Advice on how to debate more effectively is to avoid using fallacies as you have just done:

Ad Hominem Fallacy

As you don't even seem to know that basic convention I didn't bother reading the rest of your reply.

For the benefit, however, of any that may be interested in following this line of discussion I'll add one more response I consider important.

I realized where you may be confused as to how deflation can make people richer, and result in more car sales.

I think you have a misunderstanding of deflation as I mean it.

Deflation is a shortage of money supply to the ratio of people in an economic system. Inflation of course is the opposite - an abundance of money supply to the ratio of people, which causes rising prices.

There are two ways to arrive at a shortage of money supply, or deflation... Either more people enter an economic system without corresponding rise in the money supply, OR the number of people stays about the same, but money leaves the system.

In my BoomTown example I'm obviously talking about people entering the system to cause the deflation. However, I think you are talking about what I consider a more unconventional form of deflation: money leaving the system.

Ironically, that's the exact situation we have with the world's dollar based system, which has become the convention. Generally speaking it's not possible for money to leave an economic system. The only way that happens is if participants lose the money physically or perhaps bury it with them, mimicking ancient Egyptian kings. Of course that's not to be expected on a widespread basis.

Unfortunately, the dollar based system does provide another way for money to leave the system. Dollars come into existence as debt; IOUs. Therefore, anytime someone defaults on repayment that money effectively evaporates, disappears, or deflates from the system; it was never really money in the first place.

This form of deflation certainly is to be supremely feared, and I can see why you would rail against it, because deflation of money that way takes away wealth with it.

It's also important to note, you can have both forms of deflation happen at the same time, people entering the system and money leaving the system. We experience this in our dollar based system with population growth (birth, immigration, etc.). And you can have deflation and inflation happening at the same time; this is also currently happening in our dollar based system.

Deflation as I mean it does not remove wealth from the system, and that's why products like cars become more affordable to people.

The theoretical fiat-currency system I came up with, which I haven't shared with anyone, including you, you believe is not theoretical?  


What is awfully lofty? The system I came up with? How would you know? It might be completely illogical and/or unworkable.


I don't know what you're trying to convey here.


Yes, I agree the gold standard can be thought of as hard currency.



Yes, I'm quite sure.


No, it's not the exact same result. If you notice in my BoomTown example, all of the residents had equal amounts of money. And obviously all of them were not bankers; also they equally worked for the money they obtained.



Ding, ding, ding!!! Yep, exactly.

This is why deflation is preferred. Your economic exchange is more based on value than debt.


Yes, that's why I gave it as an example.



Now, when do you think a government will "award" people 500 gold nuggets?


That's not taking advantage of anyone. If you can't see that, you've missed the point.

Hold on a second. We need to clarify a couple of your terms.

First, debt-based for whom, the government, or citizens? I designed a theoretical fiat-currency system that is debt-based for citizens but not the government.

Second, when you say "hard currency" I must say I don't like that term at all. To me you can't say hard currency if you're not talking about hard backed, as in backed by a precious metal.

The Wikipedia definition for hard currency even points out this danger:

http://en.wikipedia.org/wiki/Hard_currency



I designed a theoretical system where neither bankers or corporations is at the helm.


The effects of the Great Depression came from inflating before (the roaring 20s) culminating in the crash of 1929. Deflation in that case had a cleansing effect on the market allowing it to move on.

Deflation has no shame in saying those who have money benefit... What are you saying exactly? There shouldn't be a benefit to having money? What use would money be then? As least with deflation even if you have little money you can rest assured the value you have will be the value you expect, at a minimum.


No, it's not a falsehood.

*sigh*

Let me break it down for you.

Say you have a town, call it BoomTown. In BoomTown there are 100 residents and all they have is the clothes on their back and the houses they built.

One day somebody discovers gold in a nearby mountain and a mining rush begins. As it happens there are only 5,000 gold nuggets total in that mountain, and every resident is only resourceful enough to mine about the same as others. After time each resident has 500 gold nuggets.

These residents have different skills. Some are seamstresses, some are farmers, some dentists, etc. They begin trading the gold as currency for other valuable goods and services - economic exchange.

