[evilos]

That is deflation and is intentionally avoided by central banks because you don't want people to hoard their money. Hoarded money sits there and does nothing while money that is in banks can be lent out, invested, and be useful.

[ahnick]

It's only avoided b/c in traditional economies there is no way to subdivide units of a denomination. (e.g. There is no way to split a penny into thousandths) Cryptocurrencies are purely digital and do not have this limitation. The only limitations are self-imposed by the algorithms themselves.

If Bitcoins were the dominate and only currency, people would continue to buy food, clothing, luxury goods etc. b/c they need or really want those things and will be willing to trade bitcoins in exchange for those goods. Practically, Bitcoin is unlikely to be the dominate currency allowed in countries to participate in transactions without incurring significant taxes, so likely people will store wealth in Bitcoins(or other cryptocurrencies) and then convert to fiat currencies as they need to make their purchases.

[evilos]

The pool of valuable stuff and services grows over time, in general. There is a fixed amount of bitcoin to represent the value of all valuable things. Therefore in a world with only bitcoin, a bitcoin grows in value over time and is more like an investment than currency. This is like if interest rates were always stupidly high, because why lend out your precious automatically appreciating asset when it makes you money just by sitting there? If people struggle to get credit (by borrowing) it becomes super hard to buy cars, houses, educations, etc. Imagine paying a mortgage but with credit card rates. It would be very bad.

[ahnick]

For the same reason that people don't just leave all their money tied up in ETFs or indexed mutual funds. If you really want or really need something, then you are willing to give up on the opportunity cost of your asset appreciating.

In a pure BTC environment, the borrower is employed and being paid a salary in BTC. Loans would work just like in an inflationary environment, except now the overall deflation rate of BTC would be taken into account during loan origination.

Bitcoin is not a good asset to do loans in right now as it has high volatility, but as ownership of Bitcoin becomes more and more dispersed, then the volatility will reduce. Once the volatility of the asset is stabilized, then the depreciation rate could be factored into loans.

https://bitcoin.stackexchange.com/questions/1899/if-the-econ...

[ben_w]

That’s not the only way it’s avoided by fiat currencies. Physical units wear out and are lost (sometimes destroyed deliberately before that point, I don’t know how often); and the banks have rules on the use of fractional reserve banking and similar, which is for practical purposes a time-limited money multiplier, and the multiple of that multiplier depends on the rules: https://en.m.wikipedia.org/wiki/Money_supply

Fiat can, most of the time, grow or shrink the money supply as needed for the most stable economic outcome.