[wamatt]

>"It seems there's a hesitation of spending bitcoins knowing if you just wait a day it will go up"

So this argument seems to be rather popular, and on the surface it does seems to make sense. However, it glosses over an important consideration.

Are you buying goods in USD or BTC?

Now if it's the latter, then yes there may be stronger psychological pressure (even though rationally there is not much difference).

However, increasingly goods are being traded in USD using BTC as a backing, in which case it would make little difference if you spend in USD from a bank account, or USD with a bitcoin wallet. Because it is possible to trade USD for BTC almost instantly. (Let's ignore the issue of wire transfer delays for now, because that doesn't change the overall argument).

Consider the person holding say 200 bitcoins today. In this situation, if the transaction is a small amount (say a cup of coffee ($3), at 180USD/BTC is about 0.016 BTC at todays rate. I'd have no problem spending that.

In fact psychologically it may be more likely that people trade with their BTC "winnings", because like a casino it has been shown that that is treated as more disposable than "real money".

Thus if one is spending a fraction of a bitcoin priced in USD, and this amounts to a small percentage of your overall position, it's unlikely to endure as a significant purchasing disincentive.

[treeface]

I've spent many years studying economics, but I'm also a programmer. One thing that annoys me about the discussion that tends to crop up on Hacker News is that you have too many of the latter issuing too many uninformed opinions on the former. Currencies that are doomed to deflate are doomed to enter liquidity traps. There is nothing special about BitCoin that prevents this from happening, regardless of its position against other currencies. There are probably ingenious ways to implement distributed digital currencies, but I'm fairly sure that in the long term BitCoin is not one of those ways.

[drcode]

I was wondering why no one ever buys or sells houses. But your post makes it perfectly clear: Since no more land is created, real estate is deflationary, so obviously no one would ever sell a house.

</sarcasm>

Also, I'm happy you're patting yourself on the back for all your training and experience. But you still need to make a compelling argument instead of just saying "Things are just so."

[dragontamer]

But the housing industry is barely recovering from a "liquidity trap" in 2008! People weren't selling houses because they expected home prices to constantly go up. You had people flipping homes and adding no value to them. Eventually, the market crashes after too many people buy homes that they didn't need...

Note, its not that people "don't sell homes", it is that homes are prone to rampant speculation that can bring down the entire industry.

His claim is that a fiat currency (ie: Dollar), can repel the liquidity trap with monetary policy. IE: Carefully controlled inflation or deflation.

[drcode]

OK, you made some good points I will have to think about more. I would think the type of deflation we're discussing had only a small role to play in that crisis, but I admit it probably played some.

Of course the irony is that monetary policy causing unreasonably low interest rates (i.e. controlled inflation) was a large factor of that crisis as well.

[dragontamer]

Got an argument to back that up?

Why don't you go through the charts. Find me the year that the Fed caused too much inflation, and then tell me how much the dollar was inflated that year.

I doubt you can, because during the housing crisis, the dollar experienced deflation. The Fed acted swiftly, although not swift enough! The dollar failed to hit inflation targets in 2008-2009 as we experienced -0.4% inflation.

For the 2009 to 2010 years, we only experienced 1.4% inflation. Both years, we missed inflation targets of 3%. Worse, the dollar deflated in value in one year.

Every other year, inflation has been the same as always: ~3% since 1990.

Economic data does not match your words. The US hasn't had inflation over 4% for the last 22 years. There is no inflation problem.

If the goal of ~3% inflation is a poor goal, then tell me why.

[drcode]

"The housing bubble was fundamentally engendered by the decline in real long-term interest rates"- Alan Greenspan

[wamatt]

The difference between a normal currency and bitcoin with regards to deflation is that bitcoin is almost infinitely divisible, whereas traditional currencies are not.

Divisibility acts in opposition to deflation to create liquidity.

The idea is in the future you don't trade bitcoins per se, but microbits, or picobits etc (or whatever they will be called).

[marcosdumay]

Economies get in a liquidity trap must faster than division becomes a problem. The difference is so marcant that almost nobody even talked about divisibility before the bit coin people.

Anyway, I'm not sure the expression "liquidity trap" means anything when talking about bitcoins.

[drakeandrews]

Satoshis are the lowest denominator of bitcoin, being .00000001BTC