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Comment by confluence | Hacker News Reader

Bitcoins are not the future. But they're a great start.

Bitcoins have two major problems stopping mainstream adoption; excessive volatility that isn't managed and the fact that is a deflationary monetary system, with the latter being a much bigger issue.

Fundamentally a currency needs to move around fungible value. That's it. If it doesn't do that - it's useless.

Bitcoin incentivises hoarding - the opposite of value transmission - and that's the main reason it'll remain as nothing more than a mere speculative currency, like modern day tulips, and why it won't ever become an actual alternative to actual cash.

Now - this isn't a knock against crypto-currencies - which are awesome - it's merely a knock at the fact that monetary supply in the bitcoin system isn't adaptive. Bitcoin needs a central decentralized bank that will help to stabilise the system and inflate (punish hoarders) as the economy grows in fits and starts.

I'm sure that one day in the not too distant future, another crypto-currency will come about that takes all the advantages provided by bitcoin, and combines them with stability/incentives of a nation-backed currency such as the US dollar. When that happens, we can finally end the monopoly held by large financial institutions that so clearly have literally no idea what they are actually doing (see Deutsche bank just recently).

Bitcoins are just the beginning of a whole new financial world, free from restriction, fees and abuse (hopefully :).

But they most certainly are not the end.

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This is fundamentally the difference between the left and right economic worldviews. The left prizes inflation, spending, and centralized nation states. The right supports deflation, saving ("hoarding"), and powerful individuals or voluntary groups. And now we are finally going to have an empirical test where the left can't wave a gun at the right to force them into inflation.

Excessive hoarding is obviously dangerous to a currency though.

Imagine a fixed supply of 1.000.000 coins and suppose 99 people managed to nab 10.000 coins initially and are just sitting on them.

The bitcoin economy will then run as though the remaining 10.000 coins is the entire economy, but 99 people will have spending power equal to the value of the entire economy.

First, Moore's law is technological hyperdeflation. Your dollar buys more computer power in 18 months than it does today. Yet people still buy computers. And computers are the one bright spot in this otherwise Fed-bubble-governed economy.

Second, a deflationary currency is inherently viral. The more people in it, the more valuable it is.

Third, 99 median powers are better than one government having power over the whole world currency. Power over the economy is linked to the capacity to delay gratification, rather than the ability to maintain a monopoly on counterfeiting dollars through violence against alternate currency providers (see Executive Order 6102, Bernard von Nothaus, e-gold, et alia).

In your scenario, spending by those guys would drive down the value of the currency. But they couldn't do so to an infinite extent; at best one guy could devalue it by 50%. USG by contrast has devalued the dollar 96% since 1913. Moreover, their purchasing power will rapidly decline as they sell more and more off. Finally, the blockchain will show the global distribution of holdings, making "monetary policy" of this kind more predictable than the opacity of the Fed.

People have gotten into this mindset that inflation and infinite debt are good. But I'll go with something backed by computer science over macroeconomic pseudoscience anyday. At best, consider this a controlled experiment, Satoshi vs. Bernanke. I know what side my mine is on.

Computers are in no way deflationary.

They're manufactured. Better ones are made. There are so many computers in the world now compared to demand that their value has simply inflated away, making them accessible to everyone.

If the computer market were deflationary, then computers would really only be affordable by the 5 richest men in the world.

You seem to under the mistaken assumption that money itself is an investment. It's not. Investments produce value - which hoarding money does not. Neither does hoarding computers for that matter. The moment you buy a computer it decreases in value, so unless you use it productively it really is just inflated away - much faster then your money is.

Let's focus on a single parallel:

True or false: under Moore's law, your dollar can buy K transistors today and 2K transistors in 18 months (ignoring inflation for now). Nevertheless, people do buy and sell computers in immense volume.

True or false: under hyperdeflation, your bitcoin can buy K dollars today and (at least) 2K dollars in 18 months. Nevertheless, people are trading Bitcoin in large and exponentially increasing volume (see blockchain.info/charts).

Now, I agree that the mechanisms behind the deflation in each case are different. Technological improvements are behind Moore's law while Bitcoin's ramp is due to the controlled currency supply. But what I'm getting at is that we've already faced a situation in which people could "hoard" dollars indefinitely to buy an increasingly valuable asset, namely computer power. The empirical result: they don't hoard indefinitely despite this exponential rise. In fact, they buy by the billion.

Computers do not increase in value with time. The relative value of your money with respect to the computer market increases. But your money is subject to inflation, and interest, and other markets - computer purchases can be valued against the interest accrued in not buying a computer vs the expected returns of doing so. Which, if you don't have a computer, might be forgoing a massive amount of return profit (starting a startup, running a home office, being entertained).

