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The more I think about inflation, the more I disagree with its basic premise. Inflation is the main cause of the "grow or die" mentality and the many sustainability issues that come with it. You can not afford to have a steady business that isn't growing, because inflation will slowly eat away your margins until you are operating at a loss. Especially since the reported inflation (under 5% in most developed countries) is far from the actual value seen by most businesses (between salary increases, rent increases, supply increases). It takes less than 15 years for a non growing healthy business to go bankrupt.

Inflation is also the main cause of quality decline seen in absolutely everything. When you can not raise prices as fast as your costs are increasing, the only viable option is to lower quality. This inevitably happens every where and is pretty much an accepted fact of life. It's not that companies want to give you a crappier product or service, it's that they have to.

I'm a huge skeptic of all crypto currencies in their current forms, but the deflationary part was one of the ideas that I really liked (not that any government would ever go for a deflationary policy)

If all your costs are inflating, why wouldn't you also be inflating your prices in line?

This seems to be what happens in restaurants or groceries or other things where we go "wow, you used to get a coke for fifty cents!"

A business that can't pass that cost on seems to have more fundamental "loss of relative demand compared to the past" issues that would squeeze it dry even without inflation. In that world, your costs would be static but customers would be willing to pay less over time, so you'd die.

Market dynamics.

The cost to produce goods rises much more rapidly than what you can actually sell your product for. People would simply stop buying if you increased prices 12-13% every year (which is what is typical for me in the restaurant industry in Mexico)

New entries usually start with a lower quality product by default, so you usually have to keep prices and drop quality if you don't want to be priced out (or move into a far more upscale and finicky market).

My company (not an owner) is a services based company with yearly agreements. We bake in price increases annually with inflation.

If you are not a business running on fixed agreements, you have the right to increase your prices whenever to accommodate your costs. If your idea is that consumers will just go somewhere cheaper, then it works upstream too - you have the option to source your products / goods from somewhere cheaper as well.

If there is no cheaper alternative for you, then there must be no cheaper alternative for your consumers, unless you aren't operating your business in an efficient manner. In which case the market will either force you to, or you will lose your business.

> Inflation is also the main cause of quality decline seen in absolutely everything.

Optimization is the main cause of quality decline. Inflation has nothing to do with this. Inflation is neutral as it raises all prices equally.

>Inflation is neutral as it raises all prices equally.

This is not true if the inflation is a result of currency creation, as in that case the inflation first affects the things purchased by those receiving the newly created money.

Inflation by definition is a result of supply/demand disequilibrium, in another words to much many is chasing to few goods. I agree that root problem is optimization, this is evident in natural living systems too. Furthermore, in general world is growing, there always will be error between actual world growth and expected one.

> When you can not raise prices as fast as your costs are increasing, the only viable option is to lower quality.

If you can't raise prices as fast as your costs are rising, it's a signal the market prefers reduced quality to higher prices for your product.

Deflation certainly isn't going to help you there, especially since it means consumers will expect you to actually drop your prices, with some even deferring purchases whilst waiting, and you'll struggle to borrow money when lenders reason that [i] you'll make less revenue next year and [ii] they don't need to risk lending money for it to be worth more than last year; they can just bury it in the ground...

Further to your point, deflation means you drop your prices separate to what your customers "want." Rather, customers are willing to pay less day over day as they require an incentive to spend their money over its risk-free return under their mattresses.

> (1) The ability for the government to censor transactions to terrorists, rogue states and oppressive governments is a good thing.

This assumes you agree with the government on what constitutes a terrorist, a rogue state, or an oppressive government. Currently peaceful protesters in the US are being labeled terrorists because they are protesting the government.

The assumption behind your premise is ultimately that you trust the government to "do the right thing" and I do not, so why would I want to give them more power over me?

> The assumption behind your premise is ultimately that you trust the government to "do the right thing" and I do not, so why would I want to give them more power over me?

My assumption is that if the government is untrustworthy I have much bigger problems, like the fact they can jail and torture and kill me arbitrarily and without recourse. There's no amount of math that'll help me in prison, or when I'm dead. If you can't trust the government, the only thing that'll help is replacing that government. And when you do, you won't need crypto.

I think we disagree on this one. Yes, there would be a much larger problem, but that doesn't mean you should make it easier for them to have more power.

Let's take right now in the US for instance. I don't trust the US government, but I'm not so scared that I'm regularly fearing for my life. I guess it's possible I could wake up in Guantanamo tomorrow but that seems unlikely. That said, I am not interested in giving them any more power over me, and in fact interested in them having less.

