Bitcoin Deflation and Its' problems

[abhutra]

I like the blogs published by Bitmex. One of the awesome sources to gather knowledge around cryptocurrency.

In this blog they discuss problem and benefits of deflationary economics. https://blog.bitmex.com/bitcoin-economics-part-3/

To quote from this:

However, even if Bitcoin has solved this economic problem, perhaps it’s naive to think Bitcoin would result in a more prosperous economic system. Bitcoin is a new and unique system, which is likely to cause more economic problems, perhaps unexpected or new ones. After all there is no perfect money. It just may not be correct to apply the traditional economic problems of the past, to this new type of money. Although it may be more difficult, identifying Bitcoin’s potential economic problems may require more analysis and a stronger understanding of the underlying technology.

I agree that it's a new kind of monetary system and it would have it's own problem when it becomes well adapted. but economically speaking do we need this system adding to the complexity already existing financial system.

[1714052810]

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[1714052810]

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[hugeblack]

I do not think debt will be a problem in the case of Bitcoin. Limitedness will not cause the real value of debt to increase because more money can’t be created "as banks do."

Bitcoin has problems, these problems are not only technical, but I do not expect to stabilize as happens to gold, which leads to a weak economic system built on those currencies.

I tend to a scenario that currencies can be mined according to "no maximum number" restrictions, leading to stability and non-fluctuating prices.

thanks for sharing that URL.

[Epimetheus]

Bitcoin is decentralised digital currency which means it doesn't under control any kind of authority or government. It is an independent currency. And Because of this it is not globally accepted, many countries ban it in their country. Bitcoin is used for investment purposes but its high volatile nature produce difficulties. It is mainly used d for online transfer of money. In this fiat currency transfer in the form of bitcoin, but once transaction is done then it can't be reversed. The whole bitcoin thing runs over Internet, if virus corrupt the data or if hardware crashes then their will be no physical evidence to claim of your bitcoin.  

[magneto]

Bitcoin is actually inflationary, not deflationary.

I guess it depends on what your definition of deflation is. But if you consider deflation to be a general decline in the money supply, then bitcoin's currency level actually never goes down. There is a constant increase in that, each block that's been mined.

However, the level of inflation just slows down over time due to halvings.

We could see potential deflationary issues when bitcoin nears its supply ceiling, and the rate of lost coins exceed that of new coins coming in, but even then it's unlikely that it'll affect any single country as bitcoin is global. Besides, if bitcoin serves as a niche, safe haven asset in the future for those who want to save their wealth in the long run, there is nothing wrong with its supply being capped and potentially even decreased, just like gold. It's a store of value - after all.

[Samarkand]

...
I guess it depends on what your definition of deflation is. But if you consider deflation to be a general decline in the money supply, then bitcoin's currency level actually never goes down.
...

In the long-term a general decline in the BTC supply seems pretty likely to me.
As soon as the amount of lost coins (people that die with their BTC, lost private keys
and other scenarios) is higher than the amount of BTC that is created as block reward,
we will see exactly this situation where the available BTC supply declines.

Therefore I´d argue that BTC is inflationary in the first few decades and later turns into
a deflationary asset.

[Lieldoryn]

...
I guess it depends on what your definition of deflation is. But if you consider deflation to be a general decline in the money supply, then bitcoin's currency level actually never goes down.
...

In the long-term a general decline in the BTC supply seems pretty likely to me.
As soon as the amount of lost coins (people that die with their BTC, lost private keys
and other scenarios) is higher than the amount of BTC that is created as block reward,
we will see exactly this situation where the available BTC supply declines.

Therefore I´d argue that BTC is inflationary in the first few decades and later turns into
a deflationary asset.

Eventually, bitcoin should become a full-fledged currency. In this case, bitcoin offers will be stable because it will be its turnover in the economy. The lost coins and the lack of emission will affect the value of the coins but it will be a slow correction which will not have a significant impact.

[keycellko]

I dont think deflation will be a problem with bitcoin nowadays because we are still mining bitcoins. The problem with deflation comes when all the bitcoin has been mined and the supply of bitcoin becomes near to constant.

[mine23]

Sometime i think thats bitcoin had down the news about thats bitcoin have hacked, its so sad whe i hear thats who make price deopped

[wxa7115]

I like the blogs published by Bitmex. One of the awesome sources to gather knowledge around cryptocurrency.

In this blog they discuss problem and benefits of deflationary economics. https://blog.bitmex.com/bitcoin-economics-part-3/

To quote from this:

However, even if Bitcoin has solved this economic problem, perhaps it’s naive to think Bitcoin would result in a more prosperous economic system. Bitcoin is a new and unique system, which is likely to cause more economic problems, perhaps unexpected or new ones. After all there is no perfect money. It just may not be correct to apply the traditional economic problems of the past, to this new type of money. Although it may be more difficult, identifying Bitcoin’s potential economic problems may require more analysis and a stronger understanding of the underlying technology.

