Why Bitcoin Will Never Be a Currency
theatlantic.com
theatlantic.com
While bitcoin supporters tend to hate the idea of inflation, there are others coins that have inflation built in to encourage spending -- a kind of progressive version of bitcoin.
Here's a random example of a coin designed around a specific economic philosophy:
>Unlike Bitcoin, Freicoin has a demurrage fee that ensures its circulation and bearers of the currency pay this fee automatically. This demurrage fee was proposed by Silvio Gesell to eliminate the privileged position held by money compared with capital goods, which is the underlying cause of the boom/bust business cycle and the entrenchment of the financial elite, and has been tested several times with positive results.
(no idea if that has merit but it was the one that stuck in my head because it was so clearly articulated on their homepage)
Whether bitcoin itself last who knows, but probably some descendant will be around at the very least at the protocol level.
The whole point of Bitcoin is that there is no central governing authority. I'm not sure if this statement is meant to be funny, but if it isn't the author clearly has no understanding of how Bitcoin works or what it aims to achieve. I think given this statement its fair to ignore this piece all together.
I've heard so many different things, and as soon as one gets challenged someone will pop up and say "well it was never meant for that, it does these other five things".
Frankly if it was to be a currency, yes, a central bank would be a feature. But it's not a currency, its economic presets would make it a really bad one and its lack of central control makes it very prone to instability.
It's not really a very good payment method either, because it takes time to confirm and there's no chargeback facility, something that has given consumers the confidence to shop online and really helped along the boom in internet retail.
That's ridiculous. The friction or transferring money is a huge problem across the world. Developing nations are left out, governments shut down payments on a whim, etc.
If I were your employer and decided to price your bi-weekly paycheck in terms of segways (each paycheck would be the dollar equivalent of one segway), does that mean you'd be "paid in segways"? No, you're paid in dollars.
You can't really claim someone is paid in dollars unless (1) they receive actual dollars, or (2) the thing they receive instead is guaranteed to be exchangeable for that dollar amount at any point into the future. Neither of these is true of a salary that is delivered in bitcoin, regardless of how it's priced.
No, Employer > USD > Bitcoin > You. If you're using dollar equivalent for any reason whatsoever, then that's what you're really being paid in. Your salary is being priced in dollars, not Bitcoin.
> You can't really claim someone is paid in dollars unless (1) they receive actual dollars, or (2) the thing they receive instead is guaranteed to be exchangeable for that dollar amount at any point into the future.
Yes I can. Your employer is paying out dollars, that it's converted to something along the way is not relevant, they're paying you in dollars; you just receive something else through a middleman, in this case the Bitcoin network.
I also think "paid in dollars" mostly means the pay is denominated in dollars, but I can see that being a language usage thing.
Also, to begin with, this conversation was about what I am paid in, not what my employer pays out. In your last sentence it sounds like you are confusing them, or using them interchangeably. I see no reason that they should be considered the same thing.
And yet it only takes an arbitary 5 minutes to realise that it is being used as a currency. People are buying goods and services in exchange for bitcoins. Sure some people horde in the hope that the value will double but the same is done with US Dollars. I mean isnt that what FOREX trading is?
I'm sure you're a very smart person, and you probably know a lot more than me in many areas. However, anyone trying to say that deflation is great for a general-purpose currency just sounds like someone trying to claim that evolution didn't (doesn't) happen.
However.
This does not mean that all deflationary currencies are bad.
For example: It is entirely plausible that a currency which is almost 100% predictably deflationary would be preferable to our current currencies, the values of which vary depending upon many factors (central banking strategies, economic outlook, etc).
Whilst inflation may help spur consumer spending, and almost certainly does help the economy by permitting 'invisible' wage cuts to poorly performing workers/sectors (perhaps the biggest advantage of inflationary currencies, not even mentioned in the article), the upside of a nearly 100% predictable currency may be even greater.
Of course, it is also possible (likely, even) that our current central bank managed system is superior: The downside of unpredictability may be (likely is, in my opinion) outweighed by the flexibility granted to central banks.
But we'll never know unless we run the experiment.
[1] http://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
Pretty obvious which will be more stable.
All historic gold currencies I know of were actively managed: Debasement, re-pegging, temporary abandonment to pay off debts via inflation - all were common practice under gold standard.
None are (should be) possible with Bitcoin.
http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi...
http://www.federalreserve.gov/boarddocs/speeches/2002/200211...
