last year and could very well be the same thing that's happening now. The growth rates are similar (although starting from a higher base) and that's primarily what I'm worried about.
And don't worry I'm quite familiar with fiat currencies ;)
Yet again I agree with you, the BitCoin economy needs more investment in it in order to counteract the issues that I highlighted. Thankfully that seems to be happening (I believe YC just accepted its first BitCoin based start up) and as time goes on the market should stabilize. I think that's when we'll start to see BitCoin spread outside the high tech sector and I'll gladly count BitCoin among all the other "proper" currencies.
Allegedly people do a lot of drugs at Burning Man, and one of the popular uses for Bitcoins is purchasing drugs without the traceability of a credit card.
Care to link to any graphs that support this? Gold isn't that volatile, even though it may have swings of $50 up/down every week that's 3%, far below the volatility we're seeing in the current BitCoin market.
To be pedantic, and to note I'm not an economist, I thought the value of gold or silver was always constant, it was the currencies based on them that inflate or deflate.
"I thought the value of gold or silver was always constant"
Value is relative, so if you only value gold then the value of gold is constant. But if what you value is goods and services, then the price of gold is extremely unstable. You can see it graphed here (CPI being a metric of the price of goods and services):
Gold used to have a stable price in terms of dollars because the central bank pegged the currency to the price of gold, which I think is the reason people like Ron Paul believe that gold has a "constant" price. now the central bank pegs the currency to CPI so CPI is stable and gold floats freely (in dollar terms). This is preferable if you value CPI price stability more than gold price stability.
Also note that gold and silver often diverge in value relative to one another, so no matter what your perspective, it cannot be the case that gold and silver have stable value. If Somebody hits a rich silver vein then silver drops relative to gold.
Nope. As more gold was mined during gold rushes, the value of gold decreased. As people found more uses for gold and demand outstripped supply, the value increased. And of course the relative value of gold and silver changes over time.
> I thought the value of gold or silver was always constant
What is the unit in which value is measured? There is no SI unit for value, and it seems unlikely that it would ever be possible to define one - it would basically require very surprising breakthroughs in psychology.
Hence people do the pragmatic thing and measure value in the currency that is predominantly used in their life. They use USD or EUR or whatever as their unit of value.
And in that sense, the value of gold and silver is clearly not constant, as a sibling comment explains.
I'm a strong supporter of bitcoin, and I have a bunch of it, so don't get me wrong. But I suspect we may well be seeing a second big bubble here. Only time will tell.
This isn't necessarily a bubble, but market reaction to the block reward halving later this year. The decreased inflation will double the value of bitcoins, and this trend was anticipated well in advance.
Tell that to the people who bought at $15 or $32 even.
The thing is, the first users didn't get all the first ones.
Bitcoin was in Slashdot more than two years ago. It is open source, anyone could download the software and mine on their CPU.
Mt. Gox has been open for even longer. Anyone, anywhere in the world could and still can buy on the exchanges. There's no members-only trading.
If you bought after Slashdot you would have paid around a dime or less. But Slashdot readers called it a ponzi scam and didn't take it seriously.
You could have bought thousands of bitcoins at a dollar when Steve Gibson talked about it in February 2011. But Leo poo-pooh'd it "Not government issued" he balked.
Then again, you could have bought bitcoins at $30 after the July 2011 bubble, and today be down by 66% yet and still be bitter.
That's the nature of speculation. Nobody knows if bitcoin will increase or decrease in value. But it definitely isn't a ponzi. Ponzi means paying dividends to early investors, using funds from later investors. Everyone who held bitcoins yesterday when they were $9.20 could have sold today at $11. Everyone, not just the early miners.
Today, just like a year ago, mining will generate bitcoins at a little more than the cost of electricity to generate them. If you want bitcoins, then mine, buy, or stand on the sidelines.
If I were designing a Ponzi scheme intending to defraud people, I wouldn't base it on a 100% transparent network of open source software using public domain crypto functions, where the wealth creation is by design not only randomly allocated, but mathematically capped to a static trickle rate.
It's like the most badly designed Ponzi scheme ever.
It doesn't have to be intended or designed as a Ponzi scheme to end up as one. E.g a legitimate investment manager could cover up a bad month/quarter/year hoping to fix it down the road then wind up being flumoxed by compounding losses or seduced by the increased business they get by beating the rest of the market during a downturn.
