I agree.  If the difficulty level is adjusted to keep an average rate of 1 block every 10 minutes then the number of blocks created is 144 blocks/day regardless of the number of miners.  At $20/BTC and 50 BTC/block, that's $144,000/day.  That is then split among the total number of miners relative to the amount of processing each does.  With perfect information and perfect competition, equilibrium is when the costs of GPU and electricity are equal to revenue from Bitcoins.

With a botnet this breaks down completely.  The cost of GPU's and electricity to the herder is zero, so the number of miners from botnets will continue to increase without bound (economically).  As the number of botnet miners increases or the value of a Bitcoin decreases the number of legitimate miners will decrease to maintain equilibrium.  Botnets could conceivably have incredible amount of power.

BTW.  This also implies a minimum transaction cost that must be maintained when Bitcoins are no longer created.

I've been thinking about the coexistence of Bitcoins with current money, USD in my case.  Suppose that paychecks, taxes, loans are all still using USD.  What effect does Bitcoins have on US monetary policy.

Scenario 1 - Bitcoin is just used to facilitate transferring USD.
    Person A converts dollars to Bitcoins and sends them to person B.
    Person B takes the Bitcoins and converts them to dollars.
    Assuming there is no transaction costs the velocity of USD does not change and there is no effect on monetary policy.
Scenario 2 - Bitcoins replace USD transactions.
    Person A has Bitcoins from mining or some previous transaction and sends them to person B.
    Person B receives the Bitcoins and saves them for later transactions.
    Think about what has happened.  A transaction that had previously been done with USD is now done with Bitcoins.  This reduces the velocity of USD, similar to the effect of a population decrease.  As the use of Bitcoins increases, the Fed has to slow the rate of adding money to the economy.

What if people save money with Bitcoins instead of USD.  USD is taken out of the bank and used to purchase Bitcoins.  Again, that increases the money supply and the Fed has to pull back.

What if countries decide that Bitcoins are more profitable than US Treasury Notes?  Suppose China starts buying Bitcoins.  Interest rates would go up right?

Why will people use Bitcoins?
    Drugs - Silk Road.
    Porn - so the wife does not see it on the credit card bill.  Porn industry was very early to sell on the internet and adopt Blu-Ray.
    Internet shopping - Buying stuff from shady sites that you don't want to give your credit card to.  See porn above ... or Sony.
    Buying software from around the world.  Independent software developers can accept Bitcoins.  Would not have worry about working with credit card companies or exchange rates.

Which begs the question, "Why is it stable?"  My bet is some big player is stabilizing it.  So is this person buying or selling?

Selling:
Loads of people discovered Bitcoins recently and want to buy some.  An early adopter with a lot of coins has a vested interest in making Bitcoins a success, so he is selling coins like crazy to keep speculators from creating a bubble (that means you grimex).  Bank of Satoshi Nakamoto perhaps?  This is a good thing.  Hopefully, other speculators will leave and things can stabilize again on their own.

Buying:
Loads of people are dumping Bitcoins and this guy is buying them up.  This seems unlikely.  Why would someone do this at $20?

In response to this article:
http://www.quora.com/Bitcoin/Is-the-cryptocurrency-Bitcoin-a-good-idea
Severe Problem Number 4: When Something Goes Wrong, It Will Die

Let's suppose there was a catastrophic failure of the Bitcoin network.  This could be someone figuring out how to add a large number of coins or bogus transactions.  What would happen?

Let me first say that from what I know of the system this is just not possible.  Suspend your disbelief for a moment, though, and consider the consequences if this were to happen.

I'm going to go out on a limb and say that everyone using Bitcoins is watching very closely how the Bitcoin saga unfolds.  Exchanges would immediately stop trading and merchants would no longer accept Bitcoins.  Technically, they could not stop transactions, but they just wouldn't ship product.  Pool operators would stop mining.  Message boards would light up and the whole system grinds to a halt.  Again, technically, transactions and mining would continue, but non-virtual products would stop shipping.

Coders all over the internet go through the code and figure out what happened and how to fix it.  The fix would include a way to roll back transactions to the point of failure.  Miners would need to be updated to a new version and then mining would continue with updated code.  Under the covers the bogus chain continues to grow, but big players would update to a new version that would only work with the new branch.  Technically, the Bitcoin network would survive the failure.

You might think that it would be impossible to change the Bitcoin software, but consider the alternative.

The economic impact would depend on many factors, but that's a discussion for another time.

What is the video?  Do you have a link?

Interest rates... possibly

Example.  Consider a hypothetical economy using Bitcoins exclusively.  Assume for arguments sake that Bitcoin the rate of deflation is stable at 3%.  This means that if a person keeps their coins they get a nominal rate of return of 0% (real rate of 3%).  Now suppose someone would like to borrow some money.  You would only allow them to borrow money at some value greater than 0% which is greater than 3% real.  This effectively puts a lower limit on interest rates.

This could be could be good or bad.  It's good if it puts a cap on governments spending money they don't have.  It's bad if someone can't start a business because they can't get a loan.

Hi all.  I just discovered Bitcoin over the weekend when I read the Dailytech article.  Incredibly clever.