Bitcoin Forum

Introduction

There are plenty of posts on this board and over the web concerning the future of Bitcoin as an actual medium of exchange instead of a speculative asset. People try to forecast when the world will adopt it as a payment method. Discussions often circle around external factors: the attitude of governments, banks, consumers etc.

I believe, however, that the problem is intrinsic. I also strongly believe that Bitcoin will never become a universal medium of exchange widely used for payments and we should call it not a cryptocurrency but rather a crypto-asset with investment/speculative/hedging functions or a crypto-gold, if you prefer. I came across similar opinions numerously and some of the following statements may seem familiar to the reader, but I need to put it all together and add some statements of my own to justify my solution to the problem.

Since we are focusing on economic matters here, let’s leave aside technical issues and discuss why Bitcoin’s economic model doesn’t allow it to perform the primary money function (namely being a medium of exchange). I see two main problematic concepts in Bitcoin’s design that impede the ability of the platform to perform the named function:

• Scarce supply
• Model of reward distribution

This post will be devoted to the scarcity of the supply, while the second matter will be the subject of part 2.

First of all, let’s try to envision how the economy would look like if we adopted Bitcoin as the only payment method.

Bitcoin-powered economy

Imagine that some enthusiast founded a new state called Cryptopia on an inhabitant island and made Bitcoin the only official state currency. People came to Cryptopia and started building the economy: producing goods, trading, forming financial markets etc.

Such conditions create strong incentives for the growth of the aggregate supply, but since the money supply grows very slowly, the price indices constantly drop. The population clearly sees the trend and, knowing that deflation is inevitable due to the hardcoded emission policy of Bitcoin, people prefer hoarding cash in expectation of buying non-essential goods later for a lower price (become hodlers).

Such behavior further impedes the development and the economy stagnates, being unable to develop, until it reaches an equilibrium at some point. When the prices stabilize, people stop hoarding and return their bitcoins into circulation. The increase in velocity provokes inflation, which stimulates economic growth. The economy starts growing until it faces an insufficient money supply and the deflationary trend recommences shrinking the economy to the basic level. This rollercoaster repeats indefinitely making life in Cryptopia a pure nightmare likely followed by high unemployment, uncertainty about the future and even higher material inequality than we have now.

The Bitcoin-powered economy simply cannot sustain stable growth, which is why it cannot serve as a substitution to fiat. We are not even taking into consideration debt deflation and a near-zero demand for bonds and other financial assets, as the economy will unlikely develop that far to form a fully-fledged financial market.

Bitcoin as a secondary currency

There is no need, however, to make Bitcoin the main and only currency. It can easily co-exist with fiat, which it currently does, thus at first sight not producing any strong impact on the state on the economy. This case is much more complicated. There are different opinions on the matter, but I side with those who believe that an inherently scarce asset cannot perform functions of a medium of exchange instead of a mildly inflating asset.

The first problem of modelling a potential scenario is the absence of a theoretical framework. The economic science simply doesn’t research a model with two separate competing monetary systems, one of which is an independent and algorithmically controlled cryptocurrency. The entire money supply is classified into different aggregates depending on liquidity, but each aggregate still represents a form of the same unit. Although there is a notion of multiple-currency economies (practical implementations could be observed all around the world, e.g. Cambodia, Zimbabwe, Vietnam etc.), monetary policy in such countries is still conducted by Central Banks (CB) toward all circulating currencies (except the restrictions applied by the impossible trinity), which makes it inapplicable to our case as well.

We can take two different approaches:

a) Assume that a fiat currency and Bitcoin are different monetary systems simultaneously powering any given national economy. In this case, the total money supply is a sum of the fiat supply and the Bitcoin supply.

b) Assume that Bitcoin forms its own virtual borderless economic zone. In this case, when a good is sold for bitcoins, it contributes to the Bitcoin’s GDP, and if it is sold for fiat – to the national GDP.

Both models engender numerous difficulties, but with the help of the first model, it seems easier to describe the case at hand using the existing theoretical base. For simplicity, assume there is only one country and all bitcoins are accumulated in the hands of its residents (although Bitcoin is spread worldwide, which makes the problem of the money supply complicated).

Liquidity preference

Let’s turn to the Keynesian liquidity preference theory. Although it was created to establish the correlation between the demand for money and the interest rate, it introduces some useful notions for our case.

According to the theory, the demand for money is a result of the following factors:

a) Transaction motive

b) Precautionary motive

c) Speculative motive

Motive a correlates with the primary function of money – to be exchanged into goods and services, while motives b & c represent a different function – to store value.

The liquidity preference theory states that out of two assets people will prefer the more liquid one unless the other one provides a higher potential profit that outbalances the risks. With regard to a modern economy, this means that if other financial assets (bonds, securities etc.) are expected to provide a profit below some minimal margin and/or the value of money is expected to increase respectively, people will prefer hoarding cash driven by the speculative motive.

If this escalates, it forms a liquidity trap: people start perceiving money as the ultimate value storage not willing to exchange it into other assets. The speculative motive encourages saving over spending and functionally money and short-term bonds become near-substitutes. Conventional monetary policy becomes inefficient, since the interest rate is zero-bounded (although experiments with a negative rate are also known) and expansionary policy doesn’t help also: all newly injected money instantly transform into savings and do not contribute to the growth of the aggregate demand.

The trap escape scenario demands breaking expectations and encouraging spending: if the CB is able to convince business and consumers that the currency will devaluate and/or bonds’ prices will rise, hence bringing more risks into staying in cash, people may start spending their savings, thus restoring the healthy state of the economy.

Bitcoin vs fiat

Now let’s try to apply these statements to our situation. Assume we live in an imaginary Bitcoin’s paradise: Bitcoin is recognized by everyone, every vendor accepts it as a payment method and the government creates no obstacles for using bitcoins on par with the national fiat currency. Although this situation is unlikely to occur, let’s intentionally put Bitcoin in the most favorable conditions that Bitcoin proponents dream of.

