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Author Topic: Deflation based currency such as Bitcoin to counter promote economy.  (Read 7755 times)
SanaHito
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May 09, 2019, 03:56:17 PM
 #1

Currently, all major currencies issued by the government have natural inflation of about 2%.
Bitcoin, on the other hand, is much different, it, in fact, does not have any inflation but deflation.
Bitcoins are created less and less and the number of users does not affect the quantity of creation of Bitcoins.

Inflation on a low level promotes spending while deflation in Bitcoin promotes holding...

My question is, would an economy with a deflation based currency such as Bitcoin work?
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May 09, 2019, 04:45:40 PM
 #2

No government would completely depend on BTC as their primary source of payment since that would be a foolish choice here. BTC is still an extremely volatile currency due to which it is highly unstable and many basically view it as an asset primarily.




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May 09, 2019, 07:59:38 PM
 #3

Currently, all major currencies issued by the government have natural inflation of about 2%.
Bitcoin, on the other hand, is much different, it, in fact, does not have any inflation but deflation.
Bitcoins are created less and less and the number of users does not affect the quantity of creation of Bitcoins.

Inflation on a low level promotes spending while deflation in Bitcoin promotes holding...

My question is, would an economy with a deflation based currency such as Bitcoin work?
In my opinion, If Bitcoin reach a specific prices while it can only be divided by 8 decimals then it will have a little problem as a form of payment. Perhaps, Bitcoin can be just an assets to hold and can't be a form of payment anymore for a little amount of transactions. Of course this deflation model could works but only until it reach the limit. When the limit comes, there must be an upgrade from community so Bitcoin could fit again in society.

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May 09, 2019, 08:53:36 PM
 #4

Currently, all major currencies issued by the government have natural inflation of about 2%.
Bitcoin, on the other hand, is much different, it, in fact, does not have any inflation but deflation.
Bitcoins are created less and less and the number of users does not affect the quantity of creation of Bitcoins.

Inflation on a low level promotes spending while deflation in Bitcoin promotes holding...

My question is, would an economy with a deflation based currency such as Bitcoin work?
I don't think it's that simple. The general presupposition making deflation bad is based on perfectly rational behaviour of customers. However, as we know, people are not the rational creatures economists want them to be. If one wants to buy something today, it's not likely one will wait a month to do that. Moreover, other factors should be considered. Here's an interesting article, reconsidering deflation: https://www.investopedia.com/articles/markets/111715/can-deflation-be-good.asp.

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May 09, 2019, 09:35:52 PM
 #5

More you print money more the currency decrease. 20 years ago with $1 you could buy a coca-cola bottle, today you can't even buy a stamp.
With Bitcoin, it does the opposite, because more time goes and fewer bitcoins to mine there are.

Keynesian Vs. Austrian Economics
http://multi-act.com/austrian-school-of-economics-vs-keynesian-economics/
https://fee.org/articles/it-s-not-just-keynesians-vs-austrians/

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May 09, 2019, 10:03:00 PM
 #6

Isn't Bitcoin being mined everyday? I thought this was some kind of controlled inflation. We believe that no one's will change the cap limit. But it is still possible that a government fork Bitcoin and change this limit.
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May 10, 2019, 12:08:02 AM
 #7

Currently, all major currencies issued by the government have natural inflation of about 2%.
Bitcoin, on the other hand, is much different, it, in fact, does not have any inflation but deflation.
Bitcoins are created less and less and the number of users does not affect the quantity of creation of Bitcoins.

Inflation on a low level promotes spending while deflation in Bitcoin promotes holding...

My question is, would an economy with a deflation based currency such as Bitcoin work?

As if the government would accept bitcoin to replace fiat just to avoid inflation. Bitcoin will never be a solution for i flation, if so, this would've solved the hyper inflation Venezuela had faced.


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May 10, 2019, 01:09:11 AM
 #8

Seems this situation is a bit illusory. A deflationary economy would make goods cheaper even more, but at same time, your salary, your income would decrease as well, thanks to this deflation. It would worth to save money in an economy like that more than in ours, but if many people aim this, it would hurt the economy anyway, as the money needs to keep circulating, like our blood in our bodies to keep us alive.



