Why such agreement that Deflationary currency is a bad thing

[Billy3]

Disinflation has been covered to some extent. What would an economy look like if the only currency was one with built in deflation.

Would people live in smaller homes since their currency would generally appreciate relative to their home? Would companies need to outperform the general level of productivity increases and population growth in order to get their first dollar of investment capital? I believe that if the entire word used only a deflationary currency then deflation would be a function of productivity increases, population increases and the shrinking of the supply of currency (e.g. lost passwords); is this a correct view?

What other implications/problems or benefits are there with a potential worldwide adoption of Bitcoins and a ubiquitous rejection of fiat currency?

[Lethn]

The whole point of deflation is that it's causing the price of everything to fall that can have a price tag attached to it, things will still be more expensive but you won't have to work as long in your life because you require less deflationary currency in order to buy something. A perfect example is houses, we all know how expensive they can be, they're pretty big purchases, if I for instance wanted to get a nice big house it would cost me easily £100,000 - £200,000 that's a hell of a lot, in fact, chances are if you know anything about mortgages you're average person is going to have to work their whole lives just to pay it off. However if you look at a deflationary currency it's currently only 2000 Bitcoins, that's it, in fact, the value of Bitcoins is rising so much now I'll probably be able to afford a house at 1000 Bitcoins if I look around on the market enough because that's going for £80,000 - £90,000 now. What this means as well if you're a for instance selling goods to people for a living you need less sales in order to hit the price tag that you're aiming for and of course as an employee you need to work less hours because of that too.

It's not just the large purchases either that's effected by this of course, all the cheaper items will be even cheaper, things will still technically be valued the same as before, but it just means you don't have to work your whole life to pay any of it off like an inflationary currency. I really can't understand why people support these kind of systems because by all accounts deflationary is just far better and the more I see people screaming about it being a bad thing I can only think it must be a good thing people like that are getting so pissed off.

[tutkarz]

Its because some people want you to work for them to the end of your life. And its good for them. Not for us.

[oser41eric]

Bitcoin is not Deflationary currency. Current yearly inflation of Bitcoin is higher than fiat. In your whole life Bitcoin will be inflation currency, though the inflation rate decreases every year.

[Lethn]

Bitcoin is not Deflationary currency. Current yearly inflation of Bitcoin is higher than fiat. In your whole life Bitcoin will be inflation currency, though the inflation rate decreases every year.

How can it be inflated when the supply of Bitcoins cannot be changed? People like you need to look up the dictionary definition of inflation, this is to do with money supply, not speculation, which are both entirely different things.

[oser41eric]

Bitcoin is not Deflationary currency. Current yearly inflation of Bitcoin is higher than fiat. In your whole life Bitcoin will be inflation currency, though the inflation rate decreases every year.

How can it be inflated when the supply of Bitcoins cannot be changed? People like you need to look up the dictionary definition of inflation, this is to do with money supply, not speculation, which are both entirely different things.

ehm, 144*25 BTCs are created daily, thats why inflation

[Lethn]

Bitcoin is not Deflationary currency. Current yearly inflation of Bitcoin is higher than fiat. In your whole life Bitcoin will be inflation currency, though the inflation rate decreases every year.

How can it be inflated when the supply of Bitcoins cannot be changed? People like you need to look up the dictionary definition of inflation, this is to do with money supply, not speculation, which are both entirely different things.

ehm, 144*25 BTCs are created daily, thats why inflation

That's the amount of Bitcoins being mined, you can only mine a certain amount, the overall money supply is actually limited to 21 million, do your research, eventually miners will run out of coins to create.

[oser41eric]

Bitcoin is not Deflationary currency. Current yearly inflation of Bitcoin is higher than fiat. In your whole life Bitcoin will be inflation currency, though the inflation rate decreases every year.

How can it be inflated when the supply of Bitcoins cannot be changed? People like you need to look up the dictionary definition of inflation, this is to do with money supply, not speculation, which are both entirely different things.

ehm, 144*25 BTCs are created daily, thats why inflation

That's the amount of Bitcoins being mined, you can only mine a certain amount, the overall money supply is actually limited to 21 million, do your research, you don't just mine the coins out of thin air.

Current Bitcoin yearly inflation is approximately
144*25*365/11000000 = 12%
Current fiat yearly inflation is approximately 5%

Of course we mine the Bitcoins out of thin air, today mined Bitcoins were not in supply yesterday. Also by your flawed logic if we limit supply of fiat to 10^30 times current fiat amount wich could goverments sign because it will never go to this scale then mysteriously fiat is no longer inflationary currency because no more than 10^30 times current fiat amount can be created

[Lethn]

Basic mathematics can't be wrong, ignoring it is how our economies got so bad in the first place.

