So why would I choose bitcoins over fiat when the former has a potential upside of a tin can under a lit stick of dynamite?
If you are saving in bitcoin then to make a purchase with those coins, any purchase, you need to then either cash some coins out to fiat, which incurs an expense, or you can use them as the method of payment.
So if you can spend the bitcoins rather than cashing them out that gives you an immediate return over the cost of quickly convert those coins to cash. If you wish to maintain a level position of bitcoins, then in response to the spending you can then use an inexpensive bank transfer to purchase more coins that will replenish the amount that you spent.
There is nothing I want to buy with bitcoins that I can't buy with fiat.
That's not entirely true. Can you play an equivalent with SatoshiDICE using any other payment method?
Even so, Bitcoin brings benefits to merchants allowing them to offer a discount when the customer pays using Bitcoins versus credit card.
Tangible Cryptography, for instance, sells $100 of AT&T wireless service for an amount of bitcoins worth just $95. (i.e., the customer receives a 5% discount when paying in bitcoins). Take that 5% now, and replenish your coins with an inexpensive bank transfer -- you come out ahead versus just saving the coins.
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http://bt.irlbtc.com/view/82924.0Where this could get wider traction is for high dollar, high volume purchases. For example, people will pay cash at gas stations that offer a ten cent per gallon discount for paying cash. Consider if they let you pay bitcoins and get that same discount. (or because cash is expensive, the bitcoin method is even cheaper than the cash payment method.)
And then there are other categories that are just ripe for Bitcoin adoption. Merchant accounts for travel billings are considered "high risk" due to the high chargeback ratio. So that is an example where the merchant can use bitcoin to gain a competitive advantage.
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http://bt.irlbtc.com/view/73694.0