If Bitcoin stabilizes in the future it could maybe be used as a currency. But right now when every purchase decision is prefaced with a 'how much is BTC worth right now' decision it adds too much friction to a transaction.
Surely if the falling price of a good with respect to the currency it's purchased in would prompt people not to buy then nobody would purchase computers. And yet it's a thriving industry.
Please help me reconcile this fact with the author's statement that would indicate that precisely the opposite should be happening.
The material goods you mention are good for all sorts of things.
(My point being that they are not great comparisons, I'm staying out of the argument about deflation)
From the article: "When prices fall, people put off buying things. And when people put off buying things, companies put off investing. And then the economy slumps—and keeps slumping. "
I will make a more specific claim: the author is arguing that when the price of things in a given currency fall, people delay purchasing. This can be re-stated that as the ratio of money to goods declines, so too will the purchase of goods.
The ratio of money to a specific good declining can happen in one of two ways. Either
1) the currency as a whole appreciates in value relative to everything in the economy (usually called "deflation") or
2) the good becomes cheaper to extract, manufacture, grow or otherwise produce which then allows business to price it less expensively
In either case 1 or 2 the ratio of money to a good has decreased. We normally would say it has "gotten cheaper"
Computers are a good which has gotten cheaper in real terms and nominal terms and especially in absolute terms. A desktop computer used to cost $2000 or more for anything decent (adjusted for inflation perhaps $5000 or more), today a quite respectable laptop can be purchased for $800 which has hundreds if not thousands of times the capability of the $2000 machine from 20 years ago.
The world as it exists today does have a computer industry, in fact it's huge. Compared to 1993 it's at least 10x larger, and surely quite a bit more: http://en.wikipedia.org/wiki/File:Personal_computers_(millio...
So according to the author's "when things get cheaper people stop buying" argument the computer industry should have been shrinking over the last 20 years, not growing. But we can clearly see from the world that exists today that the computer industry has grown over the last 20 years.
How should I reconcile the author's argument with the reality I see around me? I feel I have no choice but to conclude that the notion that "falling prices causes people to reduce their purchases" might not be a universal truth, or perhaps it contains only a little truth inside it.
In the case of 1, I minimize all of my purchases during periods where I perceive higher levels of appreciation.
In the case of 2, I only buy what I need of that good (which is approximately what I do anyway).
So it isn't a particularly interesting comparison to make.
Now you might be able to speculate quite effectively buying when prices are low and living off of your stores when prices are high. But everyone can't do that by definition, so we're saved from case 1 totally throwing a monkey-wrench into the works.
From the Bernanke article I originally linked.
In other words, what works for an individual with thousands of dollars also works for a company with millions. I.e. that math doesn't change as the numbers get bigger. $1 + $1 is $2 the same as $100b + $100b = $200b. If an individual accrues wealth by saving and investing (how most people do it) that's basic arithmetic. Expenditures less than income over a period of time. Works for companies large and small.
If we believe that this works at scales from the individual which is an organization of one person all the way up to organizations of hundreds of thousands or millions, why would it suddenly stop working that way once it's a "whole economy" that's nothing more than the organization of all individuals?
Now you're welcome to make up your own definitions of words, but then you're not really communicating with everyone else nor understanding what they're actually referring to since you're ignoring what they mean by those words.
The essence is that the economy is full of feedback cycles. Your savings and spending decisions affect the size of the economy.
Now, from an individual household perspective, your spending is only a drop in the bucket. It is small compared to the size of the economy, and it is small compared to the revenue of any individual firm. Any feedback effect your behavior may have is a rounding error compared to the sum of the effects of everybody else's behaviours. Therefore, it is reasonable to disregard the feedback effects when you make individual decisions.
However, when you evaluate the economy as a whole, there is nobody else and the feedback effects are suddenly the dominant term. Disregarding those effects when making economy-wide policy decision is therefore a recipe for disaster.
The original author made a very blanket, not at all specific statement about how "this leads to that" without any qualifications whatsoever. I have provided a specific counter-claim to that statement and asked for help reconciling. You can't just wave your hand and say "a whole economy is different than every other unit of organization in the world" just because.
It's not as though my not spending money causes the economy to halt. The more I save the more bank deposits are available for banks to lend and spur further growth. This is one of the feedback cycles you've mentioned. This works at all scales so as anyone or everyone is not spending two things are happening in parallel:
1. bank deposits pile up which all things being equal will push the interest rate down
2. real resources (oil, steel, timber, etc) pile up or are not being actively consumed, thus making them available for use
Then as the money loaned in 1 makes its way into the economy via loans, the real resources in 2 are readily available for those who secured the loans to make use of. I've just shown a situation where "deflation" leads to increased investment and growth rather than decreased.
