The appeal of Bitcoin is that it is an unregulated decentralized currency which allows people to quickly, easily, and cheaply transmit money to anyone anywhere, and that it's a good method of storing value as well as transmitting it.

Supposedly. Except, almost none of the above is true. Here is why Bitcoin is doomed to fail.

1 - There is literally no place in the world that is safe to store bitcoins. Attempting to follow the "be your own bank" slogan of Bitcoin means that people are essentially storing bitcoins in their own homes, on hard drives or on slips of paper. A hard drive failure, a fire, theft, or any other way of losing the private keys means that you've just lost all of your money. Even the most diligent and tech-savvy users of Bitcoin can find they've lost all their money, and the average person will have no hope of keeping their money safe.

As a result, people will want to entrust their money to someone else, to a bank or exchange which can safeguard their money better than they can. Except, in an unregulated environment, the exchanges and bitcoin banks are even more dangerous than storing bitcoins at home.

2 - Bitcoin transactions actually transmit very slowly, much slower than in traditional banking. It takes 10+ minutes for a transaction to go through, possibly much longer.

Imagine buying gasoline or groceries, then having to stand around waiting 10 or 20 minutes for the next block to go through so the store knows you really gave them the money.

Are there solutions to points 1 and 2 above? Of course there are. Bitcoins can be stored in government regulated and insured institutions, and bitcoin credit cards can be used to allow instant transmission of money. Which adds various middlemen to the process charging fees, and now the entire point of Bitcoin is lost. The only solution to these problems leaves you no better off than using government currency, leaving Bitcoin without a purpose.

3 - Bitcoin transactions actually have very high fees.

"But wait", you're saying, "Bitcoin has almost no fees!" Of course it does. As I've reported earlier here, miners are currently receiving about $40 worth of bitcoins for every transaction that goes through the network. 4000 or so bitcoins are being added to the network per day in mining rewards, with a current value of $2.4 million, divided by 60,000 transactions per day on the network, gives miners $40 worth of bitcoins per transaction. The fees are not being paid just by those doing the transactions, though, but by every person who owns bitcoins. Each bitcoin added to the network lowers the value of all existing bitcoins by a small amount. And to those who would say, "But those aren't really transaction fees", of course they are. Transactions are the purpose of the bitcoin network. The block awards are a way of getting the miners to run the network without (for a while) having transaction fees.

Imagine if every time you bought groceries and used a Visa card, Visa was allowed to invent $40 and give it to themselves. They wouldn't need to charge transaction fees either, would they?

In the long run, this is unsustainable. The miners will no longer be able to make their money through getting all the benefits of monetary inflation, and will have to get them through transaction fees, which will be considerable.

4 - The reason why Bitcoin transactions have high fees is because they MUST have high fees, because the bitcoin network is ridiculously inefficient.

In a traditional centralized banking or money transfer system, there are a large number of servers, each of which processes a small portion of the transactions. In the Bitcoin network, every node on the network must process every transaction. In the U.S., there are thousands of banks and a number of credit cards. Imagine if the Visa network was forced to process all of the transactions that happened, even if one used a Mastercard, american express card, discover card, or any other card. Imagine if your local bank was forced to process the transactions for every single bank across the country, instead of just their own.

As if this weren't bad enough, due to the nature of Bitcoin, servers on the network are only able to spend a tiny percentage of their time actually processing transactions, due to the need to spend nearly all of it hashing to try to solve the next block.

Due to the need for each node on the network to process every transaction, combined with the need for each node to spend most of its computing power and time on hashing, the bitcoin network probably needs 10 to 100 times as many servers as a traditional banking or credit card network. Any attempt to actually scale Bitcoin up will make this sad fact terribly clear.

The core problems of Bitcoin are unfixable. No software update or tweak can do anything about them, they are central to the design of the network. The 10 minute transaction time could be slightly lowered, but not enough to make transactions quick enough. The need to have every node on the network process every transaction cannot be fixed. The need for every node to spend almost all its time and computing power hashing cannot be fixed. The end result is a network which is far too slow for consumer transactions, and very very expensive. Bitcoin may have its purpose, for illegal drug sales and money laundering, and as a small niche hobby for cryptography enthusiasts and hardcore libertarians who distrust the government, but the mainstream success people are hoping for will never happen.