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Deflation is not an admirable feature. It causes just as many problems as inflation. High deflation is just as bad as high inflation. In the optimal scenario, there would be no inflation or deflation. The benefit of Bitcoin is that nobody can manipulate the money supply for their own benefit.
Could you go into more detail about the sorts of problems deflation might cause Bitcoin, specifically high deflation? |
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Bitcoin separates money from state.
This is one of the most valuable observations about decentralized currencies in general: previously money was derived from either the state or private industry. Now we have decentralized consensus. |
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Even in cryptocurrencies, there are inflation and deflation in nature. Some have an unlimited supply of tokens like Dogecoin that created in late 2013, making them inflationary while other crypto have fixed amount of tokens in the circulation, making it deflationary. Deflation is considered to be an admirable feature of bitcoin, it impacts consumers positively because it increases their purchasing power, allowing them to save more money as their income increases relative to their expenses.
Good on you for pointing out the "why" of deflation being an admirable feature: increases purchasing power. |
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Not sure it was an admirable feature as much as a unique one that challenged the notion of supply expanding to meet demand (or adjusted to meet goals).
Also, not sure if Satoshi's vision is important any longer, or relevant, beyond historical significance to early onset. I think, as you noted, he was very aware of the shifting climate. Bitcoin's origin, if we acknowledge genesis block's message, was a starting point, I'm sure he knew he could predict, but not foresee what that vision would be in a decade, never mind it being a shared vision by all its users.
I agree with this and think it's a valuable point: he wasn't a prophet, but he sure came up with neat ideas. |
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What really grinds my gears about this is that they based the rewards on the *final state of the database* (and even that is an assertion), rather than the moment MTGOX locked withdrawals.
Automated trading algorithms kept executing during the insanity as the price rapidly debased itself and plenty of people were caught out on the fiat side when they arbitrarily shut down rather than have their losses recorded in Bitcoins.
Having $100 instead of 4 Bitcoins in the database: ouch!
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Fiat monetary systems rely on inflation because otherwise people would hoard it and starve the economy.
Yes, this is proven true by virtual economies as well: a closed supply leads to hoarding and spiraling prices. These systems are built very simple.
I'm not sure if "simple" is the best description of modern monetary policy. Fiat is made to last a century or two and then it goes into hyperinflation and needs to be reset,
Are there counterexamples in the real world? For instance, has the British Pound been subject to hyperinflation? Has it been reset? but what if you had an alternative to your fiat money that can be hoarded and also spent, but spending it would be incentivized somehow.
What incentivizes spending Bitcoin? It doesn't decay if you don't use it. Doesn't it incentivize saving/storing it as an investment for future yield? What if businesses that want you to pay with bitcoin lower the prices. What if there's less tax on bitcoin payments? What if Bitcoin users become VIP clients in certain places?
These are interesting use cases, especially the latter - which is more of a social construct based on exclusivity. The second part is possible in jurisdictions like El Salvador where they've made Bitcoin legal tender and might have such an incentive. The first part has been demonstrated before. A caveat: I used to help e-commerce businesses transact with Bitcoin but the transaction fees made that untenable. Yes, we have solutions like Lightning today, but that only means that Bitcoin's original vision as having low-fee transactional utility isn't feasible. Unless that wasn't ever Satoshi's vision (but it sure seemed like it, given he also believed mining would be more democratic "across laptops" and hadn't anticipated mining pools yet). We spend fiat money because we know it loses value so you choose investments, but investments block your ability to spend. We can't sell bonds, gold or real estate fast enough to be able to fill our gas tank or book a plane ticket.
You could say people will never spend their bitcoin knowing that it deflates but what if it stabilizes and starts to deflate 5% a year? It's going to feel safe enough to hold as an investment while being spendable without regrets.
A caveat: those who buy Bitcoin before each major price movement may feel cheated when their "spending" looks foolish in hindsight, and they should've "held on" which, over time, leads to less spending and more hoarding. IMO bitcoin can work as a deflationary currency especially alongside another inflationary currency.
I think the evidence is in front of us that it does work as a deflationary currency, alongside other inflationary currencies. A caveat: just not the way it was possibly intended? How firm was Satoshi on Bitcoin as having low-fee transactional utility vs. being digital-gold-store-of-value? I've read a lot of his emails and work but it always felt like he was adapting to the changing climate as mining hashrate spiraled out of control. Happy to have contrary sources - or, a clear timeline of what "his vision" was and if/how it changed. |
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So far it seems Satoshi is right. One of the reasons why people store value in Bitcoin is that it has a fixed supply that can't be abused by anybody.
Interesting, but how do we reconcile this with Ethereum's "me too" demonstrated store-of-value given it has an inflationary supply model? Is the deflationary supply model even relevant to Bitcoin's success right now? How would we prove or measure that? |
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Given that we've seen other cryptocurrencies & blockchains that have inflationary models still "succeed" in the sense of having transactional value, why is deflation considered an admirable feature of Bitcoin?
(.,....)
