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The answer is a bit counterinuitive: If the price keeps rising, you are right a smaller percentage of all bitcoins will be in active circulation, because peopl

by drcode 13y ago

The answer is a bit counterinuitive: If the price keeps rising, you are right a smaller percentage of all bitcoins will be in active circulation, because people want to save their coins instead of spending them. However, SOME coins will always be spent (people gotta eat.) Here's the counterintuitive part: The currency "notices" the low rate of spending and will increase its own value to make sure the amount being circulated, though lower in face value, remains constant in its real value. In short: Hoarding is fine, because the un-hoarded coins increase in value to compensate. As economists say, this is not a "zero sum game", we can have high spending AND high hoarding without difficulty, if the currency has a large enough market cap.

DennisP 13y ago
Could you expand on that counterintuitive part? I'm not quite getting how that happens.
- dragontamer 13y ago
  Pretend that $1 million / day (in BTC) flows through the BTC network. I'm making this number up, but you can see that this number would be roughly consistent. This represents the number of people using Silk Road (well... used to anyway), maybe purchasing domain names through Namecheap, and so forth. People out there are trying to use BTC as a currency, so they will be spending BTCs in exchange for services. Now, if the amount of BTC starts to shrink, then the "value" of BTC needs to grow to compensate. At this point, governments would typically print money, so that the price of a currency wouldn't deflate significantly. But since BTCs don't have a means of "printing money" to meet demand... we are seeing the massive deflation in the currency right now. Massive deflation discourages spending, and encourages more speculation. As more people speculate on the currency, the price goes higher and higher, driving more deflation. So the currency is in a deflationary death-loop right now. People will only use BTC if it stabilizes to a price. But as it stands, its simply better to speculate (which means there is no "value" in using BTCs right now).
  - drcode 13y ago
    > Massive deflation discourages spending, and encourages more speculation It encourages a lower PERCENTAGE of spending, but has no impact on real value of the bitcoins being spent (i.e. how many eggs/houses/etc the coins in circulation could buy)
dragontamer 13y ago
Except the default transaction fee of 0.0001 BTC is exponentially getting larger and larger. The higher the price of BTC, the more expensive it is. The average transaction fees for BTCs have reached around $0.10 now, and will only rise as the BTC exchanges go up. Regardless of how you cut it, this rampant speculation on BTC is hurting the BTC enthusiast (who wants to spend BTC), and instead favors the BTC speculator (who simply wants to cash out before BTC crashes)
- drcode 13y ago
  Yes and no: The high transaction fee is just a side effect of the fact that bitcoin is so popular now that this high fee is needed to keep the size of the blockchain manageable.
Nursie 13y ago
>> Hoarding is fine, because the un-hoarded coins increase in value to compensate. As do hoarded coins, neatly transferring wealth from the productive economy to people who just sit on their coins. Count me out.
- drcode 13y ago
  Exactly wrong: People who have earned money ARE the productive economy. The current system puts money in the hands of those who run the printing presses. (and as I explained, the fact that coins are being "sit on" is irrelevant)
  - Nursie 13y ago
    >> Exactly wrong: People who have earned money ARE the productive economy. Not when they're getting richer just by sitting on cash they are not. That's not producing anything, any/all productive work they did was in the past. >> The current system puts money in the hands of those who run the printing presses. We're not talking about the current system, we're talking about Bitcoin. >> (and as I explained, the fact that coins are being "sit on" is irrelevant) Except it's not irrelevant, for the reason I've just mentioned. You can dismiss or ignore it all you like but simply saying "You're wrong" doesn't cut it. If the amount of currency in circulation goes down because people sit on it, then yes the rest may well increase in value to cover the activity in the economy, but the hoarder gains economic power on the backs of everyone else's work. No thanks.
    - drcode 13y ago
      Nursie, you are to be commended for understanding my argument, it gets tiring arguing against people who don't understand. OK, now SOMEBODY has to have economic power- So it can't be people who have earned money (as it is with bitcoin) and it can't be the owners of the printing presses (apparently I'm not allowed to say that)... ...so who's left? Should we create a currency that immediately bursts in flames unless it is provably handed to another person within 24 hours? Wouldn't that still be deflationary without printing presses? EDIT: Maybe you want all the economic power to be with cryptocurrency miners, via an inflating cryptocurrency? So now we're back to giving the power to those who own the presses (the miners, in this case)

by drcode 13y ago

DennisP 13y ago

Could you expand on that counterintuitive part? I'm not quite getting how that happens.

