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We weren't in imminent danger of hyperinflation. I think mass adoption of Bitcoin will cause hyperinflation. If every merchant you patronize today accepted Bit

by natrius 13y ago

We weren't in imminent danger of hyperinflation. I think mass adoption of Bitcoin will cause hyperinflation. If every merchant you patronize today accepted Bitcoin, would you rather have Bitcoin in your bank account or dollars? I'd rather have Bitcoin. They're easier to transfer, they can't be counterfeited, and their supply can't be manipulated. If every merchant accepts Bitcoin and every consumer agrees with my logic, hyperinflation of the dollar would occur. Coinbase and its 0% transaction fees will lead to rapid adoption of Bitcoin on the merchant side. I'm less confident about the consumer side, but I see that happening as well.

mapgrep 13y ago
Bitcoin went up more than tenfold in less than six months. Then if fell by more than half in less than one month. So I strongly disagree that most people would want to use that for their checking account, paycheck, etc. I am also baffled by "they're easier to transfer" than dollars. Yes you can email BTC. But I can literally hand you dollars. No smartphone needed! And large amounts are trivially easier - I squiggle some lines on a piece of paper and hand it to you. Or if you want to stick to smartphones I can pull one out and send you dollars using one of dozens of e-payment platforms. Interesting thesis though.
- natrius 13y ago
  You can hand me dollar bills, but how many dollar bills do you have? I just counted. I have $36 in bills in my possession. I should to go to the ATM today to get more in case I run out. Eventually, Bitcoin will be similar in that most of our wealth won't be stored in the actual currency, but in bank deposits. I could withdraw actual currency from a Bitcoin bank with the tap of a button and have it on my phone in 10 minutes. Getting dollars requires going to a physical place to get physical bills. Transferring large amounts of dollars takes days. Transferring Bitcoin takes 10 minutes or so.
  - hfttrader 13y ago
    But why does transferring large amounts of dollars take days? There is nothing physical preventing banks from supporting fast transfers. They can do fast transfers with BTC or USD. Transfers are slow because there is little need to transfer large amounts of money quickly, and slower transactions help address issues with fraud. If you are buying a car, or paying for a house there is little need for a fast transactions. So with BTC or USD, transferring large amounts of money will take days.
    - natrius 13y ago
      Good point. I think the debit card replacement angle is much more attractive than this one.
    - mike_hearn 13y ago
      It's got nothing to do with fraud checks. Transfers take days because banks largely run on mainframes programmed in the 1970s. Because of the (by todays standards) peculiar designs those machines had, the bulk of the work is done at night in batch jobs. The vast size and complexity of the software, combined with archaic platforms, their business-critical nature, and almost total absence of competition means that banks don't upgrade to more modern systems unless forced (see the UK same day payments initiative). Then the banking network is not a perfectly connected system so sometimes payments must be routed via intermediate banks. That's why it can end up taking days.
  - 21echoes 13y ago
    > Getting dollars requires going to a physical place to get physical bills. My debit card/square/venmo might have something to say about that...
    - natrius 13y ago
      I'm taking about cash. For cards and digital services, the Bitcoin advantage is near zero transaction fees.
      - saalweachter 13y ago
        Zero transaction fees? The bitcoin network costs something like $3.5 million per day to run, and optimistically handles tens of millions in transactions. That's a transaction fee of 10%. You just don't notice it because they pay the miners by printing money. I'll be really interested to see what happens when they stop that and start relying on up front transaction fees to fund the network.
        natrius 13y ago
        This is an excellent point. I'm curious to see how that pans out. My guess is that since Bitcoin transaction fees are supposed to be set by the market, they'll stay competitive. If mining is unprofitable at the rates credit cards are offering, fewer people will mine, which makes mining cost less energy, leaving more profit. Eventually an equilibrium will be reached.
        saalweachter 13y ago
        The mining network shedding capacity is a bad thing for Bitcoin. If 90% of the network is powered down to reduce transaction fees, that gives someone the opportunity to buy up 20% of it on the cheap and corrupt the network. Bitcoin has to use as many resources as possible to stay secure.
        natrius 13y ago
- alphydan 13y ago
  Unfortunately the squiggle trick doesn't work to send $0.20 to that friend in Angola who runs the water and sanitation project? It also doesn't convert to Mpesa in Kenya [1] (Bitcoin now does). And wiring $500k to China for that shipment on a Sunday doesn't work either with squiggles or e-payments. [1]: http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-18 http://www.economist.com/blogs/economist-explains/2013/05/ec...
