Topic: - - page 4. (Read 26912 times)

Yes, it's hard to predict how will the community anticipate the diminishing block rewards but Bitcoin is not deflationary. Right now inflation is still over 25% yearly, and in December it will drop to about 12%. That's still very high inflation short-term and mid-term. The question is how many people hoard, and what are the effects of the long term ~0% inflation, and also the fact that the underlying bitcoin economy might be growing faster than money supply right now.

But "deflationary" is a misleading word to describe bitcoin's planned money supply.

In any case 7%/week beats current bitcoin inflation astronomically and so it did in November when BCST began taking BTC.

Some people's perceptions about the nature of "investing" seem to be muddled by the effect of inflationary fiat currencies. In an inflationary currency system (defined as a system with an ever-growing monetary base), changing the format of your wealth to an asset like a house or some company's shares may give you a "return" in terms of the fiat currency simply because the value of the currency has decreased. This is why an interest rate around 2% in America or around 10% in India may be perfectly reasonable, and not a Ponzi scheme. The more stable a currency is expected to be, though, the less leeway for interest there is. In a hypothetical society with a constant monetary base and 0% inflation, every positive yield from an investment (e.g. in a successful company) would have to be matched by an equally-sized default (e.g. by a bankrupt company), since the total money in circulation is a zero-sum game.

Bitcoin is a deflationary system, where as more and more people start using the coins, these become more valuable. I think the growing awareness of Bitcoin largely outweighs the inflationary effect of the 7200 new coins that get mined very day, and that inflationary effect will halve in size in December. Basically, even with coin supply growing, coin demand can grow much faster, so I think we're already in a deflationary stage. This means that returning a loan in bitcoins can be very very hard, much harder than returning an investment in a fiat currency. As a thought experiment, let's imagine a new company sells a 1,000 BTC bond, with an interest of 5% after one year. The investor would get 1,050 BTC next year, which seems reasonable. But the company will  have to convert some (or all) of the original BTC investment into a fiat currency like US dollars or euros (to pay rent, utilities, probably employees...). Their profit is likely to come in the form of fiat money too (even if they sell products in bitcoins, prices will have to trail the fiat exchange rate). Now imagine the USD/BTC rate were to jump from 10 to 100 in one year. How can this company multiply by 10 the part of the principal that they converted into fiat? And the interest of 50 BTC that is now worth 5,000 USD rather than 500?

In the end, loans in BTC are extremely dangerous given the volatility of the exchange rate. I can understand how those who don't believe in Bitcoin and expect its value to collapse may want to give out loans in bitcoins. People like Pirate are basically short-sellers who bet that Bitcoin will collapse (or who delude themselves thinking they can manipulate the market). But anyone who believes in the potential of Bitcoin should be sceptical of any such scheme. For long-term believers in Bitcoin, the cleverest investment is to buy bitcoins now and keep them in cold storage.

It is those who claimed that they could understand what Pirate was doing and that he was legit who should apologise for giving the guy any credibility. And we should thank those that cried Ponzi from the start, as it is very clear that there is no other sensible explanation for what Pirate has been doing.

That's ridiculous. Borrowing at 3,600% is what would kill your business. Try as you might, you'll never make the numbers work that way.


Why not?