Why Bitcoin is not that good as currency?

[teosanru]

I have heard a lot of people having a misconception regarding the fact the inflationary currency are bad for economy because they are based on debt and nothing else to back them. Moreover the currency is losing it's power of the course of time. While Bitcoin will gain it's value over the course of time due to it's limited supply. Infact I have seen this pretty popular picture regarding the comparison between both



So now, let me tell you how inflationary currency works as per the KEYNES THEORY which is the best theory until now to explain the Macroeconomic Structure. I will explain everything in layman language the definitions have a lot of things which I would skip so I don't make things complex Basically everything what we need daily to satisfy our needs constitutes Demand and resources available to fulfill our needs is supply. At Macroeconomic level these are Aggregate Demand and Aggregate Supply.

Now, humans create an aggregate demand in the economy and look for products while the producers capture the demand by creating Aggregate supply. The supply they create leads to sale and exchange of currency happens. now they hold resources/ currency once held by their buyers. Now the producers are themselves consumers too(Business owners are humans). So more will be the demand more will be the earnings for suppliers who would in turn distribute it into the hands of stakeholders who would further create new aggregate demand higher than before because they have new money to spend. This would never stop as demand for goods increases so people tend to buy goods now to be safe from inflation. This New money comes from Government who injects additional supply of money to maintain a level of economic growth and fulfill budgetary deficit.

Now coming to simple things, Producers need more money to do production. This excess money is actually fed by the government into the economy. Now with every increase in supply demand is increasing too but not at that rapid scale because population growth is finite. So this excess printing of money is necessary for economic development as money in economy increases the demand in the economy.

In case of deflationary currency such as Bitcoin, as we are giving our aggregate demand at current price levels. Or in layman terms we are buying at certain price level. Say for example( a completely hypothetical situation), Wheat . You can buy 1kg of wheat for 1 bitcoin today. Now imagine that we grow in our economy and it leads to better production of wheat due to increased efficiency in production. Now we would have more wheat to sell. However, the supply would increase and demand will not because people still have the same 21 million bitcoin in circulation. So now we will have more wheat and the prices would go down and down. But in such case people will begin to hoard money. The will not spend their bitcoin in anticipation of it prices declining tomorrow. This would lead to even more deflation as demand would decrease even further. Thus creating a spiral which we often call the deflationary Spiral. I think this is why thinking bitcoin as a mainstream currency could pose a lot of problems for all of us.

PS: Supply of goods( Aggregate Supply) and supply of money are separate things
  Demand of money and demand of goods( Aggregate Demand) are two separate things

Do you agree or refute?

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[ashmodeus]

of course i know exactly what u talking about.
but well, its need a long time to make it happen.
and as a time goes by people have a fear of loss of money because the stupid news everywhere,even total btc still same amount.
like many many speculation, btc will go to rich people at the end.

[BitHodler]

It's pretty much the same with gold that people can't print out of thin air, and despite it is being praised as money (ignoring how inconvenient it is), the fact that it is something people hoard makes it by definition bad money.

I don't think we'll ever get to experience a Bitcoin or gold standard anymore. Money has to have the inflationary characteristic so that it isn't scarce enough to endlessly hoard, which is something fiat does right.

I rather keep hoarding Bitcoin than spending it and there isn't much that will be able to change my mind. Even if fiat as we know it implodes, the government will issue a new form of money. Bitcoin and gold will still be ignored in that case.

[teosanru]

of course i know exactly what u talking about.
but well, its need a long time to make it happen.
and as a time goes by people have a fear of loss of money because the stupid news everywhere,even total btc still same amount.
like many many speculation, btc will go to rich people at the end.

I am not able to understand what you are saying. I am saying that this cannot be possible even with passage of time due to a simple reason that BTC cannot be used as a mainstream currency.

It's pretty much the same with gold that people can't print out of thin air, and despite it is being praised as money (ignoring how inconvenient it is), the fact that it is something people hoard makes it by definition bad money.

I don't think we'll ever get to experience a Bitcoin or gold standard anymore. Money has to have the inflationary characteristic so that it isn't scarce enough to endlessly hoard, which is something fiat does right.

I rather keep hoarding Bitcoin than spending it and there isn't much that will be able to change my mind. Even if fiat as we know it implodes, the government will issue a new form of money. Bitcoin and gold will still be ignored in that case.

