People won't accept Bitcoin for actual goods and services if they don't believe it will hold its value.
The same applies to any type of money. Google "hyperinflation".
Also, how much of an effect this is depends on how long people expect to hold money in between transactions; see below.
they will require you to pay x% more in Bitcoin (at current exchange rates) where x is a premium to account for the expected loss in value over the period they expect to hold the Bitcoins, plus a margin for risk.
People do the same thing with dollars and other currencies based on the rate of inflation they expect, i.e., the rate at which they expect dollars to lose their value.
Also note that qualifier: "over the period they expect to hold the Bitcoins". In other words, people need enough cash to cover current expenses for some period of time; but that amount can be pretty small compared to their total wealth, and it gets smaller as technology advances and economies evolve. People used to get paid quarterly, so they needed enough cash for a full quarter's expenses. Then the payment cycle became monthly, and now many people get paid biweekly or even weekly, so they need to hold less cash to cover expenses. (More precisely, they need to hold less as a fraction of their total wealth.)
I'd see "governments have a huge incentive to outlaw it" as a pretty major inherent inferiority
It's "inherent" only in the sense that we're not likely to get rid of governments any time soon. Is that a problem with Bitcoin, or a problem with governments?
The same applies to any type of money. Google "hyperinflation".
Also, how much of an effect this is depends on how long people expect to hold money in between transactions; see below.
they will require you to pay x% more in Bitcoin (at current exchange rates) where x is a premium to account for the expected loss in value over the period they expect to hold the Bitcoins, plus a margin for risk.
People do the same thing with dollars and other currencies based on the rate of inflation they expect, i.e., the rate at which they expect dollars to lose their value.
Also note that qualifier: "over the period they expect to hold the Bitcoins". In other words, people need enough cash to cover current expenses for some period of time; but that amount can be pretty small compared to their total wealth, and it gets smaller as technology advances and economies evolve. People used to get paid quarterly, so they needed enough cash for a full quarter's expenses. Then the payment cycle became monthly, and now many people get paid biweekly or even weekly, so they need to hold less cash to cover expenses. (More precisely, they need to hold less as a fraction of their total wealth.)
I'd see "governments have a huge incentive to outlaw it" as a pretty major inherent inferiority
It's "inherent" only in the sense that we're not likely to get rid of governments any time soon. Is that a problem with Bitcoin, or a problem with governments?