Your friend should learn more about bitcoin. There are many advantages to Bitcoin compared to fiat. Anonymity for avoiding taxes and buying illegal items aren't even among them, lol. Things like irreversible transactions that clear faster than fiat systems, the ability to send money internationally without outrageous fees, ability to be in total control of your own wealth, etc. And it's a common misconception that Bitcoin can't support a credit market. It already does, you can borrow BTC on Bitfinex, for example. Even if no one was willing to lend Bitcoin, it doesn't mean that it doesn't have a place in the economy. I'm sure you will always be able to borrow fiat since the cost to manufacture it is essentially zero.

While parts of the article are true, there are a few points that are not correctly leverated or over-stated:
 
1) The ruling last week from the federal judge in the fraud cause was not that Bitcoin is a currency - end of statement. That was only related to the fraud case. That's like stating that a bag of frozen peas is a deadly weapon.... but leaving out the fact that someone used it to what another person in the head and killed them. As I wrote to you last week, that ruling sets neither case law or precedent, and is far from the last word on the subject. So that little fact alone (or rather, its reckless and misleading use) makes me view his writings a little more closely.
 
2) Guess what: we ARE the government. All of the spending of fiat money is for our benefit, like pensions that are unjustifiable and unaffordable. WE are the ones who want everything without paying for it. Want to see at least half of the root of the problem? Go look in the mirror, or look at your neighbors.
 
3) He is correct in saying that if you use BitCoin, there will be alternatives. It's called taxation. Oh My God, what a revelation!!!!!!! So I got paid in Euros last year, and I have to pay taxes to the US government. What's next? They're going to tell me that the world is round?
 
4) The only appeal of BitCoin (other than the anonymity for people who want to avoid taxes or buy illegal items) is that it currently has speculative potential in that its absolute value may increase. But guess what? It's increasing against a fiat currency. If fiat currency disappears, so does the appeal of BitCoin.
 
5) Any currency has the advantage of being a medium of exchance, so that you don't have to find someone who sells bread and wants to buy beer if you want bread and have only beer to sell. In his example, gold is truly being used as an alternative means of exchange (e.g. a currency), but it's being used by people who are side-stepping government taxation in countries where regulations (not just the rule of law, but also things  like land registries) are in very poor condition. That's not the case in the Western world. So the example  doesn't apply here.
 
I could go on and on, but here's the bottom line: BitCoin cannot work in the current economy because, among other things, it does not support a credit market (so that people can borrow), and that's a vital part of our economy, and our way of  life. But beyond that, if fiat money fails, the government will make BitCoin it's own currency, and the game will go on.
 
Now how's THAT for a conspiracy theory!

Nationalizing Gold
August 20, 2013
Rome, Italy

It was just last week in the Land of the Free that a Federal judge declared Bitcoin to be a currency.

And almost immediately after, the SEC announced ‘investigations’ into the digital currency.

(You remember the SEC, the guys who are tasked with protecting the public from dodgy investments… yet they routinely give their blessing to the likes of Madoff, Enron, toxic mortgage bonds, etc.)

This seems to have started a chain reaction.

Yesterday the German government took formal steps to recognize Bitcoin as form of ‘private money’, and subsequently rolled out steps to tax it.

TRUTH: These moves have nothing to do with consumer protection. Or raising tax revenue, for that matter.

What they’re really trying to do is send a clear message– if you use Bitcoin, there will be consequences.

This isn’t even really about Bitcoin. The big picture issue is that governments are scared to death of currency alternatives catching fire.

With so much debt and monetary stress in the global economy, it’s becoming increasingly clear by the day that the current fiat experiment is in serious trouble.

The only reason it still works is because (a) people continue to have confidence in the system, and (b) there really is no mainstream alternative to holding paper currency.

This last fact is paramount. If a viable currency alternative were introduced that became mainstream and popular, governments would no longer be able to perpetrate the fraudulent monetary system. The game would be up.

Consequently, they have a huge incentive to stomp out any currency alternative at the first sign of going mainstream.

Bitcoin is one such currency alternative that has started to creep into the mainstream press. As such, Western governments are now working diligently to eliminate its appeal as quickly as possible....

Maybe it can't. Your friend doesn't need to change, he can go extinct.

As for the Bitcoin is useless during a state of war premise I'd say there was a time around 10-15 years ago when I'd maybe agree with that but today I just can see major economies allowing the destruction of something like 15-20% of their GDP by gangs of people known as governments through nationalizing all ISPs in the area they rule through violence and cutting off all the other areas so I don't think I'd accept the premise that Bitcoin automatically becomes useless in the state war. For example the land area knows as the US is at war right now in several countries and yet Bitcoin is perfectly useful to almost everyone.

Gresham's law only applies to exchange rates as dictated by law. Bitcoin is a whole new beast as it's rates are beyond what the law can decree, so Gresham's law doesn't apply in this case.

After we see what happens with Bitcoin, perhaps we can formulate Satoshi's Law. 

I agree.  What exactly is his point!  Why is it useless?  Unless the internet/ networking ceases to exist!

I think your friend is mentally retarded and you should get a new friend unless you just like working with 'challenged' kids.

Bitcoin is perhaps the most effective way to hire cyber-warriors.

Conventional war... probably not. Massive government spending is required to fund war and bitcoin couldn't facilitate that.

@ChupacabraHunter: does your friend spend time in war zones?  I suspect no. Does he use Bitcoin? I suspect no. Sounds to me like he's a typical modern pundit, a loud-talking know-it-all. I wouldn't be surprised if this is exactly how he made his money - by talking with authority about things he knows shit about. So 21st century...

@ChupacabraHunter: 25 replies, and no word from you. That's not nice. I was hoping for a discussion, or at least an update.

Throughout the course of history, humans have always moved to better forms of currency.

Beads -> Sea shells -> Wampum -> Metal Coins -> Gold -> Paper money fiat -> Electronic money (paypal, credit cards) -> Return to gold? Bitcoin?

As the "paper system" would not decrease transaction costs, it would not be accepted by market participants as a substitute for native Bitcoin. Acceptance is a prerequisite for both credit expansion, and a removal of backing ("fiatisation" of commodities). This is a critical difference between gold and Bitcoin.

For Bitcoins to be successful, it has to be able to replace the existing debt!

Whos debt? This reveals a thinking stuck in old system.

Should it replace, US debt? The Zimbabwe debt? whole worlds debt?
All money in the world, including chinese Yen or just the dollar?

Short answer is of course: No.

There is really allready countries which has dual currency systems which works absolutely perfect.
In fact a dual currency system often works better.

Bernard Lietaer: Money diversity
http://www.youtube.com/watch?v=T9EI2PrDpmw&feature=related

It does not have to replace anything to be useful.
A glass can exist and be useful without having to replace all the old glasses.

I can get BTC10 that was not created out of debt, by selling something for them, doing some work, mining them, trading them
for debt based money.

I can trade a sock for 0.1Btc if I want. Without caring how many dollars a Bitcoin is worth.

When I have those. No need to use debt based money anymore.
(Except to pay taxes.)

Its not hard.

And Bitcoin does not belong to a single country.
Its independent.

Bitcoin highlights a lack of faith in unbacked Fractional Reserve banking. Sure, Bitcoin could be used as backing for someone elses fiat credit system, but it's not Bitcoin's problem if they decide to pull a Mugabe and "Quantitatively Ease" to oblivion. That's their own stupid fault.

He's wrong because I can owe you 100 bitcoins without having 100 bitcoins. Heck, I can owe you 25 million bitcoins even though 25 million bitcoins will never be in existence at the same time.