user2931: So we know that bitcoin is secure up to the point of basically proving P=NP. (Its an open question) 
So bitcoin is secure. But I feel it still suffers one problem, as with all transactions(not just bitcoin). One person must either send their stake in the barter first or receive the others and be trusted to return the payment if no escrow is involved. 
I am paraphrasing and hopefully not destroying the idea, but when I read the bitcoin whitepaper it seemed like it was aimed so that no escrow needs to be involved to transfer funds online. 
So no escrow means we all must trust one another if we want to do transactions with one another? Because one person must receive or send the goods first, and must do so on good faith that they will receive the compensation.

user-1: The reason you feel "more confident" using government-backed currency is, well, because of the government. And what the government has to offer that something like Bitcoin hasn't, is the promise that it will prosecute and possibly even incarcerate the person that violates your trust, and the fear of that promise is what affords the level of trust you experience. Government currency is backed by fear.
Bitcoin, on the other hand, is backed by "love." What this means is, in Bitcoin there is genuine "trust." If someone violates the rules, then by default they can assume that they will not be prosecuted, and they do not go to any jail (for now). In a world of trust, what matters is reputation: how many times in the past has this person or entity honoured their debts? MtGox.com is a reputable source not because you have any idea who the people behind it are (though you might) but because it has been processing thousands of transactions similar to ones you might do yourself for years.

user3439: I will add Lohoris's comment as an answer, because it really is the answer to the question. Bitcoin does not directly try to address the issue of trust in a transaction.
Therefore, yes, some trust is needed because one party still has to be the first to hand over goods and/or cash. I just read a post on the bitcoin subreddit that relayed a story of getting ripped off after handing over BTC.
Now, Bitcoin does make some aspects that make fraud harder, most specifically a transaction log. If the recipient address is either well known, displayed on an invoice, or recorded in an email, it is trivial to prove that you sent BTC to that address. (Of course if you obfuscate the transaction through a mixer, that removes this benefit.) But, even then, that is just providing tools to law enforcement/court or some other sort of after-transaction dispute process. And, given law enforcement's lack of experience with Bitcoin, and the irreversibility of Bitcoin transactions, if you don't trust the party you are trading with then you may have to engage some sort of escrow service.
Update: Per request, this is the reddit post I mentioned.

2931: <p>So we know that bitcoin is secure up to the point of basically proving P=NP. (Its an open question) </p>

<p>So bitcoin is secure. But I feel it still suffers one problem, as with all transactions(not just bitcoin). One person must either send their stake in the barter first or receive the others and be trusted to return the payment if no escrow is involved. </p>

<p>I am paraphrasing and hopefully not destroying the idea, but when I read the bitcoin whitepaper it seemed like it was aimed so that no escrow needs to be involved to transfer funds online. </p>

<p>So no escrow means we all must trust one another if we want to do transactions with one another? Because one person must receive or send the goods first, and must do so on good faith that they will receive the compensation.</p>
 -1: <p>The reason you feel "more confident" using government-backed currency is, well, because of the government. And what the government has to offer that something like Bitcoin hasn't, is the promise that it will prosecute and possibly even incarcerate the person that violates your trust, and the fear of that promise is what affords the level of trust you experience. Government currency is backed by fear.</p>

<p>Bitcoin, on the other hand, is backed by "love." What this means is, in Bitcoin there is genuine "trust." If someone violates the rules, then by default they can assume that they will not be prosecuted, and they do not go to any jail (for now). In a world of trust, what matters is reputation: how many times in the past has this person or entity honoured their debts? MtGox.com is a reputable source not because you have any idea who the people behind it are (though you might) but because it has been processing thousands of transactions similar to ones you might do yourself for years.</p>
 3439: <p>I will add Lohoris's comment as an answer, because it really is the answer to the question. Bitcoin does not directly try to address the issue of trust in a transaction.</p>

<p>Therefore, yes, some trust is needed because one party still has to be the first to hand over goods and/or cash. I just read a post on the bitcoin subreddit that relayed a story of getting ripped off after handing over BTC.</p>

<p>Now, Bitcoin does make some aspects that make fraud harder, most specifically a transaction log. If the recipient address is either well known, displayed on an invoice, or recorded in an email, it is trivial to prove that you sent BTC to that address. (Of course if you obfuscate the transaction through a mixer, that removes this benefit.) But, even then, that is just providing tools to law enforcement/court or some other sort of after-transaction dispute process. And, given law enforcement's lack of experience with Bitcoin, and the irreversibility of Bitcoin transactions, if you don't trust the party you are trading with then you may have to engage some sort of escrow service.</p>

<p>Update: Per request, <a href="http://www.reddit.com/r/Bitcoin/comments/1b89wm/i_just_got_robbed_blind_of_bitcoins_in_person_im/" rel="nofollow">this is the reddit post</a> I mentioned.</p>
