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A friend of mine basically put it this way: bitcoin can't become medium of exchange before it becomes medium of value. You can read this as: if you are holding

A friend of mine basically put it this way: bitcoin can't become medium of exchange before it becomes medium of value. You can read this as: if you are holding btc, it's in your best interest to hold more without selling.

PragmaticPulp 6y ago
If it’s in your best interest to buy and never sell, why would anyone want to use it for exchange? Bitcoin’s deflationary nature discourages spending and selling, by definition. The high transaction costs discourage it even further.
- T0Bi 6y ago
  How is bitcoin deflationary when it (currently) has a fixed inflation?
  - edm0nd 6y ago
    got em
  - PragmaticPulp 6y ago
    Contrary to the pop-culture definition, inflation isn’t purely driven by fiscal policy or money supply. Supply and demand (aka cost-push inflation and demand-pull inflation) are the main drivers. Fiscal policy modulates these factors, but inflation existed long before fiscal intervention. Bitcoin adoption is a deflationary process because an increasing number of people are competing over a fixed (ultimately) supply of Bitcoin. If more people want Bitcoin, the price goes up. Why do more people want Bitcoin? Because the price goes up. The cycle reverses when the price starts going down.
  - koboll 6y ago
    If bitcoin is a currency, then the prices of things in bitcoin have fallen over time. What cost 40,000 BTC a decade ago now costs 1 BTC. But bitcoin is more of an asset than a currency, so speaking of it in terms of inflation / deflation leads to oddities, like this.
    - PragmaticPulp 6y ago
      > But bitcoin is more of an asset than a currency, so speaking of it in terms of inflation / deflation leads to oddities, like this. Assets inflate and deflate. It’s not an oddity.
  - adam_arthur 6y ago
    Deflationary relative to the USD and other fiat currencies. The world is never going to run primarily on BTC, so talking about inflation purely in terms of number of BTC is a bit pointless :)
  - tfehring 6y ago
    Inflation isn’t strictly a measure of the monetary base. The dominant factor in “inflation” of (almost?) all cryptocurrencies is demand, not supply. Now, you can make the argument that that’s not really inflation - that BTC won’t predictably ~double in value every year going forward, and therefore one shouldn’t be afraid to spend it - but the idea that the tiny rate of increase in supply should be a major factor in that decision is pretty silly. Also, it’s not obvious that it’s being mined faster than it’s being eliminated due to lost keys.
  - Jtsummers 6y ago
    It's getting wider ownership over time so BTC supply is increasingly limited per person/entity interested in it, and the increase in supply is at a decreasing rate over time. This wider ownership and the (ultimately) fixed amount means that it will, even if not monotonically, be a deflationary currency (to the extent that it even is a currency). The rate of new BTC production has to overcome this deflationary pressure, and since there's always less coming out over time the potential inflationary pressure of minting new BTC will become increasingly insignificant. Any currency with a limited supply will tend to be deflationary over time, though not necessarily experiencing a deflationary spiral depending on the overall economy around it. An active economy will see enough movement of the currency that deflation will, hopefully, be small. But an inactive economy (like bitcoin's) with people hoarding rather than spending will see higher-than-healthy (from an economic perspective, it's great for the hoarders if they can use it later) deflation rates.
  - uncletammy 6y ago
    When people say it's deflationary, they mean "in the long run". Bitcoin has a fixed, predetermined inflation schedule which approaches zero over time. So, considering the inflation schedule alone, it's "eventually" deflationary. When you start to account for other things like lost and unrecoverable coins, it becomes severely deflationary and much sooner. Things like grandpa taking his encrypted wallet to the grave or in the case of bitcoin BTC, small coins that can't be moved because the fee is higher than the coin's value. At the time of writing this, coins worth less than ~ $6.15 (USD) aren't able to be spent*. That means if you bought a $4 coffee with BTC and paid with a tenner (a coin [input] worth $10) , you'd lose the change. It would remain unspendable until the network starts unclogging. * By "arent able to be spent" I mean, reasonable fee estimations for getting the transaction into a block within an amount of time that you can be sure the transaction won't get dropped from the mempool. I used https://bitcoiner.live https://bitcoiner.live to estimate the fee which was the most generous of the three I looked at.
- tehlike 6y ago
  Bitcoin is not used for medium of exchang, at scale, that's the point.
  - PragmaticPulp 6y ago
    So your point is that Bitcoin isn’t a medium of exchange?
    - tehlike 6y ago
      Not yet, not at scale.
- uncletammy 6y ago
