> The problem with Bitcoin though is it isn't a currency.

You mean it isn't a fiat currency. All that means is that Bitcoin's value isn't backed by a government, but is instead derived purely from the ability for someone to spend it.

> If it was a currency, if $1 USD was paid for a Bitcoin, that USD would be destroyed, not pocketed.

What? Since when? If you spend USD to buy EUR, the person on the other side of the transaction is giving you EUR and pocketing the USD. No value is destroyed.

Bitcoin still doesn't fit the definition of currency on its own. The fact that Bitcoin has a value is more because of speculation. People early on mined it and therefore own larger amounts for relatively little effort or cost. Now it's worth more and they have reason to perpetuate its growth. Investors now have joined gamble and speculating by putting in $100s of millions of real cash in hopes they can help stabilize it and make their current Bitcoin worth 10x to 100x more just by getting more people to adopt it. There are some people who accept Bitcoin in exchange for services, and more accepting it for goods, however it's those base Bitcoins that were mined that are the problem.

Re: USD for EUR - As you mentioned above those are at set rates between fiat currencies, and therefore there is practical reasons for the currency having a value. Bitcoin's value is mostly dependant on demand, which is being pumped up and perpetuated by investors and those with vested interest in the ecosystem including those who own Bitcoin and larger amounts of Bitcoin - who all want the value to go up 10x - 100x.

Lots of places take Bitcoin as a method of payment--therefore, it's a currency. Sure, its exchange rate is volatile due to speculation, and its future is relatively unknown right now, but that doesn't mean it's not a currency at all. Bitcoin has real value as a form of digital cash, and lots of people are using it that way.

> Bitcoin's value is mostly dependant on demand, which is being pumped up and perpetuated by investors and those with vested interest in the ecosystem including those who own Bitcoin and larger amounts of Bitcoin - who all want the value to go up 10x - 100x.

You're absolutely right: since Bitcoins aren't backed by anything real, their value is purely based on demand. But I disagree with the notion that speculation is the only reason they have any demand. Plenty of people are using Bitcoin in the real world, e.g. to make purchases anonymously or to easily send money overseas.

In real economics, the word "fiat" simply means "not backed". So Bitcoin is "fiat", and to a considerably greater degree than governments (who can declare a currency legal tender in a given geographical area).

The special Bitcoin usage of "fiat" stems from goldbug pamphlets from a century ago. But it is a misuse of the word.

I don't understand your comment. When you buy or sell currency, the original currency is not destroyed. Or am I wrong?

There is no such direct causality. The value of a currency (in the sense of exchange rates and prices of goods) is determined by supply and demand, and nothing else.

People with the mindset of "USD government printing money => value of USD goes down" have been predicting QE-based inflation for years, and they were wrong. When you drop this incorrect mindset and adopt the correct one (supply and demand!) it's easy to see why: QE did not make people richer, so it did not lead to the kind of significant increase of demand that would be required to trigger a rise in inflation.

This is not quite how it works, despite the claims of Austrian economics (which doesn't actually work).

how would that $1 be destroyed?

i think you dont understand bitcoin or money at all. that is not meant to be dismissive, i think a lot of people dont understand how money creation actually works, just that it does. for some reason people think bitcoin is so strange that they could not use it but if they stopped to think about how fiat currencies work they would be equally confused.

so the first thing you say, about the US government printing money and the existing money becoming worth less, this is known as inflation.

Yes mining bitcoin is similar to printing money, however you cannot 'print' bitcoin infinitely as you can with US dollars. This is why bitcoin is known as a deflationary currency and many people think this is a negative aspect to its adoption, but if there was no artificial scarcity i.e you could make as many bitcoins as you wanted when you wanted then there would be no value to them whatsoever.

>currency gets destroyed buy (sic) governments Do you mean by inflation or do you mean they are putting it all in a furnace somewhere?

They destroy old used notes yes, but that doesnt take it out of circulation. if they burn $100million then they have $100million in fresh notes to go back out into circulation. That money comes from banks, those banks are holding it as deposits for customers. If the government 'destroyed' it then those people would not have any money in their bank accounts.

Far from destroying money or removing it from circulation many governments have been printing money like nobodys business over the last half a decade. Google Quantitive Easing to see the offical description of it and what they hope to achieve as a result.

Governments certainly do take more money (or money-like instruments) out of circulation than they're putting in under some circumstances, for equal and opposite reasons to quantitative easing. It's rare, because normally the economy is growing (at what you assume is a sustainable rate) and so you want the currency base to grow as well. But I believe the US took at least a little out of circulation in an effort to damp the "irrational exuberance" of 2001.