Gold has failed as a currency, it wasnt removed by politicians and bankers. The Kings in in medieval times already started to reduce the Gold % of a coin since Gold was way to rare to satisfy the market with enough pure gold coins. Many wars in in medieval times started for the reason of acquiring more Gold for the Market.
You are right. There where times in history whene gold was realy rare. But bitcoins are not gold. If bitcoins become rare, and they will as more people starting to get/use them, then the value of bitcoins will increase and you got your deflation. I agree untill this point. Unlike gold bitcoins can be devided again and again and again. So if bitcoins become rare maybe in future people will be payed in µBTC or even nano BTC. And if this is still an to huge amount you can start deviding also an single Satoshi. This is limitless in theory. It is still not implemented yet but i am sure it will if there is an need to get smaller amounts of bitcoins. In contrast to gold or any physical currency this are just numbers. It does not matter how small they are to represent an value. So i see no danger in hoarding bitcoins.
Well thats pretty much my point. Why should a smart market participator buy goods now for his BTC if he knows for sure
that he could purchase the same goods( or even better goods, as we all know goods improve over time through new technologies, cars are a great example for that) for just a thousandth part of the price in the future? It doesnt make sense, and thats why our early adopters hoard BTC instead of spending them. In the "normal" economy hoarded money lies on bank accounts so it back flows into the economy through credits. But there are no banks in BTC economy yet, and they are not needed. You can just put your BTC on an usb and just watch them grow in value while utterly cutting them out of the economy causing even more deflation.
Or if you want to fasten that up you can to speculate with your BTC, acquiring more BTC through exchange gambling. (I wont go further on the role of the exchange market since this would just over complicate the problem without any benefit for the true purpose of this discussion)
And thats exactly whats happening.
There is a total of 6,638,500 BTC at the moment. If we assume that over 1,2 Million BTC are hoarded on wallets ( and this is a pretty realistic if you consider that only one big account on mt.gox had already 500k BTC) then already 1/6 of the total BTC amount is cut out of the money circulation. If this 1,2 Mil BTC would be spend and coins would change their owner once per week, that would generate an income of 72.000.000$
in a month. ( 1.200.000 BTC * 15$ exchange rate * 4 weeks).
The general problem of Fiat Money that causes most the economic problems is the hoarding of money...
Since Fiat money is inflationary (on purpose, to give criminals the ability to fund things they couldn't through direct taxation), hoarding fiat money means you have less today than you did yesterday.
Fiat currency = rotting meat
There is no incentive to "save" rotting meat...
Inflation and Interest emerged after hoarding was "invented". Interest is the "release" price for hoarded money, so that people have a reason to put their money on a bank account instead of putting it under their pillow. Thats also the reason why banks exist, they "redistribute" the money at the cost of interest and debt.
If the Inflation % < then the interest % that you get for your money, your getting richer. But dont forget that every Interest Dollar you get somebody else needed to spend his lifetime to work for.
In the deflationary BTC economy hoarded money will generate you profit from the fact that goods cost less BTC in the future. Making them more valuable.
Purchasing power of the blacksmith is only greater if he spends his savings. If he doesn't spend his savings, everything works the same but with slightly different price levels. If he spends his savings he can buy stuff. Duh.
Not that simple. The problem is that if he saves in the short term
he can increase his overall spending power significantly in the longer term, so he has no incentive to spend money now rather than later.
How exactly? If money is slightly more valuable, everything will have lower price levels, including the blacksmith's services. His income will consist of fewer, more valuable units just like everyone else.
You forgot that the blacksmith saved 10BTC before
the deflation happened. Giving his saved BTC more purchasing power than they had, making him able to get a bigger piece of the rare goods.