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Some people here seem to think that this is temporary, that sometime in the future Bitcoin will stabilize into a glorious future global currency -- never mind t

Some people here seem to think that this is temporary, that sometime in the future Bitcoin will stabilize into a glorious future global currency -- never mind the new class of cryptobarons it will have created from its inner circle, through shameless hoarding. My question is, what then will happen when Bitcoin stabilizes, that is, when the time to new coin mined approaches practically infinity? Let's assume the global economy grows at 4% per year. Do Bitcoin's proponents believe a constant 4% deflation rate will be somehow compatible with capitalism? Why lend, why build new companies, when simply storing it is more than enough? Take shocks such as bubbles and demand-side crises. Could a economy based on Bitcoin survive them, and not crash inevitably into a deflationary spiral? I claim it won't. The party line usually argues for the evils of inflation. What they don't understand, I think, is that capitalism, in its revolutionary (in the sense of production) facet, needs inflation, feeds from it. Inflation might screw lenders, and favor debtors, sure. But deflation is just the inverse: a gift for the leecherous rentier class, and a massive "fuck you" to entrepreneurs.

disintermediate 14y ago
The price of Bitcoin won't stabilise. The best you could hope for would be a similar volatility to a commodity like gold or silver. So products and services will never be priced in Bitcoin while there is a better alternative like the dollar which is relatively stable. A mistake 'economists' make with bitcoin is to draw macroecomic conclusions based on theories suited to single currency economies. Actually we need theories that allow for multiple currencies circulating that have different strengths to understand the effects. Tl;dr Bitcoin won't change the way we price things, it just provides another option to transfer wealth.
- jpadkins 14y ago
  Agreed, but isn't international trade economics the study of economics over multiple currencies?
  - disintermediate 14y ago
    What we're seeing there is competitive devaluations through printing and recently confiscations. Fixed supply commodities like gold fare well, but their existence doesn't drag the world into a deflationary spiral. Bitcoin's existence won't have macroeconomic implications either.
oleganza 14y ago
1. Unjustified moral reference to "shameless hoarding". Where is the magical date when your property belongs to you for "too long" and you should give it to someone? And to whom exactly? 2. Why take credit for business if you can save your own earned money which appreciates over time and have 100% stake at your own project? 3. How deflationary spiral is supposed to happen? Will people be paralyzed and dead of hunger and thirst holding their precious coins? Or they will trade with each other to get stuff done?
- phillmv 14y ago
  Property rights are a fiction invented and enforced by society. Therefore, it's not inappropriate for society to occasionally have opinions on how property should work. Some of the ways people handle their property is detrimental to society. If enough people do it, hoarding capital is one of them.
  - oleganza 14y ago
    You did not answer my questions regarding hoarding. If you don't have an answer, how are you so sure about moral character of "hoarding"?
- sirclueless 14y ago
  Re: 3. The deflationary spiral doesn't end in a whole bunch of people dying of hunger, exactly, it ends with them all starting their own subsistence farms rather than spending on food, and making their own clothing rather than buying pre-made. Basically it retards progress, sends people back into the dark ages where they have to fend for themselves. I can't imagine a country ever allowing that to happen, so you had better believe that they wouldn't allow something as deflationary as bitcoin to become the de-facto currency. When you need a loan, the banks will be giving you something other than bitcoins. So I don't worry too much about this particular dystopia, it will never come about.
jamoes 14y ago
> shameless hoarding Hoarding is a derogatory term, intended to evoke an emotional response from the reader. I prefer the term "saving". > Why lend, why build new companies, when simply storing it is more than enough? Take shocks such as bubbles and demand-side crises. Most bitcoin proponents to indeed reject Keyensian, demand-side economics. I, for one, think entrepreneurs would typically benefit from not relying on debt. >capitalism[...] needs inflation, feeds from it Increasing the money supply helps one class of people: the bankers. It doesn't help the middle class, it doesn't help entrepreneurs, and it definitely doesn't help the common person. It's an insidious hidden tax. All this talk about inflation reminded me of a funny (in a dark way) propaganda video made in 1933 regarding inflation: https://www.youtube.com/watch?v=JUvm9UgJBtg https://www.youtube.com/watch?v=JUvm9UgJBtg.
- cynicalkane 14y ago
  Increasing the money supply helps one class of people: the bankers. It doesn't help the middle class, it doesn't help entrepreneurs, and it definitely doesn't help the common person. It's an insidious hidden tax. I don't understand how something completely unsupported by the data is repeated as truth. Historically, deflation is disastrous for everyone, and high inflation also disastrous for everyone. Moderate inflation has the effect of redistributing wealth from capital to work, and tight money the effect of redistributing wealth from work to capital. Compare Australia (loose money) to the Eurozone or America or Japan (tight money) for example.
  - sliverstorm 14y ago
    I don't understand how something completely unsupported by the data is repeated as truth. Simple; it has never been conclusively and irrefutably disproven. Ergo, it must be true, or else it would have been disproven. Religion isn't the only one with nutjobs ;)
- bigdubs 14y ago
  inflation is an absolutely necessary force in an economy; without inflation there is little incentive to spend money and as a result there is no real liquidity. tl;dr; money is useless if no one spends it, that's the whole point. another way to think about it is a stock. if a stock is priced, and no one is buying or selling at that price, is that price really valid? whats to keep another actor in the economy from pricing a stock totally different if there is a 'dumb' actor wiling to buy at that price.
Hermel 14y ago
You are saying that there won't be any growth because people will hoard all money because they want to participate in the (non-existing) growth? Isn't that self-contradictory? I think you are wrong. Imagine living in such an economy and facing the choice between hoarding (4% deflationary gain) and a good investment (10% gain). What would you do? All I see happening is that less money is being spent on bad investments due to artificially low interest rates as it happens to today.
dia80 14y ago
> cryptobarons it will have created from its inner circle, through shameless hoarding. This isn't 1941 England and bitcoins aren't sugar. Early adopters in the right thing often make money. Usually on HN they are called investors and congratulated. Sour grapes on missing out? (I did too)
- dobbsbob 14y ago
  I bought 30,000 bitcoins when they were worth less than a penny and sold them all when the value went up to $0.80. Lol, oops. If you don't want to miss out again, buy Litecoins and Namecoins. Litecoin will never be worth as much as BTC (because there will be 80million of them as opposed to 20something million BTC) but it will slowly gain in value as it has some impressive features especially suited for online gaming payments with fast confirmation, secure online voting apps, or of course online gambling. Litecoin is presently $1.30/each I see that going up to $4 at least by end of year now that more people are using it.
  - julespitt 14y ago
    You are assuming that the demand for any cryptocurrency responds linearly to the completely arbitrary total "quantity" assigned: Litecoin can't be worth more than Bitcoin because there are more units of them. That's simply not true. I am a fan of cryptocurrency in principle, but not of this particular oversimplification that was borrowed from some very sloppy thinking on the part of gold enthusiasts. Limited supply does not reliably ensure certain price behavior independent of demand.
