Post
Topic
Board Economics
Re: Deflation once again
by
cindylove
on 29/05/2011, 20:29:24 UTC
I have a dream about the future...

Imagine, in 20 years, all people on Earth are using bitcoins and the amount of coins is fixed. Wait a moment...not fixed. It is decreasing, because:
People will inevitably lose access to their wallets. They may die and not tell a password to their wallet to anyone. They may just forget. Their harddrive may crash and they have no backup.
Or, imagine, someone has a job and brings home more money than he needs - he just hoards the rest, because that is the best form of investment in this kind of economy.
Whatever the reason, the number of coins in active use decreases.

On the other hand, the number of people is probably still increasing, because there are new technologies providing more food and better healthcare.

This future is impossible. Economy cannot reasonably work when there is constant deflation. No one is motivated to invest and take risks.

If bitcoin stays the same as it is today, it will NOT become the main currency in the future, because this future is impossible.

The idea of digital currency is great, but the current coin generation is flawed. It must be repaired. I do not know how, but it should be tied to the amount of subjects using it or the amount of coins exchanged for actual goods or services in the recent past. I do not know if that is technically possible. If not, even connecting the generation rate to the current exchange rate of BTC/USD or other physical currency would be better than the current way.


What Bitcoin needs most are sellers and buyers of actual goods. None of them are motivated right now to use Bitcoins. On the other hand, investors and hoarders are motivated a lot.

If the situation does not change soon, the bubble will burst and there will be a lot of upset users and Bitcoin 2.0 with different rules will appear...

The problem with you and the other deflation alarmists is that you are looking at BitCoin from a statist perspective. All of your arguments assume that there is only one currency in use in a particular economy (ie a monopoly). In that case I'd agree that deflation is harmful. But why assume such a scenario? Despite all its advantages, BTC will never have 100% currency market share. It might become the most widely used but there will still be competitors (Renmimbi, Canadian dollar, Aussie dollar, Brazil Real, gold, silver,sea shells). So too much deflation or inflation (i.e. volatility) will affect the relative competitive advantage that the currencies in circulation have with each other. Market forces will react to a deflating BitCoin by reducing demand, thereby resulting in a market determined optimal rate of inflation/deflation. Not some rate the so called "experts" at the central bank, issue by decree.