Topic: A modest amount of inflation should be part of bitcoin - page 3. (Read 17999 times)

Be careful when you said that. I agree in that bitcoin could be considered fiat because fiat just means "let it be done", but most people require money to be issued by a government/state to be considered fiat.

Historically, gold has had the same quality as a currency. People want to hold on to it, since it appreciates. I believe the effect of this is that it threatens the demand for gold, since it's not being circulated as currency and therefore merchants look for alternatives, which leads to price drops, which leads to increased circulation, which leads to the price coming back up as the demand for it as a currency returns, and so on.

If you look at the dollar's value when it was on a gold standard, it alternated between deflation and inflation:



After the 1950s, it was only inflation, as the dollar delinked from gold.

The point is that the value oscillates, rather than going into a free fall, due to the fixed supply always making it potentially valuable to merchants. Gold's value was volatile, but in the long run it was stable.

Bitcoin also has an advantage to all other currencies in that transaction costs are extremely low, as are the storage costs. It's like a more easily transferable, storable and divisible version of gold, and gold was used for hundreds of years as the primary currency of the world, so I think bitcoin has what it takes.


BTCs are easily divisible, so it doesn't matter if the value of a BTC goes to $1.43 million, as then smaller denominations will be used. It's also implausible that BTC would replace all other fiat currencies, as they are legal tender in their countries, so they will always have some demand. BTC's potential is to be a major currency in one niche of global commerce.

In this recent thread, Mike explains how this could work. Previously Satoshi had expressed this idea (link in thread), but had never provided implementation details.

I don't think that is correct. Different block chains would be encoding a different set of transacations on the different networks right? So they would be hashing different blocks, they could be working on the two chains simultaneously but the work done for each would be separate. No free lunch.

interesting point...so it is basically the same computational power to mine towards two block chains, since fundamentally the thing being hashed is just a binary number with a different nonce...

Miners can theoretically mine toward more than one block chain simultaneously, so more block chains are a good thing IMO. Most of the long arguments take place over proposals like this one, that fundamentally alter the technicals or economics of Bitcoin. They might as well just create a fork instead of argue that their version is better. Basically, "put your money where your mouth is" - if your version is better or more useful than Bitcoin, people will use it.

The issue is that two competing version of the bitcoin block chain would be incompatible.  The bitcoin network would be split in two.  This means that the total strength of each individual network would be weaker than a single unified bitcoin network.

United we Stand.  Divided we Fall.  (as the Statists would say )

Is it so much to ask to have a cheerios version of bitcoin (as it is now) without the bells and whistles?

I mean look at this thread.

If this is the sort of long discussion people will have to bite their nails over when trying to create large scale solutions, I have to protest.

It's like a convention of future bloat analysis consultants. Whatever happened to composition of features?

As InflataBucks, DemurrageBucks will be preferred by the payer but not by the payee.
But the price of InlataBucks would change against DeflataBucks forever while the exchange between DemurrageBucks and DeflataBucks could become "stable" if both monetary bases are fixed. DeflataBucks would be always better for saving, but maybe the payee doesn't care to receive InflataBucks or DemurrageBucks if he knows he will spend them quickly.

If the customer has both currencies, the customer prefers to get rid of InflataBucks instead of DeflataBucks. The retailer, on the other hand, prefers to receive DeflataBucks instead of InflataBucks.

The price of goods in each currency will therefore float to the point where the interests of the buyers and sellers are matched, whichever currency they use.

Still the same argument as getting hungry.  If they want a TV they have to spend fiat dollars, because that is the only way to get a TV whether or not it gets cheaper. But in this case they have a choice of two currencies so it is a different dynamic.  It is a choice whether to spend A or B and not a choice to spend or not spend.

I guess all those electronics manufacturers should be out of business any day, since customers will just resist buying new computers/televisions/etc... since the price keeps getting lower for the same stuff (or better stuff).  If only customers were smart enough to just keep waiting!

Bollocks. I have to resist the urge to spend bitcoin, as it's only "1 or 2 BTC" for y product.

This would mean people will end up holding no dollars and only bitcoins. And then they spend coins because they want stuff.


They will if they want to get Bitcoins, which is a premise.

That is the standard argument that in a deflationary environment after some time people will get tired of deferring consumption and will start to consume and that will end the deflation of its own accord.  But those arguments were made historically for closed economies or economies where external trade was minor compared to GDP (say <10%).  What we are talking about is the exchange rate between bitcoin and a much larger fiat economy.  That is why I said "They would rather hold them since they are rising and spend fiat currency which is falling" .  They do have a choice, they can use fiat currency to eat for now.  Human nature is they will hold BTC while it is rising, and as soon as it start to fall they will try to buy everything in sight with BTC, it will fall faster and then merchants won't want to take it anyway.  We don't have an experiment of a diversified mostly closed economy that can supply most its needs internally that runs 100% on BTC.   If we did we should see inflation of 43% - grwoth rate.

But you can't eat Bitcoins.  You can't do anything with them.  I can accumulate all the money I want, but I'll die of starvation or have no enjoyment of life.  That will encourage people to spend.

There's a culture developing around bitcoin.

That culture overrides supply and demand dead locks.

Paypal just shut down coinpal. I am not going to be an idle bitcoin user.

Welcome to the Streisand effect.

But then consumers won't want to spend bitcoins.  They would rather hold them since they are rising and spend fiat currency which is falling. Merchants won't bother to offer BTC prices since it will not get enough use.  A situation where the price of something (BTC) is far in excess of its actual utility happens all the time in markets, but then you get the inevitable downdraft.  I know it is very powerful to believe in the "always upwards if we leave it alone" idea but we need the wisdom to see both sides of it.

Just a thought: What if bitcoin replaced all the money in the world, what would its present value be in USD?  The velocity of money in the US historically has been approximately 2, meaning there is half the amount of money as GDP (the money turns over on average twice a year).  I don't know what it is in other countries, but just guessing that is reasonable worldwide, and the world economy is approaching $60T, I get ($60T/2)/21M ~= $1.43 Million per BTC present value.  That is the theoretical end value of the deflation once it hits 21M cap and replaces all the fiat currency.  After that monetary theory says it will deflate or inflate at the GDP growth rate if velocity does not change.

I know that sounds rather attractive, but it won't happen.  It will unravel before then, who knows next month or next year.

It's price drops, not price volatility, that would most discourage merchants from accepting it, and a fixed supply is the best way to give people confidence in it maintaining its present value into the future.

Exactly.

Isn't 43,8% a "modest" amount of inflation already ?

Bitcoin will have inflation for the next 100 years, its just that demand for it rises much faster than inflation.