Bitcoin Forum

What is the difference between "printing" more of a currency to increase the volume of exchangeable currency units (Central Banking)

AND

Denominating the base unit of currency into smaller and smaller units to increase the volume of exchangeable currency units (Bitcoin)


Question mark.

Still same size pie, wedges are smaller.

If you hold one unit of currency in the inflationary scheme, your unit is worth less over time. In a deflationary, your unit is worth more. Someone with secure but low yield savings in an inflationary scheme loses purchasing power over time and becomes poorer.

If I have 10 bitcoins, and the decimal gets shifted over one place (x10), I now have a full 100 bitcoins each worth only 10% of the original. If I have 10 bitcoins and the total number of bitcoins is increased 10 fold (inflation), I still only have 10 bitcoins, but each is worth only 10% of the original. Big, big difference.

You get a fair share one way. You get diluted during inflation.

Interest rates would increase in an inflationary environment. 

Very similar to a stock split where the number of shares of the stock doubles but its market value remains the same.

The value is what you want to keep.

Printing more dollars devalues existing dollars: Someone with $1 will become poorer because that dollar will represent a smaller portion of the total supply.  Sad face.

Dividing bitcoins into smaller denominations just makes them easier to use:  Someone with 1BTC who calls it 1000mBTC for convenience would only do so if demand for bitcoins has exceeded supply to the point where value has increased significantly.  Happy face.

Bitcoins can be inflationary if they are created faster than demand grows.  Since the coin generation curve is known to all, we can see that while inflation is possible in the short term, it becomes increasingly less likely as coin generation slows, and as market infrastructure and popular adoption grow.  If bitcoins succeed, there will be massive deflation before the value reaches long term stability.  Very happy face.

Sell sell sell (to me)
Exclamation mark.

Central bank printing would do exactly zero if every time they doubled the monetary base they also doubled everyone's savings. Think about it.

Denominating the base unit of currency into smaller units keeps every one's share of the total currency supply constant, while inflation reduces every one's share of the total currency supply with the exception of those who get the newly printed currency who see their share increase.

I think we've answered this one about every way it can be answered.

What about the mattress stuffers? I'm not sure individuals or businesses would be happy that the cash they were holding "on hand" was arbitrarily worth half as much or just a few percentage points in such a visible way. In the current system it takes months/years/decades to feel the effects of your buying power decreasing.

BINGO. That's the difference. A universal decimal shift moves everyone's account in a uniform manner. A central bank printing money increases only the central bank's account, at the expense of everyone else.

Even if the decimal shift wasn't moved, but we actually suddenly had 21 billion bitcoins instead of 21 million... so long as this is done uniformly so that every wallet reflects the new change, then functionally nothing at all has changed. In fact - this is exactly the same as moving the decimal ;)

Good question, OP, I think many people have the same concern and it's crucial for people to know the distinction.

So if inflation encourages spending since your saved dollars are worth less over time, isn't that a good thing? And the people that spend it stupidly actually deserve to lose their money anyway? Because there's nothing keeping anyone from spending their dollars on something that will appreciate in value or otherwise bring them more dollars. That sounds like a positive economic stressor to me.

Deflationary currencies do not encourage spending, and they in every shape and form DISCOURAGE lending with ANY appreciable degree of risk association. This seems like a wholly negative economic stressor to me.

How have you gone from "they are the same thing", to "inflation is better" so quickly? The inflation vs deflation argument has been had many time. In the long run, bitcoins will be deflationary. Don't like it? Don't invest. It is an alternative option for people who do like it.

sorry, I didn't spend enough time on m though, doing other things here too.

I'm trying to find the words to express that the deflationary nature of bitcoins isn't such an asset over inflationary currencies, since both have perceived negative economic consequences.

When Bitcoins become so valuable that you have to start decimating them into ever smaller units, it seems like the entire psychology of the exchange medium becomes difficult to adhere to.

In effect, if inflation is bad for economic activity, deflation is equally bad for economic activity, though in different ways.

I'm not fleshing this out well enough, and maybe I'll have some more time later, but I guess essentially this is what I mean. There is no economic difference between having to print more money to keep the economy moving vs. having to decimate the entire exchange value over to keep the economy moving.

