The reference to "fixed supply" equivocates to "fixed prices" in a growing economy, i.e. one dollar has equivalent purchasing power today or a hundred years from now.
[1] http://www.minneapolisfed.org/research/sr/sr218.pdf "Money is Memory" (1996)
It's a way to convey messages, but the messages represent value in the same way that paper money does. If bitcoins can be exchanged for goods and services, then they represent the value of those goods and services, just like paper money.
An electronic message describing a transaction involving dollars, or euros, or some other wealth representation, is just a message about a transaction. But a bitcoin is the wealth representation -- it doesn't require, or refer to, another medium of exchange.
Your argument tries to deny the identity of bitcoins as currency, but that isn't so -- they're currency.
Bitcoin ties a number to a script. By providing a cryptographic key for that script you can add that number with some other numbers from other scripts and then divide that value into new scripts (throwing away the extra). Bitcoin programs often generate new keys for just about every transaction (so it's hard to link them together).
These scripts are transactions in waiting. They can't complete until someone provides the key that decrypts them, and then puts them in another transaction. Bitcoin is deniable, no one can prove you have the key to some scripts (since you can generate the keys from something in your memory, as opposed to using the easier to use encrypted wallets), and if they tried to, it would be equivalent to a thought crime.
Now, as a legit business, you would be required to collect tax for your services (for sales tax), but you already have to do that, which is how it should be.
No, my argument only assumes that bitcoins represent symbolic value, i.e. are "currency".
I doubt that, since paper money is guaranteed by law to at least be accepted by the government for tax payments. There are no guarantees at all with Bitcoin.
Fair enough. I think over time that will change -- either the bitcoin idea will evaporate, or they will come to be accepted by all sectors of the economy.
>The fact that it's used as a form of currency is just an interpretation of what Bitcoin is.
Gold star for your comment.
Many of the other interpretations are not regulated as currency and arguably should not be.
I can understand why people are excited about it being used as a simulation for something financial institutions would want to regulate. But the real potential is in the technology, and the innovation potential that comes out of it.
Recent regulatory moves may lead to attempts to try to kill bitcoin:
As the mining reward rapidly dwindles relative to the cost of electricity, there is a huge incentive to reduce the electricity consumption while maintaining the security of the network. At what point does this reach an equilibrium depends largely on the market value of bitcoin. So it should be a somewhat fixed cost in proportion to the adoption of bitcoin, just like the fixed costs of any currency (e.g. minting coins, mining gold, etc.).
Mining rewards will diminish over time so it will no longer be feasible to mine as much as in the 'gold rush' phase. So the carbon footprint will not be growing all the time.
In fact, there's a race to make the current hardware to become more power efficient. If you live in a sunny place, you could probably pick up 240 Watt solar panels for around $300, a connect a Raspberry pi @ 3.5 watts, then a 10 GH/s Erupter blade @ 75 watts.
Current estimated power consumption of the Bitcoin network: 1.67 Mega watts. (6,028.57 megawatt hours http://blockchain.info/stats).
Typical power generated by a single Boeing 747: 140 Mega Watts. There's hundreds of these flying right now, yet no-one is appalled about the carbon footprint. http://en.wikipedia.org/wiki/Orders_of_magnitude_(power)
However, The fact that it's used as a form of currency is just an interpretation of what Bitcoin is. There can be other interpretations for what bitcoin-type system can be used for, for example Namecoin is used for name registrations. The judge declared that bitcoin is money by making an interpretation.
If anything, Bitcoin is just software. It will be very difficult to regulate.
1. Software using encryption is protected speech (http://en.wikipedia.org/wiki/Bernstein_v._United_States). Regulating bitcoin as in bitcoin the software would be a form of censorship.
2. Bitcoin uses many of the standard principles of cryptography we already use in e-commerce. Banning cryptography would have enormous consequences for the economy of the internet in general.
3. Banning or regulating p2p would cause an uproar.
4. If buying bitcoins in exchange for dollars is really exchanging a string of bits for money, then if this is banned or regulated, would it also ban buying software or other digital goods for money?
5. The regulations can't be too broad, but can't be too narrow. Would the laws restrict only bitcoin as a currency or other applications of bitcoin as well? If too broad, then they will unintentionally restrict other uses of bitcoin too. If too narrow, a new system will pop up again.