Part of the problem with a currency that is suspected to gain value is that people are less willing to spend it. I think people would be more willing to accept it as a currency if it made some attempt to maintain a constant value instead of an increasing value.
Yeah, that's actually a major
issue IMO, and the worst part of that problem is: it seems that a lot of people very involved in BTC think that this on the contrary is a strength. This can even be read it the FAQ
(not with those words, but that seems to be the idea): "don't worry, there won't be inflation but rather deflation, it's a great thing". No, it's not. If BTCs keep gaining value, clinging to your BTCs instead of spending them is actually a profitable investment. Since I don't think anyone will put all their money or even the majority of their money into BTC, noone will be forced to spend them, ie it's possible that everyone just cling to their BTCs. How useful is a currency if noone is willing to spend it? Real world money keeps losing 1-2% value every year, and when you think about it, that's definitely a strong incentive to either spend it or invest it, and not to keep it dormant in your safe like you'd do with, say... gold? Which leaves to my next question: are you guys willing to create another currency or to create another gold?
If you're willing to create another gold, then there's a problem: real gold actually has an intrinsic value, ie it is required to build some electronics components, and lots of
want jewelry made of gold. The same is not true of BTCs. BTCs serve no component-building purpose nor decorative purpose. If all the BTCs of the world end up in a forgotten stash on a forgotten hard drive, noone will miss it. At best maybe someone will create another BTC-like e-currency.
I'm actually mining at the moment, but have no plan of selling or spending my BTCs any time soon...
Increasing value is a problem, but I can't think of any good way to solve it. They need to be percieved as limited in number because they have no value otherwise. Miners don't need both an increasing difficulty and decreasing value of thier product over time. I'm planning on selling games for SC/BTC, but i suspect I'll have to sell them for less than they're worth in those currencies because customers will factor in the currencies potential when deciding to exchange for goods. Still, I love the idea of cryptocurrency, so I'm going to give it a shot.
I believe this is the biggest issue with bitcoin's acceptance right now. There's a catch-22 in which, as the currency gains in acceptance, it also goes way up in value. As it goes way up in value, it is perceived (rightly so) as unstable, making it less attractive to being accepted in the first place.
Sure, we have merchants out there accepting bitcoins for payment, but almost nobody is *pricing* in bitcoins. That's because it's so obvious to everyone that the value of bitcoins is a big question mark. You would have to be pretty bold to price your goods on your store in bitcoins and then go to bed, when overnight the value could fall 50% and somebody could buy out your entire store at half price.
I suspect we could do better, but we are going to have to let go of the "fixed-number-of-coins" love affair that we currently have going on. I'm just as much of a libertarian-leaning gold-standard Austrian nut as the next bitcoin guy, but I think in this case we need to see past the fixed-number-of-coins limitation. Slowly people are starting to catch on. Over in the Alternate Cryptocurrencies forum there's a proposal for "EnCoin" -- somebody's idea of how to design a coin which targets a number of KWH worth of electricity as it's value. That proposal may or may not work, it's got a lot of details to hash out.
We could also have a coin that targets a number of ghash as it's value, by simply having the number of coins per block be proportional to the difficulty of the block and never capping the number of coins. We may also need to have transaction fees that are destroyed or something similar to keep some upward pricing pressure; I haven't worked out all the details, but I have yet to hear a convincing argument for why this or something like it wouldn't work.
People say that nobody will adopt such a coin because it cannot promise to make them rich. I say, the promise of making you rich is exactly why bitcoin took off with early adopters AND is exactly what holds it back from more mainstream types. We have to let go of getting rich off the currency. That's the whole problem with govt-backed currencies anyway -- some minority gets rich off the currency at the expense of everyone else. Bitcoin is no better in this regard, but we CAN do better.