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Comment by jerguismi | Hacker News Reader

> Two critiques of the article, however, would be the complete failure to mention the deflationary risks of bit coin. You may agree or disagree with whether that's a problem, but it is one of the biggest, most consistent criticisms of bit coin out there, and it seems a tiny bit negligent not to at least mention it.

One point to consider is, that there is a free competition between different cryptocurrencies. There already exists some more inflationary bitcoin clones, and probably more will come. The markets will choose the currency, which they think is the best for them.

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"The markets will choose the currency, which they think is the best for them."

This is true, but that doesn't mean the currency will actually be better for them. Deflationary currencies are attractive to sellers and employees. They will choose them if given the option. The ill economic effects of deflationary currencies have been demonstrated.

Your phrasing seems to indicate that you believe that market-based outcomes are always ideal outcomes. I think that is incorrect.

> The ill economic effects of deflationary currencies have been demonstrated.

I'd be interested to know what you are thinking of here (as evidence). I view that claim with pretty strong skepticism. But I'd be curious to see the best argument/evidence for it.

Remember though that there are two sides to every transaction. Given a consistently deflationary currency buyers become increasingly unlikely to be willing to offer said currency as payment to sellers. Thus the liquidity of the currency will tend to dry up, especially when it is does not have legal tender status. In a single currency market this is disastrous, in a free currency market you just start using something else.

Of course, the value of the now illiquid currency will eventually become highly volatile likely ending in a crash. Hopefully after this happens several times most people would get the idea that investment in such things is not a good plan.

I think it's even worse than that. Bitcoin is likely to beat out other cryptocurrencies out of simple path dependence.

Additionally, I think Bitcoin advocates argue that since the money growth rate of Bitcoin is subject to a open and known process, deflationary trends will be known and expected as well. Because the deflation will be expected, there won't be the traditional negative effects associated with deflation.

Have you got a link? I'd be interested to see a comparison.

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