Economist Brad DeLong poses a question about Bitcoin:
Underpinning the value of gold is that if all else fails you can use it to make pretty things. Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government, and (b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know).
Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserves role as actual dollar source, and its commitment not to allow deflation to happen.
Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function
until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is
what, exactly?
At the moment, its only a $10 billion bubbleor, if you are going to convince me that it is not a bubble, you are going to have to find me a market player willing to become a bitcoin sink
The bitcoin sinks will be global open ended trusts that buy bitcoins for the very, very long term. And the fact that millions of people will use bitcoins as a deflationary store of value as the bitcoin economy expands.
Problem solved. Let's move on and buy bitcoins.