Hyperinflation is one of the many problems we have in current finance or economy, it is very common and if you will take a look it is a very devastating situation for consumers, especially in some countries where the inflation rate is increasing in huge percentages, so Bitcoin is solving it, Bitcoin created to solve this. And if you take a look on the long term goal of Bitcoin and how it really works as time goes by, it is indeed to solve inflation rate especially when our governments can print unlimited fiat currency which is also a trigger for increasing the inflation rate. To be fair, Bitcoin was created to solve the problem of double-spending in digital currencies - and it succeeded. I admit I'm skeptical that Nakamoto's desire for a deflationary end-game has merit, given that his original vision for "peer-to-peer cash" died during the unanticipated arms race of CPUs -> GPUs -> ASICs. If TX fees were natively better than credit cards it'd be competitive in that way, but it's not. His brilliance was in PoW and the timestamp system itself, not necessarily in prophesying economic design patterns. What I see today is that Bitcoin has made a full transition to store-of-value and speculative investing. And, since there's a deflationary model waiting at the end, it feels like we're just going to see a repeat of what happens in the other closed supply virtual economies we've seen over the last 25 years: crashing and burning. I'd like to be wrong and would love to see more data/research on why "deflation" is a good idea; not just anecdotes about hyperinflation risks. Are there any economic analyses of Bitcoin by academic researchers with economic backgrounds that believe the deflationary model is good in the long run? |
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Bitcoin is not deflationary. It is inflationary. It will become inflation free in a few decades, and deflationary if we consider the lost coins in many decades.. In this classic Chart you can see that bitcoin inflationary rate is about 5% a year  I love this explanation because it seems to demonstrate Bitcoin acting like a proper market because the supply is still open (even if the end-game model is deflationary), while most NFTs with their closed supply models seem to immediately follow the product adoption curve and wither away. |
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Bitcoin: A Peer-to-Peer Electronic Cash System 6. Incentive "Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free." - Satoshi Nakamoto
Given that we've seen other cryptocurrencies & blockchains that have inflationary models still "succeed" in the sense of having transactional value, why is deflation considered an admirable feature of Bitcoin? In virtual world economies we know that closed supplies inevitably lead to mudflation, unsustainable pricing, and rampant speculation (Koster, et al). How much did the deflationary model contribute to Bitcoin's shift to store-of-value? Was the whole premise of starting Bitcoin under a deflationary model based on an economic fallacy in the hopes it would encourage valuation?
Feedback Summary from CommentsQuestion: Regarding the premise, is Bitcoin deflationary?- Yes. It is deflationary right now due to its fixed supply.
- Yes. It is deflationary *eventually* due to the end of mining and the random loss of private keys.
- No. It is inflationary.
- No. It is disinflationary rather than deflationary.
- Other. It is a "fixed supply currency" without "scheduled deflation".
- Counterexample: British Pound.
~5% 1.82% (2022-10-26).Assertion: Deflation is when supply reduces over time. It is not a finite supply metric.- Agree: Since deflation is "negative inflation" then inflation of 0% doesn't count as deflation. (O'Sullivan, Arthur; Sheffrin, Steven M. (2003)). Economics: Principles in Action
- Disagree: Deflation is a decrease in the general price level of goods and services [supply reduction being one possible cause]. (Robert J. Barro and Vittorio Grilli (1994)), European Macroeconomics, chap. 8, p. 142.
- Other: Hoarding/holding decreases the usable supply, so fixed supplies are naturally deflationary. (Nakamoto, Satoshi) Re: Dying Bitcoins, (Simpson, Zachary) The In-game Economics of Ultima Online
- Agree: Because it has a fixed supply its ultimate state is neither inflationary nor deflationary.
- Disagree: It currently demonstrates inflation while being actively mined.
- Disagree: Even when fully mined the loss of private keys results in decreased supply, causing deflation.
- Disagree: Even without loss of private keys the act of hoarding/saving decreases active supply, causing deflation.
- Counter-example: Ethereum is inflationary by design.
- Counter-counter-example: Ethereum's inflationary rates have demonstrably been changed by community consensus; similar to governmental monetary policy
- Bitcoin has no supply burning mechanism.
- Access to coins can be lost (via loss of private keys), but the coins stay on the ledger.
- Increases purchasing power
- Hyperinflation hurts consumers
- Value expected to increase over time
- Acts as a hedge against real world monetary inflation
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As I'm working on our first NFT project I started rooting around for the nicest way to launch an NFT giveaway. As a big fan of Overwatch and a veteran MMO dev I thought "Man, I should make the NFT giveaway look like this (YT: Opening 100 lootboxes. Not a copy of Overwatch, mind you, but something with that level of polish and fun. You know, that pleasing feeling you get when you get a good roll of the dice with all the bells and whistles attached. Example:Skinner boxes, really. I looked around for a bit to see if anyone is doing anything similar, and there seems to be a dearth of good, solid UX experiences for minting/giving away NFTs. I think Fractal has some of the prettiest NFT UX right now, but the top hit for "NFT lootbox" is literally nftlootbox.com and I can't honestly tell if that one is a rug-pull or not. First: does anyone know if this is already a well established thing? Even 3D viewers for NFTs don't seem to be there yet - just images/gifs, let alone a good NFT lootbox launching platform. Second: is anyone interested in pitching in on the ideation/feedback loop for such a project? My company will provide the art/code/funding - but we don't want to make something in a total vacuum. I envision it as a kind of "lootbox" standard for NFTs with an initial platform where NFT creators can bundle their NFTs into lootboxes and distribute them that way. Free, for now, since it'd be in alpha for a while. Like I said, I'm going to create it regardless as a way to launch my own NFTs, so I'd love to validate the idea with the community as it gets built, and it would be a Three.JS rendered 3D scene in a platform that could assign the NFTs to your account or directly to your digital wallet on a low-fee blockchain (Solana, Polygon, etc). |
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https://blog.cotten.io/how-to-eat-gas-in-ethereum-c34f1e421022A method is presented to consume the available gas in an Ethereum transaction while still performing a defined amount of work: exchanging the spent gas for an equivalent amount of token value. Solidity code and a Ropsten test network demonstration are provided.--- The idea above could form the basis for Ethereum tokens built on gas "swaps" rather than Ether transfers. Seeking comments.
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