Topic: Why is deflation considered to be an admirable feature of Bitcoin? - page 2. (Read 521 times)

The deflationary feature really helps preserve the value which makes it a good Store of Value. It's a fair model unlike fiat currency like dollar which typically loses value overtime due to its inflationary model. Not a good idea to have someone put his/her  "life saving" in dollar long-term as the saving will lose value and won't be able to buy what it normally would buy when the money was first saved... That can be considered cheating. Satoshi certainly don't want that to happen to Bitcoin and it's long-term holders hence the deflationary feature. The feature makes Bitcoin a good Store of Value compared to inflationary currencies.

By the way, Bitcoin could likely become so divisible that printing more will be unnecessary. If demand becomes too high in the future it becomes more divisible.




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What I am trying to imply was that if someone speculated appropriately, invested in bitcoin at the right time, that it can be a hedge against inflation and also be a store of value.

You don't believe in data? 

You are just have a misconception. Inflation has nothing to do with trade or timing.
Your short time profit/loss is not related to inflation

Usd has a 10% inflation per year and usd/eur pair is reaching news highs every month.

Do you believe in usd inflation data?
 if you bought usd a few months ago there would be no inflation in the United States?

What is inflation? Money declination in value, and persistence rise in price of goods and services.

Assuming all bitcoin are mined, bitcoin reached all-time-high, followed by a significant bear market. If people invested in bitcoin at the time, they may later make profit after several months of unrealised losses. But as they lose, is bitcoin not inflationary at the time? It is, but deflationary in long term. That is why bitcoin should be considered as a speculative asset in short term, because you can invest in it for a short period of time and lose, or make profit from it.

Not only supply of newly mined coins that would result to inflation, also as more people sell an asset like bitcoin, the price will reduce.

Very simple to understand. You can read more about the pizza day, how much bitcoin was worth at the time and compare it to now and see how to large extent bitcoin price has increased. Also you can check every halving, check the lowest price of bitcoin and the highest price, or be checking the highest price of bitcoin in each halving, you will understand that bitcoin has been a store of value after each halving or every four years.

Maybe, but said to be a decentralized p2p means of transferring money which can be central authority independent.

I do not believe all these data, what I believe in is a time to invest to be the right time. Even gold was said to be deflationary and a store of value, but those that invested in gold in 2020 at a be price over $2000 are now losing as the price presently is $1660.

Bitcoin's model is based on asymptotically decreasing inflation: it is dis-inflationary rather than deflationary. That some people assume that in the long run, more and more and more people will start to lose their private keys is a mere assumption that may turn out to be a reality or may not. We easily can assume exactly the opposite: the scarcer bitcoin becomes, the higher the willingness of people to keep their private keys in safety will be, which automatically will sustain a fixed supply.

Are you trying to attack bitcoin or what? All bitcoiners know that value is always subjective, and the perceived rarity of something may impact positively the valuation from different individuals. And by the way, Satoshi wanted bitcoin to become a peer-to-peer decentralized currency,  the main goal of which is to give people a way to peacefully opt-out from the traditional financial system to transact with whoever they want, permissionlessly. He never talked about speculation or bitcoin price and didn't sell a single bitcoin.

That is not what "success" means. Success is defined with having real adoption in the real world not just having a price on an exchange. For example there are currently altcoins that don't even have a blockchain anymore but they are still being traded on some exchanges like Yobit and have a price. By all definitions these altcoins are dead but they have a "value" still.

Technically since you can always create more NFTs that are exact copy of each other, their supply is unlimited regardless of what one of them does.

You should know that just because you see a lot of people talk about bitcoin as an investment, that doesn't mean bitcoin has made a "full transition". The fact is that people talk about price and profit more than they talk about bitcoin as a currency but the adoption as a medium of exchange grows side by side with the adoption as an investment.
For example if you check the number of "payments" using bitcoin in shops accepting bitcoin payments, the bitcoin payment processors, etc. you can see this growth clearly.

I don’t believe Bitcoin can be classified as an inflationary currency. This is because we know how many exist and none can ever be made beyond that limit of what can be mined. That can be interpreted however you’d like, but in the end it is this 21M limit that gives Bitcoin it’s value proposal. No entity being able to inflate the units gives Bitcoin a unique store of value argument that has so far seemed popular enough to propel the market cap into the trillions at one point and is still very much in a growth pattern.

Deflationary is when supply reduces over time. It is not a finite supply metric.

Even with 4M btc were lost so far, that that doesn't mean people will be losing enough btc over time to make it deflationary.  Network stills generates 5% of total supply per year, which is about 1M btc per year.

4M were lost when it wasn't worth much money... people will be losing at slower rates from now on.

Interesting, but how do we reconcile this with Ethereum's "me too" demonstrated store-of-value given it has an inflationary supply model?

Is the deflationary supply model even relevant to Bitcoin's success right now? How would we prove or measure that?

