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Author Topic: Capped coins  (Read 866 times)
chris200x9
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April 12, 2013, 10:50:23 PM
 #1

I've been thinking, why are all cryptocurrenies AFAIk capped and deflationary? Would not (a sane fixed rate) inflation (help) reduce volatility? I don't know I just feel with a maximum of 21 million bitcoins we can not shoulder any economic growth without creating a massive bubble and hoarding frenzy. 

Consider the following:

people go to buy btc, they do so earnestly because they are interested in the ecosystem and have every intent to pay for services and be a good community member.

people see price go up because of influx in buyers so they buy more or hold.

the original people see their bitcoin getting more valuable so they don't spend they either hold or buy more.

I don't know I can't really express it, I just feel the deflationary nature and hard cap give insentive to hoard and just ride the waves trying to make a quick buck rather than using it to pay for things.

Also regardless of how you feel about inflation / deflation having a hard cap is stupid. Eventually all the bitcoins WILL disappear this is a fact, it may not be today, tomorrow, or even a century from now but it will happen.


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April 13, 2013, 01:02:28 AM
 #2

The main argument that Keynesians like Paul Krugman makes is that if a currency is deflationary, people will never ever buy things. I can tell you I spend my bitcoins from time to time on wants. I just dont spend them recklessly. I've bought nice headphones and some cables recently on bitcoinstore.com, and it was a fair amount in terms of USD. If i was able to buy food or clothes in person with bitcoin, I would definitely spend some on occasion, especially if I were low on cash.

Also, when people say that bitcoin is deflationary, they imply that they feel it can go nowhere but UP and go up ALL the time. We can clearly see that's not true. Prices are fluctuating even today as the market tries to figure out what the value of bitcoin ought to be. Seeing it skyrocket to over $200 I feel was more speculation than anything, but right now it appears to be stabilizing at a bit over $100.

As far as economic growth is concerned, if it turns out that the amount of bitcoins, even with all the divisibility, isnt enough, another cryptocoin will eventually act as a complementary currency or perhaps replace bitcoin entirely. The point of something deflationary like bitcoin is to have a store of value; something that will remain stable. Right now bitcoin is pretty young, but im sure over time it can act as a valid, stable store of value for a long time. So having these inherent deflationary traits can be beneficial because of that incentive to save, not "hoard".

An inflationary currency, especially the USD, destroys the incentive to save for the future (for one's self or their kids if they have any). If the inflation rate was capped at 1%, then maybe that could still work. However, I know a good number of friends of the family that spend so much more than they make, and while they have so many nice things and are "stimulating" the economy, they arent really wealthy. They didnt buy those nice things with money they legitimately had or could pay off easily, and on top of that, they have very little money saved if any. Meanwhile if anything happened to me or anyone else and money was needed (and if bitcoin was accepted lol), then I would be able to use some of the money I saved up. If a person who only spent money was in that situation..theyd have a much harder time.

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April 13, 2013, 01:20:10 AM
 #3

Deflation = more saving, less borrowing, slightly less spending.
Inflation = less saving, more borrowing, more spending.

Inflation encourages spending yourself into debt.
Deflation encourages saving yourself into prosperity.
Why do you think BTC and (almost) all of the daughter Coins are deflationary? Wink

Edit:
Also regardless of how you feel about inflation / deflation having a hard cap is stupid. Eventually all the bitcoins WILL disappear this is a fact, it may not be today, tomorrow, or even a century from now but it will happen.

Why are you so certain of this? Why do you consider it a bad thing?

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April 13, 2013, 01:52:42 AM
 #4

chris200x9, What you write is actually quite logical and sound. I said the same thing when BTC was 5 to the dollar. What you'll find however is bitcointalk is not the forum to discuss such topics. Try for a little while and you'll run away screaming like the rest of us.
chris200x9
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April 13, 2013, 03:26:45 AM
 #5

Deflation = more saving, less borrowing, slightly less spending.
Inflation = less saving, more borrowing, more spending.

Inflation encourages spending yourself into debt.
Deflation encourages saving yourself into prosperity.
Why do you think BTC and (almost) all of the daughter Coins are deflationary? Wink

Edit:
Also regardless of how you feel about inflation / deflation having a hard cap is stupid. Eventually all the bitcoins WILL disappear this is a fact, it may not be today, tomorrow, or even a century from now but it will happen.

Why are you so certain of this? Why do you consider it a bad thing?

