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Comment by LinaLauneBaer | Hacker News Reader

I know too little about currencies but to me it looks like that our "real currencies" are inherently deflationary as well... At least this is how it is supposed to work - right? I mean what if governments weren't printing new money all the time? Then there would also be a limited amount of money available in a big pool... Wouldn't it depend on the growth rate of country to determine weather or not a currency is deflationary?

- Number of people is growing, same amount of money for the people, no new money is printed => deflationary?

vs.

- Number of people is shrinking, same amount of money for the people, no new money is printed => inflationary?

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Printing money is basically intrinsic to our "real currencies" so if you remove that you have something quantitively different,effectively a new type of currency. Technically currency is a medium of exchange and can be linked to anything,industrial production,gold,number of cows,someones else's currency etc ,so whether it is inflationary or deflationary depends on its social framework and design.

Now what is a deflationary currency inherently bad?Say I am Mr Big with my 2 million bitcoins, I can invest in your new business with a variable prospect of success or I can sit on my arse and watch the value of my money go up due to deflation,which am I more likely to do? How do you deal with exiting debits in a deflationary spiral? In deflationary systems money does not circulate and that is the death knell of commerce. But bitcoin is circulating! Well yes,but its value is due to it being traded for speculation and extralegal activities (a lot of which Im actually sympathetic to) ,not as an actual replacement currency.

But why does a fixed supply make it deflationary? What happens when all BTC have been mined, will the price still go up all the time?

I guess it could go up if the Dollar goes down at the same time. The actual price is staying the same, but the Dollar is worth less, so it takes more to buy X. Not sure why that would be bad.

Also I suspect banks will create virtual bitcoin, as they do with money (lending BTC that they borrowed). Perhaps that will affect the price as well.

Well, if you assume economic growth, a fixed number of counting tokens will have to represent larger values over time.

The real trick is to read 'deflationary' as 'will create deflationary pressure', not as 'will inevitably cause deflation at every moment in time'.

You mean, assuming there was only one Bitcoin: if a VW Beetle costs 1 BTC this year, and next year a Porsche is published (growing the economy by replacing cars with better cars), the Porsche would also have to cost 1 BTC because there isn't more than 1 BTC?

That seems incorrect. While impractical, there might be other solutions, for example the Porsche could cost 1 BTC+ 1 Carrot, or maybe it could cost 2 BTC anyway. The buyer just wouldn't be able to pay in one go.

Marginal effects don't really reduce well to narrow examples like that.

What I mean is that if you assume a healthy trade in something of limited abundance, you should be prepared for demand to drive up the value of that thing. It might not, but given the simple dynamics of supply and demand (microeconomics isn't really controversial), it is prudent to be aware of the possibility.

(I do sort of assume that people are mostly using bitcoins to complete transactions and speculate, I don't assume there is a healthy trade in them)

True, but there are things that governments can do to influence how infationary/deflationary their currency is. Bitcoin by design cannot be influenced in this way. Once the production of new bitcoins end (which is guaranteed by its algorithm), then it is highly likely there will be deflation, possibly a deflationary spiral.

But it can be regulated by the government. And if they behave responsibly that's a big feature BC doesn't have.

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