Given an equal liquidity and an apparently lesser risk of Bitcoin’s devaluation, the preference will be clearly on Bitcoin’s side. Being more preferable for motives b & c Bitcoin will face a higher demand, while the demand for the fiat currency will be driven only by motive a. The growing disproportion in demand will drive both currencies to the opposite directions:

a) The fiat currency will be less favored by both consumers and business, and as everybody will try to get rid of it ASAP, thus escalating the velocity of circulation, it will fall into a liquidity glut. The purchasing power will constantly drop and at some point, when the inflation rate makes it extremely hard to maintain the required margin ratios, business will refuse to accept the fiat currency as payments or set restrictive prices, thus killing it completely. The fiat currency will inevitably lose to Bitcoin unless the government uses its coercive power to protect the former or severely contracts the supply to make the issuance model resemble that of Bitcoin.

b) Meanwhile, Bitcoin will stick in a liquidity trap. Suffering from the growing demand and given the inherently scarce supply it will be perceived as the ultimate value storage. Saving will prevail over spending; the aggregate demand in the economy will contract causing a recession.

I don’t see any scenario where fiat can stand against Bitcoin under the stated conditions and that is the problem. The good old Gresham’s Law completely fails: bad money do not drive out good money, because good money are now out of the government’s reach. When Bitcoin pushes fiat from the market, the government will be left with no opportunities to conduct monetary policy. Without fractional reserve, the real cost of credit in BTC will drastically rise due to the combined effects of the interest rate growth and debt deflation. All this will lead to a prolonged depression and likely launch a speculative inflation-deflation cycle as described above.

The irony is that the scarce supply makes Bitcoin simply too good to be a currency. We need a risky devaluating asset that we can easily part with, while beloved to any hodler’s heart Bitcoin just isn’t up to the task. We need something “spendable” but not “hoardable”.

Fractional reserve

Previously, it was stated that without fractional reserve the availability of credit would likely decrease. This statement raises a question: why can’t we build a fractional reserve system on top of Bitcoin? Indeed, we can. I hope, however, that this will never happen, at least on the scale of the currently functioning fractional reserve banking.

The problem is that a Bitcoin-powered fractional reserve system will be extremely vulnerable to bank runs, which can become a time bomb beneath the entire economy.

Assume Alice deposits 10 BTC to her bank account, following which the bank lends 9 of the acquired BTC to Bob. Technically Alice now owns 0 BTC, the bank owns 1 BTC and Bob owns 9 BTC, as recorded in the blockchain. At the same time, the bank is liable to pay Alice 10 BTC on demand, while Bob is liable to pay the bank 9 BTC and some interest according to the schedule, which makes it a long-term liability. Such imbalance of debts’ maturity jeopardizes the system.

Fractional reserve banking relies on the assumption that only a fraction of deposits is demanded at a time. If Alice wishes to cash out, Carol and Dave arrive and deposit some BTC, 10 of which are given to Alice. From time to time, an insignificant lack of liquidity emerges, which can be countered by borrowing the required funds from other banks or the CB. In extreme cases, when a bank run is about to start and the entire banking system is threatened by a liquidity crunch, the CB can opt for massive expansionary measures (“print” money) that will provide the necessary liquidity and keep the system sustainable (as occurred in 2008).

None of these tricks will work with Bitcoin. Only if a single arbitrary bank faces a significant shortage of liquidity caused by reputational factors or another local cause, can it count on borrowing from other banks or the CB. If the entire economy is facing hardships, nobody will be willing to share and, having started in one bank, the liquidity crunch will rapidly spread and ruin the entire banking system. Even if the CB manages to accumulate some reserves in advance, they will still be limited and known and may turn out insufficient. We are not even considering the fact that someone can simply spread the idea of a Proof of Keys day.

Although a bank run is in many respects a psychological issue, it will be impossible to curb it in our case simply by promising to take all appropriate measures, since everybody is aware that no appropriate measures are actually available. Although we can see that the recent Fed’s announcement of unlimited quantitative easing helped to calm fears emerging from the COVID-19 pandemic without the actual need to apply any extraordinary measures, it wouldn’t work with a Bitcoin-powered economy.

If we set a low reserve requirement (for example, 10%, as currently adopted in the US), people will find out that up to almost 90% of their bitcoins actually doesn’t exist. It is not hard to imagine a devastating impact this situation will cause. A high reserve requirement (50% reserve allows to create only nearly twice more money) will soften the consequences, but not eradicate them completely. In any case, one “successful” global bank run will undermine the trust in the banking system irrevocably.

Protective motive

In his liquidity preference theory, John Maynard Keynes introduced the speculative motive, which refined the model of the money supply, demand and interest rate relationship. The adoption of decentralized blockchain technology allows to introduce one more motive that can have an impact on the demand for money – the protective motive.

One of the distinguishing features of blockchains (herein I refer only to truly decentralized blockchains that do not allow history reversals, which doesn’t include systems like EOS) is the unique legal status of chain-based operations. As a state transition is executed in a decentralized manner and is immutable, blokchain transactions are beyond legal enforcement. For this reason, blockchains are considered to exist within a unique paradigm – code is law. This feature stipulates an additional political motive to prefer crypto-liquidity: to protect the wealth from a possible abuse of coercive power by governments.

The less the population trusts the regime, the more this motive influences the demand. It may play a negligible role in the economy controlled by a transparent democratic regime and gain a significant importance in autocratic states.

With regard to the issue at hand, the protective motive further restricts the opportunities of governments in the times of crises. If the government goes too far with interventions into the business processes, the protective motive can raise the liquidity preference by itself. It is hard to claim that this is undoubtedly bad, as it restrains governments from undue enforcement, but it will arguably make business cycles in a Bitcoin-powered economy even harsher.

Conclusion

As we can see, even if we neglect other problems of Bitcoin’s architecture, the scarcity of supply itself can be a reason that renders an appropriate economic development of a Bitcoin-powered economy nearly impossible. An asset that cannot grow in supply with a pace corresponding to the economic growth will provoke deflationary cycles, as it stimulates hoarding instead of spending. Moreover, certain properties of blockchain can further contribute to the rise in liquidity preference in comparison to fiat-based economies.

