has value because people want to use it. They want to trade it so that they can buy things

online, buy things perhaps in private settings and so they can hold onto it because they

expect it will gain value into the future. It's a currency that has been controversial

because one of its exchanges broke down recently with the possible loss of millions of dollars

for people who thought they had bitcoins that may have been stolen. But it's also been controversial

because of legal issues, how will certain entities allow it to be traded. Will there

be tracking of bitcoins, is it something that will remain truly private in the future. Now

bitcoin over the past year has seen a lot of volatility in its value in part because

of some of these controversial events and in part because there's been more knowledge

of bitcoin and that has spurred more demand that people want to hold this thing as a currency

or perhaps as an investment. And the fact is because it's so volatile and because there's

a possibility that many other virtual currencies will enter the market and compete with bitcoin,

you have to think about it perhaps more like an investment as well as a currency than you

would with something like dollars.

Dollars, yes. If you hold on to them they lose value relative to inflation as prices

go up. But it's fairly stable and you know that you'll be able to use dollars in the

future. Bitcoin is a little riskier because we don't know exactly what the demand for

bitcoins will be in the future and there's the possibility that we will run out of new

bitcoins. There's supposed to be a finite number out there. If that number is reached

and no more bitcoins are created then essentially individuals will have the power to make monetary

policy for the entire bitcoin market by either hoarding bitcoins to contract the money supply

or pushing their bitcoins out into the market to expand it. Now this is something that we

rarely see in regular currency markets because individuals don't have that much power. But

it is something that could possibly happen in the bitcoin market in the future. Now if

you're considering buying bitcoins I think the right way to think about it is something

like investing in fine wines or expensive musical instruments or paintings. It's something

that you wouldn't want to do unless you really knew a lot about what was going on in that

market and the underlying value of these things and how it was created. So I would say bitcoin

can be a fun experiment. It can be something that you want to invest time in as well as

money but perhaps not just for the dilatants, especially because there's so much uncertainty

surrounding its value in the future.