BitMEX Research: Bitcoin Economics – Deflationary Debt Spiral (Part 3) - Bitcoin is resilient against some traditional disadvantages of deflation. Bitcoin has weaknesses, often overlooked by critics, which make the controversial supply cap necessary. (New PDF Report)
Krugman, trolls: to support your claim of deflation being bad in the context of bitcoin, please explain how we will see deflationary spirals like the Great Depression or 90s Japan if there is no bitcoin-denominated debt/wages/prices? If you don't, then stop using it as a handwaving argument plz thx.
Beyond using "deflation" as a simple boogeyman, I've never heard someone explain why this would be a systemically catastrophic as it has been in well known cases (US Great Depression, Japan's Lost Decade, etc.). In those well-known cases the main problem, basically, was the deflationary spiral caused by the real value of the debt increasing, thus exacerbating the vicious cycle of lower output leading to lower wages, lower investment, lower spending, lower output, etc. However, how does this apply to Bitcoin?
How much debt is there denominated in bitcoins? Almost none.
How many people have their wages denominated in bitcoin (not just paid in bitcoin, but set in bitcoin)? Almost none, and even if some do, it's probably readjusted to the dollar exchange rate every month or two or three.
How many people set prices for their products in bitcoins? Besides the Bitcoin Trezor pre-order experiment, almost none, unless it's a trivial amount (for example, the price of embedding a hash of a document in the blockchain at www.proofofexistence.com) or temporary (for example, a price for a drink special at happy hour, as was the case in Miami yesterday).
"That describes the current state of the 'Bitcoin economy'", the skeptic/critic might say, "what about the future? One day there might be a lot of bitcoin-denominated debt, what then when those people can't pay it back when the value of the currency deflates?" It's not that simple; the world is dynamic so we can't just imagine that suddenly people have bitcoin-denominated debt-- they actually have to take it on. Will they? As our esteemed sage says in page 410 of his book Economics (Krugman, Wells, 2006), there's a difference between expected and unexpected deflation. He mentions it in the context of a liquidity trap and the inability of monetary policy to stimulate the economy due to the fact that nominal interest rates are zero bound (they can't go below zero). However, I'll use the distinction in the context of bitcoin to argue that we might never see a significant amount of lending denominated in bitcoin because agents expect deflation. Thus in only the most extreme cases, where a borrower knows that the investment they seek to finance is guaranteed to have a healthy ROI in bitcoin, will that borrower take out a loan in bitcoin at a >0% rate. Now, perhaps these skeptics/critics might say they actually want a world with high amounts of debt, not low-debt as I've described. Fine, I'll concede that mass adoption of bitcoin as a currency might reduce the level of debt in society. (Though, I'll be happy to take that to the masses and see which side of the more-debt/less-debt argument most people fall under.) But what I don't think they can casually say is that bitcoin adoption will lead to deflationary spirals. I'm all ears, though, if you have a more drawn out argument. tl;dr Deflation was bad in during the Great Depression and Japan in the 1990's mainly because it was unexpected and, most importantly, debt was denominated in dollars and yen (respectively) and created a deflationary spiral. I reject the handwaving argument that "bitcoin is bad because it's deflationary", if critics/skeptics don't acknowledge that we are unlikely to see much if any bitcoin-denominated debt (nor bitcoin-denominated wages/prices.)
