I was asked a tough question, who can help me answer?

[SgtSpike]

Honestly though, a currency where the value neither deflates nor inflates would be the best sort of currency.

Bitcoin is such a currency.

Erm, no.  Bitcoin is a deflationary currency.

Wrong. Lack of inflation is not equal to deflation!

Maybe we should define deflation.

deflation (in Economics): a fall in the general price level or a contraction of credit and available money

Assuming bitcoin lasts until 21M coins are produced, a Bitcoin economy will constantly have a fall in the general price level (i.e. increase in purchase power), because world population is always increasing while the number of bitcoins that can be spread around will be the same.

Regarding a contraction of available money, one could argue that, eventually, the pace of new bitcoins being produced will outweigh the pace of old bitcoins being accidentally, and permanently, lost.

[kokjo]

because world population is always increasing

i think there are somekind of hardlimit, but yes it will increase for a long time.

[MoonShadow]

Honestly though, a currency where the value neither deflates nor inflates would be the best sort of currency.

Bitcoin is such a currency.

Erm, no.  Bitcoin is a deflationary currency.

Wrong. Lack of inflation is not equal to deflation!

Maybe we should define deflation.

deflation (in Economics): a fall in the general price level or a contraction of credit and available money

Assuming bitcoin lasts until 21M coins are produced, a Bitcoin economy will constantly have a fall in the general price level (i.e. increase in purchase power), because world population is always increasing while the number of bitcoins that can be spread around will be the same.

Regarding a contraction of available money, one could argue that, eventually, the pace of new bitcoins being produced will outweigh the pace of old bitcoins being accidentally, and permanently, lost.

Price deflation isn't what the OP question was refering to, I don't think.  Anyways, under such a condition, as long as the price deflation is generaly known, the market will adapt to that.  Vendors will prefer to hold them as much as the consumers will, and will offer bitcoin discounts to help seperate the consumer from his desire to hold onto the bitcoin.  At some discounted rate, the consumer's desire to have the thinkg now outwieghs his desire to keep bitcoins that are rising in spending power, and then the sale happens.  Gold worked this way, very slowly, for generations.  Rare was the economic conditions that gold was dropping in spending power, and also rare was the economic conditions that gold wasn't spent when the deal was right.

[JoelKatz]

If Bitcoin is a currency with deflation property, that means BTC has to be appreciated (which in reality means BTC is a fancy collectible)

Therefore a rational BTC user will hold BTC rather than spend it.

but if no one spend BTC, then what's the point of such a currency?

================

who can help me find out the fallacies in this reasoning? thank you!

The simplest way to see the fallacy is this: Would you rather have 10 bitcoins today or 10 bitcoins in ten years? Since 10 bitcoins today includes the ability to have 10 bitcoins in ten years plus the additional ability to spend them before that if that's helpful, it must be worth more today. So by holding bitcoins you are forfeiting the additional value from the ability to spend them.

[becoin]

because world population is always increasing while the number of bitcoins that can be spread around will be the same.

Gold if spread around is the same as well. It is just limited as bitcoins are. Gold was the world reserve currency for last 5000 years! Except for the last 40 years - experiment is failing miserably. How did the world survived 50 ages of 'deflationary' environment?...

[nakowa]

The simplest way to see the fallacy is this: Would you rather have 10 bitcoins today or 10 bitcoins in ten years? Since 10 bitcoins today includes the ability to have 10 bitcoins in ten years plus the additional ability to spend them before that if that's helpful, it must be worth more today. So by holding bitcoins you are forfeiting the additional value from the ability to spend them.

Elegant explanation.

[nakowa]

Bitcoin isn't deflationary yet and won't be for decades at least.  Technically, it won't be until 2133, when the block reward drops to zero; but in practice it may turn deflationary at some point in the middle if the loss of bitcoin addresses exceeds the creation of new coins.  Presently, Bitcoin is still inflating at over 40% APR (decending) and will not drop below the common 'target' inflation rate of 2% APR until about 2020.  So regardless of where one lands on the 'deflationary spiral' debate, it has no bearing on why Bitcoin should or should not be used in our lifetimes.  Our grandchildren might have a real reason to have this debate around 2050 or so.  The 2030 date that so many articles throw around is just crap.

Thank you for your analysis and data.

[nakowa]

If you want it to be a currency then it needs to stawnd as an alternative to other currencies. There cant be a period of "Well it looks like shit NOW, but in the future~"

It looks like shit? Then why is it trading for 13:1 against the dollar?

What he meant I think is that dollar is shit, no matter 13 or 30 dollars.

[triforcelink]

Therefore a rational BTC user will hold BTC rather than spend it.

Then this 'rational' user couldwill die of thirst or hunger?!

fixed.

lmao!  This goes to show you that being rational is irrational!

[becoin]

Since 10 bitcoins today includes the ability to have 10 bitcoins in ten years plus the additional ability to spend them before that if that's helpful, it must be worth more today.

Some people would rather prefer to have 10 bitcoins in ten years than today since having them todays means additional ability to screw their wallet.dat file during this ten year period!

[Vod]

The dollar may be low but at least there's no realistic chance it will become with nothing more than the cotton it's printed on.

