I just thought about this in the reverse the other day. I like to pay my accounts in advance to build a credit balance for the time when I go on holiday in the Summer. In doing this, I have no hassles when I go on holiday and the bills gets paid from the credit.
If I did this with Bitcoin, I would run into trouble if the price dropped or crashed during my holiday and I would have to deposit more coins to make up the difference from the time I paid it, until the time when it gets deducted.
The opposite is also true when the price goes to the moon. My one payment might be enough to pay for two or three months, if it spiked. ^hmm^
Topic: Does the deflationary nature of BTC "encourage hoarding and delay spending"? (Read 1421 times)
August 31, 2015, 02:05:07 AM
August 31, 2015, 12:04:58 AM
In a deflationary system in which the purchasing power of the money is steadily increasing at a predicatible rate year after year, people will obviously find an equilibrium for their rate of spending. Obviously people aren’t going to starve themselves because they are hoarding their money because they think it will be worth more the next year ad infinitum. Obviously they will spend money on food because they must eat, they will buy clothes, they will buy houses and cars, they will spend money on entertainment, etc. Saving will be a much more common and highly regarded thing in such a situation and debts and malinvestment will be minimized greatly, but spending will still occur necessarily. What we would see in such a society that was adjusted to a deflationary money supply is that in times of inflation, there would be hoarding.
Imagine you live in a society which has a deflationary money supply and so you know that prices go down a little bit every year at a predictable rate. Imagine it has been like this for several years for as long as you can remember and then suddenly prices go way up and your money has less purchasing power. Do you start spending money frantically as a result? No. Of course you don’t. You hold out until prices fall back to a reasonable level and then you start spending as normal. Why would you start spending more when it costs you more money to buy less? It makes sense to spend more when it costs you less to buy more. In this way we can see that in a deflationary system, inflation actually encourages hoarding.
Imagine you live in that same society and suddenly prices go way down below the normal rate of price dropping. What do you do? Do you start hoarding all of your money? No. Of course you don’t. You start spending money frantically so you can take advantage of the period of increased purchasing power before the prices go back up to a reasonable level. Why would you start hoarding all of your money during a time when prices for goods and services go down and your can buy much more with less money? In this way we can see that in a deflationary system, deflation actually encourages spending.
In an inherently deflationary system deflation encourages SPENDING and inflation encourages HOARDING.
Imagine you live in a society which has a deflationary money supply and so you know that prices go down a little bit every year at a predictable rate. Imagine it has been like this for several years for as long as you can remember and then suddenly prices go way up and your money has less purchasing power. Do you start spending money frantically as a result? No. Of course you don’t. You hold out until prices fall back to a reasonable level and then you start spending as normal. Why would you start spending more when it costs you more money to buy less? It makes sense to spend more when it costs you less to buy more. In this way we can see that in a deflationary system, inflation actually encourages hoarding.
Imagine you live in that same society and suddenly prices go way down below the normal rate of price dropping. What do you do? Do you start hoarding all of your money? No. Of course you don’t. You start spending money frantically so you can take advantage of the period of increased purchasing power before the prices go back up to a reasonable level. Why would you start hoarding all of your money during a time when prices for goods and services go down and your can buy much more with less money? In this way we can see that in a deflationary system, deflation actually encourages spending.
In an inherently deflationary system deflation encourages SPENDING and inflation encourages HOARDING.
August 30, 2015, 10:46:59 AM
Wondering peoples opinions on this.. Does the deflationary nature of BTC "encourage hoarding and delay spending"?
If so, is that a huge problem? .. and can it be addressed?
If so, is that a huge problem? .. and can it be addressed?
I will quote one of my favorite reddit bitcoin posts:
Quote
It's only worrisome for the bizarre theory that the very last stage of Bitcoin adoption - face to face transactions - should be pushed first, that the application where Bitcoin enables the tiniest marginal benefit should be trumpeted most loudly.
Contrast this with online purchases, where Bitcoin lets you buy from merchants who might not have sophisticated security to prevent your identity and payment data from being stolen. Then think of embarrassing purchases, purchases from unbanked countries, purchases where anonymity is an issue (VPNs), and illegal purchases. Now we are talking serious utility relative to the other options.