BitMEX Research: Bitcoin Economics Deflationary Debt Spiral (Part 3) - Bitcoin is resilient against some traditional disadvantages of deflation. Bitcoin has weaknesses, often overlooked by critics, which make the controversial supply cap necessary. (New PDF Report)
It started with a sign. It stood at the entrance of the small community simple but clear: Welcome to Freetown. Enter only if you respect the Life, Liberty and Property of all here. Murderers, tyrants and thieves will be shot. The message was a practical one, not inspired by history or ideology but by clarity of purpose. It enumerated the things that would be defended with deadly force and warned away those that would harm them. As time went by and neighbours from time to time suggested alterations or additions to the sign it was always argued that brevity had power. It was unnecessary to explain in detail all the different types of property owned in the community and how it could be destroyed or stolen. It was understood by all what harm to life meant, what need was there to specify differences in degree between murder and assault. Liberty being a more philosophical concept was always harder to define, but all agreed that a good rule of thumb was that if someone came around telling anybody what to do with their property or their life shouldn’t be welcomed and, if telling escalated to threats or orders should promptly be shown the door. In any case even given the small number of neighbours at the time there was never unanimity to change it. If it’s difficult to get a handful of people to agree to anything, it could only get harder as their number grew. Certainly many would have liked to add more rules. Most in the community were Christian and wouldn’t have looked askance at the ten commandments… but freedom of religion seemed to most an important part of Liberty. Remembering the Sabbath, honouring your parents and not coveting could surely be left to individual consciences, whereas stealing and killing were pretty clearly community problems. So after many arguments Life, Liberty and Property remained as the common denominators. In time it grew to be a social contract of sorts, first in an unspoken, implicit way, but later it was written in the rules of the homeowners association which all new buyers and builders had to sign. So in many ways it was far more real a social contract and far more binding an agreement than any constitution ever approved by “representatives” but never actually accepted by the people, never mind all the people. The sign also had a selective effect on new residents. Some did not like the idea of violence, even defensive violence and would rather not buy a house or live in a place that so overtly threatened. The idea of many of your neighbours being armed simply did not appeal to many. Others did not believe in private property, but those that would have unlawfully occupied empty houses thought twice when they saw the sign and headed for easier pickings. Of course there are plenty of rich communists and their lack of respect for private property never stopped them from personally owning it... but this was no luxury community, at least when it started, so politicians and bureaucrats were rare. The first big change came in the police strike and riots. As cops were increasingly paid less, later and in depreciating currency they started to protest more, work less and turn back to some old ways of extortion. Mostly they just did not answer calls, but sometimes when they did they were expensive and less than helpful. So the community was quick to become self-reliant for protection, hiring a private guard for the main entrance and quickly coordinating a group of armed neighbours as backup should it be needed. When the first riots came more than a dozen neighbours stood behind the guard with enough weaponry in plain sight to deter anything short of an army. So the looting passed them by. Car burnings, break-ins, assaults and all types of chaos and vandalism happened in nearby neighbourhoods. The police were busy protesting for back pay. People took note. Similar signs started going up in many communities that had seen the difference between trusting authority and trusting your neighbours. One neighbourhood that actually shared the main road and access, simply asked to merge. Over the years the community would grow to ten times its size. However that was dwarfed by how far its example reached as thousands of neighbourhoods followed it. Actually the neighbours simply could not tell if they were being emulated… or if other people had just followed their own logic and reached similar common sense solutions to simple problems. The second big change came with the banking crisis. As savings were wiped out first by deflation then by inflation the community, just as the rest of the country, had to start saving again from almost nothing. This time they would not make the same mistake again, they would not work tirelessly for years while trusting the government and banks to secure the currency and their savings. They began to use Bitcoin and physical gold for their savings so that they could be personally responsible for the security of their wealth. They discovered another advantage of personal responsibility: privacy. Eventually most trade was done in hard assets and again the example spread far. Government money, fiat money was only used to pay government services… and as the first depreciated the second kept losing quality. “Render unto Caesar the things that are Caesar’s” well fiat money most definitely belonged to the government and they were welcome to have it. Some attempts were made by tax collectors to exact payments in hard assets and in some places they were allowed to do so. Others resisted with more or less force. Soon they learned which places to avoid for fear of tarring and feathering, or worse. Anyone who wanted to keep their property from the hands of the ever more rapacious and