[digi_owl]

You get this because the properties of bitcoin attracts two kinds of people.

Goldbugs, because of how bitcoin is "mined" and is inherently deflationary. And gold is the one true currency, m'kay.

Cypherpunks, because it is built around cryptographics. And cryptographics makes anything double plus good.

Never mind that both kinds have a strong anti-establishment streak.

That said, if they could get away form their anti-inflation fanaticism, and find some way to speed up the ledger processing, then the distributed ledger part of bitcoin may have a future.

This because while inflation can be bad when it runs riot (though money printing in itself is rarely if ever the cause) it is better in the long run than deflation, as that allows some entity or other to corner the market.

And in the end, all currencies are tokens of account. Meaning that they exist in the end to make sure nobody double spends. But to be effective in doing so, the token material must the worth less then the face value. If not, people will have an incentive to hoard. And that will drive an economy into the ground.

[notahacker]

The pretty strong anti-establishment streak held by goldbugs and cypherpunks is largely shared by HN though. I think much of the sneering comes because there's a third type of person that influences discourse around Bitcoin to some extent: shills.

Obviously a lot of Bitcoin evangelists have large BTC holdings because it's entirely in keeping with their belief that it's a brilliant idea, and many if not most exchanges, altcoins and even blockchain based trading schemes weren't conceived as ways of persuading fools to part with their money. But many Bitcoiners are speculators and some of the schemes dreamed up around Bitcoin were scams or might as well have been, which hasn't really been the case for flavours of Linux. FOSS evangelists might have made similarly grandiose claims about their project and the philosophy behind it, but they weren't trying to pump the price of their commodity holdings at the time or running get rich quick schemes - they usually weren't even expecting to get paid!

Something of a tangent I know. I largely agree with you on the virtues of some inflation in an economy as a whole, but I think it's pretty evident now that Bitcoin is neither replacing currency as a whole nor representing a sufficiently stable store of value to encourage hoarding on any scale. Frankly Steam accepting BTC is no more economically destabilising than Steam deciding to accept inflationary-by-design Linden Dollars.

[digi_owl]

Thanks for the reminder. Yes it kinda takes on the form of a Ponzi scheme.

[oppositelock]

The incentive to hoard, also often called the "deflationary spiral", is a theory proposed by neo-Keynesian economists, which doesn't appear to be as bad as they say.

People have finite lifespan, and so, they want to use their hoards to better these finite lives, which leads them to spend. This preference, known as the "time preference", strikes a balance with the tendency to hoard. It is impossible to predict where this balance is, though, because it's subjective to each participant.

Why do you buy cell phones or laptops today, knowing that future ones will be better or cheaper? Why buy some food today, when you know your purchasing power will be greater next month? Why pay for housing when prices are falling, knowing your contract will be cheaper in five years?

[digi_owl]

> Why do you buy cell phones or laptops today, knowing that future ones will be better or cheaper?

Direct practical utility.

> Why buy some food today, when you know your purchasing power will be greater next month?

I don't eat, i starve, i die.

> Why pay for housing when prices are falling, knowing your contract will be cheaper in five years?

Now there you get into something interesting. Though the five years view is comically long.

[oppositelock]

You just demonstrated the concept to which I'm alluding. There is a balance of time preference versus saving preference for absolutely everything in an economy based on the subjective desires of all participants. For some people, this will be cell phones, or cars, or fancy shoes, or little purse dogs. They won't save forever, living just to get by, for some uncertain future when they can have more stuff. There is no deflationary spiral, there's a balance point where it stops.

This dangerous idea has been used to justify all forms of crazy economic intervention since Keynes formalized it. The notion of a currency having to depreciate is a direct consequence of these policies, all based on a fallacy. No matter how counterproductive these policies are, they're still applied. Look to Japan and Switzerland as recent examples. Japan has massive stimulus, the Yen is dropping, are people spending more, no, they're saving for the future, knowing that their savings will be worth less, so they need more of them to get by - no spending on unnecessary items. Switzerland is paying negative interest rates on savings accounts, so people have to save more to offset that.

