For an Technical IT site the level of ignorance here is shocking.
Ok, I am going to get heat for this but for the ignorant bitcoin is not....
Fiat Currency (eg GBP/USD/whatever)
A Barter system
It is some and all of the above and it is different to anything which has come before.
It can be used as a currency since people trade it and this gives it value just like pounds or dollars, often it is exchanged for other currency and trading good is in it's infancy but it does happen.
It can be traded as a commodity but not in the same way as say Tulips since Tulips die and can be copied (you make more from seeds) where as a bitcoin balance in a wallet is fixed and forever until the balance is moved elsewhere.
You could argue it is a barter system but only in the same way any physical object can be bartered including paper money.
Yes most bitcoin addresses are anonymous but the transactions between these addresses are public and documented forever online. However anyone wanting to change bitcoins for pounds or dollars is going to find an exchange will want to know who they are and the exchanges have (already) applied "know your customer" regulations. Yes you can meet someone in the street and exchange in person bitcoin for cash but that is impractical for large 6 figure amounts and someone will at some point will encounter a regulated system (exchange or payment processor) and have to explain where the bitcoins came from. As a result the bitcoins will be below market rate and it's just easier to launder money in cash pounds/dollars than bother with bitcoins.
Thinking of a snappy put down already ?
If you also claim to have any IT smarts then read up first and try to understand what you are commenting on. If not you're like someone saying "why will mobile phones catch on when everyone has a phone at home. Also text messages to mobiles ? Much quicker to call someone, that'll never catch on !"
In my opinion the killer app here is international money transfers and international purchases.
This is in it's infancy and money transfers will evolve as more of these cash machines are installed globally and the cash machine rates drop. A typical exchange charges 0.2% but the cash machines are charging a premium on top. In theory though it should be easily possible to buy bitcoins and send them in about 30 minutes to your uncle Bob in Auz who can then withdraw dollars. As soon as this becomes cheaper than western union then this will take off, think of all those foreign workers sending money home to africa/india/asia.
As for international orders Overstock is a good example, once they enable international delivery you can take your bitcoins purchased at an exchange with a 0.2% fee and buy goods in america for delivery to the uk. Since Overstock do the conversion to dollars you just pay in bitcoins.
That means no hassle with credit card fees for Overstock (you might even get a discount) plus you don't have to worry how much that dollar payment will be when it hits your debit/credit card since the card companies make money from the exchange rates. Now apply this to online shopping for china, asia, europe etc.... bitcoins could easily become the "currency" of preference for online retailers. Oh, another bonus for the retailers is that there are no charge backs, Visa/Mastercard can & do ask for the money back sometimes but all payments are irreversible with bitcoin.
If you're traveling abroad then why not pay in bitcoins ? I was in europe recently and I would have been much happier not having to get together the Euros in cash and simply paying electronically in bitcoins. Ok it was only a short trip so it wasn't much cash but it was still a hassle, I still paid an unfavorable exchange rate and I still had to keep what I wasn't using that day in the hotel safe. Yes you can get travel cards you fill with electronic euros but that's just the same as bitcoin with all the same negatives of the extra cost.
Yes there are risks associated with traveling with a bitcoin wallet but I expect that the insurance companies would extend insurance to cover this in time. Plus if you give the insurance company your private key with one call they could move your money from the compromised wallet to a secure wallet ready for when you got a new mobile (or other electronic payment device).
This is the near term vision..... the long term vision is much bigger and more intangible and if you want to look into that try googling for "bitcoin colored coins".
I don't know what will become of bitcoins in the long term but I'm confident about the international money transfers and as a online payment method. Traveling on bitcoins requires much wider support unless you plan on just eating in that one Cafe your entire stay but it is going to be appealing to the masses.
Got questions ? Good... now do your research because answers are not straight forward and frankly I should be working :)