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I've never used bitcoin but one of the core appeals as I understood it was mathematically limited supply to create an inflation proof currency. There seem to be

I've never used bitcoin but one of the core appeals as I understood it was mathematically limited supply to create an inflation proof currency. There seem to be lots of fluctuations in the price but eventually it hit a point of relative stability (in theory at least) with value that increases slightly relative the rate that the dollar inflates. If that's the case then it certainly does the job. There are a lot of people out there who are very aware of how their saved money loses value and actively want an alternative that feels "safe". I don't know that Bitcoin is that alternative, but it's definitely trying to be and even I have to admit has been far more successful than I ever would have expected.

twblalock 9y ago
The cap on mining is actually a good example of an inflexible technical solution for a problem that is better solved through flexible governance. There are several problems with it: Inflation can be a good thing. It can be used to combat deflation, and the absence of inflation can lead to stagnation via the paradox of thrift. There are certain central bank policies that encourage inflation and are known to work pretty well, including QE, which was demonized by a lot of people but has now been proven an effective aid in the recovery from the 2008 crash. The bitcoin approach focuses on the money supply only, but there are other factors to inflation. There is general agreement among economists that the money supply is the key driver of inflation in the long term, but in the short term, other factors can be involved. Inflation is possible with a static supply of money, because the amount of money in circulation (versus the amount of money in savings accounts or bonds, or otherwise locked up) can change. Inflation can also happen even with a static supply of money and no changes in the amount of money in circulation. An example is an oil price shock, caused by an embargo: oil is an input into many manufacturing processes, as well as people's cars, so a general increase in the prices of goods and services can be expected. So, the bitcoin approach takes away some valuable monetary policy tools and it doesn't actually prevent inflation in the short term. People shouldn't believe that their bitcoins are protected from inflation.
- trophycase 9y ago
  These solutions can literally all be programmed. There is almost no way Bitcoin maintains the 21 million static cap by the time the mining reward is gone
- elmar 9y ago
  I have replied to a similar thread on HN recently here is the link. Inflation the Hidden Tax https://news.ycombinator.com/item?id=14828655 https://news.ycombinator.com/item?id=14828655
  - mikeash 9y ago
    I don't understand what the big deal is there. I can understand it in a hyperinflation situation, but when inflation is ~2%, surely this hidden tax is insignificant compared to the more visible, explicit taxes?
    - elmar 9y ago
      let's do some assumptions: - the 2% inflation number is completely wrong and real inflation is around 5%~10% - with no government monetary intervention we should have deflation let's assume around 5% the delta is now 10%~15% looks less insignificant.
      - twblalock 9y ago
        > the 2% inflation number is completely wrong and real inflation is around 5%~10% I can't find any evidence-based reason to believe that.
        elmar 9y ago
        Alternate Inflation Charts http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
      - mikeash 9y ago
ForHackernews 9y ago
> There are a lot of people out there who are very aware of how their saved money loses value and actively want an alternative that feels "safe". Inflation-linked government bonds (e.g. https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm https://www.treasurydirect.gov/indiv/products/prod_tips_glan...) are extremely safe, and specifically protect against value lost to inflation. There are some problems solved by bitcoin, but needing a stable store of value certainly is not one of them.
- trophycase 9y ago
  How liquid/easy to trade are these bonds compared to Bitcoin, which I can spend and exchange for USD in minutes?
  - ForHackernews 9y ago
    TIPS are easily traded on secondary markets. In addition, there are multiple TIPS-backed ETFs [0] that trade in extremely high volume. I guarantee you could exchange TIP shares for USD in seconds, not minutes. [0] http://www.investopedia.com/articles/investing/092215/top-5-tips-etfs.asp http://www.investopedia.com/articles/investing/092215/top-5-...
  - twblalock 9y ago
    You can sell TIPS on the secondary market whenever you want, and you can redeem I-Bonds directly with the treasury after one year. The only delay is the electronic transfer to your bank account from your broker or the treasury.
akira2501 9y ago
> I understood it was mathematically limited supply to create an inflation proof currency. Put money in wallet. Forget password. Destroy currency forever. Not a well thought out ideal.
- x1798DE 9y ago
  That would cause deflation, not inflation.

twblalock 9y ago

The cap on mining is actually a good example of an inflexible technical solution for a problem that is better solved through flexible governance. There are several problems with it: Inflation can be a good thing. It can be used to combat deflation, and the absence of inflation can lead to stagnation via the paradox of thrift. There are certain central bank policies that encourage inflation and are known to work pretty well, including QE, which was demonized by a lot of people but has now been proven an effective aid in the recovery from the 2008 crash. The bitcoin approach focuses on the money supply only, but there are other factors to inflation. There is general agreement among economists that the money supply is the key driver of inflation in the long term, but in the short term, other factors can be involved. Inflation is possible with a static supply of money, because the amount of money in circulation (versus the amount of money in savings accounts or bonds, or otherwise locked up) can change. Inflation can also happen even with a static supply of money and no changes in the amount of money in circulation. An example is an oil price shock, caused by an embargo: oil is an input into many manufacturing processes, as well as people's cars, so a general increase in the prices of goods and services can be expected. So, the bitcoin approach takes away some valuable monetary policy tools and it doesn't actually prevent inflation in the short term. People shouldn't believe that their bitcoins are protected from inflation.

trophycase 9y ago
These solutions can literally all be programmed. There is almost no way Bitcoin maintains the 21 million static cap by the time the mining reward is gone
elmar 9y ago
I have replied to a similar thread on HN recently here is the link. Inflation the Hidden Tax https://news.ycombinator.com/item?id=14828655 https://news.ycombinator.com/item?id=14828655
- mikeash 9y ago
  I don't understand what the big deal is there. I can understand it in a hyperinflation situation, but when inflation is ~2%, surely this hidden tax is insignificant compared to the more visible, explicit taxes?
  - elmar 9y ago
    let's do some assumptions: - the 2% inflation number is completely wrong and real inflation is around 5%~10% - with no government monetary intervention we should have deflation let's assume around 5% the delta is now 10%~15% looks less insignificant.
    - twblalock 9y ago
      > the 2% inflation number is completely wrong and real inflation is around 5%~10% I can't find any evidence-based reason to believe that.
      - elmar 9y ago
        Alternate Inflation Charts http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
    - mikeash 9y ago

ForHackernews 9y ago

> There are a lot of people out there who are very aware of how their saved money loses value and actively want an alternative that feels "safe". Inflation-linked government bonds (e.g. https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm https://www.treasurydirect.gov/indiv/products/prod_tips_glan...) are extremely safe, and specifically protect against value lost to inflation. There are some problems solved by bitcoin, but needing a stable store of value certainly is not one of them.

trophycase 9y ago
How liquid/easy to trade are these bonds compared to Bitcoin, which I can spend and exchange for USD in minutes?
- ForHackernews 9y ago
  TIPS are easily traded on secondary markets. In addition, there are multiple TIPS-backed ETFs [0] that trade in extremely high volume. I guarantee you could exchange TIP shares for USD in seconds, not minutes. [0] http://www.investopedia.com/articles/investing/092215/top-5-tips-etfs.asp http://www.investopedia.com/articles/investing/092215/top-5-...
- twblalock 9y ago
  You can sell TIPS on the secondary market whenever you want, and you can redeem I-Bonds directly with the treasury after one year. The only delay is the electronic transfer to your bank account from your broker or the treasury.

akira2501 9y ago

> I understood it was mathematically limited supply to create an inflation proof currency. Put money in wallet. Forget password. Destroy currency forever. Not a well thought out ideal.

x1798DE 9y ago
That would cause deflation, not inflation.