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Author Topic: Is it true that btc is a "deflationary currency"?  (Read 2077 times)
marcovaldo
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September 01, 2013, 10:09:04 PM
 #1

Hello,

I often read that bitcoin is a "deflationary currency", but I wonder if it's true.

At least before I die, new bitcoins will be created, and the number of btc will keep increasing every minute.

And even when the maximal amount of btc will be reaching (dunno when), it does not mean that the prices will decrease.
It will occur only if the number of transaction stays the same, or if the velocity of the money will reduce, which might not happen.



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September 01, 2013, 11:04:42 PM
 #2

BTC is a world currency ,but has only 1.6Billion whole market cap now

of course yes!
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September 01, 2013, 11:16:54 PM
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In terms of monetary supply ( the amount of coins in existence ) Bitcoin is inflationary as new coins are being created and will continue to be made for quite a few years. When block reward drops to zero, in terms of monetary supply, Bitcoin will become neutral.

In terms of monetary value Bitcoin is very deflationary. Rate of adoption has outpaced monetary inflation causing Bitcoin to deflate substantially.

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September 01, 2013, 11:20:27 PM
 #4

Yes; because there is a finite total amount of Bitcoin, the cost of each individual Bitcoin will typically rise the more people adopt the currency.  Compare this to fiat currencies, which are hypothetically infinite, so that means there's always going to be more of it; the more of a currency there is, the less each individual unit of that currency is worth (which requires you to trust your currency issuer, usually government-owned, won't do so willy nilly, but we see how well that's worked out.)  Not so with Bitcoin; because there will only be so many BTC, the more people adopt Bitcoin, the less any individual can potentially have.  Because of this, Bitcoin is eternally becoming rarer; if I owned just 1 BTC, and so did 21 million other people, that would mean that someone, somewhere, would never be able to have an entire BTC to themselves (unless he was already rich, perhaps, and could buy that BTC at a huge price, but that would mean another person wouldn't be able to own a whole BTC.)  The value of BTC will typically rise with supporters, thus making products denominated in BTC typically fall; so yes, it's inversely proportional, the higher a single unit of BTC is worth, the less an item appears to cost.  To illustrate this, consider the cost of a pizza in BTC a couple years back, and consider the cost of that same pizza in BTC today.

This does not always mean BTC will rise in price (as we can see, it has dipped several times and still hasn't hit its previous high just yet), but generally speaking, over the long term, so long as supporters increase, so will Bitcoin's value increase.  This is also the reason why it's mistakenly referred to as a ponzi scheme, but we can't call BTC a ponzi without calling the concept of money a ponzi, and I'm sure some people do...

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September 03, 2013, 01:33:37 AM
 #5

Hello,

I often read that bitcoin is a "deflationary currency", but I wonder if it's true.

At least before I die, new bitcoins will be created, and the number of btc will keep increasing every minute.

And even when the maximal amount of btc will be reaching (dunno when), it does not mean that the prices will decrease.
It will occur only if the number of transaction stays the same, or if the velocity of the money will reduce, which might not happen.

It depends on how you define inflation and deflation.  If you use the Keynesian definition of inflation/deflation, then Bitcoin is a deflationary currency.  If you use the Austrian definition of inflation/deflation, then Bitcoin is an inflationary currency.

Keynesians define inflation as a general increase in prices and deflation as a general decrease in prices.  Austrians define inflation as an increase in the money supply and deflation as a decrease in the money supply.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."   - Henry Ford
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September 04, 2013, 02:47:27 AM
 #6

it is currently inflating at the rate of 3600 BTC per day, i think of it as inflating at least.


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September 04, 2013, 03:08:50 AM
 #7

I think the thing that no one realizes is that there is not a limit to the production of bitcoin. Bitcoin is just numbers how many numbers are there? It is like saying that the dollar cant be inflated because they are only minting quarters. If litecoin can be trade in and out of bitcoin at will then truthfully there is no difference at least no greater of a difference between litcoin and bitcoin than between quarters and dollars. Bitcoin and all the alt coins that can be freely traded make up the digital currency market.

