Topic: Inflation and Deflation of Price and Money Supply - page 59. (Read 1470356 times)

I agree with you LX. The one difference here though is that the ultra rich cannot hoard by taking advantage of special federal reserve-type handouts. They start with an immense amount of wealth that, through deflation, grows in value over time. This implies that anything they spend will ultimately be more useful to the worker over time than to them. Unless they can manipulate the price of bitcoin en-masse to buy it back at a lower price, the worker will be getting paid with something that guarantees greater value over time.

Deflation pushes the ultra-rich utility curve to flatten out and, as a result, they should spend more. What will the spend more on? Obtaining power is a very good guess. The big difference is that this will most likely be political power as opposed to financial power since there won't be any currency to manipulate.

I guess the main point I'm trying to hone in on is the following:
A) How much power is effectively a result of the manipulation of a currency's value?
B) How much can bitcoin be actively manipulated by the bitcoin ultra rich in a hypothetical bitcoin economy?

Corruption does not spontaneously generate. You have put the cart before the horse; it is the ultra rich that have created that power with their wealth.


This is wishing for the "magic spell" that I mentioned, that giving (relatively random) people immense amounts of power will somehow change the landscape of society for the better. It might, but if history is any indication, it probably won't. And in all likelihood, Wall Street will probably reward those with a golden parachute in return for also having a significant amount of control over bitcoin. In which case it's mostly the same people again.


While this is a valid point in its own right, it is an externality irrelevant to the landscape within bitcoin. It is an argument that applies to any cryptocurrency.

Ultra rich in fiat have enormous power because of incentives and power structure set by politicians. In a system where government have the power to invade liberty, regulate, set values and redistribute money to such extend as today there is great potential for corruption.
Ultra rich in bitcoin will have great power too. They will set very strong incentives. For example they can desire space travel or building private islands with self-sufficient communities realizing their social utopias. They can have most exotic whims, even perverse ones and they will offer so good price that people will compete almost to death to fulfill those whims. But in Bitcoin world it would be enormously more difficult to ultimately force people to trade with ultra-rich. The freedom is in the choice to refuse offer 500 Milions USD for your old house, to refuse even 5 Bilions and to refuse to sell it at all. On the other hand you can not refuse to participate in bailouting TBTF bank if the government decides it is right (and compulsory) thing to do.
So the ultra rich will probably spend on luxury, encouraging its development and consequently bringing the new luxury to the masses. Cars, traveling to foreign countries, personal cinema (television), using plane, mobile phones ... all of that started as a luxury for the very rich. Without them there would be insufficient incentive to develop these areas and insufficient rewards for the smart ones doing so. You can say that ultra-rich will provide new and enormous opportunities for the exceptional ones (individuals, corporations) best able to fulfill their wishes and ideas. Of course, one of very deep needs buried in people is "I want others to hold the same values as me! I want to influence them and "make them see"!" We shall see how big this quest for power will become.

They would spend it on whatever they'd like ....to get more power potentially...
But I suggest that the superwealthy of today (in fiat) are not the same people that hold most of the BTC. Is the change of one group to the other not hampering BTC adoption (especially since you mention the wealthy control many things like public opinion)?

How can you think that when there is evidence all around us of what "ultra rich" do? They control media and therefore public opinion, they control government and therefore public policy. When quality of life is no longer an issue, it becomes about power. There is no magic spell that makes this work differently in bitcoin. If ultra rich are induced to spend more, what do they spend it on?

No, with deflation I would think the shift in wealth to be minimal. The utility curve of money for individuals flattens out for larger wealths. As an example, the difference in net wealth of 100 million vs. 10 billion has the potential to change the actual quality of life by an amount which is much less than the difference between 10k vs. 100k. As a result, as currency deflates, the ultra rich find themselves holding excess wealth whose utility is of small effective value.

In a deflationary economy, wouldn't the ultra rich be induced to spend more since their wealth is less useful" to their own quality of life over time?

Interesting, so I agree the divisibility of the currency itself is not a problem. Even the bit-wise convenient satoshi*10^-3 is more than enough.
Do you think the need for massive deflation for bitcoin when successful adoption of the coin *occurs*, is being hampered by the current distribution of the money supply? Simply put, everybody on bitcointalk (owning some coins) now are the future miljonairs? The rich in bitcoin now, are going to buy their own countries?




Does it really seem feasible to expect such a sudden shift of wealth?

