141–150 of 209 posts
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Again, the same is true for gold and several other metals.
Yeah, and there are very few markets in the world where the weight of some quantity of metal is used as currency. Let's put it this way: if you had no money at all, and I gave you a gold coin, how would you pay for your dinner?
This fundamental flaw is absolutely glaring to anyone who has any understanding of economic history -- and it's amazing to me how many technologists willfully disregard several centuries of accumulated experience. Because of their built-in deflationary spiral, Bitcoins can never meaningfully be used as a medium of exchange: it will always be tempting to keep your Bitcoins in your pocket and let them appreciate instea…
According to Wikipedia [1]: Whether deflationary spirals can actually occur is controversial. Now I'm not an economist, but I have yet to see a solid, intuitive argument as to why deflation is necessarily a bad thing for Bitcoin. Suppose the value keeps going up, and a few years from now it's at $1,000 / bitcoin -- lots of poeple have been buying bitcoins wherever they can, and not spending them. Well, at some point…
So deflation is a general decline in prices which usually caused by the reduction in the money or credit supply (in Bitcoin’s case it’s the Money Supply). However if prices are falling through deflation then, you’re not incentivised to spend because; you’re going to get a better deal tomorrow. Now as currencies are supposed to be used as a medium of exchange to facilitate transactions, spending is really important because it’s how the market participants interact with one and other (and considering Bitcoin isn’t backed by a commodity this is important). Once people are reluctant to spend then, the economy will stay depressed because, people expect deflation AND deflation will continue because the economy remains depressed.
In order for an economy to get out of the deflationary trap and to counter deflation, fiat currencies can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Raising the prices is the essential foundation of an economic recovery because; businesses can increase their profits which takes pressure off debtors etc and an example of this is the fiscal stimulus used by the Obama Administration with the American Recovery and Reinvestment Act of 2009[1]. However, Bitcoin can only produce 25 Bitcoins every 10 minutes (which is being halved every 4 years from 2017) and this can create a liquidity trap because the injections of cash fail to stimulate economic growth – as a result, if Bitcoin is in a recession and is unable to stimulate economic growth it will eventually turn into deflation & deflation is only bad for people who cannot borrow more and unlike fiat currencies who can borrow more, Bitcoin has a fixed supply (and isn't even backed by a commodity) which means that, there could potentially be serious issues for the economy’s wealth.
[1] http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestm...
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Yeah, and there are very few markets in the world where the weight of some quantity of metal is used as currency. Let's put it this way: if you had no money at all, and I gave you a gold coin, how would you pay for your dinner?
Same way I'd pay for it if you gave me a Euro. Except that I know where I can turn gold into cash.
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According to Wikipedia [1]: Whether deflationary spirals can actually occur is controversial. Now I'm not an economist, but I have yet to see a solid, intuitive argument as to why deflation is necessarily a bad thing for Bitcoin. Suppose the value keeps going up, and a few years from now it's at $1,000 / bitcoin -- lots of poeple have been buying bitcoins wherever they can, and not spending them. Well, at some point…
I have yet to see a solid, intuitive argument as to why deflation is necessarily a bad thing for Bitcoin So deflation is a general decline in prices which usually caused by the reduction in the money or credit supply (in Bitcoin’s case it’s the Money Supply). However if prices are falling through deflation then, you’re not incentivised to spend because; you’re going to get a better deal tomorrow. Now as currencies ar…
> Once people are reluctant to spend then, the economy will stay depressed because, people expect deflation AND deflation will continue because the economy remains depressed.
Well, if people are expecting deflation, then that expectation becomes built into the value of the currency, such that there exists an equilibrium between people expecting it to deflate further, and people expecting it do the opposite, because it's already overly valuable.
I can't see how everyone would just hoard it until there's infinite demand and zero supply, and a bitcoin has infinite value. There's always a semi-stable price.
And like I said, I don't see how the standard macroeconomic arguments apply, because right now bitcoin is just a currency "on the side", totally unable to affect economies on a large scale. And if it ever did reach that scale, governments could do things like force contracts to be denominated in some government-controlled ratio to bitcoins, so that the government would still be able to "control" the money supply, and increase or decrease it as desired. (That's just one crude example of how.)
Just because people are using bitcoins, doesn't mean that long-term contracts have to be denominated in bitcoins.
So I guess this is what confuses me about people saying that bitcoin deflation is bad. Deflation=bad arguments seem to rest on entire countries being solely dependent on a single currency, which is not the case with bitcoin. And even that became the case, it would presumably take place in a whole new way. But I still don't see anything inherently wrong with a deflationary currency, especially one used alongside "official" ones.
