Why Bitcoin Will Never Have A Problem With Deflation

[CryptoCurrencyInc.com]

Why Bitcoin Will Never Have A Problem With Deflation

There's a lingering misconception out there that deflation will be a problem for Bitcoin, and that will prevent it from widespread use.

The argument (which, full disclosure I used to believe) basically goes like this: Because there's a fixed amount of the coins, people will horde them on anticipation of rising prices, and this hording will prevent the actual spending of currency, and therefore Bitcoins can only be speculative tools.

This argument stems from the correct argument that economists make about national fiat currencies, which is that when you're in a period of deflation (characterized by falling prices and a rising currency) economic activity slows down, because you'll have more buying power tomorrow than you did today, and so what's the rush to spend?

Read more: http://www.businessinsider.com/bitcoin-doesnt-have-a-deflation-problem-2014-2#ixzz2sUf2O4DP

[Phrenico]

This argument stems from the correct argument that economists make about national fiat currencies, which is that when you're in a period of deflation (characterized by falling prices and a rising currency) economic activity slows down, because you'll have more buying power tomorrow than you did today, and so what's the rush to spend?

This same argument suggests that when gold was used as a currency, it must have gone to infinity in value. It's idiotic.

So, Joe, you're halfway there.

[reymarkperry]

Whether bitcoin will deflate or not, I don’t think it will affect its promising future to succeed.

[BTCisthefuture]

Interesting article. 

It will be interesting to see how bitcoin plays out... it is accurate that if something is going to go up in value people wont spend it, however it's also true that if it keeps going up in value you might spend profits. Or simply spend it and then quickly rebuy and hold.

[Sonny]

Thanks for the sharing the article.
I don't completely agree with it, but it is still a good read.

[jbreher]

Some of jbreher's random aggregated thoughts on deflationary bitcoin:

- Bitcoin is currently inflationary. It won't become deflationary for about a century yet.

- 'Deflation will result in bitcoin being worth so much that it will be worthless' (yes, that's essentially what a lot of the naysayer's arguments boil down to). It should be obvious that I write this only to publicly shame the notion.

- the creation of a deflationary currency alongside a plethora of inflationary currencies still yields net inflation - the overall economy is safe.

- pet peeve: if something is 'good for the economy', but bad for individuals, we have a piss-poor definition of 'the economy', 'what's good for it', or both.

- Krugman has asserted that 'bitcoin will fail -- people will not use it-- because it is inflationary, which is bad for the economy'. I call bullshit. What he calls 'the economy' is made up of individuals. 'The economy' does not choose what currencies it will employ. The various individuals within 'the economy' each make their own choices about what (which) currency(ies) they will employ. The most fundamental assumption in economics may be the one that states that 'individuals will act in a manner that maximizes their personal gain'. All else being equal, using a currency that gains in value as one holds it is definitely a benefit to that individual. Ergo, deflationary currencies possess a strong adoption incentive. tl;dr: 'the economy' does not get to choose what currency will be employed.