One day a stranger named Bill pulls into town towing a fleet of cars, left to him by a dying uncle (I guess). He sets up a car dealership on the edge of town. The only things Bill has are his clothes and his cars. He needs food from the farmers, he needs his hair cut, his teeth cleaned and worked on, etc. He has no gold so he figures he will trade cars for some, then he can purchase things he needs, including a house.

Bill has about 10 cars. A house costs about 500 gold nuggets - the entire wealth of a resident on average. Bill figures he will price his cars at 100 gold nuggets each, because that way he can afford approximately 2 houses, or maybe one luxuriant one (of course, then he'd be broke). At 100 gold nuggets per car many residents are hesitant to buy from Bill. They prefer to walk than part with 1/5th of their wealth.

Since this town is called BoomTown it draws in settlers. About 300 people arrive one day exploding the population 4 times higher.

Now we get deflation.

The same amount of currency exists but there is increased demand for it. That makes the value of the currency go up. People are willing to sew, or perform dental practice for fewer gold nuggets, because they need nuggets.

What does that have the effect of? The people with the gold nuggets are now richer. They can get goods and services, like buying groceries, for less. If you're suddenly richer you will probably spend money more freely... Don't have a car? Buy one. Even if it costs 100 gold nuggets, you can now afford it because everything else now is cheaper for you.

So, yes, more people can and will now buy cars. All of Bill's stock of 10 cars will sell overnight, and there will be demand for more!

Well that depends on which government you're talking about.

In the U.S. the government is supposed to be the people... of the people, by the people, for the people...

However, the Federal Reserve bank was conceived of outside of Congress and brought into law dubiously - over a holiday when lawmakers were headed home, as opposed to being ardently debated.


No.


I agree debt-free fiat is far preferable to debt-based fiat. In fact, the U.S. Constitution does give Congress the power to coin money and regulate the value thereof. At the same time the States are to make nothing but gold or silver legal tender. The result is that legally the U.S. Congress can define how much silver, for example, goes into a dollar, in effect controlling the money supply (inflation/deflation). And states can accept that as legal tender.

What you mean by governments spending debt-free fiat into existence is, for example, if a government decided to build a bridge and other infrastructure for the public good. The government then paid contractors to hire workers and complete all the work. The money then enters the economy. Unfortunately, however, government is a natural magnet for corruption and abuse. So those with favorable influence over government can benefit disproportionately.


If you have inflation, the ones that get the money first always benefit more than ones getting it later. Inflation saps purchasing power, and I don't see how that can be argued to be a good thing.


I don't think bitcoins would have much problem competing against other currencies, especially inflationary ones. Just look at gold, for example. Gold is winning in value compared to fiat by a margin of about 1500 to 1. And bitcoins are better suited for currency exchange than gold.


No, salary doesn't go down in a deflationary economy. No boss will walk into your office and say, "Your groceries are going to cost you less this month, so I'm cutting your pay". That doesn't happen. Deflation means job opportunities decrease, but it doesn't affect people who have jobs, unless it gets to the point they lose them totally.

I haven't read this whole thread but here is my answer to this question.

There are two important things to consider for your example. I'll address both. The first thing you've overlooked is whether or not bitcoins are used by everyone or not. Consider this: there are consistent sellers on SilkRoad. Over the last few months bitcoins have gone from about $5 to more than $10 - double the price.

Let's say I'm a canabis dealer on SR and last month my price was 10 BTC for 1 ounce of premium canabis. With bitcoin value on the rise your argument is I would no longer sell on SR and simply sit back and hold onto the BTC I have, because this month I have to sell the same product for 5 BTC which was double that amount awhile ago.

Of course, SR sellers are still selling and SR isn't shutting down anytime soon. Why? Because sellers still rely on outside currencies, such as dollars, for most of their costs. Paying a canabis grower for their time and resources costs the same in dollars now as it did 3 months ago, so if I made a profit by selling at 10 BTC (value of $5 per BTC) then I make the same profit selling at 5 BTC (value of $10 per BTC).
___________

That's the first answer to your question. But there is something else to consider, which leads into the second part of the answer. If BTC prices have deflated then everyone holding BTC is richer. The same customers that were buying canabis before can now afford twice as much! Certainly good for business! That's assuming they had savings in BTC of course and don't convert from another currency like USD on demand.

