Every day, another event occurs that reminds me of Daniel Suarez's books Daemon and Freedom(tm).
This is one of them.
Every currency is based on the credibility of the underlying guarantor, whether it's the value of precious metals, the full faith and credit of a government, or the long-term viability of an organization.
The underlying guarantor here is the belief that an open, distributed system like bitcoins will grow and thrive. Given the nature of distributed systems, the main risks to its survival are lack of interest by participants, a security flaw in the bitcoin system, or the complete collapse of the internet as we currently know it.
The latter isn't likely to happen - even if the US became like China in trying to regulate activity (not likely), it will just open up elsewhere. Short of the kind of global social catastrophe that would invalidate every other currency as well, it's not a realistic risk.
Lack of interest and security flaws are the only real risks. They're significant enough that I wouldn't invest money I couldn't afford, or base a business model around bitcoins - but acceptable enough that I will definitely spend some disposable income on bitcoins.
the main risks to its survival are lack of interest by participants,
Much like prior "alternative currencies" like Pogs and Beanie Babies and tulip bulbs and Second Life real estate?
Stepping away from the idealism of "ooh wouldn't it be nice to have a distributed currency", what we have is a bunch of people trying to create a bubble. Unlike many bubbles there's not even an attempt to claim that the asset has some intrinsic value; instead it's just a bunch of people collectively deciding to fool themselves into thinking that a random scarce commodity has value in the hopes that they'll be able to fool more people into it later.
Of course, for new bubbles it's all about creating buzz. And how is buzz created? Well, upon getting fooled into paying money for a bunch of bitcoins the rational next move is to start talking up bitcoins to everybody as loudly as possible, to pull more people into the bubble and inflate the value of your own assets. Thus, I predict we'll be hearing more and more about bitcoins over the next year or so as the process accelerates.
The bubble almost certainly ends at some point; basically when it runs out of new suckers. I don't hold out much hope for this bubble lasting long enough to bring in significant numbers of mainstream suckers, though, since you pretty much need a degree in mathematics to even understand what the hell a "bitcoin" actually is.
In summary, if I'm going to be part of a pyramid scheme I think I'll start it myself instead of getting in at the fifth floor.
It's money. Its value will come from people willing to exchange it for other valuable things. People agree to do this because it makes doing business a lot more convenient. It works fine if everyone cooperates and the system is well designed. Bitcoin seems to be much better designed than any established monetary system.
Personally, I would not. Reason: as a game developer, I need to eat. I don't have faith that I can or will soon be able to trade bitcoins for food, housing, and other items that I need. This could reflect my own lack of knowledge or vision, or could mean that I'm part of the problem, or all of the above.
Bitcoins could be embedded in the game. The players would start out getting very small sums as actual in-game rewards, so it'd look like just a regular in-game currency at first. Then later they'd notice that a much bigger sum of bitcoins (say, 3$ worth instead of 0.1 cents worth) can buy more game content, and they'd be nudged towards out-of-game means for getting them.
This is one of them.
Every currency is based on the credibility of the underlying guarantor, whether it's the value of precious metals, the full faith and credit of a government, or the long-term viability of an organization.
The underlying guarantor here is the belief that an open, distributed system like bitcoins will grow and thrive. Given the nature of distributed systems, the main risks to its survival are lack of interest by participants, a security flaw in the bitcoin system, or the complete collapse of the internet as we currently know it.
The latter isn't likely to happen - even if the US became like China in trying to regulate activity (not likely), it will just open up elsewhere. Short of the kind of global social catastrophe that would invalidate every other currency as well, it's not a realistic risk.
Lack of interest and security flaws are the only real risks. They're significant enough that I wouldn't invest money I couldn't afford, or base a business model around bitcoins - but acceptable enough that I will definitely spend some disposable income on bitcoins.