I always thought of Bitcoins as being inflation proof, but "infinitely divisible" makes me have to rethink this. Its easy to see the deflationary value of the system...but that word "unlimited"...how will that play out?
Dividing existing money is different than creating new money.
Let's use a bar of gold as an example.
You have one bar of gold. You cut that bar in half, you now have two smaller pieces. Each smaller piece is worth half the original bar of gold, but combined they are still one bar of gold. This is how Bitcoin's divisibility works. You can break it up into smaller pieces, but each smaller piece is worth less than the original.
Everyone has the same amount of Bitcoins as they did before, but everyone can break those Bitcoins up into smaller pieces, and trade with that instead.
The problem with inflation is that when a central bank prints new money, they don't give it to everyone equally. If they did, it would be no problem. Instead, they use the money however they see fit, and they spend it at the current value. Then as it gets absorbed by the economy, it devalues each unit that was already in existence. So if you don't get a slice of this new money (and you usually don't), you just got robbed.
I understand how it works with gold, but with a digital currency, there is one thing I'm trying to get my head around.
With gold, eventually it becomes physically impossible to divide any smaller.
With Bitcoins not being physical, you have that "infinitely divisible" aspect going on, which has never been taken to the extreme to see what would happen. 6.0221 × 10
-23 btc is just as easy to divide and send as 1 btc. I guess it would work better than gold.