You want to have SOME savings right? For whatever the reason , house, retirement, prostitute  whatever your fancy. How can you save if the money that your trying to "save" is constantly losing its value thus your always falling behind.  Your view is the extreme, it is bad if everyone SAVES EVERYTHING and the other extreme SPENDS EVERYTHING. There has to be a happy medium.  

What are the bad things about deflation? Are you really going to wait for the apple or w/e purchase your considering to drop from 1.95 to 1.90?  I can understand for large purchases but even still at some point you HAVE to buy and thus the deflation will not SPIRAL unlike inflation which we have witnessed go into hyperinflation and thus no end.

Your view on deflation is too extreme imo.

Your imagining a world with no transactions because everyone is waiting for a lower price.  That is impossible and even if it was we know the lowest price is already 0$
What is the highest possible price? (How many zeros can you add to a number)

NP, you are right. There are pros and cons to both sides of the argument. No one can say one is better than the other. The traditional view is that deflationary investments, like rare commodities (gold), are better to store value in, and inflationary investments, like most currencies, are better at promoting economic growth.

There has never really been a by-design deflationary current before (at least, not to my knowledge). So in a way bitcoin is a new experiment. I feel like the deflationary nature of bitcoin has helped it get off the ground. I know I wouldn't have started mining, or looked at investing, if I didn't know that my share of the pie would be permanent. The deflationary nature lets me imagine a future where it is widely used, and very valuable. If it was inflationary, then wide use would just mean wide inflation, and my wealth would still be small.

Now we have to see if the deflationary nature of bitcoin can withstand a move into wider adoption. Some argue that people are less likely to spend because it is deflationary. And so it makes a crappy currency. They might have a point, but if that case it also encourages people to try to get their hands on bitcoins, which could encourage growth and business adoption.

There is no right or wrong answers in this debate, just different pros and cons. Bitcoin is an experiment in something new, and that is why a lot of people like it. If it were "the same", then it probably wouldn't have as much appeal to a lot of people.

But hyperinflation has never been an end of a culture or society, just a particular instrument of exchange. When inflationary currencies hyper-inflate they don't cause the economy to collapse. The economy itself was already collapsing. Increasing the denomination of the currency is a symptom of a failing economy, not a cause.

Mattress stuffers are savers; you have to double them too. That's why "decimal moving" or renaming is totally fine. It magically covers everyone no matter where their coins are.

In a lot of situations spending now instead of latter is stupid and inflation incentives that stupidity. People ought be taking resources for themselves at the latest convenient time, not asap and inefficiently holding.

If there is a fixed monetary base and deflation that is a signal that there will be more stuff in the future. If there will be more stuff in the future and you can wait you ought be rewarded for not preventing others from using what is available now.

Let's just talk dollars here, but this applies to any centrally managed currency of course:


Dollars are an instrument of debt, not valuation.  The converse is (supposedly) true of Bitcoin. Bitcoin aims to be an instrument of valuation.

It makes sense to offload your dollars in a way that generates "interest on a debt."

But it doesn't make sense to shed Bitcoin except for essentials only. Big expenditures on luxury goods make no sense with Bitcoin. Investment makes no sense with Bitcoin, except in very narrow circumstances.

I absolutely agree.

With a 'normal' rate of increase in stuff produced the money printing class can siphon off a lot of wealth. If the rate falters and the printers don't slow down then it is revealed in the death of the currency.

I think what is happening now is not that our productivity or rate of production is slowing down, but that we are producing a higher ratio of things they can't get. I am vastly richer than people in my relative position were in the recent past generations, but you can't squeeze nearly as much out of me because more of my wealth is leisure time and free information and access to you guys 24/7.

So, are you one of the privileged bitcoin money printing class or just one of the privileged bitcoin aristocr----I mean "early adopters?" 

It does once you have all of your essentials met and still have some savings left over. What are you going to do with them otherwise? Look at them?

