All of us are tired of hearing the same weak arguments made against Bitcoin by reporters and mainstream economists who don't understand the fundamentals of cryptocurrency. Two weeks ago, I began my own exhaustive research into BTC valuations, because I was trying to determine whether to make a significant investment after the China-induced price dip. Unfortunately, I have come to believe that Bitcoin is significantly overvalued.

In order to understand why, we need to recognize that Bitcoin challenges two distinct aspects of the existing financial order: (1) the issuance of banknotes and (2) the use of centralized clearinghouses to transfer funds electronically. The vast majority of public attention has been focused on the first factor. The perception of Bitcoin as a deflationary alternative to fiat currencies has contributed to its ideological popularity and caused many people to drive the price up by hording it like gold.

But what is actually revolutionary about Bitcoin is the second factor: the creation of an alternative electronic network for authenticating transactions. That network has been extremely secure and reliable, while offering two giant advantages over legacy competitors like PayPal: transparency and irreversibility. For the first time ever, there is a form of online payment that is as reliable as cash. Clearly, that was an unmet need in the marketplace, and it is the most thrilling and satisfying part of conducting transactions with Bitcoin.

The problem is that in the future there will be no intrinsic reason for Bitcoin to be the unit of currency used to conduct financial transactions using distributed blockchains. Alternative cryptocurrencies like Litecoin and Peercoin offer the same advantages over traditional means of transferring funds electronically. The fact that these currencies trade like pennies compared to Bitcoin indicates that the current BTC price has more to do with the perception that BTC is a store of value than it does with its actual technological merits. This value disparity can only be justified if BTC is essentially preordained to remain the world's dominant cryptocurrency.

The primary argument in Bitcoin's favor is the network effect — i.e., that it will obtain an insurmountable advantage by being the first cryptocurrency accepted by most merchants. But once merchants understand how to integrate cryptocurrencies into their businesses, they won't have any incentive to remain loyal to BTC instead of also accepting the 2nd or 3rd most popular cryptocurrencies. That will only require a Bitpay clone to make it easy and remove most of the risk.

Worse, Bitcoin's design actually creates a sort of 'reverse network effect' in which its success makes it impossible for most miners to participate in authenticating transactions. The use of alternative proof-of-work algorithms to allow CPU mining of alternative coins will allow them to claim a potential security advantage by building diverse networks full of competing nodes. It also remains to be seen whether the absence of any proof-of-stake algorithms will come to be viewed as a significant flaw in Bitcoin. Even if Peercoin's divided block structure proves suboptimal, there may be other ways to implement proof-of-stake that increase security while also decreasing future transaction costs by limiting energy expenditures.

Some believe that the dominance of ASIC rigs in BTC mining is advantageous because it increases the expense of interfering with the BTC network. But competing currencies can make themselves attractive to the same ASIC miners simply by adopting the hashcash proof-of-work standard.

I foresee a collapse of BTC value when the first large financial institutions release cryptocurrencies of their own, which are actually backed by tangible assets like gold or by fiat currencies. Those will not be ideologically appealing to most people who post here, but the business model makes perfect sense. The fear that the public and media have about BTC is that it is an attempt to create wealth out of thin air. Having a trusted bank issue individual coins representing actual assets will allow them to be more valuable than BTC is today, making them more attractive to mine. These bank-backed cryptocurrencies would look to many like the 'best of both worlds': the guaranteed value of a traditional bank note with the transparency and irreversibility of distributed block-chain logs.

The nature of all attempts to disrupt existing power structures in society is that the elites first resist and then join and co-opt. Bitcoin will go down in history as the first proof-of-concept for distributed financial authentication, which is going to emerge as a serious competitor to PayPal and its ilk. But the financial establishment is not going to sit back and accept the idea that a bunch of anarcho-libertarian first adopters are entitled to be millionaires. The very things that attract most people on this forum to BTC, like its edginess and anti-authoritarian image, will be its downfall when it has to compete for mass market support against bank-issued cryptocurrencies that will pay miners/stakeholders handsomely for their authentication services.

These are realities that people on Wall Street know and believe. But they aren't being priced into BTC right now because there is no real way to short the currency's value, at least not with the scale and reliability that hedge funds demand. If there were, I guarantee there would be a significant amount of money willing to take the opposite side of bets against the BTC community's true believers.

Ultimately, the entire Bitcoin story will reinforce the truest aphorism of all: "Nothing is ever as good or as bad as it seems."

This is a brainstorming idea, based on my failed attempts to get my friends and family excited about cryptocurrencies. The primary issue that seems to freak them out is the idea of the global money supply being inflated by the issuance of BTC or any other new currency.

If we are serious about making a dent in fiat currencies, we have to find a way to convince the masses that cryptocurrencies' value comes from SOMEWHERE. I have an idea for how to go about that, but I don't know if it's feasible given the existing technologies.

My hypothetical currency is called "CannibalCoin." Instead of trying to generate new value, CannibalCoin EATS the "intrinsic value" that people believe is somehow trapped inside their fiat money. It is the online equivalent of creating a private coin and making someone burn a dollar in front of you in order to get it.

How can we accomplish this using existing methods? The problem is that there needs to be some way of recording the existence and destruction of the USD in the CannibalCoin block chain. The challenge is finding a decentralized method for documenting that someone has irreversibly enrolled fiat currency into the system.

A bank could simply accept a deposit and certify that it was destroying the cash. But I am curious if anybody here can think of a way to accomplish the same thing without banks getting involved.

One of the great things about BTC is the reversibility of transactions. If you lose your private key, then your BTC are essentially destroyed because there is no way to access them.

My question is whether there is a way to INTENTIONALLY destroy BTC so that other users can tell that the supply of BTC has decreased? I realize that you could always claim to have destroyed the private key. But my question is whether there is any conceivable means of proving that to be true.