1. How does having more money in circulation encourage me to spend myself into debt? Because my dollar is ever so slightly less valuable tomorrow than it was today? I hate to break it to you but most people buy stuff because they want / need it not because they have no faith in the currency they are holding, exception being commodities but I really don't think too many people take out a second mortgage to buy cattle futures. Like I said I don't think (too much) inflation is a "good" thing but I do believe a sane rate of inflation is necessary and quite frankly I think deflation is the most detrimental thing plaguing bitcoin. You can see the price swings, a healthy currency doesn't triple in value in 3 weeks and go back to about 40% of it's previous value in 2 days. If you don't believe that there's a problem try looking at the trade volume on exchanges vs the ammount of bitcoins traded for goods.

2. You ask why I think most of bitcoin's clones are deflationary? Let me see:

1. create a cryptocurrency that is deflationary and has the potential to vastly increase in price relatively quickly

2. Be an early adopter. MINE MINE MINE

3. proffit

The more I think about it the more I truly do believe bitcoin is a ponzi scheme...

3. You ask why I'm certain bitcoins will eventually disappear, well:

1. Bitcoins can be "destroyed" (lost)

2. Bitcoins are finite

you do the math, they all got to disappear sometime.

Quote
Why do you consider it a bad thing?

Oh God I hope you're trollin' 

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ColdHardMetal
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April 13, 2013, 03:32:39 AM
 #6

As someone selling things for BTC, I've had people making purchases because the value of their coins went up. I'm not sold on the "no one will spend deflationary currency" argument.

chris200x9
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April 13, 2013, 03:40:41 AM
 #7

As someone selling things for BTC, I've had people making purchases because the value of their coins went up. I'm not sold on the "no one will spend deflationary currency" argument.

I'm not saying no one will ever buy anything, I'm saying bitcoin is more like an object of speculation (partly because of it's deflationary properties) than a currency. Just check the volume of trades on exchanges vs. how much is spent on all goods and services. 

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April 13, 2013, 03:49:51 AM
 #8

So PLEASE stop (everyone) sa
Deflation = more saving, less borrowing, slightly less spending.
Inflation = less saving, more borrowing, more spending.

Inflation encourages spending yourself into debt.
Deflation encourages saving yourself into prosperity.
Why do you think BTC and (almost) all of the daughter Coins are deflationary? Wink

Edit:
Also regardless of how you feel about inflation / deflation having a hard cap is stupid. Eventually all the bitcoins WILL disappear this is a fact, it may not be today, tomorrow, or even a century from now but it will happen.

Why are you so certain of this? Why do you consider it a bad thing?

1. How does having more money in circulation encourage me to spend myself into debt? Because my dollar is ever so slightly less valuable tomorrow than it was today? I hate to break it to you but most people buy stuff because they want / need it not because they have no faith in the currency they are holding, exception being commodities but I really don't think too many people take out a second mortgage to buy cattle futures. Like I said I don't think (too much) inflation is a "good" thing but I do believe a sane rate of inflation is necessary and quite frankly I think deflation is the most detrimental thing plaguing bitcoin. You can see the price swings, a healthy currency doesn't triple in value in 3 weeks and go back to about 40% of it's previous value in 2 days. If you don't believe that there's a problem try looking at the trade volume on exchanges vs the ammount of bitcoins traded for goods.

2. You ask why I think most of bitcoin's clones are deflationary? Let me see:

1. create a cryptocurrency that is deflationary and has the potential to vastly increase in price relatively quickly

2. Be an early adopter. MINE MINE MINE

3. proffit

The more I think about it the more I truly do believe bitcoin is a ponzi scheme...

3. You ask why I'm certain bitcoins will eventually disappear, well:

1. Bitcoins can be "destroyed" (lost)

2. Bitcoins are finite

you do the math, they all got to disappear sometime.

Quote
Why do you consider it a bad thing?

Oh God I hope you're trollin'  


Oh for...

http://www.howstuffworks.com/ponzi-scheme.htm

Ponzi schemes originate at a source entity, where the money train flows to in a branched structure to the top with money flowing upward. Bitcoin has no such authority, and no such entity to eventually cash out the whole system and run. Bitcoin's decentralized nature makes that pretty much impossible.

So please, everyone, stop saying BTC is a ponzi scheme, especially if you don't even know how an actual Ponzi scheme works. The original scammer Mr. Ponzi died penniless and alone.


