bitcoin and inflation/deflation

[Stingray1970]

Bitcoin has a fixed amount of coins that can come into circulation and therefore is deflationary in nature.

Economic reasoning has it that both inflation and deflation are bad.

To put this into perspective :
- if you have 2 glasses of soda in the economy and you have an economy with 50 bitcoins, each glas of soda would cost 25 bitcoins. I think we can agree upon the logic this hypothetical situation brings.
- if you increase the production in the economy due to an increase in production efficiency and you now produce 4 glasses of soda instead of just 2 while keeping the money supply the same which is 50 bitcoins, each glass of soda would cost 12,5 bitcoins. Agreed ? In this scenario we have created deflation, but there is no reason why the producer would want to increase efficiency to produce 4 glasses of soda since he only earns the same revenue from this production as in the scenario of 2 glasses of soda. More even, the consumer could reason that he might want to postpone his consumption of soda glasses because the price could drop even further. As a matter of a fact, because many of the consumers are thinking the same, the producer of soda glasses could not sell his soda and had to lower the price below his profit margin.
- if the economy produces 2 glasses of soda and increases the money supply to 100 bitcoin, each glass would have a price of 50 bitcoins, effectively creating inflation.

The above clearly defines that the current reasoning within bitcoin will fail in the end.

Doesn't bitcoin need some sort of correction system by which its supply is a fonction of the economic activity, but no more than that so that there is no inflation and no deflation, but producers have a reason to increase efficiency ?

[davis196]

In your model there is only one producer of soda glasses(monopoly).
If you are trying to compare bitcoin with a soda producer that has a monopoly over the market,you are wrong.Bitcoin is not a monopoly,everyone is free to buy any altcoin he wants for any fiat currency he wants.
Producing new bitcoins via mining has nothing to do with demand,prices,competition and  supply.
There`s competition  in lowering the production cost (lowering the costs of btc mining-cheaper electricity,cheaper and more effective mining hardware,other cost improvements) which improves the miners efficiency.Inflation and deflation are bad only if their exceed some limits.It`s actually good for the economies to have small amounts of inflation or deflation.

[Stingray1970]

In your model there is only one producer of soda glasses(monopoly).
If you are trying to compare bitcoin with a soda producer that has a monopoly over the market,you are wrong.Bitcoin is not a monopoly,everyone is free to buy any altcoin he wants for any fiat currency he wants.
Producing new bitcoins via mining has nothing to do with demand,prices,competition and  supply.
There`s competition  in lowering the production cost (lowering the costs of btc mining-cheaper electricity,cheaper and more effective mining hardware,other cost improvements) which improves the miners efficiency.Inflation and deflation are bad only if their exceed some limits.It`s actually good for the economies to have small amounts of inflation or deflation.

This was to give an example of course. But it doesn't matter, as the inflation/deflation question pertains to the amount of goods in an economy vs the amount of money circulating. Whether a crypto is created through a computer proces or on a money press makes no difference.

The interchangeability between bitcoins is no different fromt the interchangeability between the different fiat currencies.

[cybersofts]

In your model there is only one producer of soda glasses(monopoly).
If you are trying to compare bitcoin with a soda producer that has a monopoly over the market,you are wrong.Bitcoin is not a monopoly,everyone is free to buy any altcoin he wants for any fiat currency he wants.
Producing new bitcoins via mining has nothing to do with demand,prices,competition and  supply.
There`s competition  in lowering the production cost (lowering the costs of btc mining-cheaper electricity,cheaper and more effective mining hardware,other cost improvements) which improves the miners efficiency.Inflation and deflation are bad only if their exceed some limits.It`s actually good for the economies to have small amounts of inflation or deflation.

This was to give an example of course. But it doesn't matter, as the inflation/deflation question pertains to the amount of goods in an economy vs the amount of money circulating. Whether a crypto is created through a computer process or on a money press makes no difference.

The interchangeability between bitcoins is no different from the interchangeability between the different fiat currencies.

I see no reason why you should start discussing any issue patterning Inflation/Deflation on this aspect because every economy has inflation/deflation issues of it own, which is sometimes depend on demand by the customers... What you didn't know in the first place is; when bitcoin reached the maximum number in circulation which 21 million, the value of bitcoin will continue to grow from there, because there would be high demand of bitcoin as many people are yet to know about bitcoin and it advantages. Currently, the value of bitcoin is growing every year because more people are coming into the BTC ecosystem. For Altcoin, I see no coin getting anywhere close to bitcoin because 90% of people believes on bitcoin, and everybody coming to the crypto space is starting with bitcoin because people trust and use it better than any cryptocurrency out there.