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May 10, 2019, 04:40:21 AM
 #9

No government would completely depend on BTC as their primary source of payment since that would be a foolish choice here. BTC is still an extremely volatile currency due to which it is highly unstable and many basically view it as an asset primarily.

In my view, since we are living in a very diversified world even if there will be massive adoption of Bitcoin it does not mean that it will be used as the exclusive medium of commerce and domestic and international commerce. Bitcoin then can be a very good and very attractive choice but there will be no monopoly as that can be detrimental to any economy. Bitcoin is not coming to the global choice to limit the choices of the people. Right now, there are still limitations that Bitcoin is facing  though it is evolving.

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traderethereum
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May 10, 2019, 06:07:50 AM
 #10

I am not an economist, but I think that will need to test it first, so we will know what the result is.
There will be a trial and error before one system integrates with the other and that will need time to see how good is the result.
And that will depend on the government; maybe we will hear something from them.
And if everything can run properly, then maybe that thing will work with bitcoin.

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May 10, 2019, 06:51:56 AM
 #11

Currently, all major currencies issued by the government have natural inflation of about 2%.
Bitcoin, on the other hand, is much different, it, in fact, does not have any inflation but deflation.
Bitcoins are created less and less and the number of users does not affect the quantity of creation of Bitcoins.

Inflation on a low level promotes spending while deflation in Bitcoin promotes holding...

My question is, would an economy with a deflation based currency such as Bitcoin work?
It would work but there is no government that would make Bitcoin as their based currency.
We have 21 Million Bitcoin as a max supply and 1 Bitcoin could be divided into small unit called Sats so even if the Max supply has been mined we wouldn't have a problem.

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May 10, 2019, 08:06:39 AM
Merited by deisik (2), Halab (2), ETFbitcoin (1), LeGaulois (1)
 #12

Currently, all major currencies issued by the government have natural inflation of about 2%.
Bitcoin, on the other hand, is much different, it, in fact, does not have any inflation but deflation.
Bitcoins are created less and less and the number of users does not affect the quantity of creation of Bitcoins.

Inflation on a low level promotes spending while deflation in Bitcoin promotes holding...

My question is, would an economy with a deflation based currency such as Bitcoin work?

No it won't work. The economy works on the concept of 'scarcity' i.e. limited resources. Hence, the resources which are relatively scarce are more expensive than others. The value of the resources are measured in terms of Fiat currencies which are inflationary in nature. The basic reason why currencies are inflationary is due to the concept of Marginal Utility. In economics, we consider the MU of currencies to be constant because of the unlimited supply of money. That's the reason inflation exists.
Now consider a situation where currencies are substituted with Bitcoin. Now Bitcoin has limited supply hence we cannot take the MU of Bitcoin to be constant. Every unit of Bitcoin spent will make the remaining units of Bitcoin more dearer to the holder. When both the resource and the currency become more affectionate with reducing supply, it will become impossible to conduct economic transactions after one point of time. So it is theoretically impossible for deflationary currencies like Bitcoin to become mainstream currency.
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May 10, 2019, 08:35:40 AM
 #13

My question is, would an economy with a deflation based currency such as Bitcoin work?

A simple answer is that, it won't work

It could technically work in a simple economy like those of the Middle Ages (and before) but with complex economies which came about after the Industrial Revolution (the second half of the 18th century and even more so from the beginning of the 19th), a deflating currency (more correct, an appreciating currency) will be constantly creating imbalances in the economy (by discouraging producers from production in different fields), so instead of facilitating economic growth it will be impeding it

...

In more mundane terms, people will be hoarding money instead of spending it

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May 10, 2019, 10:17:03 AM
 #14

Currently, all major currencies issued by the government have natural inflation of about 2%.
Bitcoin, on the other hand, is much different, it, in fact, does not have any inflation but deflation.
Bitcoins are created less and less and the number of users does not affect the quantity of creation of Bitcoins.

Inflation on a low level promotes spending while deflation in Bitcoin promotes holding...