bankrupt government also learnt the lesson: keep your real assets in a Free Zone or lose them. It’s not that the government couldn’t muster, if pressed, the force to enter the a Free Zone and loot… but it was rare for a reason: Agents were unwilling to take risks for the meager pay they were receiving so the only way to make it worth their while was to let them share in the spoils. Any illusions that they were law enforcers went out the window after the first few times that happened. Honest cops quit. The ones still willing to loot were viewed by most citizens as what they were, a violent gang. They were too few and too cowardly to face any resistance. Police reform would come too late. Private security backed by citizen militias would prove cheaper both in peaceful and violent times, as well as far more respectful of the Life, Liberty and Property of its customers. Tax income withered. The death spiral was too fast and paralysing for the government to stop. The government would continue to pretend to offer services and a few people would pretend to pay for them. It would become obvious that there was nothing magical about a monopolistic administration that allowed it to build roads or schools more efficiently than local institutions, companies or communities. In fact it was hard to imagine how anybody had thought that the monopoly could ever do so with better quality than what consumers could expect from competing providers. Some people rejected this way of doing things and formed their own socialistic communes, syndicates and associations. Many saw a kibbutz revival in the making. Did people in the Free zones object? No. Live and let live. If they want communal property they were welcome to share theirs… as long as they did not try to take ours. Unsurprisingly most people preferred not to live in a commune. Localism, self-reliance and secure property rights eventually brought unprecedented prosperity, well-being and progress. But that was later, after we survived the invasion...
It started with a sign. It stood at the entrance of the small community simple but clear: Welcome to Freetown. Enter only if you respect the Life, Liberty and Property of all here. Murderers, thieves and tyrants will be shot. The message was a practical one, not inspired by history or ideology but by clarity of purpose. It enumerated the things that would be defended with deadly force and warned away those that would harm them. As time went by and neighbours from time to time suggested alterations or additions to the sign it was always argued that brevity had power. It was unnecessary to explain in detail all the different types of property owned in the community and how it could be destroyed or stolen. It was understood by all what harm to life meant, what need was there to specify differences in degree between murder and assault. Liberty being a more philosophical concept was always harder to define, but all agreed that a good rule of thumb was that if someone came around telling anybody what to do with their property or their life shouldn’t be welcomed and, if telling escalated to threats or orders should promptly be shown the door. In any case even given the small number of neighbours at the time there was never unanimity to change it. If it’s difficult to get a handful of people to agree to anything, it could only get harder as their number grew. Certainly many would have liked to add more rules. Most in the community were Christian and wouldn’t have looked askance at the ten commandments… but freedom of religion seemed to most an important part of Liberty. Remembering the Sabbath, honouring your parents and not coveting could surely be left to individual consciences, whereas stealing and killing were pretty clearly community problems. So after many arguments Life, Liberty and Property remained as the common denominators. In time it grew to be a social contract of sorts, first in an unspoken, implicit way, but later it was written in the rules of the homeowners association which all new buyers and builders had to sign. So in many ways it was far more real a social contract and far more binding an agreement than any constitution ever approved by “representatives” but never actually accepted by the people, never mind all the people. The sign also had a selective effect on new residents. Some did not like the idea of violence, even defensive violence and would rather not buy a house or live in a place that so overtly threatened. The idea of many of your neighbours being armed simply did not appeal to many. Others did not believe in private property, but those that would have unlawfully occupied empty houses thought twice when they saw the sign and headed for easier pickings. Of course there are plenty of rich communists and their lack of respect for private property never stopped them from personally owning it... but this was no luxury community, at least when it started, so politicians and bureaucrats were rare. The first big change came in the police strike and riots. As cops were increasingly paid less, later and in depreciating currency they started to protest more, work less and turn back to some old ways of extortion. Mostly they just did not answer calls, but sometimes when they did they were expensive and less than helpful. So the community was quick to become self-reliant for protection, hiring a private guard for the main entrance and quickly coordinating a group of armed neighbours as backup should it be needed. When the first riots came more than a dozen neighbours stood behind the guard with enough weaponry in plain sight to deter anything short of an army. So the looting passed them by. Car burnings, break-ins, assaults and all types of chaos and vandalism happened in nearby neighbourhoods. The police were busy protesting for back pay. People took note. Similar signs started going up in many communities that had seen the difference between trusting authority and trusting