The only way it can be removed from circulation is by providing the labour in the first place. That effect has already been accounted for.

On another note why would this a problem?

The problem is (an expectation of) fewer bitcoins chasing more goods. Removing bitcoins while adding labor doesn't counteract that dynamic, it adds to it. (It's also not true that that's the only way bitcoins are removed from circulation - some have already been lost/destroyed - but given my previous point that's simply an aside).

It's a problem because of what money is. It's not an asset to be held as store of value, it's a medium of exchange to make trade work better. If everyone is refusing to spend their bitcoins because they expect them to be more valuable tomorrow, bitcoin is not being a currency and people have to use other currencies to get things done or things aren't getting done, either of which is an issue for bitcoin-as-a-currency (and the latter an issue for everyone). Arguably bitcoin could continue to serve as an asset anyway, but I don't understand that to be the vision.

None of this is to say that I am confident this will be sufficiently an issue that things stop working, but I definitely see it as a risk.

The primary function of bitcoin is as a store of value, its utility as medium of exchange comes after that.

The only reason people choose to store their labour in bitcoin today is that they predict the same amount of bitcoin will buy the same or greater labour in the future less the costs of converting to/from bitcoin (transaction costs). The only reason they'd store their labour in any other way is if they were getting a better deal.

Said another way, if bitcoin's primary use was as a currency the silkroad shutdown should have lowered the price of bitcoin proportionally. People using bitcoin as a currency could convert into it at the last possible minute instead of holding it. You need people treating it as a store of value for it to have a price tomorrow.

Over time, we've decided that focusing on something that works optimally as a medium of exchange and sufficiently as a store of value is better than the alternative. As I've said, I'm not convinced this is devastating, but it's a concern, and is orthogonal to divisibility.

Who 'we'? And why do they feel its better than the alternative? I can see why the digital dollar trumps gold, the transaction costs are way lower but I don't think bitcoin has the same problem.

It will be interesting to see how this plays out, store-of-value > medium-of-exchange or the other way around. Darwinism in all its glory.

It's certainly the case that gold has problems that bitcoin does not.

It will indeed be interesting to see how things play out, though interesting isn't always good. It might also not be a very good experiment. Path dependence is huge, and the store-of-value role seems likely to play a bigger role in trying to shape expectations around an otherwise ephemeral digital currency while bootstrapping, yet a focus on it might nonetheless wind up ham-stringing us in the long run...

Which, to be sure, is very much like Darwinism has played out in many other contexts.