Deflationary currency is a very different matter entirely. Because the currency gains value relative to every other thing you could spend it on. Money you might spend on a computer, does not.

These situations are not analogous in the slightest.

If you want to treat computers as a currency (money-like object), then the reality is that computers are a currency experiencing hyper-inflation. They don't hold any value at all, to the point that people consume them as commodities instead.

Agreed!

And he also conveniently forgets to mention that computers increasing in power comes from research & technological advancement.

Both these things are possible because of investments. Why would someone build a 2b$ factory to produce new chip when they could sit on their money selling the same chip forever.

The only reason prices get so low in the first place is that no one wants to buy anything. The same amount of goods is now divided among much fewer people. Which makes the people who aren't hoarding incredibly rich at the expense of the hoarders, since the hoarders aren't getting any of it.

The second the hoarders "cash out" prices go up back to normal to cover the increased demand. They only gain insofar as the actual amount of goods in the economy increases (which is natural deflation.)

And in a real economy most people who save money do so by investing it or putting it in a bank, which lends out 90% of it back into the economy anyways. At the end of the day, the loans are paid back and they get the same amount of bitcoins back, so its all the same to them, but they also get interest.

The analogy I like is that traditional currencies work in the same way, the money supply is the 10,000 coins and the central bank represents the 99 people and has the 1,000,000 coins. (In practice they have an infinite amount but whatever)

In traiditional currency systems the central back adds more money to the supply by buying financial products

In your scenario the 99 people add currency to the money supply by buying whatever they opt to buy.

The differences are that the central backs can print as much currency as they want rather than being limited to what they bought earlier and that it's many people vs one institution with some mandate to keep the currency and economy stable.

That said, if I was one of those 99 I would be careful and probably collude with the other 98, if I tried to cash out too fast I would collapse the value of bitcoin and the rest of my investment would be rendered valueless. So they do have an implicit motivation to preserve stability.

You actually have an incentive to collude and carefully manage the market, then crash it and buy all the money back and go back to hoarding it.

With sufficient deflation, you end up spending less on necessities (food) then the rate of increase in the value of your horde. Making you the permanent upper class, and making everyone else the permanent lower class. It's a return to feudalism.

"Buy an economy" is a meaningless term. They can either buy products and services or invest. And this is dangerous why? If they decide to start spending their money, this would indeed mean temporary inflation as the money supply circulating would increase. But this also means that they themselves, the rich ones, will lose a lot of the value of their remaining money. Also, they wouldn't be able to spend it all at once, so with each new chunk of investment the value of their money will be less and less and less.

The truth, as it turns out, that in a deflationary system rich are only rich as long as they don't spend too much and invest wisely. Thus the incentive is there to continue hoarding, even though this incentive is quite different from the incentive of the poor: for the poor in a deflationary system the incentive to hoard is making money. For rich the incentive is not losing them.

I don't think you're thinking this through properly. The same loss of value will happen no matter how they spend or invest their money, so a rational wealthy person should conclude that it was never really "worth" the face value in the first place. (What good is money that only holds its value if you never spend it?) So that's not an incentive against spending.

It's not really a left or right thing. You have to have inflation via devaluation of currency to fuel investment.

In a fiat system based on devaluing currencies and inflating prices, money shrinks if it is not moved, invested, paid interest on. Why invest otherwise? Just have a feudal-based gold backed system and sit on your gold like a king, loans will lock up creating depression without inflation/interest over deflating reserves to fuel investment.

This is why non fiat currencies or gold backed would put too great a power in mining kingpins like oil does on groups like OPEC. I'd rather have the inflationary system controlled by bankers or algorithms that can keep economies going when they lock up.

A fiat currency where the rates are a throttle mechanism but the throttle has to be watched closely and as public as possible for trust. A currency bound to a physical thing like gold is no longer a good system.

Bitcoins, adjust in currency and value by mining new circulation via algorithm/time/market.

"The money supply is automated and given to servers or "bitcoin miners" that confirm bitcoin transactions as they add them to a decentralized and archived transaction log approximately every 10 minutes." - devaluation built in, we'll see if it is is enough of a lever and who controls the lever or spigot as they say with oil, that sets the price. More importantly, who do you want controlling that?

The article has a great circulation graph that shows it is almost linear, is that enough to make it through large crashes? http://blockchain.info/charts/total-bitcoins?timespan=all... Will it draw slow circulation if there is a crash? Will it pick up circulation if there is too big a bubble? This is where a centralized oversight starts to look good.

Best thing about bitcoin markets, they never close! No after hours shenanigans and rushes at open and close.

  You have to have inflation via devaluation of currency to 
  fuel investment.

