Namecoin: Distributed (p2p) domain registration system based on bitcoin

One, how much value is notionally stored in the system. At this moment, it's roughly $51.4 million (6.192M bc at exchange of 8.3 usd), which is starting to be interesting. An order of magnitude higher, and it's definitely interesting.

Two, what can actually be bought with the currency? This is still lagging considerably. It's almost entirely trinkets or not-very-interesting services that have no marginal cost to the producer. No one has put much faith in Bitcoin by putting their livelihood on the line with it, and that makes it less interesting.

There's a fledgling trade in controlled substances via Silk Road, but having that as a primary example makes me considerably less interested. Not only am I not in the market for such, growth in this area virtually guarantees the ultimate failure of Bitcoin due to government action.

The right approach to grow Bitcoin as an actual currency which is truly exchanged for goods and services is to offer something that people really want exclusively through Bitcoin. The extreme example would be the iPad. One producer, very high demand. Dollars (and thus value) would flood into the Bitcoin system with something like that.

But where's the incentive for the producer? If you've got something people want, why would you offer it only via a currency no one uses?

There's your core dilemma, and why it's all t-shirts and domain registrations.