Bitcoin Forum

I was thinking about how great bitcoin is vs combatting inflation but what about deflation?

Say bitcoin gets lost or if there was a malicious intent of destroying / hoarding bitcoin, are there any mechanics within bitcoin that address this?

Am curious but this is one of the largest problems i could think of if btc were ever widely adapted

If somebody wants to hoard bitcoin, more power to them. Nobody is holding a gun to a person's head forcing them to pay $10,000 for a single coin.. it's their choice.   Owner of commodities invest in them because they want to hold onto or increase their purchasing power.  You can use gold to buy shit, but it's also an investment. Same with bitcoin.

I think the intention was to make it deflationary. This way it keeps gaining value over time while fiat loses value.

12.5 new bitcoins are created and released into the economy every 10 minutes on average.

As such, the supply of bitcoin is currently inflationary.

Over time, the amount of new bitcoins created will shrink (cut in half approximately every 4 years).

Eventually the number of new bitcoins created will be less than the number of bitcoins permanently lost or destroyed.  At that point the supply will finally be deflationary.

With a deflationary supply, the price should be higher for any specific demand.  As such, your bitcoins will have more buying power.  You'll be able to buy the same amount of stuff with less bitcoins.

So, while the total number of bitcoins will shrink, the number of bitcoins that you'll need to spend to acquire something will also shrink.  Therefore there won't be as many bitcoins needed.  Instead of the  2 milli-bitcoins (mBTC) you'd need to spend for a BigMac today, you'll only need to spend 0.2 mBTC (or 0.02 mBTC, or 0.002 mBTC).

As the supply continues to shrink, the price should be even higher for any specific demand.  Instead of spending 0.002 mBTC (which could be called 2 micro-bitcoins) on that BigMac, you'll be able to spend 0.2 micro-bitcoins or 0.02 microbitcoins.

Note that at that point we're talking about 1 bitcoin being worth $120 million.  We're going to need a LOT of deflation before we get to that point.  Perhaps a few centuries.  It's extremely likely that bitcoin will be replaced with something newer and better before it gets to be 500 years old.

It seems to me that such terms for Bitcoin are irrelevant because only Fiat can be subjected to inflation or deflation. Bitcoin is a self-sufficient currency, which in itself regulates its value depending on the demand.

There are some addresses that act as burner addresses and thus have Bitcoin in them that will hypothetically never be recovered, however you never know and someone might get it one day.

There are no mechanics in Bitcoin to counteract any sort of hoarding or destruction of Bitcoin, it just all keeps moving until there's nothing left, and if it gets to that point then Bitcoin dies due to no supply. As for whether or not that will ever happen, maybe in the far future, but it's a non-issue right now.

As long as bitcoin is being generated by mining, it is inflationary.

However, as the production gets slower after a few halvings, the inflation rate will be lower than the inflation rate of the real world currencies- this is when bitcoin economy enters deflation.

One neglected aspect of inflation could be governments tendency to destroy a nation's wealth, productivity and innovation through inefficient and wasteful spending.

It is possible that such inefficiencies are a main contributing factor behind state issued currencies losing buying power.

Bitcoin not being pegged to any existing state or government could serve as an alt explanation for its good inflation metrics.

its deflationary

dont think of it from the point of 'every 10 minute it increases by 50btc' which a sort sighted view point

instead think of it from example
after block210,000 10.5mill coins were made and 10 minutes later 25 coins are added
growth is
0.00023809524% (10,500,025)
10 minutes later growth is
0.00023809467% (10,500,050)
10 minutes later growth is
0.00023809410% (10,500,075)

as you can see growth drops
EG
block 1
50 total 50
block 2
50 total 100 growth=100%
block 3
50 total 150 growth=50%
block 4
50 total 200 growth=33%
block 5
50 total 250 growth=25%

Come on franky1...  You're smarter than that.

If I start moving forward at 50 miles per hour, and every 4 hours I cut my speed in half (so after 4 hours I'm moving at 25 mph, and after 8 hours I'm moving at 12.5 mph, and after 12 hours I'm moving at 6.25 mph...)

That doesn't mean I'm moving backwards.  It just means I'm moving forwards slower.

You're trying to play the same mindgame that governments play when they say "the deficit is shrinking".  They hope the sheeple will confuse that and think it means the debt is getting smaller, when in reality it just means that while the debt is still growing, it is growing a bit slower than it used to.