I meant decimal notation indeed. And no, it would require 10^80 digits. As I got it, when people say that Bitcoin is divisible, they usually mean a number of decimal places (the number of digits following the decimal point). So the number of decimal places in this context should be considered as equal to the number of atoms in the universe, i.e. 10^80 decimal places

Otherwise, it is not even figuratively close to infinity, just some trivial 80 digits after the point, lol...

It depends on the base  . I can write number 1234 using only 4 digits in base 10. I do not need 1234 digits.  to completely (read exactly) write down an arbitrary number with such division you would need about... 80 digits. Right?
However there is a problem that the number of atoms changes constantly. (eg. by creation [meaning anti-anihilation] or by [products of] nuclear reactions).
My original argument was meant that even if Bitcoin were divisible to 10^100 parts it would be quite possible to use it with current computers by using 333-bit integral representation of the value counted in some "Quarkhoshis".

I specifically mentioned 'correctly' which, I guess, is something different from the number's lower and higher estimates. The number of atoms in the universe is about 10^80 (if I'm not mistaken), so that to completely (read exactly) write down an arbitrary number with such division you would need about 10^80 digits, right?

You can write this number (its lower and higher estimate) quite easily. But you can not write all numbers from 1 to this number (without exhausting matter and energy in the universe).

And to correctly write down this number would require even more atoms (let alone making a transaction or handling it in some way, lol)...

Bitcoin is not and never will be infinitely* divisible. Amount 0.00000001 BTC is currently the smallest unit. Value is currently expressed by 8byte (64bit) number of this units. This means there is space for 18 446 744 073 709 551 616 units. Considering maximum 21M coins, smallest unit would be ~1.14E-12 BTC. Effectively this means space for adding additional 3 decimal places up to 1E-11 BTC without change of data field.

We can estimate gross domestic product of planet Earth to be less than 1E14 USD (about 0.83E14 in 2012). If all the world economy was converted to bitcoins then 1 Satoshi would be worth 4.762 cents in current USD. This is too much for micropayments. Above mentioned "smallest unit" would be worth thousand times less. I consider this to be adequate (for the planetary phase of human evolution) :-].

* - not infinitely divisible. But division up to the number of atoms in the observed universe would be no problem. Still long shot to infinity.

Good post. Most people who argue against Bitcoin miss this point.

One key aspect worth noting is that, up until the advent of virtual currencies, one large edge of inflationary over deflationary policies is the fundamental limit to how small your currency can be functionally made for transfer.

The indefinite divisibility of bitcoin completely bypasses this incentivizing increasing monetary velocity as a result.

You can say that high unemployment also leads to greater efficiency (only the best of the best are doing things) instead of wasting scarce resources (people's workforce and free time). 

How come? If we take this source, the rate of unemployment in Japan had been steadily raising through 90s and on, peaking twice in 2004 and 2009...

It is not population shrinking that actually matters here but rather age distribution skewing, i.e. more elders and less young productive hands. So things become yet more complicated, and to keep their standard of living, they have to increase productivity that would possibly lead to GDP growth (since Japan's population is not that much shrinking as it is aging)...

Falling prices will lead to greater efficiency instead of wasting scarce resources.  See Japan.  Stagnant GDP but super clean cities, machinery not needing replacement for 15 years, wonderful food, low unemployment.  Deflation is ok. If their population levels weren't declining I think their GDP might even be slightly growing.  Now they've got Abenomics to screw things up by trying to create GDP growth.  Growth in what? Speculative assets?  Why is growth necessary for a shrinking population?  No wonder Abe's popularity is falling.  Since, Abenomics, Japan's current account deficit has only been getting wider. Imports growth is outstripping exports growth.

The long term viability of bitcoin as currency interests me, because ultimately, it is this quality that will sustain or derail it after all the speculation has moved on to more interesting pastures.

The theory of money, therefore, is an important one to contemplate for those interested in the long game.

Money theory can be complicated... and controversial.

Let's add this thought to the mix:

"Enter, bitcoin, a cryptography-based currency and technology developed by someone with the pseudonym Satoshi Nakamoto. It has been designed to have a limited rate of growth in the total quantity of currency, up to a predefined cap. There can never be more than 21M bitcoins. The Quantity Theory says that this will make prices of goods measured in bitcoins stable.

One problem with this theory is that the real costs in terms of land, capital, and labor to produce things is steadily falling. Every productive enterprise is constantly seeking to drive cost out of production. If a currency had a constant value, then prices in terms of this currency would be falling.

As we shall see below, the value of bitcoin will be anything but constant. Without a mechanism for responding to increased market demand by creating more currency, there is a fatal flaw."


excerpt from:  http://monetary-metals.com/bitcoin-gold-and-the-quantity-of-mone/