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Author Topic: Inflationary Bitcoin  (Read 2281 times)
Synaptic
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July 06, 2011, 02:45:52 AM
 #1

What is the difference between "printing" more of a currency to increase the volume of exchangeable currency units (Central Banking)

AND

Denominating the base unit of currency into smaller and smaller units to increase the volume of exchangeable currency units (Bitcoin)


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July 06, 2011, 02:51:05 AM
 #2

Still same size pie, wedges are smaller.
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July 06, 2011, 02:51:27 AM
 #3

If you hold one unit of currency in the inflationary scheme, your unit is worth less over time. In a deflationary, your unit is worth more. Someone with secure but low yield savings in an inflationary scheme loses purchasing power over time and becomes poorer.
DamienBlack
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July 06, 2011, 02:52:47 AM
 #4

If I have 10 bitcoins, and the decimal gets shifted over one place (x10), I now have a full 100 bitcoins each worth only 10% of the original. If I have 10 bitcoins and the total number of bitcoins is increased 10 fold (inflation), I still only have 10 bitcoins, but each is worth only 10% of the original. Big, big difference.

You get a fair share one way. You get diluted during inflation.

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July 06, 2011, 02:55:32 AM
 #5

Someone with secure but low yield savings in an inflationary scheme loses purchasing power over time and becomes poorer.

Interest rates would increase in an inflationary environment. 

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The_JMiner
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July 06, 2011, 03:00:55 AM
 #6

Very similar to a stock split where the number of shares of the stock doubles but its market value remains the same.

The value is what you want to keep.

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July 06, 2011, 03:22:50 AM
 #7

Printing more dollars devalues existing dollars: Someone with $1 will become poorer because that dollar will represent a smaller portion of the total supply.  Sad face.

Dividing bitcoins into smaller denominations just makes them easier to use:  Someone with 1BTC who calls it 1000mBTC for convenience would only do so if demand for bitcoins has exceeded supply to the point where value has increased significantly.  Happy face.

Bitcoins can be inflationary if they are created faster than demand grows.  Since the coin generation curve is known to all, we can see that while inflation is possible in the short term, it becomes increasingly less likely as coin generation slows, and as market infrastructure and popular adoption grow.  If bitcoins succeed, there will be massive deflation before the value reaches long term stability.  Very happy face.

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July 06, 2011, 03:50:23 AM
 #8

Central bank printing would do exactly zero if every time they doubled the monetary base they also doubled everyone's savings. Think about it.

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July 06, 2011, 03:56:29 AM
 #9

Denominating the base unit of currency into smaller units keeps every one's share of the total currency supply constant, while inflation reduces every one's share of the total currency supply with the exception of those who get the newly printed currency who see their share increase.
DamienBlack
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July 06, 2011, 03:58:50 AM
 #10

I think we've answered this one about every way it can be answered.

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July 06, 2011, 03:59:36 AM
 #11

Central bank printing would do exactly zero if every time they doubled the monetary base they also doubled everyone's savings. Think about it.
What about the mattress stuffers? I'm not sure individuals or businesses would be happy that the cash they were holding "on hand" was arbitrarily worth half as much or just a few percentage points in such a visible way. In the current system it takes months/years/decades to feel the effects of your buying power decreasing.

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July 06, 2011, 04:01:29 AM
 #12

Central bank printing would do exactly zero if every time they doubled the monetary base they also doubled everyone's savings. Think about it.

BINGO. That's the difference. A universal decimal shift moves everyone's account in a uniform manner. A central bank printing money increases only the central bank's account, at the expense of everyone else.

Even if the decimal shift wasn't moved, but we actually suddenly had 21 billion bitcoins instead of 21 million... so long as this is done uniformly so that every wallet reflects the new change, then functionally nothing at all has changed. In fact - this is exactly the same as moving the decimal Wink

Good question, OP, I think many people have the same concern and it's crucial for people to know the distinction.

