BitCoin advocates tend to get very angry when I point this out. I think it's because they have no answer to this
Who got angry over this? I happily concede that bitcoin have no intrinsic value.
("So why's it worth so much now?" It's in a bubble generated by all this publicity. What happens the first time this bubble even threatens to pop? That's when you'll really find out who is right, me or them. Oh, and I'd predict an even larger burst of publicity and public braggadocio if it looks like that's going to happen; that will be the only way to forestall the inevitable another few days.)
When the price of bitcoin rose so fast, it is only natural that a correction followed.
At some point, BitCoin faces some dip in currency confidence. Not because it's "BitCoin", but because all currency face periodic confidence crises.
The part you should have highlighted at the end is where I predict collapse, not where I predict it'll have a confidence issue at some point. There's no way BitCoin will avoid some sort of issue at some point and just monotonically increase in value forever and ever, amen. If nothing else, after its inevitable and mathematical wild success (cough) BitCoin will one day attract the attention of the IRS who will decide they need to tax it. If you manage to get that far without a confidence crisis, that's an automatic one. You'll lose a chunk of people for whom the primary draw was that the IRS didn't care about it. Confidence crisis isn't the question, collapse is.
(And that's the gentle one. There's also "The US government has decided that BitCoins are primarily a money laundering operation" and it starts throwing people in jail for using them. I consider this a less likely outcome by far, but still on the table.)
When I say confidence crisis, I do mean that as a distinct thing from a collapse; as I said, all currencies face confidence crises.
I don't know who the bitcoin advocates that hate hearing this is coming from but the bitcoin community had always debate possible attack vectors and ways to counter it, if indeed it was a problem. Indeed, the government's response is a constant worry and there had been various opinions as to how big of a problem it is and how to win.
Running away from problems does not help us or anybody. It's best to confront it head on.
Indeed, nothing ever monotonically increases, or keeps growing forever. Didn't we already made that mistake with the housing crisis? There will be drops, eventually, maybe even big ones.
I think the biggest confidence crisis possible for bitcoin would be a security breach discovered in the software.
Other things, like the IRS interefering, will cause smaller panics. There will still be a lot of countries left where it can be used. Bitcoin is by no means a US-only operation.
The surprising thing for me for bitcoin is that it's actually being used to trade things, and is not just seen as an investment vehicle. This makes me think it can succeed.
So your argument is basically that government comes to tax bitcoin, or make it a part of a legal currencies, bitcoin will suddenly drop it's value?
You could argue the opposite just as successfully - bitcoin will increase it's value even more because it will become a de facto legal currency (adoption will increase massivelly).
And the "bitcoin = domestic terrorism" attack is quite hilarious (in it's futility) if you compare it to war on drugs. Demand won. You can't make war on something large part of populations want and win.
"So your argument is basically that government comes to tax bitcoin, or make it a part of a legal currencies, bitcoin will suddenly drop it's value? You could argue the opposite just as successfully..."
Only with a heaping helping of wishful thinking. In the real world, when a currency incurs previously-nonexistent liabilities (in the accounting sense) the reaction of people isn't going to be piling in even faster. It may not kill BitCoin but it isn't going to be a moment where the value rises.
"And the "bitcoin = domestic terrorism" attack is quite hilarious (in it's futility)"
For the record, I disagree with the argument that alternative currencies are solely for money laundering or terrorism (note you added the terrorism connection, I just mentioned money laundering). I'm simply saying the government may make it. If you're going to be paranoid and cynical, do it right. If the government perceives BitCoin as a threat to its power, it isn't just going to come out one day and say "We perceive BitCoin as a threat to our power and so we're going to just stomp it out." They're going to have some reason with vague plausibility for enough people to give them cover to do what they want. (In fact I think that there may not even necessarily be any one person who thinks to themselves BitCoin is a threat to the dominance of the US Government and we must come up with some pretext to stomp it out, these things can sort of emerge from the successfully-evolved system itself.)
I actually approve of alternate currencies and expect that they will exist in the future regardless of what governments say. I think the embryonic versions already exist and the technological trend is unstoppable. I just don't think BitCoin is it, as it is today. Someone pointed out to me that someone could take BitCoin and actually provide some sort of backing, and I think that would be a potent combo, though given the "men with guns" option isn't really available that seems to only leave physical assets, which is tricky to pull off at scale. (You would need to actually be ready to provide all the physical assets if there is a run on the currency, no excuses, no clever contractual "no we didn't really mean it", you actually have to have it. Perhaps ironically, if you can, you may never have to, but if you can't, you will certainly have to.) If there's some sort of third option, someone might be able to actually provide the recursive base case and put BitCoin on a firm footing.
Totally agree with you on possibility of governmental attacks on bitcoin, thats why i added the war on drugs analogy, and it doesn't quite matter what political moral high ground excuse will be used to attack bitcoin, be it terrorism or money laundering. That's not the point.
My point is that Bitcoin has backing that is even more powerful than men with guns or physical assets. That backing is subjective value of Bitcoin in people's minds. Think Apple or Luis vutton, it's valuable because people think it is, and if the ideas on which Bitcoin is based are a solid foundation, the value of Bitcoins will only grow.
So for your third option of backing i'm thinking in terms of http://en.wikipedia.org/wiki/Subjective_theory_of_value the "men with guns", or "gold in storage" has the same value as "men who combined great ideas(PGP P2P Crypto Currency) and produced value (Bitcoin)".
Who got angry over this? I happily concede that bitcoin have no intrinsic value.
("So why's it worth so much now?" It's in a bubble generated by all this publicity. What happens the first time this bubble even threatens to pop? That's when you'll really find out who is right, me or them. Oh, and I'd predict an even larger burst of publicity and public braggadocio if it looks like that's going to happen; that will be the only way to forestall the inevitable another few days.)
When the price of bitcoin rose so fast, it is only natural that a correction followed.
At some point, BitCoin faces some dip in currency confidence. Not because it's "BitCoin", but because all currency face periodic confidence crises.
Let see if your hypothesis bare this out.