So as much as I would love for a real "fix" to the US government, which you describe as replacing it, that seems slightly extreme and unlikely at the moment. So the most realistic course of action is fighting them on their unnecessary grabs for power and surveillance over the populace while I still feel safe to do so.

Just because there are bigger problems doesn't mean you should ignore the smaller problems, especially when those are much easier to address.

That's totally fair, and I appreciate your thoughts!

> The ability for the government to censor transactions to terrorists, rogue states and oppressive governments is a good thing.

Disagree, due to the fact that the government being able to censor transactions of the government's choosing means that the government is able to censor transactions of the government's choosing. That's not a good thing.

> I want my currency to be subject to "government coercion" when the courts say so.

I would agree with this if and only if the protections of the law were equally applied, and all people had equal access to due process. Presently, both of those things are entirely untrue in most large, developed countries, despite being aspirational/stated goals.

The legal system can and does entirely fail people on a regular basis, and should not have the ultimate veto power over every type of private property, as has been the case historically.

> I for one do want the government to be able too regulate, control and trace transactions.

Many of us feel that freedom of association and freedom of trade with those associations are inherent natural rights, and such regulation or control over them is an illegitimate infringement upon them, regardless of however many democratically-elected representatives say they're not.

Ultimately the state's authority to do such things ("regulate, control") is based on the application of violence, or the threat of same. Violence cannot solve math problems, ergo, cryptocurrencies are a fundamental threat to the authority and existence of the state.

Honestly, I'm completely surprised that they've allowed them to get as big as they have without banning them outright.

> Violence cannot solve math problems, ergo, cryptocurrencies are a fundamental threat to the authority and existence of the state.

This is the biggest, most obvious misconception about cryptocurrencies.

Violence can solve any math problem. With a rubber hose, your coins are theirs. In prison, crypto won't help you. [1]

[1] https://www.independent.co.uk/life-style/gadgets-and-tech/ne...

Multisignature transactions are a thing. This isn't your grandfather's symmetric key crypto.

Is there a hose shortage?

Seriously, you're underestimating a motivated government's ability to use violence to either prevent transactions (by taking some of the multisig parties out) or to coerce a transaction (by applying multiple hoses to multiple people).

Say they capture your family. Would you not make a transaction to save your family? If you didn't they'd just take you out. Heck, a motivated government might just take you out after anyways! See how your "coins" are no longer your biggest problem under an authoritarian regime?

In the face of the KGB, you wouldn't be saying "but your violence can't solve this math problem" for very long. Not without that tongue. How many fingernails does a man need anyways? Trust me, that math problem's getting solved. With hoses. Real fast.

This is one of those conceptual exercises that falls right over.

It seems that you and I are talking at cross purposes. Modern technology makes new circumstances where it can be made impossible for a single person, or even all of the people in one or more major jurisdictions, to be able to effect a transaction, acting alone or in concert.

Hardware security systems also permit such things, in more limited circumstances.

The state's capacity for violence is finite, and is scoped by their legal and physical jurisdictions. There is no state, as yet, that can wield unlimited violence throughout the same scope as the uncensored internet.

I guess I just don't see it.

One man, can tell the KGB, to extract fingernails until the money moves or is no longer capable of moving.

> There is no state, as yet, that can wield unlimited violence throughout the same scope as the uncensored internet.

So a sufficiently motivated state censors the internet. EZPZ. Half the world's already doing it.

Your problem isn't the money, your problem is a tyrannical government. It can and will do whatever it takes, and by virtue of being a large group of people vs. you and your, well, fingernails, no amount of math is going to resolve this situation in your favor. The only thing you can actually do to improve your situation is topple the government. And once you do that, you don't need crypto, do you?

It's a fantasy to think that authoritarian governments actually succeed at this. Every one of them ends up with an underground market despite tremendous repression. Even literal prisons have one. At best, such governments have flare-ups of the condition where they murder in great numbers for a time to send everyone into terror, but in time they tire of it and calm down. The market pops right back up like a weed.

The analogy you should be looking at is the printing press, because it broadened the scope of such markets; what a person of higher literacy communicates is illegible to the lower. And such is true of a system of account that renders a larger scope of transactions illegible. The possession of great wealth itself is a concept that assumes a top-down vision of value; the phenomenon of being robbed for cryptocurrency is mostly reflective of the new being imitative of the old. But if they're all tokens, and anyone can make them - well, then, that means we increasingly don't have a man at the top. If the scrip you pay your police doesn't buy them anything at the market, they aren't going to be very motivated to take out fingernails for you.