My question is, would an economy with a deflation based currency such as Bitcoin work?
The thing with bitcoin is it is a currency that is not being wildly used in different fields, not like the fiat where there needs to money in trading banking markets shops ect, meaning that money needs to be available when people need it, because they can't just go an print money while the demand increases, and when the demand on bitcoin increases the amount of bitcoin produced increases at a slow rate that does not make it able to keep to wheel turning if used in real economic.
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May 10, 2019, 10:53:49 AM
 #15

Currently, all major currencies issued by the government have natural inflation of about 2%.
Bitcoin, on the other hand, is much different, it, in fact, does not have any inflation but deflation.
Bitcoins are created less and less and the number of users does not affect the quantity of creation of Bitcoins.

Inflation on a low level promotes spending while deflation in Bitcoin promotes holding...

My question is, would an economy with a deflation based currency such as Bitcoin work?

The problem with your question is that it assumes there can only be one currency. I think a deflationary currency can work in conjunction with an inflationary one: the first to promote savings and the second to promote spending. There is room for cryptocurrencies and fiat currencies to coexist.
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May 10, 2019, 11:24:13 AM
 #16

My question is, would an economy with a deflation based currency such as Bitcoin work?
No. And for some reason many people around this forum are unable to understand this.
Inflation don't realy boost spending, it boost export of the country. So it is much easier to buy different things in another country when their money are cheaper than yours. For example China artificialy inflate their currency to boost their export and Germany forcrd EU to create Euro in order to deflate getman mark and boost their export.

 However, as we know, people are not the rational creatures economists want them to be.
This is not about that case.
Without any extra barriers people would always buy the cheapest product. There is no way to provide a high demand on expensive goods that could be easily bought somewhere else much cheaper. Especially when those things are happening on the global international level.

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May 10, 2019, 12:35:53 PM
 #17

Currently, all major currencies issued by the government have natural inflation of about 2%.

My question is, would an economy with a deflation based currency such as Bitcoin work?


A deflation based currency like bitcoin would be superior in terms of promoting long term economic stability and value. The main reason fiat currencies are heavily promoted involves the vast majority of financial markets focusing on short term profit to the exclusion of long term perspectives. We've seen proposals for publicly traded corporations to shift from 3 month reporting cycles to 6 month terms to encourage a greater emphasis on long game strategy.

Investment banking, hedge funds, HFT trading, derivatives and many modern investment vehicles are built around utilizing short term leverage in an effort to maximize gains. The necessity of short term focus meshes well with inflationary currencies which carry a variable supply. This format of short term investment however clashes and is more difficult to integrate with deflationary currencies like bitcoin, which constitutes the main motivation for negative outlooks regarding them.

Current inflation rates are subject to debate. There has been some effort made to redefine how inflation is calculated. The official numbers cited linger in the 2% to 3% range. However utilizing older methods of calculating inflation its easy to end up with a number far closer to 10%. Inflation is similar to unemployment in this way, in terms of the number typically cited by the media perhaps not representing the best or most accurate statistic a person would expect when discussing topics like inflation.

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May 10, 2019, 12:42:52 PM
 #18

Bitcoin's yearly inflation is right now %3.78. Source:
https://www.bitcoinblockhalf.com/

Next year it will be as low as %1.80

Right now bitcoin isn't a complete deflationary currency but we will get very close in 2028. (%0.45)

Everything will go nuts after 2024 imho. ($1m+/coin) Most of us probably will cash out in the next pump when it hits $50k-100k so I don't really expect many people holding a full coin by 2024, only the smartest and the youngest ones.




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May 10, 2019, 01:02:04 PM
 #19

It'll be hard to be completely reliant on a fully-deflationary currency such that there will not be a way to stimulate the economy and control the flow of cash in the event of a financial crisis. On paper, deflationary currencies seem to be "perfect" in storing value, but currencies are meant to be spent and not hoarded; it needs to go around in order to be useful. In a society where everyone is holding and very few is spending, how can one ensure the stability of the domestic economy?




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May 10, 2019, 01:10:10 PM
 #20

Isn't Bitcoin being mined everyday? I thought this was some kind of controlled inflation. We believe that no one's will change the cap limit. But it is still possible that a government fork Bitcoin and change this limit.

It is. The supply is still increasing and it won't turn deflationary till the next century, by which time we'll all be dead!

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