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by dghlsakjg 1462 days ago
> Or people who own it because they don't want all their assets in a highly inflationary currency.

When compared to world currencies BTC currently has an inflation rate that makes it the second most inflationary currency in the world after Venezuela. As a store of value crypto is not great.
1 comments
jbaczuk 1462 days ago
What's your math on that? Current block reward is 6.25 BTC which occurs on average every 10 minutes. That's 52594 BTC per year. The max outstanding BTC is 21M (there are currently just over 19M) so that would be less than 0.25% annual inflation. Pretty sure there aren't many currencies (if any) that are at that rate, even before the current high inflation rates.

If you're factoring in the price, over the last decade, it has been one of the best (if not the best) performing asset, so I think from that perspective it's actually deflationary.

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dghlsakjg 1462 days ago
You’re confusing money supply with inflation. Bitcoins supply is incredibly constrained, and yet it is inflating at an incredible rate. This is the opposite of what is happening in Zimbabwe where supply is not constrained at all and inflation is lower than what bitcoin is at YTD.

Inflation is a measure of how much goods and services you can get for a given unit of currency. It is not a measure of how much currency exists, although it can be affected by that.

My math is that you need three bitcoins to buy what one bitcoin got you 6 months ago. That is an inflation rate of 600% per year. The world is losing its mind right now because good currencies are inflating at 8% instead of 3%.

On the whole, yes bitcoin is a high reward investment, if you bought it at the right time. It tends to inflate and deflate pretty wildly.

All that means is that, according to most economic consensus, it is a very bad currency. Deflation isn’t a good trait in a currency since it incentivizes saving over using capital to create economic activity. Deflation also tends to favor those who have money, and makes borrowing money a bad idea, which also suppresses economic activity. Massive inflation is bad too, for obvious reasons.

You want your currency to be predictable and stable. A slight amount of inflation is, by conventional economic standards, a good thing.

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jbaczuk 1462 days ago
Ah I see. True it's not very good currency over the short term. You picked the high from 6 months ago. Try more than 6 months ago, say >=2 years.
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dghlsakjg 1462 days ago
Yeah I definitely cherry picked a convenient time period. But the point is that most people want a stable currency. Predictability is a good thing with money. Bitcoin has never been stable or predictable.

A deflationary currency (like long term bitcoin) is great personally, since why wouldn't I want my money to be worth more tomorrow than it is today. But in the macro sense, we really don't want that. If my personal money is worth more as each day goes by, my incentive isn't to go out and spend it on useful economic activity. The incentive is to hoard your money and spend as little as possible right now since things will get cheaper the longer you wait to spend. Deflation is a situation where the rich get richer by doing nothing.

So from a societal perspective a currency that deflates over time, like bitcoin, is a currency that discourages spending, discourages economic activity, and concentrates wealth into the hands of those who already have large reserves of capital and don't invest it into new ventures.

Bitcoin might make a good investment, as you pointed out it is up 1000x in 10 years. But that volatility is what makes it a poor currency. That rise was unpredictable, and for every huge deflationary period (price rise), has had an almost as big inflationary period.

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jbaczuk 1462 days ago
You're right, currently the volatility and deflationary aspect does incentivize its use more as an investment than a currency, but there are some unique aspects which make it more desirable as a currency. For example,

No foreign exchange required. It is decentralized so no need to exchange it with any 3rd party.

Flat transaction fees. You can transfer $1B of value to anyone in the world for a buck. How else would you do that?

Theft protection. It's as safe as you want to keep your private key, you can even use multisig to get other people involved.

Privacy. There are many methods to make it anonymous, untraceable so others don't know you own it, how much you own, or what you spend it on.

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