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by hft_throwaway
4476 days ago
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I'm not an economist or an expert on monetary policy, but I don't think a currency necessarily needs to be inflationary. Humans have used currencies such as gold which has a relatively fixed number of units in the past, which may have been less flexible but still worked. A currency does need to have some broad base of customary use and pricing, whether that be through social agreement or government fiat. People need JPY because their suppliers need JPY to pay their employees who have contracts in JPY or who need it to pay taxes to the government. They won't take any other currency outright, and if they do, they will peg their prices such that they'll be able to meet their obligations in JPY. This drives demand for the specific currency which helps set its value in the market. For Silk Road type uses, people need a cryptocurrency or other pseudonymous way to transfer value, but do not need BTC specifically. Any sufficiently liquid crypto currency would work as a short-term transient store of value. I think that is an interesting use case and something neat about these protocols, but it doesn't explain why BTC is worth more than LTC, for example. |
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It worked, horribly. Europe didn't industrialize until it embraced fiat money. They had a few false starts because they didn't fully understand how to handle it - "The Moneymaker" [0], a short biography of John Law, is an enjoyable read and survey of the history of this economic development.
[0]: http://www.amazon.co.uk/The-Moneymaker-Janet-Gleeson/dp/0857...
A currency should have an inflationary mechanism, because trade is the basis of wealth. In general, inflation encourages trade, and deflation discourages trade.
Anyway, that's just the belief of the field of economics.
> it doesn't explain why BTC is worth more than LTC
Momentum and confidence.