Exactly gold and silver weren't cancelled out to be used as money because of inconvenience but because of its limited supply. Because gold pegged currency were the same as using gold as a currency so that system didn't involve us carrying gold all the time with us. But this system was changed because government didn't have power to control the supply of money in the economy. Leading to some big deflationary gaps. Now same is the problem with Bitcoin today.

[sapnu]

The problem I think has something to do with its market value stability. We can clearly notice such problem at this moment. Currencies are created in order to promote equality with the world market, correct me if I'm wrong. This I think is the main reason why Bitcoin and other cryptos are having difficulties to be accepted in some countries simply because its market value drops at some time, as what we are witnessing at this moment.

[ecnalubma]

The descending value of fiat will be passed on generation by generation. Good thing that we have choices and wisdom to survive in the current financial system. Bitcoin and cryptocurrencies are the future of money it only needs to stabilised before it will dethrone the fiat system.

[jseverson]

It's true that people are incentivized more to keep their Bitcoin over actually spending them, and we're seeing the effects as early as now, even while supply is still rising. There's no way it will work as a replacement to fiat with the way our economy is set up, where growth is driven by debt and spending -- the question is, why would we need Bitcoin to replace fiat in the first place?

Bitcoin was never meant to replace dollars, kill banks, or save economies. It's there so you could have money you could do whatever you want with, whether that's spending, hodling, or anything in between, while fiat can go ahead and do its thing. While Bitcoin absolutely should be viable for daily spending (people who want to go down this route wouldn't care about deflation anyway), it doesn't necessarily have to be used that way.

[alyssa85]

The issue is this: people hoard scarce currencies like bitcoin or gold.

Now imagine that you couldn't use dollars, euros or any fiat, and there was just gold and bitcoin. And the price of gold and bitcoin kept rising because they're scarce.

You might spend a little on absolute necessities - food, rent and so on. But you wouldn't spend on luxuries like going to the cinema etc, you would hoard your bitcoin because the price is rising.

That would completely collapse the world economy. Most of the things we spend money on are not necessities. The few people with gold and bitcoin would be fine, the rest who depend on their jobs would be absolutely miserable because their jobs and income would disappear.

That's why people fear deflationary currencies and that's why central banks encourage a small amount of inflation - it's to encourage people to spend.

[figmentofmyass]

In case of deflationary currency such as Bitcoin, as we are giving our aggregate demand at current price levels. Or in layman terms we are buying at certain price level. Say for example( a completely hypothetical situation), Wheat . You can buy 1kg of wheat for 1 bitcoin today. Now imagine that we grow in our economy and it leads to better production of wheat due to increased efficiency in production. Now we would have more wheat to sell. However, the supply would increase and demand will not because people still have the same 21 million bitcoin in circulation. So now we will have more wheat and the prices would go down and down. But in such case people will begin to hoard money. The will not spend their bitcoin in anticipation of it prices declining tomorrow. This would lead to even more deflation as demand would decrease even further. Thus creating a spiral which we often call the deflationary Spiral. I think this is why thinking bitcoin as a mainstream currency could pose a lot of problems for all of us.

PS: Supply of goods( Aggregate Supply) and supply of money are separate things
  Demand of money and demand of goods( Aggregate Demand) are two separate things

Do you agree or refute?

i don't expect to see a future where bitcoin is a national currency. at most, it would be part of a basket of assets (along with gold, silver, etc) that back a fiat currency. so it's probably unnecessary to view bitcoin in a vacuum, as if the whole of economic growth would be restricted to its supply.

your arguments also lead to the age old debate between keynesians and austrians. i'm not sure i feel like injecting myself into that debate!

[carter34]

the fact that it is something people hoard makes it by definition bad money.

A nice point there, the hoarding is what disqualifies it to be defined as legal tender. Fiat is not hoard by an individual to deprive other people from getting it and causing artificial scarcity just like product. It is only the central financial body that can hoard fiat, like the central banks either to control inflation through interest rates and other means. But bitcoin can be influenced by the whales to their own benefit. To this point and high volatility ; so far, it is still far to be good as currency.

[poptok1]

...They will not spend their bitcoin in anticipation of it prices declining tomorrow...

