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Comment by snitko | Hacker News Reader

A lot of people ask this question, but forget to look at a very apparent and distinct characteristic of Bitcoin: it's opensource. If another awesome and very useful feature appears in Litecoin nothing can prevent Bitcoin maintainers from implementing it too. In fact, there's every incentive for them to do so, because their own reputation and assets in bitcoins are at stake.

Thus, while a competitive currency is possible, it may not be needed for Bitcoin to remain a great product. It may well be this mystical natural monopoly in a field economists would hardly predict one to appear.

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Except when the competitor introduces something that goes against the very fundamentals of Bitcoin yet appeals to "the masses". Such as, slightly inflationary instead of intrinsically deflationary. Would make the competitor more of a currency --something that circulates and lubricates commerce-- so medium-of-exchange rather than store-of-value. Now if that took off as the way to pay for Pizza or guns online, what would happen to deflationary "high-value" speculative BTCs, having lost most of their "currency" potential?

Tell me more how an inflationary currency would appeal more to the masses. You're being delusional - it appeals to Keynesian economists.

It appeals to those that borrow money because it means their debt is being eroded through inflation.

That only means people will borrow less and the denial of capital some may face will be exactly to the extent to which they profit from deflation and hoarding. Borrowing is not the solution to all of the problems, yet it is pictured to be that precisely because of the perverted inflationary economy we currently have.

Don't interest rates generally factor in inflation?

Also, perhaps it would be a good thing for some of us to borrow less money...

Because inflation discourages hoarding. It encourages people to actually do something with their currency. Use it, generate economic activity, make it grow through investment, etc.

This cannot be further from the truth. Inflation encourages people to spend, that's true. However there's nothing in inflation that encourages the right kind of spending. If I'm not sure what to invest in right now or don't see an opportunity, I may want to hoard for a while. Inflation punishes careful investors, so more stupid and risky projects are funded.

Let me give you another example. Let's say I decided to bootstrap my own business using only my savings which I intend to live off for a year or so. Inflation decreases the time I have to bootstrap my business so instead of a year I may only be able to afford 8 months, which in turn decreases my chances for success. Thus, it is precisely the productive entrepreneurs and innovators who are punished.

You're being silly. Typical rates of inflation tend to be less than 5%, often around 3% or so, per year. That's not enough to cause anyone serious worry about their savings becoming diluted over a period of a year or even a few years. At 3% inflation it would take 7 years of letting your money sit around doing nothing before the savings necessary to survive for a year degraded to only being able to support you for 8 months.

I rather think that's more than enough time to figure out how to invest.

You're not taking into the account the time it takes to accumulate the necessary savings! For many people who start their businesses it may as well be 5-7 years.

You're also not taking into the account such investments as buying a house. In many non-western countries people actually save for that instead of borrowing. It is still an investment that creates jobs and inflation hurts that.

So, put your savings in an interest bearing account. Doesn't seem to be rocket science to me.

If only there was a currency that would do it for me even better than a bearing account. Oh wait.

Beautifully illustrating my point. Inflation forces people to get off their butts. To put their money in investments. To loan it to other people with interest. To use it to build businesses. To buy durable goods and land and so forth.

There's no such thing as money for nothing. An implicitly deflationary currency comes at a cost, and that cost is the entire economy based on that currency. It stifles growth and activity compared to an implicitly inflationary currency. Which costs the individual a little over the short-term but benefits the entire economy as a whole. The end result being that economic growth spurred by the activity of people trying to avoid loss due to inflation more than makes up for that loss.

In the time since 1950 the US dollar has inflated by a whopping 840% (a factor of 9.4x), but the per capita GDP has grown by an even more impressive 3200% (a factor of 33x in nominal dollars), or 250% in inflation adjusted dollars.

InclinedPlane, your anti-deflationary arguments can be refuted in 4 different ways:

1. A deflationary currency strongly encourages businesses to maximize revenues today instead of tomorrow, because they know they can get more units of the deflationary currency today rather than tomorrow. This incentive does not exist with inflationary currencies.

2. If you had 100% confidence in Bitcoin being deflationary, you would invest in bitcoins. But the fact you do not (I presume) shows a very important point: you, like many, doubt Bitcoin will remain deflationary on the long term (eg. it might crash to zero). This uncertainty is why, despite being in theory deflationary, Bitcoin will continue to see a growing economy. People will continue to invest and spend bitcoins, because the future of Bitcoin, like the future of any currency (inflationary or deflationary), is fundamentally uncertain.

3. There is an often-cited counter-example to the argument that "people will not spend if they know prices will decline in the future" (as prices will in a deflationary currency): the electronics industry. Laptops, smartphones, servers, etc: prices are always decreasing. Yet this industry is very successful. Buyers are not afraid to spend money today, even if they know they can get the product for less tomorrow. This is because prices decreasing over time stimulate spending.

4. The traditional arguments against a deflationary currency only work within a self-contained economy anyway. Bitcoin currently exist as a side currency next to all other (USD, EUR, etc). People will still want to invest these currencies, and the Bitcoin economy being tightly coupled to others will naturally benefit from these investments. That's why for example we are seeing a bunch of Bitcoin startups popping up: Coinbase, BitPay, BitSpend, BitcoinStore, CoinLab, etc

Edit: downvoting me, seriously? I would like to know why.

1. Deflationary currency encourages extractive businesses, such as property ownership and renting. Inflationary currency encourages people to re-invest their profits in their business, and to grow their business as much as possible. In other words, with a deflationary currency people operating a business are encouraged to keep value in money mostly, with an inflationary currency people are encouraged to keep value in the business. It seems pretty obvious which of these encourage economic growth more.

