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Comment by enjo | Hacker News Reader

Ok. So it's a very poor currency.

According to the poorly thought out theory that deflationary currencies are by necessity bad currencies?

The idea that a small amount of inflation is better than deflation is pretty much the least controversial idea in economics. Seriously, no professional economists argue about that. (There are plenty of special cases where deflation is good, sure, but I'm talking about the general case).

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.

I agree that inflation is better than deflation. I also agree that this is not controversial - that virtually all economists agree that inflation is better than deflation.

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.

You seem to believe that the value of bitcoin could possibly be more predictable than the value of traditional currencies. Since bitcoin will be / is almost exclusively an investment vehicle it will (almost by definition) have an unpredictable value. [1] Traditional currencies will be somewhat predictable because they have a central bank actively managing the supply.

[1] http://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

Given equal liquidity, a purer market should deliver less volatility than an actively managed one.

That reads like a credo.

Both systems contain massive speculator involvement. Only one system contains single overarching actor with ability to manipulate values at will.

Pretty obvious which will be more stable.

History shows pretty clearly that actively managed currencies with a central bank are far more stable than for example gold or bitcoin. I don't see how you can argue otherwise.

@gahahaha

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.

Until the advent of the Federal Reserve, the dollar itself was a deflationary currency:

http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi...

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