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Author Topic: Will deflationary model be a hindrance to general acceptance of Bitcoin?  (Read 4810 times)
Jim Hyslop
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March 06, 2011, 05:58:19 AM
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Hi,

I think I have a pretty good handle on the economic model of Bitcoin. As I understand it, as demand for BTC increases, the value of BTCs increases, pushing prices etc. down. Sounds reasonable to me. I think.

In the inflationary model, when prices go up too much John Q. Factoryworker goes to his boss (or his union) and says that prices have gone up, he needs a raise. Eventually (hopefully) he gets a raise, and the company raises its prices to cover its increases in expenses, thus triggering another round of inflation and economic growth. Everybody's happy.

In the deflationary model, prices will drop, which means the companies have fewer bitcoins to hand out to employees, so their salaries go down, so they barter down the amount they spend, thus triggering another round of deflation and everyone is happy.

Except - how do you convince the majority of people, who have no clue how the economy works, that getting pay cuts is... well, maybe not "good" but is certainly normal? And unless you can convince people to start using Bitcoins in every day transactions, I don't see how BTC are going to be accepted very much. And if they're not going to be used in every day transactions, what's the point?

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March 06, 2011, 06:08:31 AM
 #2

You don't convince people to use Bitcoin. They will have to find it for themselves.

Bitcoin is for the rational. That's a good thing.

Yes, I just gave you a non-answer. I consider this to be sufficient because any further evaluation will require the generalization of individuals. I like to think most are capable of some freewill.

People either accept it because they realize its fundamental sustainability or they don't. Frankly, I don't give too much of a damn one way or the other.
Dude65535
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March 06, 2011, 06:18:55 AM
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I don't think bitcoin is going to replace national currencies any time soon. It is more likely to end up working in parallel.

To simplify taxes I imagine an employer that offered to pay in bitcoin might keep track of all wages in the local currency and then just pay at the exchange rate if the employee wants to be paid in bitcoins. That would also eliminate the need for pay cuts.

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ShadowOfHarbringer
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March 06, 2011, 08:21:56 AM
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In the deflationary model, prices will drop, which means the companies have fewer bitcoins to hand out to employees, so their salaries go down, so they barter down the amount they spend, thus triggering another round of deflation and everyone is happy.

You have already answered yourself.
The prices will drop first, triggering the drop of salaries later.

The prices should always drop faster than salaries are falling, thus this system is much better for employess because in the current system prices rise first, and salaries rise second. In Bitcoin world, it's the opposite.
It is truly incredible how deeply manipulated society we are. Bankers made us think that (EDIT: deflation is bad) for us, while it always was the opposite.

So f you want to convince somebody to deflationary environment, say to him that not only will everything get cheaper faster than salaries fall, but it will be possible to earn money just by keeping them in your socks, without investing them or putting them to savings account.

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March 06, 2011, 10:39:57 AM
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So f you want to convince somebody to deflationary environment, say to him that not only will everything get cheaper faster that salaries fall, but it will be possible to earn money just by keeping them in your socks, without investing them or putting them to savings account.

That is an excellent selling point for the bitcoin system. Maybe it ought to be better publicized?
marcus_of_augustus
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March 06, 2011, 11:57:13 AM
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Encrypted socks bitcoin storage solution?

ShadowOfHarbringer
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March 06, 2011, 12:12:52 PM
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Encrypted socks bitcoin storage solution?

My socks alre already encrypted. Aren't yours ?

no to the gold cult
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March 06, 2011, 01:06:46 PM
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In the deflationary model, prices will drop, which means the companies have fewer bitcoins to hand out to employees, so their salaries go down, so they barter down the amount they spend, thus triggering another round of deflation and everyone is happy.

You have already answered yourself.
The prices will drop first, triggering the drop of salaries later.

The prices should always drop faster than salaries are falling, thus this system is much better for employess because in the current system prices rise first, and salaries rise second. In Bitcoin world, it's the opposite.
It is truly incredible how deeply manipulated society we are. Bankers made us think that (EDIT: deflation is bad) for us, while it always was the opposite.

