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It'd be cool to have digital cash, but I think we're decades away. Unfortunately, it seems that cryptocurrency enthusiasts focus more on the crypto than on the

It'd be cool to have digital cash, but I think we're decades away. Unfortunately, it seems that cryptocurrency enthusiasts focus more on the crypto than on the currency. To be taken seriously, there need to be realistic approaches to things like monetary policy. The ungoverned money supply of cryptocurrencies seems to be touted as a feature, but AFAICT, it's a fatal bug. Think of the money supply as the denominator and total addressable value as the numerator; the goal with a stable currency is to keep the ratio constant over time (or as close as possible). The fixed money supply of bitcoin is a joke. If the currency were successful, bitcoin's fixed supply (a constant denominator) wouldn't keep up with global growth (a growing numerator), which would make the currency more valuable over time. This would result in a deflationary spiral (no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation, etc.) The etherium money supply is said to be TBD, but why would anyone be optimistic? Consider the layers of analysis underpinning the last Fed statement in May: https://www.federalreserve.gov/monetarypolicy/files/monetary20170503a1.pdf https://www.federalreserve.gov/monetarypolicy/files/monetary... A) political philosophy (for the Fed, the goal is to maximize employment and stabilize prices), B) macroeconomic understanding (for example, the relationship between money supply and growth), C) economic data collection (employment, prices, inventory, output, etc.) That's incomplete, but consider: how much of that kind of thing is even approached by any cryptocurrency community? Does anyone think the same kind of extreme care taken by the Fed is going to be replicated? When know-nothing articles like this one pass for news, well... let's just say the emperor's naked.

