Hi,

Looking at the current valuation of Bitcoin against the dollar, I know I'm not the only one to find Bitcoin to be overpriced given the size of its economy.  Therefore, there are strong indications that the current valuation (even taking into account the recent slump) is largely driven by speculation about the future value of the Bitcoin currency.  However, and though I love Bitcoin as much as the next guy, realistically speaking there are some strong arguments as to why Bitcoin -- at least in its current incarnation -- might fail.  Moreover, I suspect that speculators may not be adequately pricing the risk of a Bitcoin failure into their investment.  If this risk is properly taken into account, then the true valuation of Bitcoin against the dollar should be much lower than the current (almost) parity.

And what arguments for Bitcoin's failure are these?  Well, foremost is the risk of a second genesis or the rise of a competing system based on similar principles (or even the same code base!), particularly if backed by a strong player (think Google).

Hypothetically speaking, suppose Google were to announce gCash: an electronic currency very much like Bitcoin, but with builtin support in the Chrome browser and accepted as payment in all of Google's services.  They could even throw in builtin support for cooperative mining in the standard client to encite people to use Chrome all the time.

Bitcoin's economy is currently so small that it would be dwarfed overnight by gCash.  In a sense, Bitcoin's philosophy and principles would win, but the current block chain would either fade into oblivion or become such a niche player that its valuation would come down drastically, reflecting the true size of its tiny economy.

Now, I used Google only as an example, as I have no indication they actually have such plans.  The point is that the risk of such a scenario is not zero, and I reiterate my initial point that speculators may not be pricing it adequately.