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I have yet to see a solid, intuitive argument as to why deflation is necessarily a bad thing for Bitcoin So deflation is a general decline in prices which usually caused by the reduction in the money or credit supply (in Bitcoin’s case it’s the Money Supply). However if prices are falling through deflation then, you’re not incentivised to spend because; you’re going to get a better deal tomorrow. Now as currencies ar…
Thanks for writing all that up. What I still don't understand is, > Once people are reluctant to spend then, the economy will stay depressed because, people expect deflation AND deflation will continue because the economy remains depressed. Well, if people are expecting deflation, then that expectation becomes built into the value of the currency, such that there exists an equilibrium between people expecting it to d…
However, you are correct in that there is always going to be a semi-stable price (or a price floor) when the money supply starts to help create inflation and grow the economy again. In terms of how it’s bad for Bitcoin building on the previous comment, let’s pretend that people have bought coins at $200 and deflation kicks which means that, people either hoard it (to try and get something cheaper tomorrow) OR once it hits a certain level everyone tries to recover their losses and starts selling the coins which causes an economic crash to a highly volatile market (a $500k trade can usually cause a lot of issues) and the market will not level out until, there are enough buyers interested to buy back into Bitcoin.
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> If a physical currency like physical gold or paper experienced the kind of deflation bitcoin currently is, it would be problematic because those things are difficult to subdivide into (effectively) arbitrarily small pieces. Its actually pretty trivial to issue new paper currency in smaller denominations and exchange existing currency for it; the problem with deflation is that it creates a disincentive to spend or i…
Has there been a currency (assuming bitcoin is a currency) that's deflated by 2000x in a few years? Not saying it can't be done with paper money, but it's less convenient than it is with bitcoin.
Not a major one recently, because considerable effort is expended to avoid that for reasons which have nothing to do with the logistical difficulties of subdivision.
> Not saying it can't be done with paper money, but it's less convenient than it is with bitcoin.
It could be done with paper money, but nobody involved in managing currency wants it to be done. People managing currencies for use as exchange media don't want the currency to be an attractive investment. But the logistics are pretty obvious; paper money in circulation is already replaced regularly, all you have to do account for deflation is print bills with smaller denominations on them, and replace bills coming out of circulation in appropriate ratios. If the value of the currency is appreciating and you do this at a ratio which keeps the smallest new bills being currently issued at the same value, the ratio of the cost of printing money to the value of the circulating money remains the same as if you had a relatively-constant value currency and were just replacing bills 1:1. Its not really a logistical problem.
Having a rapidly deflating currency, if it was a main currency rather than a novelty currency operating at a trivial scale compared to the whole economy, may produce economic problems for the economy as a whole, but its not really a logistical problem for the currency issuing system with paper currency. So Bitcoin "solving" the logistical non-problem is a non-accomplishment.
While I don't disagree with the author I would say that the finite supply shines a light on an even more direct problem. What happens to 'lost' coins? The BTC supply is not only finite but in fact dwindling over time, as inevitably the amount of currency is going to diminish due to digital loss. I have personally lost a few BTC due to computer crashes, wallet file lost etc. (In the early days) and considering this th…
The amount of bitcoins you have just describes what fraction of its wealth humanity owes you. If you lost some BTC it doesn't destroy any value. It just means that you allowed humanity to forget that it owes you some of it's wealth. If you lost some BTC the fraction that humanity owes all other people who own bitcoins just increased.
This fundamental flaw is absolutely glaring to anyone who has any understanding of economic history -- and it's amazing to me how many technologists willfully disregard several centuries of accumulated experience. Because of their built-in deflationary spiral, Bitcoins can never meaningfully be used as a medium of exchange: it will always be tempting to keep your Bitcoins in your pocket and let them appreciate instea…
1. There's an equilibrium rate that will be reached. 2. Time preference exists. 3. If this is the one thing in the world that can only get more valuable as time goes on, why aren't you spending your entire net worth on it as we speak?
The conclusion that Bitcoin will only get more valuable as time goes on depends on the assumption that it will acheive and then durably retain a certain degree of importance as a currency.
The people that are pointing to the problems associated with that are not arguing that they believe that will occur, they are making an argument about either why it shouldn't occur or why they believe it will not occur (and, often, both simultaneously.)
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I expect this will cause little problem; if 1M bitcoins are lost, the system will just work as if there were only 20M bitcoins created instead of 21M bitcoins. Everything would be a little less expensive because bitcoins would each be worth about 5% more.
Nope. Since no one can ever satisfactory answer the question of the 'real' amount of BTC in circulation, this will only serve as a factor of uncertainty. Lost bitcoins affect nothing, FOUND bitcoins can affect everything.