[Stingray1970]

I'm doubting that Bitcoin will ever be able to function in a real economy like other currencies.

If you have a money that is deflationary in nature, I think that it will deter people from spending, will deter investors from investing and will deter entrepreneurs from improving upon efficiency and be more competetive.

[iram1011]

I'm doubting that Bitcoin will ever be able to function in a real economy like other currencies.

If you have a money that is deflationary in nature, I think that it will deter people from spending, will deter investors from investing and will deter entrepreneurs from improving upon efficiency and be more competetive.

This is a fact and everybody agrees to that. But Bitcoin is not deflationary but has inbuilt deflation which will be touched when last coin is mined. But at present demand is quite high and hence is driving price up. This has made Bitcoin largely an investment asset. It won't efficiently work as a currency until people have the option to use highly inflationary currency fiat in place of Bitcoin.

[bitcoinmaniac52]

Bitcoin is inherently a "perfect" system.

Now, I am not saying it is 100% perfect without any flaws, but the system is setup in a way that it could be. Inflation/deflation isn't an issue because the currency is strictly controlled based on its code. You can just print more or destroy some like is done with fiat.

[Gotottack]

Bitcoin is inherently a "perfect" system.

Now, I am not saying it is 100% perfect without any flaws, but the system is setup in a way that it could be. Inflation/deflation isn't an issue because the currency is strictly controlled based on its code. You can just print more or destroy some like is done with fiat.

What the hell did you just describe? Are you sure you can just print more and destroy some?! That is a stupid thing to say. It is impossible to just print it by yourself, it must be mined and that is how you make it. Destroying it isn't that easy too. You actually don't destroy bitcoins but just lose the private key and it is stuck in an address forever.

Inflation/deflation doesn't affect bitcoin in terms of btc value. However, it is affected in terms of its fiat value.

[Stingray1970]

Bitcoin is inherently a "perfect" system.

Now, I am not saying it is 100% perfect without any flaws, but the system is setup in a way that it could be. Inflation/deflation isn't an issue because the currency is strictly controlled based on its code. You can just print more or destroy some like is done with fiat.

What the hell did you just describe? Are you sure you can just print more and destroy some?! That is a stupid thing to say. It is impossible to just print it by yourself, it must be mined and that is how you make it. Destroying it isn't that easy too. You actually don't destroy bitcoins but just lose the private key and it is stuck in an address forever.

Inflation/deflation doesn't affect bitcoin in terms of btc value. However, it is affected in terms of its fiat value.

That last thing seems to be forgotten here. As most things we buy reside outside in the real world and are increasing/decreasing in price because of the increase/decrease in value of the fiat currency, prices quoted in bitcoin will decrease.

[webtricks]

That is the reason why Bitcoin will always remain king if used as secondary currency. But if we use it as primary currency, the system may not survive.
Now let me explain how.
Suppose economy produces 2 glasses of soda and has 50 BTC supply. Each glass of soda worth $100 and 25 BTC.  Now economy start producing 4 glasses of soda and as fiat is unlimited concept, each glass still worth $100 but 12.5 BTC. Now value of BTC rose from $4 per unit to $8 per unit. This is currently prevailing scenario and the main reason why people are enthusiast about bringing Bitcoin mainstream.
But if it comes mainstream as sole currency, whole system will collapse.

[Stingray1970]

I agree. Bitcoin should have had something that adjusts it to the output of the economy and based on an automated system. Less output, bitcoins get removed, more output and bitcoins get added.

While it may seems simple it is not in practice.

Well, you could guess the output of an economy based on how much energy is used, but how do you estimate that ?

[Pab]

In our fiat debt economy there is not real deflation inflation,it is all ilusion of ecoomy created by central banks to serve big corporation,it is zombie economy,need drink blood to move,but is weaker and weaker
Bitcoin,what will be whan all 21 mln will be mined,where will be that soda,all drank i think,or we will have 50 new btc like a result of last btc war

[Hydrogen]

Inflation/deflation may be better defined as a metric determining whether a currency is gaining or losing buying power in comparison to basic living expenses, average cost of living and related variables.

Inflation in regard to currency means currency is losing buying power and devaluing by a measurable percentage. Deflation implies the opposite.

