I cannot judge whether bitcoin represents a technological breakthrough, but I am confident that the pseudo-currency’s popularity shows widespread economic amnesia. If bitcoin ever became a real currency, it would suffer from the crippling problems of the gold standard.
The underlying problem is the belief that the electronic token’s independence from the government is a good thing. This libertarian notion could hardly be more wrong. Money is a common good for the whole society, and in the contemporary world governments are the pre-eminent social guardians.
It is true that under dire circumstances people might have to resort to an inferior monetary substitute. If a government collapsed or totally trashed the monetary system, then some privately issued money could be the least bad alternative. In such apocalyptic times, though, a software protocol which relies on secure electronic communications would not be first choice. Gold, which is tangible and not subject to hacking, is more plausible. So are old baseball cards.
But for the sake of argument, assume that bitcoin or something like it did actually become the leading currency in a monetary dystopia. People would learn soon enough why non-government money works badly.
Deflation is an obvious issue. Price declines are inevitable when a finite supply of bitcoin money, a feature of the software, meets an expanding supply of purchased goods and services. That would be uncomfortable. Consumers might delay purchases as they wait for prices to fall, workers might chafe at regular annual wage cuts, and creditors would be even worse off.