Volatility in prices of bitcoin may stop someone using it as currency but prices of fiat currency also decreases with the increase in inflation so prices of fiat are also not stable.  Bitcoin has certain limitations too where we are unable to use it as fiat currency.  Majority of the population is not aware or it's usage or even may have not heard it or are deprived of using it because of lack of infrastructure.  So if we wish to use it as currency we will have to do all efforts to popularise it among masses specially in third world countries and developing countries.  When it is widely accepted people will definitely start using it as currency.  
In some  cases it is better to use bitcoin as currency instead of fiat.  Suppose I being from India desire to have a tour to Indonesia I have two options; first Convert Indian Rupee to US$ because Indonesian Rupiah is not easily available in my country and then on my arrival to Indonesia then convert US$ to Indonesian currency.  I have to pay exchange / fees twice for single visit.  In the same way at the end of my tour I will desire to convert Indonesian currency to Indian currency so I will have to adopt the same route i.e. first convert Indonesian currency to US $ then on my arrival back to India US $ to Indian rupee again paying double fees.  But if I use bitcoin and if it is accepted by the tour operators then I will have to pay fees just ones for the exact amount required as cost of the tour + other payments required to be made during my tour for petty expenses and in this way I will have to just pay commission @ single time  only.  So this is the surplus point with the bitcoin.
If we talk about the regulations; fiat currency is legally acceptable within the boundaries of the country of which the fiat currency belongs to.  Bitcoin is internationally accepted except very few exceptions.
Bitcoin is not just currency ; it is store of value too i.e. investment too.  Due to volatility in prices though it's price may move either ways but it is not true with fiat currency.  Inflation is truth of world economy and as a result the value of the fiat currency goes downwards with the passage of time.  It may also be called the increase in prices of commodities with the passage of time but it is still true that purchasing power of fiat has decreased and  the world has never experienced opposite to it i.e. the value of currency going upwards with the passage of time.  So if we wish to use bitcoin as currency; it will have lesser chances of loss of value as compared to fiat because of value of fiat going downwards due to inflation though the value of bitcoin may increase more than the cost of commodities increase and as a result owner gaining due to this factor.  
So both fiat and bitcoin are having their own merits / demerits.  Somewhere fiat will be better option in current scenerio but somewhere else bitcoin will definitely be better option.  Fiat is just currency; but bitcoin is investment too.