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If you take the economic theory behind bitcoin seriously, then it's easy to see that its deflationary nature implies an increase in value over the long-term reg

by Jach 13y ago

If you take the economic theory behind bitcoin seriously, then it's easy to see that its deflationary nature implies an increase in value over the long-term regardless of ups and downs. Buy (or mine) and hold is then a good strategy, the main concern you ought to have in your calculations is bitcoin being killed by a government or a competing service that offers the same and better benefits that using bitcoin does. Very different from SatoshiDice.

bcbrown 13y ago
>the main concern you ought to have in your calculations is bitcoin being killed by a government or a competing service that offers the same and better benefits that using bitcoin does. Very different from SatoshiDice. Those seem pretty unpredictable to me.
- Jach 13y ago
  Yes, it's hard to predict and the odds change every day, which makes it quite different from SatoshiDice or any casino game where the odds and rewards are in full display. It's also hard to predict which company is going to be the next Google and not get killed from the outside by a patent troll or would-be competitors who use the government to hammer down any new competition or something else, but a lot of VCs still make money regardless. I certainly wouldn't suggest anyone put all their eggs into the bitcoin basket, but mine and others' best guesses on the odds indicate the risks don't outweigh the potential rewards.
- vbuterin 13y ago
  http://en.wikipedia.org/wiki/Ludic_fallacy http://en.wikipedia.org/wiki/Ludic_fallacy
  - deleted 13y ago
    [deleted]
XorNot 13y ago
I like that in this version you ignore the problem of what happens to BitCoin when no one spends it and everyone just hordes it.
- snitko 13y ago
  That is a very important question. Because it is so often asked when talking about Bitcoin, I took some time to write an answer for it. Please read it and let me know if you have questions: http://snitko.ru/blog/the-beauty-of-deflation.html http://snitko.ru/blog/the-beauty-of-deflation.html
- kybernetikos 13y ago
  That's a problem if it's your economys main currency. If the aim for BitCoin is as the worlds second currency, then that's not so serious, as long as the volatility is not so high that people are reluctant to take it in payment.
  - snitko 13y ago
    It's not a problem even if your economy only has Bitcoin. Deflation is not a problem.
    - kybernetikos 13y ago
      I know you think that because I read your blog post, however the limited amount of knowledge I have on the subject suggests that it can be a pretty bad problem. Deflation is regressive - it harms those who need to spend the most and leads to concentration of capital at the expense of labour. It punishes those with debt, which will make it difficult for normal people to ever acquire large capital goods e.g. a house (by the way your argument that lenders won't mind negative interest rates because their final value is worth more than what they started with is wrong because it doesn't take into account opportunity cost - lenders compare the returns not against the current value of their holdings, but against their other options e.g. putting the money in a hole). It reduces the velocity of money and therefore economic output. You say that at least it redirects it to the areas that are most important, which may be true, but nevertheless, it shrinks the pie from which we all partake, and reduces the rate of growth, a problem in a world with a growing population. Bitcoin would also suffer from similar problems to gold in that in bad economic times, all the capital needed to recover would flee the regions suffering, making any recovery much more difficult.

by Jach 13y ago

bcbrown 13y ago

>the main concern you ought to have in your calculations is bitcoin being killed by a government or a competing service that offers the same and better benefits that using bitcoin does. Very different from SatoshiDice. Those seem pretty unpredictable to me.

Jach 13y ago
Yes, it's hard to predict and the odds change every day, which makes it quite different from SatoshiDice or any casino game where the odds and rewards are in full display. It's also hard to predict which company is going to be the next Google and not get killed from the outside by a patent troll or would-be competitors who use the government to hammer down any new competition or something else, but a lot of VCs still make money regardless. I certainly wouldn't suggest anyone put all their eggs into the bitcoin basket, but mine and others' best guesses on the odds indicate the risks don't outweigh the potential rewards.
vbuterin 13y ago
http://en.wikipedia.org/wiki/Ludic_fallacy http://en.wikipedia.org/wiki/Ludic_fallacy
- deleted 13y ago
  [deleted]

XorNot 13y ago

I like that in this version you ignore the problem of what happens to BitCoin when no one spends it and everyone just hordes it.

snitko 13y ago
That is a very important question. Because it is so often asked when talking about Bitcoin, I took some time to write an answer for it. Please read it and let me know if you have questions: http://snitko.ru/blog/the-beauty-of-deflation.html http://snitko.ru/blog/the-beauty-of-deflation.html
kybernetikos 13y ago
That's a problem if it's your economys main currency. If the aim for BitCoin is as the worlds second currency, then that's not so serious, as long as the volatility is not so high that people are reluctant to take it in payment.
- snitko 13y ago
  It's not a problem even if your economy only has Bitcoin. Deflation is not a problem.
  - kybernetikos 13y ago
    I know you think that because I read your blog post, however the limited amount of knowledge I have on the subject suggests that it can be a pretty bad problem. Deflation is regressive - it harms those who need to spend the most and leads to concentration of capital at the expense of labour. It punishes those with debt, which will make it difficult for normal people to ever acquire large capital goods e.g. a house (by the way your argument that lenders won't mind negative interest rates because their final value is worth more than what they started with is wrong because it doesn't take into account opportunity cost - lenders compare the returns not against the current value of their holdings, but against their other options e.g. putting the money in a hole). It reduces the velocity of money and therefore economic output. You say that at least it redirects it to the areas that are most important, which may be true, but nevertheless, it shrinks the pie from which we all partake, and reduces the rate of growth, a problem in a world with a growing population. Bitcoin would also suffer from similar problems to gold in that in bad economic times, all the capital needed to recover would flee the regions suffering, making any recovery much more difficult.