Will deflation be the fatal weakness of bitcoin?

[Etlase2]

The problem of deflation in the classical sense stems from the lack of granularity of paper money.
You can't practically spend less then 1 cent.

I've seen this argument before, and it is hilariously awful. The indivisibility of a cent has absolutely nothing to do with the problems of deflation. Ok, theoretically in some bizarro world it could have potentially been a problem, but not in any historic era of deflation. Not even close. The problem of bitcoin's coin distribution is "resolved" by having near infinitely divisible coins.

As far as deflation itself being a weakness, I don't think it will cause the end of the currency or anything, but I think it will hinder its widespread adoption. Volatility may be fun to play, but it's not fun to run a business around.

[evoorhees]

Why do you need to decrease salaries every week? Do you do increase them every week with an inflationary currency?

Because the purchasing power of the BTC will grow quickly after 21M, while the purchasing power of USD can be kept pretty stable by the controlled inflation.

The purchasing power of USD has fallen by 98% in the last 100 years. That's stable to you?

And let's not forget that in a "mature bitcoin world", the rate of BTC appreciation in purchasing power will be small. BTC will not increase by 10% in a month in a mature market. It might increase a few percent per year, and market participants will not have problems transacting in a currency which increasing a few percent annually, for they are already today doing so with a currency that is depreciating by that amount.

[mobile4ever]

Till now, bitcoin seems the perfect currency in in the free world, it has many advantages as we can see. Such as convienence, decentralization, no worry of inflation, except for the boring blockchain file lay in system partition.

But to me, I think I treated it as gold as many others did, so maybe we will hardly to use them, just holding to see price up, obviously it will cause the deflation, and then the bitcoin will not be currency any more, but like treasure.

But it is not treasure, and let's consider this situation, one day, bitcoin has been granted, and suddenly a big catastrophe attacks somewhere in the world, and destroyes all, people die, bitcoins of those people then lose forever, so the price up, others will hold their bitcoins more tightly, and no bitcoins are in the circulation.

No curculation, so it can be called curreny?

I think you have a valid point, but the solution is to have a POS system created. BTC will become mainstream and then no more a "treasure", but more of what it was intended to be... a mode of transactions.

[TTBit]

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.

I think you are proving my point?

I'd rather PAY in an inflationary currency. Be it my employees or my groceries.

[cbeast]

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.

Take my wife, please.

[anu]

Today there is a flurry of news about how Silk Road is turning over $2 Million a day. And that is just SR. If no one is spending, how does that happen?

This whole "Deflation is bad" meme is just propaganda set loose by people who want to collect seignorage (the central banks) - aka Inflation TAX. Deflation is not bad, otherwise the computer industry would be in a recession since the 1950s.

In the FIAT world, a credit contraction is bad. And this causes Deflation in the FIAT world. Credit contraction is bad because everyone is forced to pay back loans instead of investing and consuming.

[evoorhees]

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.

The US government is currently allowing it today. Your point is demonstrably false.

Bitcoin is the currency of the market, because it is mankind's most efficient means of exchange (or perhaps I should say, this is its potential at least). Whether the market is black or white or anything in between, we'll see increased adoption of Bitcoin throughout. Dismissing Bitcoin because some smart criminals have caught on earlier than the average gas station owner is silly.

[evoorhees]

As far as deflation itself being a weakness, I don't think it will cause the end of the currency or anything, but I think it will hinder its widespread adoption. Volatility may be fun to play, but it's not fun to run a business around.

I bet you that, if given a long enough term, Bitcoin will be less volatile than any government fiat currency. On one hand, we have a currency with a fixed (non-volatile) supply, and on the other hand, we have currencies with very volatile supplies. To disagree with me, you have to make the absurd claim that a currency with a highly volatile supply will tend to be less volatile than one with a perfectly predictable supply in the long run. 

Bitcoin's price volatility will roughly resemble the asymptotic curve shape of its inflation schedule. Volatility is already far lower than a year ago, and a year from now will be lower than today, and so on. There have already been days this year where BTC was less volatile than EUR... an amazing statistic, for such a small market so soon.

