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Comment by cromwellian | Hacker News Reader

Why do people persist in the idea that a deliberately deflationary currency is a good idea. It might be a good investment, but as a currency, it doesn't promote commerce and trade, it just promotes hoarding.

Much of crypto-currency holders today either seem to be people seeking to get in at the top of the ponzi pyramid and sell before collapse, or people who need to avoid some legal issue, be it capital controls, drug laws, etc. Many people are using it as an investment vehicle mainly, and rarely as a exchange of value mechanism for payments, except where they actually need to. But would pay Uber with BTC, or buy a coffee? Why? if you simply way a few days, you'll make a lot more money not spending it.

A deflationary currency to replace fiat currency or centralized banking and credit seems like a contradiction. I mean, if my cash is growing at 10%-1000%, but my Visa fee is 3%, and my inflated USD is 2% inflation, I'm gonna go with the fiat currency or Visa fee.

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The deflationary aspect is the number one reason I’ve never bought into a crypto currency. I have serious ethical and moral issues that prevent me.

In addition to hoarding, deflationary currencies (like gold) cause people to spend lots of money and effort trying to get other people to buy into them too. For me, it’s a very sad thing to watch unfold. It’s like when the ‘buy gold’ commercials started appearing on Fox News, and I saw my grandparents buying gold.

If someone has to spend lots of time and money advertising how useful something is, it’s probably more useful to them than me.

I'm very curious on your stance. Would be able to elaborate further?

See my comment above.

Yea, it’s better people just hoard houses to escape inflation.

The two issues are separate. Isn't there a lot of sound finical advise telling people to put money into the stock market? But isn't the stock market widely a greater fool game these days? Companies don't pay dividends anymore, voting rights are being reduced, and many companies are far too large to send a chance at being acquired.

It would be a terrible deal if 90% of the population wasn't accumulating stock via a 401K

90% ? I would expect it to be much lower

I don't understand why that's an ethical dilemma. Do you not have a problem with disproportionately increasing the cost of living for the poor[0] or forcing the mddle class to subsidize big corporations [1] or creating an economy where corporate survival is tied to consumption, leading to innovations in "disposable product strategies"?

[0] let's say you're spending 90% of your income on cost of living and there's 10% inflation. That's way worse than in you're spending 20% of your income on necessaries and there's 10% inflation.

[1] in order to preserve wealth in an inflationary regime, the middle class is encouraged to put money into the stock market, which basically becomes a mechanism to socialize the costs of corporate r&d while the Lions share of the gains go elsewhere (the scraps are thrown back at the middle class, enough to keep them from seeing the inherent problem with the system)

What you did is point out a few real problems in our current economic reality of which inflation is one part. In no way does this say anything about how deflation solves any of them, or even leads to worse scenarios.. Think about the issues you mentioned - wage stagnation, unsustainable expectation of growth in corporate profits, systemic inequality etc. - Now ask yourself "how will removing monetary inflation and replacing it with monetary deflation affect these systemic issues, in which direction will it drive them, how and why?" If you still come out on the pro-deflation side, I'd be happy to hear your perspective.

real wage stagnation is a social policy, not an emergent phenomenon. Politicians are concerned about unemployment numbers, and there is this bogeyman that "sticky wages" of lower classes gets in the way. The prescribed way around this is to decrease the real value of money and incrementally dislodge the liability of employing lower classes.

Systemic inequality is generated, by deliberate inflationary policy[0], it is not a "universal constant of the universe".

https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

"Even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis."

[0] I do, for what it's worth, think that liberal economists aren't acting in bad faith, they're just clueless, mostly because if you're a liberal economist (or almost any economist, really) you've probably never been poor.

You appear to be making some big leaps and also assuming several things about my beliefs and politics. I try not to do political discussions ($$).

But, if you're seriously and genuinely interested in my perspectives, let's talk more. I've been thinking of economics, currencies, labor, income, and wealth for probably 25 years. It's a huge hobby of mine. I've been enthusiastically monitoring crypto-currencies ever since Bitcoin emerged and have been thinking about them for even longer. I could probably write 100s of pages on my thoughts. But, HN is definitely not the place to start that type of in-depth discussion.