It seems like people just throw around the term "Ponzi scheme" without any understanding of what it actually means, saying that "Bitcoin is a Ponzi scheme" or "fiat currencies are a Ponzi scheme", when those statements simply do not make any sense.
A Ponzi scheme is when you offer an interest bearing or dividend paying investment, and you have to use the money obtained from new people buying into your investment to pay out the interest or dividends.
That's a very clear definition, and Bitcoin obviously does not fit - and it wouldn't fit the definition even if Bitcoin weren't based on a transparent protocol and open source implementations.
Bitcoins are used quite a bit for buying/selling goods. I think the latest round of currency increases is mostly a function of people wanting to purchase goods, and needing to "bid up the price" in order to make their purchase. As vendors receive bitcoins, they usually immediately sell them to get back local currency.
In the last 6 months, I've never held onto a bitcoin for more than about 30 minutes. Strictly use them for their utility as a currency.
>I think the latest round of currency increases is mostly a function of people wanting to purchase goods, and needing to "bid up the price" in order to make their purchase. As vendors receive bitcoins, they usually immediately sell them to get back local currency.
But because retailers will only hold onto them for probably seconds, using BTC as a transfer medium won't significantly affect the price: average selling and buying will be the same.
The only way BTC can go up is if more people hold on to more of them (reducing the available money supply), which when they are rising happens more, causing a bubble.
If you don't mind me asking, what do you buy with them? I know of only a few things that are only acquirable via Bitcoins, or that couldn't be acquired more cheaply using dollars.
Lots of online services, from hosting to DNS to VPNs accept bitcoins. Several online stores accept them, and they're a good way to donate to, eg, Wikileaks or the Manning Defense Fund.
As far as the cost of using them, while it is non-zero, some of us just want to do our part in establishing a currency and surrounding ecosystem that is free from gov't, corporate, and other meddling. Thus we accept the small hit in price.
Several friends of mine prefer to pay for their VPNs anonymously, they get two VPNs, pay with bitcoin, don't give their name to the VPNs, and tunnel one into the other for pretty much complete anonymity online, provided they don't do something stupid like log into facebook from the VPN.
Not everything on Silk Road is particularly illegal. And I'm sure the LEA have better things to do with their time than chase down some consumer of 1200mg of modafinil.
It's not a Ponzi, but it does have built-in volatility due to the fixed rate of coin generation. Some even say that Satoshi designed Bitcoin as a bubble machine because it would generate the press coverage that Bitcoin needed to take off. I prefer to think that the volatility is an unforseen side effect of Bitcoin's naive economic policy.
It's my understanding that being a Ponzi scheme was an explicitly stated feature in the design of Bitcoin. The idea was that setting up a very large first-mover advantage overcomes the chicken-egg problem of a currency whose entire value is based on network effects but initially has no users.
Yes, the people who got it when it was cheap are making out now, but that doesn't preclude others from using it as a currency.
I mean, the point is that it's a currency. It's designed to be a currency which isn't governed by any one person or group of people (except those that created it, but at that point it becomes governed by math and logic, not the whims of the creators).
Mining gold also benefits the 'first ones.' Over the next 5 years the number of bitcoins mined is going to double, and those coins will be very evenly distributed.
How do you feel about the property market? With hindsight, people who get in at the start of any bubble always look like they made easy money for no work.
One problem that I have with Bitcoin is its complete dependence on the strength of its crypto. While breaking it may seem impossible at the moment, advances in computation speed and cryptanalysis may one day lead to it being broken. This would basically make Bitcoins worthless overnight.
Of course traditional currencies can be forged as well, but printing huge amounts of forged bills and bringing them into circulation involves all sorts of logistical challenges that don't apply in a digital world. Moreover, forged bills are typically not absolutely perfect and can be distinguished from genuine money, this is not possible with a purely digital currency. The fact that paper currencies can be forged is incorporated into the design of the system, whereas the Bitcoin system is based on Bitcoin's crypto being unbreakable.
It's not just speed, but number of nodes. If someone could, lets say in 10 years, build a block-chain of equal length to then-current one, they would still need to control > 50% of the nodes a significant portion of the network sees.
I'm still convinced that the reason for that is the death of Bitcoinica which offered shorting.
