Bitcoin started as currency, but its enormously deflationary record has turned it into an investment.
If you can explain why people might want other things more than they want bitcoin, you can explain why the existence of bitcoin won't prevent people from buying those things. And whether they already hold bitcoin or not is totally irrelevant.
Bitcoin's deflationary nature makes it bad as a currency. The rapid price gains do indeed prevent people from using it to buy things. Here, noted investor and Bitcoin proponent Fred Wilson has said he's stopped using it for commerce: http://avc.com/2017/08/store-of-value-vs-payment-system/
This is in contrast with cash, which people don't hold on to in the same way. Nobody goes out to dinner and says, "I'm only getting a appetizer because this $20 bill will be worth more next week."
Bitcoin already exists in the world. People can already buy bitcoin instead of other things, and yet people still buy other things. Why is that?
Nobody says "I'm only getting a appetizer because if I invest the money instead this $20 will be worth more next week."
Investments already exist and yet they don't stop people from spending on other things.
Currencies are well-studied economic entities. So are investments. They have different purposes, and people behave differently with respect to them. You can feign ignorance of the two all you like, but that does not erase the difference.
> Nobody says "I'm only getting a appetizer because if I invest the money instead this $20 will be worth more next week."
People in fact do that all the time. People spend less so they can invest more. They trade currency for an asset whose value they expect to appreciate. If that asset does indeed appreciate, they are far more likely to hold onto it than cash, especially if they expect to it to appreciate yet more.
I gave you a specific example of a prominent investor and Bitcoin advocate shifting from treating Bitcoin as a currency to treating it as an investment. Which you ignored, just like you're ignoring basics facts about finance.
It's like saying all computers are basically the same -- which they are -- and then going on to conclude desktops and smartphones and rack-mounted servers are all interchangeable.
Bitcoin may be a great investment asset. Time will tell. But its deflationary nature and its high volatility make it a bad currency. That's in obvious contrast to the original intention, which was a "purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
See here, for example, for a prominent Bitcoin advocate explaining that he no longer uses it as a currency: http://avc.com/2017/08/store-of-value-vs-payment-system/
This is especially a problem when a currency is used by a lot of people. It discourages economic activity and increases the value of debt. Imagine, for example, that you had taken out a Bitcoin-denominated car loan on Jan 1 2016 with a monthly payment of 1 BTC. That's about $440 at the time, or 15 hours at the median US wage. Now you'd have to work 40x as much to cover the loan payment, or about 20 hours a day just for your car. Meaning you would have been driven into bankruptcy.
Luckily for its users, Bitcoin never really took off as a currency, so their debts are in much more stable national currencies. But as you see with Fred Wilson, many experience sharp regret for the times they did use it as a currency.
You don't see that as a problem? Why buy things with BTC when it's better (for now) to just hold it?
It's the same thing: opportunity cost of not owning Bitcoin (or any other investment). Each person decides how confortable they are with the risk.
There are already things you can buy that are likely to go up in value over time, relative to the US dollar (e.g. stock market index funds). If the existence of those investments (that people can buy instead of other things) doesn't stop people from buying other things, why would a deflationary bitcoin stop people from buying other things?
But that applies just as well even if you don't already own the bitcoin (you could just buy bitcoin instead of the other thing). Why does anyone buy anything that's not bitcoin? Because they want those things more than they want bitcoin. That doesn't stop being true just because you can pay for things in bitcoin.
Identical reasoning applies if you replace "bitcoin" with anything else that you think is going to go up in value over time. And people still buy things. The sky isn't going to fall down!
This is wrong. As the amount of coins grow, the amount of coins generated per block decreases (it halves every ~4 years). The difficulty is completely unrelated to the amount of coins in existence and is instead derived from the hashrate: as hashrate increases, difficulty increases, to target a block rate of 1 per 10 minutes.
> Doesn’t this completely undercut the idea of bitcoin as currency?
I don't think so. Right now people can buy bitcoin which is "guaranteed to become more valuable", and yet they still choose to buy things other than bitcoin with their USD.
Why would it be different if their base currency was BTC instead of USD?
Even if you don't think bitcoin is "guaranteed to become more valuable", there are plenty of things that are close approximations to that (pick any good investment), and yet people still choose to buy things other than investments. How do you explain that? Whatever reasoning you use to explain that can be applied verbatim to explain why people will buy things with BTC instead of just holding it.