($$) Political debates (especially online) are rarely productive. A person's political views are built on so many low-level things that it's a very personal thing. I used to love political debates when I was younger - it just felt so good. But, I've learned that people's politics don't budge much. So, while interesting, it's ultimately not useful.

I've never really accepted this argument. If your money is inflating, that's incentive to spend because you know it's losing value. That's a terrible reason to spend money.

If your money is deflating, you are still going to spend it because there are things that you want to accomplish. Whether it's eating food, sustaining a hobby, or making a difference in the world, people will continue to spend a deflationary currency.

Yes, but you'll still want those things in a month, or six months, or a year. Given the expectation that your real purchasing power will grow, and you'll be even to afford even more of that hobby if you wait, you'll decide not to transact now for many discretionary expenses. Unfortunately, this puts the store or vendor you would have transacted from in dire straits--and then they decide to consume less.

Summed over an entire economy, this sort of behavior will reduce aggregate demand and the velocity of money enough to damage productivity and growth: it's called a "deflationary spiral."

Summed over an entire economy, inflationary behavior will result in stealing from the poor and middle class to fund the wealthy and overconsumption and ecologic destruction.

I think the point is more to do with savings: in a non-deflationary environment, you have the incentive to invest your savings in potentially productive use. In a deflationary environment the incentive is simply to hide your money under your mattress, which doesn't help anyone.

The trouble is, right now there seems to be a lot of savings sloshing around compared to the potentially productive uses they could be put to. So the price of every investment from houses to shares to made-up internet money is going through the roof as people look for somewhere, anywhere, they can put their money where it won't be eaten away by inflation.

This isn't true. If you are hoarding Bitcoin and not putting it into productive use, you are reducing the supply. Thereby with constant demand the price should increase. In doing this, you have increased to wealth of others in the economy (of the currency) who can then put that into productive use where they believe they can generate gains above the rate of return of the expected deflation.

You could always switch to Dogecoin, which is similar to Bitcoin, but has very high inflation. You could even fork Bitcoin and make a Federal Reserve Board including yourself that could decide to issue more currency based on economic statistics. You could call it KeynesCoin. That's the great thing about Crypto. It's all open source, so do whatever you want.

Making them deflationary is more of a political statement than anything else I think. The crypto-currency crowd has this libertarian streak and of course those people believe that inflation is the devil, used by governments and banks to rob productive businessmen of their hard earned money.

and it's not?

Inflation harms fixed wage earners and pensioners far worse than "businessmen"

Deflation also helps creditors and hurts those in debt, so it swings both ways.

Often the Libertarian/Austrian-econ crowd posits a false choice between deflation and hyperinflation, both are bad, and ignores the third option which is an inflation rate that's non-zero, but low and stable.

> I mean, if my cash is growing at 10%-1000%, but my Visa fee is 3%, and my inflated USD is 2% inflation, I'm gonna go with the fiat currency or Visa fee.

Think really hard about what you’re saying here.

You’re currently very clearly working off some broken heuristics and not anything remotely resembling a rational or economically sound approach.

A couple rhetorical questions:

Would you prefer to use e.g. Zimbabwe dollars instead of US dollars? After all, if the depreciation of the US dollar is beneficial somehow, surely the ZWD is even better. If this isn’t the case, please explain your criteria for optimal depreciation.

Let’s say you kept 99% of your money in stocks. Expected growth is 10%/yr. Your car breaks down, and you don’t have enough cash to cover the damages. Are you going to sell some of your stocks?

The dollar is good for cash because it’s fungible, divisible, easily transported, widely accepted, and a few other useful properties. The fact that it depreciates over time is incidental and only tolerated because it has so many other positive qualities. No one with an ounce of sense keeps a large position in dollars, however. If you can create an asset that has the beneficial properties of dollars (fungible, divisible, transportable, etc.) and doesn’t depreciate, there’s no rational reason to continue using the dollar.

