Bitcoin vs. Cash Inflation — A discussion on which is better

[crabby]

Hi Everyone!

I wanted to start a discussion on Bitcoin vs Cash inflation. This has been a hot topic for discussion in the last few years, so I wanted to create a thread here for everyone to share their thoughts.

To kick off the discussion, I just published a blog post that discusses some thoughts on the topic.

You can find the article here:

Bitcoin vs. Cash Inflation - Which is Better?

What do you think? What are other things to consider when evaluating Bitcoin and cash inflation?

Looking forward to the discussion!

[jackg]

Your article is quite nice, I'm not sure how much of this has been covered before though - probably most of it but it is pretty concise.

I was thinking, before reading your thread. When looking at inflation, the US and most of Europe is targeting 1.7% currency inflation and other countries wnd up with inflation at 8-20% so there's potential that bitcoin would act as an additional store of value for those people - especially since so many people outside the US hold the dollar (for some reason/world reserve currency) and some ciuntries trade with it too, bitcoin might be welcome to them.

I think even in a deflationary space, people will always chase the dragon. No one in a financial rat run who actively participates will want to give up their opportunity to do better than the status quo.

[mu_enrico]

Skimmed the article, and it's good :thumbsup:

Anyways, since the discussion is about which is better, what do you think about the Gresham's "law":
- what makes money better?
- will the better money win?

[Ucy]

Skimmed the article, and it's good :thumbsup:

Anyways, since the discussion is about which is better, what do you think about the Gresham's "law":
- what makes money better?
- will the better money win?

Grasham's "law" sounds interesting. 

It says:

In economics, Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of
commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.https://en.m.wikipedia.org/wiki/Gresham's_law

Well, I think it will be hard for bad money to drive out the good in a well decentralized, safe and fair system if the right principles/rules/law governs both currencies uniformly and fairly

[Tytanowy Janusz]

Well, I think it will be hard for bad money to drive out the good in a well decentralized, safe and fair system if the right principles/rules/law governs both currencies uniformly and fairly

Its based on that - good money(deflationary) rewards you for saving it (your money value grows in time) while bad money (inflationary) rewards you for spending it as fast as possible. That way if you have both you always want to spend bad money first. In the end you are using bad money all the time while good one is stored nowhere safely. Bad money wins in mass adoption. Good one is stored only by few who can afford that.

But i thought that it's not 2017. We are not talking about bitcoin replacing fiat currencies any more. Its bitcoin as digital gold mania now.

[Findingnemo]

Bitcoin is going to be the better one, cash is losing value and keep losing it every year so people lost their trust in it. On the other hand bitcoin is growing technology and it is getting recognized recently for various reasons so time will let us know which is better to individuals.

[el kaka22]

Inflation property of our fiats should not be assumed bad because it serves its purposes of "spending" economy model. Inflation is here to make sure about continuous working economy rather than looking for profiting out of money. If governments do not continuously print money then you will save ONLY money and may never think about investing it into stocks/bonds/gold/real estates and etc. By making your money to get less-valued over the time, government pushes us to spend it to make sure free-slow of money rather than getting congested/stuck only at some percentage of people.

Bitcoin got deflation property to make it popular in short term to compete against centuries old fiats.

Bitcoin could be assumed to have implicit inflation property by its infinitely divisible nature.

As per some theory, infinitely divisible property = unlimited supply.

[o_e_l_e_o]

Its based on that - good money(deflationary) rewards you for saving it (your money value grows in time) while bad money (inflationary) rewards you for spending it as fast as possible. That way if you have both you always want to spend bad money first. In the end you are using bad money all the time while good one is stored nowhere safely. Bad money wins in mass adoption. Good one is stored only by few who can afford that.

If we are applying Gresham's law, and saying that constantly devaluing fiat is the "bad" money, while deflationary bitcoin is the "good" money, then in the short term it does tend towards bitcoin being used more as a store of value than as a currency. If you look over the longer term, however, then Gresham's law tends to operate in reverse. As the bad fiat money becomes less and less valuable, although individuals will try to spend it as quickly as possible, vendors will be less likely to accept it, and prefer instead to accept the good money - which in this example is bitcoin. We've seen this kind of behavior (although with foreign fiat currencies rather than bitcoin as the "good" money) during times of hyperinflation, such as USD in Zimbabwe in 2007 through 2009.

[AniviaBtc]

Bitcoin is going to be the better one, cash is losing value and keep losing it every year so people lost their trust in it. On the other hand bitcoin is growing technology and it is getting recognized recently for various reasons so time will let us know which is better to individuals.

Bitcoin is really much better because of its value that increase depending on the factors that affect the market situation. While in Cash inflation, it will just make the value of money to become lower due to the increase in the supply of money. We all know that if all of us have money, then its value will become useless because all of us can afford the things that we want. That's why Cash inflation is not the best option, it will just increase the price of the products, goods, including the stock market. Low inflation will bring huge advantage in stock market which is good for some investors. Bitcoin is volatile, but its increase in its price is much better than other options.

