[_7fvc]

I think demand for transactions is an issue. When it fluctuates, miners' earning becomes volatile. Some blockchains, like Grin and Dogecoin, have tail emission. But that's a pretty dumb solution. The reward/supply rate would approach 0. It's effectively the same as zero new supply unless dev teams decide to increase rewards. Changing reward defeats the purpose of decentralization. This problem is prevalent in any limited supply crypto.

I've been involved with Bitflate, a crypto with 7% inflation. We propose running a parallel inflationary blockchain. Inflation discourages hoarding. People have incentives to spend. We can also "mix" the inflationary crypto with Bitcoin. This mixing allows us to create digital native crypto with any inflation rate. It also creates demand for transactions on the Bitcoin blockchain.

More information about the project: https://bitflate.org/

Whitepaper: https://bitflate.org/bitflate.pdf

PS: Some bitcoiners think that fee volatility is not a big issue. There will always be demand for transactions. Miners just have to deal with volatility. But fee volatility will translate to price volatility. It contradicts with the claim that Bitcoin will become stable.

[generalizations]

> Inflation discourages hoarding. People have incentives to spend.

I'd rather we use a coin that people want more of (deflationary), rather than a coin people want less of (inflationary). There's no inherent reason we want there to be incentives to spend, unless you're some central planner trying to keep the populace invested in society.

[Majromax]

> There's no inherent reason we want there to be incentives to spend, unless you're some central planner trying to keep the populace invested in society.

You're confusing spending and consumption. Bitcoin holdings don't do anything. They're a nominal amount on a public ledger, and if bitcoins also serve as the medium of exchange this would be subject to the paradox of thrift.

Instead, a healthy economy encourages people to invest. If I have money (or bitcoins) I don't need for immediate purposes, I shouldn't put it under the mattress (or on the blockchain). I should instead loan it out as debt or equity to someone else who wants to expand production in some way, producing a (probable) real return. That's how we become a wealthier society.

A deflating bitcoin is not well-suited for these investments, since a rational holder of bitcoin would probably prefer to continue to hold bitcoin (not doing anything) rather than take an investment with an interest rate less than the expected appreciation on bitcoin. At the same time, bitcoin's volatility is also bad for secondary finance because it becomes difficult to properly value future payments.

Hoarding currency should never be a viable investment strategy. That it is so for bitcoin is evidence for the speculative bubble hypothesis.

[_7fvc]

You're comparing want (saving) and utility (spending). They're contradictory. They have different purposes. A functioning money system needs to have:

(1) A Store of Value

(2) A Medium of Exchange

(3) A Unit of Account.

Bitcoin is mostly a Store of Value. It doesn't have the other 2 functions. We can try to fit all 3 into Bitcoin. The Gold Standard failed to do it. The US Dollar system is failing. Bitcoin will likely fail to do it.

[choward]

> The US Dollar system is failing.

What makes you think that?

[_7fvc]

The US Dollar is supposed to be a Medium of Exchange and a Unit of Account. It is also being used as a Store of Value for countries with unstable currencies. Demand for the dollar causes trade imbalance, wealth inequality, and political problems. I think the Fed is doing a fairly good job in managing the dollar. It has becoming more political as the problems are moving closer to the source.

[coliveira]

The whole economy depends on people spending. If everybody starts to hoard currency, economy will implode. That's why deflation is worse than (light) inflation, from an economic standpoint.

[cyphertruck]

The idea that when purchasing power increases people spend absolutely nothing is the basis if this rationalization for inflation, and it isn’t supported by logic or experience.

They actually spend more and more productively, because instead of barely getting by they are able to accumulate capital and start businesses.

[jrek]

It's supported by both logic and experience.

It's easy to see logically if we flip the relationship. If house prices are steadily increasing (equivalent to inflation, where my purchasing power is decreasing), I want to convert my money into a house as quickly as possible. If house prices are decreasing (equivalent to deflation, where my purchasing power is increasing), I want to hold off as long as possible.

In recent experience, the rapid deflation of bitcoin has coincided with its identity pivot from medium of exchange to store of value - because why would you spend an appreciating asset?

That's not to mention the other side of the coin that deflation is necessarily accompanied by decreases in nominal income (because all the products you sell are cheaper in dollar terms, by definition) and nominal salaries.

And as coliveira stated, the economy depends on spending - and that applies just as much to an open free market economy. To suggest that the desire to want people to spend is somehow a feature unique to planned or state-run economies is nonsense.

[WanderPanda]

Sounds good to me, if you don‘t buy the house because your money is not devalued consistently. House buyers might actually get more use out of it than holding their money, instead of just (or in part) buying it for monetary reasons

[imtringued]

If the value of houses keeps going up and up at some point it becomes profitable to build more houses. It's just a matter of getting rid of stupid laws that prevent economic actors from doing so.

