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Author Topic: The Bitcoin deflation annoyance  (Read 3572 times)
Blinken
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October 25, 2011, 07:58:36 PM
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Despite the current trend of Bitcoins losing value against the dollar I think long term the greater annoyance is going to be a constant rise in value. As more crypto currency is used its value will increase and since the quantity of coins is limited at 21 million the value of each coin will keep increasing. This will be annoying for two reasons:

(1) the prices of things will be constantly changing since the currency will keep deflating

(2) we will be dealing in decimal units. Quoting ridiculous prices like BC0.000013 or whatever will be very annoying and a lot of invoicing systems are not designed to handle cents values below 1/100

I think ultimately we will have to make a competing client that breaks the 21 million limit and uses a more practical value scale and rate of inflation.

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October 25, 2011, 08:05:10 PM
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This has been talked about extensively, and you are not alone in your opinion. However I would personally have no interest in a currency with such controls. I prefer to think of BTC like gold. With a fixed supply and a variable demand.

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October 25, 2011, 08:12:14 PM
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(1) the prices of things will be constantly changing since the currency will keep deflating

That's true of the US Dollar as well, but instead of the money losing purchasing power it will gain purchasing power. The rate of change will be driven lower by speculators long term (if everyone knows Bitcoins will rise in price, speculators will buy them, rising the price in the present). Over time, you will see a gradual, relatively predictable price and its annoyance for repricing goods should not be overwhelming. How many times per day does Wal Mart change the price on a good in their store? It's no great burden.


(2) we will be dealing in decimal units. Quoting ridiculous prices like BC0.000013 or whatever will be very annoying and a lot of invoicing systems are not designed to handle cents values below 1/100

Have some foresight!  A name will be given to smaller units. Perhaps the .00000001 unit will be called the Satoshi (seems to be catching on). In such a case where BTC is extremely valuable, your coffee will simply be "5.30 satoshis".   Nomenclature is a non-issue, the market will easily figure out efficient naming schemes.


I think ultimately we will have to make a competing client that breaks the 21 million limit and uses a more practical value scale and rate of inflation.

Go for it. I won't be buying it.  
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October 25, 2011, 08:14:08 PM
 #4

Despite the current trend of Bitcoins losing value against the dollar I think long term the greater annoyance is going to be a constant rise in value. As more crypto currency is used its value will increase and since the quantity of coins is limited at 21 million the value of each coin will keep increasing. This will be annoying for two reasons:

(1) the prices of things will be constantly changing since the currency will keep deflating

price volatility is hardly an unheard of phenomenon in any currency system.

(2) we will be dealing in decimal units. Quoting ridiculous prices like BC0.000013 or whatever will be very annoying and a lot of invoicing systems are not designed to handle cents values below 1/100

They can adapt or die.  It isn't rocket science.  Indeed, having decimal places already makes the jump that much easier.  It's not like (most) people are forced into using base-e or something.

I think ultimately we will have to make a competing client that breaks the 21 million limit and uses a more practical value scale and rate of inflation.
The more the merrier in my opinion.  People can choose which one suites them and exchanges can do a good business automatically adjusting for people so they won't need to care that much, though they could save the exchange fee by operating within their chosen block-chain.  My hope is mostly that each alternate chain is backed by value in the 'satoshi block-chain'.

Blinken
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October 25, 2011, 08:14:58 PM
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This has been talked about extensively, and you are not alone in your opinion. However I would personally have no interest in a currency with such controls. I prefer to think of BTC like gold. With a fixed supply and a variable demand.

Gold does not have a fixed supply. Over 2,000 tonnes are mined every year, increasing the supply by at least 1% annually if not more.

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October 25, 2011, 08:18:53 PM
 #6

(1) the prices of things will be constantly changing since the currency will keep deflating
Just set your prices relative to something else you find desirable (or perhaps your input costs) and let software do the updating for you.

(gasteve on IRC) Does your website accept cash? https://bitpay.com
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October 25, 2011, 08:26:06 PM
 #7

(1) the prices of things will be constantly changing since the currency will keep deflating

...

I think ultimately we will have to make a competing client that breaks the 21 million limit and uses a more practical value scale and rate of inflation.

While far in the future deflation would happen on a slow timescale, I think you might prefer a system where the currency strives to maintain the same buying power. See my signature.

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October 25, 2011, 08:30:13 PM
 #8

This has been talked about extensively, and you are not alone in your opinion. However I would personally have no interest in a currency with such controls. I prefer to think of BTC like gold. With a fixed supply and a variable demand.

Gold does not have a fixed supply. Over 2,000 tonnes are mined every year, increasing the supply by at least 1% annually if not more.