icebraining 9y ago
We already have electronic money - I can pay using electronic euros just fine. The point of creating Bitcoin was to make something different, a digital currency that couldn't be managed. What would be the point of creating a copy of existing currencies? I'm completely ignorant about the future of Bitcoin, but the reason I like it is because it's an experiment. If nothing else, at least it might serve as evidence for mainstream theories if and when it fails. In any case, it's not strictly true that Bitcoin's supply is fixed, you can have fractional-reserve banking.
- Capt-RogerOver 9y ago
  Fractional reserve banking is exactly what Bitcoin has evolved to prevent :) But yes, if nothing else, the MtGox fiasco has showed that fractional reserve can in reality function in Bitcoin world for a while.
redahs 9y ago
George A. Selgin, The Theory of Free Banking: Money Supply under Competitive Note Issue [1988] http://oll.libertyfund.org/titles/selgin-the-theory-of-free-banking-money-supply-under-competitive-note-issue http://oll.libertyfund.org/titles/selgin-the-theory-of-free-...
csomar 9y ago
> no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation Do you have actual scientific and researched proof for that or you just pulled it from air? The bitcoin money processor (bitpay) said that every spike in price results in a spike of sales; that goes against what you are saying. If the price of a currency increases significantly, the purchasing power of the holder of that currency increases too. Which means he can spend more. But I don't have any data to back my claim either, and bitpay doesn't release their volume numbers.
- raulk 9y ago
  Could you provide a link to where you read/heard that statement from Bitpay?
- mbrock 9y ago
  Russ Roberts, the host of EconTalk and economics professor, also doesn't think that Bitcoin's fixed supply would lead to destructive deflation. > Isn’t a fixed supply of money dangerous? > It’s certainly different. “Elaborate controls to make sure that currency is not produced in greater numbers is not something any other currency, like the dollar or the euro, has,” says Russ Roberts, professor of economics at George Mason University. The consequence will likely be slow and steady deflation, as the growth in circulating bitcoins declines and their value rises. > “That is considered very destructive in today’s economies, mostly because when it occurs, it is unexpected,” says Roberts. But he thinks that won’t apply in an economy where deflation is expected. “In a Bitcoin world, everyone would anticipate that, and they know what they got paid would buy more then than it would now.” https://www.technologyreview.com/s/424091/what-bitcoin-is-and-why-it-matters/ https://www.technologyreview.com/s/424091/what-bitcoin-is-an...
  - Capt-RogerOver 9y ago
    This is not some general consensus, this is a viewpoint that exists. Among many others. Also this: > Elaborate controls to make sure that currency is not produced in greater numbers is not something any other currency, like the dollar or the euro, has Is very obviously incorrect. Fed and the congress have absolutely been producing new money in great numbers without any controls by the people. Ever seen the national debt watch? If you have not researched how Fed works and how (and when) new money has been produced during recent decades, you should really do that. You will be scared.
withdavidli 9y ago
>It'd be cool to have digital cash, but I think we're decades away. Maybe for the US, but China is already prepping for it and have released statements earlier this year of completing a trial run for it. Putin just spoke with Ethereum founder this weekend as well. Money is technology, both are power. China and Russia can make decisions on this quicker because they are ran by few people at the top. Macron has a Ledger Blue from his time as minister of economy. Italy, Australia, and Japan treats cryptocurrency now or very soon as a currency. Think Russia is taking the US route and treating it as a property for now. And extreme care from the fed? It's the blind leading the blind. There's no exact science to economics. Should I replay Greenspan's admittance that his model of the world was wrong? And we only have to worry about the current coin community if it takes over. But there are already coins that are getting backing from large financial institutions. Governments can also create their own centralized coins so it'll end up being pretty much the same as it is now.
mbrock 9y ago
Monetary policy in the sense of the Fed can easily be implemented in cryptocurrency; an Ethereum token can be trivially minted and burned according to its owner's wishes. Decentralized and semi-autonomous monetary policy is an emerging topic. The Maker/Dai project (http://makerdai.org/ http://makerdai.org/) is working on formulating smart contracts that give rise to a price-stable token backed in excess by diverse collateral cryptoassets.
Hermel 9y ago