Incorrect assertion presented as fact. Why does anyone invest in hyperdeflating computer power, which rises exponentially in value relative to the fiat dollar? Inflation disincentivizes investment in the asset losing value in real terms, namely dollars. People are flooding into bitcoins because they have the opposite trend from dollars. And yet they will spend on things they need, rather than things they want, just like people still spend on computers. Hyperdeflation followed by moderate steady deflation means the death of the 30 year mortgage, the student loan, and all the other mechanisms of debt slavery. Deflation incentivizes production over consumption, savings over debt. These concepts are alien to the America of 2013 but weren't always so.

Just like anything, you have to have the right balance of deflation/inflation in the market + devaluation of currency. This is why the throttle is key, who controls it, on what basis. I think this is the exact opposite, I think devaluation of a currency over time allows markets, investment, loans to thrive. If your money is shrinking you have to invest, the market will beat the mattress stash over time always due to this.

When you invest you create bigger dollars. Someone paying interest their actual value of their dollar might be .85-.95 where the person collecting 5% interest is collecting 1.05 during that same period simply by investing rather than money sitting at 1.00 doing nothing or shrinking due to devaluation.

I sum it up as this, poor people pay interest, rich people collect it. Without devaluation of currency and if the currency just naturally grows at a rate at or higher than inflation or deflation for too long, why invest then, why take the risk if your money grows without investing? The feudal gold conundrum - the mere fact of people being born makes you richer because they have less and there is limited supply? Supplies have to increase, thus currencies have to be devalued. Devalued currencies lessen risk of investment because if you aren't investing you are holding smaller dollars over time. This fuels products like the 30 year mortgage even more, without this banks wouldn't loan as easy. People don't invest as much in deflation because they are overpaying or buying high, holding onto cash is better during those times, so increasing circulation and spending actually fuel investment due to devaluation. It is all a balance and has and will continue to evolve, it works for the most part with fiat levers to get through turbulence and momentary irrational behavior.

Heh. I don't get what you're so exited about. There's 2 possibilities. 1) You're wrong 2) You're right

Now let's analyse the situation: 1) pretty obvious. Everyone who invested into bitcoin loses a bundle. When media attention dies down for some reason, or negative attention comes (e.g. a -partial- hack of bitcoin, last exchange shuts down, ...) the value crashes to zero.

"Debt slavery" continues.

2) Exactly what you claim happens will indeed happen : "People are flooding into bitcoins because they have the opposite trend from dollars". If this is true, then nothing will be able to stop it, and bitcoin will win over traditional currencies.

This will be followed by exactly what you say "the death of the 30 year mortgage, the student loan, and all the other mechanisms of debt slavery. Deflation incentivizes production over consumption, savings over debt".

Now let's assume you're born to parents with average wealth worldwide in a world where bitcoin is the only currency, and loans are impossible, due to the savings imperative of bitcoins. You can't get loans.

Everybody who today can't buy a house without a mortgage will have NO WAY to buy a house (saving houses will be just as imperative as saving bitcoins, and leaving them in your own property will be more valuable than ever selling a house). Result : most of "the 1%" does not even have financial means to buy a house in anything within 50 km or so of any major city.

You can't get student loans ... but that does not lower the cost of getting an education. So what happens ? Again anyone outside of "the 1%" cannot get anything but basic education for their children, if that. Keep in mind that we're not even 50 years removed from a time when my family could only get high school level education for ONE child (and the church paid for my father's university studies), the others would never get anything exceeding 7th grade. Even sending one child to university required both parents to work, work better jobs than most in their town could get, AND 2 children to work. This did not enable them to provide comfortable education (own room was completely out of the question).

The cost of an education beyond 12-13 years of age is essentially 20-25% of whatever wage you earn, not in a year, but in a LIFETIME. (because you'll be studying from 13 years up to 22-25 years, depending, which are years you could be productive. You were expected to be productive from 13 to 55 or so. So it represents ~25% of your lifetime wage to send ONE kid to school).

Even that 20-25% is assuming that everybody earns essentially the same, which is obviously not true. Let's say that you earn 50% less than what you would earn given that every job, president or cow herder, would give you the same amount of money. That makes the cost of sending one kid to university 50% of what you earn in a lifetime, give or take.

In other words : no university education anymore, except for the superrich.

Now in option 2 you might think that you'll be among the superrich. But we've had this situation in history many times, with limited money supplies. It can be summarized easily : it takes 30-50 years for the elite to shrink down to less than 1 in 100000 people, after which there is a revolution where all those rich are decapitated or worse, and we start over with a new set of rich. Are you really sure that when you take the 100000 people around you, that you are the best businessman/negotiator/... whatever makes one rich ? I can believe you can best 10 people, 100 if you're good, 0 if you're a geek. Best in 100000 ? I don't believe that.