  - aneth4 14y ago
    What you should be worrying about is the money supply, not the individual coin value. Is there any acceptance in commerce of these competitors? Unless there is an underlying demand created by available products, these coins will be worth nothing. In my opinion, features won't matter. Bitcoin has critical mass, and it's unlikely to face real competition.
    - dobbsbob 14y ago
aneth4 14y ago
You are espousing one form of economics which many consider unsustainable. Regardless, many assets are deflationary. Rich people buy real estate and commodities because they are deflationary, or at least not inflationary. There is nothing wrong with assets that grow or maintain value. Bitcoin is a liquid and easily transferrable deflationary value store, just like gold. Telling people they should submit to inflation for the greater good is ridiculous. Inflation works because it keeps those too poor to have real assets on the gerbil wheel. The wealthy (or smart) just store their money in non-inflationary assets and sit pretty. Besides, if you can't get better than a 4% return, you probably shouldn't be investing in whatever it is you're considering anyhow.
- api 14y ago
  Sustainability is really the achilles heel of inflationary economics. The Earth is finite. Exponential growth cannot continue forever. When a steady state is reached, that's apocalyptic to inflationary money systems since debts all the sudden can never be repaid. Edit: I don't think space colonization matters here. Sure, it may be possible. But Mars is sufficiently far from Earth and the energy cost of transport sufficiently high that a populated Mars would effectively be an entirely separate economy for everything but intangibles. I don't think a Mars colony would permit Earthly exponential growth to continue, even though Martian exponential growth could occur for quite some time. (Until Mars' own unique limits were reached.)
  - vbuterin 14y ago
    > everything but intangibles So, everything but 90% of the economy in forty years' time?
  - makomk 14y ago
    Why would you want to repay the debts in the first place?
    - alexmat 14y ago
      If the interest rate drops.
drcode 14y ago
Clearly, since new land isn't being created anymore, everyone is going to shamelessly hoard real estate. Why would anyone ever buy or sell a house anymore? REAL ESTATE IS ALL A BIG DEFLATIONARY SCAM- You heard it here first.
- deelowe 14y ago
  The realtors were lying to you when they said real estate always goes up in value. ;-) Jokes aside, any sort of investing in illiquid assets is fraught with risks. We are talking about a currency here which by definition requires liquidity to be useful, these are two very different things.
- seanalltogether 14y ago
  Actually in the UK this is exactly what has happened since nobody pays property taxes over there. My fiancee owns her house but still pays rent to a land lord. When there are no liabilities for holding an asset, there's not a big incentive to sell it.
  - drcode 14y ago
    Not sure what you mean, since someone who owns a house doesn't have a land lord.
    - blibble 14y ago
      if she owns the property but not the land (i.e. the house is a leasehold instead of a freehold), she has a landlord
      - MacsHeadroom 14y ago
        Sounds like feudalism.
        blibble 14y ago
        that is where it all originates from: our property/land laws are all built on medieval law, as we haven't had a revolution to shake things up! houses are nearly always freeholds, whereas flats (apartments) are normally leaseholds, as it would be unfair if one flat owning tenant has land rights over the others. recently the government has given leaseholders the right to purchase the freehold from their landlord (if they all agree), but this involves setting up a company that all leaseholders are shareholders/directors of, with all the rights and responsibilities that that entails.
deelowe 14y ago
There are a few replies here that seem to be reacting negatively to the OP due to the tone of the submission instead of the content. To be clear, deflation is categorically bad for a currency. It's terrible, like great depression terrible. The reason it's bad is that deflation makes it more profitable to do nothing than to invest. When this happens, people react by not spending money. The market dies. While inflation can be bad, it's at least manageable. In fact, some inflation is actually heathly as it encourages investing. If that doesn't make sense, think of it like this. Inflation is similar to nuclear fusion and deflation is like nuclear fission. When the former goes critical, you can just shut off the spigots and things more or less fix themselves(albeit with some collateral damage) without the whole system crashing. However, with the latter, there may be no fixing without dismantling everything and starting over.
- fragsworth 14y ago
  > To be clear, deflation is categorically bad for a currency. It's terrible, like great depression terrible. I hear this argument a lot, but no nation that we know of has ever collapsed because of deflation, right? We've never (recently) been in a period of significant deflation, so how can we be so certain of its effects? > deflation makes it more profitable to do nothing than to invest. Investment won't ever stop, it just behaves more like a there is a minimum interest rate. No matter what the deflation is, I can still loan out $100 and expect $110 back within a year and make a bigger profit than holding on to it. People will still work, and spend what they need to. And there's a limit to how much a currency can deflate before it cycles back. And hell, how do we even know that inflationary/deflationary cycles are unhealthy? Even if it causes some businesses to die, maybe this improves an economy in the long term by churning things up a bit.
  - cookiecaper 14y ago
    >Investment won't ever stop, it just behaves more like a there is a minimum interest rate. No matter what the deflation is, I can still loan out $100 and expect $110 back within a year and make a bigger profit than holding on to it. But is that $10 profit going to be worth the risk of default when an investor could get a satisfactory return by just sitting on the money in the first place? What incentive does an investor have to take bets and possibly lose thousands or millions of dollars when his money appreciates considerably without doing anything? To use a case from the bitcoin economy, we all know the story of the pizza that someone bought when the x-rate was something like 3 cents per coin. Today, the 10k btc spent on that pizza would have been worth $100k! This story is often told to try to incent people to get into btc, with the implication that "if you forgo the cost of one pizza, in a little while that will be worth thousands of dollars", without realizing that this exactly is the problem with a btc-based economy; if everyone is forgoing their metaphorical pizza in the hope of exponential growth in currency value, the market will be unusable.
jcfrei 14y ago
I believe we'll see some form of inflation through the introduction of new currencies. when the price (ie. deflation) of one cryptocurrency becomes too high other currencies will jump in. the outcome however is unclear, because we are now at an unprecedented point in history. because of the openness of the bitcoin protocol everybody has now the possibility to create his own currency - and the price of adopting a new currency will become marginal for businesses, thanks to new APIs. I have no idea what the long term equilibrium will be.
- Eliezer 14y ago
  Since Bitcoin can be subdivided and is used (rather than held) primarily as a medium of exchange, there's no reason for increased price in dollars to decrease its use as a medium of exchange... let alone a store of value. Unfortunately.
- bencoder 14y ago
  In testament to this, Litecoin, a bitcoin-alike that creates 4x as many coins and has been designed to be harder to do ASIC mining, has just recently gone above $1
dobbsbob 14y ago
Bitcoin will never be a government backed cryptocurrency they will make their own like Canada is doing. Governments want to track all money, and be able to print trillions to fight illegal wars bitcoin/gold standard prevent that behaviour. To me bitcoin is excellent for e-commerce because of it's secure signatures you can use for escrow, proof of payment, decentralization so nobody can interfere with your commerce and safety for me as a merchant to prevent fraud.
