I'd guess that the percentage of miners and speculators in the BTC market who are economically irrational in their activities is a lot higher than most of us think it is. Ergo, I don't place too much faith in any models, theories, or projections about this market that lean heavily on assumptions of rational actors.

Following from this logic, I can't justify taking a significant position in this market. The risk is enormous, and as risk goes, it's not incredibly attractive compared to alternative investment vehicles or strategies.

I was days away from entering the Bitcoin marketplace until I read that. Now I realize it's speculation propping up an artificial market price. Saying that, I would be open to hearing opinions on estimates of the true value of a Bitcoin, based on it's use cases and value proposition if anyone has any...

You can set your philosophical bar of "real value" higher than that, but there's not much light of day between that and a standard so high that it's not even theoretically reachable, at which point I stop caring about your definition of "real value" since when nothing can meet the bar, it's not a useful concept anymore. (But I do mean "not much", not "zero".) In the end, all value stores are transient on a century timescale, and I don't see that changing. Even gold hasn't had anything like a constant value. But for a putative currency, BitCoin is distinctive in its total disconnection from a concrete value.

Forget it. Nobody knows. It's a function of how big the Bitcoin economy gets, and how many Bitcoins people decide to keep in their wallets. (It's convenient to keep some amount, to save the hassle of doing conversions all the time, but the volatility of the currency may well dissuade most people from keeping large amounts.)

This isn't happening right now, and it appears to have stagnated, but that's not a problem for Bitcoin's future, because the continous mining of Bitcoin is not necessary to ensure its success.

This simply means that there has to be a bigger real economy behind Bitcoin's value, and once that economy is strong enough and catches up with Bitcoin's inflated value, the value should start rising again, and miners will appear again as it becomes profitable to mine them.

It's this difficulty that affects miners when more folks start mining. In effect they are taking the known portion of the pie (coins to be mined in a given time frame) and slicing it into many more pieces. This means that you have to work for a much longer time to have a nice large piece of pie with plenty of room for ice cream and whipped cream on top.

Only if you are marking against the current market price for bitcoins, which is not necessarily the best way to look at this.

1. Conversion Costs: Converting USD->BTC is currently very cumbersome so it may be worthwhile to go USD->Mining-Rig->BTC instead if only to avoid the hassle (as well as securing a low-cost source of BTC going forward after the Rig has paid for itself.

2. Market impact: Buying BTC on the open market will put short-term upward pressure on the price which is bad if you are trying to accumulate a position (especially in the aggregate). Mining them nets you an increasing BTC position without this impact.

3. Pricing against expected value: Many miners likely believe that the current market price is artificially low and are not 'marking' their mining efforts against this. Unless the miners are simply churning their BTC into other currency at the spot price this is entirely reasonable[1]. If/When the exchange rate goes up to the effective price the mined bitcoins will be 'worth it'.

[1] This only really holds if you don't have an alternative way to convert USD->BTC (see #1) or don't have any USD to convert. If you did you would buy the cheap BTC with cash instead of paying to mine.

However the pool didn't remain the same in the past. All the BTC press (and $10 USD rate) substantially increased the number of people mining. This sped up the discovery of bitcoins but it also gave each miner a smaller cut.

At this point the only way to mine a non-trivial amount of BTC is to invest $ in a GPU-heavy mining rig.

No, it changes in proportion to the number of blocks generated in the past week or two. This could even result in a decrease if the number of miners decrease.

The difficulty is adjusted every 2016 blocks based on the time it took to find the previous 2016 blocks. At the desired rate of one block each 10 minutes, 2016 blocks would take exactly two weeks to find. If the previous 2016 blocks took more than two weeks to find, the difficulty is reduced. If they took less than two weeks, the difficulty is increased. The change in difficulty is in proportion to the amount of time over or under two weeks the previous 2016 blocks took to find.

If tomorrow, everyone agreed with this guy and quit mining, the next difficulty adjustment would make it easier to mine Bitcoins, to keep the constant rate with a smaller pool.