The biggest hole in the presentation is the casual dismissal of deflation as an economic risk for a currency. Advancing demurrage as a solution is sheer madness.
I did not propose demurrage as a solution, I was trying to describe the concept for people that were interested in alternatives to printing-based inflation.
I did not dismiss deflation as an economic risk, it certainly could be. But I'm saying that deflation is toxic to our current economic structure, simply because we are inflation biased, and so everything is designed with that in mind. Switching from an inflationary economy to a deflationary one would certainly be devastating.. but in the long run, once the correction had happened, what would it be like? That's a question we actually don't have a lot of evidence on.
In a world of alternative currencies, is deflation of one such a bad thing?
I think that the salient issue with Bitcoin is that it is going to deflationary at a set time and while people may hoard it, its divisibility 1/(10^8) should allow it to be used for exchange for a very long time.
I'm eager to see what happens. As far as I know, this is an unprecedented experiment in absolute scarcity psychology. Real Estate is still being developed, gold and other precious metals can be mined, but past a point, Bitcoin won't be. Imagine the economies around irreplaceable fine art along with divisibility. My suspicion is that Bitcoin has been given sociological imprinteur as a store of value, and it is hard for that to be erased entirely. In curious whether later virtual currencies can compete in a way which devalues Bitcoin.
Here is a related thing that I haven't full wrapped my head around: if I were to lose the key of my hypothetical bitcoin wallet, any bitcoins contained within are lost from the economy ... forever. So it is actually a finite and slowly decreasing number.
