Bitcoin is no hedge against inflation - i unadopted it.

[halfawake]

I think a lot of people don't really understand inflation because of how interwoven it is with modern society.

Small amounts (2 - 3%) of inflation are actively promoted by central banks for one reason: to promote spending.  If you stick your money (let's say US Dollars, but the principle will work with any fiat currency), in a bank and leave it there for a year, you'll be pretty much guaranteed to be able to buy less at the end of the year than you could at the beginning.  Maybe not a huge amount less, but multiply that over the course of 5 - 10 years and it makes a huge difference.

Economists don't like deflation, and this is precisely why.  Deflation (and deflationary currencies like bitcoin) promote saving.  How many bitcoiners have a stash of bitcoins that they're holding for when they're worth more?  I'd bet most people on this site do, and if they don't, they'd like to most of the time.  The long term trend for bitcoin is for the fiat value to increase in value.  Yes, it's gone down a fair amount over the past year, but compare how the current price now to the price in August of 2013.   

I'll save you looking it up - the price then was around $90.  Still think the current $380 price looks bad?  It all depends on how long term your vantage point is.  If you're here to make a quick buck, well, you picked the wrong time to invest.  If you're here for the long haul, enjoy the rollercoaster ride of bitcoin and ignore the price for the next several months.  Check back in a year or two and I'll be the price will be back up again.

My bet on why the price keeps going down: people are spending their bitcoins, and merchants (understandably) aren't wanting to hold them and carry exchange rate risk, so they're immediately cashing out.  There aren't enough people buying bitcoins to replace the downward price pressure of these merchants cashing out, so these purchases mean that the price is going down.  So here's my advice.  Want to help keep the price from dropping any further?  Any time you buy something in bitcoins, buy an equal amount of bitcoins right after you buy whatever it is you're looking at.  That'll counteract the downward price pressure from the merchant most likely immediately cashing out the bitcoin sale.

These days, if you do that, you'll be getting your new batch of bitcoins on sale because for now, well, the price keeps dropping.  It's truly a free market currency, unlike most currencies, there's no army or government behind bitcoin saying "This bitcoin is backed by the full force of x government" - rather, it's backed by the full faith and credit of us - everyone who invests in bitcoins, everyone who spends bitcoins, and everyone who buys bitcoins. 

Bear in mind that I'm saying this as someone who bought bitcoins a couple months ago when the price was around $650.  It's not fun watching the price plummet, but I'm sure as hell not cashing out now.  If it drops to $100, I may regret this decision, but I'd be surprised if it goes down that far.

[needFREElunch]

Bitcoin functions as a digital collectible not currency.

So bitcoin is an asset not a currency. But what kind of asset is it? Can you eat it? live under it? drink it? can bitcoin keep you warm at night? how does it compare to other asset classes? and is there any compelling reason to collect a digital collectible? 

It's an asset that I have complete control over. It can not be seized without my permission, and I can transfer it to whomever I want without anyone preventing that from occurring. If you don't understand the value in that, then I don't know what to say.

I have complete control over the dump I took earlier today, no one is gonna seize it without my permission and I can transfer it to whom ever I want and there is a limited supply, guaranteed to less than 21 million in circulation, It is a deflationary dump and you are an idiot if you cant see the value in my dumps. I dont know what to tell you if you dont see the value in investing in my bowel movements, I can even make a digital representation of my dumps each day. My dumps have POS mining (proof of shit) It proves work was done in the production of each of my dumps. I add or remove laxatives to keep them produced at a steady rate. Invest in my digital collectible dumps if you dont you hate free markets! 

This is a very immature argument, however it is not even true. You really do not have control when you need to move your bowels this is something that is handled by your body that you do not have control over (even with laxatives). It would also be very difficult to transfer your fecal matter to others, and it could easily be seized the same way that any other physical item can be seized. No one else would likely assign any value to your fecal matter while people to assign value to bitcoin

[hgerson]

This is a very immature argument (...)

Do you really think so? 

Why do we need it?

We need it to be independent of banks.

I don't think most people is ready for it though.

[Eotnak]

Again, I respectfully disagree.  I think banks will take it upon themselves to practice BTC fractional reserve and "mint" coins for their users.  21 million cap: poof!

Banks can use fractional reserve practice on any asset you deposit at their scam shops. But when they do it with Bitcoin or gold, you can clearly prove that whatever thing they emit for your deposit is a (fractionally reserve) IOU and not the same as Bitcoin or gold. That distinguishes Bitcoin and gold from fiat money.

Bitcoin even discourages handing over capital to banks, because if you own your private keys and can do transfers yourself you no longer need to trust a bank to hold your funds and do it for you.

ya.ya.yo!

