Will deflation be the fatal weakness of bitcoin?

[bitlizard]

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?

You're an idiot and should learn how to read/search about a topic that has been discussed to death already.

The answer is no - Bitcoin is deflationary by design, it is not a weakness.

I personally think it is pretty damn rude to call the OP an idiot for just asking a question, that why I had to really stop and think before doing the following...
"+1"

[tiberiandusk]

There is one weakness of it, which I hope someone can invalidate. Suppose I'm a car-dealer and I buy 1 car for 100 BTC from my supplier. By the time I can sell it to a customer, I can only ask 95 BTC for it, because of deflation. Now everyone argues that isn't a problem, because the prices at my supplier also have dropped with the same amount, so I can buy a new one there for 95 BTC, and again have 1 car in stock, and don't suffer any losses. But if I did absolutely nothing I would still have 100 BTC, so why should I work hard as a car-dealer instead of hoarding?

I can't see why this would be good for Bitcoin. People said that it's good because it forces merchants to keep their stocks low, or produce goods only on-demand. But then you're asking merchants to change the way they have been doing business for decades, which seems unlikely to happen.

So how can Bitcoin solve this problem for merchants?

This is true if you have hyperdeflation and your business's profit margin is 0%.
Lets take a scenario where annual deflation is 5% and you take 5% cut of each car sold. You have BTC100. First month you buy BTC100 car and sell a month later. Car costs now BTC99.5 due to the deflation. To take your cut you sell it for BTC104.5.
(BTC100- 5% / 12months)* 1.05 = BTC104.5
Pocket the BTC4.5 and buy another BTC100 car. Do that for 1 year and you end up with BTC154. If you count in the deflation you are now 58% richer.
If you didn't do anything then you are only 2% richer.

That is a terrible example: Your whole premise means that anyone doing business needs to KNOW THE FUTURE. You assume it will be 5% per year... with the volatility of bitcoin can be upwards of 50% or more.

How can you possibly set realistic profit margins when value can swing in such huge unpredictable fashions?

Ask Wall Street.

[FreeMoney]

Damn, I wish we had an economics forum here. Deflation is such an important topic, maybe there should be a sticky thread about it there.

[Come-from-Beyond]

Damn, I wish we had an economics forum here. Deflation is such an important topic, maybe there should be a sticky thread about it there.

Already - https://bitcointalk.org/index.php?board=7.0

[waspoza]

He was sarcastic.

[acoindr]

The theoretical fiat-currency system I came up with, which I haven't shared with anyone, including you, you believe is not theoretical? 

I didn't realize that you were a nutjob and pontificating on something that had no relation whatsoever to the discussion.

Advice on how to debate more effectively is to avoid using fallacies as you have just done:

Ad Hominem Fallacy

As you don't even seem to know that basic convention I didn't bother reading the rest of your reply.

For the benefit, however, of any that may be interested in following this line of discussion I'll add one more response I consider important.

I realized where you may be confused as to how deflation can make people richer, and result in more car sales.

I think you have a misunderstanding of deflation as I mean it.

Deflation is a shortage of money supply to the ratio of people in an economic system. Inflation of course is the opposite - an abundance of money supply to the ratio of people, which causes rising prices.

There are two ways to arrive at a shortage of money supply, or deflation... Either more people enter an economic system without corresponding rise in the money supply, OR the number of people stays about the same, but money leaves the system.

In my BoomTown example I'm obviously talking about people entering the system to cause the deflation. However, I think you are talking about what I consider a more unconventional form of deflation: money leaving the system.

Ironically, that's the exact situation we have with the world's dollar based system, which has become the convention. Generally speaking it's not possible for money to leave an economic system. The only way that happens is if participants lose the money physically or perhaps bury it with them, mimicking ancient Egyptian kings. Of course that's not to be expected on a widespread basis.

Unfortunately, the dollar based system does provide another way for money to leave the system. Dollars come into existence as debt; IOUs. Therefore, anytime someone defaults on repayment that money effectively evaporates, disappears, or deflates from the system; it was never really money in the first place.

This form of deflation certainly is to be supremely feared, and I can see why you would rail against it, because deflation of money that way takes away wealth with it.

It's also important to note, you can have both forms of deflation happen at the same time, people entering the system and money leaving the system. We experience this in our dollar based system with population growth (birth, immigration, etc.). And you can have deflation and inflation happening at the same time; this is also currently happening in our dollar based system.

Deflation as I mean it does not remove wealth from the system, and that's why products like cars become more affordable to people.

[Etlase2]

Unfortunately for you, I did not make an argument against anything in that sentence, so there is no ad hominem fallacy.

You, however, have twice now used a red herring.

I think you have a misunderstanding of deflation as I mean it.

mm hmm, carry on.

[cbeast]

Unfortunately for you, I did not make an argument against anything in that sentence, so there is no ad hominem fallacy.

You, however, have twice now used a red herring.

I think you have a misunderstanding of deflation as I mean it.

mm hmm, carry on.

I think in this case it was a Moving the Goalposts fallacy. But it may only be a matter of perspective.

[acoindr]

Unfortunately for you, I did not make an argument against anything in that sentence, so there is no ad hominem fallacy.

That's what a fallacy is. It's a failure to make a well reasoned argument.

*sigh*

I guess you didn't bother reading from the ad hominem link provided. Let me explain it for you:

Abusive ad hominem (also called personal abuse or personal attacks) usually involves insulting or belittling one's opponents in order to attack their claims or invalidate their arguments ...

You seem to be stuck on my mentioning that I designed a theoretical monetary system, which I did in response to your quote:

Any system using hard currency has to be partially debt-based as well.

What you failed to consider is that I never said how much merit I felt my design had. It so happens I believe the concepts need refinement should it have merit overall.

I think you have a misunderstanding of deflation as I mean it.

mm hmm, carry on.

As I alluded to earlier, I've lost interest in carrying on this discussion with you.