Bitcoin does not inflate since there is a fixed amount in existence. However, currency that deflates is dangerous because then you end up with a bunch of people hording that currency. People think "If my currency is worth more tomorrow than it is today then why spend it?". Once Bitcoin hits mainstream it could enter a similar state. Actually it kind of already has happened. Eventually, some time down the road, all 21 million Bitcoins will be mined. Once it is mainstream, Bitcoin will reach a state of equilibrium where it has a stable value.
Over time, the number of Bitcoin in circulation will shrink. People will lose their keys and those Bitcoins will be lost forever. This makes the supply go down and the demand go up. Since the demand increases nobody chooses to spend it. That is where Bitcoin Erosion comes into play.
Bitcoin Erosion could keep bitcoin circulating. What it does is it puts a fixed portion of the bitcoin of every address back into a mining state. For example, lets say you have 1,000 BTC. Bitcoin erosion happens and now you only have 999 BTC. The other Bitcoin has reentered the mining state where it can be mined again.
Because of Bitcoin Erosion people will have incentive to spend the currency. Nobody ever likes to hold onto something that will go down in value over time, but as long as it is at a lower rate than the dollar or other currencies it will still be more valuable than that. In other words, Bitcoin erosion makes Bitcoin lose more value than the goods or services you are purchasing over a long period of time in order to give incentive to spend, but not more than any other currency so that it becomes the most popular and used currency out there.
Another thing about Bitcoin Erosion is that it would be fixed. People like things expected. A fixed rate of erosion makes it easier for people to plan their future.
Maybe this is a terrible idea. Maybe it is a good one. I thought it would be interesting for discussion nevertheless.
Over time, the number of Bitcoin in circulation will shrink. People will lose their keys and those Bitcoins will be lost forever. This makes the supply go down and the demand go up. Since the demand increases nobody chooses to spend it. That is where Bitcoin Erosion comes into play.
Bitcoin Erosion could keep bitcoin circulating. What it does is it puts a fixed portion of the bitcoin of every address back into a mining state. For example, lets say you have 1,000 BTC. Bitcoin erosion happens and now you only have 999 BTC. The other Bitcoin has reentered the mining state where it can be mined again.
Because of Bitcoin Erosion people will have incentive to spend the currency. Nobody ever likes to hold onto something that will go down in value over time, but as long as it is at a lower rate than the dollar or other currencies it will still be more valuable than that. In other words, Bitcoin erosion makes Bitcoin lose more value than the goods or services you are purchasing over a long period of time in order to give incentive to spend, but not more than any other currency so that it becomes the most popular and used currency out there.
Another thing about Bitcoin Erosion is that it would be fixed. People like things expected. A fixed rate of erosion makes it easier for people to plan their future.
Maybe this is a terrible idea. Maybe it is a good one. I thought it would be interesting for discussion nevertheless.
As far deflation is concerned, I don't think it would be a concern unless you expect bitcoin to replace conventional currency or more than 50% of world population adopt bitcoins. Bitcoin price is directly proportional to its economic growth, more demand, higher the price, but yeah the supply is limited. And this is why people are holding on to bitcoins, but would bitcoin be only used as an speculative asset? No. Sooner or later bitcoin would evolve into a somewhat stable medium of exchange. People would use it to buy things.
Bitcoin is divisible. In the future being an hodler I could buy a product for $1000 or 0.03, I would opt for 0.03. People who have invested majority of their earnings/savings into bitcoin do spend it when need arises. I do believe in spite of hoarding there would be a steady circulation of coins among peers in future.
Idea is good, but a bit odd, its like you are paying interest for holding on to a currency
...No one would like their bitcoins getting eroded, it's like lost coins. 
