[Seth_Kriticos]

Value source is pretty much the same as all other currencies too: people use it to exchange goods.

It's actually a big game of trust, that you can use the bitcoin you get today to buy something tomorrow.

As the number of people engaging in trading bitcoins, the market regulates it's self by supply and demand basis ( here is a chart on the current exchange values http://bitcoincharts.com/markets/ ).

The difference to most other current FIAT currencies is, that there is a maximum number of bitcoins that can be generated (20,999,999.9769 BTC), and it gets harder with time (exponential computation time needed to get them). This prevents runaway inflation.

To break it down to simple terms: it has value because people believe that it has value and use it to exchange goods and convert it to other currencies.

[windsurfer]

I still don't see why people would pay money for this virtual thing. It doesn't have any real value yet, everything is promised to come. It looks like some kind of scheme that promises future value in exchange for your cash today. Isn't this called a Ponzi scheme? http://en.wikipedia.org/wiki/Ponzi_scheme

If, on the other hand, governments backed this currency by guaranteeing some kind of flat conversion rate, I would be all for this system. As it is, I'm staying out.

[kristofferR]

BitCoin is not a money-making scheme, it's just an attempt at creating a new digital international currency. It is not marketed as a scheme and it doesn't promise any returns in the future.

However, the ironical thing about starting a new currency is that the value of it is determined by the trust people have in it. Since Bitcoin is new and unproven, the trust is quite low. Until it is trusted it won't have real value, but a lot of people won't trust it until it has real value. It's a chicken and egg problem.

By investing in Bitcoins you are investing in the belief that the currency will gain in popularity. It actually is no different from investing in a company at an early stage. By investing early before something is proven the risks are higher - but so are the potential rewards.

The people who invested 50K in Facebook early are rich now. Those who invest 50K in Facebook today won't see anything close to the return the early investors did, even with the same investment. A lot of people lost their investment by investing in some other social network instead of Facebook. This is just like any other high risk/high reward investment - you invest on your belief that something will succeed.