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I am pretty sure deflation is the big concern with limited supply, not inflation. For exactly the reason that the supply is limited... There are issues of Bitc

by sedeki 7y ago

I am pretty sure deflation is the big concern with limited supply, not inflation. For exactly the reason that the supply is limited... There are issues of Bitcoin one could argue about - but inflation is not one of them. Give us a concrete scenario.

ivalm 7y ago
While deflation is a concern for the economy as a whole people who hold money generally like deflation. A lot of why people bought cryptos is in hopes of massive deflation (egbitcoin price going up). Also, the promise of cryptos is essentially deflationary since productivity (and total world wealth) goes up while e.g. bitcoin total supply is constant.
- sedeki 7y ago
  Deflation means that aggregate prices go down over time. I am not sure what it means that, as you said, people bought cryptos in the hopes that the dollar prices of bitcoins would ”””deflate”””. But sure, prices go up when demand go up - is this unusual? (Sorry if I came across as arrogant.) On whether deflation is bad for the economy. The standard example of this is the Great Depression, where massive amounts of credit was created and later people opted out of USD and wanted gold. There were bank-runs, as I’m sure you know. Thus FDR ”banned” gold (he even forced people to return gold or risk confiscation and jail time). Of course dollar prices go down then, i.e. deflation. I don’t see this as an argument that deflation is bad. Or do you have another example or perhaps can correct me?
  - ivalm 7y ago
    You seemed to suggest in GP that one problem with fiat is that it may become deflationary (ie prices for goods in fiat will go down). I pointed out that Bitcoin is by construction deflationary, prices (in bitcoin) for goods go down as long as bitcoin occupies at least a fixed fraction of total exchange tokens. Simple example, if bitcoin is the only exchange token in circulation then bitcoin will become more valuable as a function of time simply because the amount of "stuff" increases. This is as opposed to fiat, which increases in supply to compensate the increase of material wealth in the world. The reason deflation is bad is because it discourages investment. If I can buy more stuff later with the same amount of tokens then I have an incentive to not spend my exchange tokens, thus reducing the total circulation of tokens/investment/etc. It also makes loans more painful (unless interest rates are negative), but if interest rates are sufficiently negative then this encourages people to not deposit money into loan originators (traditionally banks, but in crypto world could be something else).
    - sedeki 7y ago
      > then bitcoin will become more valuable as a function of time simply because the amount of "stuff" increases. > The reason deflation is bad is because it discourages investment. I agree that economies are naturally deflationary because people don't stop working. So what? I think printing money is bad (as opposed to the concept of "inflation" which is an effect) is bad, because it distorts market mechanisms that occurr naturally - I'm talking about (more) efficient capital allocation here.
      - ivalm 7y ago
        If you are discouraged from investing (deflationary exchange token) then this leads to suboptimal capital allocation (since money will be used neither for investment nor loans)
- knocte 7y ago
  > A lot of why people bought cryptos is in hopes of massive deflation No. Bitcoin is not a get-rich-quick scheme, it's a not-get-poor-slowly scheme. It's mainly protection against inflation, not hope for massive deflation.
  - ivalm 7y ago
    You say this, but that's not what drives volume. Most crypto volume is on exchanges, not on the chain, and that's due to speculation.
    - knocte 7y ago
      Finance in general is plagued of this too: most money movements are non-productive asset transfers (investing, buying/selling of businesses, ...; as opposed to salaries and individual end-user purchases). But you will always be able to pinpoint the baseline of bitcoin to its most useful feature: people avoiding the criminal monetary policies of their corrupted governments.

by sedeki 7y ago

ivalm 7y ago

While deflation is a concern for the economy as a whole people who hold money generally like deflation. A lot of why people bought cryptos is in hopes of massive deflation (egbitcoin price going up). Also, the promise of cryptos is essentially deflationary since productivity (and total world wealth) goes up while e.g. bitcoin total supply is constant.

sedeki 7y ago
Deflation means that aggregate prices go down over time. I am not sure what it means that, as you said, people bought cryptos in the hopes that the dollar prices of bitcoins would ”””deflate”””. But sure, prices go up when demand go up - is this unusual? (Sorry if I came across as arrogant.) On whether deflation is bad for the economy. The standard example of this is the Great Depression, where massive amounts of credit was created and later people opted out of USD and wanted gold. There were bank-runs, as I’m sure you know. Thus FDR ”banned” gold (he even forced people to return gold or risk confiscation and jail time). Of course dollar prices go down then, i.e. deflation. I don’t see this as an argument that deflation is bad. Or do you have another example or perhaps can correct me?
- ivalm 7y ago
  You seemed to suggest in GP that one problem with fiat is that it may become deflationary (ie prices for goods in fiat will go down). I pointed out that Bitcoin is by construction deflationary, prices (in bitcoin) for goods go down as long as bitcoin occupies at least a fixed fraction of total exchange tokens. Simple example, if bitcoin is the only exchange token in circulation then bitcoin will become more valuable as a function of time simply because the amount of "stuff" increases. This is as opposed to fiat, which increases in supply to compensate the increase of material wealth in the world. The reason deflation is bad is because it discourages investment. If I can buy more stuff later with the same amount of tokens then I have an incentive to not spend my exchange tokens, thus reducing the total circulation of tokens/investment/etc. It also makes loans more painful (unless interest rates are negative), but if interest rates are sufficiently negative then this encourages people to not deposit money into loan originators (traditionally banks, but in crypto world could be something else).
  - sedeki 7y ago
    > then bitcoin will become more valuable as a function of time simply because the amount of "stuff" increases. > The reason deflation is bad is because it discourages investment. I agree that economies are naturally deflationary because people don't stop working. So what? I think printing money is bad (as opposed to the concept of "inflation" which is an effect) is bad, because it distorts market mechanisms that occurr naturally - I'm talking about (more) efficient capital allocation here.
    - ivalm 7y ago
      If you are discouraged from investing (deflationary exchange token) then this leads to suboptimal capital allocation (since money will be used neither for investment nor loans)
knocte 7y ago
> A lot of why people bought cryptos is in hopes of massive deflation No. Bitcoin is not a get-rich-quick scheme, it's a not-get-poor-slowly scheme. It's mainly protection against inflation, not hope for massive deflation.
- ivalm 7y ago
  You say this, but that's not what drives volume. Most crypto volume is on exchanges, not on the chain, and that's due to speculation.
  - knocte 7y ago
    Finance in general is plagued of this too: most money movements are non-productive asset transfers (investing, buying/selling of businesses, ...; as opposed to salaries and individual end-user purchases). But you will always be able to pinpoint the baseline of bitcoin to its most useful feature: people avoiding the criminal monetary policies of their corrupted governments.