Bitcoin Forum

I like the blogs published by Bitmex. One of the awesome sources to gather knowledge around cryptocurrency.

In this blog they discuss problem and benefits of deflationary economics. https://blog.bitmex.com/bitcoin-economics-part-3/

To quote from this:

I agree that it's a new kind of monetary system and it would have it's own problem when it becomes well adapted. but economically speaking do we need this system adding to the complexity already existing financial system.

I do not think debt will be a problem in the case of Bitcoin. Limitedness will not cause the real value of debt to increase because more money can’t be created "as banks do."

Bitcoin has problems, these problems are not only technical, but I do not expect to stabilize as happens to gold, which leads to a weak economic system built on those currencies.

I tend to a scenario that currencies can be mined according to "no maximum number" restrictions, leading to stability and non-fluctuating prices.

thanks for sharing that URL. :)

Bitcoin is decentralised digital currency which means it doesn't under control any kind of authority or government. It is an independent currency. And Because of this it is not globally accepted, many countries ban it in their country. Bitcoin is used for investment purposes but its high volatile nature produce difficulties. It is mainly used d for online transfer of money. In this fiat currency transfer in the form of bitcoin, but once transaction is done then it can't be reversed. The whole bitcoin thing runs over Internet, if virus corrupt the data or if hardware crashes then their will be no physical evidence to claim of your bitcoin.  :)

Bitcoin is actually inflationary, not deflationary.

I guess it depends on what your definition of deflation is. But if you consider deflation to be a general decline in the money supply, then bitcoin's currency level actually never goes down. There is a constant increase in that, each block that's been mined.

However, the level of inflation just slows down over time due to halvings.

We could see potential deflationary issues when bitcoin nears its supply ceiling, and the rate of lost coins exceed that of new coins coming in, but even then it's unlikely that it'll affect any single country as bitcoin is global. Besides, if bitcoin serves as a niche, safe haven asset in the future for those who want to save their wealth in the long run, there is nothing wrong with its supply being capped and potentially even decreased, just like gold. It's a store of value - after all.

In the long-term a general decline in the BTC supply seems pretty likely to me.
As soon as the amount of lost coins (people that die with their BTC, lost private keys
and other scenarios) is higher than the amount of BTC that is created as block reward,
we will see exactly this situation where the available BTC supply declines.

Therefore I´d argue that BTC is inflationary in the first few decades and later turns into
a deflationary asset.

Eventually, bitcoin should become a full-fledged currency. In this case, bitcoin offers will be stable because it will be its turnover in the economy. The lost coins and the lack of emission will affect the value of the coins but it will be a slow correction which will not have a significant impact.

I dont think deflation will be a problem with bitcoin nowadays because we are still mining bitcoins. The problem with deflation comes when all the bitcoin has been mined and the supply of bitcoin becomes near to constant.

Sometime i think thats bitcoin had down the news about thats bitcoin have hacked, its so sad whe i hear thats who make price deopped

It is the opposite, it is true that bitcoin and its low inflation nature will cause a change in the economy in the case that is massively adopted, but bitcoin in fact is going to simplify things up and not make them more complicated, for example the CPI is a measure of how much the prices have changed over the course of time to measure inflation but it has been shown by many that the numbers of the government are fixed an the same happens in many countries.

Bitcoin will fix that since there will be a very low inflation, this means that economic growth is not going to be as fast or as big as before but unlike the current growth that is fueled by inflation and that is not real the growth in a bitcoin economy the growth will be real.

unfortunately those critics who are saying a finite monetary supply can be a poor economic policy, resulting in or exacerbating, economic crashes have ties to banks and their system and want to have control over printing money. which is why they see the alternative as a bad solution and seek to poke holes in it.

saying people are going to be unwilling to spend it because it is appreciating is assuming that bitcoin price will rise till eternity which is obviously wrong. there is a cap for everything even for bitcoin price. it won't continue to grow forever and it won't always give 100%-2000% profit per year. we will eventually reach a more balanced market when the mass adoption hits or at least reach a level where the adoption growth is not enough to increase the price that much. and by then we will see a better stability in price.


i disagree.
when a coin has no cap (or maximum number) then you are introducing another extremity to that coin. and the arguments that were made here about people being unwilling to spend it and the coin not being capable of fulfilling what society needs as one of the quotes in the article says becomes true. because a coin with no cap will always continue to go down in value. and nobody is going to even buy a coin that can for instance buy 2 cups of coffee today and 1 cup tomorrow and not even half a cup by the end of the week.

Deflation is an interesting topic and it is definitely not brought up often enough. Fiat currencies are bound to fail eventually, because countries borrow money from each other and don't have sufficient funds to pay the debts. This makes the idea of simply printing a bit more money very attractive, but in the end it causes inflation. And if this country is US, it also probably causes a really hard economic crisis.
I don't understand, however, why the article op mentions is talking about naive bitcoin users who don't understand that deflation is bad. Yes, bitcoin is not susceptible to inflation because of its limited supply. However, I don't think it necessarily means it will lead to deflation. If bitcoin was the only currency then it necessarily would, but it is definitely not the case anyway. Btc price rising extremely high in usd will lead to spending less of it on goods, yes, but I don't think people are going to do that anyway. It's a tricky and confusing matter, but imo things might just stabilize eventually without leading to inflation or deflation.

Cryptocurrencies are safe to use and there is nothing risky or hacking activities if you keep your privacy secure. Now learn how you will keep your privacy secure us very easy and there will be nothing hacking activities around you. Use your wallet with care and do not share your pass key or password with any other person so that no one may know your gate key to enter into your home.

Everything in this world has some flaws. But it is for us whether we want to it not and also it is up to us to improve its uses and for use to let ourselves be useful by taking an action towards it.

I would like to see a serious attempt made @ detailing what specific issues bitcoin could run into as a deflationary currency.  :)

One of the common criticisms aimed at deflationary currencies is lack of overprinting to compensate for errors made in budgeting. But then looking at venezuela, turkey and other nations suffering from high inflation as a result of fiat overprinting perhaps lack of overprinting inherent in deflationary currency can be a good thing.

Some also claim that deflationary currencies make loan processes more difficult than it has to be which has negative economic trends in small businesses and individuals having greater difficulty obtaining credit and loans.

Many experts and analysts say things and expect the public to believe them in blind faith without evidence. Its a dangerous precedent. Society could benefit from greater transparency and deeper discussion of topics like economics and finance which affect billions of lives.

We still didn't discover yet all the problems connected with the deflationary aspect of Bitcoin. We are not enjoying some positive aspects, but the negative will pop up eventually.

It's not like BTC is set in stone as to what the code is. Maybe in the future we will democratically decide, that the limit should be increased as to keep the influx of the coins stable and fixed to our needs.

Debt will only become a problem for bitcoin if knaves like MasterCard are allowed to create a bitcoin payment system with fractional reserve access to the currency. This would basically allow them to issue credit cards that the users can spend with, and MasterCard will only need to hold %10 of the total bitcoins being spent at any given time. The rest of it will be "debt" or bitcoin created out of thin air.

How on earth can a limited asset be lent out when there is none available? Well, that's exactly the problem that bitcoin tried to solve. Now they want to use it for themselves.

very good and helpful article. it is true that bitcoin fans like the limited supply of 21 million, and when it is thinning it will make the price even higher and they are ready to sell it for profit. but on the other hand, it's very bad for the economy. I also think that bitcoin supply should not be limited and remain in the market without paying attention to the limited supply circulation.

If bitcoin was to just be an alternative currency in the future to existing world fiat currencies, then there is really no problem with it being deflationary whatsoever, or having a stagnant currency supply for that matter.

Prices would theoretically simply continue rising, as bitcoin would represent essentially approximately the same underlying real value, but with fiat depreciation, would increase in nominal value. This has nothing wrong, in my opinion.

If bitcoin was to become the single dominant global currency, then it's probably a different story. We don't know what's going to happen, since there simply has been no precedents before with a controlled disinflationary currency. However, what we do have is the advantage of such currency, as it's not based on debt, and has a stable supply - meaning that depreciation would not occur like it does on fiat currencies.

The value of Bitcoin will only increase until it plateaus and the last Bitcoin is mined (issued). It might jerk up and down but it’s the oldest cryptocurrency and we’re seeing it stabilize today, right before our very eyes.

Often times, new system is some kind of change that is hard to adopt. It is true that when new and especial system were about to introduced in our economy widely.

It really sounds bad when I hear/read the word deflation especially if it's referring to Bitcoin's price. Most of the time, the people who were most affected by the deflation Bitcoin is going thru are those altcoin holders. You see it isn't much good when they mention this kind of issues but it ensues Fear Doubt and Uncertainty to everyone. And here we are facing the Mt. Gox settling case. Will we be seeing another dip then a bull run or a very bad ending for this year?

since bitcoin can be mined, the limitlessness of the supplies are the main factors that proves that bitcoin has boundless opportunities awaits for us, even bitcoin's supplies are endless we can see that the demand for bitcoin is not affected, that is why it is highly volatile, it is hard to predict and unstable, i think deflation is out of the question here, neither inflation, the supplies are not finite even though there is a higher demand for it, if in the future, bitcoin will become the universal currency, where there is a higher demand, and mining is regulated, then there will be a problem. but i am sure the system will adapt to it and they will come up with the proper solution.

In one of the article I read recently, some economists believed that deflation will be quite bad for economy considering that investors and businesses would rather be saving money rather than investing in businesses and creating jobs.

I certainly understand that the deflation and the value it would bring in the case of a huge adoption would make even the limited supply less available for anyone who may want to end up utilizing the space for the currency purpose, but one thing I feel is that as time goes on, this will in a way sort itself out when mentality about hoarding changes.

Even now, Bitcoin has raised a serious problem as a payment medium, namely the time of transaction confirmation is too long and high transaction costs. Therefore, there are emerging new cryptocurencies that claim to be better and superior to bitcoin. So, if we see the problem above, using bitcoin as a new local currency is the wrong choice.

bitcoin supply is not endless or limitless because bitcoin supply is only set to 21 million .  bitcoin deflation is not really a problem to me because i heard that when bitcoin is all mined out , the value of btc's will also increased .

 bitcoin will still circulate even if we cannot mine it anymore , so every people can still experience to try and use bitcoin .  and if mining wont be available , there are still other activities that we can do to be able to accquire a bitcoin like doing faucets or working thru campaigns , etc ...

I think this is not a "deflation" , it is just correction from that 20k movement. Bitcoin of course worths more than what it was before all of this, it was 2-3 thousand dollars per bitcoin back than and than of course it went up to 20k but 20 was too much for bitcoin and I do not believe it was ready for going that high, of course in retalation when people started leaving the market went down like crazy and we have been in a "bear market" for couple months but in reality I think if you take out that 20k from the middle we went from 3k or so to 6k or so this year which is really good if you look at it that way. So I disagree with the notion that bitcoin is in a deflation.

For me, I think America as a whole should prepare for deflation. There are a lot of signs to suggest that it may happen. But even if it does not, there is nothing wrong with always preparing for the worse and hoping the best. I do think that it is not going to happen though. Deflation is the price dropping for consumer good because inflation drops below 0%. I do not believe there is a reason to prepare for deflation because I feel it is unlikely to happen. Even if it did happen its not something the consumer should bother to prepare for because it simply means they'll have more buying power.

According to the article:

Was the fear of Bitcoin causing economic crash rational or was it just based on the narrow-minded claim that Bitcoin was dollars/fiat Blackhole? Those who spread this claims ignored the fact that people also sell their Bitcoin for fiat when they need to.

By the way, there is no proof that the deflation of Bitcoin discourages people from spending their coins. It pure speculation.

My advice to people who do not like the deflationary feature of Bitcoin is to focus more on the printing of fiat out of thin air. It is much more dangerous to the economy.

I think the problem of bitcoin now is that bitcoin has not been accepted by all countries around the world. because many opinions of bitcoin can be used as a tool of financial crime

That is something I so much believe would really be the case eventually. A lot of people complain about deflation but have failed to realize that the currency aspect of it is not being utilized very well and there is just so much the market can go in the case of it just being a speculative asset which is what would subject it to more manipulations in the long run.

As far as I am concerned, as long as this currency aspect becomes utilized fully in the long run, it would even be more appealing than fiat and would make the idea of mainstream adoption as currency even more interesting.

Yes, the world is continually changing so thus the technology. And to adapt to the new world we need crypto currency. Today, technology is fast evolving and almost everything can be made instantly and easily, like for instance communication, traveling and many more.

The financial system of course needs to be updated. The predominance of a single currency has a negative impact on the economy of most countries.

It is normal to always see adoption pretty fast.
Internet, Artificial Intelligence and so many other technologies have been in existence for quite a while now but the technology is still being adopted gradually after so many years and nothing rapid.

Infact, I am surprised that bitcoin has been able to attain this stage at this early period which I still believe is just starting anyway, but as time goes on, we will get to see if deflation ends up becoming a problem or not, but for now, except for the fact that it would encourage HODLing than it being utilized as a currency, I really do not see much problem with it.

every next step in development will face new challenges, this is the basis of philosophy. in the case of cryptocurrencies, this root lies in the trust between people, because transactions can not be withdrawn

Even after the last bitcoin is mined, it would still not stop the value to keep increasing if there is still a huge demand for it and though there is no need trying to assume what a whole lot of years from now will be like when virtually most of us here would have been long gone by then and who knows bitcoin could actually have reached a state of equilibrium. One thing with bitcoin is the fact that it has limited supply and that makes it deflationary and whatever future holds, the future will tell eventually.

The economic system will continue to grow and create many problems and anomalies, if later bitcoin can provide more benefits than fiat it can certainly be adopted to solve the problem at that time, the most important thing is the discovery of new solutions to current problems, even though the problem will continue to exist global economy

If mass adoption come, i am believe bitcoin value always increasing because more people need bitcoin to store their asset. Indeed bitcoin is new monetary system but central banks must be wont lose control on money supply

I believe bitcoin deflation is normal because it is decentralized.Meaning,it's not controlled by government.People should not worry about bitcoin deflation because, surely there will also be an inflation.

i think that too, but not for now. there are still many waiting to buy bitcoin and save it. besides, i think many are waiting for good news from bitcoin, so they will be calmer if floating positive

Being a deflationary currency means that more people will tend to hold it since its value increases over time--hindering its capabilities of becoming an actual currency. A currency that is not circulated well is not a good currency.

Being a deflationary currency means that more people will tend to hold it since its value increases over time--hindering its capabilities of becoming an actual currency. This actually focuses less in its aspect as a currency since a currency that is not circulated well is not a good one.

Whenever you ask people why they need cryptocurrency they say it’s because of debt and that’ usually sounds stupid to me they just forget that everything that has an advantage also has a disadvantage. Cryptocurrencies itself has its own disadvantage and might even be worst than our current monetary system.

So I’m not in support of having cryptocurrency as a replacement, I’m okay with what we have now cause the devil you know is better than the angel you don’t know.

what really scares most of us is the unknown, in business, every move is feasible, it is true that bitcoin is new and a unique system, that makes it more dangerous for some newbies, the qoute is true and legit in way how it describe bitcoin, but it doesn't make bitcoin less of a machinery to improve the financial status of our economy. this quote is only a sort of an advisory for those interested investors to be cautious in jumping into crypto world.

Bitcoin has decreased seriously and it has been major problem that most investors face this time around which makes  most lose interest

every next step in development will face new challenges, this is the basis of philosophy. in the case of cryptocurrencies, this root lies in the trust between people, because transactions can not be withdrawn

About having disadvantage, there is no doubt about that as certainly everything with an advantage will definitely have some lapses as well. The way people will over time keep perceiving bitcoin would be one of its disadvantages. The idea of simply just an investment, and a lot of people trying to want to hoard it just to be able to get rich over time, would make the whole idea seem more like less supply, more demand, but without an equilibrium in a way, it would always not lead well and would make the idea of it as a currency be jeopardized as people tend to shift to the asset perspective instead.

Apparently, the fear of the unknown has always been one of the major challenges for anything new and most especially when it comes to technology as people cannot really tell what the adoption and the perception of the technology would be like in the long run, and how that is going to end up affecting certain things related to the development of the technology.

People right now tend to focus so much on holding due to the deflationary asset nature of bitcoin and then forgetting what the currency aspect is like. However, it is what it is and only time can really tell how this whole thing will eventually turns out.

I think it has happened before and even tho the situation is not exactly the same it is still an amazing thing that we are going thru same things over and over again and still get surprised every time it happens.

Bitcoin sometimes just drops in price and stays there for a long time, look at bitcoin prices when mt.gox happened even tho it seemed like it was early days it was still quite late stage with coinbase and cryptsy giving people trading options so it was still not like it was 2009 when it happened. Also when we reached 1.400 dollars or so it dropped to 250 and stayed there for years. Do not be worried, in the end it goes back up, stronger than ever.

Deflationary currencies discourage spending.  This is no secret but Bitcoin will act as the store of value similar to gold.  Then we will use other cryptocurrencies for daily transactions that have lower fees and are faster.

indeed, bitcoin is now more useful for investment means. but indeed the main goal is to transact. As time goes by, I think it will happen later, that BTC will be used throughout the world

it is true that bitcoin is no longer used as a transaction tool, even though bitcoin was created to be used as a substitute for money, but with a limited amount and increasing prices continuously cause bitcoin to become an investment object like gold

Because BTC is one of the main and most valued currencies of the moment. It helps people to have a better and happier life. I think it should not be too worrying because the BTC is self-governing, unregulated by the government. It will increase or decrease depending on the belief that people in the world have for it.

I think another option is always way better than having no choice at all. Besides, taking away the volatility of crypto currencies, crypto currencies are actually way better than fiat all the sense. Besides the transparency of blockchain technologies it is also instantaneous and secured (unless you lose your own access). 

True, i think that Bitcoin along with other Crypto currencies could be considered new money and traditional economic understanding about this could not be applied the same way. But since we don't understand it yet, we couldn't use it to it's full potential. Therefore we could look forward to things we could do woth crypto currency and blockchains.