One can notice, though, that the model I describe seems unrealistic, for it considers Bitcoin equally liquid with a national fiat currency, while in the real world Bitcoin will unlikely be capable to spread on that scale. We may believe that governments will use their power to hinder the acceptance of Bitcoin as a medium of exchange, but I suppose that there is an intrinsic problem that restrains Bitcoin’s proliferation. That problem will be the subject of part 2.

TL;DR.

I am just responding based on the subject of this thread. I guess that pretty much sums up everything there is in the OP.

Anyway, there will be 21,000,000 in BTC in totality. Right now, there are around 18,400,831 BTC in circulation. In every Bitcoin, there are 1,000 milliBitcoins (mBTC). If that is not enough, there are also 1,000,000 microBitcoins (μBTC) per Bitcoin. And if scarcity is still a problem with those figures, there are 100,000,000 Satoshis in every single Bitcoin.

Try to multiply 18,400,831 (current circulating BTC supply) with 100,000,000 (Satoshis per BTC). That is what we have right now. I don't know how much that is; my calculator here cannot even tell. Now, tell me, are we having scarce supply?

This is an incredibly wrong long writeup that essentially boils down to saying people would rather hoard Bitcoin because they're incentivized to do so (mostly because of how its value tend to increase over time). I don't disagree with this, and we've been seeing this in practice for quite some time now -- people screaming HODL, merchants not actually getting much business with BTC, etc.

At the end of the day though, I think this all boils down to semantics. Bitcoin has been more of a crypto-asset than a cryptocurrency for a while now, and I don't see that changing drastically in the foreseeable future. It has to be noted, however, that it can be both; Bitcoin can be incredibly convenient to transact with considering its borderless and decentralized nature that there will be cases where people would prefer to use it over jumping hoops with fiat. That niche, along with the fact that some people simply choose to use it because they believe in the idea, are enough to ensure that Bitcoin will never be irrelevant as a currency, regardless of what its primary usage is.

Edit: misstyped long for some reason lmao

Everything you wrote is directly contradicted by historical fact: Gold, which is scarce like Bitcoin, was successfully used as a currency for centuries. The switch from gold to fiat was due not to shortcomings in the currency, but instead the inability of governments to control their spending.

Yes that is for sure. A supply of only 21 million coins will never be able to become a common currency. Many people still believe that bitcoin will be something huge in the future but they do not know that bitcoin is not fully qualified to be a common currency. It is merely a type of high-value non-physical asset and is being used for whales to take full control of this market.

I only see bitcoin as a digital currency and that it is supporting the current financial system as an alternative. Also bitcoin unstable nature can make it difficult to use moreover apart from it is limited, bitcoin is not able to be controlled by government and government has control of money which makes governance attractive.

So technically speaking, fiat currency is still the most reliable currency that we can use for now. Maybe that bitcoin as a currency concept will only applicable in the future when our technology is really far advanced from today. Maybe we should wait for that time but that's 10 to 20 years from now.

We need to improve more the security of our accounts before engaging to that digital currency as a default currency in transactions. It is not that easy to have a secured accounts, the authorities should become more strict about tracing those hackers that can steal our money once bitcoin become a common currency.

Can't say I agree with everything you said but it was a good read regardless and surprisingly it wasn't a plagiarized text which is rare nowadays. (did a few tests, didn't have any matches)

Grin have higher yearly emission. So you should deferentially check it. But eventually will go much lower as is fiat today. I believe it will take about 50 years to catch Bitcoin right now. Middle path is needed and I believe Gold yearly mining emission is about right.

On the contrary, everything I wrote has been directly confirmed by history, you just need to look at it more precisely:

https://upload.wikimedia.org/wikipedia/commons/thumb/2/20/US_Historical_Inflation_Ancient.svg/800px-US_Historical_Inflation_Ancient.svg.png
source: Wikipedia (https://en.wikipedia.org/wiki/United_States_Consumer_Price_Index)



https://www.liberdyne.com/media/maddison-data-gdp-per-capita-in-2011us-single-benchmark2.png

I anticipated this argument, as there is a popular delusion that the gold standard era was heaven on earth. If we look at the charts above, however, it doesn't look so optimistic. Do you really want to live in a world where inflation constantly bounces from 20% to -20% and backward and almost no real economic growth happens? Furthermore, we need to take into account that the economic setup during the era of commodity money was drastically different from what we have now.

During its monetary history, gold mostly powered a zero-sum economy, where the economic growth was sustained by the growth of the population and the real output per capita didn’t show impressive shifts (as we see from the chart above). The slow growth of the economy approximately corresponded to the slow growth of the gold supply, which is why it was not strictly a deflationary model.

With the technological progress and the increasing productivity, the scarcity of the gold supply started to exhibit its downsides more distinctively and finally led to the Great Depression.

If we look at the first chart, we can see that the price of gold was extremely volatile by modern standards. We should keep in mind that, given the low GDP per capita at that time, the spending/saving ratio couldn’t be shifted drastically: you cannot cut spending down to zero, since you still need to eat something. When the income barely allowed to satisfy basic needs, the speculative motive couldn’t influence the demand for money on a large scale, yet the inflation fluctuated within a 30-40% gap.

What we have now, is a totally different setup. The real GDP per capita has grown almost by an order of magnitude since we had abandoned the gold standard. Nowadays, in the era of excessive consumption, an average household in a developed country can easily cut expenses by half without any dramatic damage to its living standard. Governments, business and households have accumulated tons of excessive savings (you can google the problem of the global savings glut), which can lure a huge cash flow into the speculative game, as soon as we return to the gold standard or adopt a similar monetary model (Bitcoin included). We will likely see the same chart as above, but with fluctuations by an order of magnitude larger, which fully corresponds to my initial statements.

 

It is qualified to be a common currency, just like every other currency it can be divided into parts also it can be stored easily by anyone,even it is better than cash as you have the anonymity while using it, no one can know who was the person behind the transaction and most importantly you can have billions of dollars in a small space like a smartphone all you gotta have is internet to access those funds, it is more secure than your bank account, etc etc. Only con in this is that the transactions sometime takes a lot of time to get confirmed otherwise it is better than cash, at least for the literates.

