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I like your point about adoption. It makes sense that a deflationary currency would attract more people due to its speculative nature. Without this aspect of
by pyoung 14y ago
I like your point about adoption. It makes sense that a deflationary currency would attract more people due to its speculative nature. Without this aspect of bitcoin, it would still probably be trading for pennies and languishing in relative obscurity. Any digital currency designed with an inflationary system will probably fail to attract a critical mass of users, because outside of anonymity, which is only important for a small minority, there is no significant upside to owning the currency.
Where I don't agree with you is that the divisible nature of bitcoin somehow makes it viable (most currencies are divisible by the way, 100 cents = $1). The fact is deflation suppress spending (and hence economic activity) because the currency will be worth significantly more in the future than it is now, and therefore, I would prefer to hold onto it rather than spend it. Divisibility does not change this.
Where I am still up in the air, is whether or not a digital currency needs to be inflationary. Gold has some industrial uses, but it's value is largely due to tradition and speculation. It has long been used as a common store of value and is bought by traders as a hedge against fluctuations in the global economy. Bitcoin could become the 'Gold of the internet'. A new way to hedge against the global economy, but other than that, not something that really affects everyday life, except maybe at the fringes (when was the last time you bought something with gold).
- snitko 14y agoPlease read this short thread where I explain why investment is still an attractive option with Bitcoin: https://news.ycombinator.com/item?id=5403360 https://news.ycombinator.com/item?id=5403360 I hope this changes your mind.
- zanny 14y agoMy problem with this and BTC is that it isn't even a truly fixed currency supply - as people lose wallets, the bitcoins they contained are permanantly lost because only those wallets (that are now destroyed) are lost. So either you brute force the signing key and try to imitate the wallets or you will never get those coins back. So it isn't just that BTC will (in a hundred odd years) stop growing the money supply, it will probably (sooner than that) start leaking bitcoins from lost wallets, and as the money supply drops deflation grows faster than with a fixed money base.
- snitko 14y agoThere won't be a lot of lost wallets. At least not enough to cause any kind of noticeable effect.
- dragonwriter 14y ago> There won't be a lot of lost wallets. At least not enough to cause any kind of noticeable effect. With a fixed upper limit on the number of BTC ever issued, if wallets are lost at any non-zero rate, there will eventually be exactly 0 BTC that can be spent.
- pyoung 14y ago"Nobody invests. If that's the case, then the amount of goods and services in the economy remains constant" No, if nobody invests, then there will be NO goods and services at all. That is a recipe for economic calamity, and would create a situation where guns and ammo would end up more valuable than any currency (what is the point of holding a currency if you can't buy anything with it?). I have yet to read a convincing explanation as to how deflation is a good thing. The general premise is that a 'little' deflation is a good thing because it encourages people to save, but the authors always fail to address the fact that deflation leads to more deflation and hence the 'deflationary spiral' that eventually causes things like the great depression. One author actually argues that the Great Depression was a good thing, but I don't exactly agree with that sentiment. Once again, Gold is a better comparison to bitcoin than any fiat currency, because bitcoin is not a form of exchange for any particular economy and the dangers of deflation do not necessarily apply. More than anything, bitcoin is being used as a store of value. While this doesn't make for a good currency, it does not necessarily mean bitcoin is doomed.