Coalfire wrote:what value can a coin have that only exists on the internet I am sort of confused
The short answer is: Whatever value the buyers and sellers establish for it via free choice and exchange. What value does a US Dollar have, and how does it get to have value? Which is more free? 98% of all US Dollars exist only in cyberspace, and they are created from thin air.
One interesting thing about Bitcoins is that the encrypted cyberspace computer algorithm that controls (creates) them will only ever permit 21 million of them to exist (although they trade in fractions of a millionth of a Bitcoin). Roughly half of the 21 million are in existence right now, and it will take several lifetimes for the remaining half to be created. Roughly one bitcoin pops into existence at present roughly every 10-15 minutes. The process is called "mining". The mining algorithm represents the solving of mathematical equations that get tougher to solve with each time someone solves the equation. Super computers that cost whopper loads of Dollars per hour to operate can barely solve them with great effort at this juncture, so mining is no longer profitable. Solve the equation and get a Bitcoin as your reward. Miners do however occasionally still get lucky I guess. Anyone can freely mine for Bitcoins via their home computer. There are however Bitcoin millionaires (cyberspace geeks) who got in on the ground floor and mined when the equations were much more simple to solve than they are today. They also got in at about 5 cents per bitcoin (whether through mining or by exchanging their local currency into Bitcoins through an exchange). The price is about $120 US Dollars per Bitcoin right now. It fluctuates, sometimes wildly. In the past few months it has been as low as $56, and as high as $266 per Bitcoin.
Another interesting thing is that Nobel Prize willing Economist Paul Krugman hates them because he says they are a deflationary currency, and all currencies (per Paul Krugman and his Keynesian economics) should be inflationary and have the potential for infinite units to be created at will.
The Bitcoin mining process is intended to mimic the mining of gold and silver (and coal, oil, etc...), the quantity for which in the earth is finite, and the mining of which gets more difficult and more costly and has less and less returns as time goes by, thus driving the value up over time (the deflationary part of it). The value of Dollars by contrast is over the long haul forever declining (the inflationary part).