Quote from: evoorhees on August 17, 2011, 03:33:39 PM

Inflation should not be desired for the mere purpose of keeping prices flat. Prices are important things, they signal where investment ought to occur. Holding any price flat, whether general goods or money, etc. is not only necessary but is likely to cause market distortions. All prices ought to float freely against each other... controlling the supply of money to increase in order to flatten prices is merely another fallacy of central planning and ought to be avoided.

The fact remains that if two bitcoin-type currencies exist, and Bitcoin proper has zero inflation and the Altcoin has X inflation, then over time the former will retain value in advance of the latter. This will cause the former to be preferred, unless the latter possesses some benefit which overcompensates for this issue. I don't see Altcoin having any substantial benefit over Bitcoin, but I do see it having many negatives.

Those who want perpetual monetary inflation "as long as it's predictable" can go right ahead

I entirely agree that inflation shouldn't be used simply to keep prices steady and that things should float freely. However, it is still desirable to maintain price stability in order for an economy to function efficiently. Wild fluctuations will cause difficulty in price discovery, thus increasing problems in projecting the viability of business productivity. Basically, it becomes almost impossible to calculate a reliable ROI. This leads to an abandonment of such a manic currency in favor of more flexible alternatives.

The significance of unlimited expansion is not forced inflation or a set rate as central banks today aspire to. Instead, currency demand elasticity is kept stable by the perpetually available expansion; inflation is the result in this case, not the cause. As noted with mining, if it isn't profitable and all miners cease their activity in favor of transaction processing fees, there won't be any inflation at all until mining becomes profitable again (representative of growth and hence demand).

If the economy slows and/or contracts, the existing Altcoins would gradually become worth less. As the economy grows, demand for a common currency increases, so the supply must become available - it must inflate. This keeps the Altcoin value relatively stable and range-bound (elastic). It balances out Bitcoin's nature.

Being a deflationary currency, Bitcoin will become worth more as the economy grows, leading to accumulation - it then becomes a Giffen good. This increase in hoarding reduces currency available for the economy to function, which is a major factor in the bust that occurs after a boom unless there is a means of translating the value difference between the store of value acting as a foundation, and the product or service desired. That's where Altcoin fits.

The big difference from current centrally-managed currencies and the Alt/Bitcoin duality is that the former have no effective restraint and are managed using crude methods while the latter are self-correcting, being managed internally by the system itself. It's kind of like the Holy Grail of monetary theory.

Quote from: evoorhees on August 17, 2011, 03:36:02 PM

False. So long as there are enough divisible units to cover the small transactions, it matters not how much money is in a system. Bitcoin is infinitely divisible, and a world in which a car costs one trillionth of a bitcoin is no different functionally than a world in which it costs 1,000 bitcoin. Prices adjust to the money supply, and there is no reason to tamper with it or inflate it merely to hold prices constant.

Agreed on all counts, in theory. In practice, that can prove less than functional; consider this: is Bitcoin really infinitely divisible? If it would require a change to the code to increase the precision past 8 digits or some other external translation, the answer becomes less clear. Even as the system stands, what would it take to enact such a change? Would that change the fact that Bitcoin is deflationary by nature, having a set limit of ~21mm units? Again, the Giffen good aspect comes into play with a deflationary asset, as does Gresham's law.

Rather than trying to shoehorn Bitcoin into a role of both the means of exchange and store of value, it can much more easily act as the latter due to its deflationary nature. Altcoin then allows for flexibility in the opposite direction without having to add patches to an elegant system. The more things are changed, the greater the potential for failure. KISS. The exchanges already perform the vital function of acting as bridges between disparate currencies and would afford the same between Altcoin and Bitcoin.

If Altcoin's inflation halted due to unprofitability of mining in a stagnant or contracting economy, the eventual rise in Bitcoin's value will equalize the overall system and allow the economy to continue growing. Altcoin would continue growing to match the economy's pace while Bitcoin maintains its steady value appreciation. It doesn't matter what Altcoin's value is because the economy's growth carries it - it does matter what Bitcoin's is because the economy would rest on it. The same principles apply to the US dollar (Altcoin) and gold (Bitcoin).

Of course, this all assumes widespread adoption of both Altcoin and Bitcoin.