Without shorting, the only way to make money on Bitcoin is to go long. That is, the price will keep going up until investors thinks it's too much overvalued and BitCoin will crash again to 4 or 5 USD; the value that shorting stabilized it at.
Damnit I remember when they were less than $1 and thinking to myself "this will never take off". If I had invested $100, I could have sold today for $1K.
As long as its crypto primitives remain secure (SHA-256, Elliptic Curve crypto, RIPEMD), if the Bitcoin economy continues to grow 5x, 10x, 20x, etc, then its value should increase 5x, 10x, 20x, etc, because there is a fixed number of coins available.
Both of these assumptions are likely. So I would say, yes, this exchange rate should last (of course there will be some bumps on the road, bubbles, crashes, etc).
That's exactly how it should grow - in relation to the growth of the economy. But I worry all these posts about the latest Bitcoin price will push it again on the speculation train.
There is slow growth in coins. But if it takes off then we know all of the primitives to make a second bitcoin. Establish one with a price peg to existing bitcoin. If you maintain it long and well enough, it will become accepted as equivalent. Once that happens you've done a big one-time increase in the supply.
In fact I would recommend doing this at some point. Because otherwise bitcoin has built-in deflation. That is bad economically because it discourages investment in anything else, like building businesses.
It's asymptotic growth of coins. There will never be more than x number of bitcoins. (I forget the value x is exactly, but it is a finite, pre-definded number).
So what you would need to do is have an account in both currencies with large amounts of currency in it, and publicly advertise that you will trade across currencies in some predetermined ratio. If your account has enough currency to succeed in handling people who might deliberately try to trade against you, then you will successfully peg currencies.
Admittedly an attempt to provide a peg like this might fail. But what is in it for the entity trying to do it? Quite simply, that entity presumably starts with a much larger amount of the new currency than they used for establishing the peg. If you can successfully create the peg, your net worth decreased by the amount of bitcoin you had to accumulate to create the peg, and increased by the amount of other currency that you had. So you make a handsome profit. (Conversely you have the risk that people will set about mining your new currency and converting it all to bitcoin through your peg, then when you have to abandon the peg you've lost the bitcoin you had to purchase to try to establish said peg.)
There are a number of tricks that can improve your odds of establishing a successful peg. But that's the principle.
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uh, no, it's not yet. Masses of new bitcoins are being created every day. That is inflationary (and much more so than USD).
@greg_bt: it matters little how you frame it, but the supply of bitcoins is increasing. It will gradually reduce and stop, all of which is predetermined, yes. Today it is inflationary (IIRC its about 15%/y currently, but don't hold me to that), eventually it will be deflationary.
I don't know if 'bitcoins are being created every day' is the right way of looking at it? Bitcoins are more discovered as opposed to created. It would be like if every USD ever was buried and people were gradually digging them out of the ground and everyone knew exactly how many were buried? The amount of bitcoins in circulation is increasing but the total amount of bitcoins that will ever exist isn't increasing at all.
It's also increasing at a controlled rate. To make your analogy more complete, it'd be like all the diggers are aware of each other and whether they've found a USD or not. If too many are being found at once, everyone switches to using their hands. If still too many are found, everyone uses their tongues. If too few are being found, shovels are allowed. If still too few are being found, backhoes are allowed.
Can you give this analogous type summary of how this works from a technical perspective? I assume it doesn't rely on everyone coming to some sort of an agreement?
To be correct, the question of whether a currency is inflationary or deflationary, is a function of both the increase in the supply of the currency, as well as growth in the economy. If the economy is growing faster than the currency, than the currency is deflationary.
There is also the velocity of money, which people tend to forget. MV = PQ is a tautology that tends to be fairly useless in understanding inflation because there's no variable there that is reasonably constant. So other approaches fare better, such as looking at the sources of inflation, e.g. imports, relative labor bargaining power, and aggregate demand vs. supply.
> Who are you to make a claim as to if it will last or if it won't or how valuable bitcoins are.
A speculator, same as you. This is implied. Besides, what has who I am got to do with what I say?
> We have no evidence to the contrary, and in fact, bitcoin being a deflationary currency by definition means it will likely increase in value and, what's more, if you look at the trend it has been increasing in value. If you were to use a single shred of logic then your conclusion would be "it might or might not last", but that's hardly a useful post.
Bitcoin's a great idea, but people have been using it to make a quick buck. That's why (I think) it won't last.
