That's good to hear. What about exchange controls? How do you see governments adjusting inflation with widespread international Bitcoin usage?
Bitcoin divisibility is limited, by design, to 0.00000001 BTC (1 Satoshi)
Whether this is “enough” is very difficult to answer definitively. If the demand for BTC is greater than the supply, the value of BTC will rise until supply and demand reach equilibrium. If the demand outpaces supply, holders (“HODLERS”) have less incentive to trade and more incentive to keep their BTC, because the value of their BTC increases.
If demand gets too great, few to no holders trade, because they get more value by doing nothing, and trades involving BTC slow or stop completely. (We can think of this as kind of a “consensus attack” by “store of value” advocates on the “medium of exchange” advocates.) The demand doesn’t go away, though, so supply and demand can’t reach equilibrium.
Eventually this would lead people to start using something else as a medium of exchange, perhaps just bartering at first, eventually settling on something common. So now we have a problem: BTC demand has been satisfied by another “medium of exchange”. But what happens to the “store of value” part of BTC if it is no longer the “medium of exchange”? Do coins become like works of art, traded infrequently for great sums? Or do they become worthless?
And how much does that cost? I bet it's more than 5 cents.
> Bitcoin divisibility is limited, by design, to 0.00000001 BTC (1 Satoshi)
Not by design, that's an implementation details that can easily be changed in the future if 1 sat starts to become valuable enough to make a difference.
> and trades involving BTC slow or stop completely.
Do you have an example of a single commodity in the history of humanity that simply stopped being traded because it became "too valuable"?
I can't even understand how that makes sense, if it's valuable some people will want to sell it and get something that is more useful to them, like a house, a car, whatever. People don't commonly decide to hold an asset until their death bed.
> But what happens to the “store of value” part of BTC if it is no longer the “medium of exchange”?
What happened to Gold?
The Great Depression.
https://en.m.wikipedia.org/wiki/Deflation#Deflationary_spira...
If you're looking for commodities only, it's easy enough to Google "commodities bubble".
https://en.m.wikipedia.org/wiki/2000s_commodities_boom#Opini...
The problem is that when markets get turbulent, they can suddenly shift to going the other direction. Instead of everyone wanting to buy, suddenly no one wants to be the last one out the door. And with Bitcoin, what authority is going to stop the panic?
> What happened to Gold?
I suppose it depends on which branch of Bitcoin you're on. Are we talking about store of value or medium of exchange?
Soros' comments on gold are helpful.
> “Typically, a self-reinforcing process undergoes orderly corrections in the early stages, and, if it survives them, the bias tends to be reinforced, and is less easily shaken. When the process is advanced, corrections become scarcer and the danger of a climactic reversal greater”.
http://blogs.reuters.com/great-debate/2010/09/30/gold-as-the...
What commodities ceased being traded during the Great Depression?
> Are we talking about store of value or medium of exchange?
Mostly store of value for now, both when adoption improves and LN support is more widespread. Eventually the base layer will also need some capacity bumps.
> Soros' comments on gold are helpful.
A multi millennium bubble? Can't get more unprecedented than that.
I'm guessing you didn't bother reading Soros' comments I linked. Or maybe you're pretending you don't know the typical usage of "bubble" is in this context?
What it can't do, though, is force people to accept them.
If you want your money to inflate, you are free to use any infatuation currency that you want.
But other people, who prefer to not be subject to inflation, are now free to not be subject to it.
It does not make them subject to inflation, no.
If you hold entirely cryptocurrency, you are not subject to the inflation of holding the currency. Instead, you can simply convert to that currency, only when you need to pay taxes.
This avoids the inflation, in the same way that hold stock in a company, and not holding any dollars, avoids you from being subject to inflation.
Remember the Asian Financial Crisis, when a bunch of the "tigers" had loans denominated in USD, Francs, etc., and then there was a big capital outflow, tanking their local currencies against those debts? People will want to make sure they don't float against the currency they owe.
Even if we say that people would hold some of that original currency, there could still be a significant benefit to transferring most of your wealth to a deflationary currency. Therefore, people would still be able to avoid being subject to that original currency to a large degree.
I'm not familiar with any evidence of that claim, despite my economics education. I suppose the best historical corollary would be gold? If so, I think we can agree that almost no one has adopted that practice. Do you think Bitcoin is different enough than gold such that it would motivate different behavior?
Let's consider the effects of owing tax in the national currency. Retail businesses would owe sales tax in that currency, perhaps paid quarterly. Rather than adding complexity to each sale, they'd probably price goods in the national currency, even if not a legal requirement (which it easily could be). If goods are priced in national currency, it's handy to keep your working capital in that same currency. ... The incentives start to align to keep the bulk of domestic economic activity using the domestic currency.
For comparison, we can look at behavior in countries which make significant use of some foreign currency. For example, in some central American countries, banks make it easy to keep a USD-denomimated bank account. Why do people want USD instead of gold?
Not really a good analogy. The difference between gold and other forms of alternative currency, is the ease at which it can be transferred.
This whole situation only works, in the case where it is simple and easy to transfer between the deflationary, and non deflationary currency.
Obviously, the ease at which it is possible to transfer currency to other people, is an important factor as to why someone would or would not use a currency.
> if goods are priced in national currency, it's handy to keep your working capital in that same currency.
Not necessarily. If there are easy ways of instantly transforming your deflationary currency, automatically, without you having to do anything, into that other currency, then there is no need to hold that other currency.
> Why do people want USD instead of gold?
Obviously it is because it is pretty difficult to spend gold at your supermarket.
This isn't a problem though, if you have a cryptocurrency credit card, for example, that immediately turns your deflationary crypto, into USD.
Would you use that card? How does it differ from the scenario you described for Bitcoin?