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The protocol is malleable (the majority of miners need to agree on changes) and can be migrated to use sub-Satoshi units if necessary.

So bitcoin miners as a whole become a de-facto central bank based on majority adoption?

That's actually a very interesting possibility.

Yes the "central bank" in bitcoin is essentially a diffuse network of trust established via a large network of people.

And we know for a fact that it's not possible to manipulate large networks of people in an organized manner...

Certainly it's easier to do that than to manipulate a small group of mostly hidden individuals with severe conflicts of interest.

How is consensus reached? Who has the 'final say' to merge in the patches necessary to make such a fundamental change?

You know, open source. I can decide not to take the new version or I can even fork it. The majority decides, democracy like.

Wouldn't a fork lead to decreased value for everyone...?

Correct.

It's happening right now where the majority of the world's ISPs and companies are switching over to IPv6 (as a comparison).

You're implicitly assuming that everyone holds all of their BTC for one year before spending them.

To illustrate, let's assume that BTC are used for all transactions, but no one holds them. Everyone holds dollars, or euros, or gold, or whatever. When they need to make a transaction they hop on an exchange, buy some BTC, and buy their cup of coffee with the BTC. Then the coffee-seller unloads his new BTC immediately and holds gold or silver or tulip bulbs as his store of value.

Given a reasonably automated system, each transaction might take 1 minute. This means that you need 79 trillion _dollar-minutes_ per year, or about $150 million at any given moment. Dividing this by 21 million BTC gives a price of about $7.15 per BTC.

Even if people do hold all of their liquid value in BTC, they aren't going to hold it all for a year before spending it. A more realistic estimate might be 79 trillion $ * 3 days -- most people and businesses are operating pretty hand-to-mouth. 237 trillion dollar-days per year comes out to $648 billion at any given moment. This does give a fairly appealing target price for BTC-optimists, about $31k per BTC, and puts the upper bound on the value of a satoshi at $0.0003.

Why make a "realistic estimate" without reference to actual figures?

US GDP ~$15 trillion USD (notes and coins) >$1 trillion; USD (M1 aggregate) >$2 trillion

i.e. a dollar gets "spent" on activities that contribute to GDP between 7 and 15 times a year, depending on what aggregate you count as a dollar (of course the actual picture is complicated by a lot more non-productive transfers not counted in GDP)

Velocity of circulation (the ratio of national income to money supply) in real world economies is a surprisingly low number, and whilst Bitcoins are a little more efficient to transact with than electronic bank interchanges, they're also not designed to be inflationary to encourage turnover.

You make a good point in noting that I didn't address the issue of short term holding and possible frequent circulation. It would certainly seem to make the valuation of a bitcoin smaller.

That said, I can't think of a back-of-the-envelope type calculation that I'm happy with, though I'll grant that my crude calculation is likely too high.

Does anybody have any idea what the rate of bitcoins being 'stranded' is?

Why is 37 cents too large for the granularity of a currency?

In 1913 terms, 37 cents of today's money was the equivalent of 2 cents, only double their smallest coinage.

Would you really be upset if any particular transaction was rounded up or down by 18 cents? Yes, if you're buying a single gumball, the price might be a little high today. But you let me know when gumball machines start taking bitcoins. For anything else, a resolution of +-18 cents is perfectly acceptable.... over any reasonable number of transactions, the round ups and round downs will come out to the same value anyway.

Berkshire Hathaway BRK-A doesn't seem to have been harmed by not being watered-down.

It's not a currency either.

Deflation is a good thing

Why?

I'd think you'd generally rather not have all that much inflation or deflation... (Obviously particular parties would have interests to the contrary is specific circumstances, but outside of the short term single party advantage...)

The article makes a decent case that it is not. Care to elaborate?

Price deflation or money deflation?

Price deflation is a good thing. I'm typing on something which is a "living" proof of these.

If a specific good becomes cheaper because the means of production become more efficient, that's awesome.

If everything is becoming cheaper because everything is getting more efficient, that's super awesome.

If things are getting "cheaper" because the currency is becoming more valuable, that is a disaster. You have society-wide rent-seeking instead of wealth creation.

Well, that's exactly my point. In a system with a fixed money supply (all things equal) the only way to have price deflation is to have greater output, greater productivity.

Now tell me again, how this is awful?

EDIT: As for the rent seeking.. If you hold your money for a while, while the productivity soars, then after a while you can buy more stuff, but only because the stuff has become cheaper.

As a fraction of total buying power you are still were you were before. Do you really call it rent-seeking?

In a system with a fixed money supply (all things equal) the only way to have price deflation is to have greater output, greater productivity.

Uh, what the hell gave you that idea? Another way would be people hoarding cash, making the rest of it more valuable -> deflationary spiral.

First you have missed the all things equal caveat, second people hoarding cash will not lead to a deflationary spiral, who give that idea?

It will lead to a new equilibrium. The greater the cash balances and lower the prices the greater the temptation to spend, and to break the spiral.

Why spend when you can buy tomorrow even cheaper? A deflationary currency is not a good idea.

a) Time preference (I guess you have a phone, even if..)

b) Marginal utility of every extra unit of money decreases when a person holds more of them. Couple that with falling prices and you have the killer of deflationary spiral.

A nice theory, though. The deflationary spiral one. But just a theory. Never happened.

a) That's a downward pressure on sales any way you paint it. b) Obviously this is why the well-off never want any more.

