And today, not only do we not send gold over the Internet to buy things, we don't even send paper US dollars. Instead, banking systems send electronic messages to one another, indicating a transaction has occurred and that two or more accounts should be modified in a certain way.
Take this second thing, get rid of actual physical gold or actual paper dollars, and you basically have what Bitcoin is. Pure electronic, pure virtual, and not backed by any single bank or national government. Paper was to gold somewhat like Bitcoin is to paper. A step further in the same direction, just more extreme, with a couple of cool additional features and potentially scary quirks. (Counter: arguably the US Federal government and world banking system has some "scary quirks" but we're effectively forced to accept them.)
Yes, but my biggest question is, why will anyone start using it?
Gold was valuable before it was money. Bitcoin is not.
These first movers that are paying real money for bitcoin, seem to only be doing so because they think other people will use it in the future. There's a name for that, it's called a bubble.
To have a sustainable currency, the medium of exchange should be valuable, even if no one else is using it as money.
Fair point. I understand. However, some people today are actually accepting Bitcoin as a method of payment. Not everywhere. Amazon doesn't accept it. Your local water utility doesn't take it. But somebody takes it. And then there are ways of converting Bitcoins back into say US dollars. And then you can pay Amazon and your water utility in dollars. And so on. It is happening already.
In prisons, cigarettes are often used as a form of accepted currency. Weird but, as you said, cigarettes have functional value before and beyond their arbitrary assigned role as currency. Now take these little pieces of green-ish papers in my wallet, with the funny markings on it. I heard a rumor that others will take it as a unit of payment, even though in reality, it's just a little piece of paper with some markings on it. It's actual functional value could maybe be that of a piece of tissue paper to wipe my ass. Except it's not very good at it. So I wouldn't even use it for that. The US government says, "Forsooth and yeah verily, these pieces of paper shall be the currency we use!" and couple that with a promise to accept it themselves as a unit of payment, and therefore, poof, it now has value.
Last point, if you parachute onto a tiny uncharted Pacific island and contact a lost tribe there, and offer them $20 USD for their food, they will most likely say, "Sorry, we only take melons and womenfolk as currency. We don't take US dollars, and we don't take American Express." Lesson: what is accepted as currency varies by individual and culture and time period. It's totally arbitrary.
Take this second thing, get rid of actual physical gold or actual paper dollars, and you basically have what Bitcoin is. Pure electronic, pure virtual, and not backed by any single bank or national government. Paper was to gold somewhat like Bitcoin is to paper. A step further in the same direction, just more extreme, with a couple of cool additional features and potentially scary quirks. (Counter: arguably the US Federal government and world banking system has some "scary quirks" but we're effectively forced to accept them.)