This is very simple common sense. If the price of gold was expected to be $5,000/oz next year, it would rise to very close to $5,000/oz right now.

If you have a bitcoin today, you also have the right to sit on that bitcoin as it deflates. So the value of a bitcoin today must include the value of the right to reap the rewards of that deflation. That is precisely what the bitcoin represents.

I can't follow what you're saying. If you lower your price, you will buy fewer BTC. If you want to buy more, you have to raise your price. The higher your price, the more sellers you can buy from and therefore the more bitcoins you can buy. If you buy all you can at $10 and wish to buy more, you have to offer more than $10. (Or wait for the market to change on its own.)

Bitcoins are not, in any sense, "paid in advance'.

You have it backwards, you have to make the price higher so you can buy more. If I buy at $10 and then want to buy more, I have to offer more than $10. If there were any way I could buy at $10 or less, I would already have done it.

You mean if it doesn't have someone's routing and account numbers on it, it's not a check. My checks don't have his routing or account numbers on them, and they are checks. If the bank is issuing the check, then it won't have his info on it.

Your example tries to hold prices stable while it imagines a change in the value of the currency. You can't do that. Whether or not the bakery is an efficient use of real capital is a currency-neutral question.

This is most clear when you say that with "deflation, you also have to cover the gains of money from deflation to get the loan." This is not true. That gain is given to you when you borrowed the money, you just need to give it back. When you borrow $50,000 of a deflating currency, you are also borrowing its deflation value which you may then spend or invest, so your return will be higher. When you borrow $50,000 of a non-deflating currency, you do not have that value to spend or invest, so your return will be less.

Whether the currency is inflationary or deflationary, you borrowed some amount of value. You can then obtain some rate of return on that value. If that rate of return is sufficient to cover the interest on the value you borrowed, you win and the loan works. If not, you lose. This is inflation/deflation neutral. With a deflationary currency, all other things being equal, you will borrow a bit less money because you will also be borrowing its deflation value, and you will consequently pay a bit less interest because all the money you pay as interest is a bit more valuable because it's expected to deflate.

All other things being equal, would you rather have an inflating currency or a deflating currency? Answer: A deflating one because you can hoard it and you can also sell to others the highly-desirable right to hoard it themselves. So you would be willing to accept a bit less of it in exchange for things. This means the borrower obtains currency that is more useful and pays back with currency that is more desirable. (Which perfectly cancels out the factors pushing in the other direction.)

The logic of loans is currency neutral. The borrower needs to consume a certain amount of value in a way that creates a surplus from deferring production until after consumption. He pays back that same amount of value plus some of the surplus which is split between the borrower and the lender.

1) I go to withdraw $1,000 from TradeHill using MoneyBookers. I have a zero balance with MoneyBookers.

2) A transaction I made through MoneyBookers three months ago gets reversed by a scammer. MoneyBookers now claims I have a negative balance and uses my TradeHill transaction to offset it.

3) I complain to TradeHill about not getting my $1,000. What do they say? "Sorry, we did our part. It's not our fault MoneyBookers stole your money. After all, you told us to send it to them."

If you find the excuse in '3' acceptable, then why wouldn't it have been acceptable for TradeHill to just take the thousands Dwolla reversed out of their Dwolla deposits? After all, TradeHill's customers sent that money to Dwolla. It's not TradeHill's fault Dwolla decided to use it to offset scammed transactions.

Any scheme that allows a scammer to steal their customer's money despite no fraud or funny business on the part of their customer is a poor choice for an exchange.

Ahh, nice goalpost shifting there. 99% of people don't understand how anything works. That doesn't make everything fraud. The question is whether there are people who think that when you deposit money in a checking account, the bank keeps your money in the vault for you and pays you interest either out of the goodness of their heart or by magic.

Remember, you said:

I think you're reasoning that whoever holds the money is paying the inflation tax and thus by loaning the money to someone else they have to pay the inflation tax. But if that were true, that would just make the money worth less today because taking the money would mean assuming the tax burden of inflation. It all cancels out however you figure it.

The cost of inflation is borne by the lender. The benefits of deflation are reaped by the lender. Otherwise, they have no effect on the mechanics of the loan except to offset the interest rate. All other things being equal, the benefit of lending over hoarding is the same.

If you hoard, you get whatever the money would do naturally. If you lend, you get whatever the money would do naturally (because you still bring that to the table in the first place) plus your share of the surplus created by the borrower being able to timeshift his consumption.

This is essentially what I'm saying. The deflation value is present both at the beginning and the end of the loan, so it cancels itself out.

When you have the ten bitcoins you borrowed to spend, you are also spending the value of their deflation. When you have to buy back ten bitcoins to pay back the principle, you also have to buy the value of their expected future deflation. It cancels out and has no effect on the loan.

The same is true with inflation. To the extent people are willing to part with dollars rather than hold them, your dollars are worth less today when you borrow them. But that also means they are worth less when you need to acquire them to pay them back.

So there are people who think they are 100% backed by dollars? Where can I find some of these people? And how do banks make people think this? Is it some form of mind control?

Let's stick to fractional reserve banking first. I can only rebut one conspiracy theory at a time. (But yes, inflation caused by government expansion of the money supply does act like a tax on all wealth. But this is no secret.)

All other things being equal, the benefit of investing over hoarding should be currency-neutral. That is, if an inflationary currency would lose 3% due to inflation if hoarded but gains 2% due to interest, a deflationary currency should also perform roughly 5% better if loaned rather than held.

