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I have decided to give this another shot. This is mainly because I love hypotheticals and working out worst case scenarios. (I actually have plans worked out in case aliens ever attack, nuclear war occurs, or a hyper-powerful and vicious government decides to dominate us, and those are only a few of what my overactive imagination has come up with!) Of course I have only taken a few looks at the white paper so if I am missing something, feel free to mention it to me.

From the description of the system, it seems that attacking through the front door via creating a counter-stack would be resource consuming and, quite frankly unrealistic. Indeed it seems that as the blocks build up into large and larger stack, it really would be harder to defeat this system (barring some sort of 'break' of the SHA-256 system if it makes sense to say anything like that). However it also seems obvious that the stack would be easier to overcome if the stack was small and the attackers were given some sort of 'head start' in creating a new one.

Defeating the system in this way would be immensely difficult as the blocks are spread around to each and every node in a distributed and non-centralized manner. Suppose that this really powerful government agency really did decide to set its sights upon bitcoin for summary destruction. If a sufficiently powerful agency were to create a worm with a rootkit and logic bomb payload, then a government or an enterprising techno-mafia could destroy the stack simultaneously (the fact that this is simultaneous cannot be overstated for this plot to work). Once all copies of the stack have been destroyed, any stack could be used to replace it. After all, in this hypothetical situation the stack with the most proof is the stack that has been created from thin air. Also unlike a normal stack attack as mentioned in the white paper, the actions the attacker could do are not limited to returning his own bitcoin to him self. Of course such a situation would probably be highly visible to the world and I doubt much could be done to profit from bitcoins pilfered in this way, but this system could also be used to reduce the total bitcoin to 0 or to place all bitcoins in wallets that no one has the key for.

The most obvious defense against this is to have some sort of back-up system, though how this system could be implemented and yet not be centralized is beyond me (for now).

Let the criticism come.

I think there is a problem with the standard meaning of the word 'backed'. The term originally meant that the value of a currency was pegged to the value of some amount of another commodity (usually gold or silver). This is seen when references toward the 'innate' problem of centralization is mentioned. Of course if this meaning of "backed" is used, then yes centralization would be necessary. However it seems that what is really the reason behind the idea of backing is this worry that the only commodity that bitcoin might be traded for is USD. However the fact that a currency can be traded for gold does not actually peg its value to gold. Likewise, if bitcoins could only be traded for USD, its value is not pegged to the USD (though it would probably be limited in value because of its lack of flexibility).

Bitcoins are a commodity; just like USD, gold, silver, oranges, etc... After all, a commodity is merely something that is used in trade or consumption. In particular, bitcoins are an intermediary commodity as their value lies in the ability of the bitcoins to be traded for things of useful value. Because of this fact, bitcoins value is best served not by artificially pegging its value to some other commodity, but by allowing it to be traded 'freely' in the most flexible manner possible. The more liquid bitcoins become, the more value they will hold. In this sense, bitcoins hold very little value (shown by the face that each bitcoin is worth only .3 USD). Until bitcoins become widely accepted as an internet currency, it will continue to hold value only in the same way an investment property hold value.

The most important thing in a market is not 'stable' prices, but predictable prices. Indeed the economy can look like anything in general, but the fact that people can predict future conditions and plan accordingly is the most important thing when it comes to an economy. So the reason why printing money is bad is not just the fact that this money is funneled from one place to another without regard to the morality of it (it is appalling though), but the fact that any additional money printed or taxed and placed somewhere else will have a massive effect upon the economy. These effects make the economy unpredictable and hence will harm the economy in both the short run and probably the long run. In a way, printing money to combat deflation is a little like giving CPR with a sledgehammer. Sure the man might come back and take a few breathes, but he won't be thanking you when he starts coughing up part of his lung.

I do remember this. However people tend to like things that are either concrete or can be imagined in a concrete manner. The more fractional an ownership is, the less tangible it will be. For example, when buying a stock in the market you are actually buying a very small percentage of a company (often less than .0001% per share). However shares in a company are not referenced in this manner. They are instead reference in discrete units. Likewise, we could buy ant sell fractional pieces of bitcoins, but doing that would probably make their use less attractive for the above reasons. Also as wallets are lost (and they will be lost), many large chunks of bit coins will 'disappear'. While certainly I will take damn good care of my bitcoins, and I presume many other people will, we cannot assume that this is the norm or even if it were that the few would not make unavailable a large percentage of bitcoins. Instead of merely subdividing bitcoins, we should have a plan to add more as time goes on. How we do this without getting rid of the decentralized nature of bit coins (a good feature of BTC in my opinion) is anyone's guess. Never-the-less though, artificial limits are not useful for non-backed currencies.

Two problems that were brought up don't really work. The first is the question of a worm that attacks wallets. while I agree that the artificial limit at 21 million is a pretty bad idea, a worm that attacks bitcoins would not be effective. A worm would need criteria to use to attack wallets. For example it could use the extension on the file, but that can be changed or hidden in an archive. The worm could be 'smart' and do deep analysis to find and destroy wallets, but wallets can be stored on uneraseable media (a 25c cd is a small price compared to a $2k loss) or the file could be encrypted so as to obfuscate that data. Indeed even a simple xor would effectively mask data from a worm. Finally worms have a hard time actually spreading to do this sort of damage. If a large enough segment of the population uses bitcoins so as to actually cause the government to try to destroy it, then I am sure the number of households w/ the program would be greater than 5%.

The second problem is the idea that the gov traces the individuals involved and prosecutes them. Sure, the average user might be susceptible to that, but a good proxy will protect any individual from simple tracing. To further obfuscate actual locations an onion route could be placed between a node and the end user. At this point trojaning is likely the only route to actually attacking the end user, but this can be avoided by imply following those oft mentioned rules of internet security, or even using a computer only away from home if it will be used for bitcoins. While one may argue that these are 'advanced', I have more faith in the general populaces ability to protect themselves.

Now for what I think is most likely the downfall of bitcoins. The biggest problem with bitcoins isn't the fact that it isn't used for 'common' purchases. After all, the purpose of bitcoin is more one of privacy which is easily given up by purchases in the real world (Uncle Sam knows you used money to buy that car and so that is still taxable). The easiest way to attack bitcoin is to make it impossible, or at least very very difficult to exchange bit coin for USD (or LR, MTGOX, or the like). I have only recently joined bitcoin (I love the idea, though I am wondering about its viability for this reason). I have now discovered how amazingly difficult it is to trade bitcoin for USD via PP or debit. This is further compounded by the fact that I use a prepaid cell and so I cannot verify with the major exchangers so that I can buy LR to exchange for MTGOX. Certainly my situation is unique, but an effective take down of any financial institutions that permit direct BC to USD (or EUR or whatever) would drive the BTC economy underground. In such a situation BTC would survive only as an underground currency that would have to be traded direct between individuals. I highly doubt the voracity of the BTC community to stand with bitcoins in this situation.