snomad 14y ago
I have never understood the inflation is good argument. Looking at PCs, DVD players, etc. it seems price deflation has been great for the consumer and overall "market". Perhaps it has been bad for the manufacturers, but the overall society has benefited from the deflation of those goods.
- millstone 14y ago
  Electronics become cheaper due to technological improvements, that is, positive supply shocks. That means our real wealth is increasing. That's a good thing! Electronics might also became cheaper due to, say, someone setting money on fire, so there's less to go around. Clearly in this case our real wealth would not be increasing, so it's not good. But it's not obvious why it should be bad, either. The reason it's bad is due to our psychology. If the money supply shrinks (and nothing else changes), prices and wages must both go down. But people hate the idea of negotiating a lower wage, so instead wage drops are accomplished through layoffs and unemployment. That's bad because it means that people aren't working: the economy's real output is reduced. So inflation provides a buffer that allows the economy to adjust wages downwards in a way that we find more palatable than negotiated nominal wage decreases.
Tycho 14y ago
Surely the problem solves itself - if nobody invests, then there is no growth. If there is somehow growth without investment (because everyone is hoarding currency)... then that's a problem I'd like to have.
mrb 14y ago
So you claim hoarding will kill Bitcoin. You are wrong for a very simple reason: the ultimate goal of hoarders is to eventually profit from their fortunes by spending it. They may spend slowly, but they will spend it, and this spending is what will ("should", to sound less pretentious) keep the Bitcoin economy alive. Basically Bitcoin hoarders are not going to sit on their fortunes and passively watch Bitcoin dies.
joshaidan 14y ago
"My question is, what then will happen when Bitcoin stabilizes, that is, when the time to new coin mined approaches practically infinity? Let's assume the global economy grows at 4% per year. Do Bitcoin's proponents believe a constant 4% deflation rate will be somehow compatible with capitalism? Why lend, why build new companies, when simply storing it is more than enough? Take shocks such as bubbles and demand-side crises. Could a economy based on Bitcoin survive them, and not crash inevitably into a deflationary spiral? I claim it won't." This makes the assumption that people won't make their own forks of bitcoin. If there's a shortage of bitcoins, and not enough is being mined to meet demand, I think that will give more incentive to people to make their own forks of the currency. Maybe will see various communities forming their own currencies for their own trading purposes.
narrator 14y ago
If you want to take the red pill: Please read F.A Hayek's critique of "The Paradox of Savings" (http://mises.org/daily/2804 http://mises.org/daily/2804) for a refutation of inflationist monetary policy. This was an essay he wrote during the debate with Keynes and others, explaining the flaws in the Keynesian theories. It was written in the 1930s , but explains better than any other theory the dynamics of a fixed money supply currency like bitcoin vs a constantly inflating money supply.
- Evbn 14y ago
  Too many nested critiques of refutations of theories for a novice to make sense of that article.
  - narrator 14y ago
    It's hard to do a TL;DR on this. Here's a link to a meta reddit post I made of all my debates with traditionally trained economists :(http://www.reddit.com/r/austrian_economics/comments/kufu2/can_you_guys_help_me_with_the_keynesian_deflation/ http://www.reddit.com/r/austrian_economics/comments/kufu2/ca...). It should be somewhat easier to understand.
SilasX 14y ago
Prices change to reflect new knowledge, not "very old knowledge". Everyone buying bitcoins knows the supply growth path, and this expectation is priced in when non-stupid traders buy or sell them. It's not like ~2035 (or whatever) rolls around and everyone's like "Holy crap! There aren't going to be any more of these! Better quadruple my bids!" No -- there's no profit to be made simply from the fact of supply increase stopping at some point, not when the entire market knows it as well. So you can't really compare it to a situation in which a government (or affiliated central agency) controls the money supply, changing its mind at future dates, to arbitrarily hold the supply steady when it had been growing before -- which is what is required to get the results you've described.
dmm 14y ago
Most businesses are started with savings and money borrowed from family. Most entrepreneurs would do just fine in a deflationary environment.
leishulang 14y ago
while Bitcoin is deflationary due to monopoly, crypto-currency is inflationary. Bitcoin's value is not held by how hard it is to mine them. It's held by how bad people want to use crypto-currency for trading behaviours. When bitcoin's value become too high to be used for normal trading, it's value will decrease, simply because people will invent new types of crypto-currency(i.e litecoin, namecoin) to replace its function. When less people using bitcoins, no matter how 'hard' its mining algorithm gets, its price will drop. Therefore crypto-currency is inflationary, and that's why Bitcoin will become inflationary eventually.
vrotaru 14y ago
You totally wrong, and the reason you are wrong, is because you do not understand growth. Like... totally. Yes, I'm arrogant and I'll deal with an idealized model where the same set of resources is transformed into final goods, but bear with me. In order to get a real growth of 4% be it per year or per century in such a scenario, you need to find a better use of resources so that with the same resources you may produce an output which is 4% greater than before. Which is the same as saying the the only way to grow is to find ways to produce final goods cheaper. And because production is cheaper, more goods could be sold but.. entrepreneurs will still make a profit. Pretty much the same. And the fact that final goods get cheaper means just that.. That goods get cheaper. And you will not get rich by just holding bitcoins, or any other fixed supply money. Yes, you will be able to get more stuff for but only because the stuff get cheaper.. You'll still hold the same fraction of total purchasing power that as the day you decided to "hoard" your money for a while. That's not what I call getting rich, and that's why loans and interest make sense and are safe with bitcoin. P.S. Take you time. It's late in my TZ.
- millstone 14y ago
  > In order to get a real growth of 4% be it per year or per century in such a scenario, you need to find a better use of resources so that with the same resources you may produce an output which is 4% greater than before Let's work through an example. I buy 100 seeds for $1 each. I plant them, let them grow, and harvest the result. I now have 104 seeds. My real growth is 4%! Now I want to sell the seeds back to recoup my investment. But I discover that prices have dropped by 4%: seeds now go for 96 cents apiece. My 104 seeds now are worth $99.84! I would have been better off not buying seeds at all, and instead just holding on to my money. Real output is reduced. This illustrates how deflation inhibits growth.
  - anonymoushn 14y ago
    Do you suppose that there is some sort of seed-factory producing the seeds at no cost and selling them into the market, or do the other seeds in the market come from plants which produce only 4% y/o/y growth in the number of seeds? In the latter case, has the entire seed-planting industry taken a loss over the last year? And if so, would less people plant the seeds this year, so that planting the seeds would again be profitable (assuming demand is static relative to decreased production)? Do the seeds or plants have any purpose other than the production of more seeds to eventually be sold?
areyal 14y ago
the need for inflation is a widespread belief, not a fact. Of course people would still spend their coins. How would they buy services otherwise? what monetarists do not understand is that if you could save money, that would free many resources now used to hedge against inflation, and they would be available to better use and cheaply. Furthermore we all would be inflation-protected, and not just the rich who can afford to do investment. Furthermore deflation revalue your salary, and you should not be fighting with your boss for a payment increase, but he would have to give that fight you to decrease it. We wouldn't have an economy based on the ever growing, ever spending