[Wekkel]

Eventually, demand and supply will balance. The balance is just a little bit different than with fiat currency, but its unsound reasoning to think that Bitcoin would continue to appreciate to infinity while an economy would shrink because nobody spends. That will simply not happen.

Of course, what will happen is that people currently in charge of fiat money cannot influence a Bitcoin economy that easy. Markets will set the demand and supply, not the beneficiaries of the current system. I'd like to try that new system for a change.

[Billy3]

Some interesting ideas here. While the Bitcoin creation process can be seen as inflation, I think that it is the expectation of the 21 million and no more that makes Bitcoin appreciate like it is. Even now, as coins are minted, the price to buy Bitcoin is soaring (deflation) because of the expectation of scarcity. This expectation will never go away.

Imagine taking a loan in Bitcoin one year ago. How painful would it be to pay that loan back now. You would have bought a pizza with a loan of 3 Bitcoin and say you chose to pay it back now, you'd have paid nearly $600 for that pizza. That is exactly how loans would look in a deflationary system.

If the world adopted Bitcoin exclusively then the value of all products, property and capitalized shares of ongoing businesses would have to cram into 21 million units with 8 decimal places. At that point, we would likely be working within that 7th or 8th decimal position for common, everyday purchases.

With a currency that appreciates over time and, literally, goes up a little along with everyone else's Bitcoin each time someone builds a new home or starts a successful company, it would be like owning common stock in the whole world. Everyone would root for everyone else's success. Gains for someone would be gains for all because something new, that has value, is being crammed into those 21 million units we'd call our money.

Am I making sense here? Could this be a uniting phenomenon and cure some of the problems plaguing our current system?

[prof7bit]

Its because some people want you to work for them to the end of your life. And its good for them. Not for us.

+100

Thats why they invented this "deflation is bad" nonsense and programmed it into our minds.

[jgm]

Eventually, demand and supply will balance. The balance is just a little bit different than with fiat currency, but its unsound reasoning to think that Bitcoin would continue to appreciate to infinity while an economy would shrink because nobody spends. That will simply not happen.

Of course, what will happen is that people currently in charge of fiat money cannot influence a Bitcoin economy that easy. Markets will set the demand and supply, not the beneficiaries of the current system. I'd like to try that new system for a change.

This is a big part of it.  Bitcoin is finding its level, and it's at the beginning of a pretty long journey.  There is going to be a lot of pushing and shoving going on before it does so, with governments, asset holders and many others all weighing in and attempting to influence the outcome.

Will be an interesting, if not necessarily fun, ride.

[M2NY]

Current Bitcoin yearly inflation is approximately
144*25*365/11000000 = 12%
Current fiat yearly inflation is approximately 5%

That's incorrect. Bitcoin is NOT inflating at the moment, it is DEFLATING. It's true that the supply of Bitcoin is increasing through mining at the moment. This would normally decrease the buying power (value) of BTC. It's same as when central banks print fiat money. This is what you call inflation.

But due to the current hype and the growing awareness of more and more people about Bitcoin the BTC-demand is exploding and thus the value is increasing dramatically (=deflation). The inflation-factor is just so much smaller than the deflation-factors at the moment.

After all 21 million BTC have been mined, BTC will be still strongly deflating as long as it's still spreading around (big demand). And after it spread around the world (no big demand by people without BTC or there are no more people without BTC), Bitcoin will be still moderately deflating, because Bitcoins get lost. That's why you say Bitcoin has a built-in deflation. There is simply no possibility for inflation except a all-time BTC-price drop (and that will only happen if there is a proof that BTC doesn't work (technically, conceptionally or regulatorily -- I personaly don't think the latter will happen).

Of course we mine the Bitcoins out of thin air, today mined Bitcoins were not in supply yesterday. Also by your flawed logic if we limit supply of fiat to 10^30 times current fiat amount wich could goverments sign because it will never go to this scale then mysteriously fiat is no longer inflationary currency because no more than 10^30 times current fiat amount can be created

Inflation happens when money is created out of nothing. Fiat money is either created by printing money (exactly what is not possible with BTC in long-term) or by banks granting credits without holding reserve, also called credit money (both IS happening all the time).

[Billy3]

Eventually, demand and supply will balance. The balance is just a little bit different than with fiat currency, but its unsound reasoning to think that Bitcoin would continue to appreciate to infinity while an economy would shrink because nobody spends. That will simply not happen.

