Hacker News Reader

Comment by unoti | Hacker News Reader

Float compared to supply and demand in a free market. Instead of issuing 1-hour coupons, they should have issued an arbitrary currency, say, Shillings. Then buyers can request babysitting paying at 1 shilling per hour, and sellers could say that they want 1.3 shillings per hour. The value of the currency needs to float with supply and demand.

The whole argument in the article is a pathetic straw-man. The value of bitcoin floats with supply and demand. When the supply is fixed when bitcoins can no longer be mined, then the supply is based on how much is circulating vs being held.

View on HN

The value of bitcoins floats with supply and demand, that is correct. However the demand for any currency is tied to the supply/demand for the total number of goods that are sold/bought with that currency. As the value of these goods rises over time towards infinity demand for bitcoins will rise over time towards infinity. Supply of bitcoins on the other hand is inevitably slowing down and thereby the value of bitcoins will rise towards infinity.

This makes it very cheap to "import" goods but prohibitively expensive to "export" any. It also provides a huge incentive not to spend or lend any money. Demand will fall, loans will be harder to get, innovation will come to a standstill and overall the economy will collapse.

This is called deflation and this is why we have huge central banks full of well educated people carefully monitoring the economy to adjust inflation and deflation.

Interesting. Do we have the same situation with gold? Continuous deflation, caused by constant supply combined with increasing demand, causing its value to rise to infinity?

How is gold different?

Indeed it does apply to gold and to currencies using the [Gold Standard](http://en.wikipedia.org/wiki/Gold_standard) which has caused problems in the past, which is why it isn't used anymore as a currency on any significant scale.

Yes. This article gives this other little nugget.

> If you have a $10 bill and I replace it with ten $1 bills, do you feel richer?

If I exchange a $10 bill for ten $1 bill, I don't feel any more wealthy. However, if my $10 buys ten times as much stuff, then I would feel 10 times more wealthy.

Reply on news.ycombinator.com