Circumstances which dictate whether a currency is gaining or losing buying power are key in this discussion. The fundamental mechanics and principles in play are what people should address in inflation/deflation discussions as they are neither random not without underlying cause.

[HeRetiK]

Bitcoin has a fixed amount of coins that can come into circulation and therefore is deflationary in nature.

Economic reasoning has it that both inflation and deflation are bad.

[ ... ]

The above clearly defines that the current reasoning within bitcoin will fail in the end.

Doesn't bitcoin need some sort of correction system by which its supply is a fonction of the economic activity, but no more than that so that there is no inflation and no deflation, but producers have a reason to increase efficiency ?

Bitcoin doesn't need to fully replace fiat currencies to succeed. In fact I would even argue that fiat currencies are necessary to function as Bitcoin's correction system. Even in a world where Bitcoin has taken over most of our monetary system, there will always be an equilibrium of people holding Bitcoin for future gains and of people selling Bitcoin for immediate needs, with fiat currencies serving as an intermediary.

[Beerwizzard]

You are basicly right but deflation is not lookins as bad as inflation because it is still underpriced and it will get to it's price faster.
Also the laws from the economy have a bit different influence on crypto. Like irl small inflation may stimulate export and the whole economy will benefit. But it is not possible to do it on the centralized ltvtl with crypto.

[Stingray1970]

If a currency, whether it be crypto or fiat, has no ties with the basic economy it will serve no function unless as a brainbreaking exercise to make a profit on other peoples losses. You are basically investing in hot air at that point. Just my. 02$.

[iamTom123]

That is the reason why Bitcoin will always remain king if used as secondary currency. But if we use it as primary currency, the system may not survive. Now let me explain how. Suppose economy produces 2 glasses of soda and has 50 BTC supply. Each glass of soda worth $100 and 25 BTC.  Now economy start producing 4 glasses of soda and as fiat is unlimited concept, each glass still worth $100 but 12.5 BTC. Now value of BTC rose from $4 per unit to $8 per unit. This is currently prevailing scenario and the main reason why people are enthusiast about bringing Bitcoin mainstream. But if it comes mainstream as sole currency, whole system will collapse.

You are driving a good point. I am not an economist and there are so many terms and concepts about economy I really don't grasp well. Now, I agree that if Bitcoin can be the sole currency then we would have a problem. But I think it is also a fantasy to think that it can be possible that the whole world would only be using Bitcoin and we would delete all available fiat money in the whole world in favor of Bitcoin. I am predicting that eventually Bitcoin would stand as a currency alongside the major currencies we already have. I think this is just akin to gold...Bitcoin can be the digital safe haven for intrinsic value whether we use it as a currency or not.

[TrumpD]

What is currently happening with bitcoin is neither deflation nor inflation , It is more like a price discovery of the a new asset.

[deisik]

Bitcoin is inherently a "perfect" system.

Now, I am not saying it is 100% perfect without any flaws, but the system is setup in a way that it could be. Inflation/deflation isn't an issue because the currency is strictly controlled based on its code. You can just print more or destroy some like is done with fiat

I'm curious if you know what you are talking about

I guess you wanted to say that you "cannot print more or destroy like [it] is done with fiat", right? If so, I can't possibly see how this system is perfect. As to me, it is totally rigid, the only thing at which it is perfect. The economy may shrink (due to recessions, crises, and whatnot), and it can expand (due to more efficient production, population growth, technological improvements and other such things). And if the money supply cannot be dynamically changed according to the needs of the economy, fixed money supply will be either hindering its growth or aggravating its contraction (whatever comes first). On the other hand, fiat money can be created and destroyed as required

[Stingray1970]

Bitcoin is inherently a "perfect" system.

Now, I am not saying it is 100% perfect without any flaws, but the system is setup in a way that it could be. Inflation/deflation isn't an issue because the currency is strictly controlled based on its code. You can just print more or destroy some like is done with fiat

I'm curious if you know what you are talking about

I guess you wanted to say that you "cannot print more or destroy like [it] is done with fiat", right? If so, I can't possibly see how this system is perfect. As to me, it is totally rigid, the only thing at which it is perfect. The economy may shrink (due to recessions, crises, and whatnot), and it can expand (due to more efficient production, population growth, technological improvements and other such things). And if the money supply cannot be dynamically changed according to the needs of the economy, it will be either hindering its growth or aggravating its contraction (whatever comes first). On the other hand, fiat money can be created and destroyed as required

Thanks Deisik.