Bitcoin Forum

The year is 2030. People revolted and threw the feds out. Everyone pays in bitcoins, woo! But all the 21 million bitcoins have being mined already.

An apple sells for 0.05 BTC. The average hourly wage is 1 bitcoin. Everyone's happy.

Someone loses their coins. The world population grows. Now the average hourly wage is only 0.9 bitcoins! People stop buying apples as much as they did before.

An apple now sells for 0.045 BTC. Everyone's happy again.

But then people realize that just by holding bitcoins and not buying, they are actually becoming richer! Plus, someone loses their wallet again, and the world population grows. Now the average hourly wage is 0.8 bitcoins from the natural deflation, and people start putting 1/4 of their wage into a coin store wallet to become richer. The apple farmer realizes less and less people are buying apples, and have to lower the price. And then people knows that if they don't buy something, they will have more buying power tomorrow.

So nearly nobody buys things. The world economy collapses. Then some corporation called the Federal Reserve comes, 'hey, here's our fiat!'.

Right?

WRONG.

This will not happen because of fractional reserve banking.

Alice deposits 1 bitcoin into the bank.
Bob deposits 10 bitcoins into the bank.
> Coins in bank: 11 bitcoins

Carpenter borrows 5 bitcoins to start up a new business.
> Coins in bank: 6 bitcoins

Don't see the problem?

Alice sees her statement with 1 bitcoin.
Bob sees his statement with 10 bitcoins.
Carpenter sees his wallet with 5 bitcoins.

Kaboom. Inflation. Fractional reserve banking will *save* us from a deflationary spiral.

We all know that BTC can't bee the only one crypto-currency.
21 million bitcoins is way too low for a whole world economy to use, and a few other reasons make BTC unable to work as the only one.

That would be true if there were only 21 million bitcoins, but that's not the actual limit. There will be 21000000.00000000 bitcoins. That's plenty for a world economy.

Two Point One Quadrillion Satoshi

Hey, that'd make a good handle of some sort...

Most of those decimal numbers can't be used, they worth almost nothing, if they worth something more than a penny, then it's a problem: we will pay more than pennys for every transaction.
Conclusion: stills small for a whole world economy.

If needed, in future, numbers after decimal point can be increazed.
 21 000 000.000000000000000000000000000000000000000000000000000000000000000000000000000 00000000000000000000000000000000000000000000000000000000000000000000000000 Is it better? ;D

Of course we won't. Transaction fees will keep pace with the exchange rate. This has already happened before.Conclusion: you're not interested in the truth because you're just stating conclusions without bothering to learn if they are correct or not, so I'm not going to miss anything valuable by ignoring the rest of your posts.

Bitcoin wasn't necessarily intended to be great for micro- and nanotransactions, it just happens to work quite well for them now. On top of that, the mandatory fee imposed for "spammy"-looking transactions has already been lowered from BTC0,01 (one million satoshi) to BTC0,0005 (50.000 satoshi). We can only speculate about whither it will travel in future.

Support Bitcoin and set your client always to add a fee to transactions, even if the network permits freebies! I'm currently using BTC0,00025 (25.000 satoshi) and pay the BTC0,0005+ should the client request it.

You don't need fancy economics to tell you that inflation is possible. Inflation is going to happen when quantum computing arrives on the scene, plain and simple.

You say that, but me neither you can prove who is wrong, and ignoring just make you less valuable tha my posts :D

I made a simple conclusion because we have 21.000.000 for 1.000.000.000(~50% of the world population, expecting at least in "2030" that 50% of the world can use a decent internet and have a good monthly income) people. In this case, we need lots of decimal numbers, because we must remember that companies and other rich wallets will have far more BTC than common wallets.

To replace all the USD in circulation, deposited and invested (near 10200 bilion of dollars) we need a bitcoin every $487.000. So with 8 decimal digits we can still rappresent 0,5 cent. Adding  another 3 decimals and we can replace all the currencies of the world with less then 0,1 cent of precision.

1. If most people are hoarding for gain, causing deflation, then guys who are actually spending are getting profits. assumption that 100% of bitcoin users will hoard is pretty impossible.
2. Fractional reserve banking will be great reason NOT to keep your money in bank. Problem solved.

What most people do not get is that it's not currency what is valuable, the only thing valuable are goods and services. Currency is just a specific tool for estimating relative value. If you want the job well done, you shall not mess with your tools.

A big problem with decimals is that people will make mistakes.

It is easy to send 10.25 BTC but it is more accident prone when you have to send 0.000001025 btc, especially when you are in a hurry (is that 5 zero's after the decimal point or 6?)

I know, I know there are ways to overcome that, but it will be a hassle if we have to add too many decimal places

You could just copy and paste the numbers that the person has asked for rather than write the whole thing in the Bitcoin client, it isn't that hard, oh and deflation isn't a bad thing, for one thing it makes it far easier to live because prices fall, the people who bitch about deflation are likely the same type of people who invest in real estate etc. and hugely benefit from inflationary policies like interest rate fixing and money printing.

Oh and by 'invest' in housing, I mean they buy a dirt cheap wreck, make it look pretty for cheap and then charge an outrageous amount of money that's several times higher than what the house is actually worth.

Regardless. It is a solution. Now, moving on....

In the year 2030, only 20.5 million bitcoins will have been mined.  Miners will still be mining additional bitcoins at a rate of 112.5 bitcoins per day.



Lets pretend for a moment that banks (and their insurance companies) settle on 10% reserve.  So The banks can loan out some of their deposits, but have to keep at least 10% of all deposits in actual bitcoins.

Given your example the bank has 11 actual bitcoins and 16 bitcoins worth of deposits.

So the bank loans out another 9 bitcoins to Dave.
Now we have 11 coins in bank and 25 bitcoins worth of deposits.

Then the bank loans out 6 coins to Edward.
Now 11 coins in bank and 31 worth of deposits.

This process can continue until there are a total of 110 bitcoins worth of deposits.
So magically, 11 "real" bitcoins becomes 110 bitcoins worth of spending power in the economy.
Transactions between people or businesses that use the same bank don't even go through the blockchain.  The bank just adjusts the necessary deposit account info accordingly.

Transactions between different banks can be acknowledged by both banks without transferring any actual bitcoins. Some people using bank A will buy from people using bank B, some using bank B will buy from people at bank A.  The banks agree to keep track of net difference and on some agreed schedule (daily?) they use the blockchain to transfer only the necessary difference between them.  So if in a given day bank A customers spend a total of 1,000,000 BTC in thousands of transactions with bank B customers, and bank B customers spend a total of 1,000,010 in thousands of transactions with bank A customers, there is still only a single 10 BTC transaction added to the blockchain that day to represent all that economic activity.