Even if you do become part of the superrich, read some accounts of the french, russian, or various eastern european revolutions to read what happens to the rich after maybe a decade of luxury.

Also please keep in mind that the wealth debt slavery provides (the "value", the thing money's supposed to represent, but is not equivalent to) is vastly more than the value that is provided by mercantilist or feudal systems. The superrich in the bitcoin world will not have the standard of living that todays debt slaves enjoy, with one exception : their ability to hire others. Humans (and human life) will be cheap. A private tap with running water (not warm) requires being in the 1% richest. Computer access is effectively limited to 1000 people worldwide. Private computer access will be unheard of (fortunately, this will obviously destroy bitcoin).

Bitcoin represents a return to the monetary system of the dark ages. It may win, but that is not the outcome anyone wants to see, at all.

I'll take debt slavery, thank you very much. So will the rest of the 99%, and if you use bitcoin to drive it to the point where it takes killing anyone who own bitcoin to restore debt slavery, it is a matter of time until we call your bluff.

Of course, knowing human nature we'll pick option 2 and start killing eachother after a decade or so, and then a century later we'll resume the debt slavery thing and know a century of progress again.

You seem like you are interested in a reasonable conversation. I'll do my best to tamp down the rhetoric and go a few rounds if you're game. Let's start with this:

  Everybody who today can't buy a house without a mortgage 
  will have NO WAY to buy a house

This is the root of our disagreement. Our fundamental premise is that housing is artificially expensive because Bernanke is printing 85 billion dollars per month to buy mortgage backed securities, diluting you down in real terms and simultaneously bidding up the prices of houses and enriching the banks. QE makes the banks richer and you poorer.

In the absence of this artificial demand, house prices come back down to much more reasonable levels. And you won't need to go in debt to buy a house (people had houses before mortgages existed, just like college used to be less expensive!). A sharp drop in housing prices is where the market was headed after 2008 until Bernanke started propping up prices with endless rounds of QE (literally endless, QE4 is to continue indefinitely.)

So: do you agree with the premise that housing prices will decline if Bernanke was not printing $1T/year ($85B/month) to buy mortgage backed securities? And if not, why not?

Sure people had houses before mortgages. They had sucky self-built houses on land they didn't own but rented, and nobody had any incentive to sell land, especially not to small time buyers. The UK still has the remains of that system, though there it's watered down enormously.

Do you agree that bitcoin massively disincentivizes spending anything but tiny amounts of currency ? Or at least, that it would have that effect if it was the only currency.

Hoarding is not saving.

Saving generally involves investing, the money is used in a variety of other ways. The money grows (hopefully ahead of inflation) by being used to fuel growth. Savings that are not invested slowly lose value, a good incentive to either invest or spend and keep everything flowing.

Hoarding BTC is much the same as stuffing cash into a mattress, it's totally unproductive. A currency that rewards hoarders is not useful.

Also this is not a left-right issue. You'll find many on the right who are in favour of a small, controlled amount of inflation.

When I first read you saying;

> And now we are finally going to have an empirical test where the left can't wave a gun at the right to force them into inflation.

I thought you were being hyperbolic, and then a few responses down;

> I'll take debt slavery, thank you very much. So will the rest of the 99%, and if you use bitcoin to drive it to the point where it takes killing anyone who own bitcoin to restore debt slavery, it is a matter of time until we call your bluff.

I can't believe that there are people that honestly hold this position and are completely OK with it, give me debt slavery or I will kill you or die trying.

Fuck this species.

The Left, in fact, is anti-capitalist entirely. Please stop trying to build false dichotomies to support your right-wing views.

Oh, I agree with you, though this is not often explicitly admitted after the late unpleasantness of 1917-1991. Bernankeist inflation seizes money for the central government slowly via dilution, while the USSR/Maoist PRC variety seized it more overtly. Same leftism, only a difference of degree. Though with Cyprus we begin to see chronic Bernankeism drop the mask. With Cyprus we begin to see the anti-capitalist core come to the surface: "all your moneys are belong to them". 100% seizure of all bank accounts over 100,000 is de facto communism.

But the anti-capitalists need to understand that they are soon to be completely undone by technology. It is going to be impossible for central governments to seize wealth once Bitcoin ramps up, just as defcad.org has made it impossible for them to seize guns. The universities? Nuked by MOOCs. The media? Bankrupted by the Internet. All the left's citadels are aflame.

And it is glorious.

Actually, you're continuing to operate according to the idiotic American Rightist definition of "the Left": "THEY WANNA TAKE OUR MONIES, OH NO!"

Yeah, no. Cryptocurrency presumes a proprietarian-capitalist legal system in the first place.

Capitalism is about private ownership of the means of production. Its financial superstructure can and will vary.

