In case somebody hasn't realized it yet, the OP is using the term "hyper-inflation" incorrectly. "Inflation" is either rising prices of goods or an increasing money supply, depending on the context. "Hyper-inflation" is an extreme case of inflation, and generally occurs when people spend money as soon as they get it because its value is dropping so quickly.
The OP is referring to the dramatic rise in price of BTC, which is none of those.
The OP is referring to the dramatic rise in price of BTC, which is none of those.
You are right. Context is everything. OP is definitely wrong in his use of the word inflation. Proper usage of inflation refers to monetary inflation - more specifically; the increase of the money supply. With modern fiat currencies controlled by central banks, this is easily accomplished by simply "printing money". The result of inflation is an increase in the price (the money cost) of goods and services and the decrease in the price of money (you will be required to supply fewer real goods and services to "buy" a dollar - i.e. the dollar buys less). This is because more money is chasing fewer goods. If you magically doubled the amount of money in circulation (with everyone instantly having twice what they had just a moment ago), very quickly you would see prices for everything basically double. No new wealth is created. All that happened was a massive trauma to the economy as everybody scrambles to adjust to the sudden halving of the value of the dollar.
In reality, central banks inflate much more slowly, but it is not a natural (or even desired) phenomenon. Let's say it's 2-3 percent per year for decades on end (as it basically has been). People get used to it and plan their lives around that rate. However, if the rate changes (specifically, increases) over time, then it's harder to plan for the future. People are more likely to spend now rather than save for spending later simply because their saved money will be worth less (and unpredictably so) in the future. This has numerous consequences. One of them is society's capital stock starts to dissipate (gets eaten away by present consumption). We become a consumerist society with less and less investment in the future. Eventually, we collapse as we have no more capital for long term projects.
Hyper-inflation is the doubling of the money supply on a yearly, monthly or even weekly basis. Imagine prices of groceries doubling every week (or worse). In Germany in 1923 wives would wait outside their husbands' places of employment on pay day. As soon as the paychecks were handed out, the wives would take them and run to the bank, get cash and then run to the market to buy food because it would be significantly more expensive the next day. In a hyper-inflationary economy, people spend money quickly (i.e. don't want to hold cash) because prices are rising. Not the other way around. Spending doesn't cause hyper-inflation. The government printing press causes hyper-inflation. And hyper-inflation causes rapidly rising prices of goods and services.
As for Bitcoin, it can never hyper-inflate because of the very nature of its mining process. While it will continue to technically "inflate" (increase in supply), that inflation is slow (and slowing), well understood, and ultimately limited. This allows for the possibility of rational assessment of its value, and will not (in and of itself) incite people into panic buying or selling. The value of Bitcoin must properly be measured by what goods and services it can buy (and has bought historically) over a wide range of products. Unfortunately we don't have a lot of historical data on what people are buying with Bitcoin (so we don't know its true value). Until we do, and as long as we are measuring Bitcoin against the dollar (a currency that itself is susceptible to state tampering and hyperinflation), we will see wild fluctuations in Bitcoin's "value". But such rises and falls do not constitute deflation or inflation. Such rises and falls are just speculation birthing pains associated with an unknown, unproven commodity.
Yes, Bitcoin is a commodity. Just like gold. So is all money. But not all money is created equal. The demand (and thus the value of any money) is based on its usefulness as a relatively stable lubricant for commerce (and its value can change over time just like any other commodity). The transparent, effortless ability to convert any good or service into any other good or service (even across spans of time - think futures contract) is what makes a money good. Money is barter butter. Good money allows barter of anything to anything across time and space with little or no loss of economic energy (low "economic friction"). Good money does not inflate much (the less the better). Zero inflation is best (as Bitcoin will eventually be). Good money is infinitely divisible, easily transportable, relatively rare, non-perishable, and accepted almost everywhere. Gold fulfilled all of these requirements. Bitcoin isn't quite there yet (it's lacking in the transportability and acceptance categories). The other area of challenge for Bitcoin is the so-called legal tender laws. If governments feel threatened by Bitcoin, they will fight it. This may be a big roadblock in the future.
Gold enabled the industrial age to flourish world-wide. It was eventually "stolen" from us and replaced with government paper. Read Murray Rothbard's "What has Government Done to Our Money" for a description of how we lost the use of gold. Also, read Leonard Read's "I, pencil" to understand the global economy. Now, Bitcoin threatens to become the new digital gold. We just need some entrepreneurs to come up with ways to make Bitcoin very transportable and the acceptance will (hopefully) follow. To paraphrase Jeff Goldblum in Jurassic Park, "The free market finds a way".
