Since bitcoins are inherently deflationary, it's hard to argue that they make a poor investment vehicle. However, it's the inherent long-term lack of liquidity

Since bitcoins are inherently deflationary, it's hard to argue that they make a poor investment vehicle. However, it's the inherent long-term lack of liquidity that dooms this usage. To be viable in scale, a cash-replacement like bitcoins needs to be highly liquid, but there are two effective choke points to this specific hidden economy. The first is that conventional retail businesses (as opposed to individuals) must accept the currency _in_scale_, and there are a number of reasons this won't happen, including the trackablity of bitcoin usage over the network (and inevitable IRS issues). The second is that paypal, banks, etc, will shut down conversion sites, as paypal is already beginning to do, and that will severely diminish the usefulness of the system.