Exchange rate volatility

[Timo Y]

Isn't BC prone to a lot of volatiliy because it's not backed by anything physical?

The exchange rate of BC against other assets/currencies is going to depend solely on the reputation of BC, and expectations of future reputation.

There is nothing inherently valuable about BC. Yes, I know, I know, there is nothing inherently valuable about anything, but what is the likelihood that most of humanity suddenly decides they want to stop driving and oil prices collapse to zero?

What can BC do to protect itself against a massive and sudden crash caused by a spiralling loss of faith in the system? (this loss of faith could be triggered by something like a negative press report or some temporary bug in the software.) 

Do you think such a crash is a possibility that we should worry about?

[dwdollar]

Isn't BC prone to a lot of volatiliy because it's not backed by anything physical?

The exchange rate of BC against other assets/currencies is going to depend solely on the reputation of BC, and expectations of future reputation.

There is nothing inherently valuable about BC. Yes, I know, I know, there is nothing inherently valuable about anything, but what is the likelihood that most of humanity suddenly decides they want to stop driving and oil prices collapse to zero?

What can BC do to protect itself against a massive and sudden crash caused by a spiralling loss of faith in the system? (this loss of faith could be triggered by something like a negative press report or some temporary bug in the software.)  

Do you think such a crash is a possibility that we should worry about?

I think there may always be a "die hard" group of users who will back the currency.  These people will step in and buy at certain prices they feel comfortable with.  It will be similar to investment banks and funds supporting "beat down" stocks.  Only, no one will be around to bail them out if they choose poorly.  There's always a chance the situation could be remedied or corrected and this will encourage bottom speculation.    I think something would have to be seriously flawed for a sudden and permanent collapse to zero.

One should realize this sort of catastrophic collapse could happen to any stock, commodity, or currency.  Modern economic theory has led us to believe there are risk free zones where one can place wealth.  Politicians and Central Banksters propagate this lie through bailouts and currency manipulation.

[Gavin Andresen]

Money can be used as both a means of exchange and a store of value.

I plan on using Bitcoins as a convenient, very-low-cost means of exchange.

I don't plan on saving a significant number of Bitcoins as a store of value.  I like to invest in people who are doing productive things that grow our economy and make the world a better place, so when Bitcoins replace dollars    I'll lend them to people by buying bonds or stocks.

If you only use Bitcoins as a means of exchange, then you don't have to worry much about a sudden loss of faith in the system.

If you use Bitcoins as a store of value... well, then you're a currency speculator, which can be highly profitable but is also highly risky.  Whether you're hoarding dollars or euros or yen or Bitcoins...

[Timo Y]

That is a very good point. Volatility will not a a big issue for the vast majority of users who would probably only keep a few thousand dollars max on their BC account. It would take over the function of a checking account at a tradional bank.