4 ms·

I think the deflationary nature only reflects the ideological beliefs of the creators. Inflation is a type of tax, therefore for a currency to be a "true" store

by gizmo 9y ago

I think the deflationary nature only reflects the ideological beliefs of the creators. Inflation is a type of tax, therefore for a currency to be a "true" store of value it cannot be deflationary. If extra crypocurrency can be printed, who decides when the monetary base gets expanded and by how much? That's not an easy question to answer in a distributed system. So you end up with a fixed monetary base (and therefore deflation).

mbrock 9y ago
This is a really complex topic that I don't really understand, but I think there's quite a lot of interesting nuance to the deflationary cryptocurrency question. For example, you could consider Bitcoin as being like a "specie" or "hard currency" within an ecosystem that also includes various types of "scrip" or "credits". Ether behaves a lot like that. It's the hard base currency in an ecosystem of tokens ("soft currencies") all with different monetary policies. There are very interesting Ethereum tokens without fixed supply, for example the token that will be issued by Maker (the "dai") which is basically an asset-backed credit token with an autonomous monetary policy to stabilize the token's market value measured against the IMF's currency basket index (XDR). This seems to be a really natural pattern: you have a small number of deflationary hard currency (precious metals, basically) that act as global store of value, hedge against local volatility, and neutral means of settlement; and then you have a whole range of other credit instruments. Random thought: to people brought up with cryptocurrencies, we might be explaining gold as "well, it's like nature's bitcoin: scarce, hard to mine, and very expensive."
alexasmyths 9y ago
" who decides when the monetary base gets expanded and by how much" You allow entities to trade assets for currency at a central bank. The central bank can do it (i.e. Fed exchanging currency for TBills). The ECB allows banks to exchange assets (like property) for Euros. This is good because it allows flexibility in the amount of currency in circulation. Without this, you can get into all sorts of trouble, for example, Spain, Greece, et. al. in the 'Euro trap'. Monetary policy can be dangerous, of course, like anything powerful, but it can be used for good. Also to the commenters point about 'inflation is a tax' - well, it's a 'tax on cash' and a 'negative tax to everything else'. It's really nothing like a tax at all, it shouldn't be referred to as such. Inflation/deflation is just the changing value of one good vis-a-vis another. There are a lot of 'stores of value' out there and anyone with significant enough portfolio can easily take advantage of those if they chose for whatever reason not to hold a specific currency.
nosuchthing 9y ago
The aspect where the majority of the supply is generated in the first few weeks after the genesis block is what makes clear the designers are running a scheme to gain control of the supply, exploiting any would be normal users in the longevity of the project. Satoshi could easily have changed the coin minting production curve to suit a long term project, but instead chose to mint the majority of coins for miners running very low hash power nodes at the start of the project. Along the lines of 10,000 bitcoins being worth 2 pizzas - this means the majority of bitcoins in existence have gone to disproportionately low value capital traders (both in computational power, actual production and electrical cost, and external capital traded for BTC) whereas now coins being produced require several magnitude more computational power to mint and the rewards are less. Paradoxically, the miners require more energy input in return for less and less rewards.
- ballenf 9y ago
  If there's a functioning market, then there will be exactly as many miners as needed to make the value proposition slightly positive or even. Early miners took great risk in holding on to BTC to see if it would become more valuable. Many did not (my hand goes up) hold on to their BTC, thinking that it was a fad that would pass and didn't want to get left holding the bag. It's easy to underestimate the allure of being able to buy 2 pizzas with CPU power. That purchase made 10k BTC feel enormously valuable (as compared to anything else you could passively do with a home PC). (FWIW, I would've bought pizzas if I'd had the BTC at the time, instead I gave some away and forgot about the rest and formatted the hard drive.)
  - nosuchthing 9y ago
    Early miners took great risk This is verifiability untrue, as early miners used the lowest amount of energy to produce and acquire the largest percentage of the total supply ever produced. Any rational "investor" trading capital or computational energy into BTC or similar minting algorithms would be deterred by this model as the losses increase while the network grows older.
    - 9y ago
kamaal 9y ago
Inflation and deflation are both a kind of tax, based on who is buying and who is selling. There are no binaries good and evil in this game. You leave these things to the natural order or things. Attempts to create utopia have led to creation of hell.

