There are still a lot of confusion and controversies around cryptocurrencies in general. So I think it's better to lay some foundation first. Please feel free to skip ahead (as in, of course). This is meant to be a conceptual discussion, not a technical primer. Bitcoin Wiki is perhaps the most reliable source of technical information in human languages. If you feel like diving straight into the belly of the beast, check out Bitcoin Github.

Cryptocurrencies Are Money

Money is a notational device people use to exchange goods and services. If two kids agree to use a particular type/flavor of candy to exchange access to toys, then that particular type/flavor of candy is the currency to them, at that time. If a million people agree to use something, anything, to exchange stuff on an ongoing basis, then that something is as real and solid a currency as any.

Fiat currencies sanctioned by governments and supposedly backed by governments' credit, is but a relatively recent experiment, with repeated, disastrous, and ongoing failures, in the history of money. There is no reason to believe it's the only viable form of money, nor the best one. It will certainly not be the last one unless humanity ends soon.

Contrary to the common misconception, money is not s store for value. Assets are. Yes, making and saving money is necessary. But this is a very misleading abbreviation. Money is only a notational device. You don't invest in money. You use the money to invest in assets.

Cryptocurrencies Are Ideal Money

Cryptocurrencies are not only money, but ideal money, for the following reasons:

1. They have zero intrinsic value.
2. They require zero intrinsic cost for storage, transport, and transfer.
3. They are practically indestructible.
4. They are practically impossible to counterfeit.

I'll expand on the above for the rest of this section.

Currencies before the invention of paper money were all commodities, from shells to gold nuggets to silver dollars. They have intrinsic value, which inevitably changes due to factors having little or nothing to do with their function as money, e.g., new industrial application of silver. There may be disruptive changes in their supply due to advancement in technology, e.g., the discovery of a new coast full of shells, or a mineable asteroid rich in gold. And they are expensive to store, transport, and transfer. Look at a gold vault -- what a ridiculously inefficient idea.

Fiat currency was a breakthrough in the evolution of money. It had little intrinsic value. It's much cheaper to store, transport, and transfer. But it's easily destructible and relatively easy to counterfeit. And, whatever little intrinsic value they have, the problem is laid bare by the copper pennies in the US and the billion-dollar notes in Zimbabwe. As fiat currencies inevitably inflate, controlled or otherwise, a non-zero intrinsic value will present problems sooner or later.

If you're not familiar with cryptocurrencies, yes, they're indestructible. Whatever medium/wallets you use to store them are. But the true storage is in the blockchain, stored separately among millions of nodes around the world. As long as you retain the private key, your dog does not pose a danger to your thumb drive wallet. You can easily get another wallet and reclaim your balance.

Yes, it costs electricity to mine cryptocurrencies. Currently, for bitcoin it's more expensive than the market value at normal electricity rates in most parts of the world except for China which, as the running joke there goes, is beyond the jurisdiction of logic, math, physics, even economics. But this is the cost of production, not intrinsic value.

Bitcoin Is The Best Cryptocurrency

The world can only take a finite number of cryptocurrencies. The number could be high if governments adopt the framework to replace the current fiat format. But, in its current decentralized form, I doubt more than two or three could ever flourish; it will remain a niche in the world of currencies, serving a small but necessary part of the demand.

Bitcoin, being the first and most well-known, widely adopted cryptocurrency, will surely remain the top choice for the foreseeable future. If there were only be one successful cryptocurrency, it'd have to be bitcoin. On the other extreme, ICOs make CDO-squared, the crown jewel of the 2007 financial innovation disaster, look like grandpa's shoebox; you invest angel money to some nobody you never heard of and having nothing beyond a stack of powerpoint slides, and get hot air in return. I could not bring myself to recommending ICOs to my mortal enemy. As to the second-tier contenders such as bitcoin cash and ethereum, we'll have to let the market decide. A few of these could very well survive.

Satoshi Nakamoto, the purported creator of bitcoin, designed all aspects of bitcoin so perfectly that it ought to go down history as one of the most brilliant inventions ever. It's certainly one the most spectacular social experiments, even if it ultimately fails. The mystery about his/her/their identity only adds to the fascination. I don't think it's a stretch to say revolutionizing the format of currency is more profound than the internet itself. It has already begun to force changes in global finance and government policy. And this is only the beginning. For example, blockchain technology will no doubt revolutionize a big portion of trade/transaction settlements, clearing, and probably more.

That said, there are some limitations or deficiencies in bitcoin design. It's entirely possible, even likely, that at some point in the future some other form of cryptocurrency will take over. One of the potential deficiencies is transaction fee. Transactions take digital storage space in the blockchain, which is the real estate for bitcoins. Even though the transaction fee is designed to incentivize miners to keep mining even after all bitcoins are mined, currently expected to be around year 2040, it will cost more and more electricity to develop transaction real estate. Unless there's a dramatic decrease in electricity rates (think fusion) and/or increase in floating point computation (think quantum computing), the transaction fee in fiat terms will likely continue increasing. Selling coffee for bitcoins, as one early, incredibly visionary or lucky Manhattan coffee shop owner did circa 2012 AD, will be forever history. It doesn't make economic sense for anyone to buy or sell coffee in bitcoins today because the transaction cost is too high.