I agree that it's a new kind of monetary system and it would have it's own problem when it becomes well adapted. but economically speaking do we need this system adding to the complexity already existing financial system.

It is the opposite, it is true that bitcoin and its low inflation nature will cause a change in the economy in the case that is massively adopted, but bitcoin in fact is going to simplify things up and not make them more complicated, for example the CPI is a measure of how much the prices have changed over the course of time to measure inflation but it has been shown by many that the numbers of the government are fixed an the same happens in many countries.

Bitcoin will fix that since there will be a very low inflation, this means that economic growth is not going to be as fast or as big as before but unlike the current growth that is fueled by inflation and that is not real the growth in a bitcoin economy the growth will be real.

[BrewMaster]

unfortunately those critics who are saying a finite monetary supply can be a poor economic policy, resulting in or exacerbating, economic crashes have ties to banks and their system and want to have control over printing money. which is why they see the alternative as a bad solution and seek to poke holes in it.

saying people are going to be unwilling to spend it because it is appreciating is assuming that bitcoin price will rise till eternity which is obviously wrong. there is a cap for everything even for bitcoin price. it won't continue to grow forever and it won't always give 100%-2000% profit per year. we will eventually reach a more balanced market when the mass adoption hits or at least reach a level where the adoption growth is not enough to increase the price that much. and by then we will see a better stability in price.

I tend to a scenario that currencies can be mined according to "no maximum number" restrictions, leading to stability and non-fluctuating prices.

i disagree.
when a coin has no cap (or maximum number) then you are introducing another extremity to that coin. and the arguments that were made here about people being unwilling to spend it and the coin not being capable of fulfilling what society needs as one of the quotes in the article says becomes true. because a coin with no cap will always continue to go down in value. and nobody is going to even buy a coin that can for instance buy 2 cups of coffee today and 1 cup tomorrow and not even half a cup by the end of the week.

[kryptqnick]

Deflation is an interesting topic and it is definitely not brought up often enough. Fiat currencies are bound to fail eventually, because countries borrow money from each other and don't have sufficient funds to pay the debts. This makes the idea of simply printing a bit more money very attractive, but in the end it causes inflation. And if this country is US, it also probably causes a really hard economic crisis.
I don't understand, however, why the article op mentions is talking about naive bitcoin users who don't understand that deflation is bad. Yes, bitcoin is not susceptible to inflation because of its limited supply. However, I don't think it necessarily means it will lead to deflation. If bitcoin was the only currency then it necessarily would, but it is definitely not the case anyway. Btc price rising extremely high in usd will lead to spending less of it on goods, yes, but I don't think people are going to do that anyway. It's a tricky and confusing matter, but imo things might just stabilize eventually without leading to inflation or deflation.

[tbterryboy]

Sometime i think thats bitcoin had down the news about thats bitcoin have hacked, its so sad whe i hear thats who make price deopped

Cryptocurrencies are safe to use and there is nothing risky or hacking activities if you keep your privacy secure. Now learn how you will keep your privacy secure us very easy and there will be nothing hacking activities around you. Use your wallet with care and do not share your pass key or password with any other person so that no one may know your gate key to enter into your home.

[nicster551]

I like the blogs published by Bitmex. One of the awesome sources to gather knowledge around cryptocurrency.

In this blog they discuss problem and benefits of deflationary economics. https://blog.bitmex.com/bitcoin-economics-part-3/

To quote from this:

However, even if Bitcoin has solved this economic problem, perhaps it’s naive to think Bitcoin would result in a more prosperous economic system. Bitcoin is a new and unique system, which is likely to cause more economic problems, perhaps unexpected or new ones. After all there is no perfect money. It just may not be correct to apply the traditional economic problems of the past, to this new type of money. Although it may be more difficult, identifying Bitcoin’s potential economic problems may require more analysis and a stronger understanding of the underlying technology.

I agree that it's a new kind of monetary system and it would have it's own problem when it becomes well adapted. but economically speaking do we need this system adding to the complexity already existing financial system.

Everything in this world has some flaws. But it is for us whether we want to it not and also it is up to us to improve its uses and for use to let ourselves be useful by taking an action towards it.

[Hydrogen]

However, even if Bitcoin has solved this economic problem, perhaps it’s naive to think Bitcoin would result in a more prosperous economic system. Bitcoin is a new and unique system, which is likely to cause more economic problems, perhaps unexpected or new ones.

I would like to see a serious attempt made @ detailing what specific issues bitcoin could run into as a deflationary currency. 

