There's a nice writeup in our
wiki regarding this matter, but I can't understand the following conclusion:
The key difference is that people don't foresee a fixed cost (unit amount) that they must pay with Bitcoin. If the value of the Bitcoins that they own increases, then any future cost will take a proportionally smaller amount of Bitcoins. There isn't any fixed incentive to holding Bitcoin other than speculation.
Bitcoins deflate in value when the Bitcoin economy is growing, but doesn't deflation often contribute to lower economic growth?
Lol, this probably was said while trying to ignore reality. I've seen enough topics here about a merchant adopting bitcoin with a ton of users cheering for it but at the same time saying that they will not spend their coins yet. Open one with the title "Would you buy a house/ car with bitcoin? " and you can already imagine the results, nobody is keen on doing so since they think next March they will be able to buy 5 with the same amount of
BTC.
There is no "key difference", is the same reasoning as with fiat currencies, if I live in a poor country and I know the currency is going down the drain against the $, would I spend by $ for bread? No! The actual reason why bitcoin won't contribute to deflation is that by the time wit will reach the status of global currency and it's the only one left the value will be so big a 10% increase in purchasing power overnight will simply be impossible as there would be no economic growth to match that, so there will be little incentive to hold coins while making sacrifices on your shopping list.
Second, why did you say "deflate in value"?