This is the place, where I must refute.
You are missing very important aspect of the economy of today. We are no longer in production-only era of economics.
The key are the services. People cant simply stop to spend, hoping for price bump. They have obligated themself to pay for various services, like electricity, water, heating, all kinds of e-media, in general stuff we have became addicted to.
Exchange of money for goods is no longer about physical goods alone, that's why your model is inadequate.

So, "Why Bitcoin is not that good as currency?" let me answer your question as simple as possible, it is only because transactions can not be reversed. That's it. No mystery because in this imperfect world, full of imperfect people, perfect financial system that disregards human errors, can't be viewed as consumer friendly. I have zero complains about irreversibility but imagine all those technological-illiterates...  not a chance.

[Duzter]

In case of deflationary currency such as Bitcoin, as we are giving our aggregate demand at current price levels. Or in layman terms we are buying at certain price level. Say for example( a completely hypothetical situation), Wheat . You can buy 1kg of wheat for 1 bitcoin today. Now imagine that we grow in our economy and it leads to better production of wheat due to increased efficiency in production. Now we would have more wheat to sell. However, the supply would increase and demand will not because people still have the same 21 million bitcoin in circulation. So now we will have more wheat and the prices would go down and down. But in such case people will begin to hoard money. The will not spend their bitcoin in anticipation of it prices declining tomorrow. This would lead to even more deflation as demand would decrease even further. Thus creating a spiral which we often call the deflationary Spiral. I think this is why thinking bitcoin as a mainstream currency could pose a lot of problems for all of us.

PS: Supply of goods( Aggregate Supply) and supply of money are separate things
  Demand of money and demand of goods( Aggregate Demand) are two separate things

Do you agree or refute?

i don't expect to see a future where bitcoin is a national currency. at most, it would be part of a basket of assets (along with gold, silver, etc) that back a fiat currency. so it's probably unnecessary to view bitcoin in a vacuum, as if the whole of economic growth would be restricted to its supply.

your arguments also lead to the age old debate between keynesians and austrians. i'm not sure i feel like injecting myself into that debate!

Bitcoin to be a national currency takes time, because it needs to go mainstream first. To reach such a level it is not simple, because when countries start using bitcoin it will affect their own currency go low in value. Maybe when more countries move to the digital trend bitcoin might get importance as a currency. Until then it is much preferred to be assets similar to gold, silver and other valuables.

[Google+]

bitcoin is not used as a currency, it seems that the influence of total supply is very limited and the price is very expensive so it makes the price of bitcoin very expensive and is not suitable if used as a currency because it will be difficult to use for transactions.

[SummerBliss]

It's true that people are incentivized more to keep their Bitcoin over actually spending them, and we're seeing the effects as early as now, even while supply is still rising. There's no way it will work as a replacement to fiat with the way our economy is set up, where growth is driven by debt and spending -- the question is, why would we need Bitcoin to replace fiat in the first place?

True! Bitcoin wasn't created to become mainstream currency or a direct substitute to fiat. It was created as a mean of online remittance without involving third-party like PayPal, etc. - A P2P direct cash system. It surely fulfils this promise. We can conduct an anonymous transaction, anytime, anywhere with Bitcoin.
But the problem is people's misconception. Lot of members here advocate as well as promote Bitcoin as a currency. Well, there is no denying that Bitcoin has most of the features a currency could have. One can certainly use it to pay for goods and service. But it's just one aspect of Bitcoin. It is wrong to limit it to this particular use-case only.

[ethereumhunter]

bitcoin is not used as a currency, it seems that the influence of total supply is very limited and the price is very expensive so it makes the price of bitcoin very expensive and is not suitable if used as a currency because it will be difficult to use for transactions.

I hope that even bitcoin cannot be used as a currency, we could still use bitcoin to pay or buy some products. Or maybe in that time, we can use another coins that can be a bridge from the currency we already use and the digital coins. I think by using bitcoin as a currency, it will need all approval from all countries and the governments which I think they will not easy to agree for accepting bitcoin.