Why will people use banks instead of just keeping their own secure wallets?  A variety of reasons.  Perhaps they trust the bank to do a better job of securing the bitcoins than they believe they can do themselves?  Perhaps the banks offer to pay a small interest rate on deposits? Perhaps the banks provide a convenience for engaging in bitcoin based transactions in the physical world (debit cards, checks, etc)  Perhaps the banks offer reduced transaction fees (bank only has to pay blockchain transaction fees on a 10BT transaction instead of thousands of transactions valued at over 2 million BTC)?

Yeah, just like nobody ever buys computers over the last few decades because we know they will be cheaper in the future.  Also gas, according to your logic here nobody buys gas now because we know it will be more expensive later. 

WRONG.



Well there is nothing to *save* us from, as plenty of people have pointed out with more poise and grace than I.

And yes, you're right that the same FRB that rose out of gold could in theory rise out of bitcoin.  The differences however are substantial:

1) Physical weight of bitcoins much less
2) Easy to audit bitcoins

Especially number 2 would be very important when a bank tries to sell you their "bitcoin certificates". 


 

If Bitcoin is worth a significant amount, then clients will simply display a different denomination.  Instead of showing you as having 15.25 BTC, it'll show your balance as 15,250 mBTC.  And then gas will be 3mBTC/gallon, an apple will be 0.97mBTC, etc.

It would be extremely easy to make a Bitcoin client show a different decimal point as the default value, and it wouldn't actually change anything behind the scenes.

To audit bitcoins, you would need to know all the addresses that the bank is using to store the bitcoin reserves, and you'd have to have proof from the bank that they have access to all the private keys associated with those addresses.  I'm not sure that this makes it any easier to audit the bank.

That's the big assumption which underpins the OP and the viability of BTC fractional reserve, and which I have a hard time believing.  I don't think that in a Bitcoin future, all (or even a decisive majority) of BTC will be held within a banking system.  A big driver for Bitcoin adoption is, in my opinion, the idea of financial privacy and becoming your own bank.  Banking institutions might still be used as public-facing temporary BTC handlers for deposits and transfers for extra privacy, but once the BTC arrives at its destination, a large part then likely moves into private wallets.  Especially if bank runs and misadventures with hot wallets keep occurring.

Bottom line: how much money lives in Coinbase, Instawallet, MtGox, etc. versus private wallets, today?  Until that number gets to 51%, I won't believe that there is a preference for people to hold BTC in 3rd party wallets versus private wallets.

Bitcoin is still in its infancy.  You are looking at a group of early-adopters and making assumptions that the general public has the same interests, knowledge, and skills.

If bitcoin successfully makes the jump to widespread mainstream use, there is a good chance that it will be because businesses like the reduced fraud and chargeback risk.  If businesses start accepting bitcoin instead of other electronic payments (paypal, mastercard, visa, etc) or start offering reduced costs to those paying with bitcoin, then the general public will begin to adopt it without caring about financial privacy and becoming your own bank.

As people lose their bitcoins to hackers, crashed hard drives, corrupted wallets, and forgotten passwords they will seek out a "safe" place to store their bitcoins.  The banks will offer safe, secure, insured storage.  Depending on the deposits, they may also offer interest earned on deposits which will draw those customers who know how to secure their own wallets, but don't want to put the time and effort into it.  As bitcoin becomes more popular, transactions will take longer and longer to get into a block without substantial fees.  The banks will be able to set up their own payment network and offer reduced fees on transactions.  The reduced fees will draw even more people in to using the bank instead of the blockchain for their transactions.

Will it reach 20%?   51%?   80%?  And if so, how long will it take? 5 more years? 20 more years? 100 years? That is all difficult to predict, but it will be interesting to watch.

In theory fractional reserve banking is possible however there are some unique constraints.

1) There is no central bank.  Central banks also engage in FRB except they create the monetary base out of thin air.  With Bitcoin the monetary base is fixed at ~21M BTC.

2) There is unlikely to be anything like FDIC.  FDIC distorts the market in that the cost of insuring funds is paid for by taxpayers not depositors.  While it is possible that in the future Bitcoin banks will exist and will even be insured it almost certainly will be private insurance.  This makes using a Bitcoin bank more expensive than simply holding the coins yourself.  Some people will still use banks but a smaller % than in most fiat economies.

3) The reserve ratio will likely be higher.   Private insurance companies will be profit driven (not public policy driven) and smaller reserves means more risk.

4) As long as BTC is appreciating in value relative to other currencies demand for loans will be modest.  Say you need to buy a car.  You could get a $10,000 loan in USD (which are dropping in value making repayment easier) or you could get a 100 BTC (assume $100:1 exchange rate) loan (which are rising in value making repayment harder).  Some people will choose to borrow in BTC but it will limit demand.

5) Less need for a bank.   Without a bank (or bank like entity) it is very difficulty and costly to engage in commerce in USD.  Imagine no PayPal, no credit cards, no prepaid payroll cards, no checking account, no direct deposit.  Even routine things like cashing your paycheck to buy a game on steam becomes next to impossible.  The utility banks bring drives deposits into the bank.

The effective money supply is Monetary Base * Money Mulitiplier.   

In most FRB systems the central bank can influence both the monetary base AND the Money Multiplier.
In Bitcoin the monetary base is fixed (once all coins are minted) and the Money Multiplier is unlikely to be very large.

Imagine a hypothetical scenario where 30% of all Bitcoins are in Fractional Reserve Banks.  The insurance company requires a 50% reserve.   That means the money multiplier is 1 + 0.3*0.5 = 1.15.   The money multiplier with no Fractional Reserve Banking at all would be 1. 

Traditionally the money multiplier in the US has been roughly 2.5 to 3.  This has crashed recently due to the recession (well due to Fed's policies) however a money multiplier to 2, 2.5 or 3 seems highly improbable in Bitcoin economy given the increased utility of the currency and the reduced utility of a bank.

http://research.stlouisfed.org/fred2/data/MULT_Max_630_378.png

BTC is a deflationary currency.

Despite the propaganda THIS IS NOT ALL A BAD THING!

-Your savings increase in value over time, this means you can retire, and let someone else take your job!

-It will mean the earth resources are not wasted to the never ending pump up of growth figures to fuel inflation.

-It will mean a more stable economy with less bubbles and cheaper housing/asset prices.

-Governments find it harder to fund their wars.

There are no banks in a bitcoin economy, it's peer-2-peer, fraction reserves are for fiat debt notes.

Yes there are, and there will always be banks.

This is an accounting fraud, it is only 110 BTC on the bank's deposit record, at any time the spending power in the whole economy will never exceed 11 BTC, since that is all the BTC existed


Very true, these are some of the benefits of having a bank. But in BTC's case, things are different: Not so many people will take loan from a BTC bank, since the loan interest is just too high when no real world projects can have higher ROI than BTC itself. And without loan, banks can not make a living, or they simply become an asset management business

Essentially frac reserve is just tricking people into temporarily thinking there are more coins than there are. That 'trick' is much less robust with Bitcoin than bank money because you can hold your own Bitcoin but not your own bank money. Whenever people notice that bitcoin is getting oddly easy to acquire they will hold the actual coins themselves, the frac banks will run out of actual funds and collapse, bitcoin will become harder and the people who kept the actual coins will prosper.

I worked for an asset management company and one of their strongest mantras was "we are not a bank!" :)

Transactions could be free too, do you know how much the USA government alone spends keeping the USD in cycle? I think they can afford to turn on some computers to push transactions and still save money. Solar panels + super computers = save ton$


And why cant all the decimal numbers be used? If .00000000090000  was worth 9 cents, and I was selling something for 9 cents, id gladly accept it.


Banks for what? I'm not sure many people would trust that even the lowest ranking employee would have access to your untraceable money, and they don't even have to rob the bank in person.

I think those zeros will become a headache for daily use, by that time people will start to use satoshi instead

You can say it, but that doesn't make it true.  Fractional Reserve is possible with Bitcoin. Banks are possible with Bitcoins (I'd even argue likely).

You can call it "accounting fraud" if you like, but it doesn't change the fact that there is then 110 bitcoins worth of spending power in the whole economy.

You are operating under the assumption that holding Bitcoin will continue to provide a higher "ROI" than other projects indefinitely.  I assume that the exchange rate will eventually even out and increase through deflation of the spendable supply at a slower rate providing an opportunity for other projects to provide higher (and safer) ROI.

Since it will all be digital, a debit/credit card type deal will do it on its own, you wouldn't even need to do anything except swipe your card.

This:

And who will supply that "debit/credit card type deal"?  Quite possibly a bank.

Dude, bitcoin is the bank. Your bitcoins arent in your computer. They are stored in the blockchain. In your computer, what you have is the key to access your bitcoins. There is no bank were you are going to send your funds.

Not yet. But I haven't seen any valid reason to believe that bitcoin banks won't eventually exist.

Because there isn't a reason for the opposite.

This:

There are already members on this forum in process of designing one.

Interesting, mastercard wants you to pay with a mobile and you want to pay with a card.
reduced transacton fees? EVEN MORE?
small interest rate on deposits? Better to invest in companies using an stock exchange.

So, this leads us to this: You want a bank because you think that you may lose your private key or because you think people may enter in your computer and stole your bitcoin? for the second answer you may want to google: usb hardware wallet (in development).

Card, mobile, paper check, doesn't matter. The point is providing a fast, reliable, safe, easy way to pay.

As for the transaction fees, as more people adopt bitcoin and the number of transactions increases, the necessary fees to get your transaction into a block will likely increase substantially.

The reason to make deposits instead of investing in stock exchange is liquidity.  The same reason people put their local fiat currency into interest bearing bank deposit accounts instead of investing in the stock market.

As for the USB Hardware wallet, as long as someone has the ability to lose access to their bitcoins through theft or forgetfulness, there will be people willing to turn over their bitcoins to a reliable insured organization (bank) to maintain that access for them.

Why would it cost more to go into a block you can even send for free? I'm new so I don't completely understand everything, but the way I'm seeing it is that the United States government is spending tons keeping the USD in circulation, surely they could turn on some super computers with solar panels along with the governments of other countries, and push transactions thru for free.

You can already transfer bitcoins with your mobile, that's why i addressed that.

I simply don't agree.

What kind of liquidity? You can sell your shares and have bitcoins again. Or you mean liquidity by using the multiplier?

As i told you, google for this. You're saying nonsense. The hardware wallet has a PIN, so even if someone steals it, he will need the PIN. It has a deterministic wallet and you can save a copy of the private key of the seed address just in case you break it. That way you will recover all your addresses. Its small and portable.  If you lose it or someone steals it.. .you can use the copy of the private key to restore your wallet in another place and send the funds to another wallet.

Btw. If the market chooses to create banks i will be ok with it. But there isn't any reason to this to be done. Maybe, in the future, banks will just keep a record of the blockchain. THAT may be possible. And will be the ones in charge of mining. But i doubt they're going to keep nobody's bitcoins.

People sending their bitcoins to other people will find another pirateat40... so it's more probable that the market will learn and stop doing so.

There is currently a limit on the blocksize of 1 megabyte.  The protocol is designed to keep the average rate of block creation at 1 every 10 minutes regardless of how powerful the computers "pushing the transactions through" are, so unless they increase the max blocksize, the blockchain does not support much more than 6 megabytes per hour of transactions.  The miners get to choose which transactions they include in the block that they mine, and they get to keep the transaction fees from the transactions that they include.  So if there are 10 megabytes of transactions waiting for a block, and only 1 megabyte worth of space in the block, do you think the miners are going to choose the transactions that have no fees, or do you think they will choose the transactions with the highest fees?  So, if someone wants their transaction into a block quickly, they will need to increase their transaction fee high enough to be chosen by the miners.  This creates a bidding war for quick inclusion into a block, and drives up the necessary fees.  You can still send a transaction with zero fees (or extremely cheap fees), but you will have to wait for a time where there aren't many unprocessed transactions laying around for a miner to decide to go ahead and fill up the unused block space with the free transactions.  Right now this can take hours sometimes.  In the future, depending on how the max blocksize changes over time, it could be weeks or months before free transactions make it into a block.

And you can already lose your mobile, have it stolen, or otherwise lose access to those private keys.  The idea behind a bitcoin bank providing reliable, safe access to your bitcoins is that you can make a payment without needing access to a private key.  The private keys can be kept safe by the bank, and payment can still occur. Perhaps this is a service that nobody will ever want.  My opinion is that they will.

And I simply disagree with you.  One of us will be wrong.  It will be interesting to see how it plays out.


Right now, with government backed local fiat, people have the option of depositing their money in interest bearing deposit accounts, or investing in company stocks.  Some choose the stocks, many choose the deposit accounts.  Why?  I suggest that they choose the deposit accounts for increased liquidity (can spend the money on deposit without having to first find a buyer for the stock and engage in a stock sale transaction), and reduced risk/volatility (there is a better chance of a stock losing value in the short term than there is of the deposit account losing value over the same timeframe).

If you save a copy of the private key, then you have just eliminated the safety feature of the PIN.  If the wallet is deterministic, then you either have a complicated seed to keep safe and keep track of, or you have significantly reduced security.

There are never 110 bitcoins worth of spending power in the whole economy. If you look at the first person, he have 11 BTC worth of saving at bank, but bank already loaned out 90% of that money to other people, if he try to withdraw all that money and spend, he will cause a bankrun. The same apply to everyone else who saved at banks during this multiply process, so the only way they can withdraw and spend without causing the total failure of the banking system, is that they never withdraw more than 10% of their saving, so 110x10%=11, you will get 11 BTC spendable which is the original BTC in existance

You are operating under the assumption that holding Bitcoin will continue to provide a higher "ROI" than other projects indefinitely.  I assume that the exchange rate will eventually even out and increase through deflation of the spendable supply at a slower rate providing an opportunity for other projects to provide higher (and safer) ROI.
[/quote]

BTC's value will rise because:
1. The supply increase is less and less
2. The popularity is higher and higher
3. When all the coins have been mined, if the economy (GDP) still grows, then the corresponding BTC will keep rise in value

But if there is a banking system in place, nobody has to "withdraw" their bitcoins to spend.  If I am a customer of the bank and I am that person who deposited 11 bitcoins, and you are another customer of the bank (with 3 bitcoins), I can "pay" you by telling the bank to send you 11 bitcoins.  The bank then updates your account to indicate that you have 14 bitcoins on deposit (even though only 11 "real" bitcoins exist), and my account is updated to indicate that I have 0 bitcoins on deposit.  There is only a "run" on the bank if enough people try to withdraw more than the total reserves.  It is obviously necessary for the bank to maintain a large enough reserve, and that amount may be more than 10% (or may be less).  It will be up to the insurance company to determine how much risk they are willing to take on and audit the bank regularly to make sure that they maintain large enough reserves.

The example we are using is a bit simplistic, because it assumes that the deposits of one individual is 10% of the entire bank deposit balance (making it possible or even likely that one person could create a run by closing their account).  In the real world, the amount held in reserve would be more than any one or two people could withdraw if they shut down their account.

A smaller increase in supply is still an increase in supply, this does not by itself cause the value of BTC to rise.

True, and if/when bitcoin transitions to mainstream use this will create a skyrocketing value, but eventually the popularity will reach a saturation point and the price will stabilize.
 
And there will be some projects that will be able to outperform the growth in GDP.  Those projects will benefit from the abilty to take out a loan to provide working capital.

If people regularly make purchases in such small amounts, the software will be calibrated to price things in a useful unit. Instead of pricing things in btc, we will be using millibitcoins (mBTC) or microbitcoins (µBTC) or satoshis.

Another form of inflation people should consider is alternate cryptocurrencies, like litecoin or namecoin.

But if there is a banking system in place, nobody has to "withdraw" their bitcoins to spend.  If I am a customer of the bank and I am that person who deposited 11 bitcoins, and you are another customer of the bank (with 3 bitcoins), I can "pay" you by telling the bank to send you 11 bitcoins.  The bank then updates your account to indicate that you have 14 bitcoins on deposit (even though only 11 "real" bitcoins exist), and my account is updated to indicate that I have 0 bitcoins on deposit.  There is only a "run" on the bank if enough people try to withdraw more than the total reserves.  It is obviously necessary for the bank to maintain a large enough reserve, and that amount may be more than 10% (or may be less).  It will be up to the insurance company to determine how much risk they are willing to take on and audit the bank regularly to make sure that they maintain large enough reserves.

The example we are using is a bit simplistic, because it assumes that the deposits of one individual is 10% of the entire bank deposit balance (making it possible or even likely that one person could create a run by closing their account).  In the real world, the amount held in reserve would be more than any one or two people could withdraw if they shut down their account.

A smaller increase in supply is still an increase in supply, this does not by itself cause the value of BTC to rise.

True, and if/when bitcoin transitions to mainstream use this will create a skyrocketing value, but eventually the popularity will reach a saturation point and the price will stabilize.
 
And there will be some projects that will be able to outperform the growth in GDP.  Those projects will benefit from the abilty to take out a loan to provide working capital.

It is the year 2030, imagine a fee of 0.0005 bitcoins. HOLLY SHIT! THAT IS THE PRICE OF 5 CARS!!!!

That's a good argument. But I still doubt this was going to happen, because you would have to send your bitcoins to the bank, and then operate with something like a mastercard or similar. Ok, merchans would have to accept this mastercard. All this is easy, but suddently it happens that you don't know if the bank still have the funds.  By the way, keeping your bitcoins in your wallet also adds interest to them, as they become more liquid (more people accept them).


You copy the private key in a paper backup so you can recover your funds. You put it inside a safe box. You can cypher it with a pasword if you like.
You set up a pin in order to avoid others accessing your funds in case of losing the usb hardware wallet.

I agree the deterministic wallet is less safe, but it has it's own generator, so i suppose it will choose a complicated one. So I guess you will need years to bruteforce it instead of the whole life of the universe, which yes, is less safe.

Actually, depending on what they do with the max block size (and what happens with bitcoin banking), I don't see your example as being outside the realm of possibility.

However, I see your point and realize that what I meant but didn't say is:
"as more people adopt bitcoin and the number of transactions increases, the exchange value of the necessary fees to get your transaction into a block will likely increase substantially."

We are talking in circles.  Now we are back to the issue of people who don't take the necessary precautions to protect themselves from loss.  Yes you can create a paper backup, cypher it, and store it somewhere safe, but many people won't.

Again we are talking in circles here.
And when you forget/lose your PIN?

If the seed is sufficiently secure/random with enough entropy, then there is a risk of losing/forgetting it or storing it where someone else will gain access.  If it is simple enough to remember or figure out, then it is subject to brute force and dictionary attacks.

Sorry, but I'm arguing from a point of experience.  I've talked with people who aren't comfortable with bitcoin because they don't have faith in their own ability to protect their money from loss and theft.  They have expressed that they'll take a look at bitcoin again when there is a reliable, trustworthy, insured banking system in place for it.  There is clearly a market for this.  If there is a market, then there are market forces that will bring it about eventually. I don't know if it will be 5 years, or 20, but I don't doubt that it will happen.

Once the banks exist and are holding people's money for them, I just don't see why they wouldn't attempt to engage in fractional reserve to boost their profits.  Again there is market and a financial incentive for it.

I did all this when I was experimenting with bitcoin earlier this year.  Used armory, printed paper wallet, view only wallet, all that jazz...

I put the print out somewhere safe...and now have no idea where that was! My 5BTC is lost in the cloud:)

Stupid?  Yes, I don't deny it...  Easy to replicate mistake for the average punter?  Certainly...

I'd like to buy some more bitcoins, I think there is a reasonable chance they will balloon in value at some point.  But I have zero confidence of my ability to access the money years down the road! I'd need someone trustworthy to manage it for me.

Yes we are xD

The point of having a backup of the seed is so you don't have to make a backup of your wallet everytime you create an address. That's the only use for a sufficiently secure/random with enough entropy deterministic wallet.

I had exactly the same fear when i started with bitcoin, i'm really a mess with everything and i usually lose things. So because of that fear, i did a backup of my bitcoin address (the main one i used) and encrypted it and then store it in a very safe place. Of course, i lost my mobile which had installed the bitcoinSpinner (with a pin number) and some funds. I then realized that was far much easy to lost the mobile than the bitcoins.

Note: I stored the key when i thought bitcoin was something like a file stored in my mobile.  I mean i was a completly noob.

I agree, market forces will bring it if there is a market. But for today, market forces haven't done such a thing. FACT.


Well because it is a fraud. That simply. And moreover that would make that bank credits were less worthy than the bitcoins they were backing (because of inflation) so people would change their 'credits' for bitcoins. Just in case you didn't notice, the market allways exchange something that is loosing value for something that is acquiring value.

And on these two statements we agree 100%.

You have your prediction, I have mine.  It will be fun to see how it plays out.

A bank can say "here is our major offline storage address, and a signature to show we control the funds".

Anybody can check and see just how much is there and that it's all real.   

Compare that to all the difficulties in auditing gold reserves.. 

Sure, but how do you know what the total loans and deposit accounts are?  If you have 100 BTC deposited at the bank, and the bank demonstrates for you that they have 10,000 BTC in reserve, do they have 10% reserve? 50%? 90%?  How would you know?

1.025 Mikes.

Or 102,5 satoshi - not that you can have a half a satoshi... yet!

Now, though, I'm mathematically aware enough to tell apart BTC0,005, BTC0,0005 and BTC0,00005, but I can see where some confusion might set in. 5 BTM / half a cent, 50k satoshi and 5k satoshi respectively reduce the prospect for confusion somewhat.

You know how much bitcoins they have, but you don't know how many 'credits' they've given. So you don't know if those credits are all backed.

Good point, I think DannyHamilton had the same one. 

The difference is that there is no need to issue "credits".  If we are talking about gold, then there is an obvious need for some kind of paper or electronic transfer mechanism so we don't have to carry around scales, metal, or forges with us just to make some purchases.  That is how this FRB got started..  bankers realized that they could issue more paper gold "credits" than they had real gold in their vault.  Merchants are forced to accept paper money because that's what people are able to carry around and thus they get more business accepting an easier payment method. 

In theory, one could of course do the same thing with bitcoins, issuing credit notes based on a certain reserve of coins.  However, who is going to take a bitcoin "credit" in payment?   With gold, we are forced to accept such payments.  With bitcoins, there is nothing to gain and a lot to use.  I don't see how people would be forced into using fraction reserve bitcoin notes.  Why not use the real thing? 

If we do want to use bitcoin "credits" for some reason (network speed, security, other reasons?)  then we will likely choose a version that is transparent so we aren't getting robbed.  With gold, that is impossible.  With bitcoin, a bank can make public the proof of reserve, the list of customer BTC addresses or credit accounts..  so that people can check if they are being robbed.  With FRB gold, there's no way to know for sure, thus people are bound to abuse the system at some level. 

 

Yes and that's why i think it wouldn't work.

With bitcoin, all FRB requires is that the lender deposit X bitcoins and be given a note promising the return of the bitcoins (or rather an equivalent amount of different bitcoins). The actual bitcoins can then be lent to someone else. Thus there is no reason that there couldn't be reserve banking in bitcoins.

The issue becomes if the depositer wants their bitcoins back. If there is a reserve, they may be able to be paid in full. If many people want their bitcoins back, there is a problem. Insurance is one possible answer but the best answer is for people to be told that if they deposit their money in such an account, they may not be able to access them immediately (and quite possibly, ever). If you want to be able to access your bitcoins immediately at all times, that is a different type of account (and will likely require fees for the service)

I think there was a guy named pirateat40 that promised that he would return the bitcoins. Bitcoiners of course never saw those bitcoins.
Note:some of them phisicaly met the guy in las vegas.

secondly: even if the 'bank' is trust worthy, you are not seeing the real issue. If for example, you give me your bitcoins and i give you a note, and then i lend them to alice. And Alice buys stuff from bob, then bob puts his bitcoins in the bank and i give him a note. Ok. Now You and bob have both notes for the same bitcoins (fractional reserve started), but your notes worth half your actual bitcoins (At this point).  So why would you keep using these notes instead of real bitcoins?

Why do you think bitcoin has a hard limit of 20.999.999 bitcoins?

OK, the trust thing is a bit of a non-sequitur and a different discussion. I think we should leave that to one side (though it does play into things a little).

So let's take your situation with me and Bob. Firstly, it's not bitcoins that have been inflated, it's bank-of-mrvision promisory notes. Now, there's a question of how much those notes are worth. Pragmatically, that's what the market will bear. But more philosophically, it wouldn't be half of the number of bitcoins, it would be some factor depending on the trustworthiness of your bank and the actual value of the note.

Where the confusion arises is that currently, a deposit in the bank is treated as if it is an actual store of value, of the actual items on the note. That the items have been lent out to someone else and are thus at-risk is hidden from the depositor and hence a form of government-backed fraud. If everyone acknowledges that deposits in a fractional reserve account involves a degree of risk and retrieval of funds is dependent on the liquidity of the bank, everyone will be better off and the issues with FRB (in and of itself) become mostly insignificant.

People already trade MtGox codes. How do you know Mt.Gox isn't issuing extra codes?

This sort of FRB is already openly occurring right now at an exchange.  Read up about bitFloor and the theft issue they ran into.  Rather than shutting down the exchange permanently, the chose to record the deposited "bitcoins" (that have been stolen and therefore no longer exist at the exchange) as being "on hold" so that people can't access them immediately (and quite possible, ever).  These bitcoins come out of "hold" as the exchange replenishes their "reserves" from what would otherwise be their profits.

EDIT: As of 2013-04-17 BitFloor has ceased all operations.

I believe there is some trading going on in these "holds". People are buying and selling them at a discounted value based on speculation of the likelihood of return. This is similar to how I said promisory notes might be valued above and is not dissimilar to how debt is traded (if you get a call about a really old debt, it is likely the caller only paid pennies on the dollar to buy the debt and is probably far from the first person to have bought the debt)

True, but they do such a thing because they cannot open a MtGox account in their countries, so it's much more difficult to access to bitcoin for them.

I mean, yes, they are buying them, to GET bitcoins (the real thing). And the seeller is doing it to get profit.

It is the year 2030.  The good news, 1BTC is worth $100.  The bad news, a gallon of milk is $20.

So a gallon of milk that would run me about 0.18 BTC today will cost me 0.20 BTC in 2030?

That doesn't seem right.  There doesn't seem to be enough inflation in the currency supply between now and 2030 to justify an inflation in milk prices.

The total bitcoin supply will be less than double what it is right now, and yet the price of milk (as expressed in USD) is nearly 10x as much.  Meanwhile if bitcoin hasn't failed and completely collapsed by then it would likely be in rather common mainstream use.  This should spread the available supply rather thin creating a deflation effect on pricing of goods.

If milk is $20 in 2030, and bitcoin is in rather mainstream use, I'd think that 1 BTC would be worth more than $111, and probably more than $200.

How is that bad news?

(Disclaimer: invested in dairy farms and btc.)

Because it means that those holding bitcoin will have lost buying power.

Inflation and Deflation in themselves are not a problem. I want voluntary, competing currencies that are trying to convince me to use them with their features, privacy, and ease of use. If one is inflating and one deflating, then it is fine. People will have a choice as to what money they want to use. The problem with FRNs is that we must use them, court judgments are monetized in them, and taxes must be paid in them. There isn't another option. This monopoly of money is the problem. Inflation and deflation are only a problem when you are forced to use that inflating or deflating currency.

Yes, we need more free monies.

The real base unit of bitcoin is the satoshi and there will be 2.1e+15 satoshis in circulation by the time all btc has been mined. Surely 2.1e+15 is enough units of currency.

Let's say I made a transaction and I didn't give any transaction fees. Also, people make so many transactions that miners simply don't have time to deal with the ones that have no fees attached.

I still made my transaction but it is not getting any confirmations for days.. for weeks.. for months.. What can I do to get that transaction confirmed?

Maybe it would be wise to make a bitcoin service that could confirm any pending transaction for a small payment?

This is nonsense. A trade occurs because a product or service is worth more to one person than another. If an apple is worth .9 bitcoins to you and 1 bitcoin to me, then it makes sense for us to exchange apples at some price between .9 and 1 bitcoin. It makes no difference what the expected future values of bitcoins are because that affects how I value the apple, how you value the apple, how I value the bitcoins, and how you value the bitcoins equally. If I valued the apple more in gold, I'd also value it more in bitcoins, and so I'd still want to buy it from you, whether for gold or bitcoins.

As a simpler way to explain it: Anything that makes people want to hold onto bitcoins more also makes others want to encourage them to part with bitcoins more. So it perfectly cancels out.

This.  I'll repeat it for emphasis.


If I were granted one wish, and one wish only, it would be that 100% of the kids in the world learn and understand the concept of a dynamic equilibrium by the time they leave school.  If you don't understand this concept, you make all sorts of silly posts on the internet about how some system or another will run off to infinity.

However, if you do understand this concept, like JoelKatz clearly does, you can see how nearly everything in the world around you is a balance between opposing forces, and instantly spot the correcting feedback that others can't see.

If you are still fuzzy on the concept, ask yourself how many people are going to starve to death while waiting for their bitcoins to buy 10% more food tomorrow.

One of my teachers during the course of software economics pretty much started the course with comparing inflation and deflation. And he told the classical explanation of why deflation is a bad thing (also mentioning Japan at some point during the last century), then came to a conclusion that even if inflation is a bad thing deflation is even worse and then asked the class if anyone thought it's not all bad. Obviously I was the only one raising my hand and telling him that it's not that simple and deflation can still be good. The guy then told me I'd be stupid if I bought gas knowing that it would be cheaper tomorrow and completely ignored me saying "If I need something today I won't be waiting for tomorrow". The argument ended with the lecturer asking me if I now think deflation is bad and me answering "this topic needs a lecture of its own".

A couple of days ago I sent him this (http://forbes.com/sites/jonmatonis/2012/12/23/fear-not-deflation/) article of someone explaining why deflation isn't all bad. I also told him that next time when explaining deflation and inflation he might want to consider taking a rather neutral stand on that topic. 8)

A sudden bout of deflation is bad, because most of the economy would grind to a halt.

But a gentle course into a slight and stable deflation is an entirely different matter.

Yes, we have 4 types:
hyper inflation - bad
hyper deflation - worse
inflation - evil
deflation - fair enough

The dudes saying deflation is bad always describe "hyper deflation" without saying the word "hyper".

Transaction fee can be easily changed, I can send a transaction right now with 0 fee anyway. In fact there are already discussions to modify the minimum transaction fee.

The better counter-argument is this: The guy trying to sell me gas also knows it will be cheaper tomorrow, so he'll do whatever he has to do to get me to buy it today.

And how about the opposite? If deflation implies currency hoarding and delaying purchases, inflation implies early purchasing and hoarding of supplies, consequently pushing the price up for everyone else.

But even so, would it really matter much if he filled his tank tomorrow, rather than today?

Can we expect that somebody prefers a pile of money to a higher standard of living? Of course not.

Prices are never stable anyway. Today we have important parts of the economy that have rapidly rising prices and are therefore inflationary, but we also already have sectors that are highly deflationary, like computers, smartphones, etc. According to the anti-deflation preachers nobody would ever buy anything like that, because next year you could buy the same thing for much less money or a much better one for the same money. According to them, this sector would perish due to lack of buyers, because everybody would always wait until tomorrow.

What happens instead in these sectors is a very good, living example for a deflationary economy. Does anybody have any problems with this? No. Do they florish? Yes, nicely.

Right. If we have inflation, why would a gas station sell me any gas today when he knows he can sell me that same gas tomorrow for more money?

The simple fact is, whether we value gas in terms of a basket of commodities, ounces of gold, an inflationary currency, or a deflationary currency, gas is worth more to me than it is to the gas station. And so long as there's no particular reason either of values a currency *differently*, we can use that currency to trade gasoline. If we both think the currency will be worth more tomorrow, we can both take that into account and agree to exchange less currency because we'd both like to hold the currency.

The properties of the currency, so long as it is predictable and affects both parties equally, will have no effect on whether the parties are willing to trade or not.

No, actually it doesn't deserve a lecture of its own. It doesn't even deserve to be elevated to the status of a serious discussion.

Somebody who says that falling princes means that nobody will buy anything is one of two things: 1) either so mentally deficient that trying to have a debate with them would be cruel, like racing somebody in leg braces, or 2) actively engaging in deception.

Either way a debate is not appropriate.

At most you might want to ask the person if people actually buy iPhones and computers, and if he knows what happens to the prices of those items over time.

lol justusranvier I wouldn't bother trying to go after and change the mind of people like Hyena's teacher because I met his type lots of times during my school years, all they're interested in is teaching what's on the textbook and making grades higher even if the entire textbook is completely wrong. I'm looking forward to when people like him try to argue against Bitcoin because Bitcoin is made entirely from math and people always, always look stupid when they try to argue against math.

I agree, which is why you don't engage in the pretence of a debate with them.

Is fractional reserve banking even possible with bitcoin? When banks make loans, they create money out of thin air, which is not possible long term with bitcoin.
I mean, when the crisis time comes (which it will), who will save the "too big to fail" banks? No government can print bitcoins in order to save them.

I think deflation is the only way bitcoin can go, even with the occasional hiccup upwards that should be expected in any market.

It's quite possible. You just deposit bitcoins at a "bank" and they tell you that you have a particular bitcoin balance, just like Mt Gox does. They then don't hold that number of bitcoins but instead back their holdings with some other currency or asset.

What kind of crisis are you talking about? A government wouldn't have to print bitcoins, all you have to do is reimburse depositors in any currency. If some bank holds 50,000 bitcoins for you, you have no legal basis to care whether they pay you back in bitcoins, dollars, or gold. So long as they have assets to equal the currency they hold, they can still make you whole.

If that's not what the market wants, and nobody passes any laws or uses any force, then that won't happen. Market substitutes for bitcoin will just be introduced to compensate.

Mt Gox is not a bank, it's an exchange. Why would I want to deposit bitcoins in a bank in the first place?


A crisis that an economy might suffer from time to time. I didn't know that as a depositor I could be obliged to be reimbursed in anything of value other than what the original deposit was.


You are right about this.

Mt Gox is an exchange, but it also provides service beyond just allowing you to exchange currencies. It also serves as a wallet for many people, which is akin to a bank.

There could be a lot of reasons. One would be if you don't want to run the Bitcoin client to send Bitcoins, don't want to go through the hassle of having a paper wallet, and are concerned about security. Another would be if the bank could provide you with additional services, such as being able to exchange your bitcoins at any time without waiting an hour for confirmations.

But the reason I bring it up is to address an argument whose premises I don't agree with. If you think bitcoins are inevitably going to deflate and if you think that's going to present a problem, then the solution will be fractional reserve banking. In the event of some incredible global catastrophe, the bank can pay you back with other assets greater in value than the bitcoins they owe you. Boo hoo. If deflation is a crisis, then this miniscule "risk" is negligible if we can avert a crisis just by taking it.

If people would avoid a currency just because it had this kind of risk, nobody would use any national currencies. They have inflation risk.

This is silly. A crisis is, by definition, a rare event. In a crisis, you might get paid in gold rather than bitcoins, but you wouldn't lose a penny. Oh, that's awful! Forget this entire economic plan because it can't give me bitcoins in the event of nuclear war. Are you serious?

Why buy more security? There already is enough! Exchange services I would buy though. But that doesn't permit fractional reserve banking, since deposits only stay with the bank for very little time.


I think bitcoins are going to deflate but I don't think this is a problem. On the contrary, it is a valuable property to me.



All I said is I didn't know. I am living in a big crisis right now, that of Greece :)
Rest assured that if you had to live through something like that, you would take it more seriously than a rare event.
My former employer wished me "happy poverty" when he fired me!  ;D

Even this isn't true because there are some scenarios where a "sudden bout of deflation" is exactly what is needed. One or two that I can think of would be in the case of say the hurricane Katrina devastating a large region. It would be in the best interest of the people of such a region to drastically reduce their consumption and start intensive saving in order to accumulate enough capital to rebuild everything that got destroyed and it would be perfectly ok if that meant that some non life sustaining businesses went under. Same goes for a whole sector of the economy one day realizing it's bankrupt.. in order for the economy to remain healthy, the people who lost their jobs would need to drastically cut back on their consumption until they could find other employment even if that meant for the broader economy to focus on the essential businesses.


Price deflation all else being equal just means that there is less demand and there are plenty of cases where less demand is the perfectly logical course of action which will ultimately lead to people in general being better off.

My point is simply that no sane person would consider it a deal breaker if, in the event of a global economic catastrophe, one received a greater value but in a different currency. This is just worrying about the wrong thing. There is no reason to worry about runs or currency issues.

That's not to say there's nothing to worry about. For example, when the housing market collapsed, lots of mortgages went bad. Banks didn't have enough capitalization to cover the reduction in the equity in their loan portfolio. If not for the government picking up the tab, a lot of people whose money was held in a fractional reserve bank would have lost a lot of money. The real problems with fractional reserve systems are insufficient capitalization and equity collapse due to bad loans.

If you operate a fractional reserve bank, are well capitalized, not a bunch of crooks, and your loans don't go bad, it's almost impossible for your depositors to lose money. Improbable enough that it's still a very good deal.

I don't think there will be any kind of borrowing bitcoins in the future, especially long term loans.  There will be the use of bitcoins as collateral for a loan in fiat money, much like a gold loan (http://in.reuters.com/article/2009/11/18/idINIndia-44013320091118). 

Lets say Alice borrows 1000 bitcoins from her Credit Union to purchase a car because she needs a car right now.  She gets a 5 year loan.  She would find that she would have an increasingly difficult time paying back that loan.

Say her job pays her in bitcoins.  As bitcoins become more scarce the value she provides to the company becomes less in terms of bitcoins so she would get a reduction in pay over time.  It is not such a big deal since all the goods around her are becoming less expensive in terms of bitcoins too.  The only problem is that loan she took.  If she got paid in fiat the same thing would theoretically happen as more fiat would purchase less bitcoins.

So she borrows 1000 bitcoins at a rate of 5% APR, and she has to make 60 payments of about 18.87 bitcoins a month for a total of 1132.27 bitcoins on the original 1000 bitcoin loan.  The problem is that bitcoins in this make believe world is deflating against other items at about 1% a year.  So the first year Alice makes 10,000 bitcoins, the 2nd year she makes 9,900, the 3rd year 9801, the 4th 9702.99, and the 5th year she makes 9605.96.  Her loan payment as a percentage of her yearly income increased over the term of her loan.  Of course, a bank could could instead charge no interest and just rely on the increase of the value of bitcoins to make a profit, but that rate of increase is volatile and unpredictable for the lender to rely on.

The problem with deflation is that it does not keep people from buying things, it keeps them from borrowing.  It does not matter if the bank holds a lot of funds, no one is going to borrow a deflationary currency because they have to pay not only the interest but also the unknown deflation rate.

What will happen instead is a type of loans in fiat from a lending institution that will use bitcoins as collateral on the loan.  If Alice wants a loan for a car she borrows $16,000 from the bank but she also gives the bank a percentage of bitcoins to the bank in collateral depending on her credit worthiness.  If she defaults she will lose her collateral, but if she fulfills her obligation on her loan she will receive her 1000 bitcoins back.

The problem with these arguments is that they are not realistic. Borrowing and spending are not going to completely stop because of deflation. That would only happen in the case of extreme deflation, just like saving and lending would completely stop only in the case of extreme inflation.

That's not the problem with deflation, that's the problem with *unpredictable* deflation. Yes, unpredictable anything has negative economic consequences because it makes people less likely to make arrangements that would have benefited all participants.

There's no such problem with predictable deflation.

Okay, now let's run that with predictable deflation. Because of the deflation, maybe she'll need twice as many Bitcoins to pay off the loan in the future. That means that those Bitcoins also have nearly twice as much value today because she is also getting the present value of that very same future appreciation. Thus she would only need to borrow about 500 of them to buy the car instead of 1,000. Thus they'd be no more difficult to pay off in the future.

Every bit of deflationary value she paid for, she also has available to offer to the car dealer in exchange for the car. So she doesn't have to pay anything *extra*. She only has to pay back the very same value she borrowed -- the very same value she offers in exchange for the car.

How can deflation be in any way predictable if its value is to be decided by the markets?

Markets are quite predictable much of the time. I think you'll find near universal agreement that the more unpredictable a market is, the worse for all concerned. This gives everyone an incentive to keep markets as predictable as possible.

