[pistle]

Everything can be traded as long as people believe in its value. Currencies are proxies. Proxies function best with stability in value and wide awareness of relative values for goods and against other currencies.

Bitcoin and its ilk are going to repeat the issues the US had when small and regional banks all printed their own bills. Their info infrastructure were large books, updated monthly that provided info to determine exchange rates/values. People didn't like getting burned everywhere on transaction costs and their value going poof when unsavory characters ran the underlying banks into the ground or rumors about the stability of far off banks were spread.

Centralized. government-backed fiat currencies solve many issues that most Bitbugs are coming to grips with the hard way. It's those issues which are exposed publicly and quickly which will keep it the most amazing speculative financial invention to a group of fiercely, independently minded folks who have the skills and means to gloss over all the failings of such a device being a proxy for fiat currency. It's just another layer of abstraction, not a replacement. And it's a leaky abstraction.

[chipotle_coyote]

All currencies involve a level of trust: a gold-backed currency unregulated by a central bank still requires you to trust the bank that printed the bills. Bitcoin requires you to trust the mechanisms by which it's traded and stored -- not the algorithms involved as much as the mediums through which you're exchanging them. As Glenn Fleishman noted, Bitcoin addresses the problem of counterfeiting, but it doesn't prevent fraud.

I suspect regulation of various kinds will come to Bitcoin not through authoritarian government fiat (see what I did there?) but the way most regulation actually comes to pass: the public calls for greater regulation and transparency. It's possible that Bitcoin markets will accomplish this with minimal government intrusion, and I'm sure that's what they'll all aim for, given the underlying philosophy. I'm just not sure it'll happen.