[tptacek]

Money is a store of value, a medium of exchange, and a unit of account.

A store of value is something you could accept in payment for work and hold on to.

A medium of exchange is something a shoemaker can use to obtain bread from a baker who doesn't want shoes.

A unit of account is something with a value stable enough that you can measure the value of arbitrary goods with it; like the Bloomberg article says, it's what enables a cheesemaker to put a price tag on cheese without forcing her to become a currency speculator.

Which of these functions does Bitcoin have?

[sks]

Bitcoins slipped into speculative realm a couple of weeks ago and probably after the crash the speculators will exit the market. A stable bitcoin can easily serve the three functions you listed above. As I said in my first comment this volatility raises questions about longvity of bitcoins but they have not ceased to be real money, at least for now.

It is just a 3-4 year old technology lets wait and watch how this plays out before writing it off completely.

[tptacek]

What makes you think the price of Bitcoin will ever stabilize? (You know, somewhere besides zero).

[sks]

I dont know if bitcoins will ever stabilize or go down to zero but I also believe that no one can be so sure about how a free market is going to behave to just write it off at this moment.

[tptacek]

The words "free market" are not a talisman that dispels common sense. Currencies are fundamentally backed by trust. Trust in the US Dollar is based on the status quo (the Nash equilibria of our adoption of the currency, &c), the degree to which our interests are aligned with those of the government (not 100%, not 0%) and the basic economics of taxation that is dollar denominated, a gigantic federal payroll that is dollar denominated, and the fact that the federal government --- the world's largest buyer of everything --- conducts all its business in dollars.

Bitcoin has none of this; it appears to substitute the moral equivalent of a Yahoo stock message board.

[illuminate]

"after the crash the speculators will exit the market"

Why? Now's the time to get in at the ground floor!