Bitcoin in general is a terrible idea. When it comes to fiat currency, there are two major issues:
- Government control. A dollar is worth a dollar because the government says so, and its used everywhere in America because the government enforces it's use. And they usually enforce its use with threats of jail time. In addition to this, the government has a license to print money, which can create inflation.
- Its FIAT currency. Meaning its not backed by anything, such as gold and raw materials. Fiat currency is highly susceptible to things like runaway inflation and deflation because of inherent changes of velocity. The velocity of currency is a measurement of trust. When it comes to fiat currency, its valuable because it's users trust it's value. A fiat currency can bottom out because the people no longer trust it. This is what happens when a market crashes, like in 2008 or in Greece recently.
Bitcoin solves problem number 1. Since there is no government controlling the currency, there is no one who can abuse the currency by printing money. However, at the same time, there is no government enforcing it's use. If you're a Keynesian economist, you will think this is terrible. I myself follow Austrian economics; and I think this is a great idea.
However, it does not solve problem number 2 at all. Since it's not back by anything, and its not government controlled, its more fiat than the dollar. Which means its more subjective to changes in velocity than ever; and more prone to possible market crashes. Keynesian economists don't study velocity, so they dont understand this.
Keynesian economists view the economy as a "machine"; something that can be manipulated at will. They are the type of people who think that when a currency is starting to tank, they try to print/burn money to try to manipulate the value. Keynesian economics has been the utter failure of fiat currency.
Austrian economists view the economy as a "living entity"; one that changes at whim similar to an actual person. It has a very hands off approach to economics because the idea of a "market crash" is a GOOD thing. A market crash is a CORRECTION to an error... something got overvalued so the market is crashing to fix the problem. A keynesian would instead print money to try to prevent the crashing; things like bailouts and tarp funds. But all that does is prevent the crash, so nothing ever gets fixed... its the equiavalent of sweeping it under the rug to worry about another day. But that pile of dirt under the rig keeps getting bigger and bigger and eventually its going to be too hard to handle.