Bitcoin works because:

Only 21 Million will be minted, ever. As coins are lost it makes the rest appreciate in value automatically. So essentially if you have a BTC savings left to appreciate, it acts just like a bank savings account that gives you interest back. Though spending coin would also appreciate all the same as they get rarer. So it is better than the current cash system in that regard as a native feature. That 21 Million can be divided among 100 Million Satoshis (.0000001 of a Bitcoin), and more can be added to further divide later if needed as it is built into the code to allow for that. One good analogy I heard is think of a Bitcoin =  1 US Economy, where that total economy is broken down into dollars, and then into cents to divide the spending. Bitcoin simply does this much more elegantly than cash could ever hope to. Even if in the end there was only a single Bitcoin left on Earth, the entire economy could still be based on it by this division, so it is deflationary and has a backed "gold standard" but designed to not matter in terms of wealth distribution, which is the real genius behind the protocol.

It eliminates the need to go away from a hard backed standard, or create any new Bitcoins, because the theory is we can never "run out" of Bitcoins on the basis we can just keep dividing them up indefinitely. To do that with physical currency, we would need to mint entirely new coins that are smaller in denomination than the current ones to shift the growing spending power to smaller pieces, however this cannot work with USD because it is ever inflationary, which means spending power is going down, not up. Obviously this only generates a lot of work and materials to mint a new set of coins. Bitcoin is digital, these in the end are just a string of numbers to it like any other, so it is very easy to do.

As USD is inflationary, the opposite might occur, as spending power is lost, someday the Dollar bill might become the new penny and change will be eliminated altogether because their spending power is so minuscule it would cost more than they are worth to mint them (the Penny already has this problem, each takes 2.41 cents to create, and they are only "worth" a penny still.) Obviously if your money costs more to make than it spends, eventually you would go bankrupt minting them. Metal money is also victim to the metals trade as well. Bitcoin has no such problem with currency generation.

It gives you incentive to maintain a savings because that savings is ever appreciating, opposed to spending money you don't have like we do today because we can just print more paper money (based on no back at all) to pay the debt, a practice that has fundamentally and actually totally screwed our current financial model now. Fixing the debt problem is going back to a standard where you can only spend what you earn, which Bitcoin can accomplish. We'd be back to a 1950s kind of economy in a way.

The hard back ensures that we don't have the same currency problems we have today, which now involves our governments steadily devaluating our money by simply making more that isnt based on a damn thing to pay a never ending and increasing debt. It will all fail because the debt is bigger than the total currency we have available to fill it.


myrkul
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April 13, 2013, 04:16:38 AM
 #9

Deflation = more saving, less borrowing, slightly less spending.
Inflation = less saving, more borrowing, more spending.

Inflation encourages spending yourself into debt.
Deflation encourages saving yourself into prosperity.
Why do you think BTC and (almost) all of the daughter Coins are deflationary? Wink

Edit:
Also regardless of how you feel about inflation / deflation having a hard cap is stupid. Eventually all the bitcoins WILL disappear this is a fact, it may not be today, tomorrow, or even a century from now but it will happen.

Why are you so certain of this? Why do you consider it a bad thing?

1. How does having more money in circulation encourage me to spend myself into debt?

How does deflation encourage you to save instead of borrowing? Same way. In an inflationary market, your debts are denominated in a currency that will be worth less tomorrow than it will be today. Let's assume an asset that had absolutely stable "real" value. If you were to take out a large loan in order to buy some of that asset, you would be able to later sell that asset for a profit equal to the amount of inflation that has taken place in the mean time. You could then pay back that loan, and have money left over. Now, of course most real assets don't behave quite so well, but most generally keep fairly stable in value over time. It is beneficial to take out a loan and purchase a real asset now, rather than saving, because if you save, your dollars will decrease in value while sitting in the bank, whereas with a loan the value of that loan will decrease in value while the asset sits in your possession. A loan is a better value, in an inflationary economy, than is savings. By the same token, in a deflationary economy, a loan gets harder to pay off as time goes by, while savings is accelerated by the deflation. it is more economical to save your money, and buy the asset later, than it is to get a loan for it.

tl;dr: Rule one of economics is "incentives work."

3. You ask why I'm certain bitcoins will eventually disappear, well:

1. Bitcoins can be "destroyed" (lost)

2. Bitcoins are finite

you do the math, they all got to disappear sometime.
Eventually, maybe. Just because they can be lost, doesn't mean they will be.

Quote
Why do you consider it a bad thing?

Oh God I hope you're trollin' 
Nope. I'm honestly curious why you consider it a bad thing. Worst case scenario, we start a new currency, Bitcoin 2.0, and transition over to that. Why borrow stress from the future? we got enough in the present.

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