Why is Inflation a Bad Thing?

[deisik]

I believe there should be inflation to get the economy of Bitcoin going so the market cap rises on actual economic activity than pointless speculation. This should be fixed at about 1.5% annually. This will encourage investment and commerce, which is the point of a currency

You seem to be confusing cause and effect here

Inflation is an effect, not a cause. In simple terms, you can't say that this inflation rate (like 1.5% annually) is good while another rate is bad. You can't say that without taking into account the causal relationship in which inflation is only a dependent variable (in reality, things are more complicated than that but in general it is safe to assume so). It is not inflation that makes the economy tick, it is the economy ticking which determines optimal inflation rates. And in certain cases, these rates should be negative, i.e. turn into deflation

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[mrdefendername]

New coins just turn the market into a trash. I am for limited number of coin only the most liquid should stay.
Also I think that you looked at the inflation not from every side. Imagine yourself in the situation when prices for food, gasoline, government services are growing all the time but your salary stays the same. Not rainbowly, right? Previous example with Venezuela is one of the freshest and hardest examples.

It is unfortunate to admit that this situation is not only in Venezuela. In many countries so.
And about the coins, do not worry. How many would not create them, will survive from them somewhere 10% in the future. Just now everyone wants to create their own and stay afloat.

[Crypdon]

Inflation is not good nor bad, it depends on how it is managed. As we have seen in venezuela and zimbabwe inflation can be a killer to the economy, and the best way to beat it is to switch to a decentralised currency like bitcoin.

[EXPool]

Inflation is not bad and not good -- you just have always to work for a man with the printing press (who creates dollar bills) or will lose in worth most of your savings in a few years.

[Halmater]

Inflation is an important indicator of instability of a currency or in the economy of the country concerned. Also, controlling inflation rate is not an easy thing and may cause unwanted consequences.

[crzy]

Inflation is an important indicator of instability of a currency or in the economy of the country concerned. Also, controlling inflation rate is not an easy thing and may cause unwanted consequences.

We cannot stop this from increasing because our world continues to develop new technologies that makes inflation more expensive. Its good to determine the value of your money but if you didn't prepare for that you will be lose more in the future, and that’s a bad thing for you.

[hatshepsut93]

I see a lot of anti-inflation sentiment around. I am frankly in disagreement with it all. The 'hodl' mentality is deflationary spiral nonsense which does nothing to help the economy of Bitcoin.

I believe there should be inflation to get the economy of Bitcoin going so the market cap rises on actual economic activity than pointless speculation. This should be fixed at about 1.5% annually. This will encourage investment and commerce, which is the point of a currency.

Deflationary spiral doesn't apply to Bitcoin in traditional sense, because Bitcoin makes up for a very small amount of financial transactions, and it's not isolated from fiat economy. We would need a big portion of the population switching to Bitcoin in order to start noticing negative effects of deflation.

It's true that deflation to some extent encourages hoarding, but Bitcoin has properties that in certain situations make it preferable to use rather than traditional payment methods. If you need privacy or immutability, you have almost no choice but to use Bitcoin on the Internet. Also, people have time preferences, they don't think about the future 100% of the time, in fact they often care about it not enough. People don't spend fiat on consumer items because they know that it will decrease in value in the future, if this was the case, they would just invest it in some fund.

On the other hand, inflation might be needed in the future to subsidize mining in case the hashrate of the network would drop too low after many halvings, and the risk of 51% will become big.

[1Referee]

On the other hand, inflation might be needed in the future to subsidize mining in case the hashrate of the network would drop too low after many halvings, and the risk of 51% will become big.

Side chains have always been pointed at as being the next big thing for Bitcoin, and if that's so, the rewards miners scoop up for merge mining them will significantly contribute to their income if there is enough volume.

With how miners becoming more energy efficient, have more than one source of income, and the price that keeps going up over time, I'm pretty certain that there isn't much to worry about. There is plenty enough time for Bitcoin to accumulate adoption and actual use, and that's what I am looking forward to.

The past has been a great indicator for the future when it comes to halvings versus mining rewards in fiat value, and there is no reason to expect it to change.

[deisik]

On the other hand, inflation might be needed in the future to subsidize mining in case the hashrate of the network would drop too low after many halvings, and the risk of 51% will become big

It doesn't look like a very bright idea

Why should we subsidize mining provided we live up to that? That would most certainly mean making some radical changes in the underlying protocol (likely involving a hard fork) but if it ever comes to such changes, the idea of getting rid of miners altogether and implementing another technology for confirming transactions looks a lot more promising. Mining as we know it today is dragging Bitcoin down as no one will be using it, say, for international settlements while depending on a bunch of rogue miners to confirm these settlements

[figmentofmyass]

On the other hand, inflation might be needed in the future to subsidize mining in case the hashrate of the network would drop too low after many halvings, and the risk of 51% will become big.

that's really only an issue if we go the big blocker route. in fact, it's probably the biggest argument against ever increasing block size---doing so creates incentives to start inflating supply when miner incentives inevitably start failing. (i think this may have been one of bitmain's ultimate motivations in backing block size increases)

with constantly full blocks and a backlog of demand for confirmations, i have a lot more confidence that bitcoin's design (eventual zero inflation) can work.