Synaptic
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July 06, 2011, 04:19:21 AM
 #13

So if inflation encourages spending since your saved dollars are worth less over time, isn't that a good thing? And the people that spend it stupidly actually deserve to lose their money anyway? Because there's nothing keeping anyone from spending their dollars on something that will appreciate in value or otherwise bring them more dollars. That sounds like a positive economic stressor to me.

Deflationary currencies do not encourage spending, and they in every shape and form DISCOURAGE lending with ANY appreciable degree of risk association. This seems like a wholly negative economic stressor to me.
DamienBlack
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July 06, 2011, 04:22:43 AM
 #14

So if inflation encourages spending since your saved dollars are worth less over time, isn't that a good thing? And the people that spend it stupidly actually deserve to lose their money anyway? Because there's nothing keeping anyone from spending their dollars on something that will appreciate in value or otherwise bring them more dollars. That sounds like a positive economic stressor to me.

Deflationary currencies do not encourage spending, and they in every shape and form DISCOURAGE lending with ANY appreciable degree of risk association. This seems like a wholly negative economic stressor to me.

How have you gone from "they are the same thing", to "inflation is better" so quickly? The inflation vs deflation argument has been had many time. In the long run, bitcoins will be deflationary. Don't like it? Don't invest. It is an alternative option for people who do like it.

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Synaptic
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July 06, 2011, 04:28:01 AM
 #15

So if inflation encourages spending since your saved dollars are worth less over time, isn't that a good thing? And the people that spend it stupidly actually deserve to lose their money anyway? Because there's nothing keeping anyone from spending their dollars on something that will appreciate in value or otherwise bring them more dollars. That sounds like a positive economic stressor to me.

Deflationary currencies do not encourage spending, and they in every shape and form DISCOURAGE lending with ANY appreciable degree of risk association. This seems like a wholly negative economic stressor to me.

How have you gone from "they are the same thing", to "inflation is better"? The inflation vs deflation argument has been had many time. In the long run, bitcoins will be deflationary. Don't like it? Don't invest. It is an alternative option for people who do like it.

sorry, I didn't spend enough time on m though, doing other things here too.

I'm trying to find the words to express that the deflationary nature of bitcoins isn't such an asset over inflationary currencies, since both have perceived negative economic consequences.

When Bitcoins become so valuable that you have to start decimating them into ever smaller units, it seems like the entire psychology of the exchange medium becomes difficult to adhere to.

In effect, if inflation is bad for economic activity, deflation is equally bad for economic activity, though in different ways.

I'm not fleshing this out well enough, and maybe I'll have some more time later, but I guess essentially this is what I mean. There is no economic difference between having to print more money to keep the economy moving vs. having to decimate the entire exchange value over to keep the economy moving.
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July 06, 2011, 04:28:55 AM
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So if inflation encourages spending since your saved dollars are worth less over time, isn't that a good thing? And the people that spend it stupidly actually deserve to lose their money anyway? Because there's nothing keeping anyone from spending their dollars on something that will appreciate in value or otherwise bring them more dollars. That sounds like a positive economic stressor to me.

Deflationary currencies do not encourage spending, and they in every shape and form DISCOURAGE lending with ANY appreciable degree of risk association. This seems like a wholly negative economic stressor to me.


You want to have SOME savings right? For whatever the reason , house, retirement, prostitute  whatever your fancy. How can you save if the money that your trying to "save" is constantly losing its value thus your always falling behind.  Your view is the extreme, it is bad if everyone SAVES EVERYTHING and the other extreme SPENDS EVERYTHING. There has to be a happy medium.  

What are the bad things about deflation? Are you really going to wait for the apple or w/e purchase your considering to drop from 1.95 to 1.90?  I can understand for large purchases but even still at some point you HAVE to buy and thus the deflation will not SPIRAL unlike inflation which we have witnessed go into hyperinflation and thus no end.

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July 06, 2011, 04:30:40 AM
 #17

Your view on deflation is too extreme imo.