EDIT:
If one person saves money, they can save money. Therefore if all people save money, all people can save money. That's the fallacy of composition I've supposedly made.
There's a difference between "saving money" and "not spending any money at all, whatsoever" This is because even the most ardent saver would still have rent/mortgage, utilities, food, gas, insurance, clothing, etc. The necessities make up a large portion of what makes the world go 'round; nobody would stop eating for 6 months because they could buy twice as much bread in the summer for the same price.
Furthermore bitcoin deflation isn't something that's guaranteed to happen forever, always no matter what. Many people are speculating in bitcoin right now the same way that investors speculate on a growing company, but that company's stock won't go up forever just because. At some point the exchange rate between bitcoin and the real economy will reach some kind of equilibrium and the price will level out.
This is false, but it's an easy mistake to make because it's such a common misconception about how banking works.
Banks do not lend out deposits in any possible interpretation of those words, and they do not require deposits prior to making loans. This is apparent because banks create deposits in the act of giving a loan.
This doesn't mean that banks can just make loans willy-nilly. They do have to satisfy regulatory capital constraints. However, deposits are not capital.
Still, by far the greatest determinant of loan-making is the credit-worthiness of potential borrowers. On this side, saving is a negative: It reduces the potential revenue of businesses, which makes those businesses less credit-worthy.
There's a difference between "saving money" and "not spending any money at all, whatsoever"
This is only a quantitative difference. If you think of the circular flow of money inside the economy, then any kind of saving represents a leak. If this leak is not balanced out by an in-flow of new money from loans, the circular flow will diminish. So you might be able to make a "one-time withdrawal" from that circular flow into your savings account, but in the long run, such withdrawals are not sustainable unless offset by somebody else. That much is clear.
To summarize: If you successfully save at a greater rate for a longer period of time, then somebody else necessarily must save at a slower rate (or borrow at a greater rate).
I know that the Fed is allowed to create money out of thin air, and I do understand that fractional reserve banking allows banks to pyramid loans.
But ostensibly I can't start a bank today, deposit no money into it and tomorrow make a loan for $10mm. The money has to come from somewhere does it not?
Or are you saying that's exactly how a bank works?
And if you knew the basics of bitcoin that 64% would make sense. Actually, if all bitcoin software was programmed correctly that number would be 100%. Every transaction can create a new "account" for every output, it's actually a flaw in systems using bitcoin that that number is so low.
Bitcoin interest will increase speculators and vendor adoption and then, presumably with time, it should steady and people will likely spend some of their hordes.
Sorry if this is kind of a nasty reply, but I'm really tired of people with no comprehension of how money functions being in denial about their pet technology.
Or much of economic history, for that matter.
The global economy functions with many, many different currencies, nearly all of which are managed by a central bank. It's widely accepted that currencies are best that which are regionally segmented, because the qualities and monetary needs of different economies tend to vary locally. See wikipedia on Optimal Currency Area.
Thus, we consider individual currencies on a case by case basis. By almost every conventional and widely-accepted measure, bitcoin is a terrible currency with little chance of remaining stable. a.) it's region agnostic b.) hugely speculative c.) inelastic, practically constant supply d.) difficult to centrally manage.
Please, tell me more about economic history.
Bitcoin might be an interesting investment vehicle, a storage of value, but something that will at some point replace the dollar? No.
Oh, you! Tulips were better. You at least got the pretty flower after all was said and done.
However, the present system is perhaps not the only possible system. Some alternative schools of thought in economics see possibilities beyond systematic inflation.
Alternative theories can be wrong or right. Don't oppose them because they're alternative: oppose them where the evidence compels you to.
And that time has passed, the world moved on.
Regardless of the nice graphs, Bitcoin is currently NOT deflationary. Every 10 minutes 25 new coins are minted and placed into circulation. The rate of new Bitcoin creation will be halved every four years until there are 21 million BTC in circulation. Additionally, there are a slew of other cryptocurrencies with varying degrees of mining rates - some have a constant rate of inflation built into them. Time will tell which ones are adopted.
The miners who are minting these new coins are helping secure the currency (adding value) are putting work into the system by way of capital expenditure on equipment and costs associated with power. They expect a return on their investments and are probably the determining factor to the current price.
When firms like Apple sit on hoards of cash, the amount of currency can grow quite a bit faster than the economy without inflation.
