Bitcoin is decentralised, it's not a company. Similarly as, say, linux or the internet. Its exchange rate is determined by the interplay of supply and demand, noone has a special power over it. Apart from decentralisation, it features low transaction costs and a predictable evolution of supply. It is not fiat money as it does not have a special legal status. For a brief intro, I recommend this video:

Unlike a commodity, which has a physical presence with some innate usefulness, or fiat money, which has some meaning because a legal entity requires payment in it, bitcoin is a bet - that someone will give you some money (or goods) after you gave someone else some money (or goods). The initial distribution of the 'currency' is done by running a useless program (presumably the idea is that early adopters with plenty of computers should have an inbuilt wealth, so that they can take advantage of those who follow later).

'Ponzi scheme' and 'pyramid scheme' are the phrases that come to mind. Ones 'bitcoins' may be exchangeable for goods or real money. Or they may not - no-one makes any promises that they will be. They just think about the likelihood that they can pass the bitcoins on to someone else later.

The wild fluctuations this 'currency' has under gone in the past year (eg a loss of 80% in the 'exchange rate' with the US dollar in about 4 months last year, after a precipitous rise for no apparent reason) point that way too.

At least tulips were pretty.

There is no such thing as "innate usefulness", all goods are only valuable through human action. While Bitcoin is a bit weird, it is merely a pure network good, like language. Bitcoins are somewhat similar to IP addresses, which are also only usable while a network (e.g. the internet) exists. IP addresses were also initially distributed in a way that favours first entrants, there are a bunch of companies which had whole A blocks, but then market forces rearranged them where they were needed. IP addresses also have an artificial upper limit, similarly to Bitcoins.

Bitcoin is not a pyramid scheme because it is does not promise to pay dividends or require exponential inflow of money, and it provides a service. While you can bet on the price, you can do that with almost anything. Since the market capitalisation of Bitcoin is small an the supply is inelastic, fluctuations in demand have no other way to manifest themselves than in price. Picking an arbitrary time frame for price assessment does not really say much. Since it first traded, Bitcoin appreciated over 8000 times until now. Compared to that, dollar, on the other hand, depreciated since the inception of the Fed by 98%. It looks entirely differently from this perspective doesn't it?

The advantages of Bitcoin (low transaction costs, decentralisation, predictable supply) are still unmatched by anything else. And unless they are, Bitcoin is here to remain. Similarly as the internet is here to remain, and people are not going to revert to sending letters, or buying physical newspapers, books, dvd and so on merely because the market price of IP addresses fluctuates or that the internet has no "innate usefulness". Internet decreases transaction costs, just like Bitcoin. People are also not going to stop using language.

because the 32 bit internet addresses are going to become obsolete, with IPv6. So if anyone did pay money for some, without using them or selling them quickly, is going to lose that money. Just like people who hand over money or goods for bitcoins could be, if they can't persuade someone else to hold them instead in exchange for money or goods, when the bitcoin bubble bursts (again).

And that brings use to 'innate usefulness'. IP addresses can be used - for connectivity. Gold can be used in electronics - and for a few thousand years has been desired as jewellery over most of the world, which indicates a long-term market for it that is unlikely to go away quickly, even if that is not 'innate'. But bitcoins have no physical use. Even as a medium of exchange, they're pathetic. Most of the world has never heard of them. Hardly anyone accepts them as payment. They are being distributed arbitrarily. They are being marketed by a few people on the internet (have you any bitcoins yourself? I think anyone advocating their use should declare an interest).

"Since it first traded, Bitcoin appreciated over 8000 times until now. Compared to that, dollar, on the other hand, depreciated since the inception of the Fed by 98%. It looks entirely differently from this perspective doesn't it? "

That looks exactly like a pyramid scheme. It's highly volatile. Those who get in at the start can make money off others who they later persuade to join. An 8000-fold increase in a couple of years, while having done nothing whatsoever ('low transaction costs'? I can send money to other bank accounts with no fee. I don't need bitcoin for that), other than market them to get other to part with real money or goods for them. The dollar, on the other hand, enables you to pay US taxes, buy US government securities, and, in comparison to the goods and services it's generally exchanged for, has been at a relatively predictable value (and, by the way, counting things "since the inception of the Fed" marks you out as a Ron Paul type. The dollar was in existence long before that.)

What are the prices for which goods have been sold in bitcoins? Can you point to an index that allows us to predict what prices will be in a few months time, within a few percent? Can we judge the likelihood of a supplier accepting bitcoins in the future? We can do that with any useful currency.

It is correct that the IPv4 might be superseded by IPv6. Just like the english language might be superseded by something else. Or the dollar. Or like the magnetic tape was replaced by CD, and that was replaced by MP3s (I'll ignore the vinyl for the time being). There is no reason to go into panic mode about it. They all only have value due to the network effect. But while the network effect is in place, they work. I don't see anyone complaining about the "magnetic tape bubble", or "floppy disk bubble". And I don't hear anyone saying "don't learn english as it might be superseded by something else".

