Bitcoin Forum

In our current western economy, when there is plenty for everyone, few consider the real value of their money and material possessions. The same applies to the current bitcoin presumed dollar value. Daily supply (~3600 coins) is still high, and demand relatively low.

However, the above is about to reverse. Fresh supply is about to run out, the last 10% takes forever. This while the usability keeps on increasing at an amazing pace.

I think the near future 'limited new supply' vs 'high demand' is highly underestimated. Good times ahead!


http://oi61.tinypic.com/s0ztop.jpg
source: https://bitcointalk.org/index.php?topic=130619.0

I hope you are right because to me it all seems stale, news that would have boosted the price doesnt seem to affect it any more.  :-\

It's a shame, because now nobody will invest in any bitcoin-related ideas. Instead, they'll be laying as many people off and using as old equipment as possible because, y'know - deflation. We've had extreme "real" deflation over the past few years... that's probably why we're in a dry spell, now. Everyone must've been banking on bitcoin staying nominally inflationary forever so nobody could retire.

-Or something. I'm sure there's a legit counter-point somewhere.

There is only a limited time frame left wherein the shortage of bitcoins can be denied.

I would disagree. The reason why we have had such a "deflationary" period is because people/investors had to "discover" bitcoin in order to invest and buy it. The inflation rate in terms of total of bitcoin available has been increasing at levels that would be generally be considered to be unhealthy under normal conditions.

The fact that a lower "true" inflation rate is occurring does not mean that "deflation" will occur (higher USD/BTC prices), but rather a more stable price. I would argue that a more stable price would give people less of an incentive to hoard their bitcoin and more of an incentive to engage in commerce in bitcoin, which would encourage more companies to invest in bitcoin related businesses and infrastructure. 

I think this will likely result in a more stable price as there will be less of a supply of bitcoin that will generally be sold to cover mining costs. A more stable price will likely (IMO) result in a higher overall level of adoption.

Either we go moon or we go the doge path.

Can't see other options after the halving

You might want to fix your numbers. In 2 years, 75% of the bitcoins will be mined, not 85%. And the remaining 25% will take another century to mine. Meanwhile, the supply of bitcoins continues to grow, even if the "fresh" supply goes to 0.

But the last 10% takes a loooooong time.
So effectively, after the halving there is only 100% - 10% - 75% = 15% left.

You confirm my thoughts that the near future 'limited new supply' vs 'high demand' is highly underestimated.


This ofcourse would be really healthy, it is the redistribution of wealth. Only a few will sit on their stash no matter what, because there is no need to spend. Just like in the current economy.

It basically underwrites the theory of Masterlucif that Bitcoin will go nowhere until the next block halving.

But the last 1% takes almost as long as the last 10%. It will only take 20 years to get to the last 1%, but another 120 years to mine the rest. So, you could then say that there are "effectively" 24% left in 2 years.


My point was that comparing 'limited new supply' vs 'high demand' not as valid as comparing supply vs. demand or limited new supply vs limited high demand.

Yes, miners right now have the price in their hands. When their pressure on the market will be lower, we should see the real effect of deflation.

i don't understand why there is an inflation rate when btc is a deflation coin..  ???

Because people who say it is deflationary mean it is after around the year 2140 but conveniently leave that out to try to confuse people - or are uninformed. 

so, right now, btc have an inflation rate? where can i find info of its value?

You are doing the same in an opposite matter. After 2020 there will just be some yearly Sathosi inflation dust left to mine till 2140. It again amplifies my feeling that the huge decreasing rate of inflation is highly underestimated.

Incorrect. Inflation in its economical strict sense does only mean that the amount of total monetary units is increased. This often leads to a loss of purchasing power of each monetary unit (prices of goods "go up" numerically), but it is not the same as inflation. So the observance of increasing prices is a possible effect of inflation.

Bitcoin is inflationary but has deflationary effects, because the demand for bitcoin exceeds the supply of new coins. So adoption and lost coins do not only compensate for possible inflationary effects (loss of purchasing power of each bitcoin) but lead to an increase in purchasing power of each bitcoin.

