Cryptocurrencies don't make sense as general currencies because they're deflationary. Currencies need a lot of liquidity to be the grease for the wheels of commerce. It doesn't make sense to pay salaries in a deflationary currency, as people are more inclined to horde than spend. You need a currency with slight inflation but we all know how easy they can be corrupted by printing too much and triggering higher inflation, or printing even more to finance government debt, leading to even higher inflation (wink, wink Federal Reserve).
If "deflation" for you is the increase of purchasing power of a monetary unit (as opposed to the decrease of the supply of those units), you might want to consider that such "deflation" was pretty normal in the US before the FED started it`s management:
http://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svgSource:
http://en.wikipedia.org/wiki/Deflation#In_the_United_StatesI would not agree that we necessarily need a currency with "slight inflation". The finance industry (where I work) needs it, because they want to sell products for people who want do defeat inflation. It`s funny that buying such products is called "saving", whereas simply putting aside a monetary unit for later because it is gaining buying power is called hording.
That's no surprise. Currencies only started being floated in the late 20th century. It doesn't mean the gold standard worked well - it was just the prevailing system before Bretton Woods.
Slight inflation works well because there is an incentive to provide savings as credit for economic growth. Hoarding to me are savings removed from credit or economic investment. If you can expect considerable returns by removing monetary units from supply without risk, it becomes problematic for commerce.
I still believe cryptocurrencies have a role to play as a secondary currency but I can't see them replacing fiat long-term in their current form. I think they'll be useful as an inflation hedge. Until relatively recently gold was still used to consummate large contracts but now it's chiefly an inflation hedge.
I think you raised some good points but I think there is a misconception about the need for inflation. Would things be different if a deflationary currency were used instead of an inflationary currency? Of course. For example, a manufacturer looking to buy new machinery would have to plan well when to make the purchase, especially with improving technology. However, the sooner the equipment is purchased, the sooner new income could be generated, which would later be worth more. The same could be said for the consumer. If you need a new computer, at some stage you have to bite the bullet or you will be waiting forever as technology improves and the currency's purchasing power increases. People need to eat, use water, electricity and the internet, and they need shelter regardless of whether their currency is inflationary or deflationary.
One benefit a deflationary currency could have, would be reducing the quantity of useless knick-knacks people accumulate. I have no doubt there would be a greater demand for quality products if money spent today were worth more tomorrow. There could be more focus on offering upgradeable products, rather than throw-away items.
