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Comment by iheartmemcache | Hacker News Reader

I read the wiki on BitCoin and I still don't understand how the BitCoin forex market is made. Usually currencies are based on national GDP and that sort of thing, but I haven't the faintest as to what controls the strength of this currency. Can someone enlighten me?

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Floated currencies are NOT based on national GDP and that sort of thing. They are based on the price that someone is willing to pay and someone is willing to sell. I.e. if someone will spend 1 AUD to buy 1 USD, and someone is willing to sell 1 USD for 1 AUD then the price of 1 USD is 1 AUD. This is completely unrelated to GDP (although GDP might be used as a marker of confidence that indicates security of currency investment).

It's called the Subjective Theory of Value. That's what determines every market price. Learn it.

I think I read somewhere that the value is derived from the amount of electricity and hardware required to mine for a bitcoin.

Not really, but to make MORE bitcoins yourself you would need to expend a fair amount computing power that chews up a fair amount of electricity. Here's a chart showing that possibly as the price rises, the amount of computing power (and thus electricity) rises to match. http://www.bitcoin.org/smf/index.php?topic=2399.msg42269#msg...

mobiles take pennies a day of electricity to power. mobiles are computing and cheap to power.

That's been tried! You can run a slightly modified version of bitcoin on a Nokia N900, and it will mine as well. The N900 performs at about a 150 Khash/second level. http://www.bitcoin.org/smf/index.php?topic=2125.msg27918#msg... For comparison, one single ATI Radeon HD 5970 pumps out about 600,000 Khash/second, or the equivalent of 4,000 N900s.

price of bitcoins depends on amount of bitcoins in circulation and number of people using it.

have you read the blog on Technical Analysis for bitcoin? You might find some good info there: http://mtgox.com/blog

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