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Author Topic: Is crytocurrency hyperinflationary?  (Read 4610 times)
eMansipater
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May 05, 2011, 06:06:57 PM
 #21

Lower transaction volumes would reduce its utility as a form of exchange. Then it becomes more of an investment tool than a transactional tool. Plus it would gravitate towards the hands of a few rich people, as with all forms of wealth since time immemorial.
In the long term, transaction levels and security are correlated.  If bitcoin stops being used, it will decrease in security and eventually go away.

Regarding a tangible real-world example of how currencies function when they are in limited supply and without a backing entity, see the so-called "Swiss dinar" in Kurdish Iraq.

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robm
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May 05, 2011, 06:08:18 PM
 #22


Unless you had no alternative, or ACTUALLY WANTED SOMETHING.  Gee, I'll just live in a cardboard box hoarding my bitcoins since tomorrow they might be worth more.  I guess I won't eat today anything more than cat food and out of a dumpster since I have to eat something, but the I'll save the rest for the magical day that I actually want to spend my bitcoins.

My point exactly on actually wanting something.

But let's say you have bitcoins or dollars. Bitcoins are strong and dollars are weak. Why buy your food with bitcoins? Much better to dump your dollars, until you run out.
robm
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May 05, 2011, 06:10:26 PM
 #23

Lower transaction volumes would reduce its utility as a form of exchange. Then it becomes more of an investment tool than a transactional tool. Plus it would gravitate towards the hands of a few rich people, as with all forms of wealth since time immemorial.
In the long term, transaction levels and security are correlated.  If bitcoin stops being used, it will decrease in security and eventually go away.

Regarding a tangible real-world example of how currencies function when they are in limited supply and without a backing entity, see the so-called "Swiss dinar" in Kurdish Iraq.

Thanks. I didn't know this on the transaction / security point.

I'll look at the other thing.
robm
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May 05, 2011, 06:16:40 PM
 #24

@emansipater

The Swiss dinar example you give is very interesting. Key points are the fixed (slightly falling) supply and wide recognition.

But also the lack of alternatives and (paper) cash economy. I suspect the Kurds have very little access to banking, foreign currency, and especially not internet banking or offshore accounts.

So it looks like a more or less closed system within their territory, with no meaningful monetary competition.
Garrett Burgwardt
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May 05, 2011, 06:19:42 PM
 #25

You can make another currency based off of bitcoin, but it wouldn't have the economic backing that bitcoin does. It wouldn't have the network security that bitcoin does. It wouldn't be worth what bitcoin was worth, because it isn't bitcoin. That's like worrying that the US Dollar will hyperinflate because other countries make their money out of cloth with security features as well.

As for anti-trust, there's no trust or company to go after, just a protocol. That's like trying to break up gasoline burning cars because they're almost a monopoly.

All of these arguments are nonsense.

Especially, by the way, the deflationary spiral one. We've hashed that one over way too many times - learn to search, even just the wiki has a dedicated page for it.

New countries a rarely created or destroyed. Only after major upheavals. So the numbers of "normal" currencies are in more or less fixed supply, even if the quantity of "notes" of each of them isn't.

Cryptocurrencies can be created on a whim, just like bitcoin was.

So I don't think your analogy works.

NB you'll have more success spreading the word if you don't hack the arms and legs off potential converts.

You're missing the point. It doesn't matter if there are more countries, or if there were new countries created every day. Even if they make a new currency each and flood the market with bills, it wouldn't affect the price of other currencies. Same with bitcoins.
robm
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May 05, 2011, 06:58:47 PM
 #26



You're missing the point. It doesn't matter if there are more countries, or if there were new countries created every day. Even if they make a new currency each and flood the market with bills, it wouldn't affect the price of other currencies. Same with bitcoins.

Half right, half wrong.

All other currencies affect each other. Print a lot and your currency falls versus the others. Control the supply relative to demand and it stays strong.

Currencies are currently more or less bounded by physical borders and a limited number of countries issuing them. Want to buy a burger in Idaho? Don't show up with Swiss Francs (even though Swiss Francs keep their value much better).

So what happens if you remove all physical border constraints (as with cryptocurrencies), but you also remove all constraints on how many currencies exist or can exist?

I don't think this has ever happened before. We've gone from many small communities with many currencies to progressively fewer countries with fewer currencies (think eurozone for recent, albeit disastrous, example).

Slam it in reverse with no constraints (on borders of numbers of currencies) and I don't think we should presume to know what might happen.

Garrett Burgwardt
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May 05, 2011, 08:10:54 PM
 #27

Why would people begin to accept other currencies? Without an economy backing them up, they'd be useless. It's like all these crappy little news sites that pop up on the web - it's trivial for them to be setup, so why not do it? But people don't go to them, because they aren't reliable, or just that the bigger news sources are better.
stillfire
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May 05, 2011, 08:25:46 PM
 #28

All other currencies affect each other. Print a lot and your currency falls versus the others. Control the supply relative to demand and it stays strong.

This is not so. There is no magical property of currencies that automagically change the value of other currencies. If I started printing bills of a new "robm dollar" currency right now I would not affect any other currency in the world, no matter how many or how few I printed.