> This would result in a deflationary spiral (no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation, etc.) The deflationary spiral can happen, but not as easily as you think and not when everyone is acting rationally. Let's say the economy (your numerator) is growing by 5% per year. then deflation would also be 5% in your model. If you have a project that returns 10%, you would still spend the money. However, if you have a project that returns 4%, you would keep it. So in you case, it would only be the below-average projects that are not being implemented, which is not such a bad thing as it means that there are more resources left for the high-return projects. If you are aware of an economic model that allows for deflationary spirals under rational expectations, please let me know.
wellinever 9y ago
" If the currency were successful, bitcoin's fixed supply (a constant denominator) wouldn't keep up with global growth (a growing numerator), which would make the currency more valuable over time. This would result in a deflationary spiral (no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation, etc.)" One of the best things about crypto is that its actually going to test keynesian economic dogma in a free market of competing currencies. The fed firehosed 6 trillion dollars into the accounts of big banks since the GFC, which hasn't done much other than inflate the stock market or sit idle. Is that extreme care? Don't bother arguing - within a few years we will find out the truth.
- codyb 9y ago
  Most of that was overnight and short term loans quickly paid back to ensure solvency of balance sheets to avoid a depression instead of recession no? I was also thinking it'd be interesting to have a fixed supply currency be tapered towards the UN and analysts predictions towards the apex of human population. Quite a few of the charts predict humans will level off around 10 billion in the year 2050. If that's the case, it might not make sense for the pie to be continually growing as it does now since the population continues to increase. But inflation with a growing population at moderate levels is generally seen to be a positive thing and I think the fed has even had trouble keeping up with the inflation targets they're comfortable with as of late (although I think last year was something like 2.4% which is pretty reasonable).
  - Capt-RogerOver 9y ago
    Generally seen as positive by whom? A few people calling themselves economical scientists who have managed to come up with a jargon complex enough to not be understood by an average person, and thus make this average person think that he needs other people who do understand economics? There is no "science" behind this, it's all a giant experiment. There is no true "data" showing that you can really manipulate inflation like they have been doing, and that it will somehow make the economy better.
monort 9y ago
If bitcoin is the only world currency and money velocity is constant, it will rise/fall by the same percent as the world economy. We already have a similar financial instrument - Vanguard total world stock ETF. Why this ETF does not produce a deflationary spiral? I think the answer is the same for bitcoin. https://personal.vanguard.com/us/funds/snapshot?FundId=3141&FundIntExt=INT#tab=1 https://personal.vanguard.com/us/funds/snapshot?FundId=3141&...
- yunyu 9y ago
  The velocity of index funds is far different from that of currency. The former doesn't even fulfill the requirements of currency, try buying a haircut with that fund...
- wellinever 9y ago
  Excellent point.
rendx 9y ago
Take a look at GNU/Taler: https://taler.net/ https://taler.net/
Capt-RogerOver 9y ago
It's all ultimately debatable of course, but for a lot of crypto enthusiasts, fixed money supply IS a feature, and a great one. Two main points I see lacking in your analysis: 1. The deflationary spiral is presented as some "fact". There is no evidence that this is what happens if there is a fixed supply. It's absolutely logical that people WILL spend less if they know the money will be worth more next year. But how much less? Is that a bad thing? In many ways, all the recent economical troubles have been caused by exactly people spending too much, spending the money they don't have. Maybe deflationary supply is exactly what is needed for people to buy what they need, not go on buy-all-sprees just because they know their money won't be worth anything soon (as it is now in the inflationary model). 2. World history regarding the price of gold. As an example from Creature From Jekyll Island (a book), in ancient Rome, to buy a custom tailor-made suit and a pair of custom-made shoes cost 1 ounce of gold. This is approximately the same order of magnitute of what it costs today, by today's gold prices. All while Gold is, by many standards, is deflationary as well. (Well you might say that new gold bricks are mined, but it's very limited. In the same way new bitcoins are also still mined and will be so for hundreds of years.) So what happened? If fixed supply is such a bad thing, why don't people just hoard gold and the price is through the roof? On the contrary, the history shows many examples where after societies went from the gold standard to the more "fluid" money supply, when governments started to mix other metals in the coins, when they removed gold at all - that's when the economic troubles started. Human-controlled money supply has proven itself time and time again non-functional. The people in positions of this power cannot avoid abusing this power. There are a lot of things that point to the notion that it is in fact the "deflationary spiral scare" that is a joke, and a fixed supply is what is needed in the long run to make money work most effectively.
