I don't think Bitcoin solves the main problem of new currencies: confidence of their acceptance.
John Law introduced paper money into France by getting the government to accept it for paying taxes. Every Frenchman and woman was confident the state, no matter who took over, would still collect taxes. And the state, knowing the currency was valuable to everyone--even foreigners, could also use it.
Where's my confidence that people will desire a bitcoin in future? Even if, say, every Starbucks in every country started accepting them, it'd only be as valuable as the trend for coffee and the stability of Starbucks. Could I, when planning a mortgage, bet on Starbucks' popularity over 25 years?
I can see how game currencies can come about. But the market for these games is limited and ephemeral in the long run. If you want to compete with banks, you need to think about long term confidence. I've yet to hear how Bitcoin, or any other startup currency, solves this problem.
Confidence comes gradually. When bitcoins started, confidence was extremely low. Thus the whole bitcoin economy was worth maybe $1000.
Now confidence has grown significantly, and the whole bitcoin economy is worth approximately 5 million dollars.
I wouldn't bet my life savings on it yet, but I find that already pretty good for something that has less than five years, and isn't backed by anything.
Confidence may come gradually but it can vanish very suddenly.
If a number of investors have enough invested in the system that their investment become worth more to them than maintaining the bitcoin system and some event decreases the confidence in the system, then those investors will attempt to "liquidate" their holdings. Whether they succeed or fail, the impact on the system will likely be terminal since there wouldn't be any entity ready to step in and buy unwanted bitcoins.
> Where's my confidence that people will desire a bitcoin in future?
This is important if you want to hold lots of Bitcoins. if you just want to use them as a medium of exchange, without holding large amounts, it's less important.
John Law introduced paper money into France by getting the government to accept it for paying taxes. Every Frenchman and woman was confident the state, no matter who took over, would still collect taxes. And the state, knowing the currency was valuable to everyone--even foreigners, could also use it.
Where's my confidence that people will desire a bitcoin in future? Even if, say, every Starbucks in every country started accepting them, it'd only be as valuable as the trend for coffee and the stability of Starbucks. Could I, when planning a mortgage, bet on Starbucks' popularity over 25 years?
I can see how game currencies can come about. But the market for these games is limited and ephemeral in the long run. If you want to compete with banks, you need to think about long term confidence. I've yet to hear how Bitcoin, or any other startup currency, solves this problem.