The fact that the growth rate (speed) is shrinking doesn't mean that the total supply is shrinking (deflationary). It's still inflationary (more exists now than before). It's a lower inflation (growth) rate, as you yourself pointed out in your example, but the inflation rate is still positive.

It will eventually be deflationary (less exists at a given time than before), but only when the quantity lost or destroyed over a reasonable amount of time is more than the amount created over that same reasonable amount of time.

Deflationary properties of BTC are not simply linked to amount of coins being created. However, that is just one side of the coin.
We can feel that bitcoin is subject to deflation because its purchasing power is constantly growing.
New coins still might be created but the idea that 1 BTC would be worth 200% more next year because growing adoption and larger userbase it making BTC deflationary IMO.

Deflationary is not necessarily a "good" thing, because economies are supposed to grow anyways. I wonder if they can match inflation rate algorithmic-ly with growth rate GDP.

This is why it is important to distinguish between supply inflation or deflation and price inflation or deflation.

While the two are loosely linked, they are not the same thing.

Against a fixed demand, an inflationary supply will result in an inflationary economy (supply is increasing, and the price of stuff you buy with it is also increasing)

Against a fixed demand, a deflationary supply will also result in a deflationary inflationary economy (supply is decreasing, and the price of stuff you buy with it is also decreasing)

However...

If demand is growing fast enough (such as with bitcoin), it is possible for a currency's supply to be inflationary while the economy in that currency is deflationary  (supply is increasing, but the price of stuff you buy with it is decreasing)

Additionally, if demand is collapsing fast enough, it is also possible for currency's supply to be deflationary while the economy in that currency is inflationary (supply is decreasing, but the price of stuff you buy with it is increasing)

In order to distinguish both concepts, one can use the terms "inflation and deflation" to the value of bitcoin, and *debasement* to the "printing of bitcoin".

A currency is deflationary (rises in price) whenever its debasement is less than its adoption.

A currency that is strongly deflationary, falls most probably in a deflationary spiral, where hoarding and speculation overtakes its use as a currency ; in other words, it becomes a speculative asset.  That's exactly what happens to bitcoin, and why it is not a currency, but a speculative asset.

This is why central banks issue more currency when the economy is growing: to keep its value from rising (in fact, most of the time, they want its value to decrease slowly, so that people don't hoard currency).

*slight* and *controlled* deflation and inflation don't matter, because one can use them in any price projection of the future.  However, wild deflation leads to the currency to become a speculative asset, and wild inflation leads to hyperinflation, and total loss of monetary belief.

The fact that the rate with which bitcoin is released to the markets decreases over time already makes it a deflationary currency by definition. Bitcoin isn't printed in the way FIAT so it doesn't fit the definition of inflationary circulation. There's no need to destroy coins to make it deflationary because it already is.

not a currency??
anything can be a currency.

cigarettes in prisons
sexual favours between 2 people
art, antiques

currency is an umbrella term where below it there are sub categories. maybe you mean bitcoin is not
fiat money: because its not created circulated and endorsed fully by a government

money is a sub category of currency

bitcoin is not fiat money. and thats a good thing. but it is currency.
you are half right because bitcoin is a speculative asset currency

Well, I take a currency to be an intermediate storage of value, that *keeps more or less its value* between an act of obtaining value and an act of spending value.  One of the principal properties of a currency is that it is a more or less reliable unit of account, that is, that its unit has more or less steady value (or a predictable slight increase or decrease in value).  In other words, a thing that doesn't change 30% over a month or so.

Because if it is rising by 30%, you don't spend it (you hoard it).  If it is falling by 30%, you don't accept it (hyperinflation).

Bitcoin should be reduced by the number of exploits. It is a work that should be done and is of great significance to the existence of bitcoin. In fact, it is a high value coin, people will definitely focus on exploiting it, so, if not quantified, bitcoin will appear rampant, and certainly its value will severe reduced. Cut down is a rightful measure.

Using gold to buy shit isn`t an investment ,it`s a purchase. ;D
I don`t see a problem with deflation,because a bitcoin can be divided into 1 million parts.
One dollar can be divided only into 100 cents.
Deflation and inflation aren`t a problem for bitcoin.

I'm certainly very pleased with your optimism, but I'm probably a bit out of the loop. What difference can affect how many parts can be divided into a dollar or Bitcoin?

In theory, bitcoin can be divided down to the Satoshi. But the growing amount of fees required to transact BTC doesn't make its divisibility all that of an actually usable feature. Bitcoin's microtransactioning nature has pretty much gone away as its popularity rose along with prices.

