Deflation is worse than inflation. Inflation devalues your savings, thus encouraging (forcing) you to go out there are do more work to earn more money (generate more productivity). Deflation increases the value of your savings, thus discouraging
you from working - why bother doing something productive when the money you have stuffed under your mattress is increasing in value enough to pay for your living expenses?
Currencies are stable when the money supply expands at about the same rate as the productivity of the country's citizens (basically GDP - a combination of population growth and increased productivity due to technological advances). That causes prices to remain stable when measured in the currency. Ideally, a government with a fiat currency moderates their money supply to slightly exceed this productivity growth rate, which causes a slight amount of inflation (prices slowly climb). Yes it's true that when a government screws things up (e.g. Venezuela right now), it can cause massive problems. But like regular oil changes for your car, there's a huge incentive for all governments to maintain their own economy.
The whole reason we abandoned the gold standard is that it's really stupid to base your economy's health on the gamble that the amount of gold miners dug out of the ground each year would match the rate of growth of your country's GDP. Historically, the amount of gold mined each year did not keep pace with economic growth, resulting in deflation, which led to higher economic instability. If you look at the history of recessions in the U.S.
, in the 45 years since 1971 when we went off the gold standard, there have been 6 recessions, or 1 per 7.5 years. In the 45 years prior (1926-1971) there were 9 recessions, or 1 per 5 years. The 50 years before that (1875-1925) saw 13 recessions, or 1 per 3.8 years. And the 50 years before that (1825-1875) saw 13 recessions as well. The amount of economic contraction during recessions has also been smaller since we went off the gold standard.
Unfortunately, bitcoin perpetuates this stupidity. Its value is based on (1) the rate at which people are able to "mine" bitcoins by solving increasingly difficult math problems, and (2) its total supply is capped at about 21 million coins. The very fact that bitcoins are appreciating in value is evidence that it's a terrible
choice of a currency. You want the prices of staple goods to remain relatively stable in a currency. Instead, bitcoins are so deflationary that early adopters are literally able to live off of bitcoins they've stuffed under the mattress, instead of actually doing any productive work. A currency which enables that behavior is fatal to an economy. I'm not saying all
crypto-currencies are flawed, or that there's no benefit to taking a currency out of government control. Only that bitcoin is fatally flawed in that it accomplishes the latter in the worst possible way. The huge increase in the value of bitcoins since its inception is not an indicator of its strength, it's an indicator of its unsuitability as a currency. It proves that bitcoin is incapable of scaling properly with the number of people using it (productivity growth due to population increase). In that respect it's more like real estate - where people who were born earlier were able to buy up most of it cheaply, leaving the current generation unable to afford to buy a home.