I'm referring to what Wikipedia calls Monetary Inflation (http://en.wikipedia.org/wiki/Monetary_inflation) which is the original meaning of the term inflation (from the latin word "inflare"). This is in line with the Austrian School of Economics. I refuse to call price increases inflation, because this hides the cause (increase in monetary supply) of the effect (rising prices).

This could very well end up being near the end of 2015.

Consider the blocks generated in the last 4 months: block 240,000 was generated on 6/6. The network has confirmed about 22,000 blocks in 4 months. The 2 months prior, and the 2 months prior to that, only 10,000 blocks were confirmed.

Operating at the pace that we have over the last two months, the projected date for the block halving would be Feb 27, 2016, which would be a good conservative guess.

But if the network confirms at the pace of the last 1000 blocks, the halving event would be on December 5, 2015.

I think this depends on how you view "inflation", some people consider inflation to be when the prices of a basket of goods and services increases (this is generally how inflation is measured in the US and much of Europe).

In other places "inflation" is defined by the total money supply available in the economy.

I'm not sure when the effect of this will kick in, but it could be anywhere from 2016 to 2020.

but the effect will surely be noticed

you can calculate it from the following facts, which can be freely found online

1) Current amount of bitcoins in circulation (total number of bitcoins mined minus the known lost bitcoins)

2) block reward (right now 25 bitcoin per 10 minutes, so 2.5 per minute).

With this you can calculate how much inflation per week/month/year

The inflation is now fairly high (about 10% or so) but will soon be lowered to 5% or so around 2016. It will then gradually drop to 4% and at the halving after that drop to about 2% (in 2018/2019) after that it will decrease even lower and by about 2020 the inflation will be much less than 1%, at which point it may be considered pretty much irrelevant.

thx for the info.

Just a question to realize if i've understood right: inflation will go down because in the next years demand will be more than supply?

Yes, I know that inflation is commonly defined in the former sense, but I think that definition is technically wrong when you consider the derivation of the term. Actually the word's usage to describe price increases may have been evolved from the observation that an increase in money supply subsequently causes (in many cases) price increases. But price increases can also be caused by other factors.

I could not agree more. The fact that central banks claim that fiat money can deflate (and claim this is actually happening) proves beyond doubt how incompetent they are.

I guess they could just report that purchasing power is increasing... :P Either way, QE∞ + "deflation" isn't a good sign, I imagine. There's an enormous elephant invisible to me if the economy's recovering, the housing market is resuming bubble status, monetary supply is increasing rapidly, and CPI is somehow stagnating, occasionally being negative. I doubt it's that the money supply isn't actually increasing, and house prices seem to clearly be nearing pre-crash peak to me...

The real question is; will anyone care when it happens.
Seams like the bitcoin bubble is being slowly drained of its momentum.
I seriously have doubts it will sustain >400$ prices for much longer

The inflation (monetary base inflation) is the new money created compared to the money there already is.

So, if there is 1 bitcoin, and i mine more bitcoin, that's an inflation of 100%. But if i mine 1 bitcoin while there are 1000 bitcoin, that's an inflation of 0.1%

Right now, there are 13,276,000 bitcoins mined (https://blockchain.info/charts/total-bitcoins) and there are about 25 bitcoins mined every 10 minutes (slightly faster, due to difficulty lagg).

That means, every year (a year has 525949 minutes, so 52594.9 times 10 minutes) 25*52594.9 = 1,314,872.5 bitcoin are mined (at least until block reward halves)

That means, the next year, inflation is  1,314,872.5/13,276,000 which is roughly 10% (9,9%)

The year after that, there will still be 1,314,872.5 coins mined (assuming difficulty has not readjusted by the end of next year) but the amount of coins mined will be 13,276,000 + 1,314,872.5 = 14590872.5 so inflation will be 1,314,872.5/14,590,872.5 = 9% This is a gradual decrease of inflation that happens constantly.

the year after that difficulty will likely have been readjusted, so the amount of coins mined per year will be about 657,436.25 (because 12.5 coins per 10 minutes) and the amount of bitcoins will be about 15,905,745 when that happens. So inflation will suddenly drop in half (this happens about every 2 years, on top of the gradual decrease in inflation). 657,436.25/15,905,745 = 4.1%

So in just about 2 years, inflation would be lowered from 9.9% to 4.1% and the two years after that it's not even 2% anymore. That's even faster than i guestimated in the previous post.

