Will deflation be the fatal weakness of bitcoin?

[paraipan]

Guys sell your gold now! Otherwise eventually it will drop to 0 and will be worthless!

Gold itself could be used to produce components of electronical devices. Bitcoin useless without using it as an instrument of exchange. When the price goes up, ppl try to avoid to exchange their bitcoin for goods/services. So for bitcoin deflation equals death. The only way to solve this problem is to get rid of 21.000.000 cap.

[Come-from-Beyond]

The only way to solve this problem is to get rid of 21.000.000 cap.

The best way to solve it is leave Bitcoin alone and go make a different coin with whatever properties you think are superior, and then let them compete.

Already beta-testing and tuning new coin. But I need Bitcoin stay alive to keep cryptocoin ecosystem healthy.

[nevafuse]

Stocks are deflationary.  Aren't we told to keep our money in stocks to counter inflation & grow our money for retirement?  So if everyone is hoarding stocks & they are deflationary, how come they haven't failed yet?

[cbeast]

Stocks are deflationary.  Aren't we told to keep our money in stocks to counter inflation & grow our money for retirement?  So if everyone is hoarding stocks & they are deflationary, how come they haven't failed yet?

Stocks are not deflationary, when the demand rises they just give out extra stocks.

They split the stocks sometimes.

[Pieter Wuille]

Read https://bitcointalk.org/index.php?topic=11627.0.

[ffe]

If you believe deflation is a problem, answer this question: Would you rather work and be paid with a deflationary currency (gold / bitcoin), or inflationary currency (USD / zimbabwe dollars)?

Answer this question: How would you rather pay your employees? With a deflationary currency, or inflationary currency? When I hire someone for a year, I'd rather not have to change their salary every week to make sure it stays around the same value. And as long as employees don't get paid in BTC, it's never becoming a mainstream currency, but stays a commodity.

That's you and your personal preference and also irrelevant to the whole market. Those who will want to deal with a currency that gets worth more over time will find a way to solve this "problem". Perhaps a solution is to peg the wage contract to some amount of purchasing power instead of a fixed amount of currency.

Yeah. Dollars for example...

[Come-from-Beyond]

Read https://bitcointalk.org/index.php?topic=11627.0.

Useless reading. The author just avoids the topic. I repeat if someone missed my words:

The only true point why deflation was chosen as a feature of Bitcoin is to make early adopters (and Satoshi) rich.

[cbeast]

Read https://bitcointalk.org/index.php?topic=11627.0.

Useless reading. The author just avoids the topic. I repeat if someone missed my words:

The only true point why deflation was chosen as a feature of Bitcoin is to make early adopters (and Satoshi) rich.

Q: "Will deflation be the fatal weakness of bitcoin?"
A: No

[Portnoy]

Read https://bitcointalk.org/index.php?topic=11627.0.

Useless reading. The author just avoids the topic. I repeat if someone missed my words:

The only true point why deflation was chosen as a feature of Bitcoin is to make early adopters (and Satoshi) rich.

There are several authors.  Read the whole thread. 

[evoorhees]

hypothesis : Bitcoin will fail because of deflation
--
If bitcoin fails then price will go towards 0
If price goes to 0 then there is no deflation

Conclusion : Hypothesis is false

This is so beautifully stated. Thank you!

[memvola]

Bitcoin money supply is inflating like crazy at the moment, but the price is still increasing.

Exactly my point! If the price is increasing fast now, even thought it's inflating, can you imagine how much harder it will sky-rocket as soon as deflation actually kicks in? I love everything about Bitcoin, except for the fact that it can never have a stable value by nature.

I share your love of Bitcoin, but I think you got past my point altogether, and went backwards through the debate some more. Why don't you do some research on how options contracts work and think about how they can be made easier to use? Maybe they aren't as much of a solution as I think, but at least it would give something to argue about.

Besides, as you are also presumably talking about inflation of the money supply, when do you think the deflation will kick in? In 10 years? 20? As Bitcoin is distributed more homogeneously throughout humanity, the volatility should actually get lower. Why do you think the value will increase rapidly? If it were such a certainty, the current price would already reflect that.

[memvola]

The only true point why deflation was chosen as a feature of Bitcoin is to make early adopters (and Satoshi) rich.

That is how comic books work.

[Come-from-Beyond]

hypothesis : Bitcoin will fail because of deflation
--
If bitcoin fails then price will go towards 0
If price goes to 0 then there is no deflation

Conclusion : Hypothesis is false

This is so beautifully stated. Thank you!

Wrong statement. U assumed that deflation is a permanent state.

[evoorhees]

Bitcoin as it exists today will fail.  Bitcoins are constantly being lost.  Yet there will never be more than 21,000,000 created.  Someday the last bitcoin will disappear and there will be none left.

For example, say Satoshi is dead and nobody knows about his bitcoin wallet.  Nobody knows Satoshi except his Mom.  And maybe his Mom doesn't know anything about Satoshi's cryptocurrency habit.   Whatever she does with Satoshi's computer probably destroys the bitcoins.

