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Comment by mrfusion | Hacker News Reader

I'd be curious to know if any of the altcoins have tried creating an inflationary currency? I guess you'd still need some kind of reward for early adaptors though?

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Peercoin is such an example with an inflation rate planned to be 1% per year.

Yea but it's long term deflationary as well, the destruction of fees alone will probably match the 1% inflation thus eliminating it and growth in popularity would push it negative.

Dogecoin has the fastest rate of adoption, what are you guys doing sitting here holding your dicks?

Don't miss the boat!

I don't see the point of the deflation "criticism". Bitcoins are effectively infinitely divisible, and if deflation raged long and hard enough to get to the limits of BTC precision, the protocol could simply be modified to add more precision.

I don't see the point of the inflation "criticism". We can always add more zeroes to the bills, and if inflation raged long and hard enough we can simply issue a devaluation where 1 new unit corresponds to 1 gazillion old units.

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It is not about lack of precision. It is about the change of purchasing power of a unit of money you currently posses.

It is not a question of precision. It is a question of market dynamics.

For the sake of explanation, imagine a world where Bitcoin is the only currency. Let's also assume that in this world, Bitcoin gains value at 10% per year.

Now, you are an entrepreneur setting up your company. You are going for the grocery retail market, which presents a free cash flow return rate of 8%.

In this scenario, you can't get any investors. Investors are faced with two options: a) Stuff bitcoins under the mattress and get a return of 10% with zero risk; or b) Lend bitcoins to you, get a return of at most 8% (or you'll go broke) and face a non-zero risk that you'll go broke and they lose their beloved bitcoins.

For comparison, with the current economy, currency loses 2-3% per year, so investing in your business has an effective return of 10% to 11%, so if the risk is below this threshold, investment is possible.

I know that's the cananocial example, but I've always wondered, wouldn't that 10% appriciation be coming from somewhere? Presumably from the growth of the economy. And if the economy is growing at 10% per year, we probably don't need your grocery store :-)

Please correct me if I'm missing something, I took macroeconomics in college but I've forgotten a lot.

...imagine a world where Bitcoin is the only currency.

Such a world does not exist and never will. Bitcoin is not designed to be the only currency on Earth, if in fact it may be considered a currency at all. It's also not the first asset ever to appreciate in value. For instance, the price of oil rose sharply during the 1970s. Did grocery store investors all decide to pull out of the lucrative grocery sector and go all-in on oil? How did we eat?

Sooooo very many times this has been addressed. Deflation is not bad because you can't divide currency any further. It's bad because it encourages the hoarding of cash, discourages lending, investment and spending, and it rewards effort yesterday more than effort today.

The "but we can subdivide!" is not an answer.

Have you ever seen an actual economist say this? I have a feeling Stross got his economy degree from a cereal box. Bitcoin is not the first asset in history to appreciate. Why haven't the wild swings we've seen in gold, oil, pork bellies, etc. had the horrible results you predict?

"Deflation" doesn't even relate to assets people aren't forced by law or other circumstances to use for regular commerce. For normal, non-currency assets like that, we say "appreciation" instead of "deflation". If 6 billion people decided to "hoard" BTC tomorrow, I guarantee there would be plenty of dollars/rubles/whatever available for investment, lending, and spending.

Honestly the hoarding argument is dumber than the precision argument, so I tried to give Stross the benefit of the doubt.

Oh so it's an asset now is it? I'll be sure to remember that next time a 'coiner tells me it's the world's best currency or payment method.

Deflation is only relevant if we're talking about BTC as a currency, which people do and therefore it's part of the discussion.

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