  - nhaehnle 13y ago
    On the other hand, all of your examples could easily be addressed if there was sufficient demand for it. So Bitcoin could be valuable in disrupting payment systems: Step 1: Bitcoin becomes superior to traditional payment systems. Step 2: This becomes relevant enough in the large scheme of things that Bitcoin gets serious adoption outside of speculation. Step 3: Traditional payment providers up their game. Step 4: Traditional payment providers win, because their intrinsic costs are lower (mining is inherently costly and not needed for traditional payment systems). So - there's a buck to be made in Bitcoin, but it's implausible that Bitcoin should remain superior to more traditional systems in the long term (except for illegal purposes).
    - alphydan 13y ago
      I fully agree. It's not something traditional payment systems couldn't do (at least in principle. In practice I don't know if they can operate on such low fees). The actual success of Bitcoin over the next decade is a much more uncertain issue.
  - notahacker 13y ago
    Do you know anyone in China that will accept $500k in BTC for real goods and services, or is your Bitcoin example just as hypothetical as the squiggle?
    - icelancer 13y ago
      The manufacturer of goods I export from there has taken small six-figure USD transfers solely in BTC, so, yes.
- pjbrunet 13y ago
  "But I can literally hand you dollars." You can do the same with Bitcoin, just print the keys on a piece of paper and hand it to the person. Right?
maxerickson 13y ago
The bitcoin supply can't be trivially manipulated. It's still vulnerable to computational attacks (no matter how impractical they may be) and miner collusion.
- natrius 13y ago
  Agreed, but I think both the computational attacks and miner collusion are on a similar level of difficulty as printing passable counterfeit dollars.
  - olefoo 13y ago
    So someday we might see the secret service enforcing rules about how much computing capacity any one entity can control; to prevent collusion attacks on widely used cryptographic ledger systems?
    - natrius 13y ago
      I think the most likely outcome is that governments will become the largest miners to secure blockchains. The security of a blockchain is a public good. There's no need to regulate computing capacity when you have the power to tax enough wealth to ensure that the government always has more computing capacity. It's an arms race without the nuclear winter, and with the side effects of increased pollution and rapidly advancing processing power.
- yen223 13y ago
  Bitcoin's limited supply will make it very vulnerable to traditional market manipulation.
slurry 13y ago
Inflation is a function of money supply and velocity. If everyone adopted bitcoin, the velocity of the dollar would approach zero. Which means that inflation would go down, not up. And yes, I would rather have my [savings] account in a hard, non-inflationary currency. On the other hand, I can only earn interest when someone is willing to take a loan in the currency and pay interest on it. And I am not about to take out a loan in a hard currency when perfectly good inflationary currencies are easily at hand. So, you're going to have a hard time finding a bank that pays interest on bitcoins. This is why "bad money drives out good", aka Gresham's law.
- prutschman 13y ago
  > I am not about to take out a loan in a hard currency when perfectly good inflationary currencies are easily at hand. Assuming the interest rates are the same, I'd agree. Would they be?
  - slurry 13y ago
    > Assuming the interest rates are the same, I'd agree. Would they be? I doubt they'd be the same in either nominal or real terms. But that's a side issue. You could already do what you're talking about with gold. A bank could offer gold savings accounts that pay interest on gold loans. They don't do it. Borrowers are deflation-averse and no one wants to deal with the exchange rate fluctuations. BTC has some legit uses (like buying unjustly banned consciousness-expanding products over the internets) but the built-in deflationary death spiral in its design pretty much ensures that it will never be a serious full-spectrum parallel currency, much less a replacement for the dollar and euro.
    - natrius 13y ago
      When gold was the primary currency, there were interest-bearing gold deposits. When paper currency was pegged to gold with full convertibility, interest-bearing currency deposits were effectively interest-bearing gold deposits. When Bitcoin is the primary currency, there will be interest-bearing Bitcoin deposits.
    - 13y ago
onebaddude 13y ago
>If every merchant you patronize today accepted Bitcoin, would you rather have Bitcoin in your bank account or dollars? At this point, and in the foreseeable future? Dollars. I'm not sure where people find all this friction relating to using dollars in the real world. I have no problems whatsoever. Besides, it's all virtual currency. As far as your theory of widespread adoption of bitcoin leading to hyperinflation of the dollar, I'm don't even begin to understand how you see that working.
MagicWishMonkey 13y ago
There are a limited number of bitcoins that can be mined. Would inflation even be possible once 100% of coins are in circulation?