If I could convince some people to accept robems for a good, a service or another currency I would open up for some amount of arbitrage. But the amount of such value exchange would be directly proportional to the amount of usefulness of the new currency. E.g. if I said I would sell 10 grams of gold for 1 robem, someone might pucharse 1 robem for an amount of USD lower than what 10 grams of gold costs. And that would technically have 'lowered' the value of the USD since one person wanted to get rid of a small amount.

But it was not the creation of the currency itself that lead to this. It was the creation of new economic opportunity. You can create new crypto currencies all day and it wouldn't make a difference unless you also convinced people to use it.

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robm
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May 05, 2011, 09:35:44 PM
 #29

All other currencies affect each other. Print a lot and your currency falls versus the others. Control the supply relative to demand and it stays strong.

This is not so. There is no magical property of currencies that automagically change the value of other currencies. If I started printing bills of a new "robm dollar" currency right now I would not affect any other currency in the world, no matter how many or how few I printed.

If I could convince some people to accept robems for a good, a service or another currency I would open up for some amount of arbitrage. But the amount of such value exchange would be directly proportional to the amount of usefulness of the new currency. E.g. if I said I would sell 10 grams of gold for 1 robem, someone might pucharse 1 robem for an amount of USD lower than what 10 grams of gold costs. And that would technically have 'lowered' the value of the USD since one person wanted to get rid of a small amount.

But it was not the creation of the currency itself that lead to this. It was the creation of new economic opportunity. You can create new crypto currencies all day and it wouldn't make a difference unless you also convinced people to use it.

I was being deliberately simplistic here, as obviously there are lots of factors affecting currencies on a day to day basis. But over the long run, print more and your currency will get dumped as people switch into (and bid up) others.

Maybe I should have said "existing" or "fiat" currencies to be clear. One that are in use. Obviously if you create one that no one uses it won't affect others. But it there is wealth tied up in it, and that wealth moves away, the value of the currency will fall. Put another way, buyers will pay less to get it and sellers will demand less to sell it.

Think of money like water. It flows between different places. Where it flows determines prices.
tomcollins
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May 05, 2011, 09:50:44 PM
 #30

Why would people begin to accept other currencies? Without an economy backing them up, they'd be useless. It's like all these crappy little news sites that pop up on the web - it's trivial for them to be setup, so why not do it? But people don't go to them, because they aren't reliable, or just that the bigger news sources are better.

Why would people use Facebook/Myspace?  After all, Friendster has all of your contacts!
robm
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May 05, 2011, 10:09:47 PM
 #31

Why would people begin to accept other currencies? Without an economy backing them up, they'd be useless. It's like all these crappy little news sites that pop up on the web - it's trivial for them to be setup, so why not do it? But people don't go to them, because they aren't reliable, or just that the bigger news sources are better.

Put another way, there are too many crappy little news sites, and nothing controlling their proliferation. People read their news where they think they can trust it. Or where the brand is strong.

Which gets back to the original question. If there is no control on the number of crytocurrencies, will we end up with masses of "crappy little news site" equivalents? Or will something (bitcoin or something better) float to the top and keep people engaged?

Maybe bitcoin just becomes a branding exercise. Battling to stay on top of a morass of competition. First mover might help, and might keep it entrenched for a while. Think Microsoft. But it will constantly be under assault if people can come up with something better. Actually that would be a good thing. Good money driving out the less good.

But since there is no central ownership (or so I'm told) who will fund the branding? Maybe the users in an attempt to protect the utility. But equally possible is a competitor currency driven by business people and cryptobankers. Who know how to make it work in a bigger piece of the economy. How to market it. How to work on PR. How to brand it, essentially.

Claiming to know the answer to all this is not really credible. We can only speculate on the outcomes.



Garrett Burgwardt
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May 05, 2011, 10:14:07 PM
 #32

Well if a better currency comes along I'd imagine people would move to it over a period of time, similar to what is happening with BTC/USD now.

We can only speculate, but if you're making false assumptions, you're speculating poorly.

As far as branding, it doesn't matter if we don't or do advertise it - once people use it, it advertises itself.
stillfire
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May 05, 2011, 10:32:30 PM
 #33

But over the long run, print more and your currency will get dumped as people switch into (and bid up) others.

Yes. If someone could print more Bitcoins, Bitcoins would lose value and be "dumped". But your point was that "The supply of alternative, competing cryptocurrencies is unlimited. Very bad."

Your argument appears to me that infinite competition with an unlimited number of currencies will water down Bitcoin. But as my example illustrates, the supply of other unused cryptocurrencies has no effect on Bitcoin. Only usage of other currencies affects it. And usage is decidedly limited - neither unlimited nor infinite. Usage does not appear in a vacuum, it only comes about due to a new currency being better in some circumstances. And the amount of 'betterness' available to exploit for new currencies is, again, anything but unlimited.

Like eMansipater said, "Why weren't there many competing shell currencies in 19th century Africa?"

Think of money like water. It flows between different places. Where it flows determines prices.