I was thinking about this idea of deflation / inflation and i realized i am seeing this from the perspective of fiat vs bitcoin

I dont think this line of thinking is really great but am unsure of which direction to go.
This is the first time in human history we are dealing with a truly "global" currency.


I remember reading someones post in these forums of how he had saved up.012 bitcoin, which relative to him and his purchasing power in his country, this was an immense amount. I believe he stated his yearly earnings were about $250 usd.

With this example in mind, lets consider if bitcoin (hypothetically) did become the worlds reserve of wealth.

In terms of purchasing power, how would we perform transactions that addressed the parity of say buying a coca cola in his country vs the US?

Lets say in the US it was .001 (for arguments sake), because of the 1:1, there would be a complete disparity.

Unless i am missing something and not thinking this through.

Any thoughts?

The issues you are thinking is no longer a threat to bitcoin today. Bitcoin hoarders were never a problem since even if they hold bitcoin today surely they will use it or spend it later on. Nobody in their right mind will keep and hoard their bitcoins until they die. Thus even if there is hoarding in bitcoin it doesnt mean that bitcoin industry will stop.

Correct, if bitcoin became so valuable that people traded sotashis, what would the fee be? It would have to be at least 1 satoshi for the fee, so the fee could be as much as the transaction.

that is why Bitcoin can never became a good currency, the common kind of currency which will be used by everyone on this planet. I believe that ether or ripple will replace Bitcoin in the future

Sure, as people already explained earlier, if someone wants to spend his life savings for Bitcoin and then purposely lose access to them. They could do that. Right now the Bitcoin market cap is $25,686,663,870 USD. To put some perspective to this, there are less than 25 people in this world who have net worth higher than the Bitcoin market cap. This means that George Soros would have to spend his entire wealth to be able to theoretically buy ALL Bitcoins.

Also it is important to understand that if someone, let's say, bought Bitcoin for $1 billion USD it would have a huge impact on the market price and he could not keep up buying them with same price as he started with. If a person would buy $1 billion worth US dollar and decide to burn them all. The government would just print more and replace the missing money on the market, keeping the value same. However, if someone lost his Bitcoin worth 1billion, it would boost the value of the currency for those who still have access to their stash. No one can "print" more Bitcoin but we can divide Bitcoin to smaller units. This is what is going to happen when the demand rises and less coins are available on the market. Price goes higher and we will use smaller pieces of Bitcoin to purchase things. I am pretty sure that within 10-20 years, regular people could not afford to buy a whole (one) Bitcoin because the price will increase due to higher demand.

Bitcoin is a deflationary currency that is the way it was designed and there is nothing to be done about that, and that is not a problem at all, this is the same lie people spread about gold and not being enough of it, there is enough bitcoin we will just use smaller amounts than today if it was widely adopted.

To me, Bitcoin does not have a deflation problem because it is not a fiat. In fact, it is used as a medium to make normal currency transactions. Its supply is consistent, and hoarding it does not really help until its value is converted to fiat. The issue does not boil down on the amount of Bitcoins owned but its actual value when converted to fiat.

Bitcoins only get lost when owners mistakably divulge or disclose the details of their Bitcoin wallet. Thus, the mistake can only be attributed to the latter. However, there was an instance when the owner's software was hacked thereby the Bitcoin wallet suffered the same fate -- i.e. losing all Bitcoins at once. 

there is however a difference between a inflationary slow rate with a limit(bitcoin) and a inflationary money without limit like fiat, you can't say they are both on the same boat, despite both are still inflationary

one need to look at the total supply of bitcoin, which is limited, which make it already kinda deflationary aside form the emission rate, which is meaningless already(1800 coins per day) versus the already 16M+ mined

The main difference is that fiat inflation is cumulative.  If you hold your savings in a fiat account for 50 years and the inflation rate was 2%, it wouldn't be worth 100% less, it would be much more.  However when the increase in supply is fixed (or in Bitcoin's case, decreasing) the relative inflation rate decreases each year.

It's like what ETH says on their page.  Who knows what they'll do with the supply in the future, but right now there's an additional of 18 million ETH per year, and they point out that while that means the supply is unlimited, the relative inflation rate decreases each year until it matches the amount of lost coins, at which point inflation would be zero.

Currently, Bitcoin's supply increase would be about 3-4% of the total, which is nothing compared to how much the price is rising.