hristov 14y ago
That is a good point and that is a big weakness of bitcoin. Fact of the matter is this crazy appreciation is not very good for the currency. It encourages hoarding and discourages commerce. For all the stories about appreciation I do not hear many stories about bitcoin actually being used as a currency. And why would it be. Most people holding it believe it will go up in the future. Why would they spend their bitcoins on commerce if they think those bitcoins will be worth ten times their value in the future. Currently bitcoin is not a currency but a very speculative investment.
runn1ng 14y ago
The deflationary nature of bitcoin is by design, yes, but the thing with cryptocurrencies is - if it's somehow unsucessful, people can either ditch the currency and make a new one, or if most of the miners agree by consensu, even change the bitcoin protocol with its deflationary nature itself. For example, if the economy will be in such a terrible state thanks to the deflation, somebody can do a fork of bitcoin that will not have halved mining reward (and thus not having finite number of bitcoins in existence), and if the miners will jump to this new version (and probably clients, too, not sure about that), this new currency will be used as easily as the old bitcoin. If I am wrong technically, please correct me. The nice thing about bitcoin is - nobody enforces anything.
Houshalter 14y ago
Deflation generally benefits almost everyone. Things get cheaper and cheaper over time, while the amount of money you make stays the same. Technology is a beautiful example of this. Almost every year technology gets cheaper and cheaper, and better and better for the same amount of money spent. And of course this is great for everyone and I don't think many would dispute that. Imagine a world where that wasn't true. Imagine you had to spend more and more every year just to get the same quality of phone or computer or TV. Now ideally, and depending on what's causing the inflation, your income would increase at exactly the same amount and so it wouldn't make a difference. The same quality TV would cost the same percent of your wage in 1960 as it would in 2013. But with deflation it's the opposite. Your income will (on average) remain the same, since the amount of money in the economy hasn't changed and it's being divided over the same number of people. But prices will go down due to the economy growing, increasing efficiency, technological improvements, and all that good stuff. You may see a slight flaw in my argument. Presumably the same amount of stuff is being produced in both economies, regardless how the currency is changing in value over time, and presumably there are the same amount of people to receive all the stuff being produced. So how can people in the deflationary economy be richer, on average, than people in the inflationary one? Well on average, they aren't. Inflation as you are talking about it is caused by the money supply increasing. Usually due to the government printing more. Whoever gets the money first is suddenly richer, because prices haven't increased in response to inflation yet. The amount of money they have relative to everyone else has increased. Therefore everyone else has become poorer relative to them. Only on average does everything stay the same, but it's a zero sum game where for one person to benefit, someone else has to lose. The amount of goods in the economy hasn't changed. But the person with more money (obtained through printing money) gets a bigger piece of the pie and therefore everyone else gets less. Inflation is just a really confusing, inefficient, and indirect form of wealth redistribution. Whoever gets the printed money obviously gets to benefit from it, and everyone else is therefore poorer, including your entrepreneurs and investors and consumers and everyone else. The only way this isn't true is if the money is distributed perfectly equally so the percentage everyone has is exactly the same as before. However this is not the case in the real world at all.
- klipt 14y ago
  > Things get cheaper and cheaper over time, while the amount of money you make stays the same. This can't be universally true. If food gets continually cheaper, unless the cost of owning land and farming it goes down by the same amount, farmers must eventually make less money than before (or be driven out of business entirely). And I don't quite buy the comparison between technological progress (where things get cheaper due to massive amounts of competition and research) and switching to a fiat currency which is arbitrarily limited (bitcoin). Using bitcoin doesn't guarantee technological progress. > Inflation as you are talking about it is caused by the money supply increasing. Usually due to the government printing more. Whoever gets the money first is suddenly richer, because prices haven't increased in response to inflation yet. The amount of money they have relative to everyone else has increased. Therefore everyone else has become poorer relative to them. Yes, printing money is in effect a government tax for usage of that currency.
rumcajz 14y ago
One thing to consider: In 30-50 years the world population starts shrinking, however, amount of bitcoins will stay the same. Which in turn is likely to inflate it's value and possibly offset the deflation.
jpadkins 14y ago
inflation vs. deflation: I have three points for your consideration 1) High tech sector has been experiencing massive deflation for decades and is thriving. Why? Is deflation really that bad when it comes from productivity? We know deflation due to massive decrease in money supply or velocity is bad, but what is wrong with slow, steady deflation from productivity? 2) With 2-3% steady deflation, won't interest rates adjust? People will lend their money out to earn a better risk adjusted rate than deflation. There isn't some magical number or percentage where people will start or stop lending. It's more like behavioral economics where people have several choices at different risk profiles. 3) The biggest proponent for an inflationary system is the banking system and economists who are funded/trained/selected by the banking system. This casts a lot of doubt on 'inflation is bad for lenders' statement. In a deflationary system, productivity gains go to the consumers (via lower prices). In an inflationary system, productivity gains go to capital owners (via debt and higher prices). The US experienced very strong but volatile economic growth under a capitalistic fixed currency system (gold standard) that had periods of deflation and inflation in the 19th century. There is no historical basis that shows that capitalism needs inflation.
roguas 14y ago
You seem to misunderstand certain aspects. If economy will grow at 4% it means that people get on avarage 4% on their investment be that work, assets, capital. Its still beneficial for them. Even with deflation at this assumed 4% they will simply invest in things that have better ratio of roi/risk. Deflation is not obviously bad. We had deflation during the whole industrial revolution and things were running smooth. If people hold on to savings rather than invest suppliers will quote higher prices in order to put the money back into system or hoard the money for themselves. One thing for sure. You wont be robbed out of thin air and that whats inflation is for. Central bank has no money for retirment... fiiiine, let print more -> market will stabilize itself. Plus if the value of bitcoin goes sky high. It will be lucrative to mine again. It has the mechanisms of selfhealing.
dkfhcghyyn 14y ago
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mhartl 14y ago
It's thoughtful yet mistaken posts like this one that make it clear how early we still are in the Bitcoin game. Capitalism doesn't need inflation. Capitalism works best with a hard currency. Money gaining 4% per year in purchasing power isn't "deflation". The notion of "4% growth" is ill-posed. I could back these statements up with logic and evidence, but experience shows that virtually no amount of rational argument ever convinces anyone of these points. Luckily, rather than arguing till we are hoarse, those of us who have swallowed the hard-money red pill can now put our money where our mouth is and buy some bitcoins.