One of the common criticisms aimed at deflationary currencies is lack of overprinting to compensate for errors made in budgeting. But then looking at venezuela, turkey and other nations suffering from high inflation as a result of fiat overprinting perhaps lack of overprinting inherent in deflationary currency can be a good thing.

Some also claim that deflationary currencies make loan processes more difficult than it has to be which has negative economic trends in small businesses and individuals having greater difficulty obtaining credit and loans.

Many experts and analysts say things and expect the public to believe them in blind faith without evidence. Its a dangerous precedent. Society could benefit from greater transparency and deeper discussion of topics like economics and finance which affect billions of lives.

[JosephStalin]

I like the blogs published by Bitmex. One of the awesome sources to gather knowledge around cryptocurrency.

In this blog they discuss problem and benefits of deflationary economics. https://blog.bitmex.com/bitcoin-economics-part-3/

To quote from this:

However, even if Bitcoin has solved this economic problem, perhaps it’s naive to think Bitcoin would result in a more prosperous economic system. Bitcoin is a new and unique system, which is likely to cause more economic problems, perhaps unexpected or new ones. After all there is no perfect money. It just may not be correct to apply the traditional economic problems of the past, to this new type of money. Although it may be more difficult, identifying Bitcoin’s potential economic problems may require more analysis and a stronger understanding of the underlying technology.

I agree that it's a new kind of monetary system and it would have it's own problem when it becomes well adapted. but economically speaking do we need this system adding to the complexity already existing financial system.

We still didn't discover yet all the problems connected with the deflationary aspect of Bitcoin. We are not enjoying some positive aspects, but the negative will pop up eventually.

[FreeEarnsActivist]

It's not like BTC is set in stone as to what the code is. Maybe in the future we will democratically decide, that the limit should be increased as to keep the influx of the coins stable and fixed to our needs.

[maryriver]

I do not think debt will be a problem in the case of Bitcoin. Limitedness will not cause the real value of debt to increase because more money can’t be created "as banks do."

Bitcoin has problems, these problems are not only technical, but I do not expect to stabilize as happens to gold, which leads to a weak economic system built on those currencies.

I tend to a scenario that currencies can be mined according to "no maximum number" restrictions, leading to stability and non-fluctuating prices.

thanks for sharing that URL.

Debt will only become a problem for bitcoin if knaves like MasterCard are allowed to create a bitcoin payment system with fractional reserve access to the currency. This would basically allow them to issue credit cards that the users can spend with, and MasterCard will only need to hold %10 of the total bitcoins being spent at any given time. The rest of it will be "debt" or bitcoin created out of thin air.

How on earth can a limited asset be lent out when there is none available? Well, that's exactly the problem that bitcoin tried to solve. Now they want to use it for themselves.

[maculeth]

very good and helpful article. it is true that bitcoin fans like the limited supply of 21 million, and when it is thinning it will make the price even higher and they are ready to sell it for profit. but on the other hand, it's very bad for the economy. I also think that bitcoin supply should not be limited and remain in the market without paying attention to the limited supply circulation.

[timerland]

I like the blogs published by Bitmex. One of the awesome sources to gather knowledge around cryptocurrency.

In this blog they discuss problem and benefits of deflationary economics. https://blog.bitmex.com/bitcoin-economics-part-3/

To quote from this:

However, even if Bitcoin has solved this economic problem, perhaps it’s naive to think Bitcoin would result in a more prosperous economic system. Bitcoin is a new and unique system, which is likely to cause more economic problems, perhaps unexpected or new ones. After all there is no perfect money. It just may not be correct to apply the traditional economic problems of the past, to this new type of money. Although it may be more difficult, identifying Bitcoin’s potential economic problems may require more analysis and a stronger understanding of the underlying technology.

I agree that it's a new kind of monetary system and it would have it's own problem when it becomes well adapted. but economically speaking do we need this system adding to the complexity already existing financial system.

If bitcoin was to just be an alternative currency in the future to existing world fiat currencies, then there is really no problem with it being deflationary whatsoever, or having a stagnant currency supply for that matter.

Prices would theoretically simply continue rising, as bitcoin would represent essentially approximately the same underlying real value, but with fiat depreciation, would increase in nominal value. This has nothing wrong, in my opinion.

If bitcoin was to become the single dominant global currency, then it's probably a different story. We don't know what's going to happen, since there simply has been no precedents before with a controlled disinflationary currency. However, what we do have is the advantage of such currency, as it's not based on debt, and has a stable supply - meaning that depreciation would not occur like it does on fiat currencies.

[boled]

The value of Bitcoin will only increase until it plateaus and the last Bitcoin is mined (issued). It might jerk up and down but it’s the oldest cryptocurrency and we’re seeing it stabilize today, right before our very eyes.