4 ms·

> Bitcoin deals with this issue by having 8 decimal places. The higher the Bitcoin value rises, the smaller the decimal transaction size will become. Each decim

> Bitcoin deals with this issue by having 8 decimal places. The higher the Bitcoin value rises, the smaller the decimal transaction size will become. Each decimal place has a name, with the smallest unit being 1 Satoshi. If 1 Bitcoin was worth as much as one million dollars 1 Satoshi would still only be worth 1 USD cent. In other words, there is no need to print new currency, we can simply use smaller units of Bitcoin. This explanation glosses over what I've always thought was the main problem with deflationary currency. Why would I want to use Bitcoins (or any other deflationary asset, for that matter) as a currency instead of an investment? It just doesn't make sense to the customer. You wouldn't sell land that you own just to purchase basic necessities unless you had no other choice. In the same way, I'm not sure it will ever be a rational decision to buy something with Bitcoins unless you had no other choice of currency to use. I'm not an economist so I could be misunderstanding the nature of deflationary assets, but doesn't that imply that Bitcoins should be used only as an investment vehicle or to purchase things which other currencies can't (or shouldn't) be used?

gigq 13y ago
By the same logic why wouldn't you use all the extra cash you have to buy bitcoins? If you frame it that way then the answer is obvious, there is no guarantee the value will continue to rise so you will use it to purchase when you think it's over priced (I bought a TV and new camera when the price was over 1k). The volatility actually ends up being a good thing in this regard because sometimes you are better off purchasing other goods with bitcoin, sometimes you are better off holding. If the value eventually balances out and is truly deflationary against inflation then I don't think people are going to lose sleep over selling bitcoins that are going up 3% each year the same way they don't worry about taking money out of a savings account to buy something they don't really need.
- tptacek 13y ago
  That's easy to answer. You wouldn't convert your dollars to bitcoins because bitcoin will only appreciate in value if it becomes an important instrument of commerce; it has no other value even in theory. If you believe the deflationary attribute of bitcoin will cause it to be hoarded instead of used as a tool of commerce, you also believe that hoarding bitcoin is irrational, because the system is eventually going to collapse. It doesn't take any insight about bitcoin to arrive at that conclusion ("deflationary currencies are unusable, therefore don't bother hoarding bitcoin"); it's just logic.
  - gigq 13y ago
    "If you believe the deflationary attribute of bitcoin will cause it to be hoarded instead of used as a tool of commerce" I don't believe that, I think we can see that people are willing to sell it when there is something they want.
  - 3pt14159 13y ago
    For certain transactions you MUST use Bitcoin. Bad currency generally drives out good, but if the good is the only way you can anonymously buy dildos in Saudi Arabia, then it is the only currency. Furthermore, bad currency drives out good generally when they hold the same face value. Otherwise there is a free float of exchange. Also, for people living in "weird" countries, like Angola, there is often no way for them to buy things online since payment processors flag them as suspicious transactions.
    - tptacek 13y ago
      To "Alpha Black Lotus Depository Certificates" I hereby add "Saudi Arabian Dildo Vouchers" as a synonym for cryptocurrency.
deleted 13y ago
[deleted]
SilasX 13y ago
My problem with that argument is that it's like a yogi berrism: "no one wants that anymore: it's too valuable". To the extent that a currency becomes unusable in trade (perhaps as you say too illiquid due to hoarding), then that bids down its value, thus counteracting whatever problems arise from having excess value. Generally speaking, arguments that it will fail because "deflationary currencies fail" are saying that it will be worth so much that it will be worthless. Even in the often-cited examples of deflationary currencies causing problems, the currency itself did fine -- people were still willing to "buy" it on favorable terms; it's just that the associated economy did poorly.
splintercell 13y ago
Contracts in a deflationary currency can and will account for the deflationary nature of the currency. For instance if the real interest rate you wanna charge someone is 10% and currency is deflating at the rate of 5% then you'd charge the individual 4.5% interest rate.

gigq 13y ago

By the same logic why wouldn't you use all the extra cash you have to buy bitcoins? If you frame it that way then the answer is obvious, there is no guarantee the value will continue to rise so you will use it to purchase when you think it's over priced (I bought a TV and new camera when the price was over 1k). The volatility actually ends up being a good thing in this regard because sometimes you are better off purchasing other goods with bitcoin, sometimes you are better off holding. If the value eventually balances out and is truly deflationary against inflation then I don't think people are going to lose sleep over selling bitcoins that are going up 3% each year the same way they don't worry about taking money out of a savings account to buy something they don't really need.

tptacek 13y ago
That's easy to answer. You wouldn't convert your dollars to bitcoins because bitcoin will only appreciate in value if it becomes an important instrument of commerce; it has no other value even in theory. If you believe the deflationary attribute of bitcoin will cause it to be hoarded instead of used as a tool of commerce, you also believe that hoarding bitcoin is irrational, because the system is eventually going to collapse. It doesn't take any insight about bitcoin to arrive at that conclusion ("deflationary currencies are unusable, therefore don't bother hoarding bitcoin"); it's just logic.
- gigq 13y ago
  "If you believe the deflationary attribute of bitcoin will cause it to be hoarded instead of used as a tool of commerce" I don't believe that, I think we can see that people are willing to sell it when there is something they want.
- 3pt14159 13y ago
  For certain transactions you MUST use Bitcoin. Bad currency generally drives out good, but if the good is the only way you can anonymously buy dildos in Saudi Arabia, then it is the only currency. Furthermore, bad currency drives out good generally when they hold the same face value. Otherwise there is a free float of exchange. Also, for people living in "weird" countries, like Angola, there is often no way for them to buy things online since payment processors flag them as suspicious transactions.
  - tptacek 13y ago
    To "Alpha Black Lotus Depository Certificates" I hereby add "Saudi Arabian Dildo Vouchers" as a synonym for cryptocurrency.

deleted 13y ago

[deleted]

SilasX 13y ago

My problem with that argument is that it's like a yogi berrism: "no one wants that anymore: it's too valuable". To the extent that a currency becomes unusable in trade (perhaps as you say too illiquid due to hoarding), then that bids down its value, thus counteracting whatever problems arise from having excess value. Generally speaking, arguments that it will fail because "deflationary currencies fail" are saying that it will be worth so much that it will be worthless. Even in the often-cited examples of deflationary currencies causing problems, the currency itself did fine -- people were still willing to "buy" it on favorable terms; it's just that the associated economy did poorly.

splintercell 13y ago

Contracts in a deflationary currency can and will account for the deflationary nature of the currency. For instance if the real interest rate you wanna charge someone is 10% and currency is deflating at the rate of 5% then you'd charge the individual 4.5% interest rate.