> Well, since people are RIGHT NOW paying over 10 dollars for a bitcoin that indicates that yes, yes it is.
Would you buy houses because "they're a great investment" was "good advice" pre-2008? Speculators aren't using bitcoins to buy $10 worth of stuff, they're using buying bitcoins because they think they can earn more than $10 worth of dollars. So, bitcoin's success is based off of it's ability to earn dollars, not buy stuff: this is what makes it unstable.
>" bitcoin being a deflationary currency by definition means it will likely increase in value"
Why would yo want a deflationary currency? This promotes people "holding" onto the money with the hopes of getting a better deal in the future.
ie. Why buy that $50 USD item for 5 BTC, when at the current rate it might be worth 4.5 BTC by next month? This is a burden on a currency and commerce.
This is a burden only if you do not use it. but the same applies to any investment - why invest at all? Bitcoins are capped by protocol - Quoting DeathAndTaxes @ https://bitcointalk.org/index.php?topic=80185.0:
(quote)
The method used for determining the reward is to do a right shift on 50,000,000 satoshis every 210K blocks. That truncates any fractional satoshis.
There are some truncation along the way. For example starting in block 6,090,000 the reward is 9 satoshis. In block 6,300,000 it becomes 4 satoshis so the block reward declines by more than 50%. Block 6,930,000 will drop the reward to 0 satoshis however only 2,099,999,997,690,000 so it looks like we will be eternally 2,310,000 satoshis (0.0231 BTC) short of the magical 21M. If Satoshi had wanted it to be an even number the starting block reward should have been a multiple of 2. For example is the first block reward had been 2^32 satoshis (~42.94 BTC) then we would have had 32 perfect halvings of the reward. 2^32 down to 2^0. A bit of trivia, the "21M" appears nowhere in the code. The entire subsidy calculation is just a handful of lines.
(endquote)
Following this principle, eventually you will want to use them, particularly when others Fiat currencies go away - this is but a transition period for the next 30-50 years. The fact that there is an economy (mostly underground) that makes use of the currency as what it is meant to be (anonymous / uncontrollable / as a way to establish a trading baseline) just makes it stronger as tool for the people. As to this being another bitcoin bubble, definitely. But look at the 4 yr graph and you can see that bitcoins are seeing constant positive growth if you ignore the speculative bubbles.
(Disc: I own & am long Bitcoin)
>"but the same applies to any investment - why invest at all"
But "money" isn't an investment. It's a medium of exchange.
If you're buying BTCs to hold them as an appreciating asset, that's one thing. If the intention is for them to be used as a currency, then deflation inhibits the exchange.
>But "money" isn't an investment. It's a medium of exchange.
I disagree, many traders deal solely with currencies.
> deflation inhibits the exchange.
Valid if you deal with fiat currencies - but with a finite volume that point doesn't hold its own too well. if there is any transaction going on (currently mostly underground) then the market levels itself on those. In other words, you can't hold it forever, particularly when it transitions toward mainstream use.
The beauty of BTCs is that it has no worth but it's own encryption. And that worth appears poised to grow as people worry more and more about secure digital transactions that no one entity can regulate. It is a tool to an ideology, that no government can secretly abuse, which is why it isn't seeing much love from that crowd.
The value of the currency doesn't really matter to those of us who use it - It could be 1 bitcoin to 1 USD, or 1 bitcoin to 10 USD - as long as the downwards volatility is kept to a minimum.
What's problematic is when you buy something worth $50 USD with 5 Bitcoins, and the Bitcoin to USD drops before the seller can get their USD from MtGOX (or whoever their Currency Exchange house is).
The upwards volatility isn't a problem in that buyer/seller scenario. If I want to buy something worth $50 USD, and I go purchase 5 bitcoins for $50USD, and then, those bitcoins are worth $55USD by the time the purchase clears, then I only paid $50USD and the Vendor received $55 USD. Everyone comes out a winner.
Upwards volatility creates a similar problem on the other side of the transaction, though.
If BTC is rapidly rising against the dollar, then I'd rather spend dollars because I'll want to keep the BTC in my account in anticipation of further appreciation.
And, for that matter, the fact that the entire conversation is framed this way doesn't bode well for BTC as a currency. People who use a currency as a currency measure its rises and drops in value by comparing what you can buy with a given amount of the currency in the present versus what you could buy with the same amount of that currency in the past. When people measure something's value in terms of some other currency, as is the universal practice for BTC, that indicates they're thinking of it as a commodity for investment or speculation rather than a currency.
