[KannO]

The "Genesis" BTC blockchain seems to have its fate sealed.

Elements of a genius ponzi scheme mixed with psychology of the limited edition beanie baby craze and enough allure of "technology is magic" created a "valuable" cyber diamond to send hordes of processing power to "mine" and sell off like hot potato stocks.

As we begin seeing more viable altcoin systems with practical improvements, "investors" and processing power will jump ship to the improved cryptocoin protocols. Bitcoin and the bandwaggon of investing in a BTC as a currency which inherently encourages not spending that currency (deflation as a fundamental design) is such a paradoxical mind fuck it's one of the most brilliant pieces of art I could imagine.

Inflation is incredibly healthy for an economy because it creates an incentive to invest money into new businesses and real goods and services instead of being buried outside of the system where it does no good. The trick is to prevent hyper inflation - and in BTC or other arbitrarily produced currency systems, there should be mechanisms in place to avoid the abuse of the fabrication of the money tokens.

[derefr]

I've never understood this argument. There's no person or market for which BTC is their only currency. It doesn't matter if BTC is inflationary or deflationary, because there's never going to be a time when a nation (or corporation, or really really rich person) is holding a non-negligible amount of its wealth in BTC. Most of their money will be denominated in their local currency, and through that, they will be affected by inflation, and driven to invest.

The effect of people holding BTC on a given economy's inflationary tendency would, I'd think, be about the same as the effect that people holding EFT funds or gold or permanent stamps has on inflationary tendency—which is to say, negligible.

To rebut this, you could measure the inflationary tendency of a made-up virtual market like that of the "deep web"... but we measure inflation to know about things like affordability and livability and nGDP—things that affect the places people live in, and through those, affect people's lives. People don't move their money into investments because Internet marijuanas are inflating in price; they move money to investments because core CPI is going up, and so it's costing more to buy bread and to pay their utility bills. And, unless a nation adopts BTC as its national currency, BTC's fixed monetary policy will never correlate with any core CPI anywhere.

[KannO]

Why would I want to spend a limited edition BTC™ if I know the system that produces bitcoins is going to stop producing the coins? Adding the assumption that as the 'bitcoin economy' grows, so too will demand for bitcoins thus further increasing demand on the limited supply of bitcoins. So all signs point to never spend your bitcoins unless you want to 'bet' against the bitcoin ecosystem by spending your BTC tokens.

BTC is art.

http://i.imgur.com/P7ylLkD.jpg

[goldenkey]

I suppose you think communism can happen in 1 step too, hmm maybe read some Trotsky? The market cap and volume needs to be high for stability as a medium of transfer of wealth. That gives bitcoin the largest use case. Internet stamps is just a ridiculous analogy. Mail prices are artificially low due to government subsidies.

[derefr]

I see what you mean, but it works both ways: if the world can evolve toward using BTC as a universal currency, then BTC can, in parallel, evolve toward being usable as a universal currency. The two would meet in the middle.

You're imagining a gradual adoption of BTC for everything everywhere, while BTC itself remains constant, which would never happen. Any nation that wanted to adopt BTC for its sole currency would have enough force to change BTC to make it no longer deflationary. Or, more simply, just create "BTC but not deflationary" and start using it—it'd immediately become the primary cryptocurrency from the sheer number of users it would gain in that country (even if the country is tiny!) and then any other country that wanted to participate would adopt that currency, not deflationary-BTC.

[zanny]

Bitcoin today is in no way deflationary in design. All the deflation comes from market adoption and speculation, not the protocol itself. The deflation only happens in a century when the protocol literally stops making new coins - which is a fundamental flaw in bitcoin, but it is not causing large deflationary effects right now.

You would be hard pressed to ever make a cryptocurrency where you could match monetary base inflation against adoption. You would basically need to tie the payout to the change in the number of wallets in existence, which is an exploitable vector.

I'd also argue pegging monetary base growth to popularity is a terrible idea. I would much rather peg it to monetary velocity - if the movement of coins is high, you print less. If coins slow down (ie, deflation) you increase generation to push spending. That would not outright stop deflation whenever adoption increases, but those are usually isolated spurts of growth - in the general case, you would inflate the currency.

