My .02 mBTC analysis.
It was hard/impossible to make dollars and gold infinitely divisible. This meant inflation is required to ensure enough money supply to address rising populations and etc... Bitcoin, for our purposes, allows for this. You don't need inflation to ensure sufficient monetary supply if the monetary supply is highly divisible. Make sense?
Absolutely and I agree with you that this will work...to a point.
Over time the loss of coins can add up, especially if we consider Bitcoin as a long term currency. Additionally, there is currently a high concentration of coins in the hands of a few (see
https://bitcointalk.org/index.php?topic=316297.0), so the loss of any one of those private keys would be a major blow and cause severe instability as the supply was reduced.
A simple scenario I came up with involves the recent arrest of Ross William Ulbricht. If he had gotten wind of them coming to arrest him (say by looking out his window as they rolled up) and was in a position to "nuke" all of the computers that housed the private keys to his and Silk Road's Bitcoins (maybe thinking that it would keep him out of jail), this would be a major problem. If not a major problem immediately, then maybe down the road after similar scenarios play out again and again.
It is very interesting to try to grok what might happen in the far future if Bitcoin has taken significant stake in economies. We can scale all the way down to 1 Bitcoin so 100% loss is certainly not likely in our, or our great grand childrens, lifetime.
My assumption is that each loss eventually prices in to a basket of commodities (or dollars) if it is relevant. If bitcoins are lying stagnant in a wallet there may be little/no loss to the economy. Same way having all that money sitting on bank balance sheets is having no impact on inflation (unused means not relevant).
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? Someone page Barry now.
