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The mistake in the article is that bitcoins can subdivide AND increase in value. Bitcoins are not going to have liquidity crisis, as much as some people seem to

by drcode 14y ago

The mistake in the article is that bitcoins can subdivide AND increase in value. Bitcoins are not going to have liquidity crisis, as much as some people seem to want it to.

podperson 14y ago
If/when bitcoins ever become an important currency they will have all the same problems as other currencies, and others unique to being bitcoins. E.g. central banks will try to manipulate them, governments will tax and regulate them, and people will speculate on them. Being able to subdivide and increase in value are not attributes unique to bitcoins. Oh, and the article DOES address this exact point.
- drcode 14y ago
  > Being able to subdivide and increase in value are not attributes unique to bitcoins. I didn't claim that. > Oh, and the article DOES address this exact point. No, they always assume the value of a coin remains constant when discussing subdivision.
  - ars 14y ago
    > No, they always assume the value of a coin remains constant when discussing subdivision. If you assume the value of the coin doesn't remain constant that would cause FAR far worse problems, so there is no need to go there.
    - drcode 14y ago
      Obviously I can't argue against "problems" you can't be bothered to enumerate.
      - ars 14y ago
        Really? You can't think of any problems that a currency with wildly changing value will have? Or even a constantly changing value?
  - podperson 14y ago
    > There are some objections to this: for example, that since each bitcoin can be infinitely divided into components, the money supply can keep growing. But that’s not related. If you have a $10 bill and I replace it with ten $1 bills, do you feel richer? This seems to address the point to me. If the supply of dollars is constrained (liquidity trap) then deflation does NOT make people happier.
    - drcode 14y ago
      If I have ten $1 bills and they are each worth $10 of previous spending power, I would ABSOLUTELY feel richer.
danmaz74 14y ago
There won't be a liquidity crisis only if all people dealing with bitcoins will accept to lower their prices in response to the deflation of the currency - this would include workers paid with bitcoin. Not very likely. Would you accept to be paid less and less every year (month, week...)?
- drcode 14y ago
  > Would you accept to be paid less and less every year (month, week...) Because they'd be able to buy more and more with that money, obviously.
  - ars 14y ago
    If everyone changed their prices, and their salary all at once you did nothing at all. You just changed a number - you didn't increase the money supply at all. i.e. the total amount of purchasing power didn't change.
    - drcode 14y ago
      Exactly- So the claim that deflation (i.e. decreasing prices) will hurt liquidity is false.
      - ars 14y ago
        How did you manage to get that from what I wrote? Of course deflation hurts liquidity - if you have less money, there is less floating around for people to use.
        drcode 14y ago
        Less money in denomination, but the total purchasing power isn't less.
thyrsus 14y ago
The problem is that they increase in value, to a degree that the individually rational choice is not to spend them "now". The babysitting coop coupons were effectively subdividable as well: participants could have taken the initiative to say "I'll provide two hours of babysitting for an hour coupon" or "I'll provide 15 minutes of babysitting for 1/2 an hour coupon". [Edit, for elaboration] That would be rational when the value of babysitting in the further future (e.g. Valentine's day) exceeds the value of babysitting in the nearer future (e.g, Feb. 11).
- drcode 14y ago
  If there had been a liquid, open market for coupons and the coupons could subdivide they would have been fine.
mpyne 14y ago
Subdiving does not increase the overall supply of Bitcoin though. There would be no way in the future to obtain Bitcoin, except by taking it from someone else. Or someone else's hoard, as the case may be. (This is at least briefly touched on in the article) This is also covered in the book "Debt: The First 5000 Years", when gold-standard and silver-standard monarchies had real problems keeping money in circulation due to the effects of merchants' savings and overall finite supply mixed with the large demand for coin in the Orient.
- drcode 14y ago
  For liquidity, what matters is that the VALUE of the liquidity is adequate. Whether you're trading full bitcoins or fractions of a bitcoin doesn't matter.
  - mpyne 14y ago
    But as Bitcoin becomes more scarce won't it also become more valuable? And as it becomes more valuable, won't it be more likely that people refuse to spend it to hold onto that value?