Gold is different.   It too is constantly being lost but it can be found again.  There was just a story about a ceiling full of gold being found in a house in France.  Gold never disappears.

When government fiat fails the people left just create a new fiat.  Because people still want to trade whatever they use for trade is currency.  Similarly bitcoin will eventually be replace with something else, something people like better.

Hmmmm.

A) The last Bitcoin will never be lost. In fact, it's almost certainly true that the rate of "loss" of Bitcoins falls off asymptotically, so that each year fewer and fewer coins are lost. This is true because as the coins get more valuable, people are increasingly careful with them (if you own a $1000 coin you will be careful with it, I assure you). It is also true because as people get comfortable with BTC they won't lose coins as often. Given the above, I might go so far as to say that the maximum number of lost coins will likely never pass a few million btc.

B) Gold is not different. There is a fixed amount of gold on earth, and a fixed amount of Bitcoin. Both can be lost. Gold definitely "disappears"... there are plenty of sunken ships that will never be recovered, and lost wedding rings thrown into lakes with no attempt to recover

C) Yes, "eventually" Bitcoin will be replaced by something else... just as gold is about to be replaced by Bitcoin

[evoorhees]

The only true point why deflation was chosen as a feature of Bitcoin is to make early adopters (and Satoshi) rich. If Bitcoin succeeds in the future it will be just a side effect. Unfortunately, probability of such event is very low. So deflation will rather be fatal.

Bitcoin is not deflationary. It is inflationary. The rate of inflation is currently high, and it falls to zero over time, but never goes negative. For the gazillionth time, let's stop calling Bitcoin deflationary.

[nevafuse]

Stocks are not deflationary, when the demand rises they just give out extra stocks.

Although I didn't previously know, it appears Google did this in 2005.  But I couldn't find any other examples with large companies, so it appears to be pretty rare.  So sounds like for the most part, the number of shares stays pretty set unless it is split (which is no different than moving the decimal point in bitcoin).  I still think this is a good example of a successful deflationary system that carries similar characteristics.

[cbeast]

"Have you come to enslave Mankind to mine gold for your Overlords?"
"Nah. We have robots mining asteroids for gold. We came to flood your gold market to enslave you with your Bitcoin."

[tonto]

An 'economist' I met while riding a bus saw my bitcoin logo and informed that while bitcoin was an awesome idea, it was going to completely fail because of deflation. I acted surprised to hear this and said "oh, does that mean it will be worth a lot more?" In case you are wondering, yes, yes it will, then it will be worth nothing because everyone wants it so much.

I disagree with the economist as well... I like "stuff" too much.  Sometimes money burns a hole in my pocket.  I strongly believe that having a bird in hand is worth two in the bush.  Which means that I like having physical things that can't be taken away from me in a puff of economy crashing, etc.  
 
I hold on to bitcoins only until I can afford that thing that I currently want to buy.
 
If someday they skyrocket to 100s or 1000s of dollars per, then I will buy a nicer boat than I currently own.  Or cash out to pay off my house, etc.  
 
I take the middle road of not knowing if bitcoins will win or lose, so I just buy things now.  If they crash, great, I "won".  If they skyrocket in value, then I will feel good for you guys who gambled and won that game.  
 
I think everyone has a "cash-out" value where they think "ok, they're high enough, time for me to cash out and buy something cool".  

[wormbog]

Bitcoin will never replace fiat because it can't be easily controlled by a central government. It's a parallel currency, like gold. Its best uses are:

• Store of value (hoarding)
• Unregulated/illegal trade (silkroad)

No government will ever allow a legitimate business to pay its employees in an unregulated and untraceable currency. Bitcoin is the currency of the black market.

Here's a milestone to keep an eye out for: the first kidnapping with ransom demanded in Bitcoin. No more briefcases of cash and police stakeouts.

[evoorhees]

If you believe deflation is a problem, answer this question: Would you rather work and be paid with a deflationary currency (gold / bitcoin), or inflationary currency (USD / zimbabwe dollars)?

Answer this question: How would you rather pay your employees? With a deflationary currency, or inflationary currency? When I hire someone for a year, I'd rather not have to change their salary every week to make sure it stays around the same value. And as long as employees don't get paid in BTC, it's never becoming a mainstream currency, but stays a commodity.

You forget the aspect of competition. An employer doesn't get to unilaterally "chose" in which currency to pay his employees. His employees will demand a certain compensation in line with market expectations. If everyone wants Bitcoins, the employer will need to offer salary in Bitcoins.

Further, if the market rate for labor is X in a depreciating currency, it will be X-Y in an appreciating currency, meaning that an employer can pay nominally less in the appreciating currency and thus may well chose to do so. An employee may say, "I'll work for $20,000 in USD or $19,000 in BTC" and through negotiation both the employer and employee will meet on mutually beneficial terms.