disintermediate 14y ago

The price of Bitcoin won't stabilise. The best you could hope for would be a similar volatility to a commodity like gold or silver. So products and services will never be priced in Bitcoin while there is a better alternative like the dollar which is relatively stable. A mistake 'economists' make with bitcoin is to draw macroecomic conclusions based on theories suited to single currency economies. Actually we need theories that allow for multiple currencies circulating that have different strengths to understand the effects. Tl;dr Bitcoin won't change the way we price things, it just provides another option to transfer wealth.

jpadkins 14y ago
Agreed, but isn't international trade economics the study of economics over multiple currencies?
- disintermediate 14y ago
  What we're seeing there is competitive devaluations through printing and recently confiscations. Fixed supply commodities like gold fare well, but their existence doesn't drag the world into a deflationary spiral. Bitcoin's existence won't have macroeconomic implications either.

oleganza 14y ago

1. Unjustified moral reference to "shameless hoarding". Where is the magical date when your property belongs to you for "too long" and you should give it to someone? And to whom exactly? 2. Why take credit for business if you can save your own earned money which appreciates over time and have 100% stake at your own project? 3. How deflationary spiral is supposed to happen? Will people be paralyzed and dead of hunger and thirst holding their precious coins? Or they will trade with each other to get stuff done?

phillmv 14y ago
Property rights are a fiction invented and enforced by society. Therefore, it's not inappropriate for society to occasionally have opinions on how property should work. Some of the ways people handle their property is detrimental to society. If enough people do it, hoarding capital is one of them.
- oleganza 14y ago
  You did not answer my questions regarding hoarding. If you don't have an answer, how are you so sure about moral character of "hoarding"?
sirclueless 14y ago
Re: 3. The deflationary spiral doesn't end in a whole bunch of people dying of hunger, exactly, it ends with them all starting their own subsistence farms rather than spending on food, and making their own clothing rather than buying pre-made. Basically it retards progress, sends people back into the dark ages where they have to fend for themselves. I can't imagine a country ever allowing that to happen, so you had better believe that they wouldn't allow something as deflationary as bitcoin to become the de-facto currency. When you need a loan, the banks will be giving you something other than bitcoins. So I don't worry too much about this particular dystopia, it will never come about.

jamoes 14y ago

> shameless hoarding Hoarding is a derogatory term, intended to evoke an emotional response from the reader. I prefer the term "saving". > Why lend, why build new companies, when simply storing it is more than enough? Take shocks such as bubbles and demand-side crises. Most bitcoin proponents to indeed reject Keyensian, demand-side economics. I, for one, think entrepreneurs would typically benefit from not relying on debt. >capitalism[...] needs inflation, feeds from it Increasing the money supply helps one class of people: the bankers. It doesn't help the middle class, it doesn't help entrepreneurs, and it definitely doesn't help the common person. It's an insidious hidden tax. All this talk about inflation reminded me of a funny (in a dark way) propaganda video made in 1933 regarding inflation: https://www.youtube.com/watch?v=JUvm9UgJBtg https://www.youtube.com/watch?v=JUvm9UgJBtg.

cynicalkane 14y ago
Increasing the money supply helps one class of people: the bankers. It doesn't help the middle class, it doesn't help entrepreneurs, and it definitely doesn't help the common person. It's an insidious hidden tax. I don't understand how something completely unsupported by the data is repeated as truth. Historically, deflation is disastrous for everyone, and high inflation also disastrous for everyone. Moderate inflation has the effect of redistributing wealth from capital to work, and tight money the effect of redistributing wealth from work to capital. Compare Australia (loose money) to the Eurozone or America or Japan (tight money) for example.
- sliverstorm 14y ago
  I don't understand how something completely unsupported by the data is repeated as truth. Simple; it has never been conclusively and irrefutably disproven. Ergo, it must be true, or else it would have been disproven. Religion isn't the only one with nutjobs ;)
bigdubs 14y ago
inflation is an absolutely necessary force in an economy; without inflation there is little incentive to spend money and as a result there is no real liquidity. tl;dr; money is useless if no one spends it, that's the whole point. another way to think about it is a stock. if a stock is priced, and no one is buying or selling at that price, is that price really valid? whats to keep another actor in the economy from pricing a stock totally different if there is a 'dumb' actor wiling to buy at that price.

Hermel 14y ago

You are saying that there won't be any growth because people will hoard all money because they want to participate in the (non-existing) growth? Isn't that self-contradictory? I think you are wrong. Imagine living in such an economy and facing the choice between hoarding (4% deflationary gain) and a good investment (10% gain). What would you do? All I see happening is that less money is being spent on bad investments due to artificially low interest rates as it happens to today.

dia80 14y ago

> cryptobarons it will have created from its inner circle, through shameless hoarding. This isn't 1941 England and bitcoins aren't sugar. Early adopters in the right thing often make money. Usually on HN they are called investors and congratulated. Sour grapes on missing out? (I did too)

dobbsbob 14y ago
I bought 30,000 bitcoins when they were worth less than a penny and sold them all when the value went up to $0.80. Lol, oops. If you don't want to miss out again, buy Litecoins and Namecoins. Litecoin will never be worth as much as BTC (because there will be 80million of them as opposed to 20something million BTC) but it will slowly gain in value as it has some impressive features especially suited for online gaming payments with fast confirmation, secure online voting apps, or of course online gambling. Litecoin is presently $1.30/each I see that going up to $4 at least by end of year now that more people are using it.
- julespitt 14y ago
  You are assuming that the demand for any cryptocurrency responds linearly to the completely arbitrary total "quantity" assigned: Litecoin can't be worth more than Bitcoin because there are more units of them. That's simply not true. I am a fan of cryptocurrency in principle, but not of this particular oversimplification that was borrowed from some very sloppy thinking on the part of gold enthusiasts. Limited supply does not reliably ensure certain price behavior independent of demand.
- aneth4 14y ago
  What you should be worrying about is the money supply, not the individual coin value. Is there any acceptance in commerce of these competitors? Unless there is an underlying demand created by available products, these coins will be worth nothing. In my opinion, features won't matter. Bitcoin has critical mass, and it's unlikely to face real competition.
  - dobbsbob 14y ago

aneth4 14y ago

You are espousing one form of economics which many consider unsustainable. Regardless, many assets are deflationary. Rich people buy real estate and commodities because they are deflationary, or at least not inflationary. There is nothing wrong with assets that grow or maintain value. Bitcoin is a liquid and easily transferrable deflationary value store, just like gold. Telling people they should submit to inflation for the greater good is ridiculous. Inflation works because it keeps those too poor to have real assets on the gerbil wheel. The wealthy (or smart) just store their money in non-inflationary assets and sit pretty. Besides, if you can't get better than a 4% return, you probably shouldn't be investing in whatever it is you're considering anyhow.