For that matter, his portrayal of the right is oversimplified, but that's politics for you.

Saving and hoarding are not the exact same thing. Saving is invested (on any variety of forms and risks), meaning that it is actively used in the economy to (at least try to) generate more value. Hoarding is just sitting on top of it, which is not a great for economy.

Unfortunately, this notion of saving is based on a rather antiquated understanding of how banks work. In modern banking, lending is not constrained by the amount of deposits or reserves that a bank has. The only thing limiting the amount of loans given out are capital requirements, and of course risk/return considerations of the bank.

The result is that putting money into a savings account of a bank does cause the bank to increase its lending volume.

Rather, the amount of bank lending is determined by how many willing and credit-worthy borrowers approach the bank. This in turn depends much more on the overall state of the economy (e.g., whether households are confident enough in the job situation to take on a mortgage, and whether businesses are confident enough of future demand to expand).

Note that saving actually tends to be a drag on those factors, because the first-order effect of increased saving is a reduction of aggregate demand.

The reason some economists believe that saving is good at a macroeconomic level is that they believe interest rates will adjust to such an extent that banks will be approached by more willing borrowers. The problem with that notion is that loan demand is not actually all that sensitive to interest rates. Even worse is the fact that (nominal) interest rates cannot drop below zero, and (real) interest rates cannot drop below minus the rate of inflation. This makes the conservative position on the economy (disregard the demand side and target low inflation) completely untenable, but I digress...

Fuck yeah. Great time to be a cypherpunk.

'the right prizes deflation' - clearly you know what you're talking about, not.

Deflation is the worst nightmare of every government - all governments, pretty much, want low steady inflation so people keep spending money (ie not whats happening in Japan for 10 years - which they are now fixing).

I think you are completely wrong: in your characterization of the left, in your characterization of the right, and in the ability of governments to affect the use of bitcoin. But you've got an interesting viewpoint, so you've got my upvote.

You may think that deflation and hoarding is bad. However people are drawn to it. Fortunately, you can't tell people what to do and where to store their money. Thus, a currency that allows hoarding will always be more attractive to people than the one which doesn't.

Soon enough people will learn that there is no deflationary spiral. They will also learn that currency can be both deflationary and move around. Bitcoin is divisible, so it doesn't matter if someone hoards a significant amount of it - trade will still flourish and enough transactions will take place precisely because you can divide one bitcoin into smaller parts.

> You may think that deflation and hoarding is bad. However people are drawn to it.

People are drawn to lots of things which are destructive. (Theft, rape, etc.) So what?

> Fortunately, you can't tell people what to do and where to store their money.

You actually can, and, more usefully, you can adopt a social convention in which the generally accepted "money" isn't particularly attractive to hoard.

> Thus, a currency that allows hoarding will always be more attractive to people than the one which doesn't.

Well, to people who are ignorant of its harms or who maliciously seek to cause them, sure.

> Soon enough people will learn that there is no deflationary spiral. They will also learn that currency can be both deflationary and move around.

A deflationary currency (if it was the only one around) might still move around in exchange, especially for necessary consumables, but it creates a disincentive for investment, because the appreciation of the value of the currency makes it compete with investment vehicles, which encourages hoarding over investment -- and the more hoarding that occurs, the faster the money supply shrinks and the faster the exchange value of the currency rises, increasing the incentive to hoard. Its a classical positive feedback loop, which inevitably lasts until the currency is reformed in such a way that removes the deflationary features (impossible with BTC), external social/legal factors are imposed which limit hoarding, or until it is displaced as a currency and reverts to its commodity value (which, for BTC, is zero.)

I like your point about adoption. It makes sense that a deflationary currency would attract more people due to its speculative nature. Without this aspect of bitcoin, it would still probably be trading for pennies and languishing in relative obscurity. Any digital currency designed with an inflationary system will probably fail to attract a critical mass of users, because outside of anonymity, which is only important for a small minority, there is no significant upside to owning the currency.

Where I don't agree with you is that the divisible nature of bitcoin somehow makes it viable (most currencies are divisible by the way, 100 cents = $1). The fact is deflation suppress spending (and hence economic activity) because the currency will be worth significantly more in the future than it is now, and therefore, I would prefer to hold onto it rather than spend it. Divisibility does not change this.

Where I am still up in the air, is whether or not a digital currency needs to be inflationary. Gold has some industrial uses, but it's value is largely due to tradition and speculation. It has long been used as a common store of value and is bought by traders as a hedge against fluctuations in the global economy. Bitcoin could become the 'Gold of the internet'. A new way to hedge against the global economy, but other than that, not something that really affects everyday life, except maybe at the fringes (when was the last time you bought something with gold).