Your imagining a world with no transactions because everyone is waiting for a lower price.  That is impossible and even if it was we know the lowest price is already 0$
What is the highest possible price? (How many zeros can you add to a number)

DamienBlack
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July 06, 2011, 04:31:01 AM
 #18

sorry, I didn't spend enough time on m though, doing other things here too.

I'm trying to find the words to express that the deflationary nature of bitcoins isn't such an asset over inflationary currencies, since both have perceived negative economic consequences.

When Bitcoins become so valuable that you have to start decimating them into ever smaller units, it seems like the entire psychology of the exchange medium becomes difficult to adhere to.

In effect, if inflation is bad for economic activity, deflation is equally bad for economic activity, though in different ways.

I'm not fleshing this out well enough, and maybe I'll have some more time later, but I guess essentially this is what I mean. There is no economic difference between having to print more money to keep the economy moving vs. having to decimate the entire exchange value over to keep the economy moving.

NP, you are right. There are pros and cons to both sides of the argument. No one can say one is better than the other. The traditional view is that deflationary investments, like rare commodities (gold), are better to store value in, and inflationary investments, like most currencies, are better at promoting economic growth.

There has never really been a by-design deflationary current before (at least, not to my knowledge). So in a way bitcoin is a new experiment. I feel like the deflationary nature of bitcoin has helped it get off the ground. I know I wouldn't have started mining, or looked at investing, if I didn't know that my share of the pie would be permanent. The deflationary nature lets me imagine a future where it is widely used, and very valuable. If it was inflationary, then wide use would just mean wide inflation, and my wealth would still be small.

Now we have to see if the deflationary nature of bitcoin can withstand a move into wider adoption. Some argue that people are less likely to spend because it is deflationary. And so it makes a crappy currency. They might have a point, but if that case it also encourages people to try to get their hands on bitcoins, which could encourage growth and business adoption.

There is no right or wrong answers in this debate, just different pros and cons. Bitcoin is an experiment in something new, and that is why a lot of people like it. If it were "the same", then it probably wouldn't have as much appeal to a lot of people.

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Synaptic
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July 06, 2011, 04:32:36 AM
 #19

So if inflation encourages spending since your saved dollars are worth less over time, isn't that a good thing? And the people that spend it stupidly actually deserve to lose their money anyway? Because there's nothing keeping anyone from spending their dollars on something that will appreciate in value or otherwise bring them more dollars. That sounds like a positive economic stressor to me.

Deflationary currencies do not encourage spending, and they in every shape and form DISCOURAGE lending with ANY appreciable degree of risk association. This seems like a wholly negative economic stressor to me.


You want to have SOME savings right? For whatever the reason , house, retirement, prostitute  whatever your fancy. How can you save if the money that your trying to "save" is constantly losing its value thus your always falling behind.  Your view is the extreme, it is bad if everyone SAVES EVERYTHING and the other extreme SPENDS EVERYTHING. There has to be a happy medium.  

What are the bad things about deflation? Are you really going to wait for the apple or w/e purchase your considering to drop from 1.95 to 1.90?  I can understand for large purchases but even still at some point you HAVE to buy and thus the deflation will not SPIRAL unlike inflation which we have witnessed go into hyperinflation and thus no end.

But hyperinflation has never been an end of a culture or society, just a particular instrument of exchange. When inflationary currencies hyper-inflate they don't cause the economy to collapse. The economy itself was already collapsing. Increasing the denomination of the currency is a symptom of a failing economy, not a cause.
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July 06, 2011, 04:34:47 AM
 #20

Central bank printing would do exactly zero if every time they doubled the monetary base they also doubled everyone's savings. Think about it.
What about the mattress stuffers? I'm not sure individuals or businesses would be happy that the cash they were holding "on hand" was arbitrarily worth half as much or just a few percentage points in such a visible way. In the current system it takes months/years/decades to feel the effects of your buying power decreasing.

Mattress stuffers are savers; you have to double them too. That's why "decimal moving" or renaming is totally fine. It magically covers everyone no matter where their coins are.

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