[waspoza]

To all who wanna bitcoin be inflanatory: you can always send periodically small amount of your bitcoins to 1waSPoZabGQw9a2MeWmJYaqaUyDJBcGmj. There, problem solved.

[anu]

As far as deflation itself being a weakness, I don't think it will cause the end of the currency or anything, but I think it will hinder its widespread adoption. Volatility may be fun to play, but it's not fun to run a business around.

I bet you that, if given a long enough term, Bitcoin will be less volatile than any government fiat currency.

+1

But nobody would take that bet. Last november, buying a car would move the market by 20% or more. Nowadays, this deal would go unnoticed.

[evoorhees]

To all who wanna bitcoin be inflanatory: you can always send periodically small amount of your bitcoins to 1waSPoZabGQw9a2MeWmJYaqaUyDJBcGmj. There, problem solved.

LOL brilliant

[wormbog]

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.

The US government is currently allowing it today. Your point is demonstrably false.

Bitcoin is the currency of the market, because it is mankind's most efficient means of exchange (or perhaps I should say, this is its potential at least). Whether the market is black or white or anything in between, we'll see increased adoption of Bitcoin throughout. Dismissing Bitcoin because some smart criminals have caught on earlier than the average gas station owner is silly.

Can you offer an example of a US business that legally pays its employees without bank involvement?

Governments issue currency and regulate commerce. They will not sanction a currency that they cannot regulate. It's not a matter of efficiency. It's a matter of control.

[evoorhees]

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.

The US government is currently allowing it today. Your point is demonstrably false.

Bitcoin is the currency of the market, because it is mankind's most efficient means of exchange (or perhaps I should say, this is its potential at least). Whether the market is black or white or anything in between, we'll see increased adoption of Bitcoin throughout. Dismissing Bitcoin because some smart criminals have caught on earlier than the average gas station owner is silly.

Can you offer an example of a US business that legally pays its employees without bank involvement?

Governments issue currency and regulate commerce. They will not sanction a currency that they cannot regulate. It's not a matter of efficiency. It's a matter of control.

I work for BitInstant LLC, a fully legal and licensed NY company, registered with FinCEN. I'm paid in BTC.  I could also be paid in gold, silver, carts of ammo, or seashells. The US Gov doesn't need to "sanction" something for it to be used in the marketplace. Unless the US Gov explicitly declares BTC to be illegal for use (THAT would be quite crazy), there is no reason a company can't pay in Bitcoin. Of course, whenver anyone receives value it is supposed to be declared for taxes, but this is true of all assets from USD to BTC to gold to garage sale collections.

[anu]

Unless the US Gov explicitly declares BTC to be illegal for use (THAT would be quite crazy), ...

Not surprising, though. The US govt is waging war on many things, why not Bitcoin, English lawn or the number PI?

[cypherdoc]

It's truly astonishing to me how well the public education brainwashing takes hold of people's minds and makes them believe crazy stuff that no rational person would ever consider as logically valid and part of our reality.


This is basically what the OP claims:

So yea, umm hey guys, you can't have money that gets worth more over time making you richer rewarding savers and the prudent! You know, because that will cause problems for the economy financial elite/banksters! You must have money that gets worth less and makes you poorer and it must get worth less by allowing this small gang of psychopaths to counterfeit and steal the productivity of the entire real economy, it's only this way that you'll ever have a viable and healthy economy!!!11

W T F?  

cleaned that up for ya, altho overall it was pretty darn close.  +1!

[Portnoy]

Unless the US Gov explicitly declares BTC to be illegal for use (THAT would be quite crazy), ...

Not surprising, though. The US govt is waging war on many things, why not Bitcoin, English lawn or the number PI?

When was the last time the US govt won a war it waged?  I mean based on actual facts and not reports from
FOX news... 

[wormbog]

I work for BitInstant LLC, a fully legal and licensed NY company, registered with FinCEN. I'm paid in BTC.  I could also be paid in gold, silver, carts of ammo, or seashells. The US Gov doesn't need to "sanction" something for it to be used in the marketplace. Unless the US Gov explicitly declares BTC to be illegal for use (THAT would be quite crazy), there is no reason a company can't pay in Bitcoin. Of course, whenver anyone receives value it is supposed to be declared for taxes, but this is true of all assets from USD to BTC to gold to garage sale collections.

