[lifeisstillgood]

Bit coin has a cryptographically limited supply - there are only so many coins possible, and only so many can be made at a time per unit of computing power

In theory you would have a clear relationship between real world production (CPU, power) and a stable exchange rate.

This is not happening because either a speculative bubble (likely) or the real level of pricing is not yet priced in (not sure, that should be a known number)

Anyway, in theory there is a clear fixed relationship between electrical power costs and bitcoins - and as there is transparent accounting of transactions, it's either impossible or really hard to commit the central fraud of a ponzi scheme.

Edit: actually bit coin could be the new gold standard. http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyscheme...

[machilin]

Great read. Bitcoin can be a new gold standard. Probable. But that means someone has got to regulate it. To keep the prices stable so that it can be a standard for other currency. But bitcoin is unregulated and that's the main advantage of it. So either it can be a gold standard by being regulated, which defeats its whole purpose or remain as it is. You can't have your cake and eat it too.

Edit: I highly doubt it can be stable. With so many people holding significant shares of bitcoins, any actions take by them can affect the prices significantly, since the market cap is so small. Plus someone has to step in to make sure prices don't go out of hand. If all it takes is for mtgox to have a few DOOS to drop prices by more than half, I don't see how bitcoin can be a gold standard without regulation.

[lifeisstillgood]

It is regulated - the number of coins is a function of computing power on the problem. That makes it similar to gold - there is a finite amount on earth and we can mine more or less as our efforts dictate

The fact that coins are allocated to miners is no different than good allocated to miners

I am not saying now is a good time to peg the dollar to the bitcoin. I doubt it would ever be - but the concept is viable I think - and that makes it feasible - a government could set its own algorithms, and peg to its own mathematically deflationary currency. That would be an interesting step forward