Bitcoin has no intrinsic value - the only case for Bitcoin is that it is a medium of exchange that will grow, which then depends on the adoption rate, and the amount of good and services it will provide. If a large enough set of the population believes it has value, it will have value (bitcoin in that regard is worse than gold, which actually has some intrinsic value due to industrial use, ornamental use).
Fiat money on the other hand is obviously backed by the government. The distinct advantage of fiat (which gives it its value) is that you can use that to eliminate taxation liabilities to the government - try paying off you tax bill in bitcoin, real estate, or oil (all have to be converted to AUD) to prevent going to jail (there are some interesting cases in Europe where people have settled tax bills by donating art to the state, but that is for all intent and purposes a small subset). Of course, fiat then is only as strong as the state issuing the fiat, and the real goods and services in the economy backing the fiat, but that is a different discussion topic.
So the issues for Bitcoin in my mind are
(i) adoption rate (perhaps we will get here)
(ii) regulation - this is the biggest issue - all it takes is for government to strap some restrictions (and why would it not if they are losing control of the money supply?) - and Bitcoin (and crypto currencies for that matter) is done for. There may be a small underground economy that continues to use Bitcoin (and you may argue that that is the purpose - a currency w/o government interference), that is all well and good, but where are you going to get your dollars (or fiat currency) to pay the government when the time comes? And will you be able to buy a large enough set of real goods and services on your bitcoin to feed yourself and your family?
Or put another way - I will offer to pay your salary in bitcoin, with the caveat that you cannot convert that to fiat currency. Would you do it?
Isn't it interesting that the value of Bitcoin is still denominated in USD - i.e. a fiat currency that it is looking to replace? Real traction will come when the price of real food and water is denominated in bitcoin.
Fiat money on the other hand is obviously backed by the government. The distinct advantage of fiat (which gives it its value) is that you can use that to eliminate taxation liabilities to the government - try paying off you tax bill in bitcoin, real estate, or oil (all have to be converted to AUD) to prevent going to jail (there are some interesting cases in Europe where people have settled tax bills by donating art to the state, but that is for all intent and purposes a small subset). Of course, fiat then is only as strong as the state issuing the fiat, and the real goods and services in the economy backing the fiat, but that is a different discussion topic.
So the issues for Bitcoin in my mind are
(i) adoption rate (perhaps we will get here)
(ii) regulation - this is the biggest issue - all it takes is for government to strap some restrictions (and why would it not if they are losing control of the money supply?) - and Bitcoin (and crypto currencies for that matter) is done for. There may be a small underground economy that continues to use Bitcoin (and you may argue that that is the purpose - a currency w/o government interference), that is all well and good, but where are you going to get your dollars (or fiat currency) to pay the government when the time comes? And will you be able to buy a large enough set of real goods and services on your bitcoin to feed yourself and your family?
Or put another way - I will offer to pay your salary in bitcoin, with the caveat that you cannot convert that to fiat currency. Would you do it?
Isn't it interesting that the value of Bitcoin is still denominated in USD - i.e. a fiat currency that it is looking to replace? Real traction will come when the price of real food and water is denominated in bitcoin.