Interesting. Are you an employee or a contractor?

[memvola]

Why do you think the value will increase rapidly? If it were such a certainty, the current price would already reflect that.

Because there will be not enough coins compared to the people living on this planet. So either Bitcoin will become hugely deflationary, and prices will rise rapidly each week. Or it will fail to attract an large userbase, and demand will be low enough that prices can stay stable. Both are not positive outcomes.

I don't get the maths behind it. If everyone already had Bitcoins, then it would rise only according to the overall wealth increase, which the wages should match anyway, so you wouldn't have to change a damn thing. If everyone doesn't use Bitcoin and there are tens of competing currencies, investment vehicles and whatnot, why does everyone want to hold Bitcoin all of a sudden? Didn't they know Bitcoin's supply is limited before it hit the limit?

I'd rather PAY in an inflationary currency. Be it my employees or my groceries.

If you are not willing to PAY with them, then you're hoarding them, so deflation is a problem.

I don't get this either. When you decide to pay or have to pay, value transfer isn't affected by in which form you make the transfer. It only matters in which form you keep it until payment. That's not hoarding either.

Say you have Euros. You can convert them to Bitcoin and "hoard" them, or you can buy a camcorder with your Euros. Why do you buy the camcorder instead of buying Bitcoin if hoarding is so appealing? It doesn't make any sense. How is it different than having bitcoins in the first place? How is it not rational to buy the camcorder when I have Bitcoin but rational when I have the same value in Euros?

[Etlase2]

I bet you that, if given a long enough term, Bitcoin will be less volatile than any government fiat currency. On one hand, we have a currency with a fixed (non-volatile) supply, and on the other hand, we have currencies with very volatile supplies. To disagree with me, you have to make the absurd claim that a currency with a highly volatile supply will tend to be less volatile than one with a perfectly predictable supply in the long run. 

Supply doesn't matter, velocity does. It is possible, and hell probably likely, that hyperinflation will happen with some of the world's biggest currencies, but it hasn't happened yet. So far, as far as absolute, economic catastrophes go, the limited supply currency loses. And really, fiat currencies are only so bad today because of central banks and all of the ills that come along with that and debt-based money.

Bitcoin's price volatility will roughly resemble the asymptotic curve shape of its inflation schedule. Volatility is already far lower than a year ago, and a year from now will be lower than today, and so on.

Whoa you mean volatility is lower from when someone pumped $3 million into a ~$50k market?? Bitcoin's "market cap" is still insanely tiny compared to the world economy. It has to go through one of these volatility periods for every market expansion. Every new market will be at the mercy of the previous markets. "Hey switch over to bitcoin, you only have to give up 20-30% of your revenue to us for the first couple years to get in!" Pumps, dumps, manipulations, bankruptcies--it is all quite accessible in this format. "Bit Street" arguably already exists and will only get smarter.

[makomk]

It's truly astonishing to me how well the public education brainwashing takes hold of people's minds and makes them believe crazy stuff that no rational person would ever consider as logically valid and part of our reality.


This is basically what the OP claims:

So yea, umm hey guys, you can't have money that gets worth more over time making you richer! You know, because that will cause problems for the economy! You must have money that gets worth less and makes you poorer and it must get worth less by allowing this small gang of psychopaths to counterfeit and steal the productivity of the entire economy, it's only this way that you'll ever have a viable and healthy economy!!!11

W T F?  

Well, obviously you can't. I mean, if money worked that way we'd just need to make everyone's money worth more and then everyone would be able to afford a palatial estate with solid gold fixtures and fittings and an army of servants waiting on their every word. Except that there's not enough land for palatial estates for everyone, or enough gold, and where are you going to get servants from if everyone's retired to their own palatial estate? Where are you going to get maintenance staff from too, for that matter?

Money is just a kind of token we use to divide up resources, and if deflation means that people with lots of money are getting wealthier then unless there's some kind of massive underlying improvement to the productivity of society - which you can have just as easily with inflation - every increase in their wealth as a result of deflation has to correspond to correspond to a decrease in the wealth of someone else.