Bigger transaction real estate is one of the design goals for the bitcoin-cash fork on 7/20/2017. Discussions about improvements and changes will probably never cease, most of which never get anywhere. It's the ultimate democratic, functional geek anarchy but I'll try to contain my enthusiasm on this part. It's still in its infancy by all measures.

Bitcoin Is Probably In A Bubble Phase

Below is the weekly chart for BTCUSD since August, 2011, in log scale.

(Click on image to enlarge)

It started on an exponential growth, then a higher rate of exponential growth as 2013 rolled in. It broke this higher exponential support in July, 2014, then the original exponential support at the beginning of 2015. It's established a lower exponential trendline since. But it's been on a screaming, nose-bleeding, ever higher rate of exponential growth since March, 2017. This cannot possibly last.

When will this super-exponential bubble burst?

If I could answer this question, I wouldn't be writing this here today.

Besides the technicals, here are a few fundamental reasons not to join the party right now except for perhaps intraday traders.

Mining of new bitcoins over the last two or three years, maybe more, has been highly concentrated in a few large operations in China. By design, bitcoins ownership is anonymous. Data on wallets, publicly available on the blockchain, has little relevance on the real world ownership because of exchange wallets and theoretically infinite number of wallets owned by a single physical entity. Many of the early mined bitcoins are likely lost forever; who would pay much attention when one bitcoins is worth a cup of mediocre coffee? But the newly minted bitcoiin owners are clearly concentrated to a small population (as a curiosity, Chinese miners could afford to do it because they have access to many small, illegal generators who are forbidden to sell their electricity to the grid -- as I said, China is beyond the jurisdiction of logic, math, physics, even economics). This poses an inherent, structural risk to the entire regime.

Regulation and control over the newly minted Chinese bitcoin overloads are practically non-existent. Manipulation is guaranteed; I just don't know how specifically. Note that this includes overt, legal types of manipulation. For example, Bitmain, the biggest miner, mining pool operator, and mining equipment manufacturer all in one, has been making a very public push for bitcoin-cash. If you want to burst that bubble, good luck to you. But if they some day, somehow, decide to end the push, good luck to many many more.

There's an old Chinese saying and it's not even from Confucius: the tallest tree in a forest gets destroyed first by hurricane. OK, typhoon, but let's not get bogged down by technicalities. The higher bitcoin goes, the more attention and fear it gathers. The fact that the genie is out of the bottle has never stopped governments from trying to stuff it back in, and it will not this time. Even if they are not successful, such efforts will surely be enough to generate big scare every now and then.

I must clarify that in this section I quietly switched the context, treating bitcoin as a financial asset instead of money. It's both. I focused on the money nature in previous sections only to make the case for the money aspect. The asset nature is hardly controversial; the question is only on what type of investment opportunity it is as a financial asset.

Bitcoin Will Continue Exponential Appreciation

If bitcoin were to crash today, according to the chart above, there should be some support at $4700, then probably stronger support at $2000. If you bought at $5000, this sucks. But if you sold coffee for 1 bitcoin a cup in 2012, this is still an unbelievably insane return.

Could it break the current low exponential trendline? Of course. But it will still be exponential. Here's why.