I'm not an economist, so explain it to me like I'm a mechanic.  Bank A sends Bank B BTC IOU.  Presently, bank A sends bank B fiat IOU as well, no?  I don't see the difference.  Only that I as a consumer have the option of saving and transacting without a bank at all.

Well, since no one can answer my question, I assume that I am right.  The 21 million cap on Bitcoin is for true Bitcoin.  Sheople, after mass adoption happens, will probably not want to be bothered with keeping their own private keys, and will keep their BTC in online services.  The bigger the service, the more BTC IOU's they can use, hence increasing Bitcoin supply past 21 million.  It'll be fun to watch! 

even still $380 per BTC is insanely cheap.

[galbros]

Bitcoin is not inflationary, it has a fixed number of coins.  The rate of generation may result in transitory inflation but we all know where this is going to end, 21 million bitcoins minus however many are lost along the way.

Just like the price of gold fluctuates so will bitcoin's price.  Speaking of which, more gold gets mined every year as well, still it's a decent inflation hedge.

The bigger issue may be that there isn't a lot of inflation to worry about in most developed countries now, so less need of a hedge rather than bitcoin not being a potential hedge.

[colinistheman]

People like to call it 'hedge against fiat inflation' others said 'it's digital gold'

None of it is true. In fact it is misleading. Bitcoin inflates twice as heavy as fiatmoney until 2016 - after that it'll continue to inflate at the same rate as fiatmoney. So how can that be a hedge against inflation or compared to gold? It's a lie.

Bitcoin is inflating heavily with around 10% per year. This is causing negative feedbackloops like we see now and causes high volatility.
The high inflation in bitcoin also impacts adoption in a negative way. People will probably not adopt something that goes down 90% of the time to make a crazy rise (maybe) at one point for a few weeks and then starts declining again for ages.
Sane people will not adopt that.

So, can i ask. Why was it again we are having that inflation? What sense does it make? Why do we need it?
Is Bitcoin maybe just a plot to make big miners rich?

I myself unadopted bitcoin again for that reason.
I refuse to invest in inflationary coins.

your thoughts?

Interestingly the inflation in the number of coins mined (even with this creation being greater at the beginning with 50btc and 25btc per block), is still having a generally uptrending value if you take it on a span of years. So the price is still deflating even though the supply is inflating. Tell that to the dollar.

This year we can buy MORE things with 1 BTC than last year, and the year before. (take it on an average, and not the spikes)

The US dollar can buy you LESS this year than last year and the year before.

[a447513372]

Again, I respectfully disagree.  I think banks will take it upon themselves to practice BTC fractional reserve and "mint" coins for their users.  21 million cap: poof!

Banks can use fractional reserve practice on any asset you deposit at their scam shops. But when they do it with Bitcoin or gold, you can clearly prove that whatever thing they emit for your deposit is a (fractionally reserve) IOU and not the same as Bitcoin or gold. That distinguishes Bitcoin and gold from fiat money.

Bitcoin even discourages handing over capital to banks, because if you own your private keys and can do transfers yourself you no longer need to trust a bank to hold your funds and do it for you.

ya.ya.yo!

I'm not an economist, so explain it to me like I'm a mechanic.  Bank A sends Bank B BTC IOU.  Presently, bank A sends bank B fiat IOU as well, no?  I don't see the difference.  Only that I as a consumer have the option of saving and transacting without a bank at all.

Well, since no one can answer my question, I assume that I am right.  The 21 million cap on Bitcoin is for true Bitcoin.  Sheople, after mass adoption happens, will probably not want to be bothered with keeping their own private keys, and will keep their BTC in online services.  The bigger the service, the more BTC IOU's they can use, hence increasing Bitcoin supply past 21 million.  It'll be fun to watch! 

even still $380 per BTC is insanely cheap.

There is a cap on the 21 million BTC that can ever be mined. This is part of the protocol. It is not possible for there to be more then this many bitcoin on the public ledger (blockchain), however you are correct to say that banks could "create" additional bitcoin via fractional reserve lending. This however is very risky and I don't think will ever catch on because of banks inability to seize bitcoin that is not "on deposit" with them

[jbreher]

Small amounts (2 - 3%) of inflation are actively promoted by central banks for one reason: to promote spending. 

You state that as if it is the only reason. That would be a false assertion. There is another reason, and it is undoubtedly the most important reason to the banking class.

This reason is that inflation steals the wealth of the populace at large, and transfers that wealth to the banking class.

[halfawake]

You state that as if it is the only reason. That would be a false assertion. There is another reason, and it is undoubtedly the most important reason to the banking class.

This reason is that inflation steals the wealth of the populace at large, and transfers that wealth to the banking class.

Well, yes.  Arguably, that's true as well, but...the reason I stated is at least the public version that all economists would agree with.