There is a finite amount of gold available for us to extract out of the earth, so yes, there is a fixed supply. We just know exactly when we'll run out of bitcoins to mine, whereas we can only guess at when we'll run out of economically available gold deposits. We've already mined all of the easy gold, it will only get more and more expensive to mine gold as time goes on.
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October 25, 2011, 08:31:21 PM
 #9

Simple solutions.

1) Price of everything is always changing.  Hell prices don't stop changing.  That is a complete non-issue.  Currently BTC has extreme volatility but that has nothing to do with deflation.

2) If we ever reached a point where one BTC was worth say $82,000 likely people would simply price things in Satoshi's.  


Likely most people would price everyday items in satoshis.  Large items could either be priced in BTC or BTC can become completely arhaic and people would simply express things in thousands, millins, billions of satoshis.

For example (@ $82,000 USD per BTC):
$5 fastfood meal = 0.000060976BTC or 6100 Satoshis.
$80,000 salary = 0.9756 BTC or 97.5 million Satoshis.
$3 mil company = 36.58 BTC or 3.6 billion Satoshis.

Alternatively SI prefixes could be used:
mBTC (microBTC) = 1/1000th BTC =         0.001 BTC
μBTC (miliBTC) = 1/1,000,000 BTC =         0.000001 BTC
nBTC (nanoBTC) = 1/1,000,000,000 BTC = 0.0000000001 BTC

Terminalogy will adapt to pricing in alternate units.  Of all things to worry about related to Bitcoin this is a complete non-issue.
Blinken
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October 25, 2011, 08:32:07 PM
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(1) the prices of things will be constantly changing since the currency will keep deflating

...

I think ultimately we will have to make a competing client that breaks the 21 million limit and uses a more practical value scale and rate of inflation.

While far in the future deflation would happen on a slow timescale, I think you might prefer a system where the currency strives to maintain the same buying power. See my signature.

Dude, your thing requires registration to read. There is no way I going to get tracked just to read your thing.

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memvola
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October 25, 2011, 08:33:27 PM
 #11

There is an immense amount of discussion in this forum regarding your points, so you'd need to focus on specifics in order to avoid repeating what others have said. Also, money supply inflates, so Bitcoin is "constantly" deflationary only if you assume a steeper adoption pattern, which is an unknown.

(1) Prices are always changing. We are talking about a massive adoption scenario, so in usual circumstances, prices shouldn't change faster than fiat currencies or even gold. Also, inflation or deflation doesn't matter in this case, so it's more a matter of volatility than deflation/inflation.

(2) Bitcoin's value will not increase 1 million-fold in just a year, or even a decade, so there is enough time for you to decide on a different unit. Use uBTC.

There is nothing to be done practically about matters that are unknown. These issues are pretty minor if you think about the timescale they are relevant. Instead of trying to predict the future, adopting a pattern that is easier to conceptualize was a better choice.

Gold does not have a fixed supply. Over 2,000 tonnes are mined every year, increasing the supply by at least 1% annually if not more.

So is it linear? We don't know. Have we reached peak gold? Will we discover a new way to mine it? These are all unknowns. There is definitely a fixed amount of gold we can mine within a practical timescale though. What we know, is that gold is a preferred medium for storing value because it is scarce and this will not change. It would the perfect medium if supply wasn't increasing.

We don't know the future of Bitcoin either. It would be undesirable to have a generation function that would get in a feedback loop with the price, even if it were possible. So the only option is to derive a function from the desired traits of the currency.
Etlase2
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October 25, 2011, 08:34:02 PM
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Dude, your thing requires registration to read. There is no way I going to get tracked just to read your thing.

mediafire doesn't require registration, I didn't even have to register to upload. And googledocs certainly doesn't.

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October 25, 2011, 08:41:23 PM
 #13

Despite the current trend of Bitcoins losing value against the dollar I think long term the greater annoyance is going to be a constant rise in value. As more crypto currency is used its value will increase and since the quantity of coins is limited at 21 million the value of each coin will keep increasing. This will be annoying for two reasons:
The effective quantity of Bitcoins is not limited to 21 million. Loans increase the effective quantity of Bitcoins. Alternative blockchains increase the effective quantity of Bitcoins. It won't be a problem -- unless you imagine a powerful government that prohibits all business practices the increase the effective monetary supply, the effective monetary supply will grow as the economy does.

For example, imagine we're in a bitcoin-based economy. I want to buy a car that costs 5,000 bitcoins, but I don't have 5,000 bitcoins. I borrow 5,000 bitcoins and in exchange give an IOU worth about 5,000 bitcoins. The 5,000 bitcoins I borrowed are still in the economy, being spent by the guy I got the car from. But the IOU is also in the economy, and it effectively adds an additional 5,000 bitcoins because it is interchangeable in the marketplace with 5,000 bitcoins.