api 14y ago
Sustainability is really the achilles heel of inflationary economics. The Earth is finite. Exponential growth cannot continue forever. When a steady state is reached, that's apocalyptic to inflationary money systems since debts all the sudden can never be repaid. Edit: I don't think space colonization matters here. Sure, it may be possible. But Mars is sufficiently far from Earth and the energy cost of transport sufficiently high that a populated Mars would effectively be an entirely separate economy for everything but intangibles. I don't think a Mars colony would permit Earthly exponential growth to continue, even though Martian exponential growth could occur for quite some time. (Until Mars' own unique limits were reached.)
- vbuterin 14y ago
  > everything but intangibles So, everything but 90% of the economy in forty years' time?
- makomk 14y ago
  Why would you want to repay the debts in the first place?
  - alexmat 14y ago
    If the interest rate drops.

drcode 14y ago

Clearly, since new land isn't being created anymore, everyone is going to shamelessly hoard real estate. Why would anyone ever buy or sell a house anymore? REAL ESTATE IS ALL A BIG DEFLATIONARY SCAM- You heard it here first.

deelowe 14y ago
The realtors were lying to you when they said real estate always goes up in value. ;-) Jokes aside, any sort of investing in illiquid assets is fraught with risks. We are talking about a currency here which by definition requires liquidity to be useful, these are two very different things.
seanalltogether 14y ago
Actually in the UK this is exactly what has happened since nobody pays property taxes over there. My fiancee owns her house but still pays rent to a land lord. When there are no liabilities for holding an asset, there's not a big incentive to sell it.
- drcode 14y ago
  Not sure what you mean, since someone who owns a house doesn't have a land lord.
  - blibble 14y ago
    if she owns the property but not the land (i.e. the house is a leasehold instead of a freehold), she has a landlord
    - MacsHeadroom 14y ago
      Sounds like feudalism.
      - blibble 14y ago
        that is where it all originates from: our property/land laws are all built on medieval law, as we haven't had a revolution to shake things up! houses are nearly always freeholds, whereas flats (apartments) are normally leaseholds, as it would be unfair if one flat owning tenant has land rights over the others. recently the government has given leaseholders the right to purchase the freehold from their landlord (if they all agree), but this involves setting up a company that all leaseholders are shareholders/directors of, with all the rights and responsibilities that that entails.

deelowe 14y ago

There are a few replies here that seem to be reacting negatively to the OP due to the tone of the submission instead of the content. To be clear, deflation is categorically bad for a currency. It's terrible, like great depression terrible. The reason it's bad is that deflation makes it more profitable to do nothing than to invest. When this happens, people react by not spending money. The market dies. While inflation can be bad, it's at least manageable. In fact, some inflation is actually heathly as it encourages investing. If that doesn't make sense, think of it like this. Inflation is similar to nuclear fusion and deflation is like nuclear fission. When the former goes critical, you can just shut off the spigots and things more or less fix themselves(albeit with some collateral damage) without the whole system crashing. However, with the latter, there may be no fixing without dismantling everything and starting over.

fragsworth 14y ago
> To be clear, deflation is categorically bad for a currency. It's terrible, like great depression terrible. I hear this argument a lot, but no nation that we know of has ever collapsed because of deflation, right? We've never (recently) been in a period of significant deflation, so how can we be so certain of its effects? > deflation makes it more profitable to do nothing than to invest. Investment won't ever stop, it just behaves more like a there is a minimum interest rate. No matter what the deflation is, I can still loan out $100 and expect $110 back within a year and make a bigger profit than holding on to it. People will still work, and spend what they need to. And there's a limit to how much a currency can deflate before it cycles back. And hell, how do we even know that inflationary/deflationary cycles are unhealthy? Even if it causes some businesses to die, maybe this improves an economy in the long term by churning things up a bit.
- cookiecaper 14y ago
  >Investment won't ever stop, it just behaves more like a there is a minimum interest rate. No matter what the deflation is, I can still loan out $100 and expect $110 back within a year and make a bigger profit than holding on to it. But is that $10 profit going to be worth the risk of default when an investor could get a satisfactory return by just sitting on the money in the first place? What incentive does an investor have to take bets and possibly lose thousands or millions of dollars when his money appreciates considerably without doing anything? To use a case from the bitcoin economy, we all know the story of the pizza that someone bought when the x-rate was something like 3 cents per coin. Today, the 10k btc spent on that pizza would have been worth $100k! This story is often told to try to incent people to get into btc, with the implication that "if you forgo the cost of one pizza, in a little while that will be worth thousands of dollars", without realizing that this exactly is the problem with a btc-based economy; if everyone is forgoing their metaphorical pizza in the hope of exponential growth in currency value, the market will be unusable.

jcfrei 14y ago

I believe we'll see some form of inflation through the introduction of new currencies. when the price (ie. deflation) of one cryptocurrency becomes too high other currencies will jump in. the outcome however is unclear, because we are now at an unprecedented point in history. because of the openness of the bitcoin protocol everybody has now the possibility to create his own currency - and the price of adopting a new currency will become marginal for businesses, thanks to new APIs. I have no idea what the long term equilibrium will be.

Eliezer 14y ago
Since Bitcoin can be subdivided and is used (rather than held) primarily as a medium of exchange, there's no reason for increased price in dollars to decrease its use as a medium of exchange... let alone a store of value. Unfortunately.
bencoder 14y ago
In testament to this, Litecoin, a bitcoin-alike that creates 4x as many coins and has been designed to be harder to do ASIC mining, has just recently gone above $1

dobbsbob 14y ago

Bitcoin will never be a government backed cryptocurrency they will make their own like Canada is doing. Governments want to track all money, and be able to print trillions to fight illegal wars bitcoin/gold standard prevent that behaviour. To me bitcoin is excellent for e-commerce because of it's secure signatures you can use for escrow, proof of payment, decentralization so nobody can interfere with your commerce and safety for me as a merchant to prevent fraud.

snomad 14y ago

I have never understood the inflation is good argument. Looking at PCs, DVD players, etc. it seems price deflation has been great for the consumer and overall "market". Perhaps it has been bad for the manufacturers, but the overall society has benefited from the deflation of those goods.

millstone 14y ago
Electronics become cheaper due to technological improvements, that is, positive supply shocks. That means our real wealth is increasing. That's a good thing! Electronics might also became cheaper due to, say, someone setting money on fire, so there's less to go around. Clearly in this case our real wealth would not be increasing, so it's not good. But it's not obvious why it should be bad, either. The reason it's bad is due to our psychology. If the money supply shrinks (and nothing else changes), prices and wages must both go down. But people hate the idea of negotiating a lower wage, so instead wage drops are accomplished through layoffs and unemployment. That's bad because it means that people aren't working: the economy's real output is reduced. So inflation provides a buffer that allows the economy to adjust wages downwards in a way that we find more palatable than negotiated nominal wage decreases.