(1) Are you sure you want Iranian, Russian, Venezuelan, and other 192 governments all be able to censor your transactions?

Or maybe you only meant a single benevolent government to have this power? In that case I propose the Polish government to censor world transactions (simply because I am a Pole and a patriot). I trust you don't mind!

But what if Polish government will abuse its position? I propose to add the Kazakh government to the council to balance things out a little bit.

Counter-proposal. Each country or trading bloc issues its own currency. Then, they use it internally, for domestic transactions. If they want to trade externally with other countries, they use a ledger system to record debts payable to each other domestically at an exchange rate determined by a multi-trillion dollar global exchange system, of supply and demand, based on how far 1 unit of currency will get you in one country vs another.

We can call it: "exactly what we do right now"

The only reason the US is able to sanction other countries is the scale of their economy. They influenced Europe to cut trading relationships with Iran, not through the US dollar, but through exerting political influence. The Europeans would rather trade with America than Iran, and America said they got to pick only one, so they complied.

None of that changes under Bitcoin or any other currency, crypto or otherwise, in no small part because reporting requirements don't go away. Laws don't go away. Political influence doesn't go away. International relations don't go away.

Do you really think that with cryptocurrency America would be unable to materially sanction Iran? Are you sure? The US Army is a pretty good army.

You are right regarding international politics and state level sanctions. Of course Iran would still be officially sanctioned.

It's just that individuals within the countries wouldn't care much because Bitcoin or Monero transactions always go through and are never reversed.

Ok, but how does that help them? Unless they're buying digital goods, all of their spending will be concentrated domestically. Without international trade (as nobody will do business with them for the aforementioned reasons) -- it's not like DHL is going to airdrop in their Amazon Prime purchases. Their welfare does not improve through "irreversibility" (in quotes, because a hose is all it takes to reverse any crypto transaction). In general, irreversibility hurts their welfare through breakage. Their transactions aren't guaranteed if the internet is censored, which in Iran, it is.

The government already has total control over the domestic economy, and can coerce you through violence. What have you gained other than a dramatically less energy efficient economy?

I am fine with Polish + Kazakh! The 2-of-2 would be required to censor any transaction. Thank you for enhancing my proposal.

> Inflation incentivises investment and allocation of capital towards the most productive enterprises

This would be true with deflation, assuming returns from investing outpace the returns from doing nothing. Inflation incentivises investing for returns that do better than the loss from inflation. It would incentivise investments that have a negative return, so long as that return is greater than the inflation rate.

> Why would you spend money today when it would be worth more tomorrow

Because owning a good today is worth more to you than having the same good in the future. Eg it’s better to have the iPhone 11 today than it is tomorrow, as you have it for an extra day. Additionally there’s many things you can’t put off into the future like paying for food, water etc.

[edit for typos, sorry, phone posting]

Obviously the energy waste and general inefficiencies of bitcoin / current crypto implementations are valid points, but I have some thoughts on some other points here:

> The ability for the government to censor transactions to terrorists, rogue states and oppressive governments is a good thing.

While that statement is true, I think it's important to keep in mind the context of how current "terrorists, rogue states and oppressive governments" are using fiat currencies. Governments do currently have the ability to censor those transactions, yet they are still operating.

> Inflation doesn't affect people who own assets, including real estate and equities, so long as wages keep pace with inflation. They have.

I don't know how valid the statement of "they have" is here. At least in the United States, real wages have not [0]. Besides, to my knowledge there is no rule in cryptocurrencies that says inflation does not or can not exist, so I don't think this is a counterpoint to the benefits of cryptocurrencies.

> I want my currency to be subject to "government coercion" when the courts say so.

This is a personal desire of yours.

> I for one do want the government to be able too regulate, control and trace transactions.

While this is also a personal desire of yours, I think I will also reference my first point of how governments are not doing a very good job of this today with fiat currencies.

Overall I think its obvious there are downsides to the current use and implementations of cryptocurrencies, but I think the value of them not being tied to any central agency is the key ideal and make them worthwhile.

[0] - https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

> there is no rule in cryptocurrencies that says inflation does not or can not exist

Some have constant emission, like 1 per second forever.

Regarding 5a - Calculating energy spent per tx is misleading, as the energy spent to secure the btc network also benefits those merely holding the coin.

I disagree, as the marginal benefit to existing holders asymptotically approaches zero after a few blocks are processed, and can be safely disregarded.

Not true, a working blockchain and the optionality to perform transactions are critical to the value proposition for the holder.