[Tytanowy Janusz]

As the bad fiat money becomes less and less valuable, although individuals will try to spend it as quickly as possible, vendors will be less likely to accept it, and prefer instead to accept the good money - which in this example is bitcoin. We've seen this kind of behavior (although with foreign fiat currencies rather than bitcoin as the "good" money) during times of hyperinflation, such as USD in Zimbabwe in 2007 through 2009.

Yes. This is extreme case that does not last long (1-2 years out of 30 years of gradual devaluation). Everything is better than your currency than - even gold from World of Warcraft (fiat exit for Venezuela when bitcoin was banned).
So my point is that Gresham's law works in shorter and longer term. It does not work only during monetary system reset (1-2 years of hyperinflation and denomination). After that people are back to fiat (bad money) hoping that things will not repeat.

[justdimin]

There is really no "better" when it comes to currency, do not be mistaken just like dollars and euros, bitcoin is a currency and there is nothing better about it. In a perfect world there should be no currency, there should be no expense and there should be no costs. Humanity has all the resources it needs for everyone to live a great life without any trouble at all, both in agriculture but in technology as well.

There is enough power in the world to produce enough lambos for every single human who can drive a car, do you know the reason why there isn't one for all? Because, it would require manufacturing to be made by robots that takes "money" to be built, if everyone lived without money those robots would be built on free land and would produce lambo constantly all the time, new brand one every year.

It is not "technically impossible", it is quite possible, that is just one example, but money gives people power, the more money you have the more power you have and people who have that power and money do not want others to have the same, that is the only reason.

[Tytanowy Janusz]

There is really no "better" when it comes to currency, do not be mistaken just like dollars and euros, bitcoin is a currency and there is nothing better about it. In a perfect world there should be no currency, there should be no expense and there should be no costs. Humanity has all the resources it needs for everyone to live a great life without any trouble at all, both in agriculture but in technology as well.

There is enough power in the world to produce enough lambos for every single human who can drive a car, do you know the reason why there isn't one for all? Because, it would require manufacturing to be made by robots that takes "money" to be built, if everyone lived without money those robots would be built on free land and would produce lambo constantly all the time, new brand one every year.

It is not "technically impossible", it is quite possible, that is just one example, but money gives people power, the more money you have the more power you have and people who have that power and money do not want others to have the same, that is the only reason.

This is called communism and never work. Without money and people having irresistible desire to have more and more America would still not be discovered. Most technology we have (from internet to medicine) is made only because of greed. And there is no greed without money.

[o_e_l_e_o]

After that people are back to fiat (bad money) hoping that things will not repeat.

Definitely in the past, but perhaps now with bitcoin there is an alternative.

The last major hyperinflation event that a major country went through was that of Zimbabwe. With ongoing hyperinflation despite multiple re-denominations, outlawing of foreign currency, pegging to the dollar, and so forth, many people now transact using US dollars. In this scenario, US dollars is the "good" money, while Zimbabwean RTGS dollars is the "bad" money. This all started back in 2007 before bitcoin existed.

The situation in Venezuela is ongoing, they too have tried the same failed strategies that Zimbabwe did, with the added one of trying to peg their fiat to a scam cryptocurrency called Petro. There are lots of alternative methods of payment being used, bitcoin included despite it being made illegal. Bolivar is definitely the "bad" money in this scenario.

Perhaps the next time there is a hyperinflation event, bitcoin will emerge as the dominant "good" currency for that country. Certainly it is the one I would be using, rather than taking the government's empty promises and one million to one re-denominated garbage.

[whyrqa]

This is called communism and never work. Without money and people having irresistible desire to have more and more America would still not be discovered. Most technology we have (from internet to medicine) is made only because of greed. And there is no greed without money.

One interesting person once expressed his opinion that laziness is the engine of progress. An example is the remote control for the TV, which was apparently created by a person who was too lazy to get up from the couch and go to switch TV channels on the TV. Of course this is a ridiculous example, but nevertheless has a certain share of logic.
I would like to express my opinion about the state system, which, according to someone’s opinion, could be better, following the example of the communist or capitalist. the fact is that neither capitalism nor communism is present in any country in its purest form. in any case, there is a mixture and China is a clear example of such a political system.

[Darker45]

I am wondering, based on your example, in times of a pandemic such as the one we're going through right now or in times when the economy is severely disrupted, if not with the printing of money out of thin air, is there any way we could possibly maintain liquidity and keep the economy floating?

In times when business operations are halted and people losing their jobs and therefore their money and purchasing capacity, too, is there any way a government could avoid injecting additional amount into the supply?

We have been criticizing this basic fiat feature which allows the Fed to signal the treasury to print money in any amount necessary. This is devaluing the money, bringing down its purchasing power, pushes prices of goods and services up, and so on.

However, all this is temporary. It is an emergency measure so to speak. It is not as if it is only all about cash inflation all the way. Cash is actually being inflated and deflated all the time, with the overall economy in mind. This feature allows any economy to weather through the hard times. This is something that shall never happen in an economy which is supported by a money which has strict and fixed rules hard-coded on a protocol.