your neighbours. One neighbourhood that actually shared the main road and access, simply asked to merge. Over the years the community would grow to ten times its size. However that was dwarfed by how far its example reached as thousands of neighbourhoods followed it. Actually the neighbours simply could not tell if they were being emulated… or if other people had just followed their own logic and reached similar common sense solutions to simple problems. The second big change came with the banking crisis. As savings were wiped out first by deflation then by inflation the community, just as the rest of the country, had to start saving again from almost nothing. This time they would not make the same mistake again, they would not work tirelessly for years while trusting the government and banks to secure the currency and their savings. They began to use Bitcoin and physical gold for their savings so that they could be personally responsible for the security of their wealth. They discovered another advantage of personal responsibility: privacy. Eventually most trade was done in hard assets and again the example spread far. Government money, fiat money was only used to pay government services… and as the first depreciated the second kept losing quality. “Render unto Caesar the things that are Caesar’s” well fiat money most definitely belonged to the government and they were welcome to have it. Some attempts were made by tax collectors to exact payments in hard assets and in some places they were allowed to do so. Others resisted with more or less force. Soon they learned which places to avoid for fear of tarring and feathering, or worse. Anyone who wanted to keep their property from the hands of the ever more rapacious and bankrupt government also learnt the lesson: keep your real assets in a Free Zone or lose them. It’s not that the government couldn’t muster, if pressed, the force to enter the a Free Zone and loot… but it was rare for a reason: Agents were unwilling to take risks for the meager pay they were receiving so the only way to make it worth their while was to let them share in the spoils. Any illusions that they were law enforcers went out the window after the first few times that happened. Honest cops quit. The ones still willing to loot were viewed by most citizens as what they were, a violent gang. They were too few and too cowardly to face any resistance. Police reform would come too late. Private security backed by citizen militias would prove cheaper both in peaceful and violent times, as well as far more respectful of the Life, Liberty and Property of its customers. Tax income withered. The death spiral was too fast and paralysing for the government to stop. The government would continue to pretend to offer services and a few people would pretend to pay for them. It would become obvious that there was nothing magical about a monopolistic administration that allowed it to build roads or schools more efficiently than local institutions, companies or communities. In fact it was hard to imagine how anybody had thought that the monopoly could ever do so with better quality than what consumers could expect from competing providers. Some people rejected this way of doing things and formed their own socialistic communes, syndicates and associations. Many saw a kibbutz revival in the making. Did people in the Free zones object? No. Live and let live. If they want communal property they were welcome to share theirs… as long as they did not try to take ours. Unsurprisingly most people preferred not to live in a commune. Localism, self-reliance and secure property rights eventually brought unprecedented prosperity, well-being and progress. But that was later, after we survived the invasion...
Can it be really the thing that bitcoin sucked everything liquid and "wasted" it jsut to process numbers and now nobody has any money, so prices of everything will fall to bottomless deflation spiral abyss??
Until relatively recently cryptocurrency was a way to transfer money in a way that would be difficult to trace. It has since become popular due to increased acceptance, which increased it's perceived value, and the started the current upward spiral which everyone wants a piece of. Now it has largely turned it into a "greater fool" market (the market value is based on the belief that you can resell it at a greater price, basically a more extreme form of the stock market). Now one of the arguments for the spread of cryptocurrency is that it's not a fiat currency, proponents of this belief don't understand that currency is a medium of exchange. The gold standard meant that each dollar was tied to the value of gold. The gold had an artificial value itself so the dollar was still a representation of a fictious value, the value of the dollar was not in the gold but in it's acceptance and the financial policy of the US government (one could still have inflation/deflation with gold), that is how all currency works and how cryptocurrency does not. Crypto's sole real value, as it is not endorsed or regulated by any government, is it's use as an exchange medium. It's prevalence is inherently limited due to transaction restrictions so it's acceptance cannot be universal, as in the case of an actual currency. Due to this it is unlikely that any state (of government) would endorse it and therefore give it universal value, thus it is limited to being a novelty, stock-market-esque scheme. As of the end of 2018 the bitcoin mining alone consumed at least 72 TW of electricity more than some countries, (which actually make valid currency). In summary cryptocurrency is a technologists wet-dream that has no purpose in being implemented without state endorsement which would give it actual value. Rather, it is an environmentally destructive hobby whose primary value is in get-rich quick schemes. And no saying that if that's what the market lets happen it must be good is not a valid argument.