Of course, what will happen is that people currently in charge of fiat money cannot influence a Bitcoin economy that easy. Markets will set the demand and supply, not the beneficiaries of the current system. I'd like to try that new system for a change.

As more and more people reject their own fiat currency and exchange to Bitcoin fiat it seems that infinity is the direction Bitcoin will head. If the world has a 'next' financial crisis then it could be the case, one day, that this apolitical currency may have to absorb the value of all property. I don't know what that number is but it sure lives in infinity's neighborhood.

Infrastructure has a long way to go but I did just see an article in the WSJ regarding CIOs keeping a close eye on Bitcoin. I can only assume that is with regard to transacting business in it. [Suspicious link removed]j.com/story/latest-headlines/SS-2-63399/SS-2-206822/[/url]

I think one important development for liquidity and price discovery would be for a decent trading platform to emerge. As a former futures trader I'd like to see a platform with ability to enter bracketed orders with limits and stops. I suppose that borrowing BTC in order to sell it short should be possible, as well.

With regard to spending in a BTC only world: spending would plummet. Like I posted a day or two ago, imagine that you took a loan one year ago to buy a pizza; you borrowed three Bitcoins. You go to pay it back today and realize that you just paid $630 for that pizza! That is how loans would look in a deflationary world, albeit much tamer than in our last year. The point is that loans would grow larger over time vs our current system that minimizes them over time relative to our currency. As you know inflation encourages spending now and borrowing, deflation encourages the opposite. I think that reasoning is sound. I think that world may even be a better world.

[jgm]

With regard to spending in a BTC only world: spending would plummet. Like I posted a day or two ago, imagine that you took a loan one year ago to buy a pizza; you borrowed three Bitcoins. You go to pay it back today and realize that you just paid $630 for that pizza! That is how loans would look in a deflationary world, albeit much tamer than in our last year. The point is that loans would grow larger over time vs our current system that minimizes them over time relative to our currency. As you know inflation encourages spending now and borrowing, deflation encourages the opposite. I think that reasoning is sound. I think that world may even be a better world.

No, because in a BTC only world you wouldn't be continually linking your BTC back to the price of the USD, as people do nowadays.  *That* is the true shift which needs to occur, and that is when Bitcoin will start to be truly interesting.

[enter`name`here]

The money stock is currently inflating at around 12% a year.  To offset this the bit coin economy would need to grow by that amount in order for prices to remain stable.  It is very difficult to get statistics about how many bitcoin transactions are actually used to purchase goods and services. We are currently seeing price deflation due to speculation that the bitcoin economy will expand rapidly in the near future.

[Billy3]

With regard to spending in a BTC only world: spending would plummet. Like I posted a day or two ago, imagine that you took a loan one year ago to buy a pizza; you borrowed three Bitcoins. You go to pay it back today and realize that you just paid $630 for that pizza! That is how loans would look in a deflationary world, albeit much tamer than in our last year. The point is that loans would grow larger over time vs our current system that minimizes them over time relative to our currency. As you know inflation encourages spending now and borrowing, deflation encourages the opposite. I think that reasoning is sound. I think that world may even be a better world.

No, because in a BTC only world you wouldn't be continually linking your BTC back to the price of the USD, as people do nowadays.  *That* is the true shift which needs to occur, and that is when Bitcoin will start to be truly interesting.

While that is true, you would be paying a 'one pizza loan' back with the number of Bitcoins that would now buy 60 pizzas. It is the same deal as if you were doing dollar conversions. A mortgage, 10 years later, will be the amount of BTC that could now buy two of the very same home you borrowed for. See how borrowing is just a bad deal with deflation? People would start living within their means and spending/GDP would plummet. The current power structure would be upended (financially speaking) and a new system of economics/commerce would emerge.

[Billy3]

The money stock is currently inflating at around 12% a year.  To offset this the bit coin economy would need to grow by that amount in order for prices to remain stable.  It is very difficult to get statistics about how many bitcoin transactions are actually used to purchase goods and services. We are currently seeing price deflation due to speculation that the bitcoin economy will expand rapidly in the near future.

While the 12%/yr distribution of BTC is inflationary, I do think that the final number of 21 million is the important point. It is well known and is what is causing the deflation in spite of the temporary and declining 12% inflationary force.

Also, IMHO price discovery would be more efficient and we'd have better liquidity if a decent trading platform were developed. I think I have read that a dark pool is in the works; maybe they will offer bracket orders with stops/limits.

[waxavub]

how much total money is in the world?
how much would the price of bitcoin have to be if it replaced only 5% of it?