Bitcoins can be easily lost or stolen. When that happens you have no way of recovery. There is no one to sue. You can't recover lost or stolen bitcoins. People will not risk much of there wealth once they realize how ephemeral it is.
How is this different than Cash?
Keeping bitcoins in a bitcoin wallet is like keeping your money in cash in your real wallet except that bitcoin transactions can more easily be fraudulent.
How can bitcoin transactions "more easily be fraudulent"? By definition they cannot. Only *people* can be fraudulent.
There is a joke that on the internet nobody can tell your a dog. I have bitcoins but I don't want to spend them because I don't want to send them to a dog. In a cash transaction dogs are easy to spot.
You don't want to spend them because you don't want to send them to someone misrepresenting themselves. Not much different from the first time an online web site took credit cards.
Wouldn't be hard for someone to build a Bitcoin Insurance Agency. You'd pay them a percentage of each sale and they would take the risk on the transaction. If the transaction turned out to be bogus, they'd refund you the coins.
Oh yea, this already exists: https://clearcoin.appspot.com/