So f you want to convince somebody to deflationary environment, say to him that not only will everything get cheaper faster than salaries fall, but it will be possible to earn money just by keeping them in your socks, without investing them or putting them to savings account.

I think you're demonization of banksters goes too far, they're simple folk really, not quite the devious masterminds you seem to take them for.

Do they conspire amongst themselves to rip the rest of us off? Sure! But you should realize that banksters like deflation too, because it makes their money worth more as well. But they are conflicted, profit motive means they like high interest rates... to charge as much as they can get away with for the use of the money they control. But they also operate in a market environment... It is a profound struggle in the soul of the bankster.

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ShadowOfHarbringer
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March 06, 2011, 01:44:56 PM
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I think you're demonization of banksters goes too far, they're simple folk really, not quite the devious masterminds you seem to take them for.

Few hundereds years of ripping everybody off is quite enough to do some demonization.
Some time ago they would be hanged for this. It's just today we are so stupid that we allow them to suck us dry and they not only go away with it, but they are actually treated with respect.

This is sick, and I am not exaggerating. Being a "simple folk" is not an explanation of anything.

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March 06, 2011, 02:01:55 PM
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This is sick, and I am not exaggerating. Being a "simple folk" is not an explanation of anything.

Yes, but I said somewhat more than that didn't I.

Sir, I respectfully propose that although bitcoin is really great, generally speaking ideological tunnel-vision is always worth snapping out of. The world is a very complex place, and demands more respect than "it's all <Groups> fault!"

Banksters shat all over the place and everyone knows it. Being simple-minded psycopaths, their response in the words of Bob Diamond is

"Banks Should Stop Saying Sorry"

These people aren't devious masterminds, they're just assholes. Various imperfections in human affairs have permitted such people to bungle and steal their way to the top of their chosen method. I'm more interested in better systems than I am in hating opportunistic scam-monkeys for exploiting a tactic that's worked so far.


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ShadowOfHarbringer
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March 06, 2011, 02:18:21 PM
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These people aren't devious masterminds, they're just assholes. Various imperfections in human affairs have permitted such people to bungle and steal their way to the top of their chosen method. I'm more interested in better systems than I am in hating opportunistic scam-monkeys for exploiting a tactic that's worked so far.

Agreed, today's bankers are not devious masterminds.

Devious masterminds were the ones that designed this system and put it in motion (probably Rotschild, Rockefeller, JP Morgan families). Possibly their descendants too.

barbarousrelic
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March 06, 2011, 02:22:07 PM
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The deflationary model (well, not deflationary, just very slowly inflationary) will encourage individuals to use it. It will not encourage institutions to choose it, but institutions may have to end up using it if enough individuals do.

Do not waste your time debating whether Bitcoin can work. It does work.

"Early adopters will profit" is not a sufficient condition to classify something as a pyramid or Ponzi scheme. If it was, Apple and Microsoft stock are Ponzi schemes.

There is no such thing as "market manipulation." There is only buying and selling.
MoonShadow
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March 06, 2011, 08:27:46 PM
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I don't think bitcoin is going to replace national currencies any time soon. It is more likely to end up working in parallel.


For a time, yes.  But that is how it works already.  Bitcoin is a parallel currency, that's not a future condition, and it's not the end result either.  IF you think about it, there are already many currencies that function in parallel with fiat currencies, but are not those currencies themselves.  One good example of this is Paypal.  They may express a user's account balance in their own national currency, but that balance is most certainly not that currency in any real form.  Paypal uses bits and bytes as much as Bitcoin does, but Paypal ties those bits and bytes to a currency, and takes the exchange fluctuation risks unto itself, which is one reason that Paypal must charge as much as a credit card company even though Paypal doesn't have the overhead of maintaining a massive transaction network itself.