Tycho 14y ago

Surely the problem solves itself - if nobody invests, then there is no growth. If there is somehow growth without investment (because everyone is hoarding currency)... then that's a problem I'd like to have.

mrb 14y ago

So you claim hoarding will kill Bitcoin. You are wrong for a very simple reason: the ultimate goal of hoarders is to eventually profit from their fortunes by spending it. They may spend slowly, but they will spend it, and this spending is what will ("should", to sound less pretentious) keep the Bitcoin economy alive. Basically Bitcoin hoarders are not going to sit on their fortunes and passively watch Bitcoin dies.

joshaidan 14y ago

"My question is, what then will happen when Bitcoin stabilizes, that is, when the time to new coin mined approaches practically infinity? Let's assume the global economy grows at 4% per year. Do Bitcoin's proponents believe a constant 4% deflation rate will be somehow compatible with capitalism? Why lend, why build new companies, when simply storing it is more than enough? Take shocks such as bubbles and demand-side crises. Could a economy based on Bitcoin survive them, and not crash inevitably into a deflationary spiral? I claim it won't." This makes the assumption that people won't make their own forks of bitcoin. If there's a shortage of bitcoins, and not enough is being mined to meet demand, I think that will give more incentive to people to make their own forks of the currency. Maybe will see various communities forming their own currencies for their own trading purposes.

narrator 14y ago

If you want to take the red pill: Please read F.A Hayek's critique of "The Paradox of Savings" (http://mises.org/daily/2804 http://mises.org/daily/2804) for a refutation of inflationist monetary policy. This was an essay he wrote during the debate with Keynes and others, explaining the flaws in the Keynesian theories. It was written in the 1930s , but explains better than any other theory the dynamics of a fixed money supply currency like bitcoin vs a constantly inflating money supply.

Evbn 14y ago
Too many nested critiques of refutations of theories for a novice to make sense of that article.
- narrator 14y ago
  It's hard to do a TL;DR on this. Here's a link to a meta reddit post I made of all my debates with traditionally trained economists :(http://www.reddit.com/r/austrian_economics/comments/kufu2/can_you_guys_help_me_with_the_keynesian_deflation/ http://www.reddit.com/r/austrian_economics/comments/kufu2/ca...). It should be somewhat easier to understand.

SilasX 14y ago

Prices change to reflect new knowledge, not "very old knowledge". Everyone buying bitcoins knows the supply growth path, and this expectation is priced in when non-stupid traders buy or sell them. It's not like ~2035 (or whatever) rolls around and everyone's like "Holy crap! There aren't going to be any more of these! Better quadruple my bids!" No -- there's no profit to be made simply from the fact of supply increase stopping at some point, not when the entire market knows it as well. So you can't really compare it to a situation in which a government (or affiliated central agency) controls the money supply, changing its mind at future dates, to arbitrarily hold the supply steady when it had been growing before -- which is what is required to get the results you've described.

dmm 14y ago

Most businesses are started with savings and money borrowed from family. Most entrepreneurs would do just fine in a deflationary environment.

leishulang 14y ago

while Bitcoin is deflationary due to monopoly, crypto-currency is inflationary. Bitcoin's value is not held by how hard it is to mine them. It's held by how bad people want to use crypto-currency for trading behaviours. When bitcoin's value become too high to be used for normal trading, it's value will decrease, simply because people will invent new types of crypto-currency(i.e litecoin, namecoin) to replace its function. When less people using bitcoins, no matter how 'hard' its mining algorithm gets, its price will drop. Therefore crypto-currency is inflationary, and that's why Bitcoin will become inflationary eventually.

vrotaru 14y ago

You totally wrong, and the reason you are wrong, is because you do not understand growth. Like... totally. Yes, I'm arrogant and I'll deal with an idealized model where the same set of resources is transformed into final goods, but bear with me. In order to get a real growth of 4% be it per year or per century in such a scenario, you need to find a better use of resources so that with the same resources you may produce an output which is 4% greater than before. Which is the same as saying the the only way to grow is to find ways to produce final goods cheaper. And because production is cheaper, more goods could be sold but.. entrepreneurs will still make a profit. Pretty much the same. And the fact that final goods get cheaper means just that.. That goods get cheaper. And you will not get rich by just holding bitcoins, or any other fixed supply money. Yes, you will be able to get more stuff for but only because the stuff get cheaper.. You'll still hold the same fraction of total purchasing power that as the day you decided to "hoard" your money for a while. That's not what I call getting rich, and that's why loans and interest make sense and are safe with bitcoin. P.S. Take you time. It's late in my TZ.

millstone 14y ago
> In order to get a real growth of 4% be it per year or per century in such a scenario, you need to find a better use of resources so that with the same resources you may produce an output which is 4% greater than before Let's work through an example. I buy 100 seeds for $1 each. I plant them, let them grow, and harvest the result. I now have 104 seeds. My real growth is 4%! Now I want to sell the seeds back to recoup my investment. But I discover that prices have dropped by 4%: seeds now go for 96 cents apiece. My 104 seeds now are worth $99.84! I would have been better off not buying seeds at all, and instead just holding on to my money. Real output is reduced. This illustrates how deflation inhibits growth.
- anonymoushn 14y ago
  Do you suppose that there is some sort of seed-factory producing the seeds at no cost and selling them into the market, or do the other seeds in the market come from plants which produce only 4% y/o/y growth in the number of seeds? In the latter case, has the entire seed-planting industry taken a loss over the last year? And if so, would less people plant the seeds this year, so that planting the seeds would again be profitable (assuming demand is static relative to decreased production)? Do the seeds or plants have any purpose other than the production of more seeds to eventually be sold?

