Paul Krugman in today's NYT makes a great point about cryptocurrencies and gold. After saying he really sees no point in Bitcoin, et al, comparing them to a financial bubble or a long running Ponzi scheme, Krugman says they closely resemble gold's allure to investors. You can't use either to buy a car, pay your bills or otherwise make normal financial transactions.
I think there is a fundamental difference between gold and the various cryptocurrencies. Aside from its former use as the backer of government issued paper money, gold has always had a fascination to humans. It is shiny. It doesn't tarnish and it can easily be worked into fine jewelry to adorn both men and women.
Bitcoin and its fellows are like collectors' items such as baseball cards. Their fungibility depends on people valuing them in a similar way. Right now, a Mickey Mantle or Willie Mays rookie card can be worth thousands of dollars to the right buyer. The same goes for bitcoin. To sell your baseball card you must find someone who values it in the same way you do. The same is true for cryptocurrencies, which is why they will never attain the status of government backed money. That is, unless a government chooses to assign a value to bitcoin and back it like regular money. Not going to happen, since any government already has its own currency. Meanwhile, there is no intrinsic value in cryptocurrency as there is with gold. The bubble may not have fully inflated yet, but as with tulipmania in the 17th century, the reckoning is liable to come hard and fast when it does happen.
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