Your argument has multiple fallacies. The first is an either-or fallacy, that your only choices are deflation, or hyper inflation, when most OECD countries have had fairly low stable inflation rates over the last two decades.

Secondly, the idea that the response/benefit curve from monetary growth rate is linear, and therefore you can just extrapolate linearly that more is better. Our economy depends on a goldilocks region, where the extremes are bad, and the desirable area you want to inhabit is inbetween.

When currency is deflationary, no one wants to spend money, and you face an economic stagnation from a huge pull back in spending, no different than the Paradox of Thrift. There's no need to even make a philosophical argument here, we have a century of empirical evidence that deflationary causes a spiral, hell, Japan has been stuck in a deflationary spiral for 20 years.

Sure, eventually you have to eat, so you'll spend your BTC if the alternative is to starve, but is that how you see the economy being run? The only thing people spend money on are the absolute necessities? That's a very austere world, and once in which most people are unemployed because there's much lower demand for everything, except emergency car repair and basic necessities.

Likewise, you don't want hyperinflation, because it makes planning for the future impossible, wipes out investment, and induces hoarding of real assets.

But low levels of inflation, from 0-3%, do not cause such problems, and gently induce people to spend or invest money, rather than keep it under a mattress. For the same reason, something like a Land Value Tax is good because it induces people to stop hoarding land and not doing anything with it.

> When currency is deflationary, no one wants to spend money,

“When stocks are deflationary, no one wants to sell stocks.”

That’s not how human market preferences work.

> hell, Japan has been stuck in a deflationary spiral for 20 years.

This is almost certainly due to Japan’s imbalanced age distribution.

> eventually you have to eat,

Or eventually your time preference on whatever product you want to buy will exceed whatever bitcoin’s risk-adjusted expected growth rate is, just like happens for literally any other asset class. The idea that people will just never buy things is clearly nonsense if you have a grasp of how pricing and arbitrage work; there’s no such thing as an asset that has such a high risk-free growth rate that no one buys anything else. Any such opportunity gets arbitraged away instantly.

You are also aware of the fact that any bitcoin sale has two sides, yes? For every bitcoin someone is buying, some other person decided the price of bitcoin now pushes it above their risk-adjusted expected growth requirements.

Read about portfolio pricing theory. There are some good lessons there that I think will help you make sense of why it’s silly to worry about a turbo-asset that trumps all other possible purchases.

The hypothetical endgame here is that as bitcoin’s associated risk decreases, its price would rise until its growth rate fell in line with the rest of the market, closer to run-of-the-mill securities or commodities investments. If you believe that a small depreciation is fine, you should probably agree that a small appreciation is fine as well.

> This is almost certainly due to Japan’s imbalanced age distribution.

The main issue is very similar to the US 2008 financial crisis, because of a huge asset bubble which encouraged Japanese banks to create a huge debt overhang. This turned most of Japan's banks into zombie banks, liquidity dried up. A textbook debt crisis.

Debt overhang and risk averse banks, leads to a pull back in propensity to spend or invest, which lowers demand and triggers deflation.

Yes, demographics can alter the long term tendency, but there was a step-function change in 1989 and in 2008, it wasn't like people suddenly became old. The common theme was a huge debt crisis, banking system collapse, followed by anemic response by the Japanese until Abe.

Greece had a huge deflationary spiral at the same time their debt crises hit, you think that's a coincidence? You think demographics explains the deflationary spiral in the Great Depression, which was mirrored in the US and UK? There was a 30% deflation in 1930-1932.

Let me quote Friedrich Hayek, the patron saint of the anti-inflation Austrian brigade: "I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression."

A deflationary currency is simply a bad idea for a currency, it has a built in penalty against borrowers -- and regressive in that regard -- and would put downward pressure on demand. Couple that deflationary currency with one that is highly volatile, whose issuance can't be controlled, and you have a recipe for an future economic disaster.

I'd go one further, if it some point in the future, SHA-256 is cracked or some flaw was found in your crypto-currency, you've managed to centralize a flaw whose scale of attack is world wide, and nearly instantaneous. If such a currency replaced all other currencies, you'd in effect, have detonated a virtual electro magnetic pulse over the world economy, making trillions worthless overnight.