In the second scenario we imagine the majority of people now use BTC as the world currently uses USD. Let's look again at your question:

why should I work hard as a car-dealer instead of hoarding?

You do so because you want to increase your BTC, like everyone else. That includes hoarding.

The purpose of being in business is to profit. It's that simple. If bitcoins are deflating and you're old and retired perhaps you might choose to sit at home and allow your BTC savings to become more valuable.

On the other hand, if you're young and ambitious you will probably want to amass as many BTC as you can, just as people do with dollars now, but more so since the currency is deflationary!

Here is the situation. You have 1,000 BTC and your goal is to increase that. You know you have that chance by selling cars. Everyone uses BTC including your supplier. Let's say it costs 100 BTC for 1 new car and BTC is deflating at a rate of 5% per month. It also takes 1 month on average to sell a car. That means you buy a car for 100 BTC but by the time you sell it you can only charge 95 BTC - deflation.

Your question is whether or not you can do better than a 5% return. Now, that's pretty good and many might live off that, but being in business you might be clever. If you see the trend is cars are becoming cheaper and cheaper in BTC every month what does that mean? Yep. More people can afford them. More buyers equals demand, and demand puts upward pressure on price. Wouldn't it make sense to try and profit with volume? Instead of going to your supplier and buying 1 car for 100 BTC why not ask how much of a discount would there be for 10 cars? Perhaps 5%?  That sounds possible, and if so you've just broken even with your problem of deflation provided you sell the 10 cars. Now you're a volume dealer. Bigger dealership means more customers as you have more selection, etc. Now you just need to make a profit, and you do that anytime you sell more than the 10 cars per month, or negotiate a better supplier discount, or put a slightly higher markup on cars. Does that sound impossible? Not at all.

In short: it's probably better to be in business when your product becomes more affordable to customers than more expensive (inflation).

Generally I'd share your sentiment, but FWIW Fred Wilson is not seen as your typical VC. He's probably as close to an ideal "nice" VC as you'll find if that's not a paradox

Regarding extinction I don't think so. Venture capital will always be needed in a capitalist society. The main problem we have now is the dollar system has so distorted the market there exists unmatched risk/reward ratios, unbalanced deals, moral hazards and all sorts of crappy finance related stuff.

Just imagine: there is more stock/IPO value in the *perceived hype* of a company than its track record of ever turning any profit at all. That wouldn't happen in a non-inflationary currency system.

What?!?

Utility never materializes?

I refer you first to this thread:

Why we need Bitcoins for international transactions

tl;dr:


I then refer you here:

Banks to Make Customers Pay Fee for Using Debit Cards

Yes, that's right, banks were actually going to make people pay to use their own money. Money on deposit BTW which benefits the bank by fulfilling its reserve requirements. That article is old. Consumer backlash made banks back down from that ludicrous scheme. But the mere fact it was soon to be a reality reflects how broke and anti-user/pro-bank the current banking system is.

This doesn't even get into bitcoins being a guaranteed non-inflationary currency similar to gold - a fact magnified at a time now where central banks are printing cash like crazy:

ECB saves Greece from bankruptcy by securing emergency loans-paper
Fed’s Rosengren: Let’s Buy More Bonds
China's Surprise Rate Cut

It also doesn't get into the ability to use bitcoins anonymously, the ability to use them for micropayments (even fractions of pennies), the ability to store any amount of them non-physically (relevance), etc.

Utility and demand never materializes? I think not. (I say that with as little sarcasm as possible; you're probably my favorite forum poster d&t   )

Technically, you're right since Bitcoin (capitalized 'B') refers to the open-source project or the payment network it enables. Whereas bitcoins (lowercase 'b') refer to the currency of the network.

So I'll rephrase my sentence:

And if it happens then bitcoins certainly do keep trading, the same as any other physical cash.

It does if we can begin moving bitcoins offline.

I'm really thinking we may see physical bitcoins in the style of Casacius physical bitcoins where a private key with a value is hidden in a coin in a tamper evident way. All we need is a company to undertake the project seriously.

How many of you would accept a Casacius physical bitcoin as having value if someone tossed you one and you saw the hologram was immaculate. Exactly. We might not accept an extremely high value, but for smaller values we would be fairly confident in it because we believe the project was carried out by a trusted party in a trustworthy way.