[NathanJB]

In case of deflationary currency such as Bitcoin, as we are giving our aggregate demand at current price levels. Or in layman terms we are buying at certain price level. Say for example( a completely hypothetical situation), Wheat . You can buy 1kg of wheat for 1 bitcoin today. Now imagine that we grow in our economy and it leads to better production of wheat due to increased efficiency in production. Now we would have more wheat to sell. However, the supply would increase and demand will not because people still have the same 21 million bitcoin in circulation. So now we will have more wheat and the prices would go down and down. But in such case people will begin to hoard money. The will not spend their bitcoin in anticipation of it prices declining tomorrow. This would lead to even more deflation as demand would decrease even further. Thus creating a spiral which we often call the deflationary Spiral. I think this is why thinking bitcoin as a mainstream currency could pose a lot of problems for all of us.

PS: Supply of goods( Aggregate Supply) and supply of money are separate things
  Demand of money and demand of goods( Aggregate Demand) are two separate things

Do you agree or refute?

i don't expect to see a future where bitcoin is a national currency. at most, it would be part of a basket of assets (along with gold, silver, etc) that back a fiat currency. so it's probably unnecessary to view bitcoin in a vacuum, as if the whole of economic growth would be restricted to its supply.

your arguments also lead to the age old debate between keynesians and austrians. i'm not sure i feel like injecting myself into that debate!

Bitcoin to be a national currency takes time, because it needs to go mainstream first. To reach such a level it is not simple, because when countries start using bitcoin it will affect their own currency go low in value. Maybe when more countries move to the digital trend bitcoin might get importance as a currency. Until then it is much preferred to be assets similar to gold, silver and other valuables.

There is probably less than 1% possibility of Bitcoin becoming a national currency. I cannot even imagine a sovereign country declaring a currency not of their making, not under their direct regulation or supervision, and not issued by them to become a national currency. The most that can happen to Bitcoin is for it to become the global currency, bridging together all kinds of national currencies. One can travel or send money all over the world without the need to go through different national currencies.

[pinggoki]

bitcoin is not used as a currency, it seems that the influence of total supply is very limited and the price is very expensive so it makes the price of bitcoin very expensive and is not suitable if used as a currency because it will be difficult to use for transactions.

I hope that even bitcoin cannot be used as a currency, we could still use bitcoin to pay or buy some products. Or maybe in that time, we can use another coins that can be a bridge from the currency we already use and the digital coins. I think by using bitcoin as a currency, it will need all approval from all countries and the governments which I think they will not easy to agree for accepting bitcoin.

I knew that bitcoin is versatile and can be used in any transaction you like such as trading, investment and buying some stuff. However, for me it is better to be used an asset in trading and investment since of the fluctiative manner of crypto so which is perfect from this kind of transaction.

[1Referee]

I think by using bitcoin as a currency, it will need all approval from all countries and the governments which I think they will not easy to agree for accepting bitcoin.

Actually, no. We already use Bitcoin as currency, and that without asking a government for permission. Merchants can also accept Bitcoin without permission from their governments. If you start to wait for governments to finally give you that approval of use, you are not aware of what Bitcoin is meant to combat. Bitcoin is permissionless money.

In all honesty, I have not much against fiat as money on a daily basis. It works exceptionally well as long as you don't have too much long term exposure in form of savings. It's of course different if you live in a country such as Venezuela, but furtunately speaking, I live in Europe and don't have to go through the problems Venezuelans go through.

In the end, everyone has to decide whether or not Bitcoin is a good currency based on where they live, and what they need it for. In some cases fiat comes out as the better option, but there are plenty of situations where Bitcoin is the better option to go for.

[darkangel11]

OP's reasoning is good and that is why we don't only have a deflationary economy. We have a deflationary bitcoin and an inflationary fiat that work together. There were many debates if Bitcoin can become the world currency and most people think that if it will it's going to be alongside fiat. Fiat money as the weaker money you can spend freely and Bitcoin as that good money you spend on special occasions and hedge against fiat.

I also don't see people hoarding Bitcoin if this was the only way to pay for things. They would buy as much as they would want. Do you think that demand must always increase even if the needs of the population do not? You have 1 BTC wheat and suddenly you can get the same amount for 0.5 because of lower production cost. You simply buy 0.5. Would you rather see people stock up on wheat because it's cheap and then don't know what to do with it as it gets even cheaper? You can produce it cheaper, do it. There's no demand? Produce less!

[teosanru]

The problem I think has something to do with its market value stability. We can clearly notice such problem at this moment. Currencies are created in order to promote equality with the world market, correct me if I'm wrong. This I think is the main reason why Bitcoin and other cryptos are having difficulties to be accepted in some countries simply because its market value drops at some time, as what we are witnessing at this moment.

