I have three problems with investing in bitcoins. Maybe someone can sooth my concerns.
1) I understand that bitcoins are limited in number. However anybody can make an alternative cryptocurrency (like litecoin). At the moment bitcoin is the most liquid as it is supported by all exchanges (like mtgox). However once mtgox supports litecoin it will become just as liquid. As it has the same functionality why wouldnt speculators pour into the "cheaper" litecoins once they can be easily bought over mtgox. Also why wouldnt miners start mining more litecoins, when it becomes more profitable than bitcoins. Lastly once the price is bid up, why wouldnt stores also accept litecoins.
Therefore a potentially unlimited number of cryptocurrency could be competing for available purchasing power. I understand the concept of first to market, however once litecoins or other good cryptocurrencies become as easily tradeable (over metgox) as bitcoin wont speculators speculate on them becoming as valuable as bitcoin. Why would the first to market concept and networking effect stop this dynamic.
2) Once bitcoin becomes a generally accepted medium of exchange, wont governments make it illegal to trade bitcoins with prison sentences waiting for anyone who tries. Wont this cause bitcoin to collapse in value.
3) There is always the possiblity that a better, more innovative cryptocurrency comes to market leaving my bitcoins worthless.
Diclosure: I own a substantial position in silver miners and like gold as well as silver. I am a follower of austrian school of economics. I hate fiat currencies and maybe want to buy some bitcoins in case they overtake gold as a medium of exchange. However I still have the concerns mentioned above.
First of all, see my post right before yours, which deals with the issues you have.
1. As I say in my post - more crypto currencies would reduce risk manipulation and sabotage. There will always be speculation.
2. May happen, but I think it may be difficult, unpopular and possibly against the law.
3. If a better cryptocurrency gains terrain, it will be a slow process, but sure, bitcoin may not stay on top forever. I changed some of my bitcoins into litecoins, because I believe the little brother has som interesting advantages.