Incorrect, demand alone has made it hugely deflationary; if everything were priced in Bitcoin right now, prices would have to be adjusted downward constantly, that's deflation. Money supply inflation is not inflation which generally refers to the overall prices of goods and services rising and money supply deflation is not deflation which is the fall of overall prices of goods and services. Bitcoin is currently hugely deflationary.
It would actually be better to have some sort of currency which expands based on the number of transactions... There's a pretty large theory behind it and I out line some of it on my blog, where I also explain how a crypto currency can "potentially" work[1] or you could read one of Friedman[2] or Knights[3] books.
[1] http://austingwalters.com/the-currencies-of-tomorrow/ [2] http://en.wikipedia.org/wiki/Milton_Friedman [3] http://en.wikipedia.org/wiki/Frank_Knight
Further, economic system and in turn the manipulation of the Dollar in the U.S. is based largely off Kaynes work, which for the most part (we now know) is an inaccurate portrial of economics.
The only real "hard" part is preventing spoofing the system by moving money back and forth between accounts to fake economic activity, so you would have to put weights on idle money so that money that has been stationary longer has more impact than money changing hands, to avoid tampering.
That 21 million number is not set in stone, and will change if there is a need for it.
This is hugely important and obvious to anybody who has taken Econ 101.
Everybody knows this.
So why would you invent a currency that was deflationary in nature due to an artificial cap? Well, once you realize that the guy(s) who invented it are holding 10% of it, you'll have your answer.
Bitcoin is in a huge bubble at the moment. My only hope is that this bubble bursts before the inventors can cash out. Oh, sweet justice.
After the collapse, there is every reason to believe that Bitcoin will become something genuinely useful or at the very least, inspire something that will be useful.
Fractional reserve lending of bitcoins seems highly unlikely to happen any time soon, if ever. And if it does start happening, it is likely to be made quickly illegal, because the system simply won't work.
Cryptocurrencies have several interesting properties that these traditional mediums of exchange do not, for example:
- the supply is fixed and precisely known at any point in time, with very little chance of that ever changing by unilateral decision (e.g. politics, war); surely this will factor into future decisions to price goods and services, in the same way businesses already factor inflation into their business models
- low transaction costs for high value cross-border payments could see a niche use that no fiat currency can compete with (unless you somehow believe there will be a unified global real-time gross settlement system or the like any time soon)
- settlement times could also see a niche use that no fiat currency can compete with (if it works, and your transaction is confirmed in seconds/minutes/hours rather than days as with ETFs, then I foresee people using it for certain value transactions)
- accessibility (just look at M-PESA in Kenya -- everybody has cellphones, but moving physical cash around is expensive and dangerous)
- up until all the coins are mined, and probably for some time thereafter, the value will be quite volatile; after that, however, value will pretty much reflect real economic activity and volatility will be less predictable -- why is there this obsession over the present volatility? All the coins will be mined within a fixed time frame provided 1 person continues mining, which is almost a certainty, and eventually the price will have to stabilise.
I fear the article is comparing apples and oranges. Maybe the author just wants to sow FUD while he buys some cheap BTC :)
Don't get me wrong - I have my doubts that Bitcoin has what it takes (among other things, I think the initial unequal distribution of wealth is a serious problem), but cryptocurrencies in general are likely to be a successful and inevitable medium of exchange at some point in the future.
It's also hard to beat cash for settlement times.
I disagree regarding cash. You're making a blanket statement and I'm saying there are niches where cash sucks.
Aside from the M-PESA example I've given, another is overseas travel. Cash can be a big waste of time - depending on your local laws, obtaining forex prior to departure can be a pain (e.g. in South Africa), the withdrawal fees are exorbitant and often unclear, the risk of theft significant, you have to be aware of local exchange rates and if you want to save money you have to be aware of the exchange rate of the cash you have on hand vs. your debit and/or credit card processor etc., then when you get back (again in South Africa at least) you have to resell your forex within 30 days, and you also have limitations on how much you can purchase in a year.
Another is cash payments over a certain value -- again in South Africa, walking around with more than a certain amount of cash in your pocket is asking for trouble.
I didn't say cash was always better than bitcoin, I just pointed out that it is very hard to beat on settlement times (and you revised your comment to say fiat currency rather than cash). Maybe I replied to an early draft.
Of course you can have a deflationary currency. The problem is that people won't spend it. The dollar is not naturally inflationary. Instead, the fed allows for a controlled amount of inflation every year to encourage spending. Automatically managed currencies like you discuss still suffer from inflexibility—as our understanding of monetary economics adjusts, or qualities of the economy change (as with the change in velocity of money during the 80's-90's), it would be difficult to adjust the algorithm to better stabilize the money supply.
