I'm fairly sure there must be precedent for this. It's not like Bitcoin is the only currency that undergoes inflation...
You mean "deflation"? ;)
The nice thing about BTCs (aside from anonymity) is that you can always subdivide to tiny increments.
If you don't trust me (or my Finance degree), then google and read the paper of the Bitcoin creator, where he/she/they outlined the economics benefits of Bitcoin. Sorry, can't link to the paper myself.
That's what inflating in value means. Not all inflation is of the general level of prices of goods; you can have asset price inflation, or cost inflation, or in this case, Bitcoin value inflation.
because the supply has a hard upper bound
It's appreciating because demand is increasing faster than supply. The future limit may be driving that demand, but it's certainly not the whole reason, since not all currencies with such an upper bound are this successful.
You're using "inflation" to mean exactly the opposite of what economists usually use the term "inflation" to mean. Bitcoin is experiencing deflation because the value of each bitcoin is increasing.
When people - including economists - just say inflation, that's just an abbreviation for "inflation [of the general level of prices]", out if they're Austrian, "inflation [of the money supply]".
But even if this type of inflation is more commonly discussed, that doesn't mean it's the only, and economists also talk about types (e.g. asset value inflation).
Now, notice I didn't write that Bitcoin is an "inflationary currency", but that it's inflating in value. That's because the former term refers to the first kind of inflation I wrote above, when I'm talking about another.
Why did I use an unconventional type of inflation? Is because while it's technically true that the general level of prices in Bitcoins is deflating, I don't think that's very relevant when almost no product sets its prices in that currency, nor will any economy thus experience any deflation due to it.
At least for now, Bitcoin is more like an asset than a currency, therefore it makes sense to speak of its value inflating, just like we do for other assets.
What I think you really meant to say was: "increasing in both value and supply". And that would be right.
So when Anna Schwartz wrote her paper "Asset Price Inflation and Monetary Policy" where she talks about the "assets whose prices have escalated", she actually means the value of the assets went down? I think you've just invented new economic theory.
An asset price inflation is an escalation of their prices, much like a Bitcoin value inflation is an escalation of its value.
What I think you really meant to say was: "increasing
Why do you think the word "inflation" was chosen in the first place? What does it mean to inflating something?
The money supply of bitcoins is inflationary because bitcoins are still being made.
The purchasing power of bitcoins is deflationary because its buying power has historically increased (making other goods decrease in their bitcoin price over time.)
Since the deflationary element has predominated in the years since its creation however, it is more sensible to call it "deflationary" in the whole.
If my illegal activity generates 1 bitcoin which, 2.5 years later is worth 10 bitcoins, all 10 bitcoins can be seized since they all originated from the original seizable piece of property.
Were this not the case and only the orignial result of an illegal transaction could be seized those running illegal operations would be able to profit from their crimes by simply converting one type of property into another that could increase in value. For example, if you sold 20,000,000 in drugs and purchased 20,000,000 in stock, it does not make sense that, once your property is seized, you can keep the increase in value between when you broke the law and when you got caught. This would make crime much more profitable which is the opposite goal of the seizure laws.
Paying into a mortgage as the same effect. As you pay back a mortgage you acquire equity in the property. The government would then be able to seize your equity in the house, meaning they could sell the property and after paying back the remainder of the mortgage keep the difference.
In this case I much prefer them to take the house, because it's significantly less valuable.
I wasn't suggesting any kind of money laundering.