Why not just read the Conclusion part? OP is not talking about a potential shortage of units, he's talking about the deflationary nature of Bitcoin, and what would happen if it was adopted as the dominant global currency.

Answering to OP, limited supply is a config choice and not a necessary part of the protocol, so Bitcoin could theoretically change it if it was needed. Especially if a competing coin with unlimited supply would start gaining ground because of this feature. But it's all just a theory, we're indeed lightyears away from discussing the influence of Bitcoin on global economy.

As long as you have internet access, it's definitely better than cash. The only problem is that no country in the world will give up it's autonomy above money supply for free. Especially in crisis times like the corons crisis right now. All the big countries around the world are currently injecting a lot of money in the economy.

The only thing I see possible is that once we have a bigger pressure from countries like China or Russia in the global markets. That people start moving away from the USD and using different currencies to settle international trade. Bitcoins would be perfect for that as it's not controlled by any governement.

The economy is a zero-sum game unless someone decides to dig up more gold no matter what the cost of production of gold is because it is gold. If it is possible to get it, you get it because you know how to.

That's exactly how bitcoin also works.

Some miners will mine bitcoin because their cost of electricity is zero (stealing from someone else), and some other will mine it regardless of the electricity price (or btc price) because they can afford it.

The economic growth was low back in the day when gold was the king shit because it was real growth.

The wealth came with the FIAT monetary system is only available to the elites and it is mostly stolen wealth.

FIAT's huge fake growth induced the population growth and huge population cheapened the work force because there happened to be more people competing with each other.

Now we don't really need that much cheap work because AI is a thing, they are desperately seeking ways to remove that excessive people. (covid19 might be the part of the big plan)

With the FIAT system, they stole our our wealth from us first, now we have no use to them, they want our lives too.

The current system also created some rich doctors and engineers with a couple of million dollars in their bank accounts but you get a lot more people that live in extreme poverty for every rich doctor/engineer there is. And the rest of the world is living paycheck to paycheck thinking it could have been worse.

If we have had continued with the gold standard, we wouldn't have had iphones/smartphones or maybe they would have come a lot later than their debut but then we wouldn't have had these problems neither.

Instead, now we have super advanced tech but we also a have several billions people that need to be evaporated.

And where is bitcoin in all of that?

Can't be sure but i know it is already too late to reverse these things back.

Think about it they are forcing us to buy a $1000 iphone and a $40-50k car in every few years with their ads coming from every direction. (it is the best if you do it every year)

This system is sustainable as long as you don't save and give back everything you earned.

When you decide to save money, you have no use anymore. You need to be exterminated.

Yo guys, for those who did not read the whole writeup just kindly read the conclusion that the OP have given.

What my stand on this is that bitcoin was never made, or purposely made to be a currency to use by the whole world it is designed to be just an alternative. Maybe this is the very reason why it is created with scarcity so the government would not take it negatively and would look at it as a threat to current financial structure ( though it's quite ) Well guess what now? most of us is using bitcoin as an investment coz people are crazy over it.

TL;DR.


i hope this is already the part 2.  ;D

there is always a grain of truth about BTC not really going to be widely adopted. just as how we learn about gold but not even used it to buy a product. at the same time we also some technology that we can use today and probably the LN will help us transact to pay 1 satoshi or so. we may yet learn what we'll gonna come up in the future.

BTC will still only be for the geeks if governments digital fiat really comes handy for all. The crypto community couldn't insist everybody to use any coins either but BTC is here to stay.

A very complicated question you have just touched. Bitcoin cannot change that simple for two reasons:

1) Changing is basically forking. You cannot suspend one Bitcoin blockchain and create another one instead. You can only fork one into two.

I think most of the community agree that the current block size is insufficient, and, given the capabilities of the current Internet infrastructure, we should raise it at least to 4-8 MB. That was the initial idea behind Bitcoin Cash, yet its market cap is still a tiny fraction of Bitcoin’s market cap. Why? Because there is only one true Bitcoin and nobody cares about forks even if they provide undeniable benefits.

Without creating a fork, we can apply only minor adjustments that do not raise controversy and are easily accepted by everyone. Changing the issuance model is definitely not one of such.

2) Bitcoin is totally controlled by major miners. Despite the delusion that the community can influence the path of development, in practice miners can do whatever they want at their sole discretion. For that reason, it is miners who decide what is needed and what is not, but not us.

In addition, I would like to say that the issuance model is one of the core ideas of Bitcoin and changing it would stop Bitcoin beeing itself. It has already transformed into a hedging asset and if another coin gains popularity as a medium of exchange, it has nothing to do with Bitcoin: it will still occupy the same niche and no competition will emerge.

Do you know the history about the SegWit2x and other Bitcoin fork attempts? They were backed by majority of miners, SegWit2x was signaled by 90+% of hashpower, and it still failed because community rejected it. Your point 2) even contradicts your point 1), because if it was only for miners, we'd have bigger blocks.

Things change, Bitcoin community wanted Bitcoin to be a currency that will replace fiat, now it's a hedge (a poor one on practice), maybe in the future people will again want it to become a currency. It's still only 10 years old, maybe Bitcoin of the future will, for better or worse, be totally different from what it is now.

None of what you are saying contradicts any of my statements. I’m not trying to claim that Bitcoin cannot be used as a currency, because it would be an absurd statement. We can use it for payments just as any other more or less liquid asset: money, bonds, Van Gogh’s paintings etc. Certain features of Bitcoin make it an equally convenient payment method along with cash on some occasions and even surpassing cash in a number of scenarios (for example, darknet trade and other legally prohibited activities).

What I’m trying to say is that Bitcoin can never transform into a fully-fledged currency that is, the most liquid asset into which all other assets are converted. To prove it, I use the proof by contradiction method and assume that Bitcoin HAS BECOME a currency. After showing the alleged consequences of this assumption, the conclusion is made that it shouldn’t happen.