[Eotnak]

Again, I respectfully disagree.  I think banks will take it upon themselves to practice BTC fractional reserve and "mint" coins for their users.  21 million cap: poof!

Banks can use fractional reserve practice on any asset you deposit at their scam shops. But when they do it with Bitcoin or gold, you can clearly prove that whatever thing they emit for your deposit is a (fractionally reserve) IOU and not the same as Bitcoin or gold. That distinguishes Bitcoin and gold from fiat money.

Bitcoin even discourages handing over capital to banks, because if you own your private keys and can do transfers yourself you no longer need to trust a bank to hold your funds and do it for you.

ya.ya.yo!

I'm not an economist, so explain it to me like I'm a mechanic.  Bank A sends Bank B BTC IOU.  Presently, bank A sends bank B fiat IOU as well, no?  I don't see the difference.  Only that I as a consumer have the option of saving and transacting without a bank at all.

Well, since no one can answer my question, I assume that I am right.  The 21 million cap on Bitcoin is for true Bitcoin.  Sheople, after mass adoption happens, will probably not want to be bothered with keeping their own private keys, and will keep their BTC in online services.  The bigger the service, the more BTC IOU's they can use, hence increasing Bitcoin supply past 21 million.  It'll be fun to watch! 

even still $380 per BTC is insanely cheap.

There is a cap on the 21 million BTC that can ever be mined. This is part of the protocol. It is not possible for there to be more then this many bitcoin on the public ledger (blockchain), however you are correct to say that banks could "create" additional bitcoin via fractional reserve lending. This however is very risky and I don't think will ever catch on because of banks inability to seize bitcoin that is not "on deposit" with them

Thanks for addressing my question!  I'm not sure I understand what you wrote, though.  How do today's banks seize dollars that are not on deposit?  Sorry if that's a stupid question, but I never studied any of this stuff in school.

[jbreher]

Thanks for addressing my question!  I'm not sure I understand what you wrote, though.  How do today's banks seize dollars that are not on deposit?  Sorry if that's a stupid question, but I never studied any of this stuff in school.

It is not a hard concept to grasp. Indeed, it is so astonishingly simple that the mind recoils from considering that the system would ever be thusly structured.

Today's banks seize dollars by simply zapping them into existence, where no dollars were before.

[Eotnak]

Thanks for addressing my question!  I'm not sure I understand what you wrote, though.  How do today's banks seize dollars that are not on deposit?  Sorry if that's a stupid question, but I never studied any of this stuff in school.

It is not a hard concept to grasp. Indeed, it is so astonishingly simple that the mind recoils from considering that the system would ever be thusly structured.

Today's banks seize dollars by simply zapping them into existence, where no dollars were before.

I thought it was the government that did that.  Printing new bills.  The question was how do banks seize dollars that actually exist, not fractional reserve...I'm trying to nail down whether or not the possibility exists that Bitcoin will suffer from fractional reserve banking.

[yayayo]

Thanks for addressing my question!  I'm not sure I understand what you wrote, though.  How do today's banks seize dollars that are not on deposit?  Sorry if that's a stupid question, but I never studied any of this stuff in school.

It is not a hard concept to grasp. Indeed, it is so astonishingly simple that the mind recoils from considering that the system would ever be thusly structured.

Today's banks seize dollars by simply zapping them into existence, where no dollars were before.

I thought it was the government that did that.  Printing new bills.  The question was how do banks seize dollars that actually exist, not fractional reserve...I'm trying to nail down whether or not the possibility exists that Bitcoin will suffer from fractional reserve banking.

Both do it. The FED prints physical fiat money that is put into circulation via banks. People deposit this physical fiat money into a savings account at a bank. The bank in turn can use the seized deposits as security to create a certain amount of nonphysical bank money (at a factor of about 1:10). That's fractional reserve banking.

ya.ya.yo!

[jbreher]

Thanks for addressing my question!  I'm not sure I understand what you wrote, though.  How do today's banks seize dollars that are not on deposit?  Sorry if that's a stupid question, but I never studied any of this stuff in school.

It is not a hard concept to grasp. Indeed, it is so astonishingly simple that the mind recoils from considering that the system would ever be thusly structured.

Today's banks seize dollars by simply zapping them into existence, where no dollars were before.

I thought it was the government that did that.  Printing new bills. 

I don't know where you are from. Here in the USA, 'dollars' are zapped into being by the banks - up to and including the FED.

The question was how do banks seize dollars that actually exist, not fractional reserve...I'm trying to nail down whether or not the possibility exists that Bitcoin will suffer from fractional reserve banking.

The dollars that the banks zap into being exist in the same sense that those notes in your pocket exist.

