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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

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.

sloppycee 9y ago
"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?" Risk. The decreasing yield of mining ensures that the future value of bitcoin will appreciate (assuming demand stays flat). There is no risk that supply might suddenly increase.
- lukifer 9y ago
  Unpack that for me? Assume we're already past the point where no new coins are being mined, and Bitcoin is appreciating value at a steady rate. (Volatility is a separate concern from deflation.) In that scenario, how is spending Bitcoin any different, micro-economically, than foregoing the opportunity to invest in a similarly-appreciating mutual fund? What's absent from my model?
  - sloppycee 9y ago
    Your model is not considering risk; the time value of bitcoin is risk-free positive, whereas any other instrument (in fiat) is either low risk break even, after inflation, or risk positive. Assuming people are rational actors, they would spend as little as possible and hoard the rest. So then we need to ask: "how is holding bitcoin different than investing in a similar mutual fund". Holding bitcoin decreases the money supply driving up value artificially, whereas investing in a mutual fund increases the money supply available for investment and drives economic growth.

sloppycee 9y ago

"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?" Risk. The decreasing yield of mining ensures that the future value of bitcoin will appreciate (assuming demand stays flat). There is no risk that supply might suddenly increase.

lukifer 9y ago
Unpack that for me? Assume we're already past the point where no new coins are being mined, and Bitcoin is appreciating value at a steady rate. (Volatility is a separate concern from deflation.) In that scenario, how is spending Bitcoin any different, micro-economically, than foregoing the opportunity to invest in a similarly-appreciating mutual fund? What's absent from my model?
- sloppycee 9y ago
  Your model is not considering risk; the time value of bitcoin is risk-free positive, whereas any other instrument (in fiat) is either low risk break even, after inflation, or risk positive. Assuming people are rational actors, they would spend as little as possible and hoard the rest. So then we need to ask: "how is holding bitcoin different than investing in a similar mutual fund". Holding bitcoin decreases the money supply driving up value artificially, whereas investing in a mutual fund increases the money supply available for investment and drives economic growth.