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Author Topic: Bitcoin. In no way deflationary.  (Read 4509 times)
Peter Lambert
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May 07, 2013, 02:58:09 AM
 #61

It's common, especially amongst the Austrian types on this forum, to use inflation in it's original (monetary only) meaning, while others (typically the Keynesians and monetarists) use it in it's more modern price inflation meaning. If we're using the modern meanings of inflation and deflation, then Bitcoin is very strongly deflationary at the moment. If we use the original terms, then it's strongly inflationary, but demand is increasing even faster than supply.

It happens that any non-monetary "definiton" of inflation fails to be a definition and practically works as either a red herring or strawman in any discussion of economics. Should somebody finally be able to construct a non-monetary definition that actually works as such it may be taken into account (at some point, by someone). As it is, the keynesian pseudo-inflation is pretty much only interesting to politicos.

I agree completely. I count myself amongst those "Austrian types." Wink Eventually, Bitcoin will switch to being properly deflationary, but given that a) it will be a very gradual slope, or at the very least very long plateaus between deflationary events (lost or destroyed private keys) and b) lost and hoarded coins are functionally identical, and unless a private key is known to be lost, it's unwise to treat it as actually gone, I don't see it being a problem. When/if it does become a problem, Bitcoin2 is a simple code fork away.

As was pointed out at the beginning of the thread, there is the base currency inflation/deflation, and there is the inflation/deflation due to financial instruments (the M3, etc.). As bitcoins mature, protocol defined inflation will be under 1% within a couple decades, maybe poster above is correct that 1% are lost every year, but I suspect that the total inflation/deflation will swing in larger amounts up and down based on the financial instruments and credit built upon the bitcoin system, totally dwarfing the M1 change, which will be rather small.

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May 07, 2013, 11:40:11 AM
 #62

As was pointed out at the beginning of the thread, there is the base currency inflation/deflation, and there is the inflation/deflation due to financial instruments (the M3, etc.). As bitcoins mature, protocol defined inflation will be under 1% within a couple decades, maybe poster above is correct that 1% are lost every year, but I suspect that the total inflation/deflation will swing in larger amounts up and down based on the financial instruments and credit built upon the bitcoin system, totally dwarfing the M1 change, which will be rather small.

Pretty much. Encouraging, not everyone on btctalk is a self contained million monkeys with a keyboard apparatus.

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May 07, 2013, 02:09:03 PM
 #63

I also did not see the analogy.

Let's illustrate the illustrative analogy by the help of an illustrative analogous table:

Thesis. In the general discussion of currency (A) at issue is the problem of inflation (B). The fact is that Bitcoin allows creation of new currency (C) through market-controlled mechanisms (D) but not through fiat, or if you prefer political, mechanisms (F).

Analogy. In the general discussion of human life (A') at issue is the problem of procreation (B'). The fact is that marriage allows the creation of new people (C') through intra-marriage mechanisms (D') but not through public, or if you prefer orgiastic, anonymous, polyamorous, loser-gets-some-action-too mechanisms (F').

Therefore bitcoins are the analogue of married women, Bitcoin (as a protocol) the analogue of marriage, politics the analogue of irresponsible, venereal-disease ridden, slovenly, high-risk sexual behaviors. Finally Bitcoin finance is the analogue of wholesome family relations.

A pregnant analogy, perhaps. And a pretty clever one at that.

I think the analogy is not horrible, it was just worded poorly. It seems to be saying "a woman" when it should be saying "women", because clearly there are specific married women who are sterile, which confuses the reader, when instead it should be referring to married women generally. I might be just nitpicking from a native English speaker perspective.

An analogy is like a joke, if you must explain it then it failed. Now, whether that is the teller or the hearer's fault might depend on the circumstances.

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Peter Lambert
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May 07, 2013, 02:32:36 PM
 #64

Can we just agree that EVERYONE Austrian or Keynesian expects the exchange rate for real goods and services against BTC will rise and BTC's will buy more in the future.  All you Austrians have been arguing that will happen, have been advocating people hoard coins in anticipation of future consumption higher then the consumption deferred to buy and hoard the coins and so far (outside of some crashes) your prediction has been correct, BTC appreciated massively.

Now if a Keynesian when using the term 'deflation' means that price appreciation then by golly they are correctly describing BTC by what that word means to THEM.  If someone else with this weird idea that these words mean only nominal changes in money supply says BTC is inflating then yes they are also right by what that word means to them.  All we have here is a disagreement over what words mean, not the nature of BTC which everyone agrees on undeniable fact, that of growing supply and appreciation in value.

Now I'm going to argue that the so called 'Keynsian' (really everyone excluding a few wackos) definition of inflation/deflation is correct.  Why because it actually MEANS something to an economy and an individual, where as the nominal money supply tells us nothing about an economy or what to do as an individual.  Real inflation is an incentive to spend, real deflation is an incentive to save, BTC clearly falls under that latter kind of incentive structure (the Austrian and Keynsian would now have an actual disagreement over if this is good or bad).  If I make a statement about nominal money supply while ignoring the population of users, the quantity of production and the demand for consumption of those users I've ignored so many CRITICAL factors that I no longer say anything meaningful about the signals being sent, are individuals under an incentive to spend or to save, I haven't said one way or the other unless I make the assumption that ALL the other factors are constant which this narrow definition explicitly excludes if it mean ONLY nominal money supply.

No, I don't think we can all agree about that. We can all agree that the supply of bitcoins is increasing, therefore there is (monetary) inflation. But the price of bitcoins requires knowing other things, which can be guessed at but are unknown. These things include the adoption of bitcoin, the usage vectors of bitcoins, and the amount of credit built on top of the bitcoin economy. We can say that if things continue to go the way they are now going then the price in bitcoins will go down and we can describe it as price deflation, but that relies on events unfolding as you predict them to.

If you look back at the historical price of bitcoins, there have been several upward movements which are correlated with influxes of people to the bitcoin economy, followed by long, slow downward trends. This is because bitcoins are in fact inflating, and without influx of new money the price is pushed down by the increased supply. If you look at the historical price data (it helps to put it on a log chart so you can see the movement a couple years ago), you can see that this effect was more pronounced years ago when bitcoins were inflating at a higher rate.

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