Bitcoin is similar to gold in terms of finite supply and increasing mining costs. Every argument you can make against Bitcoin economy you can make against gold economy, but gold economy still works. Actually, gold currency has been throughout the history unmatched by any paper money in stability.
No. Gold was synonymous to "money". Things were valued for how much gold they were worth, not vice versa. We should think of bitcoin today as a new unestablished currency in a world of established alternatives (eg. the Euro 10 years ago). Additionally, if we assume that it became impossible to mine virtually anymore gold today, and we further assume that the demand for gold was perpetually on the rise (for example because women were increasingly using it for jewelery), then yes, it will result in a perpetual deflation for its value and nobody would be willing to sell their gold except for emergencies. Under these conditions, using gold as a means of payment is a sure way for starting a depression!It's an old keynesian argument that deflation is bad because it leads to a "deflationary spiral" where nobody eventually buys anything, because they can get more the next day.
Old and true 
That didn't happen where gold standard was applied.
What has gold standard got with increasing the value of BTCs over time? Gold was ALREADY a medium of exchange when the gold standard was applied. I can imagine that the very first time some human discovered the first gold mine, everybody in their area thought it looked cool and started using it as a medium of exchange. People have been mining gold for thousands of years and we haven't still run out of it. BTCs will essentially stop its generation within 15 years.Maybe some people will not buy today, but they'll buy tomorrow when the price is lower and they want to enjoy their finite lifetime.
They won't buy tomorrow when the price is lower because it will never be lower as we approach the "next four years limit".A good example is the computers market - you can get twice as good a computer with the same price if you wait a few years, but people still do buy computers today.
Computers are totally different because you can't sell them 4 years from now for double what they're worth today. Had this been the case, nobody would ever sell a computer unless he's starving. Heck, just look at NewLibertyStandard's graph. It will keep shooting up as long as this 4-year model continues.Also, it's good to note that production cost doesn't equal value. You could start printing a currency of your own, but it's value wouldn't be equal to your printing costs. The value is zero if nobody accepts them as payment, or it can be more than the printing costs if many people accept it for payment and there's not too many notes in circulation. That's why I've found NewLibertyStandard's pricing by the production costs a bit misleading, giving the wrong picture to some people that bitcoin value is somehow bound to the electricity cost.
If the value is more than my printing costs, I'll be busy printing like there's no tomorrow until the price equals my cost (remember that I'm acting like a selfish unorganized person, not an entity or a country, just like most of Bitcoin users will be). If the value is less than my printing costs, me or anyone who wishes to acquire that currency will buy it from others instead of creating it, raising the price of coins already in circulation and dropping the competition and cost of creating new ones (and in bitcoin's case that means network and proof-of-work failure). So you see, in our coin's case, its market value must equal electricity & computer cost. Not more or less. And in any perfectly free market you'll find a similar situation: price = cost.He may of course sell and buy at whatever price he wants, but he'll be short on either bitcoins or dollars if it's not the market price (supply/demand).
You said it: Supply & demand. What will happen if BTC got successful is that demand will increase while supply dwindles. At some point (after about 15 years) there will be more and more people demanding coins while almost none is generated. This will result in the price increasing until every human on the planet who will potentially use bitcoin has already joined its market (assuming the 4-year doubling thing was removed). And you know what? Maybe that happened to gold in the beginning of its discovery, until almost all people on the planet had gold available to them if they had a reasonable equivalent (e.g. In Arabia, more than a thousand years ago, you could have sold a camel at a time for about 70 gold dinars, and a rabbit for tenth of a gold dinar. Not too difficult to make).There isn't a right and wrong economic model. Every model adjusts to supply and demand, they just adjust in different ways.
Pyramid Schemes is an absolutely "wrong" economic model!The current model is beneficial to early adopters in three different ways.
Who said it should be beneficial to early adopters? I mean, that's cool because I happen to be one, but if it undermines the model's sustainability then it shouldn't stay.The idea of the swarm increasing the amount of bitcoins awarded as processing power increases is interesting, but I think it would give too much advantage to botnets. With a constant amount of bitcoins being generated, they can only collect a days worth of bitcoins per day, but if the number of bitcoins was variable, they could swoop in and generate a thousand years worth of bitcoins in a few weeks.
Uh huh, but botnets can't start generating now and collecting 90%+ of newly created blocks? Botnets/supercomputers will always be a problem in any model. But with a limited supply such as 6 blocks/hour, almost nobody can compete with them (can you wait 2 months for a coin to appear?). While if the supply is unlimited, at least we'll end up getting something, and hopefully trading it for a price close to what you've paid for it.In my ideal model, the same amount of blocks would be generated per day, but 100 bitcoins with no decimal would be awarded for generating a block instead of 50.00 and the amount of bitcoins awarded per block would stay the same forever instead of halving every four years.
That's what I've been advocating as the second-best solution. But we'll need to increase the # of daily blocks to give enough incentives though as I explained in the initial post.