This fundamental flaw is absolutely glaring to anyone who has any understanding of economic history -- and it's amazing to me how many technologists willfully disregard several centuries of accumulated experience. Because of their built-in deflationary spiral, Bitcoins can never meaningfully be used as a medium of exchange: it will always be tempting to keep your Bitcoins in your pocket and let them appreciate instead of using them for needed goods and services. (And certainly, no one will take on debt denominated in Bitcoins. Can you imagine if you had taken out a Bitcoin-denominated mortgage a year ago?) All of this looks a lot like the 19th century in terms of economics, which suffered from manic booms and absolutely devastating depressions on a regular basis.[1] It took the mother of all depressions -- a decade-long monster that casted a generations-long shadow -- to permanently shift thinking. While economists still debate the precise causes of the Great Depression (and why so many attempts to right the economy in the 1930s failed), there is broad consensus on one key element: deflation is an economic carcinogen, and must be avoided at all costs. As such, Bitcoin is macroeconomic cancer -- no matter how breathless its techno-utopian proponents may be.
[1] Kindleberger, Charles P. and Aliber, Robert (2005 [1978]), Manias, Panics and Crashes. A History of Financial Crises, New York, ISBN 0-465-04380-1
[1] Kindleberger, Charles P. and Aliber, Robert (2005 [1978]), Manias, Panics and Crashes. A History of Financial Crises, New York, ISBN 0-465-04380-1