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Comment by tonez | Hacker News Reader

The main line: "So I've been spending a lot of time looking at it. It's truly fascinating, actually, the way the currency's been designed and the way inflation is built-in to pay for miners and all that, it's truly fascinating. And I think, for us at PayPapl, it's just a question of whether Bitcoin will make its way to PayPal's funding instrument or not, and we're kind of thinking about it right now."

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inflation? I think he means DEflation

Bitcoin has inflation in the short term but deflation in the long term. Right now more bitcoins are still being generated, so I think the term "inflation" makes sense.

Not for the next 127 years.

In 8 years (by 2021) 90% of Bitcoins will have been issued. Strictly speaking, the supply is inflating continuously, though it is unlikely to ever be growing faster than future demand (we seem to have past that point within the last year). The only reason economists would call Bitcoin deflationary is the presumption of constantly growing demand.

> Strictly speaking, the supply is inflating continuously

what about Bitcoins being lost? perhaps we should also consider coins that are not used in the past five years also "lost".

>what about Bitcoins being lost?

At some point, the rate of loss may overtake the rate of new coin creation.

> perhaps we should also consider coins that are not used in the past five years also "lost".

Maybe, but be prepared for some of those to someday be spent, they may merely have been hoarded. I have dollars that have been in my possession for more than five years, they aren't lost as far as I am concerned.

This is known as seigniorage: http://en.wikipedia.org/wiki/Seigniorage

Interestingly, though, while (some) seigniorage is a good thing for a debt-based like the dollar, it's a bad thing for Bitcoin.

Even if you mark them 'lost', you can't just trivially reassign them. You would need to have the private key to be able to spend them, there is no other way.

Eh, not really. Economists would call a currency deflationary if it causes deflation, that is, if it inflates slower than demand does. Bitcoin is massively deflationary, and only inflating in a very pedantic sense.

I think assuming that Bitcoin will be (for practical purposes) eternally deflationary is the safest bet that could be made today. The world economy has been growing by triple digits every century. Not even now we're nowhere near a global Star Trek post-scarcity future. So it's misleading to say that Bitcoin is deflationary "based only on a presumption". Somewhat like saying that physics is just "based on the presumption of Newton's laws".

Does the divisibility of bitcoin make any difference? If they changed the protocol now and then so that the number of decimal places (currently 8) increased to 9, then 10, etc, would that be viewed as increasing the supply of bitcoins?

If the US government started minting 0.1 cent coins and 0.01 cent coins, would that be viewed as increasing the supply of dollars?

If the USD was deflationary, then maybe it would?

In Bitcoin the supply and availability of currency are decoupled. By funging or splitting a unit of Bitcoin currency into pieces you increase the availability for use while preserving the value of everyones holdings. Based on the supply and demand the price will fluctuate independently of supply levels.

My understanding is that regardless of how inflationary or deflationary Bitcoin is, there will be no effect on the availability for anyone to buy and sell.

If Zimbabwe adding extra zeros before the decimal point to its money doesn't cure inflation, then Bitcoin adding extra zeros after the decimal point won't cure deflation.

Zimbabwe was very different: the amount of money people had was devalued by new notes being printed that had extra zeroes before the decimal point.

Adding extra zeroes after the decimal point for money already in circulation leaves the total supply the 'same' but could also be viewed as increasing supply 10-fold, without disadvantaging anyone currently holding the currency.

Its never happened before, so I'm not sure many economists have thought about it

Changing denominators has an effect on the liquidity of small transactions, but it's not going to change inflation.

What inflation does in an economic sense is much bigger - it changes who has relatively more or less wealth or debt over time. If you take out a loan for $10,000 and inflation makes both your prices and wages go up 2x, then you now have half as much debt.

Deflation does the opposite and makes debt more and more expensive. This is why most economists are against it - debts that grow more expensive will trap people. Historically, debts were forgiven by decree (a jubilee) because the system kept breaking.

To me this is one of the most interesting things about Bitcoin. It is an asset based currency. In a debt based fractional reserve dollar economy you or someone else owes that currency back with interest. The economy is like a game of musical chairs. If a society was based on something like Bitcoin everyone could have assets, there wouldn't be as a strong need to borrow as there is today.

If Bitcoin was a predominant part of an economy borrowing a loan in it could be very bad. In a predominantly Bitcoin based economy everyone could have abundant wealth and there would be no need to be a debt slave.

Inflation killed the Zimbabwe currency because delusion caused it to become worthless not because of availability or velocity issues that people are worried about in Bitcoin. These are two separate issues that people always seem to talk past each other on the subject of Bitcoin deflation. Splitting a Bitcoin into smaller units allows for unrestricted availability and velocity. Anyone can always buy and sell at market rates to complete a transaction. Inflation or Deflation of the currency has no effect on its availability. So why is it bad if it is deflationary?

limited supply of bitcoin means that the value of bitcoin will probably inflate. equivalently, prices of goods and assets denominated in bitcoin will probably deflate.

In the context of mining, I think what he really meant is neither inflation nor deflation, but rather issuance. (http://en.wikipedia.org/wiki/Central_bank#Currency_issuance)

He used an imprecise word. He meant something like "supply increase". Both inflation and deflation are incorrect because both require speculative opinions, and he was referring to the way the total number of bitcoins outstanding increases over time, which is a fact.

The price relative to other currencies deflates as long as demand rises. The total number of Bitcoins inflates (at a decreasing rate) for the next 100+ years.

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