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Is it deflationary because of the 21 million limit? That limit won't hit until 2140. Or is it deflationary because the projected velocity will go up faster than

Is it deflationary because of the 21 million limit? That limit won't hit until 2140. Or is it deflationary because the projected velocity will go up faster than the mining output?

brazzy 13y ago
It's deflationary now if the rate of new bitcoins being mined is smaller than the rate of demand increase.
skriticos2 13y ago
Please don't mix supply with perceived value. It's deflationary in the sense that with passing time each coin is worth more than before. There is some correlation with money supply, but deflation ultimately means: how much can you buy for a set amount of currency. The inflation/deflation of the US dollar for instance is measured by statistics like the CPI, which boils down to how much consumer goods you can buy. If you can buy 10 peaces of bread this year for $10 but only 9 peaces of bred next year, you have inflation. If you can buy 11, you have deflation. How the dollar supply (number of existing dollars) changes has a correlation to this (i.e. it influences this), but it's not defining it. http://en.wikipedia.org/wiki/Consumer_price_index http://en.wikipedia.org/wiki/Consumer_price_index
- wintersFright 13y ago
  OK, so with passing time, coins are worth more than before because the usage demand is increasing faster than the mining supply. I'm not sure if that is your argument though?
  - skriticos2 13y ago
    Essentially, yes. More precisely demand is increasing faster than readily available supply (people selling Bitcoins for goods or other currencies, also called liquidity).
- oleganza 13y ago
  When astronomical quantities of USD are being printed into existence (today's QE is like 80 bln dollars per month), CPI is not a good indicator. Rich guys who get all this new money cannot buy 100x more food and toilet paper. What they can do is to buy expensive property all over the world (not very liquid, thus not affecting everyday prices much) and stocks. Right now CPI does not change as much as USD supply changes, so people don't worry. However, it does not mean this is not delayed and will hit down the road even if they suddenly stop printing new dollars.

Is it deflationary because of the 21 million limit? That limit won't hit until 2140. Or is it deflationary because the projected velocity will go up faster than the mining output?

brazzy 13y ago

It's deflationary now if the rate of new bitcoins being mined is smaller than the rate of demand increase.

skriticos2 13y ago

Please don't mix supply with perceived value. It's deflationary in the sense that with passing time each coin is worth more than before. There is some correlation with money supply, but deflation ultimately means: how much can you buy for a set amount of currency. The inflation/deflation of the US dollar for instance is measured by statistics like the CPI, which boils down to how much consumer goods you can buy. If you can buy 10 peaces of bread this year for $10 but only 9 peaces of bred next year, you have inflation. If you can buy 11, you have deflation. How the dollar supply (number of existing dollars) changes has a correlation to this (i.e. it influences this), but it's not defining it. http://en.wikipedia.org/wiki/Consumer_price_index http://en.wikipedia.org/wiki/Consumer_price_index

wintersFright 13y ago
OK, so with passing time, coins are worth more than before because the usage demand is increasing faster than the mining supply. I'm not sure if that is your argument though?
- skriticos2 13y ago
  Essentially, yes. More precisely demand is increasing faster than readily available supply (people selling Bitcoins for goods or other currencies, also called liquidity).
oleganza 13y ago
When astronomical quantities of USD are being printed into existence (today's QE is like 80 bln dollars per month), CPI is not a good indicator. Rich guys who get all this new money cannot buy 100x more food and toilet paper. What they can do is to buy expensive property all over the world (not very liquid, thus not affecting everyday prices much) and stocks. Right now CPI does not change as much as USD supply changes, so people don't worry. However, it does not mean this is not delayed and will hit down the road even if they suddenly stop printing new dollars.