People call it as deflationary because of its finite supply that can not be changed.

How is the 21 Million Bitcoin Cap Defined and Enforced?

Additionaly, I have one topic Investigate, assess news. Don't simply read and make wrong decisions in which I estimated about 4M BTC was lost. Obviously, it's only an estimation and the actual lost BTC would be either bigger or smaller than that figure.

Explore and make your own estimation with HOLD waves from lookintobitcoin.com

Whether it will prove to be an economic fallacy or not, only time will tell. But the fundamental laws of economics about supply and demand probably affected Satoshi's idea when he designed Bitcoin. He envisioned Bitcoin to be used as a peer to peer currency. The demand won't go down because its money. And because the supply is deflating, the value of Bitcoin is expected to rise over time. But let's not forget that this is all an experiment.

Satoshi must have also deeply studied the fatal flaws of fiat. And its inflationary system is one of them.

So far it seems Satoshi is right. One of the reasons why people store value in Bitcoin is that it has a fixed supply that can't be abused by anybody.

To be fair, Bitcoin was created to solve the problem of double-spending in digital currencies - and it succeeded.

I admit I'm skeptical that Nakamoto's desire for a deflationary end-game has merit, given that his original vision for "peer-to-peer cash" died during the unanticipated arms race of CPUs -> GPUs -> ASICs. If TX fees were natively better than credit cards it'd be competitive in that way, but it's not. His brilliance was in PoW and the timestamp system itself, not necessarily in prophesying economic design patterns.

What I see today is that Bitcoin has made a full transition to store-of-value and speculative investing. And, since there's a deflationary model waiting at the end, it feels like we're just going to see a repeat of what happens in the other closed supply virtual economies we've seen over the last 25 years: crashing and burning.

I'd like to be wrong and would love to see more data/research on why "deflation" is a good idea; not just anecdotes about hyperinflation risks.

Are there any economic analyses of Bitcoin by academic researchers with economic backgrounds that believe the deflationary model is good in the long run?

Hyperinflation is one of the many problems we have in current finance or economy, it is very common and if you will take a look it is a very devastating situation for consumers, especially in some countries where the inflation rate is increasing in huge percentages, so Bitcoin is solving it, Bitcoin created to solve this. And if you take a look on the long term goal of Bitcoin and how it really works as time goes by, it is indeed to solve inflation rate especially when our governments can print unlimited fiat currency which is also a trigger for increasing the inflation rate.

I love this explanation because it seems to demonstrate Bitcoin acting like a proper market because the supply is still open (even if the end-game model is deflationary), while most NFTs with their closed supply models seem to immediately follow the product adoption curve and wither away.

Bitcoin is not deflationary. It is inflationary.

In this classic Chart you can see that bitcoin inflationary rate is about 5% a year

Fiat monetary systems rely on inflation because otherwise people would hoard it and starve the economy. These systems are built very simple. Fiat is made to last a century or two and then it goes into hyperinflation and needs to be reset, but what if you had an alternative to your fiat money that can be hoarded and also spent, but spending it would be incentivized somehow. What if businesses that want you to pay with bitcoin lower the prices. What if there's less tax on bitcoin payments? What if Bitcoin users become VIP clients in certain places?

We spend fiat money because we know it loses value so you choose investments, but investments block your ability to spend. We can't sell bonds, gold or real estate fast enough to be able to fill our gas tank or book a plane ticket.

You could say people will never spend their bitcoin knowing that it deflates but what if it stabilizes and starts to deflate 5% a year? It's going to feel safe enough to hold as an investment while being spendable without regrets.

IMO bitcoin can work as a deflationary currency especially alongside another inflationary currency.

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Given that we've seen other cryptocurrencies & blockchains that have inflationary models still "succeed" in the sense of having transactional value, why is deflation considered an admirable feature of Bitcoin?

In virtual world economies we know that closed supplies inevitably lead to mudflation, unsustainable pricing, and rampant speculation (Koster, et al).

How much did the deflationary model contribute to Bitcoin's shift to store-of-value?

Was the whole premise of starting Bitcoin under a deflationary model based on an economic fallacy in the hopes it would encourage valuation?

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Feedback Summary from Comments

Question: Regarding the premise, is Bitcoin deflationary?

Assertion: Fiat will always suffer from hyperinflation; only lasting a century or two.

Assertion: Bitcoin's annual inflation rate is ~5% 1.82% (2022-10-26).

Assertion: Deflation is when supply reduces over time. It is not a finite supply metric.

Assertion: Bitcoin's divisibility will solve demand issues.

Assertion: Bitcoin is neither deflationary nor inflationary.

Assertion: Inflation is correlated with human decision making.


Debate: Has Bitcoin shifted to store-of-value over being a medium of exchange or unit of account?

Facts:


Reasons "why" deflation is an admirable feature: