Bitcoin and Inflation

[Sendi blackspade team]

Is the bitcoin affected by inflation, I have read in articles that bitcoin in not impeded by inflation or deflation however it's not a currency yet so how would the inflation be based

Bitcoin does have a small inflation rate of around 3.81% annually. The inflation is due to mining block rewards that are gotten as tx fee by miners. But it's gotten to change around Q2 2020 as the block reward would be halved. Afterwards, the mining rewards will be relatively low. Contrary to popular opinions, these will hugely influence/affect the price.

a reasonable view for the middle of next year when halving bitcoin happens. relatively small inflation might change when halving happens in the future. but we must be prepared and remain cautious with sentiments from outside the crypto market. it can happen and change the trend of market movements. price changes will occur.

[sorrros]

I do not agree with this claim: " Price drop and fee drop will drop hashrate. That'll make 51% attack cheaper."
Did you see that price drop caused also drop in hashrate in the history? I don´t. 

[makishart]

I do not agree with this claim: " Price drop and fee drop will drop hashrate. That'll make 51% attack cheaper."
Did you see that price drop caused also drop in hashrate in the history? I don´t. 

Hashrate will remain the same but if the price will drop it's possible for the hashrate to go down at the same time consider about the miner will be mining bitcoin in loss and that makes sense for these miners to stop mine bitcoin until the miners will get the safe zone to mine bitcoin again. you should know the technical aspect of miners and the price is giving a huge impact to the result of money that will be received by the miners.

[dnprock]

I do not agree with this claim: " Price drop and fee drop will drop hashrate. That'll make 51% attack cheaper."
Did you see that price drop caused also drop in hashrate in the history? I don´t. 

There were brief episodes of hashrate drop during price drop. Bitcoin overall price has increased so its hashrate follows. Other altcoins suffered from hashrate drop. Miners are opex. They'll turn off hash power if there is not expected price increase target.

[stephanirain]

I wrote a thread on Twitter about Bitcoin and Inflation.

Original Thread: https://twitter.com/bitflate/status/1189401591226355719

1/8. Some thoughts on inflation and Bitcoin. Zero inflation will need high fee to incentivize miners.

2/8. High fee requires high coin price. People are not paying high fee if bitcoins are not worth a lot.

3/8. Price drop and fee drop will drop hashrate. That'll make 51% attack cheaper.

4/8. Bitcoin is going for digital gold use case. So high fee is expected. That'll make Bitcoin money for rich people. Normal people can't afford transaction in Bitcoin.

5/8. A little inflation, like 1%, can reduce fee. The cost of running Bitcoin network spreads to HODLers through inflation. It'll make Bitcoin more accessible to more people.

6/8. 1% inflation is lower than gold. Bitcoin can still be digital gold.

7/8. If you truly believe in digital money for people, you should consider support for small inflation of Bitcoin supply.

8/8. Higher inflation (but not too high) will make Bitcoin even more accessible to people. But it'll diminish Store of Value use case. Bitcoin won't support this. But no worry, there's @bitflate with 7% inflation.

Bitcoin inflation is more complicated because it will also affect the prices of other coins in the market. Too much inflation of course will result to chaos and too little changes in the prices will make the market dull. It is difficult to point out the exact percentage of inflation needed but it must be positive of course. But then, it is just an idea and cannot be implemented universally. We do not control the prices, yes there are factors that can be manipulated but it is on its own.

[Pinkris128]

I wrote a thread on Twitter about Bitcoin and Inflation.

Original Thread: https://twitter.com/bitflate/status/1189401591226355719

1/8. Some thoughts on inflation and Bitcoin. Zero inflation will need high fee to incentivize miners.

2/8. High fee requires high coin price. People are not paying high fee if bitcoins are not worth a lot.

3/8. Price drop and fee drop will drop hashrate. That'll make 51% attack cheaper.

4/8. Bitcoin is going for digital gold use case. So high fee is expected. That'll make Bitcoin money for rich people. Normal people can't afford transaction in Bitcoin.

5/8. A little inflation, like 1%, can reduce fee. The cost of running Bitcoin network spreads to HODLers through inflation. It'll make Bitcoin more accessible to more people.

6/8. 1% inflation is lower than gold. Bitcoin can still be digital gold.

7/8. If you truly believe in digital money for people, you should consider support for small inflation of Bitcoin supply.

8/8. Higher inflation (but not too high) will make Bitcoin even more accessible to people. But it'll diminish Store of Value use case. Bitcoin won't support this. But no worry, there's @bitflate with 7% inflation.

Miners must be compesentated proportionally to ensure that they can profit. Though incentives of miners can also come in another forms of payment like solid alts with worthwile prices. Inflation or not, prices of btc will more likely rise due to other factors in the market. This also makes me think that someday, crypto economics will be teach even in lower years of education because cryptocurrency are getting more relevant in the society.