Great post zimmah, thanks for the effort.

Long may it continue, someone buying 1 BTC a couple of yrs ago made a few hundred dollars by now.
And if it continues like this, someone buying 0.01 BTC today will make a few hundred dollars in a few years time.
What's the problem.
No one's missed the boat,
Bitcoin is deflationary over the long term,
the time to jump on board (cautiously) is always today.

I would say that deflation would generally be when prices are falling as a whole. It is nearly impossible for overall money supply to fall as a whole as the central bank could simply print more money to prevent this (thus preventing deflation even being an economic concept if it was measured by money supply).

Some say that Bitcoin will begin rising again in the near future to newer and newer highs. I just can't help but think that it will behave like the Yahoo stock at the end of the 90s...

Sometimes I wonder what will happen when all the bitcoins will be mined,like the king of coins will be gone from mining.How will it effect the crypto world then?

Just have some faith and hold your bitcoin savings, they will eventually rise again.

Ours have been mined so we will let them ride for a while!

We just need more and more businesses to have confidence in them. Those who make international payments over the internet especially; it is much cheaper than using a third party system that takes a few percent.

In theory central banks could deflate money supply by reducing the monetary units in circulation. But they don't do it, because it's not their policy. These days, central banks only inflate, they never deflate. Deflation mostly occurs as a singular event when central banks have inflated a lot and currency use becomes impractical. Such events they use to call euphemistically a "currency reform". I guess, we'll all have the questionable honor to experience such an event in our lifetime.

If you don't have a BTC by now you are mentally handicapped.

Anything is possible in theory, but I don't think this would happen in practice. Can you provide an example when a central bank engaged in this kind of deflation over a period of at least 6 months (a time period that I would consider to be short to medium term)? I do not know of one, nor do I think one exists.

AFAIK even in times of hyperinflation central banks have not engaged in this kind of deflationary policies.

EDIT: hyperinflation in terms of risking prices

I already said in my second sentence, that central banks don't deflate continuously, because it doesn't fit their policy. When deflation occurs it's a singular event, a "currency reform".

Could you give an example of "currency reform" when the peak amount of currency was not exceeded within 6 months? In other words, on January 2015 there is $100 in currency in the economy, then on January 5th, the central banks takes some amount of money out via "currency reform", then there would still be some amount less then $100 in currency through the end of June 2015.

Can you give any real world examples of when central banks wanted to engage in deflation in your terms at all?

I think this could potentially negatively affect the security of the network if not enough people are using bitcon by this time. If TX fees are not high enough then miners will likely not make enough to justify continuing to mine

seriously, if bitcoin is not massively used (like thousands of transactions per second) by the time block rewards become really small, it can pretty much be considered a failure.

We still have a couple of years to go, even if bitcoin increases in value relatively slowly. Which is pretty unlikely to happen for long periods of time.

I'm not sure about 85% mined, have calculate diff. ?
And what will happen if bitcoin 100% mined ???


But, if TX fee is high. People will only send his/her bitcoin if it's important  :(

Bitcoin will become more and more a store of value. Why is that considered to be a failure, when this is by design?

This will of course level out to an optimum.

Besides, the last satoshi will be mined in 2140. With growing number of competing miners, the price of a bitcoin just has to increase versus the declining amount of freshly mined bitcoins.

I think transaction fees are getting lower (seen it on my wallet/transactions, correct me if I'm wrong), but don't forget that by becoming more and more popular, more transactions will (could) take place resulting in a net larger transaction fee per block.

