First, bitcoins are a commodity designed to have the features we want in a money. Without transactions and human interaction, it is worthless. Without the monetary functions bitcoin has, it is worthless. The function of bitcoins is what drives demand, and it is supply and demand which determine price. It is the function of this new currency where it derives it's real value.
But there are many (!) physical substances that are fixed in amount, and can be easily handled, but do not have much value. Besides, just "having features we want in a currency" doesn't stop someone else from making another digital system that has those same features, and even aside from that, doesn't guarantee that they will always have value. Since they don't have inherent worth, they are only able to be exchanged for things because some people are enthusiastic about the idea that they should. Pure enthusiasm alone is a pretty fickle basis for my wealth!
To argue that bitcoins have no value because they aren't backed by anything is like trying to argue that gold has no value because it is not backed by anything.
Uh. It kinda doesn't. Libertarians think it does, but ordinary people are pretty skeptical about it. Warren Buffet, in particular, thinks gold as a store of value is stupid exactly because it has little inherent worth. In truth, it has some value because of its appearance and nice physical properties, plus thousands of years of tradition (which people will likely care about for a long time), so it's a little better than just some arbitrary token. Still though, yeah, I think much of the current value people assign to it is irrational and will collapse at some point.
The US Dollar is backed by Absolutely nothing. The only difference is that the total bitcoins in circulation will have a limit while the USD will continue to grow in supply by billions or trillions per year.
I don't have much training in economics, but in the one class I did take, they told us that the US dollar is "fiat currency" -- its value comes from law. Because the law requires taxes to be paid in US dollars, dollars will have value as long as there are people subject to our government's laws. There is inherent value there. But who requires payment in bitcoins, and what makes it likely that they will continue to do so?
Yeah, I don't think this has any value at all, and I expect that one the initial enthusiasm bubble dies out, prices will oscillate rapidly as you all try to speculate your way to some kind of real value, and eventually die out as you guys all come to your senses. I could be wrong, but that sure is what my gut tells me. Convince me otherwise.
