Topic: Why was bitcoin designed with no inflation? (Read 4112 times)

It is believed that gold has limited supply (unless aliens bring it from other planet), still it was successfully used for medium of exchange for centuries, then why not we can use bitcoin in modern days in digital format.

Bitcoin was designed by keeping gold in mind.

I'm rookie but I think that world inflation will, no doubt, affect bitcoins too, because at the last point bitcoin owners have to exchange their virtual money to the actual currencies, which, as you know, is very variable.

good stuff

I have found Vlad's posts to be of high quality.
Been reading for a month now.

You get pretty angry when people threaten the value of your bitcoins, vlad.

It is extremely difficult to bootstrap currency like Bitcoin. It is simply necessary to have in place significant incentives in the first few years to get over period of initial vulnerability and ensure that  the network is secured as quickly as possible.

Go create your own inflationary currency, if it is so easy. You talk the talk, now show us that you can walk the walk.

Also many noobs seem to fail to realize that they ARE the early adopters. In age of ASIC mining anyone who mined using GPU's in GPU age will look like CPU miners of early 2010 look now.

Do not be a stupid jelly whiner, cease the opportunity instead. For example, go sell miners some shovels and jeans if you are too frail to work in the pit yourself.

I think you're confusing nominal interest rates with real interest rates. Inflation increases nominal interest rates - the amount of interest charged in terms of the currency in question - which matter to savers but not debtors. Debtors care about real interest rates - the cost of the loan taking into account both nominal interest rates and inflation/deflation - because that's their actual cost of borrowing that they have to repay.

Inflation gives you an incentive to invest the money rather than just stuffing it under the mattress, either directly, by sticking it in a savings account where it's used to make loans, or by buying something that will give you future benefits.

Why should someone buy it for more than it'd cost them to get the same amount of money right now, though?

All of this, except the speculation about Satoshi, is false.

1) Inflation is good for holders of debt. Nonsense. Inflation makes interest rates higher, which is bad for holders of debt. Inflation makes it harder for people who hold debt to refinance and makes creditors want their money back sooner, which is also bad for holders of debt.

2) Inflation gives people an incentive to spend money. Nonsense. Inflation means you can get a higher interest rate if you save the money, giving you an equal incentive to save.

3) Deflation gives you an incentive to hold money. Nonsense. You can just as easily sell the right to hold  that money and get its value today rather than holding it yourself.

It's hard to argue against the fact that the system rewards early adopters. Truthfully, there is little reason why anyone couldn't just go out and create their own Bitcoin-like cryptocurrency. It's for exactly this reason that I would recommend against large investments in Bitcoin. If you want to have some fun, invest or mine a bit but don't sink your retirement fund into a entirely new idea like this.

It's not really very hard to visualize a population and a currency with the attributes that bitcoin has.
Anyone who utters anything along the lines of "bitcoin is inflationary..." is to be roundly discounted as to their understanding of bitcoin.
Bitcoin was designed with genius specifically to be deflationary and it's hard to see how it could be made anymore so.
Of course, if nobody ever uses bitcoins and only holds them then their exchange value at any time could be wildly up or down.
That doesn't imply inflation or deflation at any point in time either.
It is being said a lot that 21 million is too little. What about the 8 decimal places? Only problem there is the fees will need to scale to be appropriate for the scale.
The bottom line is: We don't want inflation. We got that already with USD.
With more and more bitcoin users over time the demand will continue to rise and we already know that absolute total of whole bitcoins will approach 21 million.
Barring any unforeseen events I see bitcoins being worth more than $500 in 5 years.
Hoarding is fine.
There are still 8 decimals to work with and there will never be a "shortage" of bitcoin fractions.
There are flows in and out of economies all the time and there will be loads of people cashing in/ buying in and moving bitcoins to other people.
I'll take bitcoin over gold thanks.

I still expect to profit in a similar manner as the people that joined in more than a year ago in at most a couple of years from now, if not sooner

This isn't much of a theory, it's more of a fact. Bitcoin was designed to make early adopters as much fiat money as possible without regard to the functioning of the currency. There will be alternatives soon enough though.

If the system allowed management, it would allow mismanagement.

I guess I should have put in a disclaimer - I use the terms "inflation" and "deflation" strictly in accordance with Austrian Economics. Specifically, that the definition of inflation and deflation are increases and decreases in the money supply respectively.

Inflation is not just a product of the quantity of goods available but also of the number of ways those goods must be split. If the network continues to grow faster than the BTC supply then the per capita scarcity of BTC will continue to increase, so really if you consider things in terms of "average # of BTC per user" instead of just "total # of BTC"  it's not really inflationary right now either. I'm sure some time before the 21 million BTC mark the network will slow down its growth enough to become inflationary again but probably not any time too soon.