The only level of doubt would be the level to which we think the hidden value might be compromised. Casascius coins are a proof-of-concept, which can leave holes of doubt... small ones, but doubts no less. There only needs to be a company that can mass produce coins in such way as to remove most any other doubt.

I think that's possible. And if it happens then Bitcoin certainly does keep ticking, the same as any other physical cash.

Yes, I think it's a good idea to keep thinking of ways for the core network to handle very high transaction volumes, since it is technically the default way to spend bitcoins.

But I see most ordinary transactions possibly happening away from the core network, such as at eWallets which can improve the user experience greatly. I also wouldn't rule out physical bitcoin exchange using the Casascius coins model. It might be in a company's interest to really make a tamper proof coin with the private key hidden inside. They could be publicly transparent during the coin creation process. That's all it would take for people to assign the coins real value and for them to be reusable as long as they were intact.

I see people storing the majority of their BTC locally and converting to more user friendly methods like eWallets and physical coins as needed. The only transactions that would really use the original network are special/infrequent ones like if a high roller wanted to move the equivalent of $1 million dollars somewhere. Attaching decent fees shouldn't be a problem for such transactions.

Keep in mind Bitcoin is building a new economy, and very likely a big one. That means the price per bitcoin will continue to rise because there are only 21 million of them.

I don't have exact numbers in front of me, but I think the price was around $1 January, 2011. It's now about $8 August, 2012, just 20 months later. Let's round that off and say 24 months, or 2 years. That means the price is up 800% in 2 years. I actually think that's fairly conservative once more people find out about Bitcoin's potential, but just using 800% per two years we get:

$8 in Aug 2012
$64 in Aug 2014
$512 in Aug 2016
$4,096 in Aug 2018
$32,768 in Aug 2020

I don't think a halving block reward will be a problem. And by the time all of the coins are mined around 2033 the large number of transactions will still make it worthwhile to mine. I also think there will be quite resourceful people with an interest in maintaining good network hash rate regardless of fee incentive.

I just realized another way non-computer literate people can use bitcoins safer is some default program that let's them print them out as casascius printable bank notes.

The software prints out private key bearing bills with the correct denominations for the value in the wallet. After the user confirms all bills printed successfully the private keys on the software are deleted. The user then only has to worry about securing the paper bills, just like current fiat money! They can still spend them the same way too.

LOL

Well, bitcoins are hard to explain. A shortcut is desirable 

I agree with the prior two replies.

I don't have a problem acknowledging there are disadvantages now for typical merchants. For example, one disadvantage would be accounting for volatility of bitcoins...

Why not? Have you ever watched an older non-computer literate person at a computer? They can understand simple instructions like typing something out, even better than learning how to copy and paste, believe it or not. They may sit there several minutes but they can get it done.

All I'm trying to do is move things out of a realm where such users are extremely out of their depth to a place they can feel the ability to manage on their own if need be.

OMFG LMAO!


Jokes aside the difference between the first "Little Timmy" instructions and second is that grandma can actually understand and follow the second set, even if dictated over the phone. It's spelled out. If I spelled out the first version to be understandable by grandma the length and sound would be similar.

The advantage of the second version is that grandma can actually teach her bridge playing group after she is set up and running, because everything involved exists in the physical world enough for her level of understanding.

She wouldn't be able to re-do the first version even after being walked through it.

As for stealing the hardware wallet that's the point of it. Almost everyone in the world understands how to try securing physical objects, but when it comes to computer files that's another story.

While I'm glad there are core technical solutions being pursued to address both issues I think there is more to consider.

In a sense those approaches are focused very near the problem. They deal with them in a core technical way rather than a more practical way.

Let's say both issues are resolved as imagined. What happens then? Little Timmy says okay grandma you just download the wallet client and install it - no it's simple really - then wait for it to download the blockchain.  Before you send any money to your address remember to back up your wallet, in 3 places! That's simple too, you just find the wallet.dat file on your computer... Okay, now you are ready to receive and send money. To do that give out your receive addresses; they are long strings of characters, just remember to wait for 6 confirmations for all payments!

Do you really see that working for mainstream users?

I don't. I see things happening a much different way. Most users will use eWallets for transactions which solves the scalability issue and helps the security issue.