As to whether it will be profitable for miners to compete, would miners need to run TH/s ASICS at that time in the future with huge power consumption? Wouldn't it be more economical to run low-consumption miners? Well then again, depends how much one makes from transactions.

You (or PP, previous poster) have to distingsuish deflation from a renaming of the currency unit. This happened in France with the new franc, which was defined to be equal to 100 old francs, with the option to exchange old for new at that ratio. A real money base deflation on part of the money manager, would have to consist of collecting money in the form of taxes, and then destroy them. This is not going to happen.

Tx fees can stay low, as long as many transactions are made.

Many low fees quickly add up. Even if fee is only a few satoshi, when there's thousands of transactions per second there will be millions in a block, reward from fees will still be worth it. And fees can still be lower than regular bank transactions.

But only if enough people use bitcoin in their everyday life.

Because, if there are not enough transactions, the miners will stop mining, and the network becomes less secure, and more likely to be controlled by a single malicious person.

Scary thought indeed, better gotta have 1 at least.

Not many people depend on freshly mined bitcoins. :)

It will always be most economical for miners to run the most energy efficient miners possible. The overall amount of energy consumed does not matter as long as it is efficient in terms of watts per Gh/s. As even the most efficient miners are not able to make enough money from TX fees and block subsidies (when applicable) then the overall hashrate will decline.

This is a true statement, however it is not looking like things will work out this way. Transaction growth has grown exponentially since the birth of bitcoin, even as the price has stagnated. As a result the miners are getting larger amounts of TX rewards as time progresses.

I also think the network security is greater then it really needs to be now. I would hypothesize that the difficulty could decrease by a large factor and the network would still be sufficiently secure.

I would personally consider this to be unlikely, especially considering how many additional merchants are accepting bitcoin and likely how many more consumers are adopting bitcoin.

Also miners would not completely stop mining, they would just have a lot of miners taken offline 

well, normally yes. But if a lot of miners go down, just to suddenly reappear, that might be problematic. But only if a single entity holds all of those miners. Which is pretty unlikely to happen anyway. Even if old miners are given away for free, they'd still use a lot of power compared to the newer miners, so it'd still not be profitable to mine. Not sure though if it'd be profitable to use all those miners to attack the network, but probably not worth to even try it. It will cost millions if not billions in power alone, and the chances of failure are high. Even if you DO manage to pull of a 51% attack, chances are you'll just make all bitcoin worthless instantly, thus rendering your whole investment useless.

Also, for the record, someone mentioned energy efficiency in Watt/Ghash/second. That'd be Joule/Hash.

"Security of the network" can be boiled down to simple economics: if the potential gain someone could see from attacking the Bitcoin network is less than the cost to attack it, it will happen. If difficulty were to decrease by a large factor, not only would it become easier to attack the network, but that would indicate that there would be large amounts of idle hardware which could then potentially be used to do so.

Interesting, buying some more btc at these prices  8)

Again: I never claimed that central banks *want* to engage in deflation! In fact I said that central banks' policy is almost exclusively inflationary - deflation (abruptly via currency reform) only occurs when the existing currency has been ruined by excessive inflation. So I don't even see a contradiction between our arguments... ;)

So I *don't* claim that central banks stop inflating after a currency reform. An example of a deflationary currency reform is the introduction of the Deutsche Mark after WWII in Germany, when large amounts of  former Reichsmark (previous currency) balances were exchanged at a greatly reduced value ratio  (10:1) for new currency.

yeah, but dont invest in total 3% of your investing capital. Buy in 6 steps so you built up a good median price.

I don't think I would consider exchanging one currency for another in this fashion to be a deflation event as per your definition. The total money supply remains constant in this scenario, it is only that smaller numbers are used to measure the amount of money in circulation (similar to a reverse stock split)

Agree with the above statement.
It is just conversion and not deflation.
When the Italians stopped using Lire and started using Euros, denominated prices changed sharply. But that doesn't mean there was deflation.