Cryptocoins (CCs) have been compared to cash, gold, tulips, commodities, stocks...

I believe that the closest analogy is Bearer Stock Certificates (BSC), now rarely seen but once used for all three things that cryptocoins are meant to be used: wealth storage, payment for goods and services, and speculation.

Like CCs, BSCs of famous corporations (like AT&T) were anonymous, "invisible" to governments, and accepted all over the world; and had their value defined by their market, outside the control of local governments. Like CCs, BSCs could be transferred in secret. For these reasons, BSCs were particularly attractive for illegal activities, like CCs.

Like CCs, BSCs could easily give 10,000% return on the investment. Like CCs, people would "mine" for BSCs in grandpa's attic and such places.  Like CCs, BSCs could be stolen, lost, destroyed, or seized by the police (who would then probably auction them), but not if one was moderately careful. 

CCs have a few "convenience" advantages over BSCs:

  * CCs can be sent electronically, in a few minutes to hours (BSCs only could be mailed or carried in person).

  * CCs are "impossible" to forge or clone (BSCs were only as difficult to forge as paper money).

  * It is easy to tell whether a CC is legitimate (you would need some forensic skills to do that for a BSC).

  * The number of coins of a given type is guaranteed to be fixed (a company could issue more BSCs or other shares, although usually without impacting the pricing of existing ones).

On the other hand, BSCs had some advantages over CCs:

  * BSC transfers were totally private (CC transfers are necessarily public, albeit anonymous).

  * BSCs could not be stolen en masse (CCs could be stolen from millions by computer viruses).

  * Stock exchanges are heavily regulated and generally trusted (CC exchanges are the wild west). 

  * BSCs paid dividends (CCs provide no income apart from trading profits).

The last advantage is crucial, since the dividends provide a base value for the BSC that limits the amount of speculation.

Namely, the estimated value V0 of a BSC, at the current time, is a function of its expected dividends A1 during next year plus its predicted market price V1 at the end of that year.  The prediction for V1 in turn is A2 + V2, etc.  Usually one stops this recursion after a few years, say V0 = A1 + A2 + A3 + V3, when the predictions for the price V3 and for the subsequent dividends A4, A5, ... become too uncertain.  So the estimated near-term dividends A1 + A2 + A3 provide a minimum estimate for the value V0 now.

For CCs, however, the expected dividends are all zero; so the estimated value V0 of a CC now is a function of its predicted price V1, one year from now -- and little else.  (The demand for use as payment could provide a base value, but this criterion has too many unknowns - such as the predicted market share of a specific CC type and the predicted extent of CC-based banking.) For this reason the price of a CC is inherently volatile -- and there is no "safety net" of expected dividends that will prevent it from dropping to near zero.


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[quote author=niothor link=topic=178336.msg4538110#msg4538110 date=1389841406]
So , bitcoin is stable now? Or it's not working? =)))
[/quote]
On 2014-01-09 the price (MtGOX) fell from 930 to 900 (with a detour to 870) in less than 1 hour.  

On 2014-01-11 it rose from 950 to 1000 in less than 2 hours.

Think of what those [b]unpredictable[/b] swings would mean for a merchant who [b]actually[/b] accepted payments in BTC (not just in USD through a BTC-based payment service, like Overstock does).

 * He puts a 930 USD item for sale at 1 BTC, goes to bed, price drops to 900, customer buys; he loses the equivalent of 30 USD (3%).

 * He puts a 950 USD item for sale at 1 BTC, customer orders one, price goes up to 1000, invoice arrives; customer overpays the equivalent of 50 USD.

Profit margins for large retailers are around 2%. So a 3% loss (or a 3% preventive markup on the posted BTC price) would hardly be acceptable. 

For now, I bet that retailers who "accept cryptocoins" will do what Overstock does: quote the price in USD, and leave the conversion of BTC to USD, at the current price, to an exchange.

Economically, cryptocoins are quite similar to the old bearer stock certificates, which once were used for the same purposes - international payments, saving, and speculation - bypassing banks and dodging government controls.  The main difference is that cryptocoins pay no dividends.  Given this handicap, I cannot imagine how the price of any independent cryptocoin could be stabilized.