Does halving really create deflation? - page 7.

exstasie

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Quote from: mk4 on November 27, 2019, 06:01:06 AM

But remember, not because something got more scarcer, it doesn't automatically mean that the price will increase. The perfect example would be litecoin. After the halving, the generated altcoin halved. But yea, the price dropped too after a while. Why? Simply because there's not enough people buying litecoin.

It's a bit more nuanced than that. Markets react to all available information, and halvings are publicly known beforehand. Litecoin rising from $22 to $146 in the first two quarters of the year was likely the market "pricing in" the halving. Litecoin outperformed BTC and the rest of the altcoin market during that period and I think halving hype was likely the cause.

That's what BTC did in 2016 too. It rallied hard into the halving (doubled in price) but crashed a month before it. And then it kept crashing afterwards.

Buy the rumor, sell the news.

alyssa85

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The answer is No. The halving reduces the rate of increase in the bitcoin supply. The bitcoin supply is currently increasing by 12.5 bitcoins per block, and it will increase by 6.25 per block after the halving.

As for "deflationary currency" - that refers to the purchasing power of the currency. If over time, you can purchase more and more with a bitcoin, it's deflationary. We can currently purchase nearly three times more goods with bitcoin than we could in January. That means it's a deflationary currency.

If you can purchase less with your currency than you did before, than it's an inflationary currency. You can purchase only 5% of what you could purchase with the dollar in 1919, so it's an inflationary currency.

As for does bitcoin create deflation in the economy? Does it force prices of goods to fall. The answer is no - it would only be able to do that if it was the sole currency people were allowed to use. But there are loads of currencies people use, including loads of cryptocurrencies.

Getmon

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Quote from: dragon695 on November 27, 2019, 05:43:57 AM

Quote from: Getmon on November 27, 2019, 05:15:45 AM

Deflation is the opposite of inflation. Inflation is directed upward while deflation is downward. The fiat currency is deflating because it is losing value over time, while the prices of goods and services are inflating, and as a result the purchasing power of the fiat currency is getting weak over time. Bitcoin is inflating because its value is increasing over time, the exact opposite of fiat. The rewards of miners, however, are deflating due to halving which happens every 4 years.

I understand that concept. But I mean the Halving event, not just bitcoin, but I want to talk about coins that have a PoW mechanism and a halving event every 4 years. I mean, lately I've been seeing a lot of forum members talking about halving as a deflation mechanism. I was just wondering if this was true or not, people were making theories themselves.

PoW coins with a design just like Bitcoin and Litecoin have a mechanism to deflate rewards. That's what halving is all about. It is deflating the number of coins rewarded to miners. That is somehow following the line of thinking that in every 4 years, the value of Bitcoin is also inflating. Which means that despite the deflation in the regular release of Bitcoin through PoW, the value is moving in the opposite direction, and the miners still rewarded sufficiently. If it's the value that you are talking about, there is inflation; in fact, deflation to the reward through halving, is a factor supporting it.

mk4

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The halving or the "halvening" causes the bitcoin that's being mined to be halved. The bitcoin that's currently being generated and entering the markets daily is 1,800. After the "halvening", the bitcoin generated daily will be halved to 900. Hence, being more scarce.

But remember, not because something got more scarcer, it doesn't automatically mean that the price will increase. The perfect example would be litecoin. After the halving, the generated altcoin halved. But yea, the price dropped too after a while. Why? Simply because there's not enough people buying litecoin. Regardless how many bitcoin is being generated per block or per day, that wouldn't matter if there are more bitcoin being sold on the market than being bought. In the end, it's always supply and demand.

1Referee

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As long as there is block inflation, it's exactly that, inflation. Only when the last one single satoshi has been minted, miners fully rely on transaction fees, then Bitcoin will start to be a deflationary currency. Why? Because people lose coins for 1001 different reasons. All the satoshis lost directly lower the number of circulating satoshis, and that happens year after year after year.

It's something we don't yet have to worry about because most of us won't live to tell what exactly is going to happen, and how the market will react to it.

dragon695

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Quote from: NeuroticFish on November 27, 2019, 05:26:13 AM

Inflation makes money weaker and it is usually related with increasing the quantity of money available. Inflation makes goods cost more and more, showing that the money has less and less power.
Deflation should be the opposite.

But actually even deflation may be incorrectly used for Bitcoin.
Bitcoin is a coin with limited supply. 21M and that's all. Ever.
But the actual number of coins in circulation is still increasing with every block mined. So it can seen as an inflation (!) and halving will reduce that inflation.

So it depends on what's the reference point/concept: if it's the total supply, nothing changes; if it's the money in circulation, it's a decrease of inflation, not a deflation.

Oh, I realized the problem. because I don't quite understand how people talk about deflation, they often say that bitcoin or coins with a PoW mechanism often have deflation in place!
so I'm quite annoyed and I just hope that those who understand Halving and deflation will explain it more to me. Thank you very much and it has really clarified the problem. Hopefully through this article many people will identify and clearly distinguish between "Deflation" and Halving. Wink

dragon695

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Quote from: Getmon on November 27, 2019, 05:15:45 AM

Deflation is the opposite of inflation. Inflation is directed upward while deflation is downward. The fiat currency is deflating because it is losing value over time, while the prices of goods and services are inflating, and as a result the purchasing power of the fiat currency is getting weak over time. Bitcoin is inflating because its value is increasing over time, the exact opposite of fiat. The rewards of miners, however, are deflating due to halving which happens every 4 years.

I understand that concept. But I mean the Halving event, not just bitcoin, but I want to talk about coins that have a PoW mechanism and a halving event every 4 years. I mean, lately I've been seeing a lot of forum members talking about halving as a deflation mechanism. I was just wondering if this was true or not, people were making theories themselves.

NeuroticFish

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Inflation makes money weaker and it is usually related with increasing the quantity of money available. Inflation makes goods cost more and more, showing that the money has less and less power.
Deflation should be the opposite.

But actually even deflation may be incorrectly used for Bitcoin.
Bitcoin is a coin with limited supply. 21M and that's all. Ever.
But the actual number of coins in circulation is still increasing with every block mined. So it can seen as an inflation (!) and halving will reduce that inflation.

So it depends on what's the reference point/concept: if it's the total supply, nothing changes; if it's the money in circulation, it's a decrease of inflation, not a deflation.

Getmon

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Deflation is the opposite of inflation. Inflation is directed upward while deflation is downward. The fiat currency is deflating because it is losing value over time, while the prices of goods and services are inflating, and as a result the purchasing power of the fiat currency is getting weak over time. Bitcoin is inflating because its value is increasing over time, the exact opposite of fiat. The rewards of miners, however, are deflating due to halving which happens every 4 years.

dragon695

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hey guys, i'm quite serious on this topic because of the confusing people when talking about Bitcoin "deflation". As far as I understand, the deflation is that goods are cheaper than they are on time or because there is no need to buy goods or the supply of money gets lower.
So for Bitcoin, why is there a deflation? Although I know that miners will find it harder to mine bitcoins after every Halving event, the value of our goods stays the same and is based on fiat money. Bitcoin's price is still being manipulated and it is not necessarily a strong growth after halving. or the best example is Litecoin. after halving, its price is halved instead of rising higher.
So, the question is, does the Halving event actually cause deflation, or is it just some bullshit theory?
Ps: I highly appreciate the comments with sincere contributions. Thanks

Topic: Does halving really create deflation? - page 7. (Read 1178 times)