Please read this short thread where I explain why investment is still an attractive option with Bitcoin: https://news.ycombinator.com/item?id=5403360

I hope this changes your mind.

"Nobody invests. If that's the case, then the amount of goods and services in the economy remains constant"

No, if nobody invests, then there will be NO goods and services at all. That is a recipe for economic calamity, and would create a situation where guns and ammo would end up more valuable than any currency (what is the point of holding a currency if you can't buy anything with it?). I have yet to read a convincing explanation as to how deflation is a good thing. The general premise is that a 'little' deflation is a good thing because it encourages people to save, but the authors always fail to address the fact that deflation leads to more deflation and hence the 'deflationary spiral' that eventually causes things like the great depression. One author actually argues that the Great Depression was a good thing, but I don't exactly agree with that sentiment.

Once again, Gold is a better comparison to bitcoin than any fiat currency, because bitcoin is not a form of exchange for any particular economy and the dangers of deflation do not necessarily apply. More than anything, bitcoin is being used as a store of value. While this doesn't make for a good currency, it does not necessarily mean bitcoin is doomed.

My problem with this and BTC is that it isn't even a truly fixed currency supply - as people lose wallets, the bitcoins they contained are permanantly lost because only those wallets (that are now destroyed) are lost. So either you brute force the signing key and try to imitate the wallets or you will never get those coins back.

So it isn't just that BTC will (in a hundred odd years) stop growing the money supply, it will probably (sooner than that) start leaking bitcoins from lost wallets, and as the money supply drops deflation grows faster than with a fixed money base.

There won't be a lot of lost wallets. At least not enough to cause any kind of noticeable effect.

> There won't be a lot of lost wallets. At least not enough to cause any kind of noticeable effect.

With a fixed upper limit on the number of BTC ever issued, if wallets are lost at any non-zero rate, there will eventually be exactly 0 BTC that can be spent.

Why on earth would I participate in an economy with a deflationary currency?

Every day I would have to work harder or be paid less, all the while my economic output would be increasing the wealth of those who are unproductive but happen to possess currency. No thanks.

If you can get your employer to give you fixed salary in a deflation, your spending power goes up. If the employer adjusts down, your net buying power doesn't decrease if prices adjust to increased value of money.

Those who by and large run the world right now sit on their laurels letting their money (albeit, in "risky" investments rather than a box growing in value) make them even richer. While their money might be productive, they more or less aren't contributing anything else, and they do it in self-interest.

I'm not trying to argue for deflation, and I do think the design of BTC as a finite monetary supply is fundamentally flawed, but deflation and inflation respectively benefit someone - deflation those who hoard, and inflation economic growth. But both depend on people who have the money in the first place.

> If you can get your employer to give you fixed salary in a deflation, your spending power goes up.

Yeah, but you can't. BTC is deflationary because of built-in supply constraints. Its trivially obvious that you can't expect a fixed salary in it unless you have a shrinking pool of employed people.

> If the employer adjusts down, your net buying power doesn't decrease if prices adjust to increased value of money.

If the employer adjust down at or slower than the pace of deflation, your buying power doesn't decrease, just as it doesn't with an inflationary currency if your employer adjusts up at or above the pace of inflation.

Of course, if your employer is paying you in Bitcoins, they need to get them from somewhere, and with a deflationary currency which encourages hoarding and discourages both spending and investment, good luck with your employer having much success with that.

> Those who by and large run the world right now sit on their laurels letting their money (albeit, in "risky" investments rather than a box growing in value) make them even richer.

Investments aren't money, they are things purchased with money.

> While their money might be productive, they more or less aren't contributing anything else, and they do it in self-interest.

Right, currencies managed to be mildly inflationary harness the self-interest of the rich to produce diffuse benefits (which, unfortunately, are often counteracted by things outside the currency system itself, but that's a different issue), while currencies designed to be deflationary harness the self-interest of the rich to produce diffuse harms (which, unfortunately, are often aggravated by the same things outside of the currency system that mitigate the benefits of inflationary currencies.)

I dunno, at least the likes of Warren Buffet get richer by profiting from stuff they actually invest in. Deflationary currency seems to remove this link, and in fact make investment a much less interesting proposal.

You won't be paid less. The money you'll be paid would worth the same, numbers don't matter. Also, your savings would increase in value as everyone else's.

I find it very common even here on HN that many people fall for this fallacy that money == value.

You miss my main point - that the rewards of any economic growth produced by those doing productive work in a BTC economy is enjoyed by those hoarding, not by those producing. Work performed in the past is valued higher than work performed in the present.

As a result anyone with enough old money can parasitise on productive society forever, to the nth generation. And instead of doing so by (at the very least) stimulating the economy through investment, they can do it just by sitting on their mattress full of cash.