And then there's the possibility that we could technically add more then those 8 decimals that come after without touching the original scarcity of 21M.
We could just divide it to smaller and smaller adding zeros below that satoshi.

By zero-some I meant the total output per capita. Money supply is irrelevant since in pre industrial economies the total amount of produced value depended merely on the population and the distribution of wealth was a zero-sum game. No matter how you play with the money supply, one carpenter can only make one chair per day.


Well, I have deliberately chosen a chart that shows GDP adjusted to inflation, which is as real as it can get. A fact: an average person nowadays possesses roughly 7 times more real wealth than in 1930s, when the US abandoned the hard gold standard.

You can argue that the most part of this wealth is concentrated in the hands of the minority, but that is the problem equally relevant to any period in history. I bet you wouldn’t claim that an average peasant in feudal Europe was a hustla riding a fancy chariot with a glass of fine cognac in a hand. Material inequality in the commodity money era was even harsher than nowadays. At least we have a substantial middle class now, while back then you could be either a filthy rich aristocrat or a low-life commoner.

In fact, fiat has nothing to do with material inequality. With regard to modern monetary system, I believe it’s mostly the fractional reserve banking and the methods of expansionary policy that should be criticized. This is the point where I agree with you and this is what I will cover in later posts.


Cheapened in comparison to what? During the age of industrial revolutions, an average worker would have been lucky to gain enough not to starve. You seem to sugar coat the good old days, like the grass was greener and stuff )



Well, isn't that because the rich doctor has been studying hard through his entire life and is now capable of doing things that only a few can repeat, while those poor people have been seating on their asses doning nothing except procreating a bunch of kids whom they are now unable to feed? BTW, what you are talking about is actually a zero-sum economy that i meant. The thing is that with the current growth of real GDP per capita the economy is not nearly zero-sum and the doctor doesn't have to drag anyone into misery to become rich.


I think you need to relax a bit with these thoughts. There is too much conspiracy on your mind )

I know a smurf account when I see one, lol. I did a few tests as well, and no plagiarism was detected.
Anyways, OP, what do you think about the argument that Bitcoin can be further divided beyond one satoshi, perhaps 0.1 or 0.01 satoshi? Will the deflationary cycle still happen?

Bitcoin can be divided into further as well and the minimum size of a bitcoin could be a satoshi so we have enough satoshis for bitcoin to be operated and can be used by the whole world even if the only crypto which exists.Now we have more cryptos as well so different cryptos for different kind of usage so its completely possible for the whole world to switch into decentralised payment system.

Why are we talking about scarcity about bitcoin when theres are a lot of it and it is even divided into parts. Maybe they are thinking that the price will be stagnant while the demand is increasing and users are blowing up? As users blow up, obviously the value goes up. That also means that the value of bitcoin with its every devidend will blow up too.

Backed or claimed to be backed? )

Mining pools and hardware manufacturers has been claiming to support the increase of a block size for many years, yet we are still at the same spot. I do not believe that they actually desire it so hard, because it seems more profitable to keep the size intact. The thing is that transaction fees grow higher in the presence of competition. When blocks are small and cannot fit the entire mem pool, transaction issuers have to compete for the privilege of being chosen by raising fees substantially. If 8 MB blocks fit all pending transactions, there will be no need in fees at all. I suppose that the increased amount of transactions processed will not outbalance the drop in fees, which is why miners play a hypocritical game claiming that they want to increase the block size but someone always puts a spoke in their wheel.

As for the true power of miners, consider the following scenario:

Say miners want to eliminate an undesired fork. Say it's actually the second largest fork, which currently is BCH. The hashrate of BTC is about 110 EH/s, while the hashrate of BCH is 2.5 EH/s. We can see that only a tiny fraction of BTC’s mining power is sufficient to outpace BCH miners. A major BTC miner downloads the BCH blockchain and executes the selfish mining strategy to replace large parts of the main chain (say 10 blocks long), thus reverting blocks that are considered a part of the consistent common prefix.

The miner can repeat this trick as long as he wishes and it will be impossible to identify who actually does this. There is no counter to this except changing the protocol, but that’s basically equal to creating a different blockchain platform.

We are all in the miners’ pockets; they just want to make the community believe in the opposite.

I don't see how these two issues are related. The question of denomination as absolutely abstract and doesn't influence any particular features of the system.

Actually there are many factors that make bitcoin unable to become a global currency, especially to replace fiat currency seems impossible.
Maybe scarce supply is not the right reason bitcoin cannot become a global currency, because bitcoin can be divided into small parts. In my
opinion because bitcoin is decentralized, the government will never agree that bitcoin becomes a global currency, which the government won't
can ever control bitcoin. It is more realistic if bitcoin is an alternative currency.

Not OP, but I have no idea why people cite this as an argument. Deflation, in this context, happens when supply can no longer keep up with demand. Keeping that in mind, subdividing satoshis into however many units does not affect the supply at all and shouldn't have any direct impact in Bitcoin's value.

This would be akin to central banks breaking down cents into smaller denominations instead of printing money for the purpose of injecting more supply into circulation.

Thanks for pointing that out.

Anyway, for OP, you don't have to worry much about a Bitcoin-powered economy not working out because there might never ever be even a single sovereign state adopting Bitcoin as its sovereign currency.

For now, Bitcoin is actually growing in supply. That will only stop 120 years from now. So while there is indeed deflation in its emission, there is actually inflation in its supply. And, overall, there is actually no deflation because the supply is not diminishing but rather fixed, save perhaps for some lost coins.  

As to the hoarding rather than spending due to its increasing value, that is true and somehow contrary to what the traditional economy prefers. In our current economic paradigm, people are induced to spend and buy now and today rather than later or tomorrow because the prices are supposed to be increasing and the purchasing power of money is decreasing. And that will suppose to fuel economic growth.

However, that dreaded deflationary cycle is not a thing of the future. It is happening right now. Thanks to the quick shifting of trends and fads and the very fast technological advancements which cause efficiency in the production of goods things are actually not getting expensive. On the contrary, they are getting cheaper and cheaper each day. But that does not stop people from spending today rather than tomorrow.

