A nit pick:
There has has to be enough money, in sensible units, to represent the value of all the goods and services that are traded with it, so as the economy grows, there has to be a proportional increase in the money supply, otherwise your currency will appreciate to unwieldy levels and you'll suffer from effective deflation.
The key idea here is not that you need enough currency to complete all transactions (since money gets reused many many times), but that people's desire to hold a currency is a key determinant of its value. If people's desire to hold a currency increases in real terms (such as during , but the nominal amount of money does not increase then the currency has to appreciate. This can lead to unwieldy currency units as you mention, but it also has bad dynamics. An overall shortage of money will lead to a reduction of economic activity as people try to get more currency (this logic also works in the reverse direction).
Fiat (public or private) currencies have the advantage that they can increase or decrease the amount of their currency in circulation at will using open market operations to match people's overall desire to hold their currency. Whether this advantage is actually an advantage depends on how good of a job you think central banks do of actually doing this.
Inflation talk like this always makes me antsy. I pretty much agree with what you say above, but a monetary interpretation of inflation, specifically as regards the money supply relative to total economic activity, strikes me as the most sensible way to talk about why we'd experience de facto deflation with an exhausted commodity-backed currency in a growing economy, which was the salient point as far as bitcoin and the Gold Standard are concerned.
I don't think the desire-to-hold interpretation of currency value is incorrect (in a sense it's almost tautol...
Less Wrong used to like Bitcoin before it was cool. Monthly threads popped up around the same time a pricing bubble brought mainstream attention last year. When the bubble popped, and price continued to deflate, discussion on this site stopped entirely. Was there a change of sign in the social status of the topic, is the topic fully explored, or has there simply happened nothing of interest over the last year?
If you are not familiar with Bitcoin, here is one intro I happen to like.
Kaj Sotala lists a number of previous threads on the topic:
Less Wrong seems like a good place to discuss recent developments, if one does not want to suffer the inanity of the officially unofficial forum. If you are not longer interested in Bitcoin, perhaps send your remaining balance to the Singularity Institute?