[dreamfactory]

I think there's maybe a distinction to be drawn between transactions between individuals, which could be made in virtual doughnuts if both parties agreed, and a currency used in trade.

As far as I can see, btc is now two things - a protocol which could be used as technical implementation for any number of things, and also implementation of a currency which isn't backed by any concrete asset or entity (other than end users). For the currency, the main value and insurance against risk seems to be in the brand (i.e. what makes a bitcoin worth more than a foocoin).

But it's trivial for a government to kill commercial use of btc as an alternate currency within their jurisdiction. It's not legal tender and therefore can be banned for use in transactions by registered companies - that can be easily enforced by tax authorities and police. It's also quite justifiable on the basis of collecting taxes, protecting the economy generally, and protecting citizens from being caught with paper that isn't backed by law or national banks. Black markets are by definition illegal - the only question is to what extent they are tolerated and that is largely a question of their size and impact on the formal economy.