- AnthonyMouse 9y ago
  > It's absolutely logical that people WILL spend less if they know the money will be worth more next year. That's not the problem. The problem is that it causes currency to become an investment vehicle. If the expectation is that the currency will be worth 5% more next year than this year then everyone with an investment with <5% returns will sell it and hold currency instead. Then you get two big problems. First, it screws up your economy, because people can hoard currency instead of investing in economically productive activity. Which means higher interest rates, which makes it harder to start a business. Second, it causes high volatility in currency prices, because most of the currency is held by speculators. We have seen this with Bitcoin already. This is a problem for people using the currency as a medium of exchange because you can lose your entire margin and then some if the value of the currency can change by a double digit percentage in the short time that you're holding it. And this is what causes the deflationary spiral on the upswing -- which is really an investment bubble that causes yet more problems when it pops. > World history regarding the price of gold. Gold hasn't really ever been primarily a currency. It has always had several competitors as a medium of exchange (silver, jewels, wheat, pelts, barter), fractional-reserve banking has existed for hundreds of years, and it has a built-in hedge because the more expensive it becomes anywhere the more incentive there is to mine more of it or import it from other countries. As a result its price has almost always been determined more by its value as a commodity than its use as a currency. If it was otherwise then the price stability against other commodities is not what we would see. Imagine there was only one ounce of gold in the world but only two tailors used it to alternate buying suits from each other. If you want to allow there to be another two tailors doing the same thing somewhere else then either you need another ounce of gold for them to use (increase the money supply) or the price of a suit has to come down so each pair of tailors only needs half an ounce of gold (deflation).
lukifer 9y ago
Here's what I don't understand about the alleged ills of a deflationary currency: wouldn't the buyer's incentive to hoard the currency rather than buying, be exactly equal to seller's incentive to acquire the currency as an investment, and therefore priced into the transaction?
- SomeStupidPoint 9y ago
  A merchant has to basically turn around and sell the currency for more merchandise right away, so it's worth less to them because they'll never see the deflationary gains -- they're compelled to trade now. The only people who do see gains are people who hold amounts in excess of their short term needs -- bitcoin's monetary policy is building the notion that the rich get richer while everyone else is coerced to transact at suboptimal prices right into the heart of it. Bitcoin is fundamentally about exploitation to benefit the wealthy true believers. It's a deal with Moloch to use bitcoin.
  - NoGravitas 9y ago
    This is fundamentally the best comment here; wish it could be promoted to top level so it would be more visible.
  - ratacat 9y ago
    Hey, I love your thought here. I'm a total bitcoin crazy person. But I really appreciate the good hard questions, and that's a great one!
  - lukifer 9y ago
    Wouldn't the same logic apply with the seller and their vendor? At the end of the chain, someone ends up holding the Bitcoin, and they have an incentive to pay a little extra, assuming a reliable and consistent level of deflation. In a sense, this already happens in dollars, in the form of opportunity costs for relatively stable investments like mutual funds. Assuming zero transaction costs, what's the difference between spending Bitcoin that would otherwise appreciate 5% value per year, vs. spending dollars, thereby foregoing the opportunity to invest in a 5%/year mutual fund? (Obviously, I'm assuming an ecosystem of both fiat and crypto; it might be a different story if we were debating a deflationary-crypto-only marketplace.) Also: it's worth noting that the steady influx of new coins, deflationary and otherwise, means that if one looks at the entire crypto ecosystem rather than just Bitcoin, the deflationary problem may end up being practically non-existent. For better or worse, the whole thing is effectively a live experiment in the Free Banking model: creating markets for currency itself.
irln 9y ago
> Does anyone think the same kind of extreme care taken by the Fed is going to be replicated? What are some examples of where "the extreme care" has resulted in long term positive outcomes? The paradox is that a modern society needs a unit of exchange (money), however, the management (adding and subtracting) of that medium of exchange is extremely problematic. For better or worse Bitcoin isn't at all similar to the current bank/central bank system we currently have and without the ability to increase the money supply to prevent bank runs never will be. But the federal reserve's evolving strategy is just an experiment. And their effectiveness remains to be seen.