You have no concept of history or the problems associated with a gold standard do you?

a) Now, that's a different assertion from the original one. (People will stop buying stuff). I'm glad we agree on this one. Ain't gonna happen.

b) Are saying the well-off never squander money on stupid things?

Is the last sentence some kind of "ad hominem"? Because, it would be a pity.

a) No, it's not different at all. If money is worth more tomorrow than today, that exerts negative pressure on purchases, suppressing the retail economy. People will still buy things, just less of them. What's so hard to understand?

b) I really have no idea where you're trying to take b.

"Is the last sentence some kind of "ad hominem"? Because, it would be a pity."

An ad hominem would be if I said your arguments were invalid because of who you are, that's what it means. I was making an observation about your ignorance based on the content of your arguments, entirely different.

> You have no concept of history or the problems associated with a gold standard do you?

I think that's not applicable to bitcoin since it's as comfortable to pay with microbitcoins as with bitcoins.

Subdivision of BTC is irrelevant to talk about deflation. Talking about this (as the BTC wiki does) is just handwaving and does nothing to address the economics.

I thought one of the problems with deflation was that people used to hoard cash and there was not enough money availale to facilitate normal daily trades. Such thing won't happen with bitcoin.

Uh, what? Were you asleep in History class?

"but then a deflationary spiral started in 1931."

https://en.wikipedia.org/wiki/Great_Depression

Well, I disagree, with the interpretation of events known as Great Depression as a deflationary spiral.

Yes, there was a deflationary event. As there were many before, and the last one before in 1920-1921, when the wholesale prices fall by a whopping 40%. But a deflationary event does not make a deflationary spiral.

There were also a lot silly activism both from the part of the Hoover and Roosevelt. The later speaking, beside other things about outright nationalization, and driving thus the busyness investment into ground..

So a lot happened than which make the Great Depression Great but deflationary spiral is not THE explanation.

This is why I don't have a computer, or phone, or any other electronic gadgets. The prices are falling so quickly that every time I think about getting one, I decide to put it off for a few months so I can get a better one instead.

(And before you ask, I'm posting this using pen and paper with IP-over-carrier-pigeon.)

Oh for god's sake. Is the entire world monochrome to you?

It doesn't have to stop all purchases to have a negative economic effect.

If the economy today is 10 billion quatloos, and it grows to 11 billion quatloos next year, you would also want the money supply to grow by 10% over the same period of time.

Capital can make money because it increases productivity. If you use your 10,000 quatloos to buy a machine that makes a worker more productive, your reward comes from the interest on that. Everyone can increase the value of their savings if everyone does this.

If everyone is hiding their quatloos in the mattress, there is no input of capital to increase productivity. Yet a deflationary spiral exactly encourages people to hide their quatloos in their mattress. Why bother taking even minimal market risks when you can make 10% from the growth of the rest of the economy?

And economies can grow not just from increased productivity.

EDIT: As a fraction of total buying power you are still were you were before.

This is a really, really, really bad idea.

If I have shillings equal to 5% of GDP, and I put myself into cryosleep for 100 years, there is no reason I should expect my uninvested shillings to still have 5% of GDP. This is a child's view of an economy.

What does exactly happen when an economy grows from 10 billion quatloos to 11 billion quatloos?

Until you tell me that, we are measuring woomdums in quatloos and while that can be kind of fun.. it not very rewarding.

If you speaking about physical output.. than the only way achieve this is to learn to produce woomdums cheaper.. Then there is no harm in selling them cheaper.

So do I want the money to grow to a degree that it will anihiliate the increase in productivity? Certainly not.

> If I have shillings equal to 5% of GDP, and I put myself into cryosleep for 100 years, there is no reason I should expect my uninvested shillings to still have 5% of GDP. This is a child's view of an economy.

Can your elaborate? Actually it an argument against the idea that hoarding gives some kind rent. It doesn't.

But again, can you elaborate? If own 5% of land and go to a cryosleep for a hundred years, how much of that do you expect to own when you wake up?

(I'm going to have to stop with this comment. Maybe you can find someone else willing to go over the basics of wealth with you.)

If you were to just abandon your land, there is no reason to expect it to belong to you when you come back 100 years later.

Instead, say you set up a corporation and hire people to use the money made renting it out to pay for taxes and management on it. You might still own the land in 100 years. Or not, if the people you left in charge of it couldn't manage it well enough. But people got to use the land in the meantime, so there was economic activity being assisted by your asset.

This would not, of course, give you any claim on any new land that is made, like new landfill in Boston.

Bitcoins sitting out on the chain while you are sleep do not provide any benefit to growing the economy. They have not bought any factory equipment. They have not trained any workers. They have not invented any new technology.

Any system in which people can end up with the same portion of an economy after sitting both their labor and their capital out on the sidelines for 100 years is fundamentally broken. Exactly how is an exercise for the reader, but like anyone purporting to have a perpetual motion machine, while the exact problem may be different from machine to machine, the laws of physics mean that there is some definite failure in it.

> Any system in which people can end up with the same portion of an economy after sitting both their labor and their capital out on the sidelines for 100 years is fundamentally broken.

Assertions. Words. Some of those strong..

To be frank, I'm disappointed, but.. I'll manage that, no need to worry.