[throwaway98604]

The only way for Bitcoin to not go up is for a different cryptocurrency to come to fruition that has significant improvements over Bitcoin, like zerocoin, and subsequently can not be integrated into Bitcoin's blockchain.

[RussianCow]

Or stricter regulations are put in place, or a big company like PayPal creates a competitor product, or... Lots of things can happen. There is absolutely nothing backing the price of Bitcoin, so to say that its price won't go down is foolish--pure speculation. If that were irrefutably true, the price would already be $1,000 or $10,000, but it's not, which means there are valid concerns for the future of Bitcoin.

[yason]

There isn't much to back the price of fiat currencies either: Bitcoin is valued by demand which is effectively the case with other currencies too. If there's demand for bitcoins and trust in the platform, that's all the back up Bitcoin needs.

After all, with any currency the only value it has is the ability to later exchange the currency back to services or material goods.

Even if a currency is backed by gold like in old times there can only be faith in that gold will actually buy you goods in the future, too.

[RussianCow]

Currencies aren't backed by anything physical; they're backed by the confidence that you will actually be able to buy something with them. Bitcoin doesn't yet have that confidence, so it basically has no inherent value. (Technically, fiat currencies don't have truly inherent value either, but I don't want to argue about semantics.) The value of Bitcoin today is purely speculative, because it doesn't actually have much of a practical use. Those investing in Bitcoin are betting that it's going to become a currency you can use as confidently as US dollars, but no one can accurately predict whether that will ever happen; it's all a gamble at this point.

[umanwizard]

Fiat currencies (at least those that are the official currency of one or more sovereign states) actually do have intrinsic value beyond people's beliefs.

USD is valuable not only because people trust you'll always be able to buy things with USD, but also because the US. government collects USD-denominated tax. As long as the government continues to have the firepower to enforce the tax code, there will always be a demand for USD, irrespective of how confident people are in its viability.

[mrb]

No. You don't understand what "intrinsic value" and "fiat money" mean. These two terms have literally opposite meanings! (Seriously, look them up.)

The USD has had zero intrinsic value since the end of the gold standard. That's why, by definition, it is called a fiat currency.

The USD has value solely because it is demanded (and the biggest demander is the US government, via taxes) and because people believe it will remain demanded.

The USD, or any fiat currency, has no value beyond this "belief". And this is not inherently wrong. Most of the world economies run on fiat currencies. Even Bitcoin is, technically, fiat.

[haakon]

> The USD has had zero intrinsic value since the end of the gold standard. That's why, by definition, it is called a fiat currency.

The definition of "fiat money" depends on who defines it, but in my eyes the most correct definition is "any money declared by a government to be legal tender". Fiat literally means "let it be done", as in a declaration. The U.S. dollar is fiat because the U.S. government says it is money, and it was fiat under the gold standard as well.

Even under the gold standard, U.S. dollars did not have "intrinsic value" the way I understand it, which is to say value that comes from the physical properties of the object in question. There is a very tiny intrinsic value because you can burn U.S. bank notes for heat and things like that, but nothing else - gold standard or not. Gold may have some intrinsic value because it can aid industrial processes and fill teeth and make jewelry, but that is probably far away from explaining gold's market price today.

Bitcoin, on the other hand, is not fiat, because no legal authority has declared that it shall be money.

[iSnow]

>The USD has had zero intrinsic value since the end of the gold standard.

That's not entirely true. As long as it is the only legal tender in the US and taxes are paid in USD, it has intrinsic value.

[wmf]

Or maybe for it to be outlawed in the US, Europe, and China.

[darkmighty]

Can bitcoins security algorithms become outdated due to Moore's law in any reasonable period of time? Is there a possible threat of algorithm compromise by cryptanalysis?

[teraflop]

Bitcoin uses ECDSA signatures to verify transactions. According to Wikipedia [1], the current record for solving the discrete logarithm problem (which is how you recover a private key from the corresponding public key) was done on a 112-bit key in 6 months. Bitcoin uses 256-bit keys, and the algorithm in question has a complexity of O(2^(N/2)), so breaking its keys is 2^72 times harder.

So even under the ridiculously unlikely assumption that computational power halves in cost every 18 months for the indefinite future: 50 years from now, the entire current global GDP still won't be enough to buy a processor that can crack a Bitcoin key in less than a decade.

(Of course, this is assuming there are no other unknown flaws in the protocol, and that no better algorithms are found to find discrete logarithms over elliptic curves. But if a vulnerability is found, it won't be thanks to Moore's law.)

[1] http://en.wikipedia.org/wiki/Discrete_logarithm_records#Elli...

[oleganza]

As for mining, there are enough bits in SHA256 to allow billion-fold increase in difficulty. And if there is a danger of breaking it much quicker, all people holding bitcoins have huge incentive to change the protocol to fix the problem.

As for ECDSA, it can only be broken by quantum computers, but still most balances are protected by sha256*ripemd160 hash, so they are safe in the face of sudden QC attack or a weakness in ECC. People will want to protect their wealth and thus will change the protocol for other algorithms.

[darkmighty]

Cool info, thx!

But do you think it would actually be viable to make a protocol algorithm transition?

[oleganza]

When everyone's money is at stake, it'll be very quick. This March, when the network forked, miners with newer version 0.8 agreed to forego mining rewards and abandon their own branch (incompatible with v0.7) just to resolve the issue quickly to not shake the confidence in Bitcoin.

[nwh]

They got their money back anyway. A user paid every single missed bounty from blocks on the abandoned fork.

[oleganza]

v0.7 miners got those rewards, not v0.8 ones.

[raws]

Besides Zerocoin which other ones would you consider improvements over Bitcoin?

[iSnow]

Zerocoin is not a competing cryptocurrency but a way to anonymize transactions that could be integrated into bitcoin.

[throwaway98604]

Yes, but the creator of Zerocoin has stated that it seems unlikely to integrate into Bitcoin's blockchain and may only be usable if it is put into a new blockchain.