icebraining 9y ago

We already have electronic money - I can pay using electronic euros just fine. The point of creating Bitcoin was to make something different, a digital currency that couldn't be managed. What would be the point of creating a copy of existing currencies? I'm completely ignorant about the future of Bitcoin, but the reason I like it is because it's an experiment. If nothing else, at least it might serve as evidence for mainstream theories if and when it fails. In any case, it's not strictly true that Bitcoin's supply is fixed, you can have fractional-reserve banking.

Capt-RogerOver 9y ago
Fractional reserve banking is exactly what Bitcoin has evolved to prevent :) But yes, if nothing else, the MtGox fiasco has showed that fractional reserve can in reality function in Bitcoin world for a while.

redahs 9y ago

George A. Selgin, The Theory of Free Banking: Money Supply under Competitive Note Issue [1988] http://oll.libertyfund.org/titles/selgin-the-theory-of-free-banking-money-supply-under-competitive-note-issue http://oll.libertyfund.org/titles/selgin-the-theory-of-free-...

csomar 9y ago

> no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation Do you have actual scientific and researched proof for that or you just pulled it from air? The bitcoin money processor (bitpay) said that every spike in price results in a spike of sales; that goes against what you are saying. If the price of a currency increases significantly, the purchasing power of the holder of that currency increases too. Which means he can spend more. But I don't have any data to back my claim either, and bitpay doesn't release their volume numbers.

raulk 9y ago
Could you provide a link to where you read/heard that statement from Bitpay?
mbrock 9y ago
Russ Roberts, the host of EconTalk and economics professor, also doesn't think that Bitcoin's fixed supply would lead to destructive deflation. > Isn’t a fixed supply of money dangerous? > It’s certainly different. “Elaborate controls to make sure that currency is not produced in greater numbers is not something any other currency, like the dollar or the euro, has,” says Russ Roberts, professor of economics at George Mason University. The consequence will likely be slow and steady deflation, as the growth in circulating bitcoins declines and their value rises. > “That is considered very destructive in today’s economies, mostly because when it occurs, it is unexpected,” says Roberts. But he thinks that won’t apply in an economy where deflation is expected. “In a Bitcoin world, everyone would anticipate that, and they know what they got paid would buy more then than it would now.” https://www.technologyreview.com/s/424091/what-bitcoin-is-and-why-it-matters/ https://www.technologyreview.com/s/424091/what-bitcoin-is-an...
- Capt-RogerOver 9y ago
  This is not some general consensus, this is a viewpoint that exists. Among many others. Also this: > Elaborate controls to make sure that currency is not produced in greater numbers is not something any other currency, like the dollar or the euro, has Is very obviously incorrect. Fed and the congress have absolutely been producing new money in great numbers without any controls by the people. Ever seen the national debt watch? If you have not researched how Fed works and how (and when) new money has been produced during recent decades, you should really do that. You will be scared.

withdavidli 9y ago

>It'd be cool to have digital cash, but I think we're decades away. Maybe for the US, but China is already prepping for it and have released statements earlier this year of completing a trial run for it. Putin just spoke with Ethereum founder this weekend as well. Money is technology, both are power. China and Russia can make decisions on this quicker because they are ran by few people at the top. Macron has a Ledger Blue from his time as minister of economy. Italy, Australia, and Japan treats cryptocurrency now or very soon as a currency. Think Russia is taking the US route and treating it as a property for now. And extreme care from the fed? It's the blind leading the blind. There's no exact science to economics. Should I replay Greenspan's admittance that his model of the world was wrong? And we only have to worry about the current coin community if it takes over. But there are already coins that are getting backing from large financial institutions. Governments can also create their own centralized coins so it'll end up being pretty much the same as it is now.

mbrock 9y ago

Monetary policy in the sense of the Fed can easily be implemented in cryptocurrency; an Ethereum token can be trivially minted and burned according to its owner's wishes. Decentralized and semi-autonomous monetary policy is an emerging topic. The Maker/Dai project (http://makerdai.org/ http://makerdai.org/) is working on formulating smart contracts that give rise to a price-stable token backed in excess by diverse collateral cryptoassets.

Hermel 9y ago

> This would result in a deflationary spiral (no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation, etc.) The deflationary spiral can happen, but not as easily as you think and not when everyone is acting rationally. Let's say the economy (your numerator) is growing by 5% per year. then deflation would also be 5% in your model. If you have a project that returns 10%, you would still spend the money. However, if you have a project that returns 4%, you would keep it. So in you case, it would only be the below-average projects that are not being implemented, which is not such a bad thing as it means that there are more resources left for the high-return projects. If you are aware of an economic model that allows for deflationary spirals under rational expectations, please let me know.

wellinever 9y ago

" If the currency were successful, bitcoin's fixed supply (a constant denominator) wouldn't keep up with global growth (a growing numerator), which would make the currency more valuable over time. This would result in a deflationary spiral (no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation, etc.)" One of the best things about crypto is that its actually going to test keynesian economic dogma in a free market of competing currencies. The fed firehosed 6 trillion dollars into the accounts of big banks since the GFC, which hasn't done much other than inflate the stock market or sit idle. Is that extreme care? Don't bother arguing - within a few years we will find out the truth.

