Inflationary means that the value of a currency tends to go down over time. Expansionary means that the supply of a currency tends to go up over time.
Bitcoin is mildly expansionary at the moment because the rate of coin creation is (presumably) greater than the rate of coin destruction. At some point this will flip and it will become contractionary.
Regardless, Bitcoin is obviously highly deflationary as the value of a Bitcoin tends to go up over time.
So to answer your question succinctly; The deflationary nature of Bitcoin is intended. It's quite possible to build inflationary Crypto-Currencies, but it would be difficult to gain traction with early adopters.
Bitcoin wouldn’t even be here today if the early adopters hadn’t spent many years making it usable and valuable. Why would anyone who was uninvolved expect to profit from that?
It's precisely this deflationary effect of earlier adopters profiting at the expense of later adopters that makes the whole thing seem like a pyramid scheme.
It’s also more obviously proportional for people who put in over $1000 a few years ago.
I hope they thought through that risk properly enough, because we didn't sign up for it and don't care what happens if you end up losing it all.
>>Bitcoin wouldn’t even be here today if the early adopters hadn’t spent many years making it usable and valuable.
Bitcoin wouldn't have to be anywhere. Either way we will ditch it and spawn our own currencies as we deem fit. Why should be start poor in any scheme.
>>Why would anyone who was uninvolved expect to profit from that?
We won't. We don't even want bitcoin, we will start our own ones later.
I agree, anything else would be hypocritical of me.
> Bitcoin wouldn't have to be anywhere. Either way we will ditch it and spawn our own currencies as we deem fit. Why should be start poor in any scheme.
Unfortunately you won’t have a choice, due to the network effect. You can’t, in general, expect to make money out of nothing. If you think that’s a viable business model, you probably don’t fully understand why bitcoin became valuable or the work involved.
> We won't. We don't even want bitcoin, we will start our own ones later.
Better get started soon!
The same thing will happen to Bitcoin eventually. Most of the world won't understand why they are supposed to start poor just because they joined in late. They will spawn local cyrptocurrencies across the world in their local countries, making it very hard for the existing players to watch their advantage go to dust.
How that would go is for any ones guess.
It seems to me all the attempts at currency suffer either from the Tyranny of the Gatekeeper (centralization) or the Tyranny of the Majority (de-centralization). Except gold(which is actively being de-emphasized), is there no substitute for an individual who wants to partake in the economy/marketplace and yet not suffer any of the above tyrannies ?
For example, you could consider Bitcoin as being like a "specie" or "hard currency" within an ecosystem that also includes various types of "scrip" or "credits".
Ether behaves a lot like that. It's the hard base currency in an ecosystem of tokens ("soft currencies") all with different monetary policies.
There are very interesting Ethereum tokens without fixed supply, for example the token that will be issued by Maker (the "dai") which is basically an asset-backed credit token with an autonomous monetary policy to stabilize the token's market value measured against the IMF's currency basket index (XDR).
This seems to be a really natural pattern: you have a small number of deflationary hard currency (precious metals, basically) that act as global store of value, hedge against local volatility, and neutral means of settlement; and then you have a whole range of other credit instruments.
Random thought: to people brought up with cryptocurrencies, we might be explaining gold as "well, it's like nature's bitcoin: scarce, hard to mine, and very expensive."
You allow entities to trade assets for currency at a central bank.
The central bank can do it (i.e. Fed exchanging currency for TBills). The ECB allows banks to exchange assets (like property) for Euros.
This is good because it allows flexibility in the amount of currency in circulation. Without this, you can get into all sorts of trouble, for example, Spain, Greece, et. al. in the 'Euro trap'. Monetary policy can be dangerous, of course, like anything powerful, but it can be used for good.
Also to the commenters point about 'inflation is a tax' - well, it's a 'tax on cash' and a 'negative tax to everything else'. It's really nothing like a tax at all, it shouldn't be referred to as such. Inflation/deflation is just the changing value of one good vis-a-vis another.
There are a lot of 'stores of value' out there and anyone with significant enough portfolio can easily take advantage of those if they chose for whatever reason not to hold a specific currency.
Satoshi could easily have changed the coin minting production curve to suit a long term project, but instead chose to mint the majority of coins for miners running very low hash power nodes at the start of the project. Along the lines of 10,000 bitcoins being worth 2 pizzas - this means the majority of bitcoins in existence have gone to disproportionately low value capital traders (both in computational power, actual production and electrical cost, and external capital traded for BTC) whereas now coins being produced require several magnitude more computational power to mint and the rewards are less. Paradoxically, the miners require more energy input in return for less and less rewards.
Early miners took great risk in holding on to BTC to see if it would become more valuable. Many did not (my hand goes up) hold on to their BTC, thinking that it was a fad that would pass and didn't want to get left holding the bag.
It's easy to underestimate the allure of being able to buy 2 pizzas with CPU power. That purchase made 10k BTC feel enormously valuable (as compared to anything else you could passively do with a home PC).
(FWIW, I would've bought pizzas if I'd had the BTC at the time, instead I gave some away and forgot about the rest and formatted the hard drive.)