  > If it’s in your best interest to buy and never sell, why would anyone want to use it for exchange? It's not in your best interest to buy and never sell. Current investors are just incredibly short sighted. If bitcoin isn't usable by (and useful to) the majority of the world, it will never get enough investment to serve as a buffer against the drastic price swings caused by speculators. Smart investors know that simply holding coins isn't enough in the long run. Finding new use cases and encouraging adoption and use is the only way crypto stands a chance.
- octocop 6y ago
  > If it’s in your best interest to buy and never sell, why would anyone want to use it for exchange? Define best interest here. I mean saving money and investing it to make more money is also in everyone's best interest, but that is certainly not the case. So why is that?
  - ivalm 6y ago
    Investing money in productive enterprise is the thing that is in societal benefit. Investing money in a virtual asset that has no other benefit and massive ecological costs is not a benefit.
    - octocop 6y ago
      We will see. As far as I can tell, it's the productive enterprises and everyday people that are ruining the environment. But hey, your comment sounded smart, which is the the real goal here.
    - deleted 6y ago
      [deleted]
  - Jtsummers 6y ago
    There's a difference between investing in companies, states, and individuals (stocks, bonds, loans), saving in a bank (depending on the structure is usually tied to some kind of investment like those, but not controlled by the saver), and hoarding something under the mattress. Holding BTC is the same as the last one. The holdings are not invested in anything remotely productive, it's just speculation on the future value.
    - octocop 6y ago
      I would have to disagree with you. Seeing what has happened to crypto the last few years, it's very apparent that things are changing. Everyone on here is talking like bitcoin or any other crypto is the disease and not a symptom. I believe that it's merely a symptom, a anarchy of sort, against the old ways.
temp8964 6y ago
How do you apply this logic to USD? You either want to hold it or want to use it? Since everybody need to use USD, so nobody should hold USD?
- hackinthebochs 6y ago
  It's an entirely different beast when everyone is forced to use USD as a medium of exchange.
  - mcosta 6y ago
    You are only forced to pay taxes in USD.
    - code_duck 6y ago
      Crypto would get a large boost if a mandatory customer with a multi-hundred billion dollar "market" decided to require it.
    - jkepler 6y ago
      If its only taxes that are forced on us, why then do US notes say that they're legal tender for all debts public and private. That sounds like force to me: I may want payment in bitcoin or Swiss francs or whatever, but if the payee wants to pay me in USD in the USA, am I free to refuse their payment as non-valid? Or am I forced to accept Federal Reserve Notes?
      - dane-pgp 6y ago
        > if the payee wants to pay me in USD in the USA, am I free to refuse their payment as non-valid? Yes. Legal tender for debts only means that you have to accept the notes if you have issued credit to the payer. For example, if they ate at your restaurant and came to settle the bill, they would owe you the amounts printed on the menu for the items that they ordered, but if they came into your cheese shop and wanted to buy some Swiss cheese, you could choose to only carry out the transaction if they paid in Swiss Francs.
hackinthebochs 6y ago
Absolutely. Bitcoin as a store of value had to come before its use as a medium of exchange. Why would anyone exchange a currency for a product when you didn't expect its value to hold until you could use it? If its only value was driven by the demand as a medium of exchange, its value would fluctuate with this demand. In the early days this would be detrimental to its ability to serve the role as a medium of exchange. How long would you need to hold your coins before there was enough demand for exchange again? It is the speculators buying and holding that create the expectation that its value will hold over time, thus making it viable as a medium of exchange.
uncletammy 6y ago
Although I follow the logic, I think your friend is wrong. A consequence of trying to make bitcoin BTC a "store of value" first has led to huge investment centralization as well as a drastic reduction in the number viable use cases. Investment centralization is bad because it makes it much more susceptible to regulatory capture by the industries crypto stands to disrupt. We're already seeing this now. The same big banks that called crypto a scam have suddenly become bullish after a few years of quietly buying coins. We need regular people on the streets advocating for crypto. The reduced use cases is a problem because it minimizes adoption and the network effect, both of which are vital for the long term survival of the network.
rowland66 6y ago
If your goal is to buy and never sell, then btc is the ideal investment. You can buy the btc, destroy your private key, and nobody will ever be able to sell it, not even your grandkids poking around in the attic 20 years after you have died.