Do we really want to put the store of value of the entire world under something whose value could be erased in a nanosecond if there's an undiscovered flaw?

If I want an Uber or a coffee, sure, I'll spend BTC. I could make more money by waiting, but I can't live without coffee or transportation.

Why do you waste your dollars on coffee when you could invest them in a deflationary cryptoasset?

Same reason I don't put my money on the ponies. I have no experience at speculation and no confidence that I could do a good job of it. I'm pretty confident that every cryptocurrency bubble will burst in the near future, but I have no idea when this will happen and no confidence I will get my money out in time.

And I have serious moral objections to all existing cryptocurrencies. I'm not going to support something I consider immensely harmful as a get-rich-quick scheme.

Maybe it isn't the worst thing in the world to force people to think twice about opportunity costs before engaging in wanton spending?

There's a game theory problem which is that if you have a choice of cryptocurrencies at an early stage to play with, and you think they have a similar chance of success, it makes sense to invest in the cryptocurrencies with a limited supply. The fact that this will make them bad in the long run as a medium of exchange is not of interest to the early stage speculator.

> The crypto-currency crowd has this libertarian streak

I wish they did. Unfortunately the buyers who owned bitcoin the past few years are all in just coz the price is growing up. They are not in bacause the believe in anything.

The problem is not just deflation but uncontrolled issuance. Ie miners produce too much or too little coins to keep them stable.

Because it's literally impossible for people to rationally 'invest' in a inflationary currency. Therefore there is no incentive to make one popular.

Isn't Ethereum inflationary and popular ?

Yes, until they switch from proof of work to proof of stake. Which could take another year or two.

it won't stop being inflationary after they switch.

If it is useful, then it does not need to have an inflating price. That people think the only reason why a cryptocurrency would ever be popular is if the price rises is a huge problem with the community.

If it weren't for the fact that the U.S. charges capital gains tax on every little purchase, I'd happily spend my cryptocurrency and just replenish it as I go. Trading between currencies makes this a non-issue.

Also, if you're really convinced a cryptocurrency will go up, your same argument suggests you should buy the cryptocurrency rather than spending dollars on anything else. If you're not doing that, it indicates you're not totally certain of the future after all, so you can just as well spend your cryptocurrency.

There's also the macroeconomic effect of deflation to consider, but that's only an issue if there's only one currency. What we're actually getting is the competing private currencies advocated by Hayek. It doesn't matter so much if one currency deflates as long as the total money supply is sufficient.

There's really only three things people spend cryptocurrencies on.

1. Other cryptocurrencies 2. Fiat currencies & precious metals 3. Contraband

> it doesn't promote commerce and trade

The problem is that our existing financial system probably had an intention of using inflation to encourage commerce and trade, but over the past 40 years, that focus shifted from using debt for the funding of productive enterprises to debt being used for the bidding up of fixed assets like houses, but also stocks. The only thing that mattered to this bidding process was capital growth. The solution to these bubbles wasn't to reign in debt creation, or to force the targeting of debt creation to productivity, but to simply increase it. Bubble after bubble after bubble, crisis after crisis after crisis. But not only that, a death in productive capacity, which is all too apparent to the middle-income demographic.

Because of this irresponsibility of the finance world, crypto-currency technology was developed to allow people to park their productive gains in inflation resistant financial instruments. So in order to get these people to part with their inflation resistant instrument, you will have to convince them that you will give a better return than inflation, and that means by increasing productivity. You can no longer just create more debt, because the only thing that will do is increase the value of the deflationary asset, by decreasing the value of the inflationary one. That means if you want to survive as a national currency, you better start working on education and building productive capacity, because you'll no longer be able to fleece your populace whenever banking execs are looking to buy a new bentley.

Fun fact: Bitcoin is designed as a hyperinflationary currency that begins to slow down inflation as more users join and time passes.

Why?

To control the supply early and exploit later speculators.

> hyperinflationary

I don't think you understand what this word means.

I think cryptodogemoon is talking about monetary inflation, not price inflation.

