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.
Because you think fiat currencies based systems are way better? How stable is your system going to be when you expand your credit line to the infinite just because you can print/create money which has no intrinsic physical value ? Fiat currencies hurt the future generations and not just the present ones.
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.
That's not an argument, it's simply how the economy works.
> Inflation is killing your economy
No it isn't.
> rather, because it encourages spending and frenetic consumption
Our economy is based on consumption, like it or not.
> this depleting the banks of the well needed savings that will be used for investment by private companies.
You don't really know how banks work do you.
> Yeah, inflation works "so well", right.
Actually yes, it does. You should educate yourself a bit on how the economy actually works, you sound like someone with little more than a high school understanding full of misconceptions and bad ideas.
Inflation encourages investment. If I can get a return sticking my money under a (literal or metaphorical) matress why would I take a risk with investing it? Funding your startup would be more expensive and more difficult in a deflationary world.
Actually it seems to be your assumptions that need questioning: the
idea of "conflating all saving" is itself wrong.
Saving is a matter of time preference, specifically, preferring to
consume in the future. That implies carrying forward surplus value
from today to be spent tomorrow. It matters not whether you stash gold
in a mattress of buy stock of Webvan: you merely hope to have X+delta
at T+t time where {X, T} represent the present and {d,t} represent
increments and can be zero.
In order for you to then invest your gold in Webvan, said company has
to offer you a higher rate of return than merely holding the gold.
Gold will increase in value if more produce is offered in exchange
at time T+t; assuming stock of gold is constant (which it is, to an
approximation). Of course, I prefer the word price since gold has
no intrinsic value.
So what Webvan has to offer you (a sane investor) is a better return
than the rest of the aggregate efforts of human-kind, assuming of
course, that said aggregate efforts are barter-able with gold (that
is, can be bought with gold).
This is precisely what makes unbridled capitalism and free-floating
interest rates so wonderfully efficient. That damn company cannot get
away with peddling something that doesn't improve all our lives. It
has a high return on investment barrier to cross in a hard-money
economy (defined in this case as a fixed supply of gold).
Conversely, when Greenspan is pumping money, it's pets.com's time to
shine! And of course, what most don't seem to realize is that the
current crop of startups is mostly just Bernanke's easy money that
needs a place to park itself. That's why VCs just can't get enough
flow and bitch about deal-sizes.
Another way to phrase the 'investment barrier' is to say that the
ratio between spending preferences now and in the future determines
the interest rate. A high interest rate implies only higher-credit
(in the sense of faith in their success) companies will get money. The
highly 'speculative investment' in pet-dating will simply not happen.
Note again, I don't like the word investment, savings is just fine as
a word for deferment of consumption, and speculation itself is not bad.
Here 'speculative investment' is a synonym for unproductive stupid shit
money's being spent on.
Nor will houses be given to bad-credit home-buyers, incidentally, which
really troubles some. But ask yourself -- if Bob-the-builder built a house and the
home-buyer promised him ten apples, and couldn't pay him dem apples,
would Bob in hindsight have wanted to build that house for him? If he
defaults on Bob, Bob is impoverished. If the Fed bails him out (or
actually bails the home-builder out) all of us are impoverished
(currently above 50K USD per person in the USA approx). Charity is
fine, forced-labor is not.
In your (and Krugman's, and most of mainstream (read tenured)
economics') conception, the idea that stashing gold is not productive
is merely another way of saying "gold stashers don't fund Webvan" when
looked at through this lens.
Damn well they don't! Everybody should have the right to sit on the
side-lines and watch. It is almost Gandhian in its non-participation
(excepting grand-nieces, but that's another story).
That is precisely what stashing your savings under the mattress in a
hard-money economy does, allows you to step away from the pets.com
frenzy.
Wall Street has another way to say it: While the music's playing, you've
gotta get up and dance. If a bank didn't take the bail-outs it would
have gotten bought out, lock, stock & barrel by one that did. While
Ben's fiddling, you've got to join the orgy. It doesn't matter if the
country burns in the meanwhile.
So the problem with this inflationary money supply is simply that it
distorts interest rates, thereby funding unproductive
enterprises. The Webvan's get funded, Facebook & Twitter IPO, and we
wring our hands and say: hey why aren't we flying to Mars, or curing
malaria? Why are our best and brightest kids tweaking ad algorithms
for Google and writing stupid Miley Cyrus hash-tag trend-divining programs?
This is why.
In periods of hard-money we saw great advancements in the standard of
living of peoples around the world[correlation?]. The free market
always beats a planned economy. It doesn't matter if the planning is
overt like the Soviet model or merely a 'plan' to distort time
preferences. From 1600 to 1900, perhaps we didn't have a vast increase
in leisure, but damn, we got productive things done first. Now if you
really think a John Deere on every lawn, and immediate notification of
the latest Miley Cyrus nipslip is so important, sit back and enjoy the
end of empire, because it's going to happen anyway.
When the system collapses, the only ones ahead will be those who've
moved into "real value" in the Misesian sense. That's why the Wall St
types are buying 20mn$ condos in NY and chateaux in the south of
France -- they know something you don't. Compared to what they get
paid (in newly created funny-money) those condos are at a damn
discount. And eating cake in France while the peasants can barely
afford bread in Austerity-USA? Well, that's sweet too.
Information is power, and those with it don't want you to have
it. Therefore you will always get misinformation first. Don't believe
the propaganda. Read and learn (but don't read Krugman, the man's a colossal
jackass) but mostly, just work through the logic. Logic won't lead you astray
(unless you are Yudkowsky trying to figure out economics).
I don't see how it can encourage investment if inflation punishes savers. Savers are at the source of investment. If nobody saves where do you borrow money for your startup? Oh, let me guess, by borrowing from other creditor countries, where people actually save, like in China and Japan ?
Yeah, you are right, that worked pretty well for the US industry in the past 30 years to have a galoping inflation. Look where your industries went.
Inflation encourages a flight to other stores of value, houses for example, the problem is you're not encouraging investment based on ROI, its simply a drive to preserve value.
All you end up with is another monetized good which isn't actually constrained in the same way as gold or bitcoin leading to overproduction (tulips/houses) and a crash.
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.