6 ms·

Pulverizing the dead horse: it will hold value like gold, but its infinite divisibility and ease of transport make it more like an evolved currency.

by polarix 13y ago

gnaritas 13y ago
Good currencies aren't about divisibility or about holding value long term, they're about being useful for exchange. Being deflationary by nature makes Bitcoin a bad currency, but a good commodity (once it settles down). A good currency slowly inflates.
- rsynnott 13y ago
  Not even a good commodity; its extreme volatility makes it more like a penny stock.
  - gnaritas 13y ago
    Yes, true for now, but I'm assuming it'll settle down eventually after and if it goes mainstream. Edited above to reflect.
    - rsynnott 13y ago
      Bit of a chicken and egg problem, really; if you're selling something, you probably don't want to be using bitcoin unless you're either a True Believer, or your product has extremely high margins and you're confident that use of bitcoin won't cannibalise use of more stable payment options. If you make a 5% margin on your product, you don't want that to be erased by a currency shift. The big non-True Believer users thus far have largely been either illegal materials, or ultra-high-margin things (reddit gold, Humble Indie Bundle etc).
      - gnaritas 13y ago
        I agree.
- polarix 13y ago
  "A good currency slowly inflates." This is the "common wisdom" which BTC assaults frontally.
  - gnaritas 13y ago
    And it's proving the common wisdom true, as history has already done.
kaonashi 13y ago
What difference does divisibility make wrt deflation?
- aianus 13y ago
  Because you'll still be able to buy a $1 coke if BTC is at $10,000.
  - PeterisP 13y ago
    "Convenient denominations" is not the problem of deflationary currencies, it's a red herring. The problem with deflationary currencies is that there is a huge behavioral difference between currency having 1% annual deflation and 1% annual inflation - it greatly slows the money velocity, as people are not motivated to spend it or invest it in means of production, so there's less of demand for goods/services causing less income for everyone and even more less demand in a reinforcing feedback loop. It is widely considered that a low rate of inflation brings a very significant positive impact on prosperity compared to a deflationary environment or a very high-inflation one. If bitcoin is growing in value, and is expected to grow in value in the mid-future, then that is a disincentive to spend it -> then that means a disincentive to sell stuff or provide services for bitcoins (because buyers don't want to use it) -> then that means that it has lower liquidity and usability. In the extreme, 'everybody saves bitcoin, nobody buys pizzas with bitcoin' turns into 'the only way to get rid of bitcoin is to find someone else who wants to hold it for no good reason, but wants to pay you a lot'. A healthy currency, on the other hand, gets used to buy pizzas and services primarily, and gains value because of it's utility in buying stuff.
    - aryastark 13y ago
      I think this all remains to be seen. Right now the currency is experiencing rapid growth due to network effects. This is an entirely new type of currency in an entirely new environment. Until initial growth reaches an equilibrium, we're not going to notice any deflationary issues with the currency. I suspect that once we do reach the top, we'll discover that bitcoin deflates rather predictably and boringly. So much so that it will make the interest rate in your bank's savings account look interesting. You'll still want to invest for the same reasons you want to invest right now--greater returns. I just don't see the doom and gloom here. Maybe if Bitcoin was the primary currency in use. But it's not, and I don't think it's in danger of becoming so anytime soon.

Pulverizing the dead horse: it will hold value like gold, but its infinite divisibility and ease of transport make it more like an evolved currency.

by polarix 13y ago

Pulverizing the dead horse: it will hold value like gold, but its infinite divisibility and ease of transport make it more like an evolved currency.

gnaritas 13y ago

Good currencies aren't about divisibility or about holding value long term, they're about being useful for exchange. Being deflationary by nature makes Bitcoin a bad currency, but a good commodity (once it settles down). A good currency slowly inflates.

rsynnott 13y ago
Not even a good commodity; its extreme volatility makes it more like a penny stock.
- gnaritas 13y ago
  Yes, true for now, but I'm assuming it'll settle down eventually after and if it goes mainstream. Edited above to reflect.
  - rsynnott 13y ago
    Bit of a chicken and egg problem, really; if you're selling something, you probably don't want to be using bitcoin unless you're either a True Believer, or your product has extremely high margins and you're confident that use of bitcoin won't cannibalise use of more stable payment options. If you make a 5% margin on your product, you don't want that to be erased by a currency shift. The big non-True Believer users thus far have largely been either illegal materials, or ultra-high-margin things (reddit gold, Humble Indie Bundle etc).
    - gnaritas 13y ago
      I agree.
polarix 13y ago
"A good currency slowly inflates." This is the "common wisdom" which BTC assaults frontally.
- gnaritas 13y ago
  And it's proving the common wisdom true, as history has already done.

kaonashi 13y ago

What difference does divisibility make wrt deflation?

aianus 13y ago
Because you'll still be able to buy a $1 coke if BTC is at $10,000.
- PeterisP 13y ago
  "Convenient denominations" is not the problem of deflationary currencies, it's a red herring. The problem with deflationary currencies is that there is a huge behavioral difference between currency having 1% annual deflation and 1% annual inflation - it greatly slows the money velocity, as people are not motivated to spend it or invest it in means of production, so there's less of demand for goods/services causing less income for everyone and even more less demand in a reinforcing feedback loop. It is widely considered that a low rate of inflation brings a very significant positive impact on prosperity compared to a deflationary environment or a very high-inflation one. If bitcoin is growing in value, and is expected to grow in value in the mid-future, then that is a disincentive to spend it -> then that means a disincentive to sell stuff or provide services for bitcoins (because buyers don't want to use it) -> then that means that it has lower liquidity and usability. In the extreme, 'everybody saves bitcoin, nobody buys pizzas with bitcoin' turns into 'the only way to get rid of bitcoin is to find someone else who wants to hold it for no good reason, but wants to pay you a lot'. A healthy currency, on the other hand, gets used to buy pizzas and services primarily, and gains value because of it's utility in buying stuff.
  - aryastark 13y ago
    I think this all remains to be seen. Right now the currency is experiencing rapid growth due to network effects. This is an entirely new type of currency in an entirely new environment. Until initial growth reaches an equilibrium, we're not going to notice any deflationary issues with the currency. I suspect that once we do reach the top, we'll discover that bitcoin deflates rather predictably and boringly. So much so that it will make the interest rate in your bank's savings account look interesting. You'll still want to invest for the same reasons you want to invest right now--greater returns. I just don't see the doom and gloom here. Maybe if Bitcoin was the primary currency in use. But it's not, and I don't think it's in danger of becoming so anytime soon.