PragmaticPulp 6y ago

If it’s in your best interest to buy and never sell, why would anyone want to use it for exchange? Bitcoin’s deflationary nature discourages spending and selling, by definition. The high transaction costs discourage it even further.

T0Bi 6y ago
How is bitcoin deflationary when it (currently) has a fixed inflation?
- edm0nd 6y ago
  got em
- PragmaticPulp 6y ago
  Contrary to the pop-culture definition, inflation isn’t purely driven by fiscal policy or money supply. Supply and demand (aka cost-push inflation and demand-pull inflation) are the main drivers. Fiscal policy modulates these factors, but inflation existed long before fiscal intervention. Bitcoin adoption is a deflationary process because an increasing number of people are competing over a fixed (ultimately) supply of Bitcoin. If more people want Bitcoin, the price goes up. Why do more people want Bitcoin? Because the price goes up. The cycle reverses when the price starts going down.
- koboll 6y ago
  If bitcoin is a currency, then the prices of things in bitcoin have fallen over time. What cost 40,000 BTC a decade ago now costs 1 BTC. But bitcoin is more of an asset than a currency, so speaking of it in terms of inflation / deflation leads to oddities, like this.
  - PragmaticPulp 6y ago
    > But bitcoin is more of an asset than a currency, so speaking of it in terms of inflation / deflation leads to oddities, like this. Assets inflate and deflate. It’s not an oddity.
- adam_arthur 6y ago
  Deflationary relative to the USD and other fiat currencies. The world is never going to run primarily on BTC, so talking about inflation purely in terms of number of BTC is a bit pointless :)
- tfehring 6y ago
  Inflation isn’t strictly a measure of the monetary base. The dominant factor in “inflation” of (almost?) all cryptocurrencies is demand, not supply. Now, you can make the argument that that’s not really inflation - that BTC won’t predictably ~double in value every year going forward, and therefore one shouldn’t be afraid to spend it - but the idea that the tiny rate of increase in supply should be a major factor in that decision is pretty silly. Also, it’s not obvious that it’s being mined faster than it’s being eliminated due to lost keys.
- Jtsummers 6y ago
  It's getting wider ownership over time so BTC supply is increasingly limited per person/entity interested in it, and the increase in supply is at a decreasing rate over time. This wider ownership and the (ultimately) fixed amount means that it will, even if not monotonically, be a deflationary currency (to the extent that it even is a currency). The rate of new BTC production has to overcome this deflationary pressure, and since there's always less coming out over time the potential inflationary pressure of minting new BTC will become increasingly insignificant. Any currency with a limited supply will tend to be deflationary over time, though not necessarily experiencing a deflationary spiral depending on the overall economy around it. An active economy will see enough movement of the currency that deflation will, hopefully, be small. But an inactive economy (like bitcoin's) with people hoarding rather than spending will see higher-than-healthy (from an economic perspective, it's great for the hoarders if they can use it later) deflation rates.
- uncletammy 6y ago
  When people say it's deflationary, they mean "in the long run". Bitcoin has a fixed, predetermined inflation schedule which approaches zero over time. So, considering the inflation schedule alone, it's "eventually" deflationary. When you start to account for other things like lost and unrecoverable coins, it becomes severely deflationary and much sooner. Things like grandpa taking his encrypted wallet to the grave or in the case of bitcoin BTC, small coins that can't be moved because the fee is higher than the coin's value. At the time of writing this, coins worth less than ~ $6.15 (USD) aren't able to be spent*. That means if you bought a $4 coffee with BTC and paid with a tenner (a coin [input] worth $10) , you'd lose the change. It would remain unspendable until the network starts unclogging. * By "arent able to be spent" I mean, reasonable fee estimations for getting the transaction into a block within an amount of time that you can be sure the transaction won't get dropped from the mempool. I used https://bitcoiner.live https://bitcoiner.live to estimate the fee which was the most generous of the three I looked at.
tehlike 6y ago
Bitcoin is not used for medium of exchang, at scale, that's the point.
- PragmaticPulp 6y ago
  So your point is that Bitcoin isn’t a medium of exchange?
  - tehlike 6y ago
    Not yet, not at scale.
uncletammy 6y ago
> If it’s in your best interest to buy and never sell, why would anyone want to use it for exchange? It's not in your best interest to buy and never sell. Current investors are just incredibly short sighted. If bitcoin isn't usable by (and useful to) the majority of the world, it will never get enough investment to serve as a buffer against the drastic price swings caused by speculators. Smart investors know that simply holding coins isn't enough in the long run. Finding new use cases and encouraging adoption and use is the only way crypto stands a chance.
octocop 6y ago
> If it’s in your best interest to buy and never sell, why would anyone want to use it for exchange? Define best interest here. I mean saving money and investing it to make more money is also in everyone's best interest, but that is certainly not the case. So why is that?
- ivalm 6y ago
  Investing money in productive enterprise is the thing that is in societal benefit. Investing money in a virtual asset that has no other benefit and massive ecological costs is not a benefit.
  - octocop 6y ago
    We will see. As far as I can tell, it's the productive enterprises and everyday people that are ruining the environment. But hey, your comment sounded smart, which is the the real goal here.
  - deleted 6y ago
    [deleted]
- Jtsummers 6y ago
  There's a difference between investing in companies, states, and individuals (stocks, bonds, loans), saving in a bank (depending on the structure is usually tied to some kind of investment like those, but not controlled by the saver), and hoarding something under the mattress. Holding BTC is the same as the last one. The holdings are not invested in anything remotely productive, it's just speculation on the future value.
  - octocop 6y ago
    I would have to disagree with you. Seeing what has happened to crypto the last few years, it's very apparent that things are changing. Everyone on here is talking like bitcoin or any other crypto is the disease and not a symptom. I believe that it's merely a symptom, a anarchy of sort, against the old ways.

