Bitcoin Will Spiral Up and Down Forever | Hacker News Reader

Bitcoin Will Spiral Up and Down Forever

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13 pointsczr8010 comments

I think these massive deflationary cycles will only cease when it becomes the currency of record for more than just exchanges.

But that's my layman's speculation. I have no economic training. Feel free to repudiate.

I'm a bitcoin skeptic but not for this reason. If this were true than we would have never had a functioning currency until fiat money, but we did. (Since gold, ergo money, was a scare resource as well.)

The biggest hurdle to bitcoin is simply that so far it has not registered on the radar of world governments. If bitcoin ever gets to the point of being a legitimate participant in the currency wars, it will be facing the wrath of all central banks and governments. They will find a weakness.

> The biggest hurdle to bitcoin is simply that so far it has not registered on the radar of world governments.

http://www.ecb.int/pub/pdf/other/virtualcurrencyschemes20121...

I guess "registered on the radar" was too loose a term. More like "this is something Ben Bernanke thinks about when he makes decisions."

You can subdivide gold and other scarce resources. A gold bar you might trade with is 12.4kg, or at current market rate, about $700,000. But you wouldn't carry that to your local market to buy some toothpaste and a toothbrush, which might be valued at $5. But you can remove a small portion of the gold so that the trade is fair.

Can you give someone one tenth of a bitcoin?

Yes, Bitcoin is divisible down to extremely small fractions.

To clarify; the smallest division is the Satoshi, at .00000001 bitcoins.

Yes. Bitcoin division is dramatically simpler and more precise than that of any physical material.

> But you can remove a small portion of the gold so that the trade is fair.

You wouldn't do that. If you had a good coin and cut a piece to pay for a small amount you'd lose value - you can't immediately the fineness of unminted gold, and your merchant knows it, and you'd end up with a bad coin, the weight of which is not immediately clear. This is why most all cultures evolved to use coins.

There was also a flourishing credit economy, because the smallest coin that a merchant would take was something like the weekly wages of a labourer, and this credit economy was what smoothed out fluctuations in this otherwise deflationary environment.

I guess that's what Bitcoin is missing.

> I'm a bitcoin skeptic but not for this reason. If this were true than we would have never had a functioning currency until fiat money, but we did. (Since gold, ergo money, was a scare resource as well.)

Eh. Gold and silver were always being mined and lost, and whether they were actually inflationary or deflationary can depend on other things like population growth. (If the size of the real economy is growing X% but the supply of gold is growing <X%... And then you have things like the conquest of the New World.)

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