There are two fallacies that lead people to the opposite conclusion:

1) Thinking that a deflationary currency is extra valuable to hold and forgetting that this means it has greater spending value too because the person you spend it with gets to hold it if they want. The value of the deflation comes from the lender and is carried through the transaction to the end.

2) Forgetting that the cost of inflation comes from the expansion of the money supply. This expansion acts as a tax on all wealth since the newly-printed money can claim any wealth in the economy. The cost of the inflation acts as a claim against the lender's wealth and is also carried through the transaction to the end.

The benefit to the borrower is from being able to consume earlier than he could otherwise. This value is currency-neutral and it is this surplus that is split between the lender and the borrower.

Do you ever get emails telling you that your email won a lottery? The fraudster doesn't have to succeed every time. It just has to be possible for him to succeed.

Sure, but in exchange for that, you have to be willing to get nothing in exchange for your coins.

What percentage of the time does the fraudster have to succeed for it to be worth his while?

Fraudster: I have $100, I want to buy 6.66 bitcoins.

Victim: Okay, deal. I put the 6.66 bitcoins in escrow.

Fraudster: Damn, I can't buy them. So sorry. I don't need the coins because the guy I was going to trade them with sold the thing I was going to trade him for to his nephew for cash to buy drugs instead, plus my wife spent the money I was going to buy the bitcoins with on a new pair of shoes. And, not that this matters, but my cat has swine flu.

Victim: Umm, I already put the bitcoins in escrow. If I burn them, I'm out the coins!

Fraudster: No, don't burn them. Just send them to me and I'll send them right back to you. I'm an honest guy, the deal just fell through, and I'm very, very sorry about that. Let me make it right -- just send me the bitcoins and I'll send them right back to you.

Victim: Well, if I burn them, I have zero chance. So I'll release them to you and hope you pay me back.

Fraudster: Sucker.

Note: This will not be obvious because the fraudster's name will not actually be "Fraudster". But if your name actually is "Victim", watch out.

ROFL! I have no idea what the delay was for -- I can only guess.

I'm curious about your reasoning and whether you actually believe it. Say I am short on cash right now, maybe I get paid next week and am hungry today. So I give someone an IOU for $20, payable to the bearer in two weeks, in exchange for $18. The $20 IOU is new money. Have I counterfeited, in your view?

The $100 in your checking account is an IOU, stating that the bank owes you $100. It is an IOU that the bank fully intends to repay, has made reasonable arrangements to ensure they can repay, and barring unusual circumstances, that they actually do repay. No fraud is involved. Nothing is claimed to be something that it is not.

This doesn't really work. What typically happens in the fraudster says "Sorry, I can't go through with the deal because <lame excuse> . Release the funds and I'll reimburse you." Now, what's your incentive to destroy them?

That's not what happens. Someone other than the user does a chargeback because they claim that they, the owner of the funds, never authorized the transfer. TradeHill never had any contact with the person who does the chargeback.

I think you're missing the point that Dwolla is the product. The original ACH transfer was a deposit of funds into a person's Dwolla account. It has nothing whatsoever to do with with the subsequent transfer of those funds to TradeHilll. The user claiming they should reverse the transaction to Dwolla because TradeHill fell through is equivalent to them reversing the funds to Dwolla because they felt like it. And, again, it's between Dwolla and that user. If Dwolla wants to take money back from TradeHill, they need to make a similar claim, which they cannot do.

The problem is that Dwolla is charging back the transaction to TradeHill in this case for no reason. Dwolla did intend to transfer that money to TradeHill. And they have no evidence or even allegation of fraud on TradeHill's part. So again, it's a problem between Dwolla and their user.

In this case, because Dwolla's customer made a mistake, Dwolla sent money to the wrong person. Dwolla can't pass on the blame -- they're responsible for their actions regardless of who tells them to take them. So Dwolla would be responsible for any losses the mistake causes.

No, I don't at all.

Dwolla is using the non-performance of a third party as an excuse to modify its agreement with TradeHill. That's simply absurd and if it were possible in general, no contracts could work.

In these cases, Dwolla would not necessarily be liable for the full amount of the transfer, but they are responsible for any unrecoverable losses. These third-party failures explain Dwolla's failure but they don't excuse it. Dwolla still has to make TradeHill whole.

While it's true that an inflationary currency must be invested or loaned just to maintain its value, the benefit to investing or loaning is the same with a deflationary currency.

If the currency would drop 2% a year and you can make 4% interest with an inflationary currency, all other things being roughly equal, an deflationary currency that would go up 3% a year will offer you about 9% interest. You still lose the same 9% by not investing.

You can easily see why this has to be true. If it wasn't, inflation would be harmless since you could just loan your money to offset it. That would mean the government could print and spend all it wanted without hurting anyone. That's obviously not true.

Every loan creates money. If you have a problem with money creation, you have a problem with lending.

If I borrow money to buy a house, the money I borrowed is still in circulation because I gave it to the person who sold me the house. However, now there is an IOU in circulation as well -- the future money I will earn to pay that mortgage is now already in circulation.

The idea that there's money that "does not really exist" makes me respond "as opposed to what?" Money is just a marker. Money, as money, never really exists any more than a number. Pieces of paper with big numbers on them aren't much more real or less real than numbers in a computer. People do things that way because it makes sense, not because there's some massive global conspiracy.

People work. People buy things. People sell things. Try, for a second, to imagine everyone doing exactly the same things just without moving all the money. The money is just a communications mechanism. It tells a person to work at Burger King, to open a saw mill, or to make me a plasma TV. That's all.

If I'm choosing between being an actor or a pilot, money tells me which my society needs more. If I'm choosing between buying a plasma TV and a burger, money tells me which takes more resources to produce. That's all it does.