I am an employee of Ripple.
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Blinken
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October 25, 2011, 08:46:29 PM
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There is an immense amount of discussion in this forum regarding your points, so you'd need to focus on specifics in order to avoid repeating what others have said. Also, money supply inflates, so Bitcoin is "constantly" deflationary only if you assume a steeper adoption pattern, which is an unknown.

(1) Prices are always changing. We are talking about a massive adoption scenario, so in usual circumstances, prices shouldn't change faster than fiat currencies or even gold. Also, inflation or deflation doesn't matter in this case, so it's more a matter of volatility than deflation/inflation.

(2) Bitcoin's value will not increase 1 million-fold in just a year, or even a decade, so there is enough time for you to decide on a different unit. Use uBTC.

There is nothing to be done practically about matters that are unknown. These issues are pretty minor if you think about the timescale they are relevant. Instead of trying to predict the future, adopting a pattern that is easier to conceptualize was a better choice.

Gold does not have a fixed supply. Over 2,000 tonnes are mined every year, increasing the supply by at least 1% annually if not more.

So is it linear? We don't know. Have we reached peak gold? Will we discover a new way to mine it? These are all unknowns. There is definitely a fixed amount of gold we can mine within a practical timescale though. What we know, is that gold is a preferred medium for storing value because it is scarce and this will not change. It would the perfect medium if supply wasn't increasing.

We don't know the future of Bitcoin either. It would be undesirable to have a generation function that would get in a feedback loop with the price, even if it were possible. So the only option is to derive a function from the desired traits of the currency.


Yes, I repeat stuff sometimes. That is because I forget I posted it before, so I post it again. You search on my posts and you are like, "Hey he posted that stupid story 3 times in the last 4 years." Of course, this is not necessarily bad, because let's face it, the average person is pretty stupid and you need to repeat stuff a lot before it sinks in.

Price stability is not a non-issue, it is a central goal of any monetary system. Gold achieves that goal because as it becomes more valuable, people work harder to extract it. For this reason gold has maintained a relatively stable value over the last 2,000. Believe or not the price of a goat, 2 gold dinars (or something like that, I forget exactly what it is), has remained pretty much the same as what it was in Mohammed's time (500AD).

For BC this will NOT be the case because there is an absolute limit to the supply. So, the policies of the existing BC client break one of the fundamental goals of a monetary system.

Also, although you can certainly start quoting things in micro Bitcoins or whatever, if you have any experience with accounting or invoicing systems you know this sort of thing is highly annoying and undesirable. Just waving your hands and saying a bunch of developers will solve this problem is something only a person inexperienced in these matters would say. If you have worked with real currencies and real retail systems you know the practicality of the denominational system is very important and has a significant impact on the willingness of people to use a currency.


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October 25, 2011, 08:47:54 PM
 #15

Despite the current trend of Bitcoins losing value against the dollar I think long term the greater annoyance is going to be a constant rise in value. As more crypto currency is used its value will increase and since the quantity of coins is limited at 21 million the value of each coin will keep increasing. This will be annoying for two reasons:
The effective quantity of Bitcoins is not limited to 21 million. Loans increase the effective quantity of Bitcoins. Alternative blockchains increase the effective quantity of Bitcoins. It won't be a problem -- unless you imagine a powerful government that prohibits all business practices the increase the effective monetary supply, the effective monetary supply will grow as the economy does.

For example, imagine we're in a bitcoin-based economy. I want to buy a car that costs 5,000 bitcoins, but I don't have 5,000 bitcoins. I borrow 5,000 bitcoins and in exchange give an IOU worth about 5,000 bitcoins. The 5,000 bitcoins I borrowed are still in the economy, being spent by the guy I got the car from. But the IOU is also in the economy, and it effectively adds an additional 5,000 bitcoins because it is interchangeable in the marketplace with 5,000 bitcoins.


I still think you're wrong about this. Imagine Alice, Bob, and Charlie make up the entire economy. Alice wants the widget that Bob is selling for 2 BTC, but has none. So she borrows from Charlie and pays Bob. Bob now has 2 BTC and Charlie as an IOU from Alice for 2 BTC. Would Bob trade his 2 BTC to Charlie for Alice's IOU? Are they of equal value? Only if Bob trusts that Alice will repay 2 BTC.

The IOU is not fungible because its value depends upon the probability that the debtor will repay their debt.
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October 25, 2011, 09:14:18 PM
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Also, although you can certainly start quoting things in micro Bitcoins or whatever, if you have any experience with accounting or invoicing systems you know this sort of thing is highly annoying and undesirable. Just waving your hands and saying a bunch of developers will solve this problem is something only a person inexperienced in these matters would say. If you have worked with real currencies and real retail systems you know the practicality of the denominational system is very important and has a significant impact on the willingness of people to use a currency.