codyb 9y ago
Most of that was overnight and short term loans quickly paid back to ensure solvency of balance sheets to avoid a depression instead of recession no? I was also thinking it'd be interesting to have a fixed supply currency be tapered towards the UN and analysts predictions towards the apex of human population. Quite a few of the charts predict humans will level off around 10 billion in the year 2050. If that's the case, it might not make sense for the pie to be continually growing as it does now since the population continues to increase. But inflation with a growing population at moderate levels is generally seen to be a positive thing and I think the fed has even had trouble keeping up with the inflation targets they're comfortable with as of late (although I think last year was something like 2.4% which is pretty reasonable).
- Capt-RogerOver 9y ago
  Generally seen as positive by whom? A few people calling themselves economical scientists who have managed to come up with a jargon complex enough to not be understood by an average person, and thus make this average person think that he needs other people who do understand economics? There is no "science" behind this, it's all a giant experiment. There is no true "data" showing that you can really manipulate inflation like they have been doing, and that it will somehow make the economy better.

monort 9y ago

If bitcoin is the only world currency and money velocity is constant, it will rise/fall by the same percent as the world economy. We already have a similar financial instrument - Vanguard total world stock ETF. Why this ETF does not produce a deflationary spiral? I think the answer is the same for bitcoin. https://personal.vanguard.com/us/funds/snapshot?FundId=3141&FundIntExt=INT#tab=1 https://personal.vanguard.com/us/funds/snapshot?FundId=3141&...

yunyu 9y ago
The velocity of index funds is far different from that of currency. The former doesn't even fulfill the requirements of currency, try buying a haircut with that fund...
wellinever 9y ago
Excellent point.

rendx 9y ago

Take a look at GNU/Taler: https://taler.net/ https://taler.net/

Capt-RogerOver 9y ago

It's all ultimately debatable of course, but for a lot of crypto enthusiasts, fixed money supply IS a feature, and a great one. Two main points I see lacking in your analysis: 1. The deflationary spiral is presented as some "fact". There is no evidence that this is what happens if there is a fixed supply. It's absolutely logical that people WILL spend less if they know the money will be worth more next year. But how much less? Is that a bad thing? In many ways, all the recent economical troubles have been caused by exactly people spending too much, spending the money they don't have. Maybe deflationary supply is exactly what is needed for people to buy what they need, not go on buy-all-sprees just because they know their money won't be worth anything soon (as it is now in the inflationary model). 2. World history regarding the price of gold. As an example from Creature From Jekyll Island (a book), in ancient Rome, to buy a custom tailor-made suit and a pair of custom-made shoes cost 1 ounce of gold. This is approximately the same order of magnitute of what it costs today, by today's gold prices. All while Gold is, by many standards, is deflationary as well. (Well you might say that new gold bricks are mined, but it's very limited. In the same way new bitcoins are also still mined and will be so for hundreds of years.) So what happened? If fixed supply is such a bad thing, why don't people just hoard gold and the price is through the roof? On the contrary, the history shows many examples where after societies went from the gold standard to the more "fluid" money supply, when governments started to mix other metals in the coins, when they removed gold at all - that's when the economic troubles started. Human-controlled money supply has proven itself time and time again non-functional. The people in positions of this power cannot avoid abusing this power. There are a lot of things that point to the notion that it is in fact the "deflationary spiral scare" that is a joke, and a fixed supply is what is needed in the long run to make money work most effectively.