More importantly, cryptocurrencies are region agnostic. I take it you learned about optimal currency area in your studies? Any arbitrary threshold would risk having inconsistent effects in different places. Expansion may be just the thing to encourage additional transactions in a recessionary region, but may encourage rapid inflation elsewhere. The result is always high volatility, making it unfit as a store of value.
People keep saying that just because it's deflationary, they are never going to spend the coins. But as someone who grew up with hyperinflation (1980's Brazil) I can tell you that people still saved, they just used other currencies. I clearly remember my father buying dollars after getting his paycheck. Investment-wise it was a bad idea, but all people wanted was some sense of safety. When hyperinflation finally came to an end and I knew that my lunch at school would cost the same thing every week (instead of costing 20% more every Monday!), people started spending/selling their dollars.
The problem of BTC now is a problem of trust. And this lack of trust is due to the crazy volatility, not its deflationary nature. So, it is a chicken-and-egg problem. The more merchants you have accepting BTC, the more people will be able to spend their coins. Sure, the merchants buy be turning the 100% of their BTC into fiat right as they get them, but BTC could still be defined as the transaction currency.
I particularly like the reference to the 'deflationary' nature of the Great Depression while glossing over the fact that the prescribed solution (the establishment of a central bank) occurred less than two decades before it.
There was a central bank during the great depression but the US was still on the gold standard until 1933. When it went off the gold standard the great depression stopped getting worse and started getting better: http://delong.typepad.com/sdj/2011/09/yes-recovery-in-the-gr...
Because they don't really, they're cranks, not a serious field of study. The Austrian school is equivalent to the flat earth society. Their answer to every possible economic issue is the same, the magic market will heal itself. When you have one answer for everything, you don't get to call yourself a serious field of study.
The Austrian school of thought is little more than don't touch the market, you'll break it, it's magic and it'll always work. That's not a serious field of study; that's a golden hammer theory.
You can make whatever distinctions you want--this digression has gotten tiresome and I regret ever responding to you in the first place.
So I'll never go on vacation, cause next year it will be cheaper. So I won't do the surgery now, cause next year it will be cheaper. etc, etc. This "common knowledge" means no one will ever buy anything if prices fall. That's patently wrong. It may be true for fads, but not for things people really want.
"This self-perpetuating cycle of doom [..] is what has been sinking us since 2008, though this time central banks have at least kept prices from falling, just barely."
I live in a crisis stricken country in europe. Prices are NOT falling. That's a generalization and a lie. Prices fall for your property, what you have, and what you don't need, and prices are the same or spiking for things you need. Taxes also are spiking 2x 3x+. So, for example, you pay more and more taxes for your home, which is falling in price. (Owning it, not on debt.) But oil, food, electricity, etc, are rapidly increasing. Deflation and prices are falling, is a lie. They just destroy people, in order to pick up cheap on properties.
"What Bitcoin really needs is a central bank to stabilize its value."
lol. I remember seeing a graph of how much the dollar has lost it's value since the fed was created. Something like 90+%. I remember how much a coffee costed before entering the euro, and how much it costs now. Something like 15x more. It's bubbles, money printing, lies, and pure stealing. Central banks steal from all of us through inflation, and also give a competitive advantage to whoever they give the newly minted money first. (Their pals, big banks, etc.)
" See, the technology of Bitcoin really is revolutionary, but the currency of Bitcoin is holding it back. [..] So who's the perfect person to run Bitcoin? [..] Someone like ... Ben Bernanke."
This seems like a propaganda preparation piece. It seems that big players will introduce electronic money soon.
Note: I am no expert.
Neither did the U.S. before WWI... Once they added the Federal Reserve they really didn't know what they were doing and when the stock market collapsed they raised overnight lending rates and essentially caused the great depression (or made it significantly worse).
Point being, although the Federal Reserve may have a better handle on what is going on now, it does not mean that it is necessary for a currency to have a central bank.
The author pretty much has no idea what he is talking about.
crickets
Gold has been deflationary for all of recorded history, insofar as I'm aware (ie: rate of gold discovery was slower than economic expansion), yet it seemed to work pretty well for a little while.
Gold has been a terrible choice of currency in the past. Read about it. There are a variety of very good reasons (and probably one or two bad ones, sure) why most modern countries have decoupled currency from precious metals.
