The way I see it is, that the bitcoin economy is growing much faster than the money supply which leads to higher and higher prices for bitcoins, one can verify that by taking a look at mtgox. Also I think it's impractical for the bitcoin economy to stop growing when 21 million bitcoins are reached.
Very good point. Few people see this problem. It is absolutely necessary that money can be created at no cost whenever it is needed. If this is not possible, production can not be extended. Normally, money is created by credit. Bitcoin doesn't have this possibility. Whatever it is, it's not a functional currency.
I wonder how Satoshi came up with his magical number of 19% deflation p.a. Did he study some secret economics to arrive at his absurd "insight"? I guess he just set this value because he thought 19% would be a nice annual increase of his fortune.
alexk, I think the monetary system you are looking for, which has not the flaws of Bitcoin, already exists. What do you think of the
Ripple project?
Thank you for your reply.
In my opinion, a fractional reserve banking system for bitcoin, that creates money by credit, would be possible in principle. It would not be practical though. Because of the constant deflation in bitcoins, a business would need to have an roi > deflation rate, to be able to pay a positive interest rate to the bank. Many businesses will not be able to generate that kind of roi. This further emphasizes the need for a currency with a stable value.
I don't think satoshi had the agenda of having a nice annual increase for his fortune. The system for generating bitcoins in place right now seems sensible to "start up" a bitcoin economy.
If I understand ripple correctly, it's not a currency, so it's hard to compare ripple with bitcoin. I would prefer to keep the discussion in this forum to bitcoins, but thank you for the link.
alexk