There are economic problems with bitcoin as a currency (its a fiat currency, effectively, except without the fiat - it has scarcity with no intrinsic value), but the algorithm component seems solid to me.
What cryptography (reasonably) guarantees is that bitcoins aren't double-spent, aren't created from thin air. Not that they preserve value or are acceptable as payment.
Part of what makes this work is our mutual knowledge that it would be very hard for either of us to game the system. I can't just print up new dollars and neither can you; this means that the dollars you give me are very likely to have been given to you by someone else, which makes it very likely that I will be able to pass them on to someone else, which makes them useful and therefore valuable. If I could just print up my own dollars out of thin air, I wouldn't actually need to do any work to acquire them, which would make me less likely to accept them in trade for whatever it is you want from me; if everyone else is in the same position, then none of us have any reason to accept dollars from each other, and the currency is no longer useful as a means for exchanging debts. So the usefulness of any currency depends on the degree to which it is difficult to create new currency units.
This is what I mean by confidence that bitcoins are going to remain valuable: people can't just pull them out of thin air. It takes a lot of work to get a bitcoin. Right now the bitcoin system is new so lots of people are mining bitcoins, but once there are enough of them it will be easier to get a bitcoin by doing some other kind of work than by mining. This is all we need for bitcoins to become a useful medium of exchange for IOUs, should we decide to use it that way.
For example, if an overwhelming majority of people with bitcoins(or USD) decides tomorrow to not ever use them again, then the remainder that have them are screwed. If the places that the currency can be uses cease to exist, the currency is worthless. There isn't any technical solution to this problem, the economy just ceases to exist. Obviously, this is an extreme case, but it's entirely possible that this can happen with any currency over an extended period of time if it doesn't catch on, or if investors lose confidence in the currency itself.
Part of what it means to have confidence in a currency is to be reasonably sure that its inflation will be limited to a rate that allows you to exchange your currency tokens before they are drained of value. Passing the hot potato, etc. With a fiat currency that confidence is based on nothing more than your beliefs about the central issuing agent's likely future actions.
What's new with bitcoin is that there is no central authority who can decide what the inflation rate should be. The inflation rate is built into the mathematical definition of the currency, and it is self-limiting: the more work people put into mining bitcoins, the longer it takes to find new ones. This is not true of any existing currency, and is in fact an improvement on existing currencies.
Even if we don't all end up deciding to build an economy around bitcoin, this is an important achievement, something future currency designers ought to make note of.
That is the minimum it offers. It also offers the ability to transact with the government, who is the largest sole consumer in our economy, and a whole host of other things.
So if someone controls 51% of the BitCoin clients they can do anything they want?! Sounds like a flaw. Once lots of money is involved, it would make sense for people to start throwing botnets at this to hack it.
I don't gamble. This is not some religious thing, but simply because I like to have control over my fate, and gambling takes that control.
Maybe you like to have the illusion of control over your fate?
Personally I like to keep my life exposed to some randomness.
If you invest serious computing power into that, then there's not enough variance in it to be called gambling anymore. Betting on 6-6 in a single dice throw is gambling, betting on the percentage of 6-6's in a trillion dice throws is boring.
http://www.debtdeflation.com/blogs/2009/01/31/therovingcaval...