>Then you have what we’re seeing in America, which is the long, slow erosion of wealth and savings through a steady stream of monetary inflation.
Inflation does not reduce wealth. Inflation reduces the value of money. All real goods and services are worth what they're worth, regardless of the stick used to measure them. Inflation only changes the nominal measure of wealth, not wealth itself!
Furthermore, economists generally regard a small amount of inflation as better than a small amount of deflation. First, inflation helps keep prices and salaries less sticky, by constantly devaluing them. Second, inflation helps keep the banking system working (I believe). If nominal interest rates ever go negative, people will withdraw deposits from banks and just hold cash (which always has a nominal interest rate of 0%).
>Not only does inflation slowly eat away at individual wealth, but it also disincentivizes savings.
How does inflation disincentivize savings? Assuming that nominal interest rates are constant, then yes, inflation leads to lower savings. But when inflation is high, nominal rates are high, and when inflation is low, nominal rates are low. The relationship is not clear. Also, remember that S=I, savings=investment. A common misconception is that savings is putting cash aside for the future, whereas investment is spending cash on the future. However, they are actually the same thing. Read more about why savings=investment here: http://www.themoneyillusion.com/?p=12617
>One Bitcoin user created an exchange which completely solved the problem of violence in the drug trade.
This user also allegedly hired a hitman to murder someone.
>Governments try to control currencies. With all that power, shouldn’t they seek to learn as much about them as possible? Why would anyone attempt to kneecap thousands of unpaid, volunteer experimenters, who are constantly sharing with the world what we’re learning about how money works? It’s very odd.
I think the US Government is concerned with people breaking its laws. In this case, illegally buying drugs and illegally not paying taxes. It sounds like a reasonable concern to me, though I admit I'm not well informed and I welcome additional comments.
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One big downside of a "free" currency is that there are no restorative forces to keep its value constant. A huge advantage of having the US government behind the dollar is that the US can control the value of the dollar. Most of the value here comes, paradoxically, not from controlling the dollar but in markets believing that the US can control the dollar. Those market expectations then themselves keep the value of the dollar mostly constant. Having a currency with a predictable and constant value is hugely important for trade. For this reason, I can't imagine Bitcoin ever succeeding on a large scale for a long time.