do not get me wrong. I am a big supporter of! Bitcoin Cash! but what is not 100% clear to me is the following: Financial experts cite Bitcoin as a deflationary currency as it controls the total amount of bitcoins in the market due to its limited quantity and cryptographic system. "As a result, companies profit expectations are falling, they are investing less and instead trying to cut costs by, for example, reducing product production (short-time work, site closures, etc.), layoffs and wage cuts Unemployment is rising, incomes are falling, there can be less consumption, demand for consumer goods is shrinking, and state tax revenues are falling, and overall economic output is shrinking. The result is an economic crisis. While prices, profits and wages fall in deflation, the face value of loans and other debt remains unchanged, penalizing debtors as their credit-financed assets lose value in monetary terms, but they remain the same initially set monetary On the other hand, owners of financial assets benefit from deflation, as their capital - adjusted for interest rates - now has a higher value than at the beginning of the period, leading to more insolvency of indebted companies, with negative consequences for their employees and creditors The further consequence may be debt deflation, that is, a financial crisis and ever-worsening deflation through economic austerity, resulting in the deepening of the economic crisis. Consumers purchasing power will increase if wages do not fall more than prices, and if wages remain stable, even though companies can no longer afford to pay wages (wage rigidity), it will lead to corporate bankruptcies." These effects (if they are true?) Could cause serious problems if in the future the Bitcoin system becomes very large or even becomes a world reserve currency. My questions to the community:
Are the described effects true? (partially? whole?)
Are these effects perhaps short-term True but will lead to a healthy society with a healthy economy in the long term after everything has settled down?
Are there any comparable experiments with a deflationary currency?
can bitcoin work in the long run without money supply control?
I'm glad for every input, the thing does not seem to be very clear.
Playing the devils advocate here. Why does a deflationary currency NOT present a problem?
If you live in an deflationary economy, which could be caused by a deflationary currency, and you buy a house on credit, as most people in the Western world do these days, what would you do when 5 years later the money you owed was worth far more than the value of your house and paying your mortgage became way more expensive than renting? You could save your money until it was worth enough to buy a house, but then buying a house would be a bad investment vs. holding on to your money. Everyone would prefer to rent and the housing marking would go in the toilet. So, why is this not a problem for Bitcoin? I'm looking for well reasoned arguments.
100 häufige Fragen zu Bitcoin ausführlich beantwortet
Frohes Neues! In den letzten Wochen haben wir 100 häufige Fragen zu Bitcoin gesammelt und diese versucht möglichst ausführlich und präzise zu beantworten. Die Ergebnisse haben wir wie gewohnt für alle kostenlos zur Verfügung gestellt: https://www.bitcoin-beginner.de/bitcoin-faq/ Hier eine Übersicht der Kategorien mit den jeweiligen Fragen (die Antworten findet ihr auf der verlinkten Webseite): Grundlagen & Eigenschaften
Was ist eine Blockchain?
Wie funktioniert eine Blockchain?
Welche Vorteile bietet die Blockchain-Technologie?
Welche Nachteile hat die Blockchain-Technologie?
Vor welchen Herausforderungen steht die Blockchain-Technologie?
Was ist Bitcoin?
Wie funktioniert Bitcoin?
Welche Vorteile bietet Bitcoin?
Welche Nachteile hat Bitcoin?
Vor welchen Herausforderungen steht Bitcoin?
