Originally Posted by jyl
I don't pretend to have thought deeply about this, or to be any sort of expert. However, on the original topic:
1. Governments have a very strong interest in maintain the primacy of their "official" money. They have the ability to suppress and marginalize an alternative money, if and when they deem it a threat. The higher-tech the alternative, the more vulnerable to government measures. For example, if the US govt ever thought a cybercurrency was threatening the US dollar, it would simply intercept all internet traffic related to that cybercurrency and penalize anyone who transacts in it or facilitates transactions. No doubt the NSA already tracks bit/alt-coin transactions that it finds of interest.
2. Money is not intrinsically stable. The US dollar is externally defended and stabilized by a lot of law enforcement (anti-counterfeiting, money-laundering, etc) and, much more important, a huge amount of regulatory powers (over banks, exchanges, networks) and an almost unlimited capacity to intervene. Currencies that do not have such powerful defenses are volatile (Weimar German mark, Argentine peso, Greek drachma, Turkish lira, etc) and can lose 20%, 40%, 80% of their value during crises, so no-one uses those currencies unless they are essentially compelled to (like, they are physically located in Argentina). A cybercurrency which has no external defenses is likely to be more unstable and risky than the peso, drachma, lira, etc.
3. Anything cyber can be hacked, and a decentralized cybercurrency with no external controller/defender will have difficulty responding to a big enough hack, due to lack of central powers and a brittle design. If someone was able to hack and hijack SWIFT electronic transactions in the US dollar in a massive, currency-threatening way, the US govt and other world govts would exercise emergency powers, roll back all transactions and accounts to before the event, and repair the vulnerabilities. When someone figures out how massively hack a cybercurrency's blockchain algorithms/encryptions, there will be no central authority to force through a solution, and no way to switch to different algorithms/encryptions to fix the vulnerability because all the currency is, is a specific set of algorithms/encryptions.
I guess what I'm saying is, a currency is more than some cleverly designed formulae; it is the universal agreement of a society (willing or compelled) to accept a certain unit of exchange. As long as there is a central government with the power to to enforce that agreement, there is flexibility to change all other aspects of the currency as needed, and that is why currencies like the USD are resilient.
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