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Comment by lordofgibbons | Hacker News Reader

I know talking smack about crypto is in vogue, but the author clearly doesn't know anything about crypto.

They really think inflation == price? Inflation is about total supply of something, not cross asset trade price (i.e BTC/USD, or EUR/USD).

>This idea that a central entity can’t regulate cryptocurrencies is pushed around by crypto enthusiasts. However, governments are trying to bring regulations into cryptocurrencies and stable coins.

Literally nobody claimed they were going to control the actions of governments and force them to not regulate crypto. Where did this idea come from? The claim is that they would be effective despite attempted control by governments (see Monero)

There are so many valid criticisms of cryptocurrencies that you could make. But then you'd have to actually learn something about them and that's hard to do if you've already made up your mind on something.

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Inflation is when the value of your money goes down because prices go up (i.e. the prices "inflate"). If I could buy 1000 loaves of bread with 1BTC last year, but this year I can only buy 900 loaves with that same 1BTC, that's inflation.

The most common form of inflation is due to an increasing money supply, but it (as demonstrated with Bitcoin) can have other causes.

>If I could buy 1000 loaves of bread with 1BTC last year, but this year I can only buy 900 loaves with that same 1BTC, that's inflation.

No, that's just an increase in the price of bread. If all the inputs in making the bread were in BTC, then it would be inflation.

If all of the inputs that went into making that bread were paid for in USD, and the relative price in BTC went up, that's called "currency risk". That's a completely different thing from inflation.

Currency is itself a financial good that is bought and sold, and has value. It's not divorced from other goods and is not special. You even have currency factories (banks) and competition.

Also, any currency devaluing (which BTC is doing) is inflationary for an economy based in that currency.

It’s special in that it has a special purpose. Just like bread has a special purpose.

And the purpose of a currency is to facilitate financial transactions.

Which crypto is horrible at, because it cannot maintain a decent value at any point.

Crypto is as good at being currency as iron is at being bread.

Wikipedias definition of inflation sounds exactly like op said and what I assume as well:

'In economics, inflation is a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money.'

I can afford less for the same unit of currency (Bitcoin) therefore I have inflation or deflation if I get more.

And people claim that Bitcoin is inflation save due to a limit amount of bitcoins being produced (I read that multiple times) while this is just not true.

It's not really safe from inflation, more correctly it is deflationary by design. The limited supply means you can't dilute the existing value by creating more coins, as you can do with USD (or any fiat currency)

The point of this discussion as I understand it is that the limited supply of bitcoin does not help with inflation in practice and, further, that monetary supply is not the only source of inflation to begin with.

It is correct that bitcoin is designed with limited supply in mind, but that does not necesaarily stop inflation and definitely doesn't in practice because currency risk dominates the perceived value of bitcoin.

As far as i remember, people often claimed that bitcoin protects against inflation, that statement has so many requirements attached so it doesn't matter in practice.

People buy smaller and smaller denominations of Bitcoin then.

Which means earlier you invest more your Bitcoin is worth.

Until someone realizes that who ever was rich before is now loosing valur by investing in BTC too late and making early adopters rich.

The question is only when this ruse gets so outbalanced that no one wants to invest anymore which will either lead to inflation or the big crypto burn.

Intuitively laymen really care about purchasing power, not its cause, they just use inflation as a short synonym for reduction of purchasing power, because inflation is often the cause of reduction of purchasing power, but I think they aren't really synonyms.

> No, that's just an increase in the price of bread.

> Definition of inflation: a general increase in prices and fall in the purchasing value of money.

It feels like you are jumping through hoops to avoid the definition of inflation.

The parent comment's mention of bread is literal and figurative. When talking about inflation, "bread" a whole sector of goods. The specific mention of bread is to reference necessity - basic needs like food/shelter/clothing.

Clearly the lines of inflation are fuzzy but if 'large enough' people's basic buying power decreases then you have inflation.

With BTC, the parent comment is simply talking about being able to buy less with BTC because they can't go to someone who will give it to them for a lower price. Do that with enough goods and you've got inflation?

So you agree that BTC is money. ;)

But I think parent commenter is correct. The bread price increases because of inflation of the USD denominated inputs. What you can buy with BTC changes because of changes in currency swap prices. In Zimbabwe during hyperinflation a dollar would buy you the same amount of e.g. bread because the goods inputs were priced in USD, but it would cost vastly more in Zimbabwe dollars on a day to day basis.

Look up inflation as it is used by governments and economists, journalists and really everyone except internet 'Austrian' fans.

It's a measure of the increase of prices compared to currency value. Currency supply change can be one of the forces which affect it, but it's far from the whole picture.

No, if they decrease buying power because of pay cuts that's not inflation.

We measure inflation as the price of goods. People complain about inflation when the price of goods goes up.

If it only happened to bread, sure. But at some point it has to be inflation if it ends up being across the board. So its not just bread, its bread, soda, car, houses, a computer, toilet paper, meat, etc.

Sure, it may or may not fit the classical definition of inflation, but if it happens across the board, then functionally it is the same.

Sure, the things being traded with a money supply can decrease and if the money supply doesn't decrease alongside, it also is inflationary. BTC was used to trade USD, supply of USD is decreasing while BTC is algorithmically not decreasing, so it shows a great deal of inflation in the purchase of USD (and the reverse during the run-up), which unfortunately you cannot prevent unless you instituted capital controls.

> The most common form of inflation is due to an increasing money supply

Not really. The money supply only affects inflation in that it increases demand for some things quicker than supply can meet demand. In that regard, untargeted stimulus money did that. Let's not forget though that there is also significant supply disruptions with covid, the war in Ukraine... There's also strong supply-side factors to the inflation we're experiencing.

> The money supply only affects inflation in that it increases demand for some things quicker than supply can meet demand.