What you are writing makes sense for fiat currency, where the government gets to decrease the value of everyone's money whenever it wants to its own benefit (of course, the government, of democracies at least, is supposed to be 'the will of the people' so theoretically that should be fine, it's what people wanted to do, but in reality government doesn't always represent everyone's interests well, even in a democracy).  But bitcoin had the opportunity to create inflation at a fixed rate with an even benefit to everyone.  Even your retirement scenario is taken care of - if I have a prediction of how long I am going to live, then I can calculate how many bitcoins I would need to sock away each year to support myself until that time, spending a calculated amount each month, and can factor in the expected extra cost of goods and services over that time due to inflation because I know exactly what that inflation will be.

Bitcoins could have removed every downside of inflation, and left only the upside of "discouraging hoarding".

It was designed have 100 years of reducing inflation of the money supply or something wasn't it? Price currently goes up because demand(esp speculation) far outstrips supply.

In any case, inflation helps anyone that creates money, and only them, since all fiat currencies in the world are a form of debt (promises to pay). In the real world inflation model, if the total money supply is say $1million and people set their prices based on that, and then the govt backed money printers print another $1million, the people who spend that second $1million can essentially buy everything at half price, as the rest of the market takes time to realize that there's a whole lot more money out there than when they set their prices, and have already surrendered their goods. This applies to both the Fed Reserve as well as Credit from Banks. Inflation will always lead to the separation of wealth between the money producers and everyone else (ie the poor).

I think this is the major reason why Bitcoins went the fixed / slight deflation route: the only people winning with inflation were the minority that were producing it.

In a fixed or slight deflationary model, savings are important, but so is investment. A person can certainly choose to hoard their bitcoins, but apparently the world can run off one bitcoin if it needs to, so it doesn't matter. Which will make a person richer: Letting all the coins slowly whittle away out of existence so theirs are more valuable (to what end? life is a limit), or investing in a profitable activity that stimulates employment? There is nothing stopping a company being stupendously rich in either a inflationary or deflationary model, but since currency is the grease of an economy, adding more grease doesn't make it run faster, if there's already enough. Bitcoins are infinitely more responsive to a changing supply of bitcoins than regular currency is - its not that easy to take in all the dollars and reprint cents (if RL was deflationary).

In fixed/deflation, you also have a lesser need to publicly support the retired via pension. They work, save, and live off what they saved until they pass on and their coins are sent to their benefactors. I find it very sad to see pensioners getting poorer by the year, because they did not buy 10 houses, or have loads of investments, but saved an amount which seemed quite a lot at the age of retirement. Inflation gives you no chance in retiring unless you tax the young (via investments/housing).

When all the coins are out and about, somebody born then (in 100 years or w/e) will certainly feel they missed out on being an early adopter, but it should not affect their ability to earn bitcoins at a market rate for their services. Ultimately currencies are a way of trading time, and if they are productive, will earn what the market can supply them. If this system is still running in 300 years time, whatever bitcoins were hoarded will probably have changed hands many times by then. It's an attempt to create a long ass term solution.

Eventually, and I know this is in a long time, there will be no more bitcoins created.  On shorter time scales, the number of bitcoins that are being created is reducing at a fixed rate.  So the early adopters who got significant fractions of the total bitcoin supply will still have a significant fraction of the bitstream supply no matter what they do - except spend them, of course.

Inflation would give them an incentive to circulate their coins, which would be better for the market as a whole (I think).  I am not sure exactly what anyone's beef with inflation would be if it were predictable, constant, and not controlled by anyone (but instead simply decreasing the value of everyone's bitcoins by a small and steady rate, encouraging people to spend them instead of hoard them).

I think that the ideal for bitcoin would have been the current bitcoin production curve, except that mathematically constructed to be steeper at the beginning and to 'level off' to a constant inflation rate after a specific (and well-thought-out) period of time, maybe 10 years.  Also that the rate from the beginning be slower, so that in the first year it wasn't 20% of the total or whatever it is.  More like 5%.

So early adopters would have an easier time creating bitcoins but wouldn't have owned 20% of the total supply after not even 2 years.

I guess I think it would have been better for high inflation at the beginning, reducing over a few years to a steady slow rate.  Instead, the curve is very high inflation at the beginning, reducing over years to a lower and lower rate until it is 0 (and then negative, really, since eventually all bitcoins will be destroyed as there is a nonzero chance for each bitcoin to be lost and after a sufficient amount of time, they will all be gone).

What I think would have been really cool is if bitcoin mining was instead like a bitcoin 'lottery', where most blocks do not award any mined coins, but occasionally some property of a block hash will line up correctly with some bitcoin address within the block (say for example the sum of the block has modulus 1000000 is the same as the transaction hash modulus 1000000 or some other thing rarely likely to be true) randomly awarding an extra coin (or fraction thereof based on some kind of inflation schedule) to that bitcoin address.

Block solvers would do it for the transaction fees, and the overall number of bitcoins would increase at a controlled inflation rate but would be spread out to everyone, so nobody in particular would be enriched by this scheme, it would just on average increase everyone's number of bitcoins identically.

Of course, the problem would be that the more transactions one would run, the more likely one would be to win the bitcoin lottery, which would tend to reward people doing lots of transactions more, but then again, those people would also be paying a larger share of the overall transaction costs of the system by running more transactions so maybe it would still be 'fair'.