Bitcoin has been gaining press / traction recently. Does this make it a viable currency?

Monetary economics has a trilemma where any currency can only have two of: monetary independence, stable exchange rates, and free capital flows.

Since anyone can purchase bitcoins, that's free capital flows. Since the amount of bitcoins grows according to that nice asymptotic curve, that's monetary independence. So I wouldn't expect it to be a stable store of value.

Toss in that it appeals to criminals and other anti-government people, and the expected regulatory response will likely not be kind. Rumors that the CIA has "cracked" it will just add to the fluctuations.

It seems like it's in an existential race; if enough people start using bitcoin before the large governments crack down, then bitcoin has a chance at surviving. However I wouldn't bet on it because even when it survives, it'll most likely fluctuate too much for most people.

Finance note:
Say the cost of the variance in exchange rates is less than the some people's marginal tax rate, then those people will be tempted into the grey market of bitcoin (transacting with criminals). This provides another reason for debt-laden large governments to react with extreme prejudice.

Organizational Behavior note:
Is bitcoin a cult? It ties hideable resistance against "oppressive regimes" (libertarian for governments) with personal gain as the currency appreciates due to adoption. I expect there to be lots of libertarian evangelists of bitcoin who in the face of currency valuation swings will double down and commit more to the cult.

"Since anyone can purchase bitcoins, that's free capital flows. Since the amount of bitcoins GROWS ACCORDING TO THAT NICE ASYMPTOTIC CURVE[ed. for emphasis], that's monetary independence. So I wouldn't expect it to be a stable store of value." I'm not sure that bitcoins are going to successful - like you, I am reticent about their political future. However, in theory they should be a great store of value. The asymptote of the growth curve is zero, so the volume of bitcoins is, for all intents and purposes fixed (assuming that all the crypto explanations are correct and untamper-able). ... unless your complaint is that bitcoins would experience permanent and massive deflation relative to all other currencies who attempt to keep their price-level growth slightly positive. I'm pretty sure that part is by design, though. --Theo

Monetary independence = having currency volumes and interest rates that fluctuate differently than the currencies of main trading partners. bitcoin de facto has this because the total volume of currency follows that planned curve. Interest rates will be interesting to watch as I would expect lots of volatility as demand rises and falls, until one or more bank-like traders start offering rates. The differentials in interest rates will cause "hot capital flows" with no mechanism to check them (like Brazil's tax on foreign sourced loans), so we'll probably see exchange rates bounce around. -- patrick