[Bitcoin: A Peer-to-Peer Electronic Cash System]

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 Comments

Question: 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".

Assertion: Fiat will always suffer from hyperinflation; only lasting a century or two.

• Counterexample: British Pound.

Assertion: Bitcoin's annual inflation rate is ~5% 1.82% (2022-10-26).

• Updated to 1.82%: Woobull Charts pegs the current Bitcoin inflation at 1.82% (2022-10-26) https://charts.woobull.com/bitcoin-inflation/.
• Bitcoin is deflationary under the common definition because its purchasing power increases over time. Conversely, Bitcoin and gold are inflationary while their known finite supply is still being mined. (Hays, Demelza) Why Bitcoin is Technically an Inflationary Currency

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

Assertion: Bitcoin's divisibility will solve demand issues.

• Yes.
• Neutral: Divisibility allows flexibility with how Bitcoin values are displayed. (Nakamoto, Satoshi) Re: How divisible are bitcoins and other market/economic questions
• No: "Dust" (small values) can't be traded on the main network due to high fees. (Coppola, Frances) Why Bitcoin Should Be Priced in Sats (and Why It Has a Divisibility Dilemma)

Assertion: Bitcoin is neither deflationary nor inflationary.

• 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.

Assertion: Inflation is correlated with human decision making.

• 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

Debate: Has Bitcoin shifted to store-of-value over being a medium of exchange or unit of account?

• No: It hasn't made a "full transition" to store-of-value. Note the growth of Bitcoin payment processors.

• Yes: Bitcoin is too volatile to use as a currency, and Bitcoin payment processors are just spot-pricing fiat. (Baur, Dirk and Dimpfl, Thomas) The volatility of Bitcoin and its role as a medium of exchange and a store of value

Facts:

• Bitcoin has no supply burning mechanism.

• Access to coins can be lost (via loss of private keys), but the coins stay on the ledger.

Reasons "why" deflation is an admirable feature:

• 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).

https://blog.cotten.io/how-to-eat-gas-in-ethereum-c34f1e421022

A 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.

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The idea above could form the basis for Ethereum tokens built on gas "swaps" rather than Ether transfers.

Seeking comments.