So no digital currency is not deflationary.   

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shawshankinmate37927
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September 04, 2013, 04:00:44 AM
 #8

I think the thing that no one realizes is that there is not a limit to the production of bitcoin.

Looks like you need to retake Bitcoin 101.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."   - Henry Ford
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September 04, 2013, 05:45:12 AM
 #9

it is currently inflating at the rate of 3600 BTC per day, i think of it as inflating at least.



but how many coins are bought every day?


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September 04, 2013, 01:14:53 PM
 #10

I think the thing that no one realizes is that there is not a limit to the production of bitcoin.

Looks like you need to retake Bitcoin 101.

I think someone needs to take the advance bitcoin class  Tongue.

I know the official "story"  Roll Eyes Roll Eyes

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marcovaldo
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September 04, 2013, 01:17:51 PM
 #11

It depends on how you define inflation and deflation.  If you use the Keynesian definition of inflation/deflation, then Bitcoin is a deflationary currency.  If you use the Austrian definition of inflation/deflation, then Bitcoin is an inflationary currency.

Keynesians define inflation as a general increase in prices and deflation as a general decrease in prices.  Austrians define inflation as an increase in the money supply and deflation as a decrease in the money supply.


I, obviously, took the keynesian definition of inflation/deflation.
But, as stated in my first post, it does not make btc a deflationary currency.


Some new coins are created every day.
And it's not because the number of coins will, eventually, be limited, that prices will decrease. But I wrote it already.

Quote
And even when the maximal amount of btc will be reaching (dunno when), it does not mean that the prices will decrease.
It will occur only if the number of transaction stays the same, or if the velocity of the money will reduce, which might not happen.



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shawshankinmate37927
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September 05, 2013, 04:48:13 PM
 #12

It depends on how you define inflation and deflation.  If you use the Keynesian definition of inflation/deflation, then Bitcoin is a deflationary currency.  If you use the Austrian definition of inflation/deflation, then Bitcoin is an inflationary currency.

Keynesians define inflation as a general increase in prices and deflation as a general decrease in prices.  Austrians define inflation as an increase in the money supply and deflation as a decrease in the money supply.


I, obviously, took the keynesian definition of inflation/deflation.
But, as stated in my first post, it does not make btc a deflationary currency.


Some new coins are created every day.
And it's not because the number of coins will, eventually, be limited, that prices will decrease. But I wrote it already.

Quote
And even when the maximal amount of btc will be reaching (dunno when), it does not mean that the prices will decrease.
It will occur only if the number of transaction stays the same, or if the velocity of the money will reduce, which might not happen.

If you are using the Keynesian definition of inflation/deflation, then it doesn't matter how many coins are being created.  Keynesians focus on prices.  Even if 100 or 200 bitcoins were added to the money supply with every block, as long as goods and services continued to get less expensive when priced in bitcoins Keynesians would consider it a deflationary currency.  I'm sure you're aware that Keynesians also believe that deflation (decreasing prices) is bad for the economy and claim that a sufficient amount of currency must be added to the money supply when prices start dropping in order to keep them stable.  Fortunately, Bitcoin isn't affected by that sort of Keynesian nonsense.


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September 05, 2013, 04:59:31 PM
 #13

I think the thing that no one realizes is that there is not a limit to the production of bitcoin.

Looks like you need to retake Bitcoin 101.

I think someone needs to take the advance bitcoin class  Tongue.

I know the official "story"  Roll Eyes Roll Eyes

So, you believe that the hard limit of 21M bitcoins is just an official "story" and everyone who believes this is being duped?  Do you understand the concept of open source software and how it works?

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September 05, 2013, 05:51:58 PM
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Not an economist, but I think the confusion lies in 'is bitcoin inflationary (overall)' vs 'is bitcoin inflationary (currently)'.  Is that right?  As of now, bitcoins are being generated so maybe that's currently inflationary.  However, the overall limit is set, so overall it's not inflating.  Also, there's just a matter of perspective here.  Maybe we could say that it's not inflationary, that all bitcoins are already in existence, but they are just being released slowly.   I dunno.