This is one of the reasons transactions that are technically zero sum can actually be win-win. For example, say someone has a great business idea, but it's impractical because the risk that the dollar will lose value is too high. And say someone else has a great business idea, but it's impractical because the risk that the dollar will gain value is too high. These two guys can make a deal where one pays the other if the dollar gains value and vice-versa if it loses value. Technically this is a zero-sum transaction, since each loses all and only what the other gains. But if it makes both business ideas practical, it's win-win.

You should be rich then!  ;D

To get money from someone else, you need to know something they don't. Predictable markets tend to make prosperity more fair because there's less of a luck factor, and they tend to produce more prosperity generally because less is spent avoiding risk. But to make money without having to earn it, you have to predict the market in a way that others don't.

For example, you might think that if we know that oil is going to go up in price, we can buy some now and make a profit in the future. But if we all know the price of oil will be higher in the future, the price will already be higher today than it would otherwise be to account for this. It will already be too late to exploit it. (This is what people mean when they say speculation increases the price of oil.)

Now, if you were the only one who knew ...

No, it couldn't. Lending without nominal interest is never profitable because the lender could get the same benefit by just holding on to the money without the risk of default.

Exactly. Also, the net present value of a Bitcoin next year can never be more than the value of a Bitcoin today because a Bitcoin today includes the ability to have a Bitcoin next year if you wish. It also has additional opportunity value because you can use the Bitcoin before then if you wish.

Disagreements with my post coming from 2 different directions.  This proves that no one really knows what will happen with borrowing of deflationary currencies.  I can only look at what has happened in the past in similar situations and make predictions.

I am pretty suspicious of utopian ideas.  The world is not going to be more happy and fair just because people have access to bitcoins.  Markets have never been predictable before, that is because its price is based on supply and demand.  One of the theories of why hyperinflation  occurred during the 1970s was due to a somewhat predictable inflation.  People knew that prices were going to increase by at least, for example 10%, so they expected to get paid 10% more the following year.  This had the effect of people having more money to buy the same amount of things which increased the inflation rate to more than 10%.

In scarce commodities, like gold, there is a predictive yet small amount of new gold put in existence, but people cannot predict the price of gold in the future.  The reason is because of the potential for supply shock that can occur with gold if the large holders of gold flood the market.  This is the unpredictable supply of gold, and what bitcoin will be like in the future when most of the bitcoins have been mined.  Demand is also not predictable, it may change over time.  If a predictable deflation of gold cannot be guaranteed, then it is very unlikely that bitcoins would have a predictable deflationary rate.

So we get back to my main point.  Bitcoins will live in coexistence with fiat currencies just like gold has done.  Also, like gold, bitcoins will be used in loans in the form of collateral to create secured loans.

I don't think I'm actually disagreeing with you. To be clear, I'm not saying that Bitcoins will experience predictable deflation. I'm saying that if that happens, it won't be a problem because it will affect everyone's assessment of the value of Bitcoins equally. I think we both agree the unpredictable deflation, like almost any significant unpredictable property of a currency, will reduce the usefulness of that currency.

This doesn't actually help. Think it through carefully. The company she's buying the car from has various costs - supplier costs, salary and wage costs, etc - which they have to pay from the money they get from sales. In order for them to be able to afford to sell the car for half as many Bitcoins, they'd also need to pay their suppliers and employees half as many bitcoins, and their suppliers in turn would have to pay their suppliers and employees half as many bitcoins, and so on. Most likely the same thing is happening in whatever industry our hypothetical car-buyer works in, so she ends up getting half the wages she otherwise would and her pay still decreases over time due to deflation. It's just as hard for her to pay off her loan as it is in stochastic's scenario.

That's not quite correct. In this scenario, people can just hold onto money for a few years and see a huge increase in its real value. So you would expect people to have and be paid more real value.

But, in any event, in this unrealistic scenario, she probably shouldn't have the car. The economy would be so productive, doubling its value in the time of the loan, that her having the car would be unproductive unless it too doubled the value she spent for it. (In which case should could still afford it.)

Essentially, for buying a car to make sense, the value you get out of the car has to exceed the value to everyone else of you not taking that car away from people who might put it, or the resources that made it, to more productive use.

By definition: Bitcoins can NOT be inflated or control ed by any local government.
Local Banks only can be used for exchange BTC for local, easily inflatable currency needed for  local transactions and services in that local "newly printed paper money".
So unless the definition could be challenged - "Long live Bit Coins!"

There is one glaring and immediately obvious problem with the OP.

A fixed supply has an easily mathematically-determined upper limit on total leverage given a specified minimum reserve requirement.

The current system has no such property because the un-leveraged supply is not fixed.

Bitcoin deflation != Historical deflation.

The difference is that when Bitcoin deflates it is instantaneous and world-wide (instant arbitrage opportunity). Bitcoin deflation encourages spending rather than saving because the global economy demands it, contrary to the past deflation of weighted coins, it created a position where the older coins were more valuable than the newer coins. Those coins were not likely to be spent because they were worth more than the face value of the coin.

When gold backed currencies where a "thing" no one much cared about the face value or even which country (as long as the mint was trusted) minted the damn things, indeed the face value was directly tied to weight, all anyone cared about was the gold weight. I'm not sure where you do the idea that they would deflate older coins by minting new ones with less weight and same face value, that's just daft; the gold would simply be remelted - it did not remove gold from circulation (deflation).. Your probably thinking of bullion coins being minted today with metal of value much higher than face...which is a post fiat construct, that has nothing at all to do with gold back currencies.

Bitcoin deflation would encourage spending in 2030 the same way that it does on these forums in 2014, which can be summed up in "I bought a 150k dollar pizza in 09' and we are the new wealthy elite". Any financial system with a highly deflationary currency like bitcoins would ball up and die, as no funds would ever move through the system; Inflation pushes smart money to invest in creating means of production, in to research, and building income producing properties while all that deflationary currency encourages is the building of Scroodge McDuck banks (which in the case of bitcoins you cant even swim through).

You're mistaken. You're looking at half the variables of a problem and then generating an answer...

The gold coins were debased regularly, new coins were constantly minted yet the values were decreased. People certainly cared about the face value because that was how the majority of people tendered debts; based on the face value established by the mint.

The wealthy were able to hoard coins and profit from arbitrage while the average user couldn't. The wealthy didn't care for face value because they could afford not to. Deflation was a problem because of the unfair distribution bias. Bitcoin deflation is universal affecting all other Bitcoins, essentially nullifying the deflation.

Sorry, but deflationary currency is only a negative when the value can be externally manipulated (unevenly devalued). Bitcoin will never deflate for the same reason that gold coin did... Once Bitcoin becomes deflationary, assuming it saturates the market, people hoarding Bitcoin will actually decrease the price. The price of Bitcoin will be reflected by the sum of GDP divided by the number of coins still left in circulation.

Bitcoin deflation != Historical deflation. Never before in history has something like Bitcoin been tested, and you can't introduce new variables to an equation and assume the outcome will remain constant.