[ramontayag]

If I understand this right, I don't think I necessarily disagree with you. My question is: if people can choose one or the other to spend, what do you think they'll choose? A currency that inflates quickly, or one that inflates less quickly?

[BenoitEssiambre]

I think market forces will make it so that the one that inflates less quickly will be more volatile and the higher risk premium of holding it will make it often less attractive than the one that inflates more quickly but often it also will be the opposite.

Like most investments there will be a trade-off of risks vs returns but both currencies will in the long run, be poor investments compared to income generating assets tied to real production.

[ramontayag]

This is certainly interesting. Could the same principle be applied to gold which has been fairly stable?

I don't think gold is the right medium for the singularity because it is not easy to obtain and subdivide. It needs to be in the the vicinity of choosing the inflated coin on one hand, and the more valuable coin on the right.

Perhaps it's this trait that will keep Bitcoin volatile? Because it's easy to go in and out of it, volatility will remain high?

[BenoitEssiambre]

Yes it's similar to gold. Gold has some intrinsic value which anchors its price and reduces volatility and as you mentioned it is not as easy to trade which reduces speculation. But even gold is still a fairly volatile investment.

[ramontayag]

Yes, it may feel volatile, but how volatile is it compared to other currencies? For example, my country's currency fell 10% in the last three months.

Intrinsic value discussion aside (which is its own discussion worth having), I would certainly like to keep more of my money in gold vs my local currency if gold were easy to get and keep. Peter Schiff says goldmoney.com does this, but I'm not interested in owning a certificate.

You bring up a good point though. The closer I imagine ourselves being at the event horizon, the fuzzier the details become. For example, I don't know what "stable enough" is exactly. I guess the question is now, will it ever get close enough to go past the event horizon?

[BenoitEssiambre]

The crucial thing is that as you get near this "event horizon" you get close to a point where cryptocurrencies would be macroeconomically destabilizing in the same way gold tied currencies were destabilizing in 1929.

I don't think crypto-currencies will ever get that popular though. It would require governments to be on board and foolishly march towards the 1929 thing again. But you never know, as they say, history rhymes.

[ramontayag]

BenoitEssiambre, what are your thoughts on http://woobull.com/bitcoin-volatility-will-match-major-fiat-...?