People are still lining up for that car, mobile phone, computer, shoes, and so on and so forth even if they know that the same stuff will be cheaper tomorrow than today.


Not even a possibility anymore but already a reality somehow.

Right now, Lightning Network features milliSatoshi (mSat). That's 11 decimals all in all.

Scarce supply is one of the right reason, imagine all the bitcoin supply constantly circulating the global economy, it is not enough and there will be a huge jack up in prices. The decentralization can be compromised by government but this will in turn cause some favorable and unfavorable compromises, I can agree that it can be an alternative currency. The frightening thing about bitcoin is its inherent volatility that could crash anytime and the chances are never zero.

This topic has been discussed many times before.
There's enough satoshis to handle all the transaction volume in case of a massive global Bitcoin adoption.
Do you think that scarcity is a problem?In the middle ages and up until the twentieth century,gold was scarce
and it still is,but it was successfully used as the global medium of exchange and store of value.
Your thread is a chore to read and there's no point of pointing out old and invalid arguments to prove some theory that has already been proven to be wrong.

Not even close to part 2 )

I personally believe that the hype over payment channels is exaggerated. They won’t solve the scalability issue and they will unlikely be in high demand.

Its not the matter of the issuance rate intself but more of its influence on prices and the perception of Bitcoin by the population.


As long as most of the developed countries stick with the inflation targeting policy, things do not get cheaper. They become better, so you can by a more powerful phone for the same price, but not cheaper. That's the main idea behind inflation targeting: we expand the money supply at the same rate as the output grows and add a bit extra to secure 1-2% inflation. In developing countries, inflation can be targeted at higher rates (4-7%) as long as business can absorb it.


Yeah, but you cannot stuff these milliSatoshis back to the blockchain when the channel closes.

This entire wall of text fits into just three words-simplicity, reliability, and accessibility.
BTC unfortunately can not provide any of this and only this is enough to forget about becoming them on a par with Fiat. Even for a blue dream, this is too naive with current TPS lvl and adoption around the world

We run full nodes, if they try to change the rules, their blocks become invalid and they are no longer mining Bitcoin, instead they are mining a shitcoin with zero users. You could say that "but then there's no new blocks in Bitcoin", but guess what, us users can wait for a long time, most people are hodling anyway and do transactions maybe a few times per month or less. But miners are losing a ton of money for every second that they spend their electricity on mining this hypotethical shitcoin. Which is why they could never strongarm the Bitcoin community, and will never be able to.

Full nodes are nothing against hashing power. Miners run their own nodes and there won’t be any problem with redundant blockchain instances if a thousand miners work on the same chain.
You don’t get it – value is supported by the hash rate. It's an intrinsic downside of PoW. A fork with a high hash rate is never a shitcoin, because it is protected from the scenario I described above and thus is more valuable. Even if a million users support a fork without a substantial hash rate behind, no one will bet on it. When it comes to your lifetime savings, it won’t be your personal feelings that will determine the decision. Some people with a few satoshis may rebel, of course, but it will be whales who will determine the value and they will bet on a higher hashrate.

Good luck achieving consensus to increase the BTC supply. Likely impossible. It's the single most inviolable principle BTC holders have. The more years that go by, the more entrenched and difficult to change the protocol becomes.


Like gold, BTC's network effect is built upon its monetary properties. It wasn't designed to be a global reserve currency. If we start destroying its monetary integrity to make it one, it will likely lose its network effect.

Like the OP, I also view BTC's fixed money supply as a huge impediment to becoming a reserve currency. History also proved that gold can't be a reserve currency either. A reserve asset yes, but a reserve currency no. There isn't enough transaction liquidity, especially in a future with much lower inflation and much higher transaction fees.

I know that most see this as impossible to happen, but I believe it will happen. But not before 20 years from now. Reward will become very small and fees will not be enough to secure network. Fork with small additional  emission will happen and everyone will start using it. 20 years is not something to worry about now.

Bitcoin's supply rule doesn't affect it's functionality in any way, so unlike other parameters, it can be easily changed theoretically. I wouldn't be so sure that the users wouldn't want it, public opinions do change over long periods of time.


Satoshi wanted it to become a global currency, he named it "a peer-to-peer electronic cash", not "digital gold". He believed that deflation is not a problem from a monetary point of view. You could say that Satoshi was wrong here, but you can't say that it wasn't designed to be a currency.

Over time, the change will definitely happen. Here's why: if Bitcoin's demand will be on a healthy level 30 years from now, imagine how much BTC will be lost/dormant and how rare of an asset it'll become. At that point, if one Bitcoin will be worth $500k, it'd mean that 200 satoshis will be equal to $1. Without a modified supply, it'll become too unaffordable because the fees will become too high.

Changing from 21M to 2.1B total supply would only make a Bitcoin 100x less worth while you have 100x more Bitcoins at the same time. It's the exact same thing and I really think this change is going to happen when transactions will become unaffordable. Or.. another option is just adding more decimals to it. That would not change the supply but make it possible to spend a 10th of a satoshi instead of an entire one. Some kind of satoshi cents :)

There are some hardcore supporter that wouldnt want to change such fundamental thing. There probably wont be any consensus achieved in the future regarding this . 21 M supply and thats it  :). Thats why all those bitcoin forks shows up. Some legit forks happened because they want to solve "problem" that arises from the current state of the network


By adding more decimals to it , that means the value will be much lower as well. In some sense, it will be the same as increasing the total supply. It wont be exactly the same but it is very similar

It is a currency? I mean just because it is not the main currency doesn't mean it is not a currency. Ethereum is a currency, litecoin is a currency, all the coins in the market is a currency. What you are trying say is "bitcoin will never become standard currency" which is totally different thing to say. I do agree that bitcoin not being the main currency is likely, after all not only scarcity but volatility and decentralization are all cause for bitcoin to be not a standard currency in any nation.