1. On several occasions in recent months, when there were heightened political or international risks (North Korea nuclear hyperbole, Saudi royal purge, Trump impeachment excitement), bitcoin has consistently established itself as a risk-off asset, joining the ranks of gold, US Dollar, Swiss Francs, Japanese Yen, and US treasury bonds. This is a spectacular feat for something created by a democratic, decentralized geek anarchy with zero intrinsic value and negative government backing. Recent announcements of bitcoin futures trading at CME and CBOE, set to commence on 12/18 and 12/10, respectively, are just the latest confirmation of bitcoin's continuing emergence into mainstream.
2. Bitcoin is arguably the most secure form of money and financial asset. Tampering with transaction history requires simultaneously hacking more than half of all bitcoin nodes with perfect precision and consistency, within perhaps no more than a millisecond. Some aliens, maybe, but not earthlings. Not yet. As a side node, running a full-node bitcoin client is a community service that benefits every bitcoin user, yourself included -- the more the nodes, the more secure the network. This is truly safety in numbers. The cost of this valuable community service is currently a little over 100 GB of disk space. Your grandpa's laptop has more than that.
3. The total supply of bitcoins is mathematically limited to, guaranteed by the number of nodes in the network, 21 million, including unknowable number of forever lost ones. As a currency, this makes bitcoin severely deflationary, therefore unlikely to ever be adopted as an official currency by any government. But as an asset, limited, predefined supply is the best assurance. The cosmos holds an indefinite but definitely vast supply of all commodities, including gold. But there can never be more than 21 million bitcoins in all galaxies.
4. Now onto the demand side. Besides the convenience in storage, transport, and transfer, bitcoin offers ultimate anonymity. This is why so far, unfortunately, bitcoin has been associated mostly with the black/grey markets -- ransomware, illicit trades, money laundering. But let's put aside the morality aspect and look at it strictly as a demand analysis for a moment. Bitcoin has become an insurance policy for anyone with valuable assets and/or information to protect. The amount maybe trivial for the collective reluctant insurance buyers. But it's quite significant considering the 21 million hard limit. And these insurance buyer can never sell. It's bad, terrible, but a bad, terrible reality. And this will not change. It will also be a top choice for any entity, be it individuals, institutions, or governments, to get around any sanctions. Again, whether you agree with the sanctions is beside the point.
5. OK, let's now look at the moral aspect. Does the above mean bitcoins should be banned? No. As a matter of first principle in the US and a few other countries, citizens are entitled to anonymity. The question of "what do you have to hide" is never a legitimate question in the public arena. This is a direct result of the "innocent until proven guilty" principle. It is the governments' job to figure out how to reduce illicit activities involving bitcoin. It is our right to use it. As adoption widens and the psychological barrier lowers, the legitimate part of demand will only increase.
6. Predefined, known limit in supply + increasing demand = appreciation. But why does it have to exponential? Why not linear, squared, or logarithmic? Admittedly, the use of term "exponential" is less than rigorous. However, considering how early we are in this revolutionary invention, "exponential" is quite a modest term. It's not a sure thing, of course; otherwise it would have gone up to the assured upper limit, sans risk-free discount factor, as soon as the market perceives it as assured.

Bitcoin Is Still Highly Speculative

Various forms of regulation and taxation are inevitable, possibly covering every aspect of bitcoin, from mining, trading, to transfer.

Outright ban by some governments, or rather the threat thereof, is a real risk. This will probably depend on, among other things, the type and scale of illicit trades/activities occurring in bitcoin. However, the risk is limited by the global and anonymous nature of bitcoin, which in turn forces regulators to think twice before lashing out draconian restrictions. In practice, anything short of a global coordinated ban would be futile. The barrier for such an act is quite high. I mean, get real, look at climate treaties. This political risk is limited and psychological, not terminal.

The weakest link in the blockchain (pun intended) is the exchanges. The blockchain is decentralized. But exchanges are by definition, centralized operations, at least someone comes up with a better idea. Any and all centralized operation is susceptible to hacking and failure, e.g., Mt Gox. On the other hand, humanity has operated many exchanges for a long time. Theoretically, it is entirely plausible for NYSE/CBOE to crash and/or be hacked. Wait, they have. But the system survived. Bitcoin survived Mt. Gox. It will survive many more.

I have been an enthusiastic supporter of bitcoin since the early days. But I would caution anyone putting a significant portion of their nest egg into it. I do, however, encourage everyone to be part of it. It is, after all, the greatest monetary and financial innovation of modern times, and one of the greatest social experiments ever. Hop on (a little) and enjoy the wild ride!

Imagine a future when bitcoin, or some other form of democratic, decentralized money, controlled by and only by the global citizen collective, becomes the universal benchmark against which all fiat money is measured. It's the universal benchmark for fiat inflation and government credit.This would be the ultimate check-and-balance on government power, be it Uncle Mugabe, Uncle Sam, or Nephew Kim Jong Un.

Basic Security Precautions on Bitcoin

While there're vast resources of information regarding bitcoin easily accessible on the internet, I'll list a few very basic security precautions here for readers' convenience.

• Do not give anyone access to your private key unless you intend to surrender control of the entire associated balance. A wallet has a private key, a receiving address, and a sending address. The receiving address can be openly shared; it's for others to send you bitcoins. The sending address should not be shared unless necessary. Think of bitcoin this way: The network of bitcoin nodes is the vault. Your wallet is just a window to access your bitcoins. You can have as many windows as you want. The private key is your pin, fingerprints, iris, and face all in one.
• Encrypt your wallet if it's on a device regularly online or may be easily lost, e.g., phone, and never forget the passphrase for decrypting your wallet. If you encrypt your wallet and forget the passphrase, you‘ll lose it forever.
• Never store any significant amount in your online or mobile wallets. Online wallets should only be used for short-term trading convenience. Mobile wallets are for buying coffee, which is a dumb idea at least for bitcoins.
• Write down your private key on a piece of paper or stone tablet, put it into your fire-proof safety box or bank safe deposit box. Do not store your private key electronically except the wallet itself. Electronic media do not last and can be hacked. So-called  hardware/cold wallets are a scam for people scared of anything digital.
• As long as you encrypt your wallet with a strong passphrase, you should make frequent backups, preferably spread across multiple devices. But if you don't encrypt or your passphrase is 1234, every backup