by drcode 14y ago

The mistake in the article is that bitcoins can subdivide AND increase in value. Bitcoins are not going to have liquidity crisis, as much as some people seem to want it to.

podperson 14y ago

If/when bitcoins ever become an important currency they will have all the same problems as other currencies, and others unique to being bitcoins. E.g. central banks will try to manipulate them, governments will tax and regulate them, and people will speculate on them. Being able to subdivide and increase in value are not attributes unique to bitcoins. Oh, and the article DOES address this exact point.

drcode 14y ago
> Being able to subdivide and increase in value are not attributes unique to bitcoins. I didn't claim that. > Oh, and the article DOES address this exact point. No, they always assume the value of a coin remains constant when discussing subdivision.
- ars 14y ago
  > No, they always assume the value of a coin remains constant when discussing subdivision. If you assume the value of the coin doesn't remain constant that would cause FAR far worse problems, so there is no need to go there.
  - drcode 14y ago
    Obviously I can't argue against "problems" you can't be bothered to enumerate.
    - ars 14y ago
      Really? You can't think of any problems that a currency with wildly changing value will have? Or even a constantly changing value?
- podperson 14y ago
  > There are some objections to this: for example, that since each bitcoin can be infinitely divided into components, the money supply can keep growing. But that’s not related. If you have a $10 bill and I replace it with ten $1 bills, do you feel richer? This seems to address the point to me. If the supply of dollars is constrained (liquidity trap) then deflation does NOT make people happier.
  - drcode 14y ago
    If I have ten $1 bills and they are each worth $10 of previous spending power, I would ABSOLUTELY feel richer.

danmaz74 14y ago

There won't be a liquidity crisis only if all people dealing with bitcoins will accept to lower their prices in response to the deflation of the currency - this would include workers paid with bitcoin. Not very likely. Would you accept to be paid less and less every year (month, week...)?

drcode 14y ago
> Would you accept to be paid less and less every year (month, week...) Because they'd be able to buy more and more with that money, obviously.
- ars 14y ago
  If everyone changed their prices, and their salary all at once you did nothing at all. You just changed a number - you didn't increase the money supply at all. i.e. the total amount of purchasing power didn't change.
  - drcode 14y ago
    Exactly- So the claim that deflation (i.e. decreasing prices) will hurt liquidity is false.
    - ars 14y ago
      How did you manage to get that from what I wrote? Of course deflation hurts liquidity - if you have less money, there is less floating around for people to use.
      - drcode 14y ago
        Less money in denomination, but the total purchasing power isn't less.

thyrsus 14y ago

The problem is that they increase in value, to a degree that the individually rational choice is not to spend them "now". The babysitting coop coupons were effectively subdividable as well: participants could have taken the initiative to say "I'll provide two hours of babysitting for an hour coupon" or "I'll provide 15 minutes of babysitting for 1/2 an hour coupon". [Edit, for elaboration] That would be rational when the value of babysitting in the further future (e.g. Valentine's day) exceeds the value of babysitting in the nearer future (e.g, Feb. 11).

drcode 14y ago
If there had been a liquid, open market for coupons and the coupons could subdivide they would have been fine.

mpyne 14y ago

Subdiving does not increase the overall supply of Bitcoin though. There would be no way in the future to obtain Bitcoin, except by taking it from someone else. Or someone else's hoard, as the case may be. (This is at least briefly touched on in the article) This is also covered in the book "Debt: The First 5000 Years", when gold-standard and silver-standard monarchies had real problems keeping money in circulation due to the effects of merchants' savings and overall finite supply mixed with the large demand for coin in the Orient.

drcode 14y ago
For liquidity, what matters is that the VALUE of the liquidity is adequate. Whether you're trading full bitcoins or fractions of a bitcoin doesn't matter.
- mpyne 14y ago
  But as Bitcoin becomes more scarce won't it also become more valuable? And as it becomes more valuable, won't it be more likely that people refuse to spend it to hold onto that value?