If you have two forms of money, one of which is inflationary and one of which is deflationary, it becomes rational to hold the deflationary one and spend the inflationary one. Eventually all transactions happen in the inflationary currency, and people forget that the deflationary one is money at all - it just becomes a collectible.

One of the intriguing possibilities of cryptocurrency to me, though, is the idea that a currency could have its inflation rate algorithmically determined so that all market participants know exactly what it'll be worth in the future, irrespective of the actions of any central bank. Extra points if any new money injected goes to people actually transacting with it rather than people holding it as a store of value.

I've long thought the problem with the Fed isn't that it exists or that it increases the money supply, it's that it injects new money at the top of the economy (banks etc.) and measures its effect at the bottom of the economy (consumer prices). That a.) gives a long time lag between the Fed's actions and their effects, which tends to make them overcorrect and b.) means that all sorts of shenanigans can go on in the meantime.