To anyone who still entertains this notion that Bitcoin is a currency right now, let me explain something: Currency requires currentness. Currentness means that it is generally accepted. If Bitcoin were generally accepted, the price would be at least $100,000 per coin already.
So how does Bitcoin proceed? Certainly not from brick and mortar adoption, nor even from Amazon adopting it. It starts with the applications where it can provide the highest marginal benefit: black markets, evading capital controls, hiding/"offshoring" wealth, other "store of value" applications, etc. Then as these have driven the price higher the infrastructure follows and then in myriad incremental (and sometimes sudden) ways new applications become feasible and are invented. VPNs, porn, remittances, and a mix of the familiar and radically new prospects that everyone here is familiar with. All this happens in a virtuous cycle with price, mining, venture capital investment, infrastructure rollout, increased trust, better image, better user-friendliness, the overcoming of security obstacles, more interest from coders and financial people, etc.
Eventually merchants start start finding that Bitcoin spending during bubbles is a fair size of their payment pie, and then the cost savings raise eyebrows, they offer incentives for payment in BTC, and things really start snowballing for merchant adoption. Finally, at the very end, brick-and-mortar stores accept it simply because a sizable number of people already use it daily for online purchases.
Most importantly, all through this process investors are buying BTC not to enable purchases but to capitalize on the coming stages of adoption. They are buying based on that future promise. They're using Bitcoin, not as the currency that it should one day become, but as a store of value and investment that anticipates the day that it does have currentness and is a currency.
Contrast this with online purchases, where Bitcoin lets you buy from merchants who might not have sophisticated security to prevent your identity and payment data from being stolen. Then think of embarrassing purchases, purchases from unbanked countries, purchases where anonymity is an issue (VPNs), and illegal purchases. Now we are talking serious utility relative to the other options.
To anyone who still entertains this notion that Bitcoin is a currency right now, let me explain something: Currency requires currentness. Currentness means that it is generally accepted. If Bitcoin were generally accepted, the price would be at least $100,000 per coin already.
So how does Bitcoin proceed? Certainly not from brick and mortar adoption, nor even from Amazon adopting it. It starts with the applications where it can provide the highest marginal benefit: black markets, evading capital controls, hiding/"offshoring" wealth, other "store of value" applications, etc. Then as these have driven the price higher the infrastructure follows and then in myriad incremental (and sometimes sudden) ways new applications become feasible and are invented. VPNs, porn, remittances, and a mix of the familiar and radically new prospects that everyone here is familiar with. All this happens in a virtuous cycle with price, mining, venture capital investment, infrastructure rollout, increased trust, better image, better user-friendliness, the overcoming of security obstacles, more interest from coders and financial people, etc.
Eventually merchants start start finding that Bitcoin spending during bubbles is a fair size of their payment pie, and then the cost savings raise eyebrows, they offer incentives for payment in BTC, and things really start snowballing for merchant adoption. Finally, at the very end, brick-and-mortar stores accept it simply because a sizable number of people already use it daily for online purchases.
Most importantly, all through this process investors are buying BTC not to enable purchases but to capitalize on the coming stages of adoption. They are buying based on that future promise. They're using Bitcoin, not as the currency that it should one day become, but as a store of value and investment that anticipates the day that it does have currentness and is a currency.
Quote
Just because Bitcoin turned out to be better for the "store of value" function first is no reason to worry overly about the transactional function taking time to blossom - that's what investors are for. The ones that invest based on a sound assessment of Bitcoin's future potential serve as a proxy for actual present commercial adoption by boosting the price in the present to a degree commensurate with how likely commercial adoption will be to take hold in the future. To misunderstand this is to misunderstand investing itself, as well as to misconstrue much of what is happening in the Bitcoin world.
Related reading #1:
Quote
The Separation of Money and State
After discussing the separation of church and state, Voorhees applied the philosophy of freedom of choice to money. The Shapeshift.io CEO claimed the freedom to choose your money is, for many people, more important than being able to choose a religion. He noted that a separation of money and state might be just as – if not more important than – freedom of religion:
“It is that narrative of human development under which I believe that we now have other fights to fight, and I would say in the realm of Bitcoin it is mainly the separation of money and state. Money is absolutely as fundamental to our lives as religion, and for many people it is far more fundamental to their lives as religion. It affects how your life unfolds. The choices that you make about money dictate the ramifications of your life and those around you. And so, to have an institution like money so controlled by a central entity — by a monopoly — is absurd. It is immoral. We should get rid of it.”
