So Bitcoin tanked today for a while after Mt. Gox got DDoSed. It came back, and is still sitting at the insane $200 valuation it has held for a few days. And it was $30 in January.
Long term, though, Bitcoin has one shortcoming that makes it both a pyramid scheme and invalid as a currency. At least in the long term.
By restricting the monetary supply over time, and decreasing the rate of coin creation, it not only means early adopters get a disproportionate amount of the monetary base in concentration, it means that every 4 years when the coin generation halves, it deflates the currency more and more. After 2140, the supply of Bitcoin will only ever decrease over time, as wallets are lost and the coins contained in such wallets rendered unusable forever.
This is catastrophically bad for any currency. When the supply shrinks over time, it means that the currency naturally becomes scarcer, so its valuation will deflate no matter the economic climate it exists in. In the future timeline where Bitcoin takes over, the holders of the majority of currency reserves (be they banks, exchanges, or super-wealthy citizenry) have no reason to ever spend money or invest since their money gains value naturally. Of course, they would probably still invest - but if the risk climate now is awful when we have tremendous inflation on the horizon of USD, it would take an absurdly safe and obvious investment to make a future bitcoin billionaire do anything with their money but sit on it, take it out of the money supply, and reap deflation.
It means those who have money gain value without doing anything. Just like how right now, having money means losing value because more and more money enters the system, as money leaves the system in the deflationary economy the holders of the scarcer and scarcer resource only need sit on their reserves to have more real valuation. That is disastrous for economies if vast swathes of the monetary base are out of circulation being used as an investment.
It is what is happening right now with bitcoin, but this is a currency exchange speculatory bubble - the inevitable flight from heavily rigged fiat currency means bitcoin is one of the few "safe" investments now - what should be reasonable investment, land, food, industry, metals, etc - are so heavily regulated and controlled they are invalid for that purpose, so artificially overvalued metals like gold and silver (a travesty of wasted good conductor metals that could see industrial use if they weren't sitting in vaults wasting space) become the flight targets.
But gold is saturated and rigged by massively wealthy market holders. Buying gold now is so extremely foolish. Buying bitcoin now that its speculative bubble has come in full swing is also foolish - it was trending towards $50 now, not $250, and will eventually correct back down (and at such time I intend to throw a thousand or two in investing in it for the inevitable rise in valuation when the next major eCommerce site starts accepting it).
But it isn't a long term solution. One problem I see is that 256 bit SHA might be impossible to crack now, but I can't help but predict in 50 years that cracking SHA will be, while still a costly operation, not impossible - if I were trying to invent a cryptocurrency so good as to last centuries, I'd go with SHA3 512 bit right now, albeit SHA3 wasn't finalized in 2008 when the original drafters of bitcoin were developing it.
I also imagine there are ways to get a cryptocurrency more resistant to a majority deception attack like bitcoin is - it doesn't even take 51% of compute power in the swarm to be able to alter transactions, it only takes 30% to stand a sizable chance of pulling off fraud.
Bitcoin is a great first try. In the long run, the best money is mathematics - distilling a secure currency is not an impossible problem. Just a complex one. But Bitcoins weakness is not its security, it is it's deflationary future, and any potential cryptocurrency worth its weight in salt will need to have a fixed, constant increase (as a % of total money, I would say) increase in it's monetary base, to offset lost wallets and keep the money losing value naturally over time so as to keep the currency acting as a means of exchange and not a means of investment.