If the value of houses goes down over time then people will stop building houses. Housing can easily last decades or centuries if done properly. By the time the problem grows to become unsurmountable you might find that all the construction workers and companies are gone. That's what happened with the nuclear industry. You run a plant for 50 years until people retire all at once then you suddenly have to train thousands of new workers since you failed to maintain the industry.

This is a fundamental problem with providing food. Most food has to be eaten within weeks after the harvest. This means that you must ensure that at all times there are people farming for food. It's not possible to save it for decades or at least people don't want to eat 10 year old food (there are companies that specialize in prepper food). So ultimately, you need to keep the farms going all the time. How can you tell them to keep going if the price of food is going down... forever?

[jrek]

I'm on board with your socialist sensibilities when it comes to housing - but when the same effect is occurring throughout the entire economy the result is a depression.

[kybernetikos]

Surely with a deflationary currency, interest rates would need to be significantly higher, making it harder to borrow the capital you need to start a business.

As someone with capital the expected rate of return will have to be high to make it worth lending rather than just holding on to it in a deflationary situation.

[jrek]

The opposite actually. The Real interest rate is the nominal rate minus inflation. So negative inflation of, say, 2% pa, effectively adds 2% of real interest to any loan, since 100k of principal today will be worth ~111k in 5 years’ time. In response lenders and central banks are likely to decrease interest rates as, firstly, the money is appreciating in real terms anyway and, secondly, the appreciating value of money makes it harder for debtors to repay debt, so people won’t be able to afford high interest loans. Compare that with high inflation periods where repaying the principal gets easier, since the 100k you borrowed five years ago is only worth ~90k in today’s money (with 2% inflation).

A lot of western economies experienced the inflation side of the equation in recent history - see the 70s/80s in the us, when both the inflation rate and interest rate were very high. In reality the Real interest rate is generally less variable than either inflation or nominal rates.

[kybernetikos]

I'm obviously no expert, but I don't think it'd make sense for the real interest rate being higher under deflation to factor into anyones decisions about whether to make loans available, so the supply of loans would be lower.

Keeping the money in a hole in the ground gets you that return without taking on any risk, so when you're considering whether to invest your money in a potentially risky venture, you aren't going to care about the appreciation of money over the term of the loan.

My perspective is that if you want a return you consider the expected excess return over the risk-free return, and think about how much you're paying for that. Deflation increases the risk-free return you're comparing all investment opportunities with, so the number of opportunities with excess returns will diminish as that rate increases.

[Pungsnigel]

Yes and no. Higher savings would also mean more capital to load from. Expected return on investment would be higher, which is probably just a good thing. Lots of non-profitable companies today can keep surviving without doing any real good due to money being cheap.

[kybernetikos]

Those savings would be distributed, and difficult to access, especially if they are primarily relying on deflation to increase their value.

Saying that the expected return would be higher is just the other side of saying it would be harder to find capital to start businesses.

> Lots of non-profitable companies today can keep surviving without doing any real good due to money being cheap.

This seems like a huge topic on its own. If there's an 'ideal' availability of money to ensure that companies are providing value, just switching to a supply limited currency is extremely unlikely to luck into selecting the right value. In fact, because it makes it harder to adjust things it makes it pretty much a certainty that at least at some point the wrong value will be selected.

[imtringued]

>The idea that when purchasing power increases people spend absolutely nothing is the basis if this rationalization for inflation, and it isn’t supported by logic or experience.

That's not necessary. Simply reducing spending to the bare minimum possible is enough. Humans don't need that much to survive.

>They actually spend more and more productively, because instead of barely getting by they are able to accumulate capital and start businesses.

Well, first of all, why would you start a business if your money works for you? It would be a waste of money. Secondly, if everyone is starting their businesses instead of buying things then who is going to buy the things those businesses provide? Nobody? Isn't an oversupply of goods just going to drive prices even lower, causing companies to close down? Would you really risk starting a company when you know that in the future your potential income will be even lower than today?

[generalizations]

Exactly. People can depend on the value they've acquired to remain valuable, which means they can take on greater risk in the future.

[superbcarrot]

https://www.youtube.com/watch?v=PHe0bXAIuk0

Here's a video of Ray Dalio explaining inflation-deflation and some other basic economic principles. The process explained in the video is the reason why you can never have a real economy running on Bitcoin.

[afarrell]

Deflation of a currency only increases the purchasing power of people who already hold that currency. If they start a business, they'll only be able to earn revenue solving the problems of other bitcoin holders.