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As opposed to deflationary policy, which steals from the hard-working children of the future? Please don't waste your time typing the usual nonsense about how

As opposed to deflationary policy, which steals from the hard-working children of the future? Please don't waste your time typing the usual nonsense about how bitcoin can be divided into infinitesimally-small parts. Nobody is (or has ever been) seriously worried about that. It would be as if saying the primary problem with hyperinflation is that you need to put too many zeros on your bank notes. Imagine if someone asked about the feasibility of fiat currencies and the response was "No, we've planned for that: There will be extra space on the end of the bank notes to print more zeros." Absurd! Yet, that's the standard argument from bitcoin proponents when it comes to deflation (only in reverse). The problem with bitcoin is that its designers believed that hyperinflation=bad necessarily implies that hyperdeflation=good. If that were the case, then bitcoin would be the perfect currency. Actually, both are fatal to an economy. Economies basically shut down when currencies start to deflate. It turns into a giant game of chicken: Nobody wants to spend his currency first because he knows it will be worth more later. First people delay luxury purchases, but before long you end up with a vicious circle and people wait until the very last second to purchase essentials like life-saving medicine. There is a way to stop this, of course: Print more money (Hey, that's kinda like how the solution to hyperinflation is to stop printing more money! Who'da thunk it?). >Nation States don't want this, as it restricts their expansion. Or we can take off our tin-foil hats and admit that Bitcoin sucks and was designed by someone with little understanding of economics or the history of money. In order to be a useful currency, the total number of bitcoins needs to track the size of the portion of the economy that uses bitcoins. Bring me a cryptocurrency that was designed by someone who is more interested in making a solid, practical currency than rigidly following his ideology, then we can talk. Nobody in power is in any way threatened by bitcoin. It will implode by itself without any help from the outside (though I'm sure it will get some helpful nudges in that direction). I'll close with this: Part of engineering a good system is making prototypes and seeing what doesn't work. Another part is looking at competing products and seeing where other engineers went wrong. Blind, religious adherence to the principle of deflation is only going to cripple the adoption of alternate currencies.

oleganza 13y ago
In a transaction where one asset is inflationary in relation to another, another one is deflationary, right? So if I apply your argument of deflationary spiral to currently deflationary assets (in relation to USD), we would have to withhold selling our services and goods for USD because tomorrow we would be able to get even more USD, right? So no trade should happen in a USD economy too? (Buyer of one asset is a seller of another and vice versa.) Another argument: there are time preferences. Even though tomorrow I can buy 10% more beer for my money, I want some beer today. If my money gets expensive faster, I'd spend less of it, but not necessary zero. Third argument: even if everyone is holding their money, what's the problem? The minute someone needs something, they'd have to pay for it. They would prefer to consume less if cash appreciates and consume more if cash depreciates. But there is no magical threshold after which money becomes so expensive that everyone stupidly dies of starvation. On contrary, price will stop growing as soon as everyone got what they wanted and trade stopped (no one wants to sell his bitcoin). Then, as people see more stable prices, they will resume trading cash for something to consume.
- fancyketchup 13y ago
  > In a transaction where one asset is inflationary in relation to another... Yes, and this happens in the real world. You'll find that when an asset is deflationary (ie, its price in USD is increasing), buyers try to delay payment so they can hold onto their dollars for longer. The asset being deflationary is exactly the same thing as the currency being inflationary (in this simply two-component system): In the future the asset is worth more and dollars are worth less, so to get the best deal you want to pay with the least valuable dollars, which are future ones. > Another argument... Depends on the level of deflation and your expectations for the future. If Bitcoin replaced the world's currencies, it should be worth "a few" (handwavey order of magnitude) million USD per BTC[1]. Even if it just replaced the USD it would be worth hundreds of thousands of today's USD. And that assumes that all 21 million bitcoins are available for use in the economy. It is currently trading at about one hundred USD per BTC. Are you seriously telling me that you would trade a Bitcoin for a few cases of good beer right now and give up millions in future value? If Satoshi is holding on to orginal bitcoins right now he'd be stupid to spend them not because someone could blackmail him, but because he could be a multi-trillionare in a couple decades. Let me put this another way: If bitcoin "only" deflated at 10% per year (the number you picked for beer), it would take around a century (100 years) to deflate enough to replace the world's currencies. You'd probably be dead before it's big enough to replace just the dollar. And 10% is huge. Imagine if we had 10%/yr inflation for a century. Would that be a good thing? Do you think 10% inflation could be maintained for that long without a vicious circle causing hyperinflation? > Third argument: even if everyone is holding their money, what's the problem? Because this amplifies the vicious cycle. Hoarding money pulls it out of the economy, which increases deflation. That makes people want to hoard their money. Which pulls it out of the economy, which... > The minute someone needs something, they'd have to pay for it. They would prefer to consume less if cash appreciates and consume more if cash depreciates. But there is no magical threshold after which money becomes so expensive that everyone stupidly dies of starvation. So this is interesting: It works fine if we pretend that our amplifier is relatively linear and has a healthy amount of negative feedback and plenty of phase margin. Unfortunately, things in the real world aren't quite so simple. What happens when all the farmers decide not to plant crops (or not beyond a sustenance level) one year because each one knows that he will be better off saving his money to buy seeds next year? Futures markets can help with this a little, but those are prone to bubbles, too. By the time the price signal trickles back through the feedback loop you already have people starving. Google for the MIT beer game. Oscillations "shouldn't" happen in that system, yet they do. The cause of the oscillations in the MIT beer game is delay in the feedback network. It's directly analogous to an op-amp circuit. So, bitcoin might work in a soviet-style, centrally planned economy, where someone with a bird's-eye view can dictate the output of various industries. Maybe bitcoiners want central planning. I don't know. But, know that I would prefer not to have that. [1] It was a while ago, but I calculated the approximate world money supply using numbers I found on wikipedia. It's something like the equivalent value of tens of trillions of USD (trillion=1e12), and there are at most tens of millions of bitcoins (million=1e6). 1e13/1e7 ~= 1e6. This is a very very rough estimate, but it shows that the current value of bitcoin isn't even close to being in the same county as the ballpark compared to what it needs to be to reach its apparent goals (world domination). If you really think that bitcoin is going to replace USD, buy as many as you can get your hands on for whatever price anyone asks because you're buying them for fractions of a penny on the dollar. (note: this is not actual investment advice and I am not an investment adviser)

