That's actually not specifically the problem with crytocurrencies. The CPU cost is dynamic in bitcoin, and has changed in the past to reflect more or less people mining new bitcoins.

The real problem with crytocurrencies is scaling transactions. In a model where every participant has to be aware of every transaction, it is extremely difficult to imagine it (quickly) handling millions of transactions a day.

> The real problem with crytocurrencies is scaling transactions.

Bitcoin economy should grow pretty big before scaling really becomes a problem. I think it won't be a problem for at least 1-2 years, unless things really explode. That would mean new world order :D

Some of the scalability issues are addressed here: https://en.bitcoin.it/wiki/Scalability

I'd wager it's more the fact that its worth is effectively entirely based on its reputation.

That is how all currency valuation is based.

Which is why currencies are customarily tied to entities that can do things like fight wars and build roads and enforce taxation, and not pseudonymous cryptography researchers on the internet.

It is possible to base the currency in commodity. Not the gold standard, but, say, 1 coin is worth the average of a predetermined amount of the top 20 or 30 traded commodities in the market. Banks guarantee to exchange your coins for commodities at any time - bank chooses the exact commodity, but the amount is determined by the value of your coins. It would cost you more money than now to hold an account with the bank, as the bank needs to be able to guarantee to exchange coins for commodities at any time, and thus must store or otherwise arrange access to those commodities. This means you will be paid less interest. On the flip side, the value of your coins is always guaranteed and not based on reputation. That latter property may make it suitable for decentralisation in a way that a fiat currency is not.

And the banks are insured by the FDIC and rely on the stability of the US bond market. It's a viscous cycle. Lol. It doesn't mean that the bitcoin can't be viable. I just don't think it can be as grandiose a currency as some people are envisioning

> It is possible to base the currency in commodity.

Try explaining that to the man on the street.