AnthonyMouse 9y ago
> It's absolutely logical that people WILL spend less if they know the money will be worth more next year. That's not the problem. The problem is that it causes currency to become an investment vehicle. If the expectation is that the currency will be worth 5% more next year than this year then everyone with an investment with <5% returns will sell it and hold currency instead. Then you get two big problems. First, it screws up your economy, because people can hoard currency instead of investing in economically productive activity. Which means higher interest rates, which makes it harder to start a business. Second, it causes high volatility in currency prices, because most of the currency is held by speculators. We have seen this with Bitcoin already. This is a problem for people using the currency as a medium of exchange because you can lose your entire margin and then some if the value of the currency can change by a double digit percentage in the short time that you're holding it. And this is what causes the deflationary spiral on the upswing -- which is really an investment bubble that causes yet more problems when it pops. > World history regarding the price of gold. Gold hasn't really ever been primarily a currency. It has always had several competitors as a medium of exchange (silver, jewels, wheat, pelts, barter), fractional-reserve banking has existed for hundreds of years, and it has a built-in hedge because the more expensive it becomes anywhere the more incentive there is to mine more of it or import it from other countries. As a result its price has almost always been determined more by its value as a commodity than its use as a currency. If it was otherwise then the price stability against other commodities is not what we would see. Imagine there was only one ounce of gold in the world but only two tailors used it to alternate buying suits from each other. If you want to allow there to be another two tailors doing the same thing somewhere else then either you need another ounce of gold for them to use (increase the money supply) or the price of a suit has to come down so each pair of tailors only needs half an ounce of gold (deflation).

lukifer 9y ago

Here's what I don't understand about the alleged ills of a deflationary currency: wouldn't the buyer's incentive to hoard the currency rather than buying, be exactly equal to seller's incentive to acquire the currency as an investment, and therefore priced into the transaction?

SomeStupidPoint 9y ago
A merchant has to basically turn around and sell the currency for more merchandise right away, so it's worth less to them because they'll never see the deflationary gains -- they're compelled to trade now. The only people who do see gains are people who hold amounts in excess of their short term needs -- bitcoin's monetary policy is building the notion that the rich get richer while everyone else is coerced to transact at suboptimal prices right into the heart of it. Bitcoin is fundamentally about exploitation to benefit the wealthy true believers. It's a deal with Moloch to use bitcoin.
- NoGravitas 9y ago
  This is fundamentally the best comment here; wish it could be promoted to top level so it would be more visible.
- ratacat 9y ago
  Hey, I love your thought here. I'm a total bitcoin crazy person. But I really appreciate the good hard questions, and that's a great one!
- lukifer 9y ago
  Wouldn't the same logic apply with the seller and their vendor? At the end of the chain, someone ends up holding the Bitcoin, and they have an incentive to pay a little extra, assuming a reliable and consistent level of deflation. In a sense, this already happens in dollars, in the form of opportunity costs for relatively stable investments like mutual funds. Assuming zero transaction costs, what's the difference between spending Bitcoin that would otherwise appreciate 5% value per year, vs. spending dollars, thereby foregoing the opportunity to invest in a 5%/year mutual fund? (Obviously, I'm assuming an ecosystem of both fiat and crypto; it might be a different story if we were debating a deflationary-crypto-only marketplace.) Also: it's worth noting that the steady influx of new coins, deflationary and otherwise, means that if one looks at the entire crypto ecosystem rather than just Bitcoin, the deflationary problem may end up being practically non-existent. For better or worse, the whole thing is effectively a live experiment in the Free Banking model: creating markets for currency itself.

irln 9y ago

> Does anyone think the same kind of extreme care taken by the Fed is going to be replicated? What are some examples of where "the extreme care" has resulted in long term positive outcomes? The paradox is that a modern society needs a unit of exchange (money), however, the management (adding and subtracting) of that medium of exchange is extremely problematic. For better or worse Bitcoin isn't at all similar to the current bank/central bank system we currently have and without the ability to increase the money supply to prevent bank runs never will be. But the federal reserve's evolving strategy is just an experiment. And their effectiveness remains to be seen.