I could give a dozen other examples of parallel currencies also pegged to the national currency, but in every case there is no harm to the national currency because it's pegged, and users think about their value in relation to the national currencies.  In this regard, Bitcoin is different.  There is neither the need, nor the realistic ability, to peg a bitcoin's value to any other currency.  So as laymen begin to discover and use it, their thought processes on value calculations change; from using a national currency as their sole common reference of value, to using more than one reference of value.  In doing so, it becomes impossible not to compare those frames of reference, and one will appear "better" to each individual.  If Bitcoin appears "better" than the fiat currencies, and is useful in this regard, then those fiat currencies begin to fall out of favor.  And it is favor alone that supports their value.  At this point, the values of those same fiat currencies crash, and then there is no more parallel currencies, or there will be, but they will be expressed in Bitcoin as their common value reference instead of the national currencies.

This process could take decades, but I doubt that it really will.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
kiba
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March 06, 2011, 08:32:18 PM
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This process could take decades, but I doubt that it really will.

As we move toward the future, the saturation of technological adoption is being reached at an ever faster pace.

Therefore, if bitcoin is a pivotal technology, then it will reach adoption at a rate that will exceed the ability of governments to react.

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March 06, 2011, 08:40:45 PM
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This process could take decades, but I doubt that it really will.

As we move toward the future, the saturation of technological adoption is being reached at an ever faster pace.

Therefore, if bitcoin is a pivotal technology, then it will reach adoption at a rate that will exceed the ability of governments to react.

This is a good point.

I think an interesting problem is to determine the threshold size of hashrate for the bitcoin network for when it becomes unstoppable, in terms of brute force hash attack.

You would have to consider how much other power could be bought against it, e.g., combined hash-power of G20 spooks and banks machinery for example.

Anybody want to come up with a number?

kiba
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March 06, 2011, 08:46:02 PM
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This is a good point.

Note that technological adoption saturation in general is getting faster. (I will need to cite this, though)

Bitcoin was invented in 2009, but only really took off about 8 months ago.

ShadowOfHarbringer
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March 06, 2011, 08:59:35 PM
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This process could take decades, but I doubt that it really will.

As we move toward the future, the saturation of technological adoption is being reached at an ever faster pace.

Therefore, if bitcoin is a pivotal technology, then it will reach adoption at a rate that will exceed the ability of governments to react.

Governments reacting quick qnough to stop a technology ? Highly doubtable.

Just check out the following examples: Internet, P2P, BitTorrent, ThePirateBay... Government was never there on time to stop developments of that things.

JA37
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March 06, 2011, 09:05:59 PM
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Wait!, what?

So, just how am I going to get anyone to accept a pay-cut?
From a employees perspective, a round of deflation is just like a raise. Just keep the current salary and you get to buy more stuff with the same amount. I don't see why anyone would agree to a pay-cut.

And as an investor, why should I take a risk and invest my money in any business if I get "safe interest" by doing nothing?

I like bitcoin, and I think it has potential as an internet currency, but I doubt it'll be a major player in the financial market.

Ponzi me: http://fxnet.bitlex.org/?ref=588
Thanks to the anonymous person who doubled my BTC wealth by sending 0.02 BTC to: 1BSGbFq4G8r3uckpdeQMhP55ScCJwbvNnG
Garrett Burgwardt
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March 06, 2011, 09:11:23 PM
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Wait!, what?

So, just how am I going to get anyone to accept a pay-cut?
From a employees perspective, a round of deflation is just like a raise. Just keep the current salary and you get to buy more stuff with the same amount. I don't see why anyone would agree to a pay-cut.

And as an investor, why should I take a risk and invest my money in any business if I get "safe interest" by doing nothing?

I like bitcoin, and I think it has potential as an internet currency, but I doubt it'll be a major player in the financial market.


Greedier people will invest their bitcoins. People who want a safe investment will just hold onto them.
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March 06, 2011, 09:13:10 PM
 #20

Inflationary model is a hindrance to general adoption of a currency because who would want to invest in something that lose value?

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