The reason why the internet analogy doesn't work: 1. There is only one internet, without competition. Huge competition in the digital currency market, it doesn't matter you call them, hump and dump... 2. The cost of internet went down with more users and usability and general adoption. Bitcoins value is supposed to go up with the same. So it is apples and bananas at best...
You constantly mix up two things. The word Bitcoin, is used for a Currency as well as a Protocol. It would have been much better if Satoshi named both things differently, but he hasn't....
I saw bubble chasers go from a $75k account well into the Millions back in 99. Some had no idea what a stock was the month before they started chasing. Anything with a dot com on the end. Many of those dot.coms are no longer with us or in the single digits. Just saying
The virtual currency competition is a farce. Bitcoin 1.0 has 21 million coins Bitcoin 2 has 21 million Bitcoin 3.0 has 21 million. each has exactly the same protocol... Now where do you see the limit? Mathematically, bitcoins work like MLM. Imagine there are 1 trillion dollar bills total in the world. Lets say right now 1 billion $ is going into bitcoins. At a point in time, at bitcoin 999.0, only 1 billion dollars is left. Does this seem plausible? THERE ARE NOT ENOUGH DOLLARS IN THE WORLD TO SERVE ALL VIRTUAL CURRENCIES. As always in a tulip bubble, you CAN make money going LONG.
Not understanding its valuable features? I fully comprehend that you can use it to buy drugs and smuggle money, and there is some dominance in that domain. But these coins are vulnerable to someone coming up with a business that achieves the same goals without placing value in the medium of exchange. That is what bitcoin/altcoins are valuing - shares in the ability to exchange illicitly. But there is no exclusivity in the domain -- thats the problem. People will get wise to this. I got familiar with Bitcoin's white paper, am mining, and turning coin to cash. Mining litecoin with some non-exclusive hardware (which has salvage even if litecoin goes to 0) is hardly what I'd call a huge risk. Litecoin, Bitcoin, etc. will go to zero within the next decade. Not that I'd short it, and they could definitely appreciate 5x before they crash. But this is all about greed, and short term greed.
Let me give you an example what happened to me a few weeks ago. A good friend Skyped me from South Africa (he emigrated a few years back from the Netherlands), and at some point Bitcoin was discussed. I explained him some of the benefits, and then he asked me if he could use it for transporting his monthly income from the Netherlands to his bank in Capetown. As this took days and each time he had to pay 40 Euros to the banks involved. I don't know, I said...40 Euro's isn't that much (compared the 10-20% fees WesterUnion charges), but still he insisted to try it (just as experiment) and asked me how to proceed. It took some days to setup an Bitstamp-account, as well as an exchange in Capetown (don't know the name, but they offered a straight link to his bank-account converting BTC into Rand). A few days ago we tried it with 300 Euro (Dutch-bank SEPA to bitstamp, then exchange to BTC, transport to Capetown exchange, and to Rand on his Bank-account). We were both surprised that that the total fee was only 1 dollar. This partly because of the BTC-exchange rate in Capetown is higher than Bitstamp. Our conclusion was that it's doable but (still) too much work for earning 39 dollar. Still, for people using WesternUnion it will be a game changer (which is a 400 trillion dollar market). And it surely will, when paying with BTC is accepted all over the world (in which case exchanges to EUR and Rand aren't needed anymore). And of course BTC's price should stabilize which will happen if we enter the right-side of the S-curve. Just stop telling it's useless, it has real-life properties.
I think the only possibility bitcoin or litecoin survive is if the regulators of some major domestic sovereign officially sanction the currency as acceptable and exclusive in the domain, and likewise prosecute cases of exchange between state-fiat and cryptocurrency that isn't sanctioned. If the coinbase, btc-e, etc. companies can't find safe haven to do their business, the whole thing dies. I think this bubble is a major example of market confusion making valuation difficult.