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Comment by walkon | Hacker News Reader

> The reason it's bad is that deflation makes it more profitable to do nothing than to invest. When this happens, people react by not spending money. The market dies.

If this is holds true, why do people buy from markets where prices regularly decrease? Wouldn't it follow that they will wait in perpetuity and never buy that new phone/laptop/etc?

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> Wouldn't it follow that they will wait in perpetuity and never buy that new phone/laptop/etc?

People derive utility from those things. They make calls with their phone and do work on their laptop.

Bitcoin is entirely different. It's only purpose is to allow you to buy other stuff.

> It's only purpose is to allow you to buy other stuff.

There is certainly utility in being able to buy stuff that cannot easily be bought with traditional (government) currencies. Namely, things that are illegal in various countries, like drugs or gambling.

You're saying that drugs cannot easily be bought with government-issued cash? It's totally the other way around: drugs are easily and frequently bought using cash, and vanishingly rarely bought with bitcoins.

I would consider the Silk Road to be fairly large. Obviously, it's tiny relative to the entire USD drug market, but bitcoin is also tiny relative to USD. But the point is, you simply cannot deny that there is actual demand for bitcoins caused by the fact that the Silk Road only uses bitcoin.

That's the "use it to buy things" which isn't utility. The laptop I'm typing on will not be worth more later. Ever. This very second is as much as it'll be worth, which is perhaps half of what I bought it for a year and a half ago. But I bought it, because I need a laptop. I fully expect it to be continually worth less, just like the couch I'm sitting on, the watch I'm wearing, the table I keep the laptop on, etc. But I put up with that because I'm using them. Bitcoins are useful for these things, but that's not utility - you don't buy a bitcoin and (supposing they dropped heavily in value year after year) shrugged and said "Oh well, I need this bitcoin for this so I'm keeping it even if I get very little in return for it in five years when I craigslist it as '1 used bitcoin, still in pretty good shape'".

In the example of buying a laptop, the laptop is not the deflationary thing. The deflationary thing is the one that increases in value, not decreases. Dollars (or whatever) are the deflationary thing in that example. They increase in value compared to the laptop (you get more laptop for the same number of dollars).

Therefore when you compare Bitcoins to the laptop, you're comparing the wrong things. The argument is:

"People will not spend deflationary currency [Bitcoin] on stuff [anything] because it's better to simply keep the deflationary currency [Bitcoin]"

the reply is:

"People do spend deflationary currency [Dollars] on stuff [laptops] even though it would be better to simply keep the deflationary currency [Dollars]"

Dollars are deflationary relative to laptops.

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