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0 pointsraiyu6y ago0 comments

The problem with bitcoin is specifically that it is deflationary. In over simplified macro economic terms when you have deflation it is in the consumers interest to not spend money, because the cost of a service or good will be lower in the future. So the longer you wait the more you save.

You have the same issue with Bitcoin, because it is deflationary it is in the holder's interest to not spend it, because it's future buying power will be increased.

So if you look at how bitcoin was distributed you have early holders that have a tremendous amount and have been rewarded for it.

Add to that speculation and you have this whole cycle ramped up on steroids, with huge swings up, and then down, and all the while the value continues to increase because it is designed to do so.

The problem was that bitcoin tried to solve two problems, but should have only solved one.

The first problem was how to transfer value in an untrusted network which was a great success.

The second, was unneeded, which is to make it deflationary as some sort of perhaps response to the inflationary world we live in.

But the reality is that the inflationary world was designed by economists so that wealth continues to circulate. Yes, there are still issues. Yes we have imbalance. But inflation does case wealth to circulate, though not as quickly as some would hope for.

In bitcoin, you have the exact opposite, wealth gets accrued to early backers and just sits there.

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toohotatopic6y ago

There is hidden inflation that comes from other crypto currencies.

Once Bitcoin inflation is too strong and people are not willing to sell, it becomes profitable to start another currency. That currency will absorb liquidity and the deflation of BC stops. Like information in the internet, value flows around obstacles.

toohotatopic6y ago

edit: Once Bitcoin deflation is too strong ...

tromp6y ago

Bitcoin's supply is disinflationary, with the yearly supply inflation rate going toward 0 (and reaching it in 2140).

But so is a constant emission, the major difference being that the latter goes toward 0 a lot slower, e.g. taking 50 instead of 12 years to get below 2%. More importantly, it accrues wealth to late adopters as much as to early backers, combining a fairer distribution with reduced spending aversion.

iamaelephant6y ago

This assumes that every bitcoin ever mined stays in circulation. We know this isn't true. We know that millions of dollars of bitcoin have gone missing, never to be recovered. And if Bitcoin is the real deal (it probably isn't) then we've only just started. If this thing hangs around for decades or even centuries we will see trillions more go missing.

tromp6y ago

Yes, taking lost bitcoin into account, the supply inflation rate is maybe 25% lower, and long before 2140, emission will be too low to compensate for ongoing coin loss.

In this model of inevitable coin loss, the alternative constant emission will eventually, perhaps in 50 to 100 years, reach a rough equilibrium where yearly emission roughly balances yearly coin loss. Like a softcap instead of a hardcap.

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0 pointsraiyu6y ago0 comments

You have the same issue with Bitcoin, because it is deflationary it is in the holder's interest to not spend it, because it's future buying power will be increased.

So if you look at how bitcoin was distributed you have early holders that have a tremendous amount and have been rewarded for it.

Add to that speculation and you have this whole cycle ramped up on steroids, with huge swings up, and then down, and all the while the value continues to increase because it is designed to do so.

The problem was that bitcoin tried to solve two problems, but should have only solved one.

The first problem was how to transfer value in an untrusted network which was a great success.

The second, was unneeded, which is to make it deflationary as some sort of perhaps response to the inflationary world we live in.

In bitcoin, you have the exact opposite, wealth gets accrued to early backers and just sits there.

0 comments

toohotatopic6y ago

There is hidden inflation that comes from other crypto currencies.

toohotatopic6y ago

edit: Once Bitcoin deflation is too strong ...

tromp6y ago

Bitcoin's supply is disinflationary, with the yearly supply inflation rate going toward 0 (and reaching it in 2140).

iamaelephant6y ago

tromp6y ago

Yes, taking lost bitcoin into account, the supply inflation rate is maybe 25% lower, and long before 2140, emission will be too low to compensate for ongoing coin loss.

j / k navigate · click thread line to collapse