The idea of free markets is still somewhat popular in the United States, but this logic never seems to apply to money. Although many Republicans often espouse the benefits of the free market in various political speeches, essentially none of them bring up the idea of competing currencies. Most politicians in any part of the world seem rather selective when it comes to which markets are allowed to freely operate without government intervention.
After discussing the separation of church and state, Voorhees applied the philosophy of freedom of choice to money. The Shapeshift.io CEO claimed the freedom to choose your money is, for many people, more important than being able to choose a religion. He noted that a separation of money and state might be just as – if not more important than – freedom of religion:
“It is that narrative of human development under which I believe that we now have other fights to fight, and I would say in the realm of Bitcoin it is mainly the separation of money and state. Money is absolutely as fundamental to our lives as religion, and for many people it is far more fundamental to their lives as religion. It affects how your life unfolds. The choices that you make about money dictate the ramifications of your life and those around you. And so, to have an institution like money so controlled by a central entity — by a monopoly — is absurd. It is immoral. We should get rid of it.”
The idea of free markets is still somewhat popular in the United States, but this logic never seems to apply to money. Although many Republicans often espouse the benefits of the free market in various political speeches, essentially none of them bring up the idea of competing currencies. Most politicians in any part of the world seem rather selective when it comes to which markets are allowed to freely operate without government intervention.
Related reading #2:
Economics in One Lesson Read chapter 16: "Stabilizing" commodities - PDF pages 112-118 (book pages 97-103). Hope this helps!
Nationalism is a disease, Bitcoin is a cure.
Yours in compassion and solidarity,
World Citizen Beliathon
August 30, 2015, 07:46:23 AM
If it weren't for "hoarding", the price would have gone through the floor by now.
There are still people hanging on for $500,000, or even $1000 again. Read the "I AM HODLING" thread.
There are still people hanging on for $500,000, or even $1000 again. Read the "I AM HODLING" thread.
I am holding on to the hope of 1k. I think it's a reasonable value and will get there again hopefully. However, I don't want to just dump my coins but spend them on things directly which will hopefully be a possibility by the time we get back to 1k.
August 30, 2015, 03:00:53 AM
In one part, yes, it leads to human greed that they see bitcoin one day will rise insanely in a value and thus encourage people to hoard rather than spend it. Since the deflationary is built-in, I don't think there's anything we can do to change it. We certainly can't change human behavior as well. However as the bitcoin infrastructure begins to develop and having more shops starting to accept the coin, this will also pull way from the norm and get people to spend.
August 29, 2015, 07:18:39 PM
If it weren't for "hoarding", the price would have gone through the floor by now.
There are still people hanging on for $500,000, or even $1000 again. Read the "I AM HODLING" thread.
Meanwhile, 2015 is the year of "meh" for Bitcoin. $225 ± 25; whenever it gets outside that range, it comes back in a few weeks.
There are still people hanging on for $500,000, or even $1000 again. Read the "I AM HODLING" thread.
Meanwhile, 2015 is the year of "meh" for Bitcoin. $225 ± 25; whenever it gets outside that range, it comes back in a few weeks.
August 29, 2015, 04:38:59 PM
Unfortunately yes. giving the deflationary nature of Bitcoin which resembles gold does encourage hoarding. however, the volatility makes quite attractive for day traders and other Big risk Investors to thrive.
August 29, 2015, 01:11:05 PM
Hmm, which definition of "deflation" are we using here? Because as far as I can tell, bitcoin is in a perpetual state of monetary inflation until there are no more block rewards. Isn't that why we're always talking about 3600 coins/day? 
I wonder what you mean by using the technology in everyday life? I am surely a speculator -- often a day trader, even -- and I also use bitcoin 5-10 times a month to pay for various goods and services.
Isn't hoarding also using bitcoin as a store of value?