by natrius 13y ago

mapgrep 13y ago

Bitcoin went up more than tenfold in less than six months. Then if fell by more than half in less than one month. So I strongly disagree that most people would want to use that for their checking account, paycheck, etc. I am also baffled by "they're easier to transfer" than dollars. Yes you can email BTC. But I can literally hand you dollars. No smartphone needed! And large amounts are trivially easier - I squiggle some lines on a piece of paper and hand it to you. Or if you want to stick to smartphones I can pull one out and send you dollars using one of dozens of e-payment platforms. Interesting thesis though.

natrius 13y ago
You can hand me dollar bills, but how many dollar bills do you have? I just counted. I have $36 in bills in my possession. I should to go to the ATM today to get more in case I run out. Eventually, Bitcoin will be similar in that most of our wealth won't be stored in the actual currency, but in bank deposits. I could withdraw actual currency from a Bitcoin bank with the tap of a button and have it on my phone in 10 minutes. Getting dollars requires going to a physical place to get physical bills. Transferring large amounts of dollars takes days. Transferring Bitcoin takes 10 minutes or so.
- hfttrader 13y ago
  But why does transferring large amounts of dollars take days? There is nothing physical preventing banks from supporting fast transfers. They can do fast transfers with BTC or USD. Transfers are slow because there is little need to transfer large amounts of money quickly, and slower transactions help address issues with fraud. If you are buying a car, or paying for a house there is little need for a fast transactions. So with BTC or USD, transferring large amounts of money will take days.
  - natrius 13y ago
    Good point. I think the debit card replacement angle is much more attractive than this one.
  - mike_hearn 13y ago
    It's got nothing to do with fraud checks. Transfers take days because banks largely run on mainframes programmed in the 1970s. Because of the (by todays standards) peculiar designs those machines had, the bulk of the work is done at night in batch jobs. The vast size and complexity of the software, combined with archaic platforms, their business-critical nature, and almost total absence of competition means that banks don't upgrade to more modern systems unless forced (see the UK same day payments initiative). Then the banking network is not a perfectly connected system so sometimes payments must be routed via intermediate banks. That's why it can end up taking days.
- 21echoes 13y ago
  > Getting dollars requires going to a physical place to get physical bills. My debit card/square/venmo might have something to say about that...
  - natrius 13y ago
    I'm taking about cash. For cards and digital services, the Bitcoin advantage is near zero transaction fees.
    - saalweachter 13y ago
      Zero transaction fees? The bitcoin network costs something like $3.5 million per day to run, and optimistically handles tens of millions in transactions. That's a transaction fee of 10%. You just don't notice it because they pay the miners by printing money. I'll be really interested to see what happens when they stop that and start relying on up front transaction fees to fund the network.
      - natrius 13y ago
        This is an excellent point. I'm curious to see how that pans out. My guess is that since Bitcoin transaction fees are supposed to be set by the market, they'll stay competitive. If mining is unprofitable at the rates credit cards are offering, fewer people will mine, which makes mining cost less energy, leaving more profit. Eventually an equilibrium will be reached.
        saalweachter 13y ago
        The mining network shedding capacity is a bad thing for Bitcoin. If 90% of the network is powered down to reduce transaction fees, that gives someone the opportunity to buy up 20% of it on the cheap and corrupt the network. Bitcoin has to use as many resources as possible to stay secure.
        natrius 13y ago
alphydan 13y ago
Unfortunately the squiggle trick doesn't work to send $0.20 to that friend in Angola who runs the water and sanitation project? It also doesn't convert to Mpesa in Kenya [1] (Bitcoin now does). And wiring $500k to China for that shipment on a Sunday doesn't work either with squiggles or e-payments. [1]: http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-18 http://www.economist.com/blogs/economist-explains/2013/05/ec...
- nhaehnle 13y ago
  On the other hand, all of your examples could easily be addressed if there was sufficient demand for it. So Bitcoin could be valuable in disrupting payment systems: Step 1: Bitcoin becomes superior to traditional payment systems. Step 2: This becomes relevant enough in the large scheme of things that Bitcoin gets serious adoption outside of speculation. Step 3: Traditional payment providers up their game. Step 4: Traditional payment providers win, because their intrinsic costs are lower (mining is inherently costly and not needed for traditional payment systems). So - there's a buck to be made in Bitcoin, but it's implausible that Bitcoin should remain superior to more traditional systems in the long term (except for illegal purposes).
  - alphydan 13y ago
    I fully agree. It's not something traditional payment systems couldn't do (at least in principle. In practice I don't know if they can operate on such low fees). The actual success of Bitcoin over the next decade is a much more uncertain issue.
- notahacker 13y ago
  Do you know anyone in China that will accept $500k in BTC for real goods and services, or is your Bitcoin example just as hypothetical as the squiggle?
  - icelancer 13y ago
    The manufacturer of goods I export from there has taken small six-figure USD transfers solely in BTC, so, yes.
pjbrunet 13y ago
"But I can literally hand you dollars." You can do the same with Bitcoin, just print the keys on a piece of paper and hand it to the person. Right?