Again, why would I participate in an economy where my hard work is of direct benefit to people just sitting on cash?

That's a valid concern but it doesn't stand scrutiny. Production itself doesn't create deflation. If the number of goods and services in the world remains more or less constant, it means there is no deflation. At the same time, people will still be working and producing things.

It's only when money are invested then you have a surplus of things in the economy which deflates the money. By investing, hoarders allow others not-yet-rich people access to capital. Thus, if hoarders want to become richer they will have to make rich others too.

"If the number of goods and services in the world remains more or less constant"

Does it though? I thought we were all addicted to growth? If we continue to have any growth then with a limited cash supply, each unit becomes worth more (deflation).

"By investing, hoarders allow others not-yet-rich people access to capital."

I'm not clear on how you think this works, because (AFAICT) hoarding BTC is just holding on to currency, not any sort of investment?

" Thus, if hoarders want to become richer they will have to make rich others too."

Or they can just sit on it while others do the work and achieve much the same with no risk...

Ok, I think you misunderstood my statement. I was saying this: if you want growth, you need to invest. If you don't invest, you don't get more goods and services in the economy. If you don't have more goods and services, each unit of money can't grow in value (e.g. no deflation) because there wouldn't exist more things you can buy. Thus, if you want money to increase in value, you have to invest.

It's a tricky circle, but once you understand it, it all becomes clear.

Yes, but if currency is deflationary, it's best for me if someone else does these things and I just sit back and profit from my currency holdings.

Not necessarily. By investing you take your destiny in your own hands: you deflate your savings and also collect profits. It is not a given that those just sitting around will profit more from inaction, but it is true that you make them richer too. Well, I can live with that.

This point disturbs some people because it implies that they should not mind hoarders, and continue business with BTC as usual. But people mind (more or less) hoarders because they are: 1> worried about their apparent (and seemingly growing) power over the value of the currency, or/and 2> jealous.

The deflation argument is brought up a lot around here, I wonder if you've read this article:

http://www.forbes.com/sites/jonmatonis/2012/12/23/fear-not-d...

> Contrary to the central banking and political class insistence that deflation must be prevented at all costs, an economy with a monetary unit that increases in value over time provides significant economic benefits such as near zero interest rates and increasing demand through lower prices. Let’s look at some remarks from leading thinkers on deflation.

Indeed, let's look at some remarks from some leading "thinkers" on deflation:

> Deflation rewards the prudent saver and punishes the profligate borrower. The way a society, like an individual, becomes wealthy is by producing more than it consumes. - Doug Casey

Moralistic pseudo-economical bullshit. Want to know some scandalous borrowers' names? Steve Jobs, Thomas Edison, Warren Buffet, I could go on. The last sentence is so wrong it hurts; a pro-capitalist economist should know very well that, in a market economy, production equals consumption. Shame on him.

> Deflation puts a break–at the very least a temporary break–on the further concentration and consolidation of power in the hands of the federal government and in particular in the executive branch. It dampens the growth of the welfare state, if it does not lead to its outright implosion. - Jörg Guido Hülsmann

Holy fucking shit Batman, you just did not make the case for deflation based on your pet political fringe worldview. For the record: one, the "executive branch" is not a monolithic entity, and the central bank is quite independent from say, the president; two, what you call "nanny state" is my "minimum decency and human rights state", so thanks for the monetary coup d'etát; three, what about constant, steep deflation favouring by nature the concentration of power into a oligopoly of capitalists. But I guess, since it's a oligopoly of capitalists, it's all OK.

> George Selgin rightly distinguishes between malign demand-driven deflation which is an unfortunate secondary effect of a central bank-manipulated, inflationary malinvestment phase and benign deflation which is the result of an increase in productivity.

Yeah, dude should also talk about malign deflation that's designed into your currency. Nothing to do with increased productivity, incidentally. One wonders whom these leading thinkers lead, and where...

Really, I'm most sympathetic with the notion that lowering prices will increase demand. True, however, we're interested here in the matter of lending and borrowing, which is, in my opinion, very worrying. Of course, I'm not an economist, so I might very well be wrong. However, these gentlemens' arguments do nothing to persuade me.

> increasing demand through lower prices

This sounds nice in theory. In practice, prices fall only very slowly, if at all, due to the way that prices are set in practice: Producers decide how much they want to charge, and they are naturally inclined to charge more rather than less. This might be different in a world where the price tags are made by customers, but we have to work with the world we live in.

By the way, this is probably the best argument for tolerating a modest rate of inflation (e.g. 5% or so): For "the market" to work well, relative prices need to change to reflect the changing reality of production and consumption. Since the mechanisms of how prices are set allow prices to rise faster than they can fall, it is a good idea for the average price level to be increasing at a modest pace.