oleganza 13y ago

In a transaction where one asset is inflationary in relation to another, another one is deflationary, right? So if I apply your argument of deflationary spiral to currently deflationary assets (in relation to USD), we would have to withhold selling our services and goods for USD because tomorrow we would be able to get even more USD, right? So no trade should happen in a USD economy too? (Buyer of one asset is a seller of another and vice versa.) Another argument: there are time preferences. Even though tomorrow I can buy 10% more beer for my money, I want some beer today. If my money gets expensive faster, I'd spend less of it, but not necessary zero. Third argument: even if everyone is holding their money, what's the problem? The minute someone needs something, they'd have to pay for it. They would prefer to consume less if cash appreciates and consume more if cash depreciates. But there is no magical threshold after which money becomes so expensive that everyone stupidly dies of starvation. On contrary, price will stop growing as soon as everyone got what they wanted and trade stopped (no one wants to sell his bitcoin). Then, as people see more stable prices, they will resume trading cash for something to consume.

fancyketchup 13y ago
> In a transaction where one asset is inflationary in relation to another... Yes, and this happens in the real world. You'll find that when an asset is deflationary (ie, its price in USD is increasing), buyers try to delay payment so they can hold onto their dollars for longer. The asset being deflationary is exactly the same thing as the currency being inflationary (in this simply two-component system): In the future the asset is worth more and dollars are worth less, so to get the best deal you want to pay with the least valuable dollars, which are future ones. > Another argument... Depends on the level of deflation and your expectations for the future. If Bitcoin replaced the world's currencies, it should be worth "a few" (handwavey order of magnitude) million USD per BTC[1]. Even if it just replaced the USD it would be worth hundreds of thousands of today's USD. And that assumes that all 21 million bitcoins are available for use in the economy. It is currently trading at about one hundred USD per BTC. Are you seriously telling me that you would trade a Bitcoin for a few cases of good beer right now and give up millions in future value? If Satoshi is holding on to orginal bitcoins right now he'd be stupid to spend them not because someone could blackmail him, but because he could be a multi-trillionare in a couple decades. Let me put this another way: If bitcoin "only" deflated at 10% per year (the number you picked for beer), it would take around a century (100 years) to deflate enough to replace the world's currencies. You'd probably be dead before it's big enough to replace just the dollar. And 10% is huge. Imagine if we had 10%/yr inflation for a century. Would that be a good thing? Do you think 10% inflation could be maintained for that long without a vicious circle causing hyperinflation? > Third argument: even if everyone is holding their money, what's the problem? Because this amplifies the vicious cycle. Hoarding money pulls it out of the economy, which increases deflation. That makes people want to hoard their money. Which pulls it out of the economy, which... > The minute someone needs something, they'd have to pay for it. They would prefer to consume less if cash appreciates and consume more if cash depreciates. But there is no magical threshold after which money becomes so expensive that everyone stupidly dies of starvation. So this is interesting: It works fine if we pretend that our amplifier is relatively linear and has a healthy amount of negative feedback and plenty of phase margin. Unfortunately, things in the real world aren't quite so simple. What happens when all the farmers decide not to plant crops (or not beyond a sustenance level) one year because each one knows that he will be better off saving his money to buy seeds next year? Futures markets can help with this a little, but those are prone to bubbles, too. By the time the price signal trickles back through the feedback loop you already have people starving. Google for the MIT beer game. Oscillations "shouldn't" happen in that system, yet they do. The cause of the oscillations in the MIT beer game is delay in the feedback network. It's directly analogous to an op-amp circuit. So, bitcoin might work in a soviet-style, centrally planned economy, where someone with a bird's-eye view can dictate the output of various industries. Maybe bitcoiners want central planning. I don't know. But, know that I would prefer not to have that. [1] It was a while ago, but I calculated the approximate world money supply using numbers I found on wikipedia. It's something like the equivalent value of tens of trillions of USD (trillion=1e12), and there are at most tens of millions of bitcoins (million=1e6). 1e13/1e7 ~= 1e6. This is a very very rough estimate, but it shows that the current value of bitcoin isn't even close to being in the same county as the ballpark compared to what it needs to be to reach its apparent goals (world domination). If you really think that bitcoin is going to replace USD, buy as many as you can get your hands on for whatever price anyone asks because you're buying them for fractions of a penny on the dollar. (note: this is not actual investment advice and I am not an investment adviser)