However that doesn't change the fact that you can use crypto to buy stuff and that means if you are paying with it, that is a currency. It is not barter neither, it is not like you give 2 chickens and get 5kg meat type of barter, it is really a currency that has a worth in any other currency as well.

A currency is by definition the most liquid asset or an asset that is accepted in exchange for all other assets. The key property is absolute liquidity: you know that you can use the currency to purchase anything you need without the need to convert it into intermediary assets.

There are less liquid assets that can be also used as a medium of exchange. For example, you want to sell me something, but I only have stocks of Apple inc. You may not need them, but you will likely accept my offer, because you know that you can quickly sell them any time at a market price. All coins that you mentioned have the same properties: being sufficiently liquid, they can be used as a medium of exchange in many situations, but that doesn’t make them currencies, as they are not accepted widely as such, whereby are less liquid than money. In my post, I try to describe what will happen if Bitcoin becomes a currency that is, gaining equal liquidity with a traditional fiat currency.

Barter implies exchanging less liquid assets that are not expected to be quickly sold in the open market, but are rather needed directly by the parties (you give me something that I need and visa versa) or at least known to be needed by a third party for the subsequent barter.

Sure, in the same way that a hard fork increasing the block size can be easily changed theoretically. ;)

I think you overestimate how easily the most sacred protocol rule in Bitcoin can be changed. Every Bitcoin user would literally be diluting their own wealth in such a fork. That's never going to be a popular proposition. They would only willingly do so if Bitcoin was on the brink of total failure due to breakdown of mining incentives. By that point I honestly think BTC is much more likely to be abandoned wholesale than to become a global reserve currency.


He didn't name it "global reserve currency" either, did he? ;)

If he intended for that then yes, I think he designed it incorrectly.

I have verified the scarcity of the supply and I can say that the sample I have is due to ignorance about the use of bitcoin and disinterest. Because I did my sampling in the supermarkets in my city and offered to pay for my food with bitcoin, and they did not accept. What could be the solution?
If the country allows the use of Bitcoin as part of its economy, the economic sector and the population must be informed on how to use it.

Yes brother you are right.. it is currently used as an alternative financial system and it is not possible for the government to control it.

If it becomes unaffordable for average txs, it's going to be a problem for all of us.. Imagine having to spend $10 on a transaction you would've spent $0.5 at most years before. I get it that the 21M supply should stay the same, but if we ever get to the point where it becomes unaffordable for the average person to use BTC then lots of people will simply quit, leading to a decline of demand and therefore a price decline.

Why is that? It's literally like having a $0.99 item show up starting from tomorrow as $0.9900 in all shops. That doesn't change anything at all besides the fact that you'd have the possibility to own the 100th part of a cent. Think of exchanges, where you have $9,450.85⁰²³² with 4 digits added to the end. It doesn't change its value at all.

we'll have to start over again with BTC if we are going to increase its supply.  its been discussed in the early stage of bitcoin while its experimental but miners continue to mine til what it is right now. no reboot happened because of the consensus.

i'm sure its going to be alright if BTC isn't going to be used as currency. if you wanna pay $0.50 worth of BTC while the transaction cost more than $10, i suggest you pay thru paypal or altcoin if accepted or simply ask a person beside you for change.


there are merchants that accepts BTC, we don't need to turn it into USD. just send BTC to their wallet and we get the product we want. we can't call it barter because BTC is cryptoCURRENCY. we literally use BTC to buy something.

Man, the concept of bitcoin and stocks is basically a barter trading, they are relaying on the law of supply and demand as you can see if the demand is low then, the price is low and if the demand is high then, the price is also high. Bitcoin have up's and down cause it basically using the law of supply and demand and as we all know, Barter trading is the first trading system that use the law supply and demand.

Bitcoin will never be a currency, it's more like a stocks or an good asset to invest with.

I just anwer base on your subject. I think not the scarce or limited supply of bitcoin is the reason that it cannot be like a fiat currency but the way it was used because it always need an internet to transact which other people can't do. Anyway Bitcoin is already a currency which have a different usage but it can't be a world currency because it was not issued by the government and Banks has no controlled power over it.

Because Bitcoin is decentralized it cannot be converted into currency Also most people prefer to use Bitcoin and do not want to convert it into currency If centralized it would be used as currency. There are also many countries in the world that do not use Bitcoin, they can deal with the currency but there will be many problems but it will take a long time for Bitcoin to become legal If the currency is not supplied properly Fiat will replace Bitcoin as currency.

Hello OP. Bitcoin's proposed "world-economy" scenario has been a matter of debate for quite long now.  Your analysis is based on the established understanding of economics. The one which says that an incessant pursuit of "growth" in GDP numbers is the only way for the economy to function. You are wrapping this idea in form of an analysis of what it would look like to have bitcoin as the only currency. In layman's terms, it naturally sounds like it cannot be done.

This premise that bitcoin will be the only payment method is false in itself. No bitcoin proponent sees bitcoin as the "only currency". The major argument is that it should replace USD/SDR as a reserve currency. This proposes a system where economic machinations will not become dependent on one country's geo-strategic requirements. Wars will not be used as a way to generate demand. These are not conspiracy theories. These are all very real outcomes of an economic system which has relied on the USD as a reserve currency and establishing supremacy of certain institutions in deciding how the world grows, through an indirect control of the economy. What bitcoin envisages is a world where Public spending will be transparent, traceable and decentralized, apart from every citizen having a hand in the pie of a non-inflatable stable asset.

That is the bigger picture for bitcoin's usage. LN enabling coffee micropayments would just be nice to have.

The barter trading is really the reason why bitcoin is having an expensive price because a lot of people and investors are buying bitcoin as an investment and as a safe asset. Bitcoin would never be a currency due to its decentralization that no one can control it, no matter what happens. Bitcoin would only be a currency if it will only become centralized.

I actually explained it in the post that you quoted. It’s a matter of comprehension of the term “currency”. As I said, any liquid asset can be accepted for payments. Many merchants would accept stocks or bonds not because they are currencies, but because they can be quickly converted into any currency. The same with Bitcoin: a merchant who accepts BTC for payments simply converts it into USD. He doesn’t pay wages in BTC and doesn’t by raw materials etc.