Ist Bitcoin vollständig digital?
Ist Bitcoin anonym?
Ist Bitcoin in Untereinheiten teilbar?
Ist Bitcoin überhaupt legal?
Ist Bitcoin steuerpflichtig?
Muss ich die gesamte Blockchain herunterladen um Bitcoin nutzen zu können?
Was ist eine Full Node?
Was ist ein Bitcoin-Client?
Wieso schwankt der Bitcoin Preis so stark?
Was ist Fiat-Geld?
Worin liegt der Wert von Bitcoin?
Wie entsteht der Bitcoin-Kurs?
Wie hoch wird der Bitcoin Preis in der Zukunft liegen?
Befindet sich Bitcoin in einer Spekulationsblase?
Was sind Inflation und Deflation?
Welche Auswirkungen hat die begrenzte Anzahl von Bitcoin?
Können Bitcoin wertlos werden?
Technologie & Entwicklung
Wer hat Bitcoin erfunden und wieso?
Kann das Bitcoin-Netzwerk zentralisiert werden?
Auf welchen technologischen Bausteinen ist Bitcoin aufgebaut?
Wieso baut Bitcoin auf einem P2P-Netzwerk auf?
Was ist ein Konsensmechanismus?
Wie funktioniert Proof-of-Work?
Welche Rolle spielt Kryptografie für Bitcoin?
Was ist Double-Spending?
Wird das Bitcoin-Protokoll weiterentwickelt und verbessert?
Wie funktionieren Updates von Bitcoin?
Was ist Bitcoin Core und welche Rolle spielen die Entwickler?
Was ist eine Fork?
Worin besteht der Unterschied zwischen einer Hard Fork und einer Soft Fork?
Was ist Segregated Witness?
Was ist ein “Halving” und wieso wird es vorgenommen?
Mining & Sicherheit
Wie entstehen neue Bitcoin?
Was ist Bitcoin-Mining?
Wie funktioniert Bitcoin-Mining?
Wofür wird Mining überhaupt benötigt?
Welche Probleme gibt es beim Mining?
Wie können die Probleme beim Bitcoin-Mining gelöst werden?
Was ist ein Mining-Pool?
Was benötige ich um selbst zu minen?
Was ist ein ASIC-Miner?
Lohnt sich Mining?
Wie berechne ich die Mining-Rentabilität?
Wieso vertrauen Menschen Bitcoin?
Ist Bitcoin sicher?
Wurde Bitcoin schon einmal gehackt?
Sind Quantencomputer eine Gefahr für Bitcoin?
Was ist ein “51 %-Angriff”?
Wallets & Transaktionen
Was ist ein Public Key und ein Private Key?
Wieso muss ich einen Private Key immer geheim halten?
Was passiert wenn ich meinen Private Key verloren habe?
Wie verwende ich eine Seed-Passphrase?
Was ist eine Bitcoin-Adresse?
Was ist ein Wallet?
Was ist ein Hardware Wallet?
Was ist ein Software Wallet?
Was sind Desktop Wallets?
Welcher Wallet-Typ ist für mich am besten geeignet?
Was ist ein Paper Wallet und wo bewahre ich es auf?
Welche Fehler gilt es bei Wallets zu vermeiden?
Wie funktioniert eine Transaktion?
Wie lange dauert eine Transaktion?
Wieso schwanken die Zeiten für Bestätigungen von Transaktionen?
Wieso wird eine Transaktion bestätigt?
Wie hoch sind die Transaktionsgebühren?
Kostet eine Transaktion immer gleich viel?
Kann ich Bitcoin auch offline empfangen?
Wie kann ich Bitcoin Transaktionen anonymisieren?
Kaufen & Verkaufen
Wie und wo kaufe ich Bitcoin?
Wie verwahre und sichere ich Bitcoin?
Welche sind die bekanntesten Tauschbörsen?
Welcher Handelsplatz eignet sich für mich?
Was ist eine dezentralisierte Tauschbörse?
