Also, bitcoin is deflationary by design. It will effectively run out at some point, if I understand the situation. I believe its proponents consider this a feature, but I suspect it will prove to be a liability.
SO what? You can have tons of fractions of bitcoins, and that covers the needs of any micro-payment even if a single bitcoin becomes worth a million of dollars.
The issue is subtle. It has to do with the need for a currency supply to expand to match overall increases in production in absolute terms. I don't understand the matter in any detail, but I trust economists in their general aversion to deflation.
The more you learn about economics, the less you will trust economists. They have trouble predicting economic growth one quarter ahead[1] and there are tons of competing schools and models on the macro level that endlessly bicker without coming to agreement (not one of which is very good at predicting the future). They have like, degrees and shit, so the world considers them experts. But take them with a grain of salt.
There have been tons of economies which worked before on the Gold standard, which has been the model for the bitcoin "mining" model. I know nowadays you have lots of Keynesian economists who tell you that going in debt to the death and inflating the money supply is a good thing, but you have to look at how things worked before and why it made sense to have a limited supply currency.
Nope, the new discoveries of gold were usually marginal vs the actual worldwide gold reserves. Bitcoin is following the exact same model. Mining will become marginal over time.
You nailed it actually. Yeah, you can delve deeper, but the bottom line is one of basic supply and demand.
As the world continues to output more (i.e. increased production), the same Bitcoin will be competing for more goods (or, it can be said that more goods are competing for the same Bitcoin).
So Bitcoin's value can be said to increase accordingly. In other words, deflation.
Now, whether this is a bad thing is subject to debate. Here's an article that discusses this, specifically WRT deflation not being a bad thing with Bitcoin:
Divisibility helps to be sure, but there are other issues. Expectation of deflation discourages spending and investment, because the currency I would spend will itself be worth more tomorrow.
No, the currency would not appreciate much more if you keep it down the road, since bitcoin's value curve becomes almost flat when you reach that point, so there's no real value in hoarding your bitcoins when you reach that stage.
> since bitcoin's value curve becomes almost flat when you reach that point
What? The value of a currency is not only determined by how much of it there is, but by how much the economy needs to function. If the economy grows bitcoins will have to depreciate to allow smaller and smaller pieces to be traded. That's deflation, and it's bad. Divisibility isn't a feature, it's a bug that'll kill the currency in the long run because prices are sticky (people raise prices faster than they drop them) and the economy handles inflation far better than it handles deflation.
Hahah. Funny argument. Inflation is killing your economy, rather, because it encourages spending and frenetic consumption, this depleting the banks of the well needed savings that will be used for investment by private companies. Yeah, inflation works "so well", right.
So, the economy is growing, with the same number of bitcoins chasing more goods (or actually, fewer and fewer bitcoins chasing more goods, as some get lost or destroyed) and (as you pointed out) people deal with this in part by splitting the bitcoins smaller in terms of what they actually spend. That obviously leads to the currency becoming more valuable as you can exchange the same amount of currency for more other stuff, right?
It's worse than that, because expectation of deflation means people hoard rather than spending, which means still fewer coins actually in circulation.
The protocol handles that pretty well by automatically adjusting every 2016 blocks to target one block every 10 minutes. There have been many "breakthroughs" in mining, from CPU to GPU to FPGA to ASIC (see https://en.bitcoin.it/wiki/Mining_hardware_comparison for comparisons).
Or are you talking about breaking the crypto primitives like ECC and SHA256? If there's adequate warning (months? years?) then it's possible to transition to new algorithms, otherwise, yeah, that could be a problem.
I was primarily meaning the crypto primitives. (see http://valerieaurora.org/hash.html for a neat chart of past and present hash functions and their lifetimes.)
Migrating over to "bitcoin-B" or some other variant would be possible, but I would imagine it would be unavoidably chaotic if both currencies stay fully decentralized throughout the process, regardless of whether the primitives break outright or over time.