Thanks for sharing your thoughts. For bitcoin to further gain traction and get past the early adopter gap it it needs to be seen as useful to those who are not already using it, so you've presented valuable info.
However, even if the coins themselves are secure, the mechanisms used to store and exchange them don't appear to be.
There are different methods to store bitcoins, with varying levels of protection from the risks. The greater the amount of value stored the greater the attention to the level of protection is necessary. The methods that are the most secure also have higher costs (special-purpose equipment and knowledge, and the cost of inconvenience). Thus is not unlike in the real world. Paper currency in your back pocket or purse is cheap to manage and is convenient and is adequately secure enough that most people will carry around $100 or more without worry. For amounts than that they use more secure methods (e.g., bank account).
involving multiple wallets, flash drives, live cds etc. That might be more secure, but it might be way too complicated for the average non-technical minded person.
I also note that a couple of major exchanges have been compromised.
And that gets lots of press, yet in those instances customers didn't lose access to their funds. Bitomat's funds were restored through Mt. Gox acquisition. Bitcoinica ate the losses. In each of those incidents the underlying security inadequacy has been identified and remedied. There will always be risks and new vulnerabilities discovered -- so keep that in mind when considering how much and where your bitcoin (and fiat) funds are stored.
Of the exchange markets based in the U.S. (Camp BX, BitFloor and previously ExchB) there had been no been no compromises reported and no customers reporting problems accessing funds.
Another thing is the ease of entering the market. I considered buying bitcoins almost as soon as I heard about them, but I learned it's not a simple process. None of the major exchanges take the more common online payment methods, with bank transfers being the only non-obscure option.
In the U.S., cash deposit at a bank through BitInstant is the easiest (though not cheapest) method. BitInstant supposedly is coming up with a way to accept cash for getting funds into bitcoin for those from other parts of the world.
have a few good businesses that prefer BTC. As it is, I suspect most people have to be convinced of the merits of the BTC system itself, and since most people aren't that interested in economics it limits the market.
There already are merchants that have this preference. Coinabul is able to leverage bitcoin's strengths to be able to compete against other bullion dealers because Coinabul's competitors rely on the slow banking system or they have the added expense of payment cards in market that sees a lot of fraudulent purchases.
Here's a list of categories of merchants that might benefit from bitcoin:
But for now it is a chicken and egg situation. Those using bitcoins are a small market so merchants that consider it aren't immediately convinced enough to proceed.
Finally, I think the value of bitcoins will be limited if they're only used in online transactions. Not everyone in the world has a home computer with internet, and even fewer have the knowledge and means to properly secure their bitcoins.
The market for a merchant that sells online is orders of magnitude larger than one that requires physical presence. For instance, GrubGo has a lot of enthusiastic bitcoin fans for its to-go restaurant delivery service, but only a tiny fraction of these fans live in St. Louis and can patronize them.
There are a number of solutions at the edge though. Gift cards that can be spent at retailers but purchased using bitcions is one such area. SpendBitcoins sells Kroger gift cards, for instance, which are USD-denominated and redeemable at Kroger, Ralphs, Food 4 Less, Fred Meyer, and elsewhere. This lets you use bitcoins as a store of value but cash out to a fiat you can use without losing a chunk in the conversion to fiat.
Here's a thread describing the various ways Bitcoin is gaining traction:
Maybe at some point in the future there will be bitcoin swipe cards, with service centers to convert BTC to and from fiat currency.
But everyone has (or will have) a mobile phone. Particularly useful are smartphones. Have you seen the Blockchain app for Android or iPhone? As far as buying bitcoins when you only have one of these the BitInstant + Coinapult combination.
I'm sure what I've said has been said before, but like I said I guess I need to post something.
And you did a fantastic job with it. Welcome to the bitcoin community!