A beautiful analogy to be sure, but a little hard to work with since we're discussing more than one 'water' here. Yes, if there were competing liquids, they would sometimes fill up holes water would otherwise. And the more liquids there would be, the less of any one there would be in the existing holes. But here the comparison becomes thin, because what would the incentive for creating and applying ever new liquids be? Indeed, the opposite incentive exists because most people already have water and keeping what you have is easier than creating anew.

Building up a new currency is hard work with no small amount of catch-22 built in. Why would you start using a new currency when it starts out useless? You have to somehow be convinced there will be future utility greater than that of your current money. Your leap of faith and those of others may eventually fulfil the prophecy. Or it may not.

There may be a million tiny currencies but if there is no improvement in one over the other, the inertia of the existing value of an economy is insurmountable. Smallness in itself is a negative for a currency. All things equal, meaning both currencies are exactly as 'good' in convenience, value store capacity and so on - you will go with the currency useful in the most places - the larger one.

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tomcollins
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May 05, 2011, 11:26:55 PM
 #34

Well if a better currency comes along I'd imagine people would move to it over a period of time, similar to what is happening with BTC/USD now.

We can only speculate, but if you're making false assumptions, you're speculating poorly.

As far as branding, it doesn't matter if we don't or do advertise it - once people use it, it advertises itself.

Drink Kool-Aid much?
Garrett Burgwardt
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May 06, 2011, 12:19:12 AM
 #35

Well if a better currency comes along I'd imagine people would move to it over a period of time, similar to what is happening with BTC/USD now.

We can only speculate, but if you're making false assumptions, you're speculating poorly.

As far as branding, it doesn't matter if we don't or do advertise it - once people use it, it advertises itself.

Drink Kool-Aid much?

I obviously know the reference, but not what you're referencing specifically. As shown, the folks who believe that bitcoin can hyperinflate are simply wrong. Until you can come up with a good reason for bitcoins to hyperinflate, then you are beating a dead horse.
tomcollins
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May 06, 2011, 01:27:19 AM
 #36

Well if a better currency comes along I'd imagine people would move to it over a period of time, similar to what is happening with BTC/USD now.

We can only speculate, but if you're making false assumptions, you're speculating poorly.

As far as branding, it doesn't matter if we don't or do advertise it - once people use it, it advertises itself.

Drink Kool-Aid much?

I obviously know the reference, but not what you're referencing specifically. As shown, the folks who believe that bitcoin can hyperinflate are simply wrong. Until you can come up with a good reason for bitcoins to hyperinflate, then you are beating a dead horse.

It's been explained already.  There is nothing that makes Bitcoin unique among cryptocurrencies.

You are claiming "it doesn't matter about advertising" as well.  You couldn't be more wrong.  Without advertising, no one would be here.
Garrett Burgwardt
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May 06, 2011, 01:39:43 AM
 #37

Right - my assertion is that there doesn't need to be someone actively advertising bitcoin as soon as businesses start to accept it - the businesses will advertise it themselves, given that it is a better currency, and people will hear about it more. Especially with the little bitcoin accepted here stickers. So it will be advertised, but there doesn't need to be a campaign. Let it creep over people.

And there is something that makes Bitcoin unique, and something that you still aren't getting. There is an economy behind bitcoins. There is significant hashing power backing up the blockchain. It also has mindshare and people would likely not be willing to change from bitcoin to something else unless there is a significant reason to. Which there might be, I'm not denying, but we haven't even seen a competing CC, unless you count namecoins but those are different.

So yes, there are unique things to bitcoin, so you're wrong on that count.

Advertising will handle itself - wrong there, and I'd appreciate it if you thought things through a bit more before insulting me.

Which by the way, I still don't get your reference to the Kool-Aid. Either you're using it wrong or I'm just misinterpreting it - there's nothing I'm accepting here that doesn't have a logical basis.
NghtRppr
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May 06, 2011, 01:44:34 AM
 #38

The supply of alternative, competing cryptocurrencies is unlimited. Very bad.

I think competition is good. There may be be an possibly unlimited number of cryptocurrencies but how many are actually going to be widely used? The incentive for people to flock to new currencies is small as long as Bitcoin is doing what people want it to do.
tomcollins
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May 06, 2011, 02:51:15 PM
 #39

The supply of alternative, competing cryptocurrencies is unlimited. Very bad.

I think competition is good. There may be be an possibly unlimited number of cryptocurrencies but how many are actually going to be widely used? The incentive for people to flock to new currencies is small as long as Bitcoin is doing what people want it to do.

It's bad if there are no differences between them.  Competition is good (although bad if you hold a lot of Bitcoins, perhaps).  But the big draw is there are only 21M Bitcoins that will ever exist.  If that number changed to 21B, that would be awful.  Having a clone that could exist with the same features essentially doubles that number.

Sure maybe one would win out, and maybe both would live, but it's a threat.
Garrett Burgwardt
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May 06, 2011, 02:56:16 PM
 #40

No, since the clone wouldn't be the same as the real bitcoin if it is at all different (say it has the 21b coin limit you suggested). If it is the same, you're using bitcoins!

No matter how you argue it, you're still wrong. Bitcoin will not be hyperinflationary. Period.
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