It's forever part of Bitcoins orgin story that it begin as hyperinflationary and has since slowed the minting of more BTC.

The irony is the mythos of bitcoin being "deflationary" is not historically accurate and the supply is inflating every 10 minutes.

What Bitcoiners conveniently omit from explanation in Satoshis protocol is the initial "dump" of the supply to the first few users who ran the software. This is a malicious design decision intended to control the supply early.

Any user who joins the network must than attempt to psychologically exploit new users by selling their asset previously generated for less effort/work/watts as the protocol increases in difficulty to any new user.

> deflationary

? It is deflationary because it is known what the total number will be, and coins will be permanently lost over time.

> Any user who joins the network

They do this out of free choice do they not? No one is coerced into acquiring bitcoin. There isn't even a coordinating body, like a company, that controls the issuance or exchange of tokens. I would encourage any person that invests in anything to understand what they are investing in before they commit their funds to it. Bitcoin is extremely unforgiving if you don't manage your security well.

None of this has anything to do with your incorrect usage of words though. You can't just invent new definitions of words because you don't like something, and you think it would be nice to assign that word to it. You don't like it. Fair enough. Don't invest in it.

Bitcoin is inflationary until the year 2140, and assuming no fork changes that sooner.

If you actually understand Satoshis algorithm and history you'll take notice at how the supply was intended to benefit the first few users to run the software during the brief phase of hyperinflation and production for minimal work, while later users are punished merely for running the same protocol and offering the same computational work equivalent to prior users.

If you consider how easy a linear curve could have been chosen by Satoshi instead of the reverse log curve, you'll understand the manipulative nature of how Bitcoin exploits new users.

The supply inflates every 10 minutes, this by definition is inflation.

The coin supply goes up until 2140 but unless it goes up faster than demand it will be deflationary.

You presume that the future was predictable in 2009. Satoshi had no way of knowing whether the Bitcoin experiment would truly work or not. How many times have we thought, "Bitcoin is surely dead" due to some Mt Gox / Silk Road / China ban scandal? It's crazy to call the people who stuck it out and believed in the coin "exploitative" when they lost 90% of their value time and time again and still did not sell.

Production costs of 50BTC per every 10 minutes has historically been a fractions of or a few pennies. Only for later users has the cost gradually increased.

The way you and many others approach Bitcoin as a tool to horde and sell to other rubes is indicative of the manipulative design where unsuspecting new users don't understand the history.

Historically? 50BTC every 10 minutes for pennies? Those prices haven't been seen since 2012 or earlier.

If you don't like Bitcoin's model, choose another altcoin to back, there's dozens of them and some of them even have inflationary models. No one is forcing anyone to buy into anything.

>The supply inflates every 10 minutes, this by definition is inflation.

Precisely, I see BTC being called deflationary all the time, when really it's just not exponentially inflationary, but logarithmically.

> The supply inflates every 10 minutes, this by definition is inflation.

Well, it's inflation of the money supply, but (while certain fringe groups confuse the issue) that's not what “inflation” alone normally refers to, which is instead price inflation, which is approximately inflation in the ratio of money supply to the utility-weighted size of the market.

"This is a malicious design decision intended to control the supply early."

Cmon dude, really?

Some estimates have Satoshi owning around one million BTC.

That's 5% of all the Bitcoins that will ever exist.

Yes, but many believe Satoshi to be dead or to have lost the keys. I'm not arguing that the wealth distribution is good, I'm just saying it's a little ridiculous to assume that the choice was malicious.

It's clearly malicious.

Satoshi could have used a linear growth curve. Instead he used a log curve, giving himself and the smallest user group possible (first users to run the software within the limited timeframe where the hyperinflation took place) control of the majority of the supply for the least amount of work possible.

All users entering the system late beyond users before them are needlessly exploited.

If you find it exploitative, you are free to create and use your own crypto instrument without these properties that you take offense to. All of the code is available for you to modify as you see fit, as it is open source. If you believe it has value, all you need to do is to convince others of the superior nature of your implementation, and surely they will adopt your solution for their crypto needs.

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