Federal Reserve Notes have value because other people think they do.
/johnny
Right. We have a currency backed by nothing but the flimsy concept of confidence. What could possibly go wrong? lol
Print up some of your own and you will definitely believe they have value when they throw your sorry ass in jail!
Gold has intrinsic value because it can be used to construct other things, such as jewelry and electronics. Most of its value, however, is non-intrinsic value, based on current supply and demand.
If you think that gold is an inherently safe investment, you are deluding yourself. Any of the countries with gold deposits or reserves can flood the market at any time (currently, the world's five biggest gold producers are China, Australia, U.S., Russia and South Africa in that order). Alternatively, merely the perception that they might can drive down demand.
Bitcoins and U.S. paper dollars have no intrinsic value. The difference is that the only value that Bitcoins have is supply and demand. U.S. paper dollars are backed by the full faith and credit of the U.S. Yes, that does not mean nearly as much as it used to. But it still means that there is a large nation with the power to tax millions of productive citizens and a vested interest in propping up the value of its currency. The only ones with a vested interest in propping up the value of Bitcoins are people who own Bitcoins and who have not yet sold them.
Bitcoins are at the tail end of classic bubble, just like tulip bulbs in the 1600s and dot.com stocks in the early 2000s. Demand is being driven by the fact that the price has gone way up in a short amount of time which feeds more demand which continues to drive up the price. At some point, the bubble will burst and the price will crash.
If you buy Bitcoins today at $1,000 will you make any money? Maybe, maybe not. You can probably get the same odds betting red or black on a Roulette table.
Will you make as much money as the people who bought last year? It is possible, but almost certainly not. The big money makers in any bubble are the ones who bought before anyone else had heard of it.
Will you lose your investment? Probably, but maybe not. Anyone who claims to be able to predict in advance when any bubble will crash is lying or delusional.