If any first-world government decides to flex their legal muscles to shut down exchanges, that will kill off the adoption rate and at the very least cause bitcoin usage to stagnate.
This seems like its just a matter of time considering they have cracked down on any alternative currency in the past.
What can bitcoin do to survive in such a state?
I agree. I have considered doing some small business (buying/selling) using bitcoins, and probably will, but it seems to be a hassle to convert from bitcoin to cash. And then there's this too..if bitcoin just dies one day then my coins are useless.