by gizmo 9y ago

mbrock 9y ago

This is a really complex topic that I don't really understand, but I think there's quite a lot of interesting nuance to the deflationary cryptocurrency question. For example, you could consider Bitcoin as being like a "specie" or "hard currency" within an ecosystem that also includes various types of "scrip" or "credits". Ether behaves a lot like that. It's the hard base currency in an ecosystem of tokens ("soft currencies") all with different monetary policies. There are very interesting Ethereum tokens without fixed supply, for example the token that will be issued by Maker (the "dai") which is basically an asset-backed credit token with an autonomous monetary policy to stabilize the token's market value measured against the IMF's currency basket index (XDR). This seems to be a really natural pattern: you have a small number of deflationary hard currency (precious metals, basically) that act as global store of value, hedge against local volatility, and neutral means of settlement; and then you have a whole range of other credit instruments. Random thought: to people brought up with cryptocurrencies, we might be explaining gold as "well, it's like nature's bitcoin: scarce, hard to mine, and very expensive."

alexasmyths 9y ago

" who decides when the monetary base gets expanded and by how much" You allow entities to trade assets for currency at a central bank. The central bank can do it (i.e. Fed exchanging currency for TBills). The ECB allows banks to exchange assets (like property) for Euros. This is good because it allows flexibility in the amount of currency in circulation. Without this, you can get into all sorts of trouble, for example, Spain, Greece, et. al. in the 'Euro trap'. Monetary policy can be dangerous, of course, like anything powerful, but it can be used for good. Also to the commenters point about 'inflation is a tax' - well, it's a 'tax on cash' and a 'negative tax to everything else'. It's really nothing like a tax at all, it shouldn't be referred to as such. Inflation/deflation is just the changing value of one good vis-a-vis another. There are a lot of 'stores of value' out there and anyone with significant enough portfolio can easily take advantage of those if they chose for whatever reason not to hold a specific currency.

nosuchthing 9y ago

The aspect where the majority of the supply is generated in the first few weeks after the genesis block is what makes clear the designers are running a scheme to gain control of the supply, exploiting any would be normal users in the longevity of the project. Satoshi could easily have changed the coin minting production curve to suit a long term project, but instead chose to mint the majority of coins for miners running very low hash power nodes at the start of the project. Along the lines of 10,000 bitcoins being worth 2 pizzas - this means the majority of bitcoins in existence have gone to disproportionately low value capital traders (both in computational power, actual production and electrical cost, and external capital traded for BTC) whereas now coins being produced require several magnitude more computational power to mint and the rewards are less. Paradoxically, the miners require more energy input in return for less and less rewards.

ballenf 9y ago
If there's a functioning market, then there will be exactly as many miners as needed to make the value proposition slightly positive or even. Early miners took great risk in holding on to BTC to see if it would become more valuable. Many did not (my hand goes up) hold on to their BTC, thinking that it was a fad that would pass and didn't want to get left holding the bag. It's easy to underestimate the allure of being able to buy 2 pizzas with CPU power. That purchase made 10k BTC feel enormously valuable (as compared to anything else you could passively do with a home PC). (FWIW, I would've bought pizzas if I'd had the BTC at the time, instead I gave some away and forgot about the rest and formatted the hard drive.)
- nosuchthing 9y ago
  Early miners took great risk This is verifiability untrue, as early miners used the lowest amount of energy to produce and acquire the largest percentage of the total supply ever produced. Any rational "investor" trading capital or computational energy into BTC or similar minting algorithms would be deterred by this model as the losses increase while the network grows older.
  - 9y ago

kamaal 9y ago

Inflation and deflation are both a kind of tax, based on who is buying and who is selling. There are no binaries good and evil in this game. You leave these things to the natural order or things. Attempts to create utopia have led to creation of hell.