Topic: Inflation and Deflation of Price and Money Supply - page 57. (Read 1456032 times)

Inflation is the general increase in prices, so it is the goods that you buy whose price will inflate, rather than the currency used to buy the goods.

Price data is important as it indicates whether there's a period of inflation or deflation, a general trend in the price level;

I find it funny that people defend theft if done slowly enough.  At 2%, it takes the ECB 35 years to steal half of the savings in Europe.  At what point would you be upset?  25 years?  10?

Inflation is a term much maligned in today’s media, but correctly managed it is not necessarily a bad thing.  The European Central bank has as one of its objectives the management of inflation within the Eurozone area and this management is generally accepted as maintaining the inflation rate as close to 2% as is possible.  If inflation begins to rise above this magic figure then the ECB imposes credit restrictions via interest rate management and reels in economic activity back. If, on the other hand, inflation threatens to drop into negative territory and the ECB is afraid that this may stifle economic growth then they practice quantitative easing to increase the supply of money. Quantitative easing refers to the reduction of interest rates and controls and the printing of money, and that is one of the powers of a country: Countries have the capacity to print their own money. Bitcoin is fundamentally different to fiat money in that important respect.

Finally someone cared enough to educate users who constantly talk about inflation without any idea what this term actually means.
Well done.

Awesome.  Three contentless posts in a row from spammers padding their signature advertising numbers.

Thanks for the knowledge 

Most of the people have no idea of what Inflation and Deflation means,and the way you describe it is for everyone to understand it. Thanks for the economical lesson.

Good topics for knowledge.

That would make it easy to track and extinguish by competitive agencies governments...

so much stuff to read, i think the biggest plus to bit coin the set rate of inflation. its just one less thing to worry about. the only way to really manipulate the price would be a mass adoption as a secondary currency. if we can keep pushing the adoption. With a set number of currency to be made, the only main issue to create price is velocity. since this velocity is so high and the inflation rate known. we could expect the price to jump again. the issue is more of a convinence thing. most people would just not get the crypto currency concept. they have probubly just invented another type of stock. its just that this product can be acsessed by a average person better. sorry for spelling its late where i am.

Trouble in bitcoin paradise...deflation will have to result in a more 'centralized' "governance structure" (see the complete article in the link below).


TonyT

http://www.technologyreview.com/news/525676/academics-spy-weaknesses-in-bitcoins-foundations/

Yet signs are emerging of more subtle flaws in the vision of Satoshi Nakamoto (which may or may not be a pseudonym), with analysis suggesting the rules governing how Bitcoin operates as a currency may be far from perfect. Some researchers claim that these rules leave room for cheats to destabilize Bitcoin. Others have concluded that major changes to the currency’s rules will be needed as the number of bitcoins in circulation increases.

The only solution Kroll sees is to rewrite the rules of the currency. “It would need some kind of governance structure that agreed to have a kind of tax on transactions or not to limit the number of bitcoins created,” he says. “We expect both mechanisms to come into play.”

Good topic! Very interesting information. I'll try to comprehend it.

interesting thread! 

It functions as money...

How do you know it's money?

Bitcoin is money, it just has all the infrastructure ( Fraud checking and storage etc. ) already built in and only exists digitally, you just have a bunch of people who Bitcoin threatens denying everything and openly refusing to class it as money.

Great topic!

 Love stuff like this and it's very important

Well a lot stuff to read for someone who haven't encounter economics before but isn't here one major error. Bitcoins aren't exactly money as we know it. Supply of it is totally different thing. that might be some similarity but in long run it won't be just another currency.

First off, excellent post.  Thank you!

There are some great videos on Khan Academy that helped me understand money supply.  They are in the section: Finance and Capital Markets -> Money, banking and central banks.  Here's the URL:

http://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking

Secondly, one other way money-supply deflation can occur with bitcoin (and all digital currency) is due to rounding errors in the bitcoin system.

Meaning, miners are paid BTC based on their hash rates (computational power of their mining computer).  Let's say a miner mines for 12 months, accumulating 100 bitcoin.  The bitcoin reward is paid out in many small transactions.  Let's say our miner was paid his/her 100 bitcoin in 1,000 separate transactions.  Some of the miner's rewards will be larger (e.g. 0.25 BTC).  Other reward payments will be much smaller (e.g. .00187 BTC). 

Later when the miner want to buy something for let's say 97.95 BTC, the computers have to figure out how much of each reward payment to add up to make the required 97.95 BTC.  Because some of the reward payments need to be divided into smaller parts to make up the exact amount of 97.95 BTC, over time it leads to very small remainders in some of the reward payments. 

And those small remainders can be unusable, because for each reward payment that's to be included in a transaction it takes computational power to validate the transaction.  A single transaction of 97.95 BTC might be comprised of 900 smaller transactions.   And theirs a cost, in the form of a payment fee, for such small transactions. 

That's part of the bitcoin architecture.  It's one way miner's get paid.  So if the required payment fee is greater than the value of the remaining bitcoin in a single transaction, it's not cost effective to use the transaction.  And thus, it can just sit there forever.

Over a long enough time those tiny little unusable transactions lead to money-supply deflation.  The money isn't gone, exactly.  It's just not economically viable to use it.  In other words, because it costs more to spend the remaining BTC than its worth, the result is a system that's deflationary over time. 

The good news is, the rest of your bitcoin will be worth more!!