"Eventually the money becomes worthless."

This is a fundamentally untestable hypothesis: there are many currencies that have suffered hyperinflation, yes, but many others which have gone on for decades without any real harm. You can claim that at some point in the future the currency will fail, and no matter how much time goes by you still won't be proven wrong.

As it happens, commodity-backed currencies aren't immune to problems either. The informal use of tobacco as currency in the colonial South led to a vast overproduction of tobacco and what we would today recognize as severe inflation (Friedman, Free to Choose). You need commodities that are inherently difficult to increase the supply of. In the 19th century, the American government had a seemingly perfect solution: a fixed ratio of dollars to silver, as well as a separate fixed ratio of dollars to gold. Long story made short, a silver rush disrupted this system and necessitated a move to the pure gold standard. The gold standard directly caused a lot of deflation though, which was a severe practical problem and a contributing factor to the Great Depression.

"Throughout the history of central banking in the united states we've had all of the worst financial crises and extreme loss of value (the dollar has lost 98%) of it's value since the federal reserve took over."

As it happens, this doesn't cause any real problems. It's ideal of course for neither inflation nor deflation to occur, but the consequences of deflation are so much more dire that, as a practical concern, we err on the side of inflation.

The economic consequences of mild inflation are as follows: there is an incentive to invest or spend money rather than bury it in your back yard, and there is a small degree of information loss in the price system as prices rise due to inflation. The economic consequences of deflation (an incentive to bury money in your back yard) have catastrophic consequences. The main advantage of fiat currencies is that it's possible to grow the currency at close to the same rate as the economy itself, so the degree of inflation or deflation can be controlled and minimized, with a bias towards inflation since that is the less harmful of the two. Any natural commodity has its own fluctuations in value, both natural and artificial, i.e. the Fisk/Gould plot to corner the gold market during the Grant administration.

Finally, some notes about gold in particular. There are a number of reasons gold is an infeasible currency base in the modern day. One is that, were the entire world monetary supply backed by gold, the price of gold would be so high as to all but eliminate the use of gold for any useful purposes. Of course, the whole world wouldn't switch over at once, but any single country that did would run into a lot of problems. A large country would increase the cost of gold to unreasonable levels--a small country would be at the mercy of any other country with significant gold reserves which could, by selling off gold, tactically devalue that country's currency.

"Lastly, if a currency is good it doesn't have to be forced upon you; if people actually believed in fiat currencies they would allow competing systems and abolish legal tender laws."

Legal tender laws predate even the gold standard, and are probably a practical necessity for debt to be enforceable. At the very least, the government has to mandate a specific currency for people to pay their taxes in, and it's probably just as important for the government to mandate a specific currency for legal judgments to be paid in. There is no actual law against you setting up shop and accepting gold as payment, but if someone runs their truck into your shop and you sue them, no court is going to bend over backwards to make the truck driver pay you anything except US dollars. What you're describing is essentially a barter system, where you only accept payment in gold, your neighbor only accepts payment in silver, your friend only accepts payment in chickens, and I only accept payment in portraits of Benjamin Franklin.

So, let's say we have a gold standard. Well, as I intimated above, a gold standard is just as much a fiat currency as a "Ben Franklin portrait" standard: the government up and tells you that something is money, therefore it's worth more than it should be for any practical purpose. Given the choice, a currency that can be managed to prevent serious financial problems is preferable to a currency that can't.

I'd be more than happy to answer any other questions, or clear up any misconceptions about this issue.