You need to state a timeframe for that, because one day it will be worthless... all currencies will.

[Desolator]

Historically, every currency has failed.  All of them.  Some are pretty old but all of them have at some point failed.  There is no currency that's been around since the beginning of civilization or recorded history that's still here.  Just cuz in Russia it fails like every 10 years and in the US it hasn't for 250-ish doesn't mean anyone's got some magic currency that lasts forever.

People can pile on gold but it has little actual use besides luxury so that's stupid in case of worldwide economic problems much more severe than right now and/or zombie apocalypse.

You can buy industrial commodities like metals and earth magnets and general raw materials but in the case of nuclear war or virus apocalypse, those are almost as pointless as gold.

You can invest in weaponry but that degrades.

You can buy food, air, and water but those degrade.

So really, you're screwed no matter what....unless you invest in learning electrical systems, engineering, and survival skills. Those are universally valuable in all circumstances between today and a nuclear zombie economic apocalypse virus war

But anyway, BTC is extremely likely to not get destroyed or go away as a whole so it's a pretty respectable investment at the moment.

[becoin]

There is no currency that's been around since the beginning of civilization or recorded history that's still here.

Hm... That is not true. Gold has been used as a currency for the last 5000 years!

[Vod]

Hm... That is not true. Gold has been used as a currency for the last 5000 years!

When is the last time you, or anyone you know, used gold to buy or sell anything?

[becoin]

Hm... That is not true. Gold has been used as a currency for the last 5000 years!

When is the last time you, or anyone you know, used gold to buy or sell anything?

Before the crash of Bretton Woods system in 1971 gold was the ultimate currency and clearing instrument for all intergovernmental economic relations and respective settlements.

On August 15, 1971, the United States unilaterally terminated convertibility of the dollar to gold. As a result, the Bretton Woods system officially ended and the dollar became fully 'fiat currency' backed by nothing but the promise of the federal government. This action, referred to as the Nixon shock, created the situation in which the United States dollar became the sole backing of currencies and a reserve currency for the member states.

Again, what are 40 years of unsuccessful experiment compared to 5000 years of proven history? Why would people always tend to think history of the mankind started the moment they were born?

[error]

Hm... That is not true. Gold has been used as a currency for the last 5000 years!

When is the last time you, or anyone you know, used gold to buy or sell anything?

Last month?

If you count silver, then every single day.

[Vod]

Hm... That is not true. Gold has been used as a currency for the last 5000 years!

When is the last time you, or anyone you know, used gold to buy or sell anything?

Last month?

If you count silver, then every single day.

Explain what you mean.  You actually took a sliver of gold or silver and gave it to someone in exchange for goods or services?   Do you have to carry around a scale and a machine to scrape from the gold mass?  I'd like to define what you mean - you don't go into Safeway and get your total, then shave off gold slices until you've reached your balance...

[error]

Explain what you mean.  You actually took a sliver of gold or silver and gave it to someone in exchange for goods or services?   Do you have to carry around a scale and a machine to scrape from the gold mass?  I'd like to define what you mean - you don't go into Safeway and get your total, then shave off gold slices until you've reached your balance...

An e-commerce site is worth a thousand words... These are routinely used in exchange for goods and services around here.

[Vod]

Explain what you mean.  You actually took a sliver of gold or silver and gave it to someone in exchange for goods or services?   Do you have to carry around a scale and a machine to scrape from the gold mass?  I'd like to define what you mean - you don't go into Safeway and get your total, then shave off gold slices until you've reached your balance...

An e-commerce site is worth a thousand words... These are routinely used in exchange for goods and services around here.

Ok, so they give you credit based on the amount of precious metals you have deposited at a third party?  That's not spending silver/gold on a purchase any more than using a debit card is spending cash on a purchase.

When I say currency I mean something I can give to anyone that is accepted and can be reused by that same person anywhere.   In the old days you could give a gold coin to someone for a cow, and they in turn could give that same coin to someone else.   Today it's not likely you carry an ounce of gold and trade it to any merchant for goods or services, because said merchant would need a way to verify the quantity and quality of the gold, and know someone else they want to do business with who could also do the same verification.

[error]

Explain what you mean.  You actually took a sliver of gold or silver and gave it to someone in exchange for goods or services?   Do you have to carry around a scale and a machine to scrape from the gold mass?  I'd like to define what you mean - you don't go into Safeway and get your total, then shave off gold slices until you've reached your balance...

An e-commerce site is worth a thousand words... These are routinely used in exchange for goods and services around here.

Ok, so they give you credit based on the amount of precious metals you have deposited at a third party?  That's not spending silver/gold on a purchase any more than using a debit card is spending cash on a purchase.

When I say currency I mean something I can give to anyone that is accepted and can be reused by that same person anywhere.   In the old days you could give a gold coin to someone for a cow, and they in turn could give that same coin to someone else.   Today it's not likely you carry an ounce of gold and trade it to any merchant for goods or services, because said merchant would need a way to verify the quantity and quality of the gold, and know someone else they want to do business with who could also do the same verification.

Excuse me, but you need to look at that again.