I started developing accounting systems twenty years ago in COBOL (yeah I was a late adopter, hehe). I've been staying away from such sins for at least ten years now, so I'm a little rusty, but what I can say is that designing a currency system to fit current accounting applications is remarkably backwards. Congratulations.

Price stability is not a non-issue

It's not, but it's not about deflation either.

gold has maintained a relatively stable value over the last 2,000. Believe or not the price of a goat, 2 gold dinars (or something like that, I forget exactly what it is), has remained pretty much the same as what it was in Mohammed's time (500AD).

If this is true, it's just coincidence. There is no fundamental reason this should be the case.

the policies of the existing BC client break one of the fundamental goals of a monetary system.

Nope.
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October 25, 2011, 09:19:56 PM
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For example, imagine we're in a bitcoin-based economy. I want to buy a car that costs 5,000 bitcoins, but I don't have 5,000 bitcoins. I borrow 5,000 bitcoins and in exchange give an IOU worth about 5,000 bitcoins. The 5,000 bitcoins I borrowed are still in the economy, being spent by the guy I got the car from. But the IOU is also in the economy, and it effectively adds an additional 5,000 bitcoins because it is interchangeable in the marketplace with 5,000 bitcoins.

Yes, you can say that the 5,000 IOU adds additional 5,000 bitcoins into the economy, but this IOU should be considered less valuable than actual 5,000 bitcoins because there's counterparty risk attached to it, i.e. the borrower might default in case he fails to earn 5,000 actual bitcoins to repay the loan.

Another issue that springs to mind: how could there be interest on loans if the money supply is fixed, i.e. where would the new money for the interest come from...? There's a simple example of how it would work at http://mises.org/daily/4569:
Quote
Suppose there are two neighbors living in a community that uses actual gold coins as its money. Mr. Smith starts out with 1,000 gold coins, while his neighbor Mr. Brown starts out with none.

Brown asks Smith if he can borrow 100 gold coins for a month. Smith agrees, but insists on a 12.7 percent APR, which works out to 1 percent interest charged monthly. So on day one of this deal, Smith has 900 gold coins while Brown has 100.

At the end of the month, after whatever buying and selling he has done with the rest of the community, Brown has accumulated 100 gold coins in his possession. He pays that back to Smith. Ah, but Brown is still short 1 gold coin. So he offers to cut Smith's lawn and paint his fence (with materials provided by Smith). In return for this labor, Smith pays Brown 1 gold coin, which Brown then uses to pay off his interest.
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October 25, 2011, 10:14:13 PM
 #18

Also, although you can certainly start quoting things in micro Bitcoins or whatever, if you have any experience with accounting or invoicing systems you know this sort of thing is highly annoying and undesirable. Just waving your hands and saying a bunch of developers will solve this problem is something only a person inexperienced in these matters would say. If you have worked with real currencies and real retail systems you know the practicality of the denominational system is very important and has a significant impact on the willingness of people to use a currency.

Come on these are trivial problems.  It is a display issue nothing more.  You could make a modified client today which users enter payments in satoshis and it simply divides that entry by 1E-8 to get "whole BTC" behind the scenes. 

Only an inexperienced developer would think it is an issue.  Hell if you wanted to future proof your accounting software.  Record everything internally as integers in satoshis.  Then handle all I/O in another module which parses data in a variety of formats (BTC, mBTC, satoshis, etc).
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October 25, 2011, 10:26:56 PM
 #19

Also, although you can certainly start quoting things in micro Bitcoins or whatever, if you have any experience with accounting or invoicing systems you know this sort of thing is highly annoying and undesirable. Just waving your hands and saying a bunch of developers will solve this problem is something only a person inexperienced in these matters would say. If you have worked with real currencies and real retail systems you know the practicality of the denominational system is very important and has a significant impact on the willingness of people to use a currency.

Come on these are trivial problems.  It is a display issue nothing more.  You could make a modified client today which users enter payments in satoshis and it simply divides that entry by 1E-8 to get "whole BTC" behind the scenes. 

Only an inexperienced developer would think it is an issue.  Hell if you wanted to future proof your accounting software.  Record everything internally as integers in satoshis.  Then handle all I/O in another module which parses data in a variety of formats (BTC, mBTC, satoshis, etc).

Actaully, I believe internally bitcoins are represented as 64 bit ints.  The current code actually adds the decimal place and translates behind the scenes.  Internally they are stored as Satoishis.
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October 25, 2011, 10:29:27 PM
 #20

I thought that but I took a look at block explorer and it was in fractional BTC even when looking at raw view (maybe their "raw view" isn't that raw).  So I wasn't sure but I think you may be right.  I do recall reading something about internally the system handling everything as satoshis.
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