There are lots of things to dislike about Bitcoin, but its value increasing over time isn't one.

[digi_owl]

What you are doing is conflating a commodity with a currency.

Anyways, why the Japanese is saving is that even 2 decades later they have a private debt overhang from the 80s boom.

Expect Europe and North America to follow much the same pattern (already a decade in shortly).

[bildung]

>* Why do you buy cell phones or laptops today, knowing that future ones will be better or cheaper? Why buy some food today, when you know your purchasing power will be greater next month? Why pay for housing when prices are falling, knowing your contract will be cheaper in five years?*

The deflationary spiral is not about consumption of non-durable goods. Thats why all of your examples don't really work as reasoning against this concept. It rather is about investment and consumption of durable goods: Cars, forklifts, the pick and place machines at foxconn.

[Natanael_L]

So, still just the kind of stuff where you get more for your money over time even despite inflation, thanks to technology developments. Why would the impact of messing with the money supply outweigh that of the technology in any other way that forcing a change in scheduling? And how is inflation beneficial for those who need to save money for a long time for large investments?

Inflation would only really make sense in a model where everybody already have access to all the funds they need to purchase what they want, but where they postpone all purchases to see if the can get more, AND where it is these delays that hurt the market by making it hard for the makers of these goods to survive. And this effect has to be the single most dominant one.

[ascorbic]

Well, there is a third, rather significant type of bitcoin user: people who don't particularly care about the cool crypto or sticking it to the Fed, but do like the ability to make anonymous payments. And let's not be coy about who many if not most of these are: criminals.

[Natanael_L]

All ~1% of them. As stated by plenty of lawyers, prosecutors and researchers who know that those groups prefer physical cash.

[Houshalter]

>And in the end, all currencies are tokens of account. Meaning that they exist in the end to make sure nobody double spends. But to be effective in doing so, the token material must the worth less then the face value. If not, people will have an incentive to hoard. And that will drive an economy into the ground.

Lots of goods tend to increase in value over time. Land, gold, stocks, etc. How is bitcoin any different? If people want to hoard, nothing is stopping them. They will just hoard, nothing has ever been stopping them.

And hoarding isn't a bad thing. If you aren't spending your money, then you aren't taking resources out of the economy. That means more resources for everyone else. Spending money, consumption, is what should be discouraged.

[digi_owl]

Hoarding is a bad thing when we are talking about a currency.

The main function of a currency is exchange, not storage.

Without a currency you are back at the barter stage, or move to IOUs (that may ironically turn into currency if allows to pass from person to person).

[oppositelock]

Hoarding has a price - the marginal utility of each remaining token of value increases, so it becomes much more expensive to hoard. Some amount always circulates.

Hoarding in a mattress represents a lost opportunity cost. Most hoarders put their money into something that yields interest, that gets it circulating, and it is in fact, how our entire banking system works.

Also, let's call hoarding something else, namely "saving". In a healthy economy, you need saving and spending. Saving is a way of deferring spending to the future. When lots of people save, it means it's a good time to borrow money because it's cheap due to the nature of the banking system and lending and because it means that people have money to spend on whatever you're producing with the credit. You really can't have spending without saving and vice versa, otherwise you risk some kind of credit crunch or collapse of the currency. (The USD is in a scary place, BTW).

If you're trying to argue against Bitcoin as a currency because it's used as a store of value, then you have to be against the USD or Euro too. The ratio of saving to spending is different among these, and in Bitcoin-land the ratio is particularly skewed to saving due to the early adopter advantage, but there's still a healthy amount of churn for a currency that's so young, despite profound technical encumberance to its usability.

[digi_owl]

There can always be made more USD or Euro, the bitcoin had a fixed amount from day one. That makes it a commodity like gold, not a currency.

