A few theories for value deflation

[Akarbb]

I just wrote an article that I've summarized from reading the forums for the past few weeks.

http://bit.ly/fJkXXo

Please comment here.

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[Nefario]

Theory #2 is rubbish because the same amount of bitcoins are created no matter how many miners there are. This would be the case whether there are 5 or 5million miners, the level of inflation would be the same.

Theory #3 is essentially economic grow from spending, which is to a certain extent correct. Most holders of bitcoin are reluctant to let them go, knowing that getting them again is a little difficult.

This will change as more people begin to use bitcoin, and begin offering different goods or services, and when we have a stock market, where savers will be more inclined to invest than just hold on to bitcoins. Then their savings will be injected into the economy and things heat up.

In reality it's is always a number of things which will effect the price.

One is the slow news month and the apparent slowing down of new users, this may or may not be real but speculators, which drive the bitcoin price at the moment feel it. When things get quiet speculators are more inclined to sell as they see bitcoins popularity waining. Once a big news article hits the price shoots up as speculators expect waves of new users(buyers).

Another issue is not so much that there are too many miners, but that it has become expensive to mine, and in order to pay costs miners must exchange some of the newly minted booty on a regular basis, this will have a continuous bear effect on bitcoins price.

And finally are the number of goods and services available in the bitcoin economy. Once we have a stock market things will heat up really quick, with the price quickly breaking the $1 barrier again, and in all likelyhood staying there.

Once we have a stock market with a couple of companies trading we'll get a lot of press, and there will be an influx as interest grows and then it becomes a chain reaction from there.

[benjamindees]

The value of Bitcoins is determined by how successfully those who own them use them to create capital.

If people hoard them, the value will go down.  If people just buy junk with them, the value will go down.

[Grinder]

The value of Bitcoins is determined by how successfully those who own them use them to create capital.
If people hoard them, the value will go down.

If that were true, gold would have next to no value.

[benjamindees]

Gold is capital.

[Grinder]

It is what you want it to be, just like Bitcoins.

[BitterTea]

Gold is capital.

I think you're using two definitions of capital interchangeably, and it's confusing. Money (whether Bitcoins, USD, or gold) offered to business is financial capital, the goods the businesses purchase with that money, that will allow them to do business more efficiently, are capital goods.

[caveden]

Capital = means of production

[MoonShadow]

Gold is capital.

Gold is not capital.  Neither is money.  Capital can be bought with either, and therefore valued in either, but money is not capital.  Capital is literally the tools and resources necessary for production of goods and services to be sold or consumed.  For example, a shovel is capital to the ditchdigger, but not to the accountant; whereas a calculator is capital to the accountant, but not the ditchdigger.

Bitcoins are currency, and don't even meet the bar for a commodity money, such as silver and gold do.  Bitcoins can never be capital, even though capital can be valued in bitcoins.

As Neil Stephenson so precisely wrote in Cryptocromicon, "Gold is not wealth, gold is the corpse of wealth."

[Nefario]

Capital = means of production

He's a Communist! Get him!!!

[MoonShadow]

Capital = means of production

He's a Communist! Get him!!!

Wait, what?

The only person on this forum who lives in a communist society is you, Nefario.  And from a technical perspective, even China isn't really communist anymore; but closer to fascist.  I.E. single party political control over an otherwise capitalist economy.

Capital is the means of production.

[Nefario]

Did you miss the joke?

[benjamindees]

I literally mean that gold is capital.  It is a means of production.  It is also money but that's not what I said.

[MoonShadow]

Did you miss the joke?

Perhaps.  I didn't find it funny, so I assumed that there was some element of seriousness.

[MoonShadow]

I literally mean that gold is capital.  It is a means of production.  It is also money but that's not what I said.

Gold is not a "means of production" unless you are a goldsmith, or maybe a banker.

[Akarbb]

I literally mean that gold is capital.  It is a means of production.  It is also money but that's not what I said.

Gold is not a "means of production" unless you are a goldsmith, or maybe a banker.

This is correct.  Unless gold itself is being traded and could be used to cover production costs.

[MoonShadow]

I literally mean that gold is capital.  It is a means of production.  It is also money but that's not what I said.

Gold is not a "means of production" unless you are a goldsmith, or maybe a banker.

This is correct.  Unless gold itself is being traded and could be used to cover production costs.

Not even then.  Neither gold, nor any other commodity money, is capital unless it's being used in production.  The capital that such gold could be traded for is the only capital, and is valued in gold.

[benjamindees]

Let's just put it this way.  Gold is valued as capital.  Not just as money.  Not just as jewelry.  Whether it is being used or not is irrelevant to its value.

[MoonShadow]

Let's just put it this way.  Gold is valued as capital.  Not just as money.  Not just as jewelry.  Whether it is being used or not is irrelevant to its value.

I can accept that, but I still think that it's confusing.  I have to admit that it's pretty counter-intuitive to think of gold as not capital and US $ as not real money, but that is the way it is.