Topic: Bitcoin vs. debt-based, inflationary systems (Read 2332 times)

Fiat money is not always debt based, if it is asset based (When FED purchase assets), it is no different than gold backed money. The central banks have assets backing the money they issue, but they don't need to issue the amount corresponding to all of their assets, so that they can control the supply

Since those assets' value might drop in a free market, if they issue money based on these assets, it means they artificially support the price of those assets

I think you are mixing two independent things and it confuses you into wrong conclusions.

One thing is upfront payment vs. post payment. If you pay after you got stuff, you just have a debt to the seller until you pay, so you just need to pay more as compensation for that loan and for the risk that you might won't pay. If you are willing to pay long before you get your stuff, you might pay less, because it's you who gets compensated for  a loan and it's you who risks that they won't deliver. Both these situations are possible in USD and in BTC. Just take a look at Kickstarter as an example.

The other thing you mixes is depreciation or appreciation of currency value. This is a variable regardless of the upfront/postpay sale model. E.g. if you agree to pay 5% more one month later and then the value of currency drops 10%, you might end profiting 5% even despite you pay later (because that 105, which you agreed to pay instead of 100, is less than 110 which the stuff costs now after currency value dropped 10%).


You never know how much your savings and contracts will be worth in terms of goods and services they can provide. Period. Regardless of currency. There are more stable and less stable currencies. USD is more stable than BTC, but then you have the Zimbabwean dollar. Appreciation/depreciation risks are not exclusive to Bitcoin.

Of course, inflationary systems mean in general that your savings are expected to be worth less in the future and deflationary systems mean in general that your savings are expected to be worth more in the future. The thing is, there are these things like demand and supply. When you talk inflationary/deflationary you consider only supply, but it's the demand that is so much more important. If people stop using BTC, it will lose its value despite being “deflationary” in general. On the other hand, take a look at this EURCHF 5-year chart: http://finance.yahoo.com/echarts?s=CHFEUR%3DX+Interactive#symbol=;range=5y - despite fiat currencies being “inflationary” in general, CHF appreciated 33% between 2008 and 2011 because of increased demand (it's considered very safe so it has increased demand in times of crisis as investors tend to move some part of their capital into lower risk instruments).

So these things you mention are two completely different issues and they apply to all currencies, not only to bitcoin. You can have upfront payment in inflationary currency and pay less (Kickstarter). You can have value appreciation in inflationary currency (ex. CHF in the last five years) and value depreciation in deflationary currency (gold prices between 1980-2000). Just don't think there any hard rules here.

If bitcoin is not the only currency in the world , then it will be fine. If bitcoin is the only currency in the world, there will be deflation and will harm the economy due to its limited supply. Personally, i would like to see several different alternative crypt coins competing in the market.

https://en.bitcoin.it/wiki/FAQ#Won.27t_loss_of_wallets_and_the_finite_amount_of_Bitcoins_create_excessive_deflation.2C_destroying_Bitcoin.3F - 4th or 5th paragraph.

I understand that skill is scarce, i understand that resources is scarce, i understand that time is scare, but does money has to be scarce?

I disagree. Bitcoin is definitely a limited-supply currency. I don't see why it wouldn't be - there are only finite number of Bitcoins that can be generated. Also, Bitcoins are NOT infinitely divisible, where did you get that from?

The idea with limited supply currencies is that the value of currency would adjust depending on the total worth of goods and services available in that economy. Of course hoarding is a problem with these currencies.

I think that bitcoins are not a form of limited-supply currency. Unlike gold bitcoins infinitely divisible, but the problem is the implementation of it today. Instead of using int64, implementors should use bigRationals instead.

And its not really a level playing field in case of bitcoins. Because you don't know when, hoarders are going to restrict or loosen the supply of bitcoins. Sort of like a 51% attack on the supply of bitcoins.

This is just an insight based on experience so far. Comment and criticize.

With inflationary currencies created from debt, I get stuff now, but then I have to pay more for it later due to interest and inflation.

With Bitcoin, I pay for bitcoins now, then I get stuff later by either paying less due to appreciation of value of the limited-supply currency (if the adoption keeps growing), or pay more due to depriciation in case people start dropping out for some reason, and value of coins dropping as a result. Both scenarios happened in the past at some scale.

So, in case of dollars, euros, etc. - you are definitely either screwed and exploited, or you are the privileged minority screwing and exploiting the majority.

In case of Bitcoin, it's a level field and open book for everyone, but we don't really know how much our savings and contracts will be worth in terms of goods and services they can provide.

Does this make any sense?