I think it's a real issue standing in the way of bitcoin ever becoming a major success, nobody is going to want to use an alternative currency that's so volatile nobody ever knows what they'll be able to purchase with it tomorrow let alone next week.
I like the concept, but because it's not backed by something stable like Gold it's just like a penny stock, there's nothing to stop people pumping it up and then putting massive sell orders in to crash the price.
Have you seen the price of gold lately? Hardly stable over the last 10 years.
However, of course the value of the Bitcoin can be speculated in, but the major difference is that is impossible to artificially inflate or deflate the amount of Bitcoins. There is simply a fixed number of Bitcoins which grow at a predertimened rate. This means that governments can't inflict Seignorage (money printing) tax on your money. An example, if your work is the equivalent dollar value of a Porsche today, then when the Feds pump out a few trillions, the value of your work becomes less since there is more money in circulation. So with the pressing of a few buttons, now you can only afford a Wolkswagen. That is impossible with Bitcoin. The money supply is fixed and can't be manipulated. The relative value of Bitcoin to other goods can of course be manipulated standard speculation, but in no way comparable to the 'quantative easing' circus.
The idea of a steadily, fixed growing money supply goes back to the founder of modern libertarian economic thinking,
Milton Friedman and his economic theory of
monetarism. Monetarism, meaning that the state controls the money supply to grow at a known growth rate, keeps governments honest since they can't inflate (make us all poorer) themselves out of excessive spending. This is why the Germans, who for decades have applied this thinking to the D-Mark and Euro, are out ahead. You simply have to see what's going on in the US to realize why Central Banks should stay the fuck out of money issuing.
In the ideal world, there wouldn't be single national currencies, but many competing currencies backed or structured in whatever way they want. Then consumers can freely choose if they prefer inflationary, tax backed money or gold money or Bitcoins or Liberty Dollars. In time, after some bank crashes, the currency that is the most stable will win out and the inflationary money will lose. This is what is at stake if currencies like Bitcoin succeed. Governments will be forced to not spend more than they can afford since they can't print money anymore - and never forget that money printing to finance a fiscal deficit is exactly the same as taxes.
The other thing is of course that free, anonymous money can't be directly taxed since no one knows who makes what transactions until they are converted to individual consumption. This would in a free agent business world mean that income taxing would be very difficult and would open up for a sales tax only scenario (or tax on assets). So you can see why governments would be against it.
It's all speculation of course. I have no doubt that the old boys of Goldman Sachs - after their successful takeover of the European Union - will make it their mission to destroy the Bitcoin along with the Central Banks (CIA will probably join just for the hell of it). But the cat is out of the bag and just like peer to peer sharing, anyone can just build on the open source software and improve it. It can't be stopped.
I doubt Bitcoin will reach critical mass anytime soon or maybe never, but for the global internet millionaires of WF it could be very useful.
