The total value of circulating Bitcoins touched a billion worth of USD recently. Volatility in this exchange is high, but up will be the long-term trend. Its the architecture of the system that will see a Bitcoin worth more and more over time.
Of course value is a comparative term, Bitcoin has garnered favour in a number of markets because its an anonymous currency without a central authority. Its a Peer to Peer protocol between users of digital wallets. If a wallet of Bitcoins becomes corrupted or deleted, thats it, those Bitcoins can never be recovered.
Bitcoins are scarce. Currently about 10 million coins are in circulation, there is inflation to a maximum number of 21 million, estimated to occur in the year 2140. Each new Bitcoin that is created is mined through a time-consuming computer algorithm. A new Bitcoin birth is confirmed into existence by consensus with others over the Internet.
The intrinsic value of any system is for those that use it. Like gold, one can't eat a Bitcoin. So its value is only a modicum of exchange. The parallels of gold are eerily similar. Both are rare commodities, with limits on production and an estimated maximum quantity. Thus the Bitcoin market is steady state, unlike fiat currency that has central banks conspiring to inflate.
The markets in which Bitcoins are used are limited. Much of this has been seen on anonymous ebay like web sites that seem to trade in illicit substances. But there are spectacular instances, like a Canadian man happy to exchange Bitcoin for the sale of his home.
Fiat currency is where the government forces inflation via usury, and ensures a system that is constantly inflating. However Bitcoin is inherently deflationary, by being as scarce resource with an inflating user base. Proposals are in place to move Bitcoin splitting from eight to sixteen decimal places of division. Plenty of scope for a Bitcoin to become a valuable, but still tradable commodity.
US treasury classes Bitcoin as a Virtual Currency, and wants to regulate the exchange of it in and out of USD. Broadly, authorities want to class Bitcoin under a pre-paid ideal, like tokens at a casino or transportation smart cards. The community is somewhat miffed, as Bitcoin can be considered a fully-fledged currency that can operate independently of other currencies.
A currency that is international, immune to government intervention, and completely anonymous is as much an ideal as it is a practical means of exchange. And that by itself will likely see Bitcoin endure.
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