Supposing Bitcoin does become the main world money what it 'needs' is people to acknowledge that as quickly as possible. That is what will get us where we are headed with the least wasted time. So, if you are right about Bitcoin becoming dominant the biggest reward now is for converting your savings to Bitcoin.

Once you have that vantage point it might be easier to understand why people will buy luxuries with coins - it's the only way for them to get luxuries because they only have bitcoins left. And if they were right they'l have lots to spend.

Once we are in 'Bitcoin world' the deflation will match the increase in the rate of production and you will only get paid for waiting to consume to the extent that there is more to go around in the future.

I have a lot of coins. Do you think I'm taking value from someone?

When you cash out during the final probable bitcoin crash sometime in the future, yes.

My offer to sell will hurt the person who wants to accept it? Is this different to you then if I offer to sell grapes?

If your sole reason for selling the grapes is because they're going rotten, sure.

The fact that some fool might think he can make wine out of sour grapes doesn't belay the fact that you're consciously peddling something of little or no real value.

A broken bitcoin won't send. If you need help there are people willing in Technical Discussion.

I'm a little insulted that you would suggest that I'd be willing to misrepresent something I was selling.

That has absolutely nothing to do with bitcoin's fixed supply. The reason why it's experiencing rapid deflation is because it's seeing a massive increase in demand. It would see a similar rise in value if it was a currency that inflated at 2% a year for eternity, because demand is growing by over 100% some months.

Once bitcoin reaches its natural rate of adoption, whatever that is, it will only see a price deflation of 2-3% a year, and thus will only need to be re-denominated once every few decades and be a largely stable exchange medium and standard of account.

Representation has nothing to do with it.

If the bitcoin economy crashes, you will do everything you can to sell off what BTC you have to mitigate your loss.

You're not going to be the White Knight of Bitcoin and just a full loss on your "lots of coins."

You're going to try to sell them to the highest bidder on your way out.

In effect, the "money printing class" of your fantasies is doing the same thing as they devalue the currency, siphoning off as much worth as they can before it collapses entirely.

I guess you know me. <shrug>

When are you going to stop sodomizing kittens?

Synaptic, the scenario where all early adopters get extremely rich requires bitcoins to become very valuable, the default international trade currency of the world, which means that the early adopters who disposed of their coins are infact selling something valuable.

The scenario where some early adopters get extremely rich and some remain poor, requires them to sell at a time of bitcoin mania and bitcoin crashing after that, with the faithful suffering.

We honestly don't know what will happen. So, the jury is still out on whether the bitcoin sellers are conning people or giving them the best deal of thier lives. 

A real problem with inflationary money systems is it distorts free markets. The newly created money is irrationally and inefficiently distributed this leads to behaviour such as what caused the GFC.

While new comers to bitcoin (such as myself) are envious of early adopters (just as we are of the historically rich families or of the early gold miners) the fact is that they are an efficient free market.

Its not really in their general interest to grab and hold all the coin they can. If everyone simply holds the coin it will never have any value at all.

The only value in bitcoin is when its used to enable exchange. At the moment most of that exchange is in the US$ <--> Bitcoin. But as mining becomes harder people should begin to look for other ways to transfer value.

After all its more efficient to exchange items I can get at wholesale, for Bitcoins at retail, than it is to exchange currency for bitcoins which is what happens on the exchanges as all exchanges are retail.

Strangely; early adopters are in an interesting position:

• Do they horde their new found wealth in the hope that the bitcoin economy grows on its own.
• Spend some of it in the bitcoin economy in the hopes that what they keep will be worth more because the economy grows more than it would have done if they just watched it rot

I'm not saying I know what the answer is; but I suspect that many early adopters will choose self-interested option 2.  The more merchants that are encouraged, the more likely bitcoin is to become huge and the more likely they are to end up richer.  The invisible hand at work; Adam Smith was a fecking genius.

That person who paid 10,000 BTC for a pizza shouldn't be kicking himself that he lost a fortune.  There is a distinct possibility that that initial act of faith in bitcoin as a currency began this whole thing.  That 10,000 BTC might have been worth nothing today had he simply kept it.

Moving the decimal place doesnt let a government print the money they need to buy missiles.