My Econ 101 understanding is that if there is more money available to buyers but the amount of goods available stays the same, and if the goods have elastic prices, the prices will go up.

Econ 101 states that all prices are set by supply and demand.

Money doesn’t even get introduced until later.

Depends on where you took Econ 101, I guess. When I took Econ 101, it did cover monetary policy and inflation. I believe it was covered in AP Macroeconomics/Microeconomics in high school as well.

To be transparent, I took Econ 101 over a decade ago and don’t remember.

A better way to have phrased my post is that economics fundamentally understands price levels as being driven by supply and demand, and everything else influences prices though effects on supply and demand.

I don't know how accurate it is when you get down into actually calculating it (which is a really complicated topic unto itself), but the best description I've heard of inflation is that it's about the balance between the monetary supply and the available "goods" to spend it on. In crypto's case "goods" is a bit of a weird term to use, but the point is the same -- it's about the balance between money "sources" and money "sinks". If you have more money sources than money sinks, then you get inflation; the other way around, and you get deflation.

that's one cause. Inflation can also be caused by imbalance between demands and supply, outside of monetary considerations.

(eg : bad weather impacting crops production resulting in increased food prices for a year, or a war imposing blockades on oil and gaz)

That's the modern definition of inflation. In crypto circles, when referring to crypto inflation the classic definition is used, which was increased supply of a currency.

In vogue? It's been the status quo for nearly a decade. People are unwilling to recognize that cryptocurrency can have both positive and negative elements. It's all or nothing.

The problem with crypto is the same problem as always. Bad humans come along and destroy what could have been a good thing in an attempt to fill their bottomless empty pit of greed at the expense of everyone and everything else. Happens every time any human(s) try to create something that's meant to be beneficial for everyone - along come a few scammy ass-hats who decide they're gonna ruin it for everyone (by weaponizing it, turning it into a scam, or what-have-you), and inevitably a whole bunch more scammy ass-hats always gotta jump on that same bandwagon, increasing the momentum of the downfall. Yay, humans!

Couldn't it have something to do with flawed fundamentals?

There's the usual fact that the more extreme or fundamentalist someone's viewpoint is, the more like they seem to want to yell it (and the easier it is to say it, concisely). With cryptocurrency, I think that there are many people with a financial and/or political stake in it, who argue from a technical perspective about the merits, so the usual-moderate person senses this disingenuousness and, annoyed, responds more negatively than they usually would. So, in other words, the same dynamics that drive polarization on contentious political issues apply (and I'd actually argue that cryptocurrency is more of a political issue than a technical one).

And the people who criticize crypto don't really understand why would you use crypto.

They have a stable government, a stable currency, a free Democratic system, they see no reason to use crypto because they have never lived in a sanctioned or very corrupt country with no freedom and Dependant on a financial system and a mother countries decisions without any influence over them.

These people are only about 15% of the world, you are lucky if you are born or living there.

I think this video explains it very well, from a north Korean citizens point of view, even though I don't agree that BTC is good for this, its similar to digital gold now, its vrry inefficient almost no one uses it IRL.

https://www.youtube.com/watch?v=cR4sMsI8z7U

The current marketcap of crypto is made up of people in the first world investing.

I don't want to be a dick but if you live in Venezuela or North Korea you are irrelevant to the world economy. There is a Dutch saying "wie betaalt bepaalt".

What the poster is saying is that cryptocurrency is relevant to them, not that they are "relevant" to the world economy, whatever that means.

> Inflation is about total supply of something

Only if you've fallen down the Austrian rabbit-hole. It's not what mainstream news sources, economists, politicians or really anyone else means by that term.

Inflation is to do with the amount of goods purchasable with a unit of currency, a relative decrease in the value of that currency compared to (usually) a cross-section of prices of goods which are commonly bought by users of the currency.

>>This idea that a central entity can’t regulate cryptocurrencies is pushed around by crypto enthusiasts. However, governments are trying to bring regulations into cryptocurrencies and stable coins.

> Literally nobody claimed they were going to control the actions of governments and force them to not regulate crypto. Where did this idea come from? The claim is that they would be effective despite attempted control by governments (see Monero)

Are you interpreting the statement differently from how I do? It's absolutely they case that cryptocurrency enthusiasts often use "take control away from government" and "code is law" (implying law is not law, or at least not law that overrules code).

Your reply here seems to be imply that you read it as a claim that cryptocurrencies would blackmail and bully governments to do their bidding.

If so then I don't see how you get there from that quote.

But then you seem to be saying that indeed regulation is ineffective. Which is the point of what you quoted to begin with.

> the author clearly doesn't know anything about crypto.

> Inflation is about total supply of something, not cross asset trade price (i.e BTC/USD, or EUR/USD).

Bahahaha.

The original (austrian economics) inflation definition was about supply, but it was changed in Keynsian economics to mean price increase.

The main question for me trusting Bitcoin is that I believe that supply inflation leads to price inflation over time, but I accept that some people don't believe it.

I use the terms "supply inflation" and "price inflation" to distinguish them.

The relation between supply and prices is also influenced by velocity, which has been swinging wildly at least for the dollar.

Velocity suddenly went low in Q2 2020. That means people are holding on to their USD more, and therefore the value of USD goes up.

So, in spite of supply inflation going up, velocity crashed, which means price inflation was close to nothing during 2020.

IF velocity picks back up, we will see price increase, but if not, then no. This depends on how much people want to spend versus save, and not as much on central banks.

And people tend to suffer from the bandwagon effect, and that is how we get business cycles.

And supply inflation is the way it will always be as that suits the high financial class.

Man, the spinning is tremendous.

All this stuff is literally what all the crypto people were and still are saying.

Inflation is by definition the delta of price over time.

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