areyal 14y ago

the need for inflation is a widespread belief, not a fact. Of course people would still spend their coins. How would they buy services otherwise? what monetarists do not understand is that if you could save money, that would free many resources now used to hedge against inflation, and they would be available to better use and cheaply. Furthermore we all would be inflation-protected, and not just the rich who can afford to do investment. Furthermore deflation revalue your salary, and you should not be fighting with your boss for a payment increase, but he would have to give that fight you to decrease it. We wouldn't have an economy based on the ever growing, ever spending

hristov 14y ago

That is a good point and that is a big weakness of bitcoin. Fact of the matter is this crazy appreciation is not very good for the currency. It encourages hoarding and discourages commerce. For all the stories about appreciation I do not hear many stories about bitcoin actually being used as a currency. And why would it be. Most people holding it believe it will go up in the future. Why would they spend their bitcoins on commerce if they think those bitcoins will be worth ten times their value in the future. Currently bitcoin is not a currency but a very speculative investment.

runn1ng 14y ago

The deflationary nature of bitcoin is by design, yes, but the thing with cryptocurrencies is - if it's somehow unsucessful, people can either ditch the currency and make a new one, or if most of the miners agree by consensu, even change the bitcoin protocol with its deflationary nature itself. For example, if the economy will be in such a terrible state thanks to the deflation, somebody can do a fork of bitcoin that will not have halved mining reward (and thus not having finite number of bitcoins in existence), and if the miners will jump to this new version (and probably clients, too, not sure about that), this new currency will be used as easily as the old bitcoin. If I am wrong technically, please correct me. The nice thing about bitcoin is - nobody enforces anything.

Houshalter 14y ago

Deflation generally benefits almost everyone. Things get cheaper and cheaper over time, while the amount of money you make stays the same. Technology is a beautiful example of this. Almost every year technology gets cheaper and cheaper, and better and better for the same amount of money spent. And of course this is great for everyone and I don't think many would dispute that. Imagine a world where that wasn't true. Imagine you had to spend more and more every year just to get the same quality of phone or computer or TV. Now ideally, and depending on what's causing the inflation, your income would increase at exactly the same amount and so it wouldn't make a difference. The same quality TV would cost the same percent of your wage in 1960 as it would in 2013. But with deflation it's the opposite. Your income will (on average) remain the same, since the amount of money in the economy hasn't changed and it's being divided over the same number of people. But prices will go down due to the economy growing, increasing efficiency, technological improvements, and all that good stuff. You may see a slight flaw in my argument. Presumably the same amount of stuff is being produced in both economies, regardless how the currency is changing in value over time, and presumably there are the same amount of people to receive all the stuff being produced. So how can people in the deflationary economy be richer, on average, than people in the inflationary one? Well on average, they aren't. Inflation as you are talking about it is caused by the money supply increasing. Usually due to the government printing more. Whoever gets the money first is suddenly richer, because prices haven't increased in response to inflation yet. The amount of money they have relative to everyone else has increased. Therefore everyone else has become poorer relative to them. Only on average does everything stay the same, but it's a zero sum game where for one person to benefit, someone else has to lose. The amount of goods in the economy hasn't changed. But the person with more money (obtained through printing money) gets a bigger piece of the pie and therefore everyone else gets less. Inflation is just a really confusing, inefficient, and indirect form of wealth redistribution. Whoever gets the printed money obviously gets to benefit from it, and everyone else is therefore poorer, including your entrepreneurs and investors and consumers and everyone else. The only way this isn't true is if the money is distributed perfectly equally so the percentage everyone has is exactly the same as before. However this is not the case in the real world at all.

klipt 14y ago
> Things get cheaper and cheaper over time, while the amount of money you make stays the same. This can't be universally true. If food gets continually cheaper, unless the cost of owning land and farming it goes down by the same amount, farmers must eventually make less money than before (or be driven out of business entirely). And I don't quite buy the comparison between technological progress (where things get cheaper due to massive amounts of competition and research) and switching to a fiat currency which is arbitrarily limited (bitcoin). Using bitcoin doesn't guarantee technological progress. > Inflation as you are talking about it is caused by the money supply increasing. Usually due to the government printing more. Whoever gets the money first is suddenly richer, because prices haven't increased in response to inflation yet. The amount of money they have relative to everyone else has increased. Therefore everyone else has become poorer relative to them. Yes, printing money is in effect a government tax for usage of that currency.

rumcajz 14y ago

One thing to consider: In 30-50 years the world population starts shrinking, however, amount of bitcoins will stay the same. Which in turn is likely to inflate it's value and possibly offset the deflation.

jpadkins 14y ago

inflation vs. deflation: I have three points for your consideration 1) High tech sector has been experiencing massive deflation for decades and is thriving. Why? Is deflation really that bad when it comes from productivity? We know deflation due to massive decrease in money supply or velocity is bad, but what is wrong with slow, steady deflation from productivity? 2) With 2-3% steady deflation, won't interest rates adjust? People will lend their money out to earn a better risk adjusted rate than deflation. There isn't some magical number or percentage where people will start or stop lending. It's more like behavioral economics where people have several choices at different risk profiles. 3) The biggest proponent for an inflationary system is the banking system and economists who are funded/trained/selected by the banking system. This casts a lot of doubt on 'inflation is bad for lenders' statement. In a deflationary system, productivity gains go to the consumers (via lower prices). In an inflationary system, productivity gains go to capital owners (via debt and higher prices). The US experienced very strong but volatile economic growth under a capitalistic fixed currency system (gold standard) that had periods of deflation and inflation in the 19th century. There is no historical basis that shows that capitalism needs inflation.

roguas 14y ago

You seem to misunderstand certain aspects. If economy will grow at 4% it means that people get on avarage 4% on their investment be that work, assets, capital. Its still beneficial for them. Even with deflation at this assumed 4% they will simply invest in things that have better ratio of roi/risk. Deflation is not obviously bad. We had deflation during the whole industrial revolution and things were running smooth. If people hold on to savings rather than invest suppliers will quote higher prices in order to put the money back into system or hoard the money for themselves. One thing for sure. You wont be robbed out of thin air and that whats inflation is for. Central bank has no money for retirment... fiiiine, let print more -> market will stabilize itself. Plus if the value of bitcoin goes sky high. It will be lucrative to mine again. It has the mechanisms of selfhealing.

dkfhcghyyn 14y ago

575O9767878

mhartl 14y ago

It's thoughtful yet mistaken posts like this one that make it clear how early we still are in the Bitcoin game. Capitalism doesn't need inflation. Capitalism works best with a hard currency. Money gaining 4% per year in purchasing power isn't "deflation". The notion of "4% growth" is ill-posed. I could back these statements up with logic and evidence, but experience shows that virtually no amount of rational argument ever convinces anyone of these points. Luckily, rather than arguing till we are hoarse, those of us who have swallowed the hard-money red pill can now put our money where our mouth is and buy some bitcoins.