2. I'm making an argument about deflationary vs. inflationary currencies in the abstract, Bitcoin itself is too complicated to fit into that argument except in so far as people arguing that deflationary behavior is a benefit to bitcoin as a currency. It certainly could encourage purchasing of bitcoins but I'm not convinced it encourages use of bitcoins as currency.

3. This is not a counter-example at all, because goods are not currency, they have an innate value. The cost of waiting for years to purchase some good that you desire (such as a computer or a cellphone) comes at a cost of spending years of your life without the benefit of being able to use those goods. And that cost may be significantly greater than the value of saving money.

4. Bitcoin as an investment only makes sense as a pyramid scheme, in order for it to have value it must be used as a currency. Regardless of the interaction at the edges that means that it must have some core use as a currency, which is currently not the majority use, and that's a bit troubling.

As to downvoting, HN wouldn't let me downvote your reply even if I wanted to so I can't help you there. I suspect someone disagrees strongly with what you've written but doesn't want to take the time to write a rebuttal.

I think people want digital currency to spend it with low friction rather than as a store of value necessarily.

How does this appeal to the masses? On an individual level, this is undesirable.

> You're being delusional...

I found this needlessly uncivil, making it more difficult for me to sympathize with your point.

You're right, I apologize. It was an unnecessary statement. I think I tend to be a bit passionate when it comes to certain subjects and it hurts the discussion. I hope the author of the comment I replied to didn't take it personally.

It's an issue that evokes strong passions, we've all been there.

Sorry if I made too big a deal about it. I'd just spent half an hour browsing comments on Reddit, it left me a little hyper-protective and self-righteous about this place.

Yeah I'm myself anti-"Keynesian" in the "what should be" department. In the "what is" department, I get the impression that, given an official sanctioned and sufficiently convoluted "vehicle", the "masses" don't mind consuming more than they produce for a while, as long the gravy flows. Else, current fiat wouldn't stand a chance with the electorate, even accounting for "propaganda" and legal tender laws etc.

A lot of political-philosophy replies here on the ills of inflation. That's not my main point.

My main point is: what if a non-deflationary competitor (so BTC couldn't just "copy" its defining differentiating feature) takes off as the way to pay for Pizza, drugs, eBooks or guns online -- will BTC discover its true "intrinsic value"? Or what will it do? The artificially induced, algorithmically guaranteed scarcity of crypto-bits'n'bytes is hardly worth $100, is it? Isn't 99% of BTC valuations expectations and bets abouts its glorious future as THE currency for digitally lubricated commerce and web-based bartering (or---others betting on others betting so)?

What part of BTC "reassures" its users?

For USD, people may look for reassurance at the might of the USG and/or FED (and global reserve status / oil settlements).

For Gold, people may look for reassurance at the past, many 1000s of years of tradition -- millenia of "giants" / kings / wealthy and powerful people / central banks who will always be interested in your shiny metal to store material excess.

For BTC, for reassurance people can only look at the future. Is this the coming digital currency (medium of exchange) par excellence? (And given its built-in deflation -- can it ever be?)

That is, ignoring the prevailing BTC2USD price-chasing speculating casino: what is the intrinsic reassurance of BTC that makes people fork over USD for BTC and that will remain a superior criterion even when a more "currency-esque" (not so very deflationary) alternative digital currency (transactional medium of exchange) comes along?

Well, I guess that's akin to asking "what if aliens invade NYC in September 2014?" -- answer being, we'll find out. ;D

I was vaguely aware that bitcoin was open source but not aware the code base was open for change and potential pull requests? Excuse my naivity but wasn't part if the design that the algorithm and everything was locked in upfront and not open to change? How is a new feature approved and merged into master?

Changing the code, creating pull request, and doing all of that is easy. The hard part is convincing users and miners to upgrade, especially with something that is protocol breaking.

Effectively the major mining pools control bitcoin since they determine what is likely to get accepted. Note that the devs had to ask the minners to down grade.

The funny thing is if several large banks decided they wanted to open minning pools, i'd imagine they could do so and then control all kinds of things. I wonder if this will happen (or if it already has. How many miners operate over Tor? )

Miners do not control the rules, they merely choose to accept or not accept them. That's a very important distinction that is a part of the checks and balances system in Bitcoin.

What would happen if all the miners got together and demanded a code change that benefited miners, like perhaps increase the mining reward? Assuming the devs disagreed with the change, would the BTC community have any way to prevent this alliance of miners from updating the code themselves, deploying it everywhere, and using their overwhelming mining power to maintain the longest block chain and thereby making the code change a reality?

How would miners demand? They can't say "do it or we'll stop mining", there will be plenty of competition out there willing to take their job. As for deploying the code themselves - it's not like you can deploy it and force people to use it, every individual user decides which client or version of a client to use voluntarily. They would have to convince people to switch to their fork.

Having the longest block chain doesn't matter if the transactions in your block chain violate the validation rules of the people doing business.

That depends on the kind of change. There is actually a list of changes that are of high impact to the network and block chain but may be implemented nevertheless

https://en.bitcoin.it/wiki/Hardfork_Wishlist

Of course, none of these are major economic changes. To quote the article "Please don't list anything here which would significantly change the committed overall economics of the system, it's safe to assume anything with significant economic impact will _never_ be changed in Bitcoin, because such changes would undermine the trust people have in the system, though they may form the basis of an interesting alternative chain.".

A recent example of a change that affects the P2P network, but not the block chain, is the use of bloom filters to make more efficient (but still secure) light clients possible.

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