[Houshalter]

I don't see how you get that conclusion. For one thing, it's not even true, people don't actually hoard currency. They put it in a bank, which invests 90% of it back out into the economy. They've done that even since currency was backed by gold.

Second, even if people literally did fill vaults full of cash, it doesn't hurt anyone. It's not like all the currency is going to actually disappear and people will have to go back to bartering. The remaining currency just becomes worth more.

The bitcoin economy doesn't collapse everytime someone loses a wallet. It never will, because the remaining coins can always be divided further, and always increase in value further.

Lastly it's not like people will literally never spend that money again. They of course intend to spend it at some point. At some point the number of people saving vs taking out of savings will stabilize and everything will be normal. And saving for the future isn't a bad thing. In fact it should be encouraged.

[aserafini]

The remaining currency just becomes worth more.

This is the key point that addresses why hoarding makes no difference to Bitcoin's utility as a currency.

[digi_owl]

No people do not hoard currency, but they do hoard commodities. As such, bitcoin is at present more a commodity (its setup pretty much use math to emulate gold) than a currency. And the situation will only get worse with time.

[Houshalter]

As I said in the parent comment, there's nothing different about bitcoin vs other commodities that people can hoard.

[digi_owl]

Except that everyone is trying to used bitcoin as currency.

[jacobwcarlson]

> And hoarding isn't a bad thing. If you aren't spending your money, then you aren't taking resources out of the economy. That means more resources for everyone else. Spending money, consumption, is what should be discouraged.

I'm usually pretty good at detecting irony, so I apologize if I've been bested here. But are you honestly suggesting that reductions in consumption and spending are favorable to nation's economy?

If you are being ironic, I don't think I understand your message. Would you mind explaining it to me?

[Houshalter]

>are you honestly suggesting that reductions in consumption and spending are favorable to nation's economy?

Yes absolutely. All the economy does is just allocate resources. If some area of the economy is consuming more, than that is coming at the expense of other areas of the economy. Likewise if spending in one area is cut, that leaves resources available for other things.

That's all supply and demand is. Prices increase or decrease with demand until the supply is stable.

[JumpCrisscross]

Economics, like physics, scales messily. If the whole world decided to save everything for one year starting today, the economy would free fall. Since nobody is consuming, nobody need produce. Factories grind to a halt and deteriorate, social bonds and casual knowledge fade, and the world returns a year later materially worse off.

[Houshalter]

Yes and it should. The economy isn't a static thing. It should adapt based on demand. If suddenly demand went down, then prices would fall until they were low enough that the remaining supply can be sold off.

[Shorel]

> That said, if they could get away form their anti-inflation fanaticism, and find some way to speed up the ledger processing, then the distributed ledger part of bitcoin may have a future.

Both issues have been resolved in Ethereum, an alternative cryptocurrency with a market cap second only to Bitcoin itself.

So, it can be said that cryptocurrencies indeed solve many problems. What can't be said is which cryptocurrency will be the one that ends being used as cash in the long term.

[EdHominem]

> find some way to speed up the ledger processing

If you want a large, fast, distributed ledger, go ahead and make one. If you want to anchor it in Bitcoin, go ahead. Why would bitcoin itself change heavily just to suit your proposed need?

It's a misconception that bitcoin the software, or the community as developers, are incapable of switching to larger and faster blocks. The system is working well, as designed.

> the one true currency

The only one here saying that, is you. Bitcoin doesn't have to be the one, or all things to everyone.

> if they could get away form their anti-inflation fanaticism

That's like going to a foreign film society and complaining that they're fanatical about foreign films. It says so on the door and you aren't forced to stay. There are inflationary crypto-currencies...

[explorer666]

> And that will drive an economy into the ground

A consumerism-based, Earth-killing economy. But it will give raise to more sustainable economies.

[digi_owl]

Feudalism says hello...