I do get the impression with Bitcoin that there are more speculators (on this forum at least) than people who really want to use the technology in their every day lives.
I wonder what you mean by using the technology in everyday life? I am surely a speculator -- often a day trader, even -- and I also use bitcoin 5-10 times a month to pay for various goods and services.
Isn't hoarding also using bitcoin as a store of value?
August 29, 2015, 10:00:06 AM
Most recent entry to "Bitcoin Obituaries" got me thinking..
Original article here:
https://www.linkedin.com/pulse/distributed-ledgers-part-i-bitcoin-dead-pascal-bouvier-cfa
Wondering peoples opinions on this.. Does the deflationary nature of BTC "encourage hoarding and delay spending"?
If so, is that a huge problem? .. and can it be addressed?
I do get the impression with Bitcoin that there are more speculators (on this forum at least) than people who really want to use the technology in their every day lives.
Quote
We have yet to see any meaningful adoption in the retail world and the institutional world seems quite lukewarm. . . . The deflationary quality of Bitcoin - by design and not by accident - is a major drawback. Deflation naturally encourages hoarding and delays spending, which is the behavior we are witnessing with BTC holders.
Original article here:
https://www.linkedin.com/pulse/distributed-ledgers-part-i-bitcoin-dead-pascal-bouvier-cfa
Wondering peoples opinions on this.. Does the deflationary nature of BTC "encourage hoarding and delay spending"?
If so, is that a huge problem? .. and can it be addressed?
I do get the impression with Bitcoin that there are more speculators (on this forum at least) than people who really want to use the technology in their every day lives.
History has proved that when bitcoin price is higher (deflation), people spend more, when it gets lower (inflation), people spend less and start to hoard. Many facts are against those theories from economy books, so it is very likely that those theories saying inflation is good are just excuses for banks to print themselves more money: Sounds reasonable, but never have any real world example backing them
This is very easy to understand: When there is deflation and your money worth more and more, you become richer, then you don't care spend a little bit more. On the other hand, when everything's price is rising and you can not afford them, you spend less
August 29, 2015, 09:54:49 AM
Wondering peoples opinions on this.. Does the deflationary nature of BTC "encourage hoarding and delay spending"?
If so, is that a huge problem? .. and can it be addressed?
If so, is that a huge problem? .. and can it be addressed?
It delays spending (for the hoarders), but no it's not a bad thing. I always find it funny when people complain about hoarders. You don't have to spend money as soon as you get it (though people don't seem to realize this). I even prefer to save most of my fiat money because I'd like to do something productive with it in the future.
August 29, 2015, 09:28:42 AM
Most recent entry to "Bitcoin Obituaries" got me thinking..
Original article here:
https://www.linkedin.com/pulse/distributed-ledgers-part-i-bitcoin-dead-pascal-bouvier-cfa
Wondering peoples opinions on this.. Does the deflationary nature of BTC "encourage hoarding and delay spending"?
If so, is that a huge problem? .. and can it be addressed?
I do get the impression with Bitcoin that there are more speculators (on this forum at least) than people who really want to use the technology in their every day lives.
Quote
We have yet to see any meaningful adoption in the retail world and the institutional world seems quite lukewarm. . . . The deflationary quality of Bitcoin - by design and not by accident - is a major drawback. Deflation naturally encourages hoarding and delays spending, which is the behavior we are witnessing with BTC holders.
Original article here:
https://www.linkedin.com/pulse/distributed-ledgers-part-i-bitcoin-dead-pascal-bouvier-cfa
Wondering peoples opinions on this.. Does the deflationary nature of BTC "encourage hoarding and delay spending"?
If so, is that a huge problem? .. and can it be addressed?
I do get the impression with Bitcoin that there are more speculators (on this forum at least) than people who really want to use the technology in their every day lives.
what i think is that the bubble made the situation worse for bitcoin, Many people started to look at bitcoin as something which will make them rich quick so this increased the holding. And the effect is still not gone many people just buy bitcoins to become rich.
August 29, 2015, 09:25:19 AM
Both hoarding and spending are good for bitcoin. Hoarding takes coins out of supply but those who are hoarding will want to spend them or cash em out eventually.