Think about it from another perspective. Say we have a Bitcoin-powered economy and we can count a GDP rate. There is a financial market (BTC exchanged into other financial assets) and some real economy (BTC exchanged into goods and services). The ratio of these components tells us to what extent BTC can be perceived as a currency. If the real economy prevails, we can conclude that BTC is more of a currency than a financial asset. At the current stage (and I suppose in the future as well), we cannot call Bitcoin a currency, for the real economy is just a tiny fraction of its turnover.

Isn’t it the natural way of progress? Production becomes more effective, we can produce more with the same resources and consume more accordingly. I hope you are not trying to state that we should get back to riding horses and using carrier pigeons for communication.


On the contrary, a use a setup where Bitcoin is a secondary currency accepted on par with the national currency. You must have not read my post. Moreover, I directly admit that it cannot be done, which, however, doesn’t change the fact that assuming the opposite is the most convenient model for analysis.


Again, you must have missed the point of my post. I do not model the setup where BTC is the only currency. The problem is that once it becomes widely accepted, thus gaining the properties of a currency, it destroys all competing assets and inevitably becomes the only currency unless the government applies restrictive measures toward it. And then come troubles.


The original whitepaper is titled “a peer-to-peer electronic cash system”. In that paper, Satoshi describes a system for direct payments between sellers and buyers, which serve as an alternative to the banking system. No matter how hard you try, you will find nothing about a global reserve currency. The main idea of my post (and the upcoming next posts) is to discuss the initial ideas, problems that emerged, and a solution to these problems.

As for a global reserve currency, it’s just a very desirable scenario for hodlers, who are still waiting for Bitcoin to hit 1 mil USD. I agree that it can be used for storing reserves to a certain extent, but not nearly as a fully-fledged supranational currency. The scarcity of the supply together with trade imbalances will lead to the accumulation of Bitcoins on the balance sheets of major exporters, which will be able to manipulate the available supply and hence exchange rates. SDR seems a much more adequate alternative.


No, this proposes a system where exporters gain power over importers, not speaking about other various hodlers. Out of the frying pan into the fire. We can propose a specific permissioned blockchain controlled by a board of national representatives for that purpose, but definitely not Bitcoin.


These are. Wars stopped being drivers of the economy long ago. This statement may have been legit in the pre industrial era, when economy was zero-sum and the overall wealth of one country could only be improved at the expense of the wealth of others. To a certain extent, it worked during the world wars. Nowadays, in the era of rapid technological advancement, a war is a lose-lose.


Again, we have SDR, which you mentioned yourself. What's wrong about that? Other countries rely on USD, because it is considered... reliable! There were days when a British pound played that role, but the US proved to run a more stable and powerfull economy and took up the baton. This seems quite natural, no conspiracy behind.


“Non-inflatable” and “stable” are words that don’t seem to get along in one sentence. Satoshi may have intended something like that, but he was wrong about the issuance model. In practice, we will only get the world of speculations and volatility.

That is a delicate question. In.a traditional, formal way Bitcoin can hardly be considered as a currency and limited supply is definetely one of the biggest obstacles although not the only one. However, people use Bitcoin as a currency and they will continue to do so. No country will ever use Bitcoin as their national currency and something that supports the financial system but people will continue to use Bitcoin as a payment method that is alternative to fiat currencies and it can function that way.

You might be right, but there is one thing I have noticed whenever people are talking about bitcoin being limited in supply; they just go ahead and say that there are only twenty one million BTC, but these people forget that Bitcoin also have fractions, and even most of the people that are buying Bitcoin these days are just buying fractions, and not one whole Bitcoin, they just buy like 10,000 Satoshi, more or less and things like that.

We have 100 million for every one bitcoin there is and that's a lot of it. The more people are buying into it, the increase in demands sets an increase in how much it is worth. So before we run out of supply just as you have said, it's definitely going to be taking a really long time.

Scarcity is one of the main Bitcoin's benefits. Bitcoin is divisible in fact, so its limited supply doesn't mean that we will have not enough Bitcoins in circulation. Gold is scare too, but it has been good as a mean of exchange for ages.

n the case of bitcoin investing it is better to invest a small amount at first Most traders never buy or hold a whole bitcoin They keep a small amount so that if the price goes up they can make the same profit as the whole. Bitcoin investing is much better but has to wait a long time No one can say when the price will go up Bitcoin has more market advantages than the gold market.

Actually I agree with you . Even I myself have posted a few posts in this behalf talking about how Economics looks unsustainable with Bitcoin as a terms of payment. But yes it is analyzed on our knowledge of Existing Economics and not to mention which is formed after seeing failure of gold as a currency which economically had pretty similar traits.
But yes when it comes to talking about reserve currency then I don't think it would work again. We had gold as tethered commodity for our currency before the Bretten woods Conference. But then with passage of time countries and especially bretten woods countries shifted to tethering USD as a base currency and after 1971 even that idea was cancelled and today no country has any reserve currency for issuing their currency. Even if make bitcoin as a reserve currency today. what are the chances that all this won't happen again?

You have interpreted the world BTC supply altogether wrong. Money doesn't works this way atleast as per our existing knowledge of Economics. What you are talking about is deflationary money supply which isn't good for Economy. OP is talking about the injections and the leakages to the overall Bitcoin circulating supply. I mean if you have 21 Million BTC in totality you will have that much of money in totality. Once this money has reached the hands of people and they spend the same our growth levels would increase. This is called a deflationary spiral. Actually their are two aspects to it. One is that limited success of Bitcoin as a mainstream currency itself proves that people are more interesting in hoarding rather than spending. Now when we are expecting a global economic scenario this becomes even more prominent. As when it reaches to every strata of society who know that this coin's value will increase the next day they would go on to hold it. If you feel that it won't increase everyday feel free to read theory of "Deflationary Spiral" on google any day. Now this is where people would be spending much less than what they are earning. Making Economics pretty unorganized. Yes if you are using it as an alternate source just like we are now then you might not face such a major issue.