temp8964 6y ago

How do you apply this logic to USD? You either want to hold it or want to use it? Since everybody need to use USD, so nobody should hold USD?

hackinthebochs 6y ago
It's an entirely different beast when everyone is forced to use USD as a medium of exchange.
- mcosta 6y ago
  You are only forced to pay taxes in USD.
  - code_duck 6y ago
    Crypto would get a large boost if a mandatory customer with a multi-hundred billion dollar "market" decided to require it.
  - jkepler 6y ago
    If its only taxes that are forced on us, why then do US notes say that they're legal tender for all debts public and private. That sounds like force to me: I may want payment in bitcoin or Swiss francs or whatever, but if the payee wants to pay me in USD in the USA, am I free to refuse their payment as non-valid? Or am I forced to accept Federal Reserve Notes?
    - dane-pgp 6y ago
      > if the payee wants to pay me in USD in the USA, am I free to refuse their payment as non-valid? Yes. Legal tender for debts only means that you have to accept the notes if you have issued credit to the payer. For example, if they ate at your restaurant and came to settle the bill, they would owe you the amounts printed on the menu for the items that they ordered, but if they came into your cheese shop and wanted to buy some Swiss cheese, you could choose to only carry out the transaction if they paid in Swiss Francs.

hackinthebochs 6y ago

Absolutely. Bitcoin as a store of value had to come before its use as a medium of exchange. Why would anyone exchange a currency for a product when you didn't expect its value to hold until you could use it? If its only value was driven by the demand as a medium of exchange, its value would fluctuate with this demand. In the early days this would be detrimental to its ability to serve the role as a medium of exchange. How long would you need to hold your coins before there was enough demand for exchange again? It is the speculators buying and holding that create the expectation that its value will hold over time, thus making it viable as a medium of exchange.

uncletammy 6y ago

Although I follow the logic, I think your friend is wrong. A consequence of trying to make bitcoin BTC a "store of value" first has led to huge investment centralization as well as a drastic reduction in the number viable use cases. Investment centralization is bad because it makes it much more susceptible to regulatory capture by the industries crypto stands to disrupt. We're already seeing this now. The same big banks that called crypto a scam have suddenly become bullish after a few years of quietly buying coins. We need regular people on the streets advocating for crypto. The reduced use cases is a problem because it minimizes adoption and the network effect, both of which are vital for the long term survival of the network.

rowland66 6y ago

If your goal is to buy and never sell, then btc is the ideal investment. You can buy the btc, destroy your private key, and nobody will ever be able to sell it, not even your grandkids poking around in the attic 20 years after you have died.