Currency stability is useful for trade and retail. When a macbook air costs $1000 things are simple - it cost the same amount a week ago, and it'll cost just as much next week. You can plan your purchases.
If all you know is a week from now it'll cost somewhere between 50 and 500 bitcoins, that's a lot harder to plan around.
"The network never creates more than 50 BTC per block and this amount will decrease over time towards zero, such that no more than 21 million will ever exist.[15] As this payout decreases, the incentive for users to run block-generating nodes is intended to change to earning transaction fees."
I think the anonymity and decentralized design are more important than the small transaction fees. As a sibling comment points out, there are still fees for converting to and from national currencies, which are much less volatile.
Not for the transaction. The fee is for currency exchange. Should BitCoin be used for more than just purchasing products from Silk Road, it's conceivable that people might one day be prepared to use Bitcoins as a standalone currency.
Correct - in fact (unless you were a speculator) you wouldn't want to hold onto anything in bitcoin for more than the time required to clear a transaction.
If you point out that it has poor usability for payment, well, it's actually a way to store your wealth. If you point out that the volatility makes it a bad idea there, well, it's actually a vehicle for speculation. Why would you speculate on randomly-generated numbers? Well, because it's so good for payment... or keeping your money away from the government... or... crap.
The main point is that it is decentralized and (ostensibly, with enough care) anonymous. This makes it ideal for illegal transactions (drugs, gambling, weapons, contract killing, child pornography). These being incredibly inelastic goods, price fluctuations will do little to hamper continued growth of the Bitcoin.
I dont buy it just like Feds apparently dont buy it either (yet); otherwise they would be already shutting it down.
While bitcoins can be used for illegal transactions, it does not mean (and never will) that 99% of transactions will be illegal, just like Feds won't shut down knife factory because some knifes were used to kill. At the end, paying for something illegal is not illegal on its own; its the act or good you paying for illegal. So this or another way, in order to sentence someone, Feds will need more proof of a comited crime, than just blunt bitcoins transactions (how about crime itself).
Forging currency is illegal even though all of the components and component activities are legal. (Paper, ink, printing, lithography.) The Feds (or any government) can shut down anything they like given the right legislation. Anything that allows end runs around currency restrictions and taxes is fair game for governments, and passing laws against it (or simpy extending existing laws) wouldn't even be unconstitutional in the US.
Did you declare all your bitcoin transactions to the IRS? You may already be in trouble...
How could they shut it down? By making maths illegal? There'd be no point in a bill that outlawed bitcoin specifically, users would just move on to something equivalent.
That doesn't mean it isn't 99% illegal activity, just like e.g. Freenet.
Spend enough money on machines to have 51% of the processing power and subvert the integrity of the keychain, thereby making the entire system untrustworthy.
I cargo-culted that explanation, but it sounds good to me.
also, they can simply legislate to ban it, for whatever reason the want like someone mentioned before. Its up to you whether you want to break the law or not, but most people will not.
That is only a problem if you try and use the currency as a Store-of-value.
Use it only as a Medium-of-Exchange and the fluctations don't really matter.
Money wasn't meant to be saved. Earn and pay your bills in the monetary plane. Save your surplus production in the physical plane.
The exchange doesn't have much of an effect when most goods are priced relative to the exchange rate (many sites even automate this). The only thing the currency price represents is the relative change in market size where these coins are used.
there is no "point", but this currency is very young in immature. If we had as many bitcoins as dimes on the market and 99,9% of businesses would accept them, then you wouldnt see such a fluctuations. To me looks like Bitcoin is a huge win! Imagine if people are willing to put their dollars in it, knowingly being aware this roller coaster can run from $2 to $12 and back to $2, then imagine its popularity when we have enough coins on market and enough businesses are accepting them.
The people who view bitcoins as a currency don't like these huge fluctuation. Just like in a country-issued currency doing this, it causes problems doing trade.
In my view, Bitcoin is likely to gain wide adoption worldwide over the long haul -- that is, over a period of many years or even decades. Its price is therefore bound to rise far above current levels over time.
I've laid out my reasoning here: http://cs702.wordpress.com/2011/05/29/on-the-potential-adopt...