7. Bitcoin devaluates 8. poor again
10. Eventually price goes back up, as it _always_ does.
11. ????
12. Profit
So my tulip investments are safe after all? That's certainly a load off my mind.
I know people keep making the comparison between bitcoin & tulips. I still don't understand why. I do understand that there is a lot of speculation driving bitcoin prices up & down right now and I also understand that BTC is experimental tech where the chance of a random disastrous event killing the whole thing is possible(like almost anything else that is new), but I also think that bitcoin, its protocol & services built around it can't be compared to a flower.
The Dutch believed tulip bulbs had value because the new breeds of tulips were beautifully designed and growing them took effort, which gave each bulb some kind of intrinsic value in terms of expended energy.
(Assuming infinite parallel universes, there's bound to be a universe where each bitcoin is the genetic code for an awe-inspiring dragon... But that's not where we live.)
The value in those bits is a cultural intangible: someone you trust tells you that there's a value beyond the practical level. This is like an invisible piece of metadata attached to the seemingly useless information.
It's the same reason why a vintage Gucci bag costs $2000 even though you can get a used leather bag for $5... Or why an Andy Warhol canvas with a dollar sign on it costs $20 million, and one painted by me can't be sold at any price.
There is no inherit reason for the transaction volume of tulips to stay strong after a burst bubble, because they have no special practical ability. Whereas cryptocurrencies generally have a practical application, like fiat, that makes people want to keep making transactions with them, even after a bubble. The practical application of Bitcoin is its low fees and ease of use for person to person international transfers.