[Tytanowy Janusz]

I am wondering, based on your example, in times of a pandemic such as the one we're going through right now or in times when the economy is severely disrupted, if not with the printing of money out of thin air, is there any way we could possibly maintain liquidity and keep the economy floating?

Yes. They could just let things go. The weakest company would sink good one would continue to work (and profit on reduced competition). Lockdown last 1-3 month (depending on country). If this is enough to destroy company maybe it wasn't strong enough? Maybe it was wrongly managed? Printing is simply taking money from you to those who leave on the edge of bankruptcy to give them extra year (in most cases). I wonder if people would be ok with that knowing that it is similar to taking 5% from your bank account and pure it into corporations.

[davis196]

Pretty nice article for the newbies to educate themselves about the nature of Bitcoin and some macroeconomic and financial terms.
I think that inflation kinda forces people to spend more NOW,because tomorrow their paper money will have less value,so inflation can boost spending and consumption.On the other hand,Bitcoin stimulates saving,hoarding and HODLing,because there's the constant hope that the Bitcoin price might go to the moon,so that's why the Bitcoin users aren't that comfortable spending their Bitcoins.
Cash inflation is better for the economy,because it boost spending and consumer behavior,while Bitcoin is better for the individuals,that make more money and want to save and invest in an financial asset,that has great potential to increase it's future value.

[bitgolden]

Its based on that - good money(deflationary) rewards you for saving it (your money value grows in time) while bad money (inflationary) rewards you for spending it as fast as possible. That way if you have both you always want to spend bad money first. In the end you are using bad money all the time while good one is stored nowhere safely. Bad money wins in mass adoption. Good one is stored only by few who can afford that.

This cannot be an universal definition on what is good money and what is bad money just because of which is most rewarding you.

This must be an wrong assumption on fiat if you expect to get reward by storing it because fiat is NOT designed to reward you; you must work to earn it. (The interest you may get from fiats also will lose its value, hence even with interest gaining on fiats, it is still perfect with its basics).

You may work once and gain some fiat and then you will save it to reward you for your rest of life then you will call it good money? No system should support for being lazy. (Bitcoin rewards us because for the risk we are taking on holding it; still perfect as an asset).

A money should be inflationary so that it will lose value over the time if you try to store it. Only assets can be deflationary as it is meant for storing.

For example, if you store apple for a week, it will be decayed. You must eat when it is afresh. You must make use of fiats[1] before it lose its value. If you call bad because fiat lose its value then all apples are bad because it get rotten over the time.

[1] Making use of fiats can be investing it into any asset and that asset may reward for the risk you take.

[fiulpro]

Hi Everyone!

I wanted to start a discussion on Bitcoin vs Cash inflation. This has been a hot topic for discussion in the last few years, so I wanted to create a thread here for everyone to share their thoughts.

To kick off the discussion, I just published a blog post that discusses some thoughts on the topic.

You can find the article here:

Bitcoin vs. Cash Inflation - Which is Better?

What do you think? What are other things to consider when evaluating Bitcoin and cash inflation?

Looking forward to the discussion!

Inflation: Increase in the price of certain goods and commodities.

Now I do think Inflation when it comes to Bitcoins is quite different. Inflation for us is apparently beneficial , beneficial for the holders for everyone. We can always use the SATOSHI or any smaller Currency it needed but I do think the same laws do not apply here.

____________________________________________________________
When it comes to inflation regarding the money and other commodities, it does reflect on economic situation of a country. There was a time when my mom told me she could but a bunch of stuff with 1/71th $ , like literally a bunch . Now I do think we know what we are dealing with .

It does directly shows the power of a nations currency.  Inflation is essentially bad for the economy, say for example you saved up 100$ years before , you won't get the same value now.

But then again a little inflation with regards to good interest rates for the people would mean that it is beneficial for the long run.

[o_e_l_e_o]

However, all this is temporary. It is an emergency measure so to speak.

That's the problem though - it isn't temporary. Here's the Federal Reserve's balance sheet for the last 17 years (click for full size):



Pre-2008 crisis it was sitting at a fairly stead $800-900 billion for several years. 2008 financial crisis hits, and they rapidly print around $1.4 trillion to stabilize the economy. You could argue that needed to be done, which would be fine if they then undid those changes at a later date. Instead, during the next 10 years, instead of slowly removing that $1.4 trillion, they continue to print more and more, devaluing the dollar more and more, and their balance sheet reaches a record level of $4.5 trillion. Finally, 11 years later in 2019, they think about starting to reduce their balance sheet, until COVID hits and they print almost $4 trillion in the space of a few weeks.

If it took them 11 years to start reducing their balance sheet following the 2008 crash, how much longer do you think it will take following this crash? Not to mention they probably aren't even finished printing for this crash yet. There will be another crisis, and another, and another, all before they even begin to undo these changes, let alone get their balance sheet back down to "normal" levels. The printing will never end. The dollar value will never stop falling. This isn't temporary - this is normal.