Bitcoin Deflation and Economic Activity
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Bitcoin Deflation and Economic Activity
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Re: Bitcoin Deflation and Economic Activity
#2This is a fantastic article, and it highlights some of my worries as a Bitcoin lover. It would seem the only times one would use Bitcoin over USD is if a Bitcoin-specific benefit (for instance, anonymity when buying illegal goods) outweighs the cost of using BTC over USD. In a deflationary economy I can't fathom why someone would spend BTC over USD buying a legal good, except maybe for the kick of having spent Bitcoin.
Re: Bitcoin Deflation and Economic Activity
#3A few thoughts:
1) Conversely, why would I want to keep my wealth denominated in a currency that loses 2% value every year?
2) Supposing 90% annual deflation forever, as this article does, is disingenuous. Bitcoin is currently a 5 year old technology, and of course it will have periods of significant volatility. In the long run, bitcoin will stabilize, and deflation will be on the rate of global economic growth, currently estimated at around 2% [1]
3) In the long run, people could keep their wealth denominated in bitcoin, and spend dollars. There you have the best of both worlds: your wealth storage is deflationary, and your spending currency is inflationary.
edit: 4) Perhaps most significantly, remember that bitcoins and dollars are exchangeable at any point in time. Any dollar you spend on goods/services is a dollar you could have spent on bitcoin. Have bitcoin enthusiasts completely stopped spending dollars on goods/services?
Re: Bitcoin Deflation and Economic Activity
#4This is a fantastic article, and it highlights some of my worries as a Bitcoin lover. It would seem the only times one would use Bitcoin over USD is if a Bitcoin-specific benefit (for instance, anonymity when buying illegal goods) outweighs the cost of using BTC over USD. In a deflationary economy I can't fathom why someone would spend BTC over USD buying a legal good, except maybe for the kick of having spent Bitcoi…
2% less fee, than credit card. It's enough to take over the payment world. And it's only one of the advantages.
Re: Bitcoin Deflation and Economic Activity
#5A few thoughts: 1) Conversely, why would I want to keep my wealth denominated in a currency that loses 2% value every year? 2) Supposing 90% annual deflation forever, as this article does, is disingenuous. Bitcoin is currently a 5 year old technology, and of course it will have periods of significant volatility. In the long run, bitcoin will stabilize, and deflation will be on the rate of global economic growth, curr…
Because losing 2% to 3% every year is actually quite stable. Its so stable that the typical person doesn't notice it.
Deflation at the rate of 100% over two weeks on the other hand (ie: BTC's current rate of change), is absolutely and utterly ridiculous.
Re: Bitcoin Deflation and Economic Activity
#6A few thoughts: 1) Conversely, why would I want to keep my wealth denominated in a currency that loses 2% value every year? 2) Supposing 90% annual deflation forever, as this article does, is disingenuous. Bitcoin is currently a 5 year old technology, and of course it will have periods of significant volatility. In the long run, bitcoin will stabilize, and deflation will be on the rate of global economic growth, curr…
> In the long run, bitcoin will stabilize,
Why would this be true? Gold and silver have been around a long time, but both are still relatively volatile.
I mean, I hope you're right, I'm just curious where you think volatility ends up and why you think so.
Re: Bitcoin Deflation and Economic Activity
#7This is a fantastic article, and it highlights some of my worries as a Bitcoin lover. It would seem the only times one would use Bitcoin over USD is if a Bitcoin-specific benefit (for instance, anonymity when buying illegal goods) outweighs the cost of using BTC over USD. In a deflationary economy I can't fathom why someone would spend BTC over USD buying a legal good, except maybe for the kick of having spent Bitcoi…
If the deflation ever becomes stable(ish), the increase of value can be accounted for in the price, as sellers will have a reason to prefer BTC and offer discounts (not to mention eliminating all those 2.9% credit card fees). We already buy all sorts of optional goods, even if those goods will depreciate compared to letting money sit in a bank account and accrue interest.
Re: Bitcoin Deflation and Economic Activity
#8This is a fantastic article, and it highlights some of my worries as a Bitcoin lover. It would seem the only times one would use Bitcoin over USD is if a Bitcoin-specific benefit (for instance, anonymity when buying illegal goods) outweighs the cost of using BTC over USD. In a deflationary economy I can't fathom why someone would spend BTC over USD buying a legal good, except maybe for the kick of having spent Bitcoi…
2% less fee, than credit card. It's enough to take over the payment world. And it's only one of the advantages.
The 0.0001 BTC Transaction fee tacked on to every BTC exchange is only going to get worse and worse as BTCs's exchange rate goes up btw.
What used to be a rounding-error that happened on every BTC transaction is now a $0.10 tax on every BTC transaction. If BTC continues to deflate, the transaction fees on BTC are going to become quite sizable.
Re: Bitcoin Deflation and Economic Activity
#9Earlier quoted context omitted.
2% less fee, than credit card. It's enough to take over the payment world. And it's only one of the advantages.
The 0.0001 BTC Transaction fee tacked on to every BTC exchange is only going to get worse and worse as BTCs's exchange rate goes up btw. What used to be a rounding-error that happened on every BTC transaction is now a $0.10 tax on every BTC transaction. If BTC continues to deflate, the transaction fees on BTC are going to become quite sizable.
This is a known issue. The current design around smart fees is described here: https://gist.github.com/gavinandresen/6548612
The high level idea is to introduce market mechanics to bitcoin fees, with the expectation that competition will drive prices down.
Re: Bitcoin Deflation and Economic Activity
#10The 'depreciating currency is a problem' argument is true for the existence of any asset having a higher yield than your widget factory. Why wouldn't you invest in that high yield asset instead of your widget factory? In this way, you can view _any_ appreciating asset as a reference unit of account. It is just as easy to see your egg and milk purchases as units of the high yield asset and delay your purchases for the same reason outlined in the article. So, it's a nonsense argument.
If you have a strong prior that stocks are going to be worth 100% more tomorrow than they are today, why would you buy milk and eggs with your spacebux today? You could invest your spacebux in stocks, sell them tomorrow, and buy milk and eggs tomorrow! Therefore, no one will buy milk and eggs today if stocks are expected to rise in price.