(my point is purely related to that one graph, not the rest of the article (that I have not read))
How they're _not_ equivalent is that the creation of money in existing currencies is centrally controlled. You can get a clearer view of what happens when money is printed by looking at C' rather than C.
For simplicity, pretend there's only the Mint (can create money) and the Public (can't). Initially, Mint has X C and Public has Y C. In C', this is X/(X+Y) C' and Y/(X+Y) C'. Then Mint decides to create Z C. Mint now has (X+Z) / (X+Y+Z) C' and Public has X / (X+Y+Z). The Mint has effectively transferred money away from Public. All arguments against deflation are, basically, Mint will now redistribute the money in such a way as to stimulate the economy.
This is a common misunderstanding. For typical fiat currencies, money creation is highly decentralized in the banking system. Most money creation happens when banks give out loans. Conversely, most money destruction happens when loans are paid back.
This is actually why our system works so well: the supply of money is not controlled by a central (and therefore fallible) institution, and neither is it fixed (which would be even worse). Instead, it adapts automatically to the demand of money (perhaps one should better say "liquidity" here) via market mechanisms.
After all, central banks typically just react to the demand for physical money that they observe via the requests that come from banks.
> This self-perpetuating cycle of doom is what sunk the global economy in the 1930s, and what, to a lesser extent, has sunk Japan since the 1990s. And it's what has been sinking us since 2008, though this time central banks have at least kept prices from falling, just barely.
Oh good, I'm glad that the causes of the business cycle, the great depression, and the recent global recession have all been discovered with absolutely no question or debate.
People invested in bitcoins still have to buy things. What many of them do is leave their investment in place, convert a few dollars to bitcoins and spend those.
Of course they have an incentive to save rather than spend bitcoins, but this incentive applies equally well to their dollars. If they expect bitcoin deflation to continue, they should convert their dollars to bitcoins rather than spending their dollars. If bitcoin's deflation isn't preventing people from spending dollars, it's not preventing them from spending bitcoins either.
Bitcoin isn't having a strong effect on dollars, because its total value is only about $10 billion. Maybe someday it will have a strong deflationary effect on the dollar economy, but it'll have to get much bigger before that happens.
But once it is that big, its rate of deflation will slow. It's high now because its usage is growing[1] so quickly. In the past seven days, the number of bitcoin-accepting merchants on coinmap grew 13%. That radical growth will eventually slow, and then we won't see such drastic price changes.
Arguably it will still be somewhat deflationary, but even that isn't a sure thing since bitcoin won't necessarily be the only successful cryptocurrency. Hayek argued that private competing currencies would result in price stability without central control, and we might find out whether he was right.
No, a distributed system who's goal is getting rid of central control doesn't need a central point of control.
> When the demand for Bitcoin goes up, they need to print more to keep it from skyrocketing.
And again no; rather, minting more currency can be built into the network algorithmically so that hoarding causes enough inflation to offset it.
Bitcoin's deflationary nature will make it a bad currency, but it's not the only crypt-currency out there, and inflation and deflation can be tied into actual transactions on the block chain to build a self regulating currency that can actually be trusted and more importantly adjusted by the economy itself, unlike central planning.
Peercoin has these attributes, though I'm not convinced in the correct proportions as it's still long term deflationary. Saving causes inflation by minting new coins and spending causes deflation by destroying transaction fees. This is a better strategy for a currency, but it's not quite balanced right yet.
It doesn't have to fit the role of traditional currency because it isn't.
In its current form, its too complex for non-tech savvy people and what makes bitcoin bitcoin will not last more then 10 years as processing power increases over time.
What if knowledge of hashing and public and private keys become as commonplace? Because of bitcoin?
Can anyone bring up some charts from when the first 'normal' (non-crypto) currencies were invented? Let's see if those were so stable from the first year onward.
Earlier today I just happened to look up inflation rates from european countries before the Euro: one was nearly 30% in 1980. "Omg 30% price change in just a year," yeah and even that seems to have worked out fine. They were even allowed to join the Eurozone.
And no, it didn't have fluctuations anything like BTC.
It's either deflationary, so everyone should go long on it / use it as a store for all excess value, or it's not, so it doesn't actually have this problem.
To some degree, this already works. If the price of bitcoin gets high enough relative to the price of electricity and ASICs, then more bitcoins are mined, right?
http://blockexplorer.com/q/getblockcount
I guess that will slow down as ASIC hardware matures (or if there is a sustained price drop).
I wanted to stop reading right there.
Seriously?