Quote from: rayt5 on April 18, 2013, 05:06:17 PM

We have to make people want to list their prices in BTC. That means it has to have some semblance of stability. Otherwise it can be nothing more than a proxy for actually stable currencies. Deflation itself isn't the solution or the problem, it's stability. If BTC gained 5% of its value every day, it still wouldn't work as a currency because the value isn't stable. It's gotta do something like only gain 5-10% of its value every year so that people can know the value of a Bitcoin. We need to be able to go to the store and have an expectation for how many BTC a loaf of bread costs without it changing every week.

Without stability, BTC can never stand on its own.

Well that will only happen when Bitcoins much much larger. Of course how do you get much much larger with exchange rate only rising even say 2% per month? You don't. The value of Bitcoin's money supply is ~$1B, the value of all Silver Bullion is ~$30B, the value of all Gold Bullion is ~$7,000B. Now bring up a daily candle stick chart of BTC, SLV, and GLD. Ignore the long term trend (rotate the chart in your mind so the starting and ending points are at the same horizontal level) and just focus on the day to day directionless volatility.

Even silver is many times for volatility than Gold and Bitcoin is many times more volatile than Silver. Why? The size of the market. Gold is relatively stable because it is so massive. It takes pretty massive buys or sells to even move the price 1%. Silver can be thrown around a lot easier and Bitcoin well it only takes a token amount of funds to make a large move.

You can't have a small stable currency (at least not without a central bank*). The road from $1B to $30B is going to be rough. There is no way to make it slow and smooth. Maybe the road is too rough and Bitcoin can't ever make it and some alternative (no not the copycat alt-coin junk but a real out of the box alternative) replaces it but I am not willing to write it off yet. Still even this alternate will have high volatility until it can get "large enough".

* Small currencies (i.e. countries with a money supply of less than say $50B) often need to hold a large reserve of more stable currencies (EUR, USD, JPY, etc) and precious metals. By controlling the "native" currency and buying their own currency back using foreign reserves they (at least in theory) can reduce volatility. Essentially as the currency falls against competitors the bank prints more and when it rises against competitors they buy it using their foreign reserves. The bank works against the actions of the market participants and creates a dampening effect. Generally central banks can't prevent the long term trend but they can dampen the day to day swings. Understand that a central bank loses money in this operation, and these losses show up in inflation. It is the price of stability.