First off, thank you guy for reading and commenting. I appreciate the time you gave reading what I had to say.
John, kazimir, realnowhereman and lord, I actually talked about dividing up the satoshis firther. From what I can see, that's exactly the inflation the current bitcoin system is trying to avoid - creating more money. However, if bitcoins will catch on as a main currency, I guess that will be inevitable.
No; inflation would be issuing more than 21 million coins. Increasing the resolution with which you can transmit coins is just that, no more. Money wouldn't be created it's just expressed in finer divisions. A tonne of gold would still be a tonne of gold, no matter how finely you divided it up (although physics puts harder limits than the bitcoin protocol).
Imagine at present you could only send whole numbers of bitcoins. Would it be inflation if the developers added a feature to enable you to send 0.1s of a bitcoin?
Let's say that we want to be able to deal at a resolution of $0.001 (I'm picking this as the smallest price we care about); but with bitcoins. The current protocol allows for as little as 0.00000001 BTC to be transmitted. Therefore the highest exchange rate the current protocol limits us to (for real-world considerations) is: 0.001/0.00000001 or $100,000.
Changing the protocol minimum resolution to 0.0000000000000001 BTC wouldn't change the value of any existing bitcoins. Instead, at a BTC/USD price of $200,000, we would still have a way of expressing $0.001. In fact, at that resolution, we would have to reach BTC/USD price of $10 trillion before we lost the ability to describe one thousandth of a dollar.
It's not a worry because a price of $100,000 per bitcoin is not going to just sneak up on us; (if we ever even reach something like that it would make the bitcoin economy worth 2.1 trillion).
Edited to add:
I think you're mixing up inflation (the money supply) which will always be measured in whole units and divisibility which is (mathematically) infinite.
Bitcoin's money supply is asymptotically tending towards 21 million. That is neither deflationary or inflationary. If the world bitcoin economy grew then we would expect to see price
deflation as a bigger economy would be divided over a static supply.
People losing bitcoins isn't a problem because they simply make the rest of the holders of bitcoin a tiny bit richer. The value isn't lost to the economy, just to the person losing the coins (and that's their problem).