According to Underground Economist Sean Lynch, Bitcoin will never devalue to absolute worthlessness because of its extreme liquidity relative to other currencies – it will always bounce back eventually.
Most currencies have two decimal places reserved for ‘cents’. Financial institutions generally use four decimal places for accuracy and then round to two places when printing statements. Bitcoin supports a whopping eight decimal places, so if the value shoots up to a thousand US Dollars per Bitcoin you can still buy a loaf of bread with a fraction of a Bitcoin.
The currency could quite possibly be very unstable for many years to come but it will certainly stabilise in the long term. Bitcoin, or some other cryptocurrency, may even become the de facto comparison currency, as the US Dollar is today. This removes a huge amount of potential risk with investing in Bitcoin.
The US Dollar is vulnerable in comparison; had the US Federal Reserve Bank not stepped in to rescue it in 2008, the Dollar would be worth near nothing right now.
However, the US Federal Reserve has two major flaws that are not sufficiently declared in my opinion. Firstly, if the Fed suddenly disappears, the US Dollar is at great risk of falling into worthlessness. The scare of not having an institution backing the US Dollar could cause it to spiral into diminishing worth.
Bringing down the Federal Reserve is not as easy as dropping a nuke on the building, thanks to computer networks and off-site backups, but this strength is also their weakness. As you read this, the decentralised Internet hacktivist group known as Anonymous is undertaking an effort to hack the Federal Reserve out of existence.
The reason Anonymous is doing this brings us to the second flaw in the Federal Reserve Bank. Should control of the Federal Reserve fall into the “wrong hands” they would not only have control over the US Dollar, but through it, control of every other currency in the world. It was demonstrated in the 2008 financial crisis that what happens to the US Dollar affects every other currency.
Thanks to decentralised, peer-2-peer technologies such as TCP/IP, Bittorrent, and of course Bitcoin, humanity will never regress below a base level of trade and interdependence in the way we did during the fall of the Roman Empire.
As long as computer networking schematics exist, computing networks will exist; and as long as the networks exist, the schematics will exist.
It’s a safety net which could be thought of as a save point in the evolution of society. It’s not 100% fool proof, but it’s an important level of stability and is an indication of the strength of decentralisation.
Bitcoin capitalises on that strength.