Quote from: gabbo876 on January 29, 2014, 01:23:26 AM

Can anyone provide a strong rebutal to this article?

http://dealbook.nytimes.com/2014/01/22/bitcoin-a-fools-gold-standard/?_php=true&_type=blogs&_r=0

For me the future of bitcoin doesn't involve it being the world's currency but it being a store of value - similar to gold. Gold is worth >$4trillion. If bitcoin were to capture 5% of it's market, it's value would be >$200billion. If anyone can soundly explain how bitcoin of limited supply would positively-act in a crisis, then I'll be convinced bitcoin should be the world's #1 currency. It's my understanding that during a crisis owners of a commodity with limited supply, tend to hoard, causing spending to stop and deflation to take place.

A deflation is only a major problem when it comes on the back-end of an inflationary currency.

If we use the Great Depression as an example.

The creation of the Federal Reserve in 1913 gave the US an inflationary currency. This created a decrease in the personal savings rate and a loss of purchasing power. It also lead to the funding of many unsustainable and uncompetitive business models. (The roaring twenties.)

So when a crisis occurred - 1929

Many many people from unsustainable and uncompetitive businesses found themselves unemployed.
The unemployed and employed alike had little savings so they couldn't benefit from the increase in purchasing power deflation brings.
As a result the unemployed starved and the employed hoarded their income to spend only on necessities.

Had they had a mildly deflationary currency leading up to 1929... There would have been an increase in purchasing power & the personal savings rate. Only more competitive and sustainable businesses would have been funded.

So when a crisis occurred - 1929

Because of more prudent investment, existing businesses would be far more sturdy and the initial crisis would be less severe, leaving fewer unemployed. Those that were unemployed would have had savings which would increase in purchasing power allowing them to sustain themselves. The employed would have savings too, in addition to their income, both of which would increase in purchasing power, quickly giving them excess. This would cause them to spend & invest more and re-stimulate the economy, perhaps culling a few unhealthy business in the process.

Looking at the short history of Bitcoin, the early savers now have excess purchasing power. This excess purchasing power has been used to invest in hundreds of interesting start-ups & further develop the crypto-currency economy as well as being used to make purchases with the thousands of merchants that have been attracted to Bitcoin too. The growth in purchasing power also continually attracts new savers, speculators and investors alike into the economy. Of course there will still be a few excesses, but a few Shiba Inus being periodically culled is healthy.