BitCoin is a medium of exchange by agreement of its voluntary community of users. It is valued in large part based on the presumption of future scarcity. All BitCoins are new, and like shares of stock the user community accepts the fiction that all BitCoins are more or less equal in price to the price of the last transaction. This works for stocks. It seems to work for BitCoins through such trading systems as Mt. Gox and BitCoinica.
The benefits for BitCoin participants are several:
- BitCoins accrue to miner participants until there are no more. This is “free money” of a sort. The investment is time and computer resources.
- BitCoin miners believe that their BitCoins will increase in value.
- BitCoins can be used to pay for some items.
- BitCoins can be used with a fair degree of anonymity, but without any guarantee.