It is also worth considering that I personally (as a holder of several btc, not much, but it is fun to buy stuff with) do not see bitcoin as a replacement for daily currency. It is a replacement gold - an arbitrary store of value that, as people want more of - only for the sake of other people having it, wanting it, and it being rare - deflates over time to act as a store of value outside traditional investment.

[Laforet]

Thank you, this is exactly how I felt about the whole ordeal bitcoin has been. Satoshi did God's work getting people to accept, or at least become familiar with the ideas of cryptocurrency and blockchain. He seemed like an intelligent man and I bank on the theory that he planned to exit the scene knowing that it did not have a future.

Cutting edge ideas will survive and thrive, cutting edge products not so often.

[diskcat]

At the start of bitcoin there was a lot of 'technical enthusiasm'. But it was very quickly overtaken by the 'get rich quick' people.

Fortunately the free market of ideas has spawned innumerable competitors and many of them (etherium etc.) look to be very promising.

Although I don't think it was intended to be a 'genius ponzi scheme'. It just turned out that way.

>Inflation is incredibly healthy for an economy because it creates an incentive to invest money

in a system when you generate currency from nothing, this is true. But if you use currency as an actual IOUs, you would need to generate value to generate currency, and thus, if you were to hoard currency, you are providing value to the economy for nothing in return, which is a good thing.

[gohrt]

If you hoard currency that is managed by a central authority, then other people can't obtain currency for their productivity, and thus can't consume market goods. (This is essentially what caused the Great Depression: wealthy people hoovering and hoarding currency, poor people getting no income and spending)

If you allow anyone to create currency by creating IOUs to buy stuff (which sellers can choose to accept), and you mean that the sellers create and accept that currency, then yes, hoarding is not much problem for overall society, until and unless the day when past hoarders rush to market at the same time (when they run out of durable goods or other income) causing sudden inflation.

[diskcat]

>If you hoard currency that is managed by a central authority, then other people can't obtain currency for their productivity, and thus can't consume market goods.

This is fixed by removing the central authority monopoly over the printing of money and/or make them actually print the money.

>until and unless the day when past hoarders rush to market at the same time

This is no different than the status quo. Bill Gates could try to 'cash in' all his 50 billions into rice. Would that be 'causing sudden inflation'?

[KannO]

  This is fixed by removing the central authority monopoly 
  over the printing of money and/or make them actually 
  print the money.

During the BTC gold rush hype, people were buying GPUs and ASIC rigs along with plain ol "investing" in bitcoins as if it were a some "rare" collectable artifact destined to increase in value.

Why would I want to buy a loaf of bread from you today for 200 BTC when I assume next year I should be able to buy that loaf of bread for 0.01 BTC?

[KannO]

  in a system when you generate currency from nothing, this 
  is true. But if you use currency as an actual IOUs, you 
  would need to generate value to generate currency, and 
  thus, if you were to hoard currency, you are providing 
  value to the economy for nothing in return, which is a 
  good thing.

If it were possible to credit processing power dedicated to systems like folding@home or BOINC than I imagine that would be an ideal cryptocoin contender.

[jazzyb]

Such a thing exists: https://www.curecoin.net/

Edit: Also: http://www.gridcoin.us/

[daodedickinson]

Inflation is "incredibly" healthy for an economy? But not hyperinflation (a word for too much inflation). So how much is good? And would it be worse for a stagnant or shrinking population?

[gohrt]

Inflation is good because it incentivizes people to spend money on things of real value (creating valuable goods and services, possibly durable goods for storage) instead of everyone sitting on cash for decades, being non-productive, and then trying to pay each other for---nothing, because there is nothing to buy.

Over time, there is always going to be some level of inflation, if there is more money than value. A stable annual rate (US Fed targets 2%/yr) is better than 0,0,0,0,100%,1000%.

[patrickaljord]

People saving money don't "sit on their cash for decades", they put their cash in banks who lend it to people who need it to buy their house or build their business. Too much inflation means no saving means no capital. You need capital to hire people, start businesses, create things. The only reason government creates inflation is to spend money it doesn't have to keep promises it knows it can't fulfill all this while devaluating its people hard earned money and savings and teaching them not to save for the future. It's an organized invisible robbery of the poor. The rich actually benefit from inflation at least in the short term.