Early miners took great risk
Any rational "investor" trading capital or computational energy into BTC or similar minting algorithms would be deterred by this model as the losses increase while the network grows older.
No one had any idea that the value was going to go up so much. It could have easily gone the other direction meaning 100k BTC would be the price of a pizza, or more likely that no pizzeria would accept btc.
And you might say, it wasn't risky because they hadn't spent anything to get the BTC in the first place but that ignores the reality of the moment in time. Even if you look at it as if they had played the lottery and won, once they have the item they are constantly taking risk by holding it when the value of the item in the future is unknowable.
I worked at Microsoft, and one of my coworkers started talking about Bitcoin. He was always one of the more cutting-edge, cyberphunk type of people, and he said he got a group of his tech friends to agree to build a "mining farm" in their closet basically, mostly as an expensive hobby of sorts (he was a motorcycle guy, so he had no problem spending money on expensive hobbies).
They spent around $25k-$30k buying GPUs overall; they had great difficulty acquiring their GPUs, as by the time they had decided to start this venture and went to the local Best Buys and Fry's and whatnot, all the good high-end GPUs were sold out already (meaning there was ample competition in the Seattle area already, as they talked to the Best Buy guys who were also puzzled by the sudden increase in demand for high-end GPUs).
Eventually by late 2012, with the increasing competition for mining, the rise of ASICs, high volatility, and no way to foresee the future, last I heard they eventually liquidated everything, sold their hardware and their BTC, and had recouped their costs and made a small profit, but not much more than anyone with $25k-$30k could've made just gambling on some regular stock picks. In other words, they bought in at or around the bubble to ~$30 in mid-2011, and didn't hold out long enough to see the growth to $100-$200 in 2013.
Myself, I dabbled with pool mining using just the single GPU in my own gaming PC for 3 months in the summer. I told my roommates and voluntarily increased my share of the electric bill (which went up by about $80-100/month, iirc). I received ~5 BTC, which at the then exchange rates, meant that I made like $50 or something silly after paying for electricity (but not counting the $2.5K gaming PC, which I bought earlier and without knowing about cryptocurrency).
---
The point of this story is to say that, even fairly sophisticated and "hardcore" hobbyists, i.e. those willing to spend tens of thousands of dollars to dabble in Bitcoin, were by and large not minting millions and millions. Most people sold their coins along the way, either in the rise and falls between $0 to $1, or between $1 to $30, or between $30 to $1000, or between $1000 to $4000+. There was no grand conspiracy, and certainly no way to know that Bitcoin would actually survive (would you call this thriving?) to where it is today. Almost universally, unless you were on the cutting edge of the ASIC race for a long long time, for every old miner out there who spent thousands (millions?) on hardware, they would've been better off simply buying and holding bitcoin the whole time instead.
The whales in the room traded minimal amounts of energy and capital in the acquisition of the early majority stake at significantly lower production/energy/capital cost. This is by design from "Satoshi" who created an economic model which effectively functions like a pump and dump or a ponzi. Hold until when? your investment 2x's or 10x's and who's buying [2]? Why are they buying? (hint: it's certainly not because there's a "limited" supply of blockchain ledger networks granting access to a decentralized database [3])
In economics, the Gini coefficient is the standard measure
of how inequitable a society is. This is tricky to
determine for Bitcoin, as it's not quiet a "society" in
the Gini sense, one person may have multiple addresses and
many addresses have been used only once or a few times.
(The commonly-cited figure of 0.88 is based on one small
exchange in 2011.) However, a Citigroup analysis from
early 2014 notes: "47 individuals hold about 30 percent,
another 900 a further 20 percent, the next 10,000 about
25% and another million about 20%"; and distribution
"looks much like the distribution of wealth in North Korea
and makes China's and even the US' wealth distribution
look like that of a workers' paradise
Dorit Ron and Adi Shamir found in a 2012 study that only
22% of then-existing Bitcoins were in circulation at all,
there were a total of 75 active users or businesses with
any kind of volume, one (unidentified) user owned a
quarter of all Bitcoins in existence, and one large owner
was trying to hide their pile by moving it around in
thousands of smaller transactions. (Shamir is one of the
most renowned cryptographers in the world and the "S" in
"RSA encryption")"
via https://news.ycombinator.com/user?id=davidgerard
Satoshi's economic model disproportionately extracts increasing amounts of energy and provides less wealth to participants as the network ages.
You leave these things to the natural order or things.
Attempts to create utopia have led to creation of hell.
The deflationary ones are designed that way to be attractive as a store of value.
Early adopters of anything are usually rewarded because they take the risk. For instance, early Youtubers have much bigger followings, because they broke the trends, started something new.
Not the best argument. It implies YouTube wasn't inevitable.
It's the 'behaviour' of the crypto-owners that's the key thing.
'Inflation/deflation' is the interpreted result of that behaviour.
So, yes - if there were super-super strict monetary policy in the US - it would probably be 'deflationary' - but - that's a function of that economic system.