[dnprock]

Bitcoin inflation is more complicated because it will also affect the prices of other coins in the market. Too much inflation of course will result to chaos and too little changes in the prices will make the market dull. It is difficult to point out the exact percentage of inflation needed but it must be positive of course. But then, it is just an idea and cannot be implemented universally. We do not control the prices, yes there are factors that can be manipulated but it is on its own.

I'm the dev for Bitflate coin. Here's how I came up with 7%. I thought about dynamically adjusted rate. But the algorithm can be complicated and contentious. It needs to check price and volume from centralized services. These could be sources of rate manipulation. If the chain goes with a constant rate, what is the right rate? I thought 1-4%. But I think these rates are too low, inflation won't make the chain behave differently from Store of Value. I arrive a conclusion: inflation rate has to be moderately high, somewhere between 5-10%. I picked 7% from Rule 72. It has a nice feature. Supply doubles every 10 years.

Gold has 1.5% inflation. For Bitcoin, I think inflation rate of 1% seems to be a long-term viable option.

[pixie85]

It'll make Bitcoin more accessible to more people

Please explain how bitcoin is not accessible to people. I always find it hard to understand this argument and I see it appear from time to time in discussions as people say bitcoin is too expensive for an average person. Is that how you see this?

Cheaper Bitcoin doesn't mean more accessible bitcoin and you can see it by looking at altcoins. The coin costs $1 per coin doesn't become more popular and widely used than a coin that costs $100.

Do you want to introduce inflation to Bitcoin to make holders share? Are you a socialist?

[dnprock]

It'll make Bitcoin more accessible to more people

Please explain how bitcoin is not accessible to people. I always find it hard to understand this argument and I see it appear from time to time in discussions as people say bitcoin is too expensive for an average person. Is that how you see this?

Cheaper Bitcoin doesn't mean more accessible bitcoin and you can see it by looking at altcoins. The coin costs $1 per coin doesn't become more popular and widely used than a coin that costs $100.

Do you want to introduce inflation to Bitcoin to make holders share? Are you a socialist?

I think Bitcoin should have a low inflation rate, maybe 1%. It'd reduce price volatility. I think volatility is a significant barrier of entry. It's not about the tech but psychology.

People laugh at my idea of a coin with 7% inflation. They dismiss the idea, call it weird, ridiculous. But calling me a socialist just raised the bar.

[Bitcoin Seller]

This is the best way to promote your Twitter. LOL. If seriously, I cannot still agree that Bitcoin can be compared with gold. Despite the BTC value and demand, we never know if tomorrow we get up and see that this crypto managed to climb to the Everest mountain or if it is again close to the bottom. With virtual things, everything is unpredictable.

[Febo]

8/8. Higher inflation (but not too high) will make Bitcoin even more accessible to people. But it'll diminish Store of Value use case. Bitcoin won't support this. But no worry, there's @bitflate with 7% inflation.

Unless 10-20 years from time Bitcoin developers will realise the need tail emission. And all will be fine. Of course some might still stay at that often 51% attacked chain. But that is their problem.

[dnprock]

This is the best way to promote your Twitter. LOL. If seriously, I cannot still agree that Bitcoin can be compared with gold. Despite the BTC value and demand, we never know if tomorrow we get up and see that this crypto managed to climb to the Everest mountain or if it is again close to the bottom. With virtual things, everything is unpredictable.

I want to promote Bitflate. I often write blog articles on bitflate.org. But this time, I'm kinda lazy, so I write a Twitter thread.

BTC is an interesting phenomenon. I think it has a high chance of survival. It lives on the narrative. The tech is just a mean. If there ever be a catastrophic event in the future, the blockchain can always fork. We've seen one hard fork before between BTC and BCH. People will flock to the prevailing narrative. If BTC is not digital gold, one of its future forks will be. It's good to own some of it.

Bitflate, on the other hand, is designed to inflate. I'm not sure how it'd play out long-term. Maybe, someone will decide to hard fork and reduce inflation when it reaches critical mass. But I think there would be ways to reduce value loss. Its inflation is predictable. It's possible we'd have two chains running together, one deflates and one inflates. The world is run by contradictory forces.

[dnprock]

Unless 10-20 years from time Bitcoin developers will realise the need tail emission. And all will be fine. Of course some might still stay at that often 51% attacked chain. But that is their problem.

I find tail emission a silly idea. It's surprising that people really give it serious thought. They didn't take calculus in school. When supply gets very large, a constant tail emission eventually approaches 0%. It will not add any meaningful change to supply. Tail emission is the same as 0 supply. It buys you some time before increasing the emission. It's patching subsidy so miners continue to mine blocks. It's not a long-term solution.

When I discuss Bitflate with 7% inflation rate, people often say it's already done with tail emission. But tail emission is NOT inflation. It's gotta be a percentage point. I'm doing a chain that inflates for real.

[yohananaomi]

Yes, bitcoin can definitely help the whole world to stop the processes of inflation.

