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Comment by hn_asker | Hacker News Reader

So this must be why Bitcoin has no inflation.

Not really. You could invest in real estate or stocks or gold or just about anything other than cash and also dodge the effects of currency inflation. Remember: Inflation is defined as rising price. If you hold cash, that's a problem. If you hold inflating assets, then it's largely neutral. If you have taken out cash-denominated loans to purchase inflating assets (e.g. a mortgage for a house), you actually benefit from inflation as your assets increase in value relative to your loan amount. (Over-simplified version)

Bitcoin is explicitly deflationary by design, which is different than 0% inflation. If you have the same fixed supply and an ever-increasing demand (new population, new Bitcoin owners) then the currency is deflationary. If your economy is deflationary, you will enter a deflationary spiral which discourages anyone from doing anything other than hoarding the currency. It's no coincidence that HODL is the unofficial motto of Bitcoin proponents.

This creates a different set of problems. If you thought wealth inequality is bad now, just imagine how bad wealth inequality would be if everyone had to buy into Bitcoin, making early adopters orders of magnitude richer. The inequality between early and late adopters would be insane. Early adopters love this idea, of course, because they're at the top of the pyramid. Doesn't work out so well for the late arrivals, though.

Deflation doesn't lead to hoarding. It leads to using your money wisely. You only buy what you need, and you buy things that last a long time.

> You only buy what you need

If you only spend when it's absolutely necessary because you want to keep as much currency as possible, that's the definition of hoarding.

What would you define as hoarding? Spending so little that you starve to death?

Keep in mind that spending includes things like investing in businesses. If currency itself provides the highest return because it's a race to hoard more than anyone else, investing in businesses becomes less attractive.

Currency should facilitate the economy, not be the economy.

It's somewhat subjective of course. I think there's a healthy balance where you buy things that provide value to you at the moment. I think hoarding means something unhealthy, when you suffer just to keep the money. The money wouldn't provide the highest return - it would grow with the economy, i.e. provide average return.

People don't hoard stocks, index funds or gold. They spend the profits when they want something for themselves. Why not have money that works like that.

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