"that is a deflationary monetary system, [...] being a much bigger issue"

The market currently proves you wrong. This is not an "issue". Everybody knows about deflation, yet spending is massively increasing. BitPay alone recorded a merchant transaction volume increasing from $687k in February to $5.2M in March. (BitPay is the largest Bitcoin transaction processor, providing a very clear indicator of whether people are spending or hoarding).

http://www.marketwatch.com/story/bitpay-eclipses-silk-road-i...

How much of that volume is ASIC purchases, which are essentially a form of speculation on the future price of Bitcoin themselves?

What are the ASIC producers doing with all their bitcoins?

In many cases, they're not receiving bitcoins in the first place. BitPay allows merchants to receive the USD equivalent of their incoming payments minus a small fee, and at least one major ASIC manufacturer does it this way.

It works because people value goods they can get with their coins more than the appreciating value of coins in the future.

The problem everyone is having is not about coins being used for exchange - any money will provoke people to spend it on the things they value more than the money itself - but on how a deflating currency makes investment less prominent because it requires even higher returns than the rate of the currency appreciating value.

For most people the deflationary part is a good thing. If you don't spend them they actually increase in value. Or the people selling things for bitcoin who will get more and more value over time without having to increase prices.

It would hurt people who borrow money, but that's not what bitcoin is primarily used or was intended to be used for, and the interest rate people borrow money at could just be adjusted accordingly. (Which would then encourage people to loan instead of hoard as the amount of bitcoins they get back at the end of the day would be the same either way, but this way they would get interest on top of it. So your "hoarding" problem is self correcting anyways.)

If someone was hoarding bitcoins it doesn't hurt or affect anyone else. Your central bank inflating it wouldn't just punish hoarders, but everyone who used the currency. To the benefit of whatever group controlled it or got the newly "minted" bitcoins.

Bitcoin does have a built in way of inflating the currency by people "mining" more of it, but that was a necessary evil of getting the first bitcoins into circulation relatively fairly. There is no actual benefit of having people wasting vast amounts of computing power otherwise, or making everyone else's money worth less.

It's not excessively volatile. Relative to its market capitalization, its volatility is quite low:

http://bitcoin.stackexchange.com/questions/3338/how-does-bit...

As for being deflationary, that hasn't stopped the rapid growth in the number of transactions per day:

http://blockchain.info/charts/n-transactions

I posted this elsewhere, but it applies here:

A gradual rate of deflation didn't stop world markets when they used an international gold standard.

Very few people forgo buying something they need because they could get 2% one year later if they hold on to the currency.

I think deflation IS economically inefficient, but the negative effect of slight deflation has been exaggerated in the popular economic literature.

For a peer-to-peer currency network, a fixed money supply could even be beneficial by creating an incentive for bitcoin holders to invest in the technology.

Bitcoin is working, has created the most powerful distributed supercomputer in the world, and is processing an increasing number of instant global transactions every month.

It works in practice, as a medium of exchange, and that is a better argument for it working as a currency than theories about how deflation affects economies.

Isn't a central decentralized bank an oxymoron?

Perhaps the intended meaning was 'multi-legal-jurisdictional'.

What we are moving into is not a world with one cryptocurrency that is hoarded or inflated - but rather a world of many many cryptocurrencies where people will move from one to another adjusting to the circumstances. There will be the 'lateral inflation' in creation of new cryptocurrencies. When the old ones become stuck into the deflation spiral - new currencies will be used eventually unstucking the old ones, by making them less attractive.

I have not looked into the details - but Ripple looks like hitting the nail on the head.

This is so wrong.

Bitcoin is excessively volatile now, and probably will be for a while. This is due to many, many reasons related to its age as a currency. The exchange rate will never be stable, but will not always be so volatile.

Regarding deflationary monetary systems, there is much debate. However people exchange things of value when there is mutual benefit - when something I have is worth more to you than to me, and vice versa, we will exchange as it is mutually beneficial. If an asset is appreciating, it affects what value I give it and for what I am willing trade, but it does not disincentive trade - it only changes the value calculation.

If I have $100 that will probably be worth $90 in 5 years, I'm willing to trade it for something that adds about $90 of value to me over the next 5 years. If I have $100 that will probably be worth $110, I'm willing to trade it for something that adds $110 of value over the next 5 years.

I think the anti-deflation argument is entirely bunk, and inflation has dire consequences for those who have fewer assets and education to protect themselves.

Royal Canadian Mint tried a "crypto-currency" called Mintchip. They only had 500 devkits and it had probably a ton of security issue, but it's great to know that they are interested in this kind of technology.

Additional issues with bitcoin include significant and growing implementation complexity, legal environs, and latency.

You would probably like http://freico.in which incentivize sustainable investment.

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