When 21 million is reached the bitcoin community might reach the conclusion that inflation is needed and invent InflationCoin.
Inflation is needed mainly because of these simple reasons:
1) a significant percentage of bitcoins will be lost because of crashed harddrives, lost passwords, lost wallets and so on... maybe 1-2% per year?
2) The human psychology likes growth - it is not a coincidence that central banks have a inflation target of 2%. That gives the population the illusion of a growing economy since your salary, your house and your stocks go up in price. People are happier in a low inflation economy than in a deflation economy. The small inflation will also inspire the population to invest their savings in an attempt to beat the inflation – that makes the economy grow.
So in conclusion bitcoin needs an inflation of 4% to adjust to a growing economy.
The main difference between InflationCoin and Federal Reserve fiat dollar is that InflationCoin cannot print more than 4% per year to bail-out banks, finance budget deficits, finance wars and so on...
Inflation is needed mainly because of these simple reasons:
1) a significant percentage of bitcoins will be lost because of crashed harddrives, lost passwords, lost wallets and so on... maybe 1-2% per year?
2) The human psychology likes growth - it is not a coincidence that central banks have a inflation target of 2%. That gives the population the illusion of a growing economy since your salary, your house and your stocks go up in price. People are happier in a low inflation economy than in a deflation economy. The small inflation will also inspire the population to invest their savings in an attempt to beat the inflation – that makes the economy grow.
So in conclusion bitcoin needs an inflation of 4% to adjust to a growing economy.
The main difference between InflationCoin and Federal Reserve fiat dollar is that InflationCoin cannot print more than 4% per year to bail-out banks, finance budget deficits, finance wars and so on...
1) Assuming 2% loss per year, the number of bitcoins remaining at year x is BTCremain(x)=0.98x. Note that this value never reaches zero.*
2) I've never seen any documentation of this. The people that get that 2% per year before it becomes inflation certainly do like it. I've had a $100 bill in my wallet for a couple of years now. Do you really think that I like that it can't buy as much as it could when I bought it? The bitcoins I picked up in 2011 can buy a lot more than than they did back then. How do you think I feel about that?
You can hardly swing a cat on these forums without hitting people that share my view on the matter.
* You actually need a bit of calculus to think that it can. The limit as x approaches infinity is indeed zero. But since x is time, we'll have bigger problems long before it approaches infinity.
You should take courses in Macro economy to understand more about inflation. Why do you think the central bank of Japan (BoJ) has fighted deflation for more than 2 decades?
Deflation is bad for the economy! If your 100$ bill would be worth more each year you would postpone your consumption and the economy would shrink each year (which is case in deflationary economies such as Japan).
You can see the contradiction in this argument. The theory assumes the economy will only ever grow (this creates deflation), then it says because of deflation the economy will shrink (yet there is somehow still more deflation). If deflation is caused by a finite currency and a growing economy, wouldn't a shrinking economy create inflation?
But that's all pure theory. If I look at historic examples on wikipedia there is evidence deflation worked very well in the 19th century. There are examples of deflation being harmful, but to me they don't seem convincing (maybe you can convince me).
