Very simply, the more users are in Bitcoin the more vendors there will be who accept BitCoin. The more goods and services can be bought in Bitcoin during the relatively smooth periods the greater the proportion of people who like to have the currency for currency purposes, because it can be used to buy goods and services. There will be 'induced traffic', a network effect - more roads into Bitcoin will pop up because there's an incentive to start an exchange (you make money off of each transaction, after all!). More roads = greater demand for more BitCoin. It is the fact that some buying power of BitCoin still exists even given the boom/bust cycles that will support the currency in the long run, and that this buying power will on average be higher on every contraction than the previous contraction. The fact that an anonymous, decentralized currency that prevents double-spending is desirable (i.e. has inherent value) to a lot of people will also support this buying power, and support the currency in the long run.
Those were all companies which sold at a billion dollars or many billions of dollars and have sense been shut down or are worth a tiny fraction of that amount today.
And those are just examples from the last 20 years, we could go back to nearly countless examples of other speculative bubbles going back centuries.
So happy to have been there for the through the 90's.
The same thing could very well happen with BitCoin. Someone mentioned forking BitCoin and tweaking the algorithm to remove the artificial ceiling of 21 million units, and replace it with an algorithm which monitors all the transactions taking pace and adjusts monetary policy in response to them, in order to produce a steady inflation rate. Such a currency might very well be more desirable than one with deflationary tendencies.
Bottom line - unless someone figures out a way to replace BitCoin with something better, I see no reason to believe BitCoin is going away anytime soon.
There is no guarantee that BTC will survive. Larger currencies have fallen before it.
Do you want to see real political and economic change in your lifetime? Campaign finance reform: not the answer. Term limits: not the answer. Voting Libertarian: waste of time. "Balance the budget": too little, too late. Political activism: occupy my asshole.
The only solution: flip societal power structures upside down, and let us geeks take the reigns.
Now, you may argue that everything is Hunky Dory like tptacky, but I'd beg to differ. We need real social and economic change, right now, to ensure our continued prosperity into the forseeable future, and we're just not getting it from Washington. Make excuses or justify a Big Brother Statist tyranny driven by propaganda and ignorance all you want, ultimately none of that shit works long term and meanwhile we have a lot less freedom.
Let's play a different game now ...
Do you really want to change the system? Write blogs. Write books. Start a business. Do investigative journalism. Speak at rallies. Work on a campaign. Run for mayor. Run for congress.
There are a million ways to empower yourself and others, using bitcoin isn't any of them.
Imagining that bitcoin is the answer is about as naive as imagining that hitting "like" on your facebook feed is going to magically feed some starving child somewhere.
But some decentralized digital coin in some form seems like a good idea. The concept of a transaction log that tracks your money from start to finish is also interesting.
Bitcoin will remain a pyramid scheme due to its deflationary nature. But maybe a future coin can be invented that solves the problems with bitcoin?
I think the example from fiction, Cryptonomicon, is actually very helpful, because they understood they needed a big honking pile of gold to kick-start the legitimacy of the whole thing, if it's just free floating then it too easily becomes a pyramid scheme and you have people who just do currency exchanges but who never actually use the new currency as money. You want people to hold onto money because it's money, not because they think the money can go up in value, that's precisely what you don't want.
Unfortunately, there are now a lot of people in the bitcoin world who do what the exchange rate of bitcoins to go up, because they view bitcoin's as an investment and they still view dollars as "real money". And in most ways they aren't wrong. But they're also making it harder for anyone else to use bitcoins just as money.
You theorize that the boom/bust swings will diminish in intensity until eventually bitcoin becomes stable.
Others theorize that the boom/bust cycles will grow in severity until eventually everyone just gives up on bitcoin.
So far there's very little evidence for the stability option and a lot of evidence (and economic theory) for the speculative bubble theory.
Do you have any evidence of the "market share" of bitcoin users who are in the market for purely currency reasons growing relative to that of those who are in the market for purely speculative reasons? From everything I can find out it seems as though the reverse is true.