An even more fundamental problem with bitcoins, and indeed any private currency, is that there is no way to limit its supply. True, bitcoins cannot be manufactured beyond the limits set by Nakamoto. But there is no way to prevent future Nakamotos from creating bitcoin substitutessay, bytecoin, or botcoin. If merchants are willing to accept bitcoins, they will be willing to accept the substitutes, especially as bitcoins become scarce and consumers scramble for substitutes. Nakamoto must have realized this because there are not enough bitcoins to substitute for the currencies around the world. The currency can only succeed if it is expanded or supplemented. But if there are no constraints on substitute digital currenciesand there arentthen the value of bitcoins will plummet as the subs begin to circulate. And once it becomes clear that there is no limit, people will realize that their holdings could become worthless at any moment, and demand for bitcoins and the other currencies will collapse, ending the experiment.[/i]
Currently people value fiat currency because they trust other people to continue accepting it. The reason they trust other people to continue accepting it is because the USG tells them to. It is certainly possible that enough people will, eventually, decide to value crypto-currency because they trust other people to continue accepting it, just because they think it's a good idea.
It is not quite true that "there are not enough bitcoins to substitute for the currencies around the world." The hard limit of the number of satoshis (which equal .00000001 BTC) is 21x10^5 satoshis, and there 1.178 x 10^12 USD in circulation (
source). Ergo there are roughly 1,781 more satoshis than there are USD in circulation. This doesn't take into account other currencies, though.