Both electron & proton are good for an atom. But, in this case, we are discussing proton's impact only. August 29, 2015, 09:16:30 AM
Both hoarding and spending are good for bitcoin. Hoarding takes coins out of supply but those who are hoarding will want to spend them or cash em out eventually.
August 29, 2015, 05:49:49 AM
Some people were not around when the price hit $1000.... There were a lot of people spending Bitcoin when they felt the time was right to spend it.
People use Bitcoin for many different reasons... and they will spend it, when they feel it's the right time and the right price. Lots of people save
money in a bank and at one stage, they decide to use it. Bitcoin has a store of value feature and it's a currency at the same time. The deflationary
nature of Bitcoin only temporarily cause people to hoard, until they reach the price where they willing to spend it.
People use Bitcoin for many different reasons... and they will spend it, when they feel it's the right time and the right price. Lots of people save
money in a bank and at one stage, they decide to use it. Bitcoin has a store of value feature and it's a currency at the same time. The deflationary
nature of Bitcoin only temporarily cause people to hoard, until they reach the price where they willing to spend it.
August 29, 2015, 03:20:54 AM
people that hoard (or safe) their bitcoins make the whole ecosystem possible. otherwise there would be no value and no opportunities, no companies, no jobs.
but if you move further, you should also use your bitcoins because you increase the value of your own BTC at the same time.
but if you move further, you should also use your bitcoins because you increase the value of your own BTC at the same time.
August 29, 2015, 02:39:44 AM
Bitcoin has been designed to mirror the precious metals market, gold in the first place. So if some people are hoarding, I don't see anything bad here. Also, Bitcoin was designed purposely so that 1 token is and would be very rear, again just like gold is. So deflationary characteristics in my opinion won't have any effect when you see a new influx of 1 million newbies the next time in the Bitcoin ecosystem, price will go up and up.
Many believe that Bitcoin's only characteristic is a currency and a day to day paying. I think this is short-sighted. Bitcoin is much, much more. It is currency, an asset that we can hoard, a safe haven that we can save into, etc..
Many believe that Bitcoin's only characteristic is a currency and a day to day paying. I think this is short-sighted. Bitcoin is much, much more. It is currency, an asset that we can hoard, a safe haven that we can save into, etc..
August 29, 2015, 02:35:17 AM
Deflationary nature ? Ask those who bought @ 1000
Expand your view of time. $1000 was barely two years ago. Think about deflationary in terms of 10 years or 20 years...that's what we're talking about. Full mining will take over 100 more years (if they all get mined), so that's the deflationary time frame you need to think of. OR at least think of it in terms of the time between halving milestones.
A lot of things encourage hoarding - lack of every-day places to spend some coin are big contributors...I want to spend some at a coffeeshop or a pizza joint...no such luck in my area though.
August 29, 2015, 01:22:05 AM
i think everyone has a target, so the answer is no, at some point many are willing to spend comfortably
the point is that right now, bitcoin value isn't reflecting its enormous potential by any means
the point is that right now, bitcoin value isn't reflecting its enormous potential by any means
August 29, 2015, 12:50:25 AM
Does the deflationary nature of BTC "encourage hoarding and delay spending"?
Who told that? I have my strong doubt about this. Bitcoin is produced like a clock every 10 min, the amount of bitcoin is well known and there are no other possibilities to create new coins in other ways. The price of bitcoin one year ago were 1200 us dollar one. Now is moving regularly between 200 and 300 us dollar. Who can told that again will not go 1200 this year or the next?
In economics, deflation is a decrease in the general price level of goods and services. Continuously. That's all.
What this behavior of bitcoin must be called deflationary nature of bitcoin when this is not true?
August 29, 2015, 12:37:50 AM
It's too inconvenient for everyday retail use right now. Who wants to pull out a laptop at the checkout counter? Online or delivery only for me. So yes, I'm hodling as the kids say. 
Really, though, at this point I do the vast majority of my shopping online (Amazon and the like). And with services like Foodler (damn you, Grubhub, for basically shitting on bitcoiners by joking that you will accept it in like 30 years), it's damn easy in both cases to just load my account and buy stuff.... I spend coins probably 5-10 times a month, depending on the month. (And depending on my trading profits
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