While it is true that IP addresses can be used for connectivity, this only works if the network effect is in place. If noone else uses IPv4, it's unusable.

Usage of terms like "pathetic" is an indication to me that maybe you shouldn't be taken seriously.

When I first heard about MP3s (I think it was in '96), almost noone new about them either. Yet now they are practically omnipresent.

Price volatility is not a defining feature of a pyramid scheme.

While dollar is usable in some cases, the payment systems currently in existence have high transaction costs. Similarly as once upon a time, coaches and post office were usable, yet they were replaced by cars and email, because these decrease transaction costs.

The core feature of money is a medium of exchange, not a unit of account. The latter is a consequence of the former. Since there are liquid forex markets for Bitcoin and the price can be retrieved in real time, Bitcoin can be used as a medium of exchange even if it is not used as unit of account.

In hindsight the benefit of all the great innovations seems obvious, yet it is difficult to realise the potential or viability in advance, even for experts. My favourite example is Lee DeForest, who was prosecuted for fraud in 1913, because the US District Attorney office thought that intercontinental radio communication DeForest was raising money for was absurd. The same DeForest, in 1926, claimed that commercial use of television is an impossibility. He also later claimed that space flight is impossible and will never occur. In '96, I did not foresee the potential of MP3s either.

That is why Bitcoin is pathetic. It crashed within 2 years of its start. It will crash again (no, no-one complains about the "magnetic tape bubble", or "floppy disk bubble", because there haven't been any; but there already has been a Bitcoin bubble).

You seem to be confusing some software that allow those who trust it to exchange amounts, with a 'currency'. If Bitcoin was not meant to be a unit of account, then it wouldn't have that absurd 'mining' concept, which is designed to allow people to build up reserves.

I will not assist you with dragging the debate onto an emotional level.

Once again, volatility does not on its own mean anything. It also does not need to affect the function of a medium of exchange, if you avoid keeping Bitcoins too long, or if you accurately predict the price development. There is also the option of hedging against fluctuations.

Last year after the floods in Thailand, hard drive prices practically doubled and haven't completely recovered since. Similarly, in the 90s there was a RAM manufacturer or something that burned down and the RAM prices doubled. That was a supply-side shock. Since the supply of Bitcoin is inelastic, its price is susceptible to demand side shocks. A pyramid scheme, on the other hand, has an elastic, expanding supply side, which depends on the number of participants.

The purpose of mining is twofold, it secures the Bitcoin network, and it provides a way of distributing newly produced bitcoins. Money requires scarcity to work. Bitcoin achieves scarcity with a predictable production schedule, which logically requires that the production costs adapt. And we see that empirically, the production costs follow the market price, which is consistent with a competitively produced product.

Also I am not telling anyone to buy Bitcoins. I am merely refuting your fallacies.

Bitcoins are not distributed arbitrarily, they are distributed through market forces, exactly as other goods. It is the fiat money that is distributed through a pyramid scheme. On the top there is the central bank and the state, below that the commercial fractional reserve banks together with government contractors, and on the bottom is you. Because fiat money can be produced at a cost below the market price, this production and spending causes a redistribution of wealth.

While there are payment methods that are cheap or even free in the current banking systems, they are only usable in some cases. It does not work internationally, or as a merchant payment processor, or if you need it quick, or for black markets, or if the bank decides for whatever reason that they disapprove of what you're doing.

That's about as arbitrary as you can get. Only after that are they exchanged 'through market forces'. But you are wrong - they are not 'goods'. They do no-one any good. They claim to be a medium of exchange, but the nature of their creation - "get in quick - supplies cannot last!" make them a pyramid scheme, and like the worst form of schemes that produced bubbles (South Sea Company, anyone?)

I urge everyone to stay away from this scam. For hundreds of years, people have been taken in by fraudulent schemes like this - market it as 'the future', tell people they'll get rich if they get in early, cover up who actually thought it up. Do everything you can to divert attention from the essential uselessness of the concept. It's on a moral level with Nigerian emails telling people they could get rich if they will just co-operate with a bit of money transferring.

You fail to address my points, and just add more errors. Bitcoins are goods because they have economic utility. They provide a decentralised method of transferring money at low cost. They are a pure network good, similarly as language or the internet.

The scheme that funnels wealth out of gullible users is fiat money and fractional reserve banking, not Bitcoin. Fiat money and fractional reserve banking form a pyramid, and if it overextends (too much debt or too much base money) it collapses. Bitcoin, on the other hand, would only collapse if there was an alternative that out-competes it on transaction costs, or if the network effect of the preexisting money was too strong. Noone has the magical ability to create new Bitcoins out of nothing, or by monetising debt, so the analogy with John Law is a fail.

Noone is forcing you to buy Bitcoins, neither can I recommend it. I am a researcher, I refute erroneous claims, I don't tell people what to do.

That is all.

world currencies changing so this was predominate. I guess I would call it a niche currency.

I found on it ...

http://www.aljazeera.com/indepth/opinion/2012/05/20125309437931677.html