You are wrong it's not regarding the value stability. Value stability will happen one day when everyone comes on the same platform of using cryptocurrencies but the deflationary nature of crypto can never be changed. Moreover difficulties is because the prices of goods would become cheaper every next day and not market value drops.

It's true that people are incentivized more to keep their Bitcoin over actually spending them, and we're seeing the effects as early as now, even while supply is still rising. There's no way it will work as a replacement to fiat with the way our economy is set up, where growth is driven by debt and spending -- the question is, why would we need Bitcoin to replace fiat in the first place?

Bitcoin was never meant to replace dollars, kill banks, or save economies. It's there so you could have money you could do whatever you want with, whether that's spending, hodling, or anything in between, while fiat can go ahead and do its thing. While Bitcoin absolutely should be viable for daily spending (people who want to go down this route wouldn't care about deflation anyway), it doesn't necessarily have to be used that way.

Bitcoin I think was created to be used as a currency and a currency means something which could be used as a means of settlement. So if you want to say that Bitcoin was not created with an intent to replace dollars then you are really mistaken.

I think by using bitcoin as a currency, it will need all approval from all countries and the governments which I think they will not easy to agree for accepting bitcoin.

Actually, no. We already use Bitcoin as currency, and that without asking a government for permission. Merchants can also accept Bitcoin without permission from their governments. If you start to wait for governments to finally give you that approval of use, you are not aware of what Bitcoin is meant to combat. Bitcoin is permissionless money.

In all honesty, I have not much against fiat as money on a daily basis. It works exceptionally well as long as you don't have too much long term exposure in form of savings. It's of course different if you live in a country such as Venezuela, but furtunately speaking, I live in Europe and don't have to go through the problems Venezuelans go through.

In the end, everyone has to decide whether or not Bitcoin is a good currency based on where they live, and what they need it for. In some cases fiat comes out as the better option, but there are plenty of situations where Bitcoin is the better option to go for.

Bitcoin sounds like a better option at a microeconomic level but there is no way that it can live upto that good on a macroeconomic level which is the problem with bitcoin in the very first place.

In case of deflationary currency such as Bitcoin, as we are giving our aggregate demand at current price levels. Or in layman terms we are buying at certain price level. Say for example( a completely hypothetical situation), Wheat . You can buy 1kg of wheat for 1 bitcoin today. Now imagine that we grow in our economy and it leads to better production of wheat due to increased efficiency in production. Now we would have more wheat to sell. However, the supply would increase and demand will not because people still have the same 21 million bitcoin in circulation. So now we will have more wheat and the prices would go down and down. But in such case people will begin to hoard money. The will not spend their bitcoin in anticipation of it prices declining tomorrow. This would lead to even more deflation as demand would decrease even further. Thus creating a spiral which we often call the deflationary Spiral. I think this is why thinking bitcoin as a mainstream currency could pose a lot of problems for all of us.

PS: Supply of goods( Aggregate Supply) and supply of money are separate things
  Demand of money and demand of goods( Aggregate Demand) are two separate things

Do you agree or refute?

i don't expect to see a future where bitcoin is a national currency. at most, it would be part of a basket of assets (along with gold, silver, etc) that back a fiat currency. so it's probably unnecessary to view bitcoin in a vacuum, as if the whole of economic growth would be restricted to its supply.

your arguments also lead to the age old debate between keynesians and austrians. i'm not sure i feel like injecting myself into that debate!

Bitcoin to be a national currency takes time, because it needs to go mainstream first. To reach such a level it is not simple, because when countries start using bitcoin it will affect their own currency go low in value. Maybe when more countries move to the digital trend bitcoin might get importance as a currency. Until then it is much preferred to be assets similar to gold, silver and other valuables.

There is probably less than 1% possibility of Bitcoin becoming a national currency. I cannot even imagine a sovereign country declaring a currency not of their making, not under their direct regulation or supervision, and not issued by them to become a national currency. The most that can happen to Bitcoin is for it to become the global currency, bridging together all kinds of national currencies. One can travel or send money all over the world without the need to go through different national currencies.

Actually, I am not against making it a national currency or even with it but the point is if this is not the goal then what do you mean by Widespread Adoption? Because I don't see a great future with cryptos and fiats going hand in hand.