"Zero cost"... Aside from the cost of nearly every major hodler of bitcoin dumping them instantaneously if the 21 mil cap is put in serious jeopardy.
That is not "cost". Even if bitcoins lose all their value, no resources or concrete assets will be destroyed. The world will not become any poorer. Only, a few hundred thousand people who expected to get hold one day of mansions and Lamborghinis will see those hopes vaporize, and those assets go to other people instead.
I don't think however that the introduction of extra inflation into bitcoin -- say, 1% per year, beyond the block rewards -- would necessarily induce all holders to dump, and the price to crash.
In late 2013, when I first learned about bitcon, the Gospel of Antonopoulos was that bitcoins would become extremely valuable because they would replace credit cards and other traditional digital payments, and then demand for that use would drive the price up, according to the money velocity equation. Moreover, that would happen very soon, because the price had been growing 1000% per year, and no one could look at that straight line on the log plot and doubt that it would continue.
Well, 1% of inflation per year would not destroy that argument; at most, it would delay the growth a little. After all, that growth of 1000% per year happened while the miners were creating an inflation of more than 10% per year.
But the Gospel has changed several times since then. Mircea, for example, wants us to believe that the "Moon" will come just because the supply is fixed. Even if it were true -- again, 1% of inflation per year, even extended for 20 years, could not possibly prevent the price from rising 1000% in that interval.
Blockstream, on the other hand, wants us to believe that bitcoin will go to the Moon because not only the supply will be capped by 21 million, but the transactions will be capped to 150'000--180'000 per day, and somehw that will induce some companies to pay more for bitcoins. Whatever. Again, 1% inflation per year cannot possibly spoil such a powerful "whatever".
But, on the other hand, I agree with one thing: it is very unlikely that those "20 businessmen" who will decide the future of bitcoin will ever agree to putting any sort of inflation or demurrage in it. That was not a prediction that I was making. My point was only that the 21 million cap is not "guaranteed by math", but only by people.
I still believe that bitcon's price will go to zero in a few years; but almost certainly not by that route...
You really don't know much about economics, do you Professor? Try appraoching the issue from a different direction: Bitcoin price is fueled by speculative investors. These people are forward thinking. They don't buy BTC based on current utility value, but implied future utility value. Just as stocks are valued by implied (and discounted) future rate of returns, we are betting that these cryptographic token thingies will become (more) useful down the road. Basically we are paying for the right to write on a very secure immutable ledger in the future. ANY inflation beyond the baked-in block reward means that the ledger will get diluted and polluted with extra data to a degree that we hitherto didn't factor in. Also, there is the slippery slope of if we can increase by 1% after so many assurances that it would NEVER happen, you have to add the uncertainty that this inflation rate may be adjusted higher in the future.
Why do you think there is so much hand-wringing about the Federal Reserve's proposed 0.25% rate increase? it would mean almost nothing on it's own, but Wall Street knows rate increases are almost never a one-off. They are likely followed by more increases. They know the Fed wants 'normalized" rates in the vicinity of 5 to 8%, and that Yellen will keep hiking until either she gets there or causes another recession.
Economics is the science of studying incentives. The challenge for an economist is to look for the HIDDEN costs (often opportunity costs) and unintended consequences of a given policy. No change happens in a vacuum and ripple effects can permeate the whole system.