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September 05, 2013, 06:25:04 PM
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I think the thing that no one realizes is that there is not a limit to the production of bitcoin.

Looks like you need to retake Bitcoin 101.

I think someone needs to take the advance bitcoin class  Tongue.

I know the official "story"  Roll Eyes Roll Eyes

So, you believe that the hard limit of 21M bitcoins is just an official "story" and everyone who believes this is being duped?  Do you understand the concept of open source software and how it works?
I am also very concerned about what you are saying.  Do you really mean that I have been scammed and that there will be more than 21M coins?  You seem to know what you are talking about so please explain how this will happen.


There are already more than 21 million coins, you have all been so conditioned to think that BTC is the end all be all greatest thing, If you factor in the alt coins which a lot of them are just bitcoin called by another name then the market is much larger.  

No one knows the future but I wouldn't be surprised it they just took the btc off the front and put usd.

What it amounts to is saying that the dollar cant be inflated because they are only minting quarters. You have to look at it as a whole. Bitcoin itself may be limited, I have heard from very intelligent people that it is not, but the digital currency market does not have a cap therefor the bitcoin market doesnt have a cap. Not to mention that BTC are divisible to the 8th decimal point.  

Let but it another way. If I can trade out LTC for BTC the same way that I trade out quarters for dollars than there is no difference between BTC and LTC they are fungible.

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September 05, 2013, 06:34:44 PM
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I would speak thusly: The 21 million coins were all created at the time of the genesis block, only they have not all been found yet. Taking into account loss of coins, it is deflatioary (in the money supply sense).

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September 05, 2013, 06:46:11 PM
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You are right BTC is different because it was first just like myspace, napster, chia pet, microsoft, and a million other firsts that came along then fell by the way side.  Smiley

It is not BTC that has value it is shaw256 hashing it doesnt matter what you call it.

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September 05, 2013, 06:58:05 PM
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You are right they have not reached parity yet....yet being the key word.


Let me put it like this 1 dollar = 1 dollar 2 days ago yesterday today and will tomorrow

BTC= 135 2 days ago = 130 yesterday= 124 today and who knows about tomorrow


Ya gotta compare apples to apples

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September 05, 2013, 07:00:23 PM
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I would speak thusly: The 21 million coins were all created at the time of the genesis block, only they have not all been found yet. Taking into account loss of coins, it is deflatioary (in the money supply sense).

Interesting way of seeing things.  The dollar is also a deflationary currency, they just haven't disclosed the total number of dollars that will be printed by mankind.  Especially when taking into account all of the lost bills Smiley
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September 05, 2013, 07:39:19 PM
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Not an economist, but I think the confusion lies in 'is bitcoin inflationary (overall)' vs 'is bitcoin inflationary (currently)'.  Is that right?  As of now, bitcoins are being generated so maybe that's currently inflationary.  However, the overall limit is set, so overall it's not inflating.  Also, there's just a matter of perspective here.  Maybe we could say that it's not inflationary, that all bitcoins are already in existence, but they are just being released slowly.   I dunno.

With Bitcoin I think it is more accurate to say that the rate of inflation (expansion of the money supply) is predetermined and that the rate of inflation (expansion of the money supply) is gradually reduced over time until it is nonexistent.  This obviously means that prices have no influence on the supply of bitcoins.

On the other hand, Keynesians use the excuse of deflation (falling prices) to justify adding more money to their fiat money supply.  They would claim that the fact that a bitcoin can buy more today than it could a year ago would be cause for alarm and that they need to have the power to arbitrarily increase the money supply by whatever amount is necessary to keep prices from dropping. Of course, you and I wouldn't be issued any of this newly created, yet to be spent, money.  Just the bankers and politicians would.  How convenient.  They would claim that they are helping the economy and fighting off deflation (falling prices) while creating more money for themselves.

Yeah, theoretically I guess you could say that all 21M bitcoins have already been created.  They're just locked up and inaccessible and are gradually being distributed as rewards when new blocks are mined.  However, because they are unable to be spent, they still can't really be considered part of the current money supply.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."   - Henry Ford
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