dragontamer 13y ago
Pretend that $1 million / day (in BTC) flows through the BTC network. I'm making this number up, but you can see that this number would be roughly consistent. This represents the number of people using Silk Road (well... used to anyway), maybe purchasing domain names through Namecheap, and so forth. People out there are trying to use BTC as a currency, so they will be spending BTCs in exchange for services. Now, if the amount of BTC starts to shrink, then the "value" of BTC needs to grow to compensate. At this point, governments would typically print money, so that the price of a currency wouldn't deflate significantly. But since BTCs don't have a means of "printing money" to meet demand... we are seeing the massive deflation in the currency right now. Massive deflation discourages spending, and encourages more speculation. As more people speculate on the currency, the price goes higher and higher, driving more deflation. So the currency is in a deflationary death-loop right now. People will only use BTC if it stabilizes to a price. But as it stands, its simply better to speculate (which means there is no "value" in using BTCs right now).
- drcode 13y ago
  > Massive deflation discourages spending, and encourages more speculation It encourages a lower PERCENTAGE of spending, but has no impact on real value of the bitcoins being spent (i.e. how many eggs/houses/etc the coins in circulation could buy)

dragontamer 13y ago

Except the default transaction fee of 0.0001 BTC is exponentially getting larger and larger. The higher the price of BTC, the more expensive it is. The average transaction fees for BTCs have reached around $0.10 now, and will only rise as the BTC exchanges go up. Regardless of how you cut it, this rampant speculation on BTC is hurting the BTC enthusiast (who wants to spend BTC), and instead favors the BTC speculator (who simply wants to cash out before BTC crashes)

drcode 13y ago
Yes and no: The high transaction fee is just a side effect of the fact that bitcoin is so popular now that this high fee is needed to keep the size of the blockchain manageable.

Nursie 13y ago

>> Hoarding is fine, because the un-hoarded coins increase in value to compensate. As do hoarded coins, neatly transferring wealth from the productive economy to people who just sit on their coins. Count me out.

drcode 13y ago
Exactly wrong: People who have earned money ARE the productive economy. The current system puts money in the hands of those who run the printing presses. (and as I explained, the fact that coins are being "sit on" is irrelevant)
- Nursie 13y ago
  >> Exactly wrong: People who have earned money ARE the productive economy. Not when they're getting richer just by sitting on cash they are not. That's not producing anything, any/all productive work they did was in the past. >> The current system puts money in the hands of those who run the printing presses. We're not talking about the current system, we're talking about Bitcoin. >> (and as I explained, the fact that coins are being "sit on" is irrelevant) Except it's not irrelevant, for the reason I've just mentioned. You can dismiss or ignore it all you like but simply saying "You're wrong" doesn't cut it. If the amount of currency in circulation goes down because people sit on it, then yes the rest may well increase in value to cover the activity in the economy, but the hoarder gains economic power on the backs of everyone else's work. No thanks.
  - drcode 13y ago
    Nursie, you are to be commended for understanding my argument, it gets tiring arguing against people who don't understand. OK, now SOMEBODY has to have economic power- So it can't be people who have earned money (as it is with bitcoin) and it can't be the owners of the printing presses (apparently I'm not allowed to say that)... ...so who's left? Should we create a currency that immediately bursts in flames unless it is provably handed to another person within 24 hours? Wouldn't that still be deflationary without printing presses? EDIT: Maybe you want all the economic power to be with cryptocurrency miners, via an inflating cryptocurrency? So now we're back to giving the power to those who own the presses (the miners, in this case)