> It should be called a bubble, not a ponzi scheme.

This is a first bubble which is popular mainly among tech geeks :)

What is strange, nobody is asking what problem Bitcoin really solves. As far I know it failed as a protection for silk road types. Silk road was compromised and Bitcoin didn't helped them.

It solves 2% credit card fee. It's enough for success at the level of at least Visa & MC. (And as a bonus it solves a lot of other problems too).

Eventually, not everyone will want to pay "cash" (irreversible transfer) for everything. Additional security and services layer will be added to Bitcoin ecosystem, and the fee for making indirect transfers through these intermediaries will go up to the same level. The majority of the economy will then make transactions using these services because they provide additional benefits that regular people need. So in the end, the only benefit of bitcoin will be that you can still transfer the "cash" coins by yourself through the system. I'm just wondering how valuable is that actual difference?

> It solves 2% credit card fee.

Are you sure? There were a lot of Bitcoin wallet servers compromised lately. I guess that for a really well secured wallet server you have to pay something. In case of thefts, people will want some kind of insurance and so on.

Bitcoin, compared to credit cards, functions as a decentralized system. Is it really cheaper than centralized system in terms of transaction costs? I mean computing power, required hardware and software.

Does it? When mining becomes unprofitable, Bitcoin servers will have to tack on transaction fees to speed up the verification process.

That presumes bitcoin is the only crypto currency, it isn't, and they don't all rely on mining like this. Secondly, as miners drop out because they can't profit, those who stay in see profitability return. It's self adjusting, there will always be profitable mining for those with the best mining rigs.

> This is a first bubble which is popular mainly among tech geeks :)

Not by a long shot. Remember the early 2000 dotcom bubble burst?

Transferring money quickly and easily and cheaply across boarders. Universal currency.

The total number of Bitcoins is capped at 21 million. So how it can handle GDP growth?

The amount of currency should reflect GDP size. Otherwise there will be deflation.

Gold worked well as currency. Its yearly production increased total amount of mined gold by about 3%. Which was on GDP increase level.

if GDP grows such that the smallest subdivision of one bitcoin (called 1 satoshi) becomes too expensive, extra decimals are added. So instead of making new coins, the existing coins will be subdivided in smaller pieces.

I known that it is possible to lower prices denominated in Bitcoins. However this is the deflation problem I am taking about.

> All money is a bubble, IMO.

Not really -- between the US government and the Federal Reserve banks, there's enough assets and turnover to unwind all the US dollars in existence in a fairly short amount of time, if there was a long-term decline in demand for dollars.

All money isn't a bubble. If people are known to need certain quantities of an asset to disburse debt and tax obligations they know they will incur in future, then that asset's value isn't driven purely by speculation, especially not if people accept it even as its value is known to diminish over time.

My belief that people and corporations will still have a broadly similar demand for dollars next year isn't based on a graph with a rising value trend line that's known to be driven by amateur speculators, unlike "bubble" type assets.

Well, obviously there are supposed reasoned justifications for the rise in prices. That's true of probably all bubbles. Humans are less rational creatures, than rationalizing creatures. We like stories that convince ourselves we are behaving rationally.

Robert Schiller, the Yale economist and bubble-proponent, suggests diagnosing bubbles based on a checklist-based approach similiar to the way depression or other medical issues are diagnosed, with the following indicators: - Sharp increases in the price of an asset like real estate or dot-com shares - Great public excitement about said increases - An accompanying media frenzy - Stories of people earning a lot of money, causing envy among people who aren’t - Growing interest in the asset class among the general public - “New era” theories to justify unprecedented price increases - A decline in lending standards

Bitcoin fits the above extremely well. I should note that Eugene Fama shared the Nobel prize with Schiller, but does not believe in the idea of bubbles or Schiller's claimed ability to predict them. After all, one might say that Google's stock fits the above criteria just as well, but that's clearly not a bubble. (I think I side with Schiller on this one though, although Fama raises good points.)

As I said in my first post, I agree that Bitcoin may eventually succeed as a currency and gain a high value. But it will be a slow process backed by fundamentals. The exponential growth taking place right now is pure bubble speculation. Very few really care about this future as an "important currency." Instead, you have people like me. I invested some money. It's now worth nearly 10x. I want it to keep going up, and I am currently letting it ride. I tell myself stories that it will replace gold; I read blog posts arguing that if it does it will be worth $10,000+ a coin. But at some point, the tide will begin to turn. Negative stories will increase. There will be price drops. And people like me, who pretend to themselves that they have a reasoned investment thesis, will say fuck it, and cash out in hordes. And from the ashes, we will then see what it can do as a currency. But the speculators are here, rapidly increasing, and will eventually, rapidly flee. (Although I hope I'm wrong, because I'm probably going to let my BTC's ride one way or the other...it's just too much fun being on this roller coaster.)

Put simply, I think the question is whether the fundamentals have a serious chance at overtaking the speculators before a big bust occurs. The speculators are increasing exponentially. And for all the talk of merchants beginning to use Bitcoin, or a random pizza or bar accepting bitcoins, the fundamentals don't really seem to be there or growing fast enough. I don't know anybody that seriously uses it in that manner, except for the few ardent Bitcoin evangelists. (Although if anyone has any interesting data, please link me!). Black markets and gambling sites seems to be the only real sectors seriously using it as a currency.

Disclaimer: I could be wrong, and change my opinion on BTC way too often to be trusted. :)

Crypto currency definitely has a big future, that I can give you this 12a9hmRF8Aueu38tXyuj7eswTUgsemszp2 and you can pay me there without a bank or government in between is amazing. Anyone who's integrated with a payment processor to run an online business will appreciate the value offered by crypto currencies.

Unfortunately I don't think BTC is that currency, it's built in limit is a terrible idea conceived from the mind of someone who doesn't understand the difference between money and commodities. BTC will never be a good currency, it'll never be stable enough. BTC is e-gold, not e-cash, and it'll suffer the same fate as gold, that of a value holding commodity but not a currency. However, that's a petty flaw easily fixed and BTC paved the way for a whole market of crypto currencies by being open source with each trying slightly different approaches based on different ideas about how currencies work. This is awesome. Regardless of which few crypto currencies eventually dominate, it is the future.

"And people like me, who pretend to themselves that they have a reasoned investment thesis, will say fuck it, and cash out in hordes."

That's a pretty accurate summary of what I did 20 minutes ago. I'm actually pretty optimistic about BTC in the long term, just don't want to ride the roller coaster in the short term.