[dllthomas]

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.

[grinnbearit]

The entire economy can run just fine with 1 infinitely divisible bitcoin in circulation. Any bitcoins held can only have an effect if they are spent.

The buyer who converted his labour into bitcoin has, in effect, provided free labour unless he converts the bitcoin back.

[dllthomas]

> The entire economy can run just fine with 1 infinitely divisible bitcoin in circulation.

That's a strong empirical statement made without evidence.

> Any bitcoins held can only have an effect if they are spent.

Kind of. But bitcoins (or fractions thereof) being removed from circulation has an effect. And the expectation that that will happen has an effect.

[grinnbearit]

The only way it can be removed from circulation is by providing the labour in the first place. That effect has already been accounted for.

On another note why would this a problem?

[dllthomas]

The problem is (an expectation of) fewer bitcoins chasing more goods. Removing bitcoins while adding labor doesn't counteract that dynamic, it adds to it. (It's also not true that that's the only way bitcoins are removed from circulation - some have already been lost/destroyed - but given my previous point that's simply an aside).

It's a problem because of what money is. It's not an asset to be held as store of value, it's a medium of exchange to make trade work better. If everyone is refusing to spend their bitcoins because they expect them to be more valuable tomorrow, bitcoin is not being a currency and people have to use other currencies to get things done or things aren't getting done, either of which is an issue for bitcoin-as-a-currency (and the latter an issue for everyone). Arguably bitcoin could continue to serve as an asset anyway, but I don't understand that to be the vision.

None of this is to say that I am confident this will be sufficiently an issue that things stop working, but I definitely see it as a risk.

[grinnbearit]

The primary function of bitcoin is as a store of value, its utility as medium of exchange comes after that.

The only reason people choose to store their labour in bitcoin today is that they predict the same amount of bitcoin will buy the same or greater labour in the future less the costs of converting to/from bitcoin (transaction costs). The only reason they'd store their labour in any other way is if they were getting a better deal.

Said another way, if bitcoin's primary use was as a currency the silkroad shutdown should have lowered the price of bitcoin proportionally. People using bitcoin as a currency could convert into it at the last possible minute instead of holding it. You need people treating it as a store of value for it to have a price tomorrow.

[dllthomas]

Over time, we've decided that focusing on something that works optimally as a medium of exchange and sufficiently as a store of value is better than the alternative. As I've said, I'm not convinced this is devastating, but it's a concern, and is orthogonal to divisibility.