People can understand using online services like PayPal, logging in with their password and paying to someone's email address. They can see their balance easily and they know how to give out their email to receive payments.

Right now you're thinking, but they have to put too much trust in eWallets! No, not necessarily. The eWallets don't hold big BTC balances. They are really just transactional.

People store the majority of their coins safely offline in a hardware wallet.

Yes, what we need to be working on is hardware wallets. The Bitcoin Card is one example of this, but I think that may end up a bit fussy, possibly pricey, and tricky to use for many users.

We need someone to manufacture hardware wallets as follows:

Hardware Wallets

A hardware wallet is about the size of a DSL modem. It's composed of a very simple cpu/motherboard, small solid state hard drive, NIC, probably an LCD screen, and a few ports as I'll describe. It has a clean Linux install and a Bitcoin client. MSRP about $70.00.

Little Timmy tells grandma what to do:

Okay, grandma, just go to BestBuy, or this website and buy the bitcoin solid wallet (hmm i like how that sounds!). Open the package and plug it in. Connect the cable to the Internet and press the "on" button. When the light turns green it's ready to use!

On the screen you will see it says "receive address" followed by a long string of characters. Don't worry about that right now. In the package you will see two USB sticks. Take one and plug it into the USB slot. Press the top button that says "backup wallet". When the light turns green remove the USB stick, plug in the other USB stick and press the "backup wallet" button again. Put the USB sticks in two separate safe places, like a bank safe deposit box for one, and home safe for the other.

Now you're ready to use Bitcoin!

Go to WalletBit.com and sign up with an email and password. You will also have to go to Mt.Gox and sign up to buy some bitcoins, but for now I'll just send you some to get started and you can pay me later. In fact, I've already sent coins to your WalletBit account because I know your email address!

Log in to WalletBit and you'll see them there! You can pay anybody just by using their email address.

What's the SolidWallet for? Oh that's when you're ready to really get into Bitcoin and you will hold lots of them. Remember your "receive address" it showed? Well, when you do buy lots of bitcoins, like on Mt.Gox, you will send them to that address. It's easy. Then when you want to fill up your balance at WalletBit just log in there and click "Deposit Bitcoins". Unplug your computer keyboard and plug it into the back of the SolidWallet and press the "Send" button on top. Type the long address shown by WalletBit, just do it carefully and double check it. Press the "BTC amount" button on top and type the number of bitcoins you want to deposit. Press the "Send" button again. That's it! Your SolidWallet screen will show your new balance.
______

If you notice, this solves (or helps significantly) three problems: security, bitcoin scalabilty (most transactions happen on eWallet databases), and usability.

If you read what I wrote you will see I said:

"The shortened answer is because they don't know about it and neither do their customers."

I don't know if you're being intentionally obtuse, or you're just not reading carefully.


Why didn't you also quote my very next sentence? I said:

"Things either have value as money or they don't. "

Take a look at this article from 2008 when many shops in New York began accepting euros.

http://www.reuters.com/article/2008/02/06/us-newyork-euros-idUSN0655798320080206

Just read the headline and very first sentence...


(emphasis mine)

Again, I'm not sure if you're intentionally trolling or just not reading carefully.



Umm, okay. Now I'm the one that doesn't know how to respond.


Yes, I do think the wiki could really benefit from some regular curation. I was just thinking now would be a good time to start. Bitcoin popularity is growing and many people will visit that page.

The shortened answer is because they don't know about it and neither do their customers. If both parties knew of bitcoins and saw how they could benefit by using them they might do so.


There is really no such thing as a "foreign" currency. Things either have value as money or they don't. One key requirement of something being "money" is that people accept it. This means some things are money for some people while not for others. As people around you begin to accept whatever an item is as money then it automatically becomes money for you too.


Bitcoin ARE accepted as a medium of exchange. For proof see here:

https://bitcointalk.org/index.php?board=5.0
https://en.bitcoin.it/wiki/Trade


I agree that's largely the case, but not entirely the case. For example, the people who want to buy drugs on SilkRoad value bitcoins not because of speculation, but because they need them to exchange for something they want. This may apply to more and more people as time goes on (needing bitcoins to exchange for something they want, not buying drugs on SilkRoad).