The possibility of fractional reserve bitcoin banking clearly exists. It is up to us -- those that understand -- to spread the certainty that a bitcoin and a bitcoinIOU are two different things. And to never accept a bitcoinIOU in lieu of a bitcoin. Only if this knowledge becomes universal, can we stave off the threat of fractional reserve bitcoin banking.

[Eotnak]

The possibility of fractional reserve bitcoin banking clearly exists. It is up to us -- those that understand -- to spread the certainty that a bitcoin and a bitcoinIOU are two different things. And to never accept a bitcoinIOU in lieu of a bitcoin. Only if this knowledge becomes universal, can we stave off the threat of fractional reserve bitcoin banking.

ahh, thank you.  That's what I've been trying to get at.  I'm from USA, and from what I've seen people do in the past and present, I've determined that we can spread word all we want and care to.  Do it until the day we die, and all the experts will warn against keeping Bitcoin online and accepting Bitcoin IOU's.  And it will amount to nothing because Bank of America can give out free ipad's with a new minimum BTC deposit account, and people will want to avoid paying transaction fees by keeping their transactions off the blockchain when demand soars past hundreds and thousands of transactions per second.

For that reason, I believe that the 21 million coin cap is a technicality, and the supply of Bitcoins in use will go beyond that very soon (by comparison) thus making the currency less inflationary compared to fiat, but not truly deflationary indefinitely as per the protocol.  The market will determine the supply.

[jbreher]

The possibility of fractional reserve bitcoin banking clearly exists. It is up to us -- those that understand -- to spread the certainty that a bitcoin and a bitcoinIOU are two different things. And to never accept a bitcoinIOU in lieu of a bitcoin. Only if this knowledge becomes universal, can we stave off the threat of fractional reserve bitcoin banking.

ahh, thank you.  That's what I've been trying to get at.  I'm from USA, and from what I've seen people do in the past and present, I've determined that we can spread word all we want and care to.  Do it until the day we die, and all the experts will warn against keeping Bitcoin online and accepting Bitcoin IOU's.  And it will amount to nothing because Bank of America can give out free ipad's with a new minimum BTC deposit account, and people will want to avoid paying transaction fees by keeping their transactions off the blockchain when demand soars past hundreds and thousands of transactions per second.

For that reason, I believe that the 21 million coin cap is a technicality, and the supply of Bitcoins in use will go beyond that very soon (by comparison) thus making the currency less inflationary compared to fiat, but not truly deflationary indefinitely as per the protocol.  The market will determine the supply.

Perhaps. However, our current system has grown up through generations understanding that, should a bank become insolvent, the FED (through the FDIC) will make all depositors whole. And in the case of a systemic issue, again, the FED (through massive 'printing' of new 'dollars') will make depositors 'whole'. Though this 'whole-ness' will be in terms of dollars only -- not wealth or purchasing power.

It will be interesting to see how BoA's bitcoin dealings might evolve in the case where there is no central bank to backstop such operations.

Ten years ago, pretty much nobody understood the fraud of central banking. Today, an increasing percentage does.

Let us cling to our principles and our hope, and endeavor to pull the blinders off the next group of the people.

[galbros]

The dollars that the banks zap into being exist in the same sense that those notes in your pocket exist.

The possibility of fractional reserve bitcoin banking clearly exists. It is up to us -- those that understand -- to spread the certainty that a bitcoin and a bitcoinIOU are two different things. And to never accept a bitcoinIOU in lieu of a bitcoin. Only if this knowledge becomes universal, can we stave off the threat of fractional reserve bitcoin banking.

This is the key insight.  Just like banks can't create more gold, they can't create more bitcoin.  All they can create is bitcoinIOUs and that is a very different thing.  If you don't hold the private key you don't really hold the bitcoin is the key idea to get across to newbies.

[Rishblitz]

Every currency has inflation that's the nature of economics.

[jbreher]

Every currency has inflation that's the nature of economics.

Ha. Haha. Hahahahahahaha.

Care to clarify your statement? What is your definition of inflation in use here?

[blumangroup]

Thanks for addressing my question!  I'm not sure I understand what you wrote, though.  How do today's banks seize dollars that are not on deposit?  Sorry if that's a stupid question, but I never studied any of this stuff in school.

It is not a hard concept to grasp. Indeed, it is so astonishingly simple that the mind recoils from considering that the system would ever be thusly structured.

Today's banks seize dollars by simply zapping them into existence, where no dollars were before.

I thought it was the government that did that.  Printing new bills.  The question was how do banks seize dollars that actually exist, not fractional reserve...I'm trying to nail down whether or not the possibility exists that Bitcoin will suffer from fractional reserve banking.

Seize is really not a good word to use. They give people an incentive to keep their money on deposit by paying interest and charging fees to take money out of CDs.