[taskly]

Inflation is a bad thing. It not only affects the flow of economies but also the way of life of every people in each country.

JUst look at how severe the economy of Venezuela right now, I think Zimbabwe felt the same kind of inflation Venezuela had, if not worse.

In Venezuela, Zimbabwe, Weimar Germany inflation is the effect, not a cause. In the west, we treat inflation as a cause and something to be carefully managed. In Venezuela, Zimbabwe their currency is worthless even if there's zero inflation.

[figmentofmyass]

Inflation is a bad thing. It not only affects the flow of economies but also the way of life of every people in each country.

JUst look at how severe the economy of Venezuela right now, I think Zimbabwe felt the same kind of inflation Venezuela had, if not worse.

In Venezuela, Zimbabwe, Weimar Germany inflation is the effect, not a cause. In the west, we treat inflation as a cause and something to be carefully managed. In Venezuela, Zimbabwe their currency is worthless even if there's zero inflation.

this confuses two different meanings of "inflation".

monetary inflation = an increase in the money supply.
price inflation =  an increase in general prices of goods and services.

these terms are related but not interchangeable. monetary inflation can cause price inflation because increasing the money supply essentially devalues each unit of money. but price inflation can be caused by other factors that have nothing to do with money supply---like lack of faith in the currency issuer.

[PlusOne88]

It is a bit pointless to see how we would do all sorts of things just to make bitcoin go up in value. The idea almost seems to make things more complicated and maybe worst. The best method I think would be to give it the realistic demands or usage. Why is it dropping in prices? One reason could be because too many are holding bitcoin and are not really using it for the purpose it was made to be. When majority of the   people or investors are just waiting for values to go up while only a few are using it really, a sudden dump will always follow after a rise in bitcoin value. This is not good for the bitcoin economy and neither for the investors. This will only lead to no where until people will realize the need to change strategies.

[Indamuck]

If people prefer to have high inflating cryptocurrency to spend instead of bitcoin there are many other options out there with a much higher rate.  Bitcoin is seen as digital gold in the eyes of many and alt coins may serve as the daily currency for minor transactions in the future.

[yunzau]

it's bad because it affects a lot of things like excess liquidity and as an indicator to see the level of price change. but inflation won't happen to bitcoin because satoshi created a limited number

[Julunguul]

Inflation is an important indicator of instability of a currency or in the economy of the country concerned. Also, controlling inflation rate is not an easy thing and may cause unwanted consequences.

We cannot stop this from increasing because our world continues to develop new technologies that makes inflation more expensive. Its good to determine the value of your money but if you didn't prepare for that you will be lose more in the future, and that’s a bad thing for you.

Some people will certainly suggest to prepare themselves for this, because this kind of condition can happen suddenly, the impact is also only on a country, but also other countries especially those that have very good economic links with other countries.

[BestSSS]

I agree with the author of the post, inflation at 1-2% is a completely normal situation, and sometimes it is only because of it that everything develops and moves in the structure of the economy. Deflation is even worse than inflation, which is what they really fear. It is impossible for people to buy more than the economy can accept.
The number of bitcoins decreases every year despite the fact that

[shield132]

Why? Because it's like comparing being weak and strong/healthy, which condition is bad? First of course because it needs time to be fixed and during that time you feel bad. Inflation means rise in prices while usually keeping same wage, so much money goes from you pocket or sometimes you even have to make serious economy. Overally it causes panic, people spend less money and business becomes more hard to manage.
I just said that on inflation, in bitcoin's situation, yeah hodl is absolutely supportive of inflation, you don't move money and do nothing, that's very bad overally for economy, money don't has to be in stuck.
Bitcoin is very badly designed for lost coins, it needs to be changed.

[deisik]

Why? Because it's like comparing being weak and strong/healthy, which condition is bad? First of course because it needs time to be fixed and during that time you feel bad. Inflation means rise in prices while usually keeping same wage, so much money goes from you pocket or sometimes you even have to make serious economy. Overally it causes panic, people spend less money and business becomes more hard to manage

That depends on inflation rates

Small rates (like 2-3% annually) are useful for the economy as they prevent it from stagnating by stimulating production. So if we take your example with being weak or ill, physical exercise, a bit of stress and some exposure to non-lethal agents can in fact be quite useful and beneficial as it allows the body to fine tune its defenses and keep them up to date, so to speak. Without these stress factors the body will quickly lose its fitness and acquired adaptations

[JohnyMnemonik]

The author is obviously a little confused about the concept of inflation. But still he is right that 1-2% should be in order to avoid negative consequences that may appear in the end.