Quote from: jedunnigan on July 10, 2013, 08:50:17 PM

First up is the expectation paradox, a consequence of Bitcoins deflationary model. The conundrum is as follows: as a deflationary currency, Bitcoin lends towards hoardinga predictable but unfortunate phenomena, because for Bitcoin to thrive, it must not only be used as a long-term store of value, but also as a means to transact value, quickly and cheaply. To spend or not to spend, that is the question.

I really don't get why so many people still seem to have a problem with this one. Providing if/as/when it becomes necessary additional decimal places can be added it matters not how much of the bitcoin in existence is 'hoarded' and not in circulation. It doesn't matter if the total bitcoin available for all world transactions is a small fraction of a single bitcoin. It will still be plenty. Its value is determined by demand which is determined by the the cumulative number and value of the transactions people want this tiny amount in circulation for. Obviously the value of those not in circulation is determined by the value of those that are.

Needless to say in this extreme situation anything other than the tiniest amount of hoarded bitcoin coming back into circulation would play havoc with the price because unless it was only used for a tiny number of vary low value transactions the value of bitcoins in this circumstance would be immense - which is also why we are very unlikely ever to get to this. Because way before the price got that high people would be bringing some of their savings into use.

I'm failing to see why this is so widely perceived as a problem. Of course none of us knows. Paul Krugman and his ilk may be right. This is one of the things that makes this experiment so exciting. We will all find out in due course.

And I suppose it's kinda fun seeing people saying they 'know' what the results of the Bitcoin/cryptocurrency experiment will be because they are so certain that their knowledge of economics or the theory of money tells them what is 'inevitable'. Wink