There is no direct correlation that I have ever gotten the information that bitcoin can stop the inflation process that you say. clearly the difference that cannot be equated that with the presence of bitcoin can have a direct or connected impact on a country's economy, let alone connected with inflation that will occur.

[Aabcde]

Yes indeed bitcoin is designed to experience inflation, but only at the beginning of its adoption. So far I have not seen that happen. Because you can see for yourself that the total bitcoin is only 21 millions and there are no additions. In fact, it will continue to diminish as people forget about their privatekey.
We know that inflation occurs when the amount of money in circulation is too much and continues to grow. So that the price of goods increases but the value does not change. Unlike bitcoin, the amount will not increase instead it will continue to decrease and the value will increase.

[pixie85]

It'll make Bitcoin more accessible to more people

Please explain how bitcoin is not accessible to people. I always find it hard to understand this argument and I see it appear from time to time in discussions as people say bitcoin is too expensive for an average person. Is that how you see this?

Cheaper Bitcoin doesn't mean more accessible bitcoin and you can see it by looking at altcoins. The coin costs $1 per coin doesn't become more popular and widely used than a coin that costs $100.

Do you want to introduce inflation to Bitcoin to make holders share? Are you a socialist?

I think Bitcoin should have a low inflation rate, maybe 1%. It'd reduce price volatility. I think volatility is a significant barrier of entry. It's not about the tech but psychology.

People laugh at my idea of a coin with 7% inflation. They dismiss the idea, call it weird, ridiculous. But calling me a socialist just raised the bar.

I did not call you a socialist. I asked if you are a socialist which is a different thing.

You said holders should share the cost of running the network which is a socialist idea. Tax those who have money so those who don't have can transact cheaper.

You also said that Normal people can't afford transaction in Bitcoin. Who are those normal people? The poor are normal? I earn less than the average person in my country and can afford to transact in Bitcoin? Who is normal then if I am not? Maybe someone unemployed.

There's always lightning network if you can't afford $1 fee.

[dnprock]

I did not call you a socialist. I asked if you are a socialist which is a different thing.

You said holders should share the cost of running the network which is a socialist idea. Tax those who have money so those who don't have can transact cheaper.

You also said that Normal people can't afford transaction in Bitcoin. Who are those normal people? The poor are normal? I earn less than the average person in my country and can afford to transact in Bitcoin? Who is normal then if I am not? Maybe someone unemployed.

There's always lightning network if you can't afford $1 fee.

Sorry, I took your question as implying that I am a socialist. I don't really know how to answer your question. If I am ok with paying tax for public service, e.g. road, am I a socialist? If that is your definition, then I fit. But I don't think it is fair for the libertarians who pay no tax to drive on the road.

There is cost of running the Bitcoin/crypto network. For the network to be secure, the cost will need to be proportional to the asset price. For example: you don't want the network to cost $1 to mine a $1 million transaction. The cost of running the network would be some percentage point of the active market cap, probably 0.1% to 1%. Someone needs to pay for this. When Bitcoin has no block/small reward, transactors would pay all/more. Hodlers are free loaders. They hold the coins and someone pays for the network operation cost. Inflation is a way to spread the cost out to hodlers. So when it is time to transact, hodlers themselves don't have to pay hefty fee.

Lightning Network is a scaling technology. It's adding another layer on top. This additional complexity will not reduce transaction cost. I think the overall cost of running these networks will increase.

[ðºÞæ]

Fiat (stablecoins) inflate 2-3%  on average forever unless high inflation is happening.

Bitcoin does not Inflate it has a coin emission rate
2009 to 2013 about 12.5% per year (aka 50% of all coins mined)
2014    6,9%
2015    6.5%
2016    4,9%  (July 9th, 2016 75% of all Bitcoins have been mined)
2017    3,3%
2018    3,2%
2019 ~3,x%

2020 ~1,6%   (at third halving 87.5% of all Bitcoins have been produced)
2024 ~0.8%   (93,75%)
2028 ~0.4%   (96,875% of all coins exist)
2032 ~0.2%   (98,4375%)
2036 ~0.1%   (99,21875%)
2040 ~0.05% (99,609375%)
.........
2140 ~0,0000000015%  ~(100%)
After about 2140 no more new coins, miners receive only transaction fees.

With every reward halving energy consumption more or less is also cut in half.

[dnprock]

Just saw this on Pierre Rochard Twitter.

https://twitter.com/pierre_rochard/status/1194399931584450560

"Inflation causes more wealth inequality than luck or skill.

Bitcoin fixes this."

"Due to inflation the USD has become completely unusable as a savings technology, everyone has to immediately invest or consume."

I largely disagree with this. Currency is supposed to inflate. Store of Value deflates. This is why Bitcoin is not widely used for transaction. I hope the topic of inflation will come up more often. Crypto is too dogmatic about bag holding. We need to depart from this one-sided view of the world.