"risks of theft": cash is also at high risk of theft, yet cash works alright in the real world. So why not Bitcoin? Web wallets need to develop excellent security procedures, like banks, and the best ones have done so: MtGox, Coinbase, etc.
"risk of government legislation": so far governments have been welcoming to Bitcoin. A US Federal Judge have ruled Bitcoin is real money [1]. The US Treasury Department FinCEN said Bitcoin "hold greats promise" to the US economy [2]. The German financial regulatory agency, BaFin, has officially classified Bitcoin as a commodity. Australia said they would investigate Bitcoin thefts with the same thoroughness as cash thefts. China is tacitly approving Bitcoin as government-controlled China Central Television is increasing its coverage of Bitcoin, with a surprisingly positive tone(!) Canada is very Bitcoin-friendly (hence the first ATM located there). Etc. And keep in mind it only takes a handful of countries to be friendly to Bitcoin for it to have a safe base to rely on. It is highly unlikely that ALL the countries in the world will ALL be hostile toward Bitcoin.
"risk of the system being gamed": there are no such risk. That's the one thing about Bitcoin you can trust: the protocol is ruled by cryptography and algorithms. It has been reviewed by many security experts. There is no known way to "game" the system. Some theoretical attacks exist but are never practical (eg. require investing half a billion dollars in mining hardware!).
"risk of wild fluctuations": true. But on the long term, as trading volume increase, volatility will reduce.
[1] http://www.forbes.com/sites/kashmirhill/2013/08/07/federal-j... [2] http://www.fincen.gov/news_room/speech/pdf/20130613.pdf
There are key distinctions between cash and Bitcoin theft: Physically robbing large amounts of cash is really hard. Most people don't carry suitcases full of money, and bank robbers usually end up in jail or worse.
Electronic theft is difficult as well. If a bank believes a wire transaction was fraudulent, it can reverse it. And because bank accounts are generally not anonymous, fraud detection is a lot easier. By contrast, Bitcoin nodes can't undo a cryptographically valid transaction if evidence later shows it was fraudulent.
In addition, most bank deposits are insured up to a point by the government. Granted, you could privately insure Bitcoin deposits, but it's difficult to get the same scale of insurance that the Fed offers. Maybe at some point, but I'm not sure there's enough data points yet for an actuary to comfortable estimate the risks here. In addition, because insurance requires scale, the market for bitcoin insurance would probably consolidate into a small number of players very quickly, which raises the question of what happens if one of them collapses AIG-style.
Plus a lot more security mechanisms can be implemented with Bitcoin that is just plainly impossible with cash. Eg: M-of-N ECDSA signatures could require a thief to steal the hardware wallets of 2 business partners at once to access their shared coins.
Right now Bitcoin is in its infancy and people are still trying to figure out how to best protect wallets. There is no doubt that the security landscape of Bitcoin will be a lot safer a few years from now as its usage and value continue to increase.
Also important to note, the Fed doesn't protect your value or purchasing power, they just insure (to a degree) the balance, but they also have the power to erode purchasing power at will.
Why would you think that? My wife had a couple of fraudulent transactions on her debit card earlier this year, and they were refunded the same day we reported them.
See: http://www.consumer.ftc.gov/articles/0213-lost-or-stolen-cre... and http://www.consumer.ftc.gov/articles/0093-credit-card-loss-p...
I see bitcoin advocates talking up the fact that chargebacks are impossible, which doesn't make me feel safe about it at all.
Currencies also have fluctuations in value (which central banks try to manage as best they can).
The primary difference is that a person in a far away land is unable able steal my actual currency without putting a lot of their own funds at risk. Which is to say they would have to fly out here, find my house and/or wallet, take out money, leave, and then fly home. Its the same reason cash is more secure than a debit card. Debit card readers can be hacked with skimmers, nothing to 'skim' with cash.
So the risks with BitCoin are that from far away people can steal it from where it is being kept. These are the same risks as having cash in a banking instituion, except the bank has regulations that it has to meet in terms of being able to guarantee that even if they lose my funds they will replace them. Without the equivalent of the FDIC for BitCoin is qualifies as "higher risk."
They can get my debit card number and steal money remotely though.
don't make us start citing all the recessions, depressions, shenanigans, thefts, bubbles, Ponzi schemes, snake oil salesmen, gambling, front running, short selling, bankruptcies, inflations, deflations, monopolies, defaults, perpetual-inability-to-balance-a-budget, carry profiting, spying, overly-complex-taxes-riddled-with-loopholes, usury, special treatment, insider trading, counterfeiting, etc that have occurred, and, will likely continue to occur, in that economic system.
Bitcoin is not without risks. But at least it's run by engineers in a way and to a degree that can't be said about DC and Wall Street.
You are comparing apples with oranges. Currency vs. Banking system.
Look closely at fiat currency and government-backed banking and you may see just how closely they are intertwined.