maxerickson 13y ago

The bitcoin supply can't be trivially manipulated. It's still vulnerable to computational attacks (no matter how impractical they may be) and miner collusion.

natrius 13y ago
Agreed, but I think both the computational attacks and miner collusion are on a similar level of difficulty as printing passable counterfeit dollars.
- olefoo 13y ago
  So someday we might see the secret service enforcing rules about how much computing capacity any one entity can control; to prevent collusion attacks on widely used cryptographic ledger systems?
  - natrius 13y ago
    I think the most likely outcome is that governments will become the largest miners to secure blockchains. The security of a blockchain is a public good. There's no need to regulate computing capacity when you have the power to tax enough wealth to ensure that the government always has more computing capacity. It's an arms race without the nuclear winter, and with the side effects of increased pollution and rapidly advancing processing power.
yen223 13y ago
Bitcoin's limited supply will make it very vulnerable to traditional market manipulation.

slurry 13y ago

Inflation is a function of money supply and velocity. If everyone adopted bitcoin, the velocity of the dollar would approach zero. Which means that inflation would go down, not up. And yes, I would rather have my [savings] account in a hard, non-inflationary currency. On the other hand, I can only earn interest when someone is willing to take a loan in the currency and pay interest on it. And I am not about to take out a loan in a hard currency when perfectly good inflationary currencies are easily at hand. So, you're going to have a hard time finding a bank that pays interest on bitcoins. This is why "bad money drives out good", aka Gresham's law.

prutschman 13y ago
> I am not about to take out a loan in a hard currency when perfectly good inflationary currencies are easily at hand. Assuming the interest rates are the same, I'd agree. Would they be?
- slurry 13y ago
  > Assuming the interest rates are the same, I'd agree. Would they be? I doubt they'd be the same in either nominal or real terms. But that's a side issue. You could already do what you're talking about with gold. A bank could offer gold savings accounts that pay interest on gold loans. They don't do it. Borrowers are deflation-averse and no one wants to deal with the exchange rate fluctuations. BTC has some legit uses (like buying unjustly banned consciousness-expanding products over the internets) but the built-in deflationary death spiral in its design pretty much ensures that it will never be a serious full-spectrum parallel currency, much less a replacement for the dollar and euro.
  - natrius 13y ago
    When gold was the primary currency, there were interest-bearing gold deposits. When paper currency was pegged to gold with full convertibility, interest-bearing currency deposits were effectively interest-bearing gold deposits. When Bitcoin is the primary currency, there will be interest-bearing Bitcoin deposits.
  - 13y ago

onebaddude 13y ago

>If every merchant you patronize today accepted Bitcoin, would you rather have Bitcoin in your bank account or dollars? At this point, and in the foreseeable future? Dollars. I'm not sure where people find all this friction relating to using dollars in the real world. I have no problems whatsoever. Besides, it's all virtual currency. As far as your theory of widespread adoption of bitcoin leading to hyperinflation of the dollar, I'm don't even begin to understand how you see that working.

MagicWishMonkey 13y ago

There are a limited number of bitcoins that can be mined. Would inflation even be possible once 100% of coins are in circulation?