[zanny]

You don't save money by sitting on cash because your money is losing value rather than gaining it.

If your currency is deflating, usually that comes with a significant lack of confidence in markets. It takes an incredible amount of deflation to make investing a worse idea than hoarding - your currency would have to have become so incredibly scarce that the increasing demand for it outpaces real value of business productivity - but in the general case you are always making an informed choice between your money being secure - and the safest it can be varies by country. In the US, it is probably safest in an FDIC insured account, because you are more likely to have a safe in your house stolen and broken into than the bank and US government collapse in a way where FDIC insurance fails. But that is only 200k per account. There must be a threshold in any system where you stop insuring money - where you stop guaranteeing its safety - and you have to take that safety into your own hands.

In general, the least safe store of money is investment. Your investments could gain or lose all their value overnight, so it is risky. Next up is mutual funds, investment accounts, etc - ones that use the same risky pool but sample the whole thing to try to normalize the risk across the entire market. But entire markets can, and do, tank. Then you can put it in a bank - barring insurance, you are then trusting the bank not to go insolvent (through fractional reserve, which has the same investment connotations shares do), like they did in the great depression. If you don't have state insurance, bonds are often safer than banks because you are hedging against a countries solvency. And finally, you can keep it on your person - as long as you can keep yourself safe and secure, you can hopefully keep your money safe and secure.

In deflation, the fear is that the first three metrics of money storage lose their profitability potential sufficient to drive wealth holders to instead take money out of the economy and into their own safes. This drops the real money supply, and causes a deflationary spiral and more money leaves, money becomes scarcer, and people hoard more money. The endgame is that the currency stops working, because people start treating it like gold rather than a means of exchange - you hoard it because it is worth a lot, but you do not want to spend it because it will probably be worth more tomorrow.

The inverse problem is an inflationary spiral, where a money supply is seeing such an extreme glut of money entering markets that people are selling all of it off to try to offset its lost value, which perpetuates the drop in value. Unless it is backed by material goods (fiat moneys are not) inflationary spirals, uninterrupted, end at a worthless currency - nobody wants any of it because nobody thinks it is worth anything.

Governments create inflation to offset deficits, surely, but they also create inflation to avoid either scenario. But in general, inflation increases monetary velocity - the more inflation you have, the more value holding the currency you lose day over day, and thus the more pressure for you to get rid of it as fast as possible before you lose more value. You want to walk a tightrope between where people do not want to keep it and where people do not want to receive it, but usually low amounts of inflation are sufficient to get almost all money moving without compromising much confidence in its buying power, hence why every modern economy targets similar 1%ish inflation levels.

Deflation, on the other hand, slows down the economy by driving the desire to not spend money. Even 0% inflation - when the currency is simply stagnant - can be disastrous for an economy because it suddenly changes the game from "I have money and its worth less every second" to "I have money and it will be worth the same / more tomorrow than it is today". That can cripple economic cycles necessary to sustain countries.

[epx]

Sorry, but this is BS. Inflation is a hidden tax.

[vamur]

Inflation is not healthy for an economy - consumer spending is. Governments can encourage consumer spending by expiring parts of money supply, instead of using negative interest rates.

>>As we begin seeing more viable altcoin systems with practical improvements, "investors" and processing power will jump ship to the improved cryptocoin protocols. Bitcoin and the bandwaggon of investing in a BTC

All cryptocoins today encourage hoarding and speculation.

[toucan56]

> Inflation is incredibly healthy for an economy

If monetary inflation was beneficial then a crypto-currency with those features would already exist. Only currency systems where there is no choice have come to the conclusion that inflation is good.

[Angostura]

Cryptocurrencies don't have to worry about what is good for the economy - and therefore don't.

[KannO]

You're making an assumption that the makers of crypto-currencies intend to produce "better" economy-exchange-token systems rather than pump-and-dump systems.

[toucan56]

I don't make any such assumption. I'm sure some cryptocurrencies were made for that exact purpose. I think that the competition in the market for currencies will bring out the best result.