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Comment by javert | Hacker News Reader

> The built-in deflation is a fatal flaw

Yeah, I mean, gold didn't work as a currency all those hundreds of years. /sarcasm

> Yeah, I mean, gold didn't work as a currency all those hundreds of years.

Actually, it didn't. Gold was almost never the exclusive currency, usually wasn't the most common currency, was rarely a significant direct currency (rather than backing for currency) when people actually used currency for most transactions, and when it became the exclusive backing for currency, only "worked" because the actual circulating currency supply became increasingly disconnect from the gold notionally backing it.

Gold, as a currency, works tolerably well much of the time (though still can break an economy with unexpected surpluses or shortages) in the way it was actually used -- the high-value-density one of several commodities used in currencies in systems where most transactions using currency don't use gold, and most transactions don't use currency at all, but not even tolerably well outside of that domain.

Many economists believe that the gold standard contributed to several depressions during those centuries. Gold "worked" because nothing better was known, but modern fiat money works better.

There is a lot of disagreement among modern economists. I definitely don't subscribe to the account you're giving.

The amount of gold in circulation has never stopped increasing.

Nothing prevents you from creating a "bitcoin-B", "bitcoin-C" and so on. There will be enough bitcoins for everybody.

Disclaimer: I believe bitcoins are tulip bulbs.

More relevantly, nothing stops you from creating a tradeable note that says "redeemable for 1 bitcoin from <trusted authority>" and then using those as currency.

This happened with gold, and also would happen if we saw a true bitcoin bank rather than bitcoin wallet -- they'd pay a bit of interest, and in return would pool their deposits and use some fraction of them to generate revenue through other channels.

bitcoin-B would not be bitcoins, nobody would use them, and they would at best be tulip bulbs.

Unless you are using them to do something different then currency.

If the bitcoin protocols changed to allow divisions to 9 decimal places instead of 8, would that be viewed as an increase in the money supply, or no change, in traditional economics?

Would re-introducing a half-penny coin increase the money supply? No. Basically, as long as you maintain proportionality, you can re-denominate currency (or shares for that matter) at will.

The amount of effort required to find gold has more or less increased over time, and barring an unpredictable discovery of a huge amount of gold somewhere, the mechanics of increasing the gold supply aren't all that different than bitcoin. Or, to put it another way, I don't think the steady but slow increase in the gold supply is a substantial contributor to the current gold market.

No. Gold production has definitely become more energy intensive, and in this regard it is somewhat similar to bitcoin. HOWEVER, with bitcoin, marginal mining cost is a function of cumulative supply. As supply reaches 21M, marginal cost goes to infinity, and it doesn't matter what technology you bring to bear. Whereas with gold, technological advances have moved the equivalent of bitcoin's 21M to 42M, 84M, etc. The maximum possible supply increases. Yes, of course at some point the technological maximum will reach the physical maximum, but we aren't there yet.

The result of all this is that gold supply has grown with the economy over the past 500 years. It may be deflationary relative to fiat currency, but it is nothing like the deflationary profile of bitcoin, not at all.

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