Ist es schwierig mit Bitcoin zu handeln oder zu bezahlen?
Kann ich meine Bitcoin verlieren?
Was passiert mit Bitcoin deren Private Key verloren wurde?
Ökosystem & Alternativen
Wird Bitcoin überhaupt genutzt?
Wie kann ich Funktionen von Bitcoin nutzen?
Wo kann ich mit Bitcoin bezahlen?
Wie wird Bitcoin kontrolliert und reguliert?
Wird Bitcoin für illegale Aktivitäten genutzt?
Welche Alternativen zu Bitcoin gibt es?
Was sind Altcoins?
Welche Vorteile bietet Bitcoin gegenüber Altcoins?
Sind Altcoins besser als Bitcoin?
Was ist Bitcoin Cash?
Was ist das Lightning Netzwerk und wofür wird es genutzt?
Kann Bitcoin eine realistische Alternative zu klassischen Geldsystemen werden?
Könnte Bitcoin von einer anderen digitalen Währung ersetzt werden?
Könnte Bitcoin in eine deflationäre Spirale verfallen?
Wer Fehler findet, Feedback hat, Kritik mitteilen möchte, sich Verbesserungen überlegt hat etc. kann mir gerne eine Nachricht schreiben oder einfach einen Kommentar hinterlassen. :) Im letzten Post habe ich das fertiggestellte Glossar erwähnt: https://www.reddit.com/BitcoinDE/comments/e5xpnk/bitcoin_glossar_und_viele_andere_infos_f%C3%BC Im nächsten Post erwartet euch eine ultimative Bitcoin Linkliste mit Beschreibungstexten für Einsteiger (ca. 25 Seiten A4), die gerade in den letzten Bearbeitungszügen steckt und dann auch auf der Bitcoin Beginner Webseite zu finden sein wird.
A Growth curve for Bitcoin based on the last 4 years
The following are from MtGox weighted price data. All dates are when the boundary was broken never to return. (i.e. I cut off all spikes)
10/21/2010 - broke $0.10
4/15/2011 - broke $1
9/1/2012 - broke $10
7/13/2013- broke $100
2014 - breaks $1000
2015 - breaks $100,000
2016 - breaks $1,000,000
2017 - breaks $5,000,000
2018 - breaks $7,000,000
2019 - breaks $9,000,000
2020 - breaks $10,000,000
Bitcoin once it gains another order of magnitude in value, it will attract wealth pools. When it begins to degrade the dollar's value, wealth will flow in. Keep in mind, off shore accounts hold roughly 30 trillion dollars. The movement of any of that money into Bitcoin is going to hugely effect affect its price. All that I am saying is that the growth curve for Bitcoin will continue has it has in the previous 4 years. The question is what can possibly retard that growth? Government, sure, but China, Russia, Brazil, and most of the rest of the world has no reason to resist a fair, global dollar replacement. And if the west resists, the west will just lose out to China and the rest. At some point that will be so obvious as to squash any resistance. I don't see a viable obstacle to Bitcoin's growth. The skip over 10,000 was not a mistake. At some point growth will go vertical, as all technology adoption curves do. The question is ... When are we actually going vertical, and what are bubbles that will correct... And once we go vertical, where will it exit? (I.e flatten of and standardize). I could be off by 10x either way.... We might exit at 100,000 or 10,000,000... But I think the exit from vertical will be around 2016 in any event, then slower (but significant) growth from there. All dollars in 2013 dollars. In fact I think the Dollar may crash under Bitcoin around 2016. So the actual exchange rate will be whales higher...
Why won't a deflationary spiral occur with Bitcoins?
I'm aware of this argument, but it's not very persuasive. They argue that because the supply of Bitcoins isn't fixed, that it can't occur. However the supply of gold isn't fixed either, people are constantly mining gold, and the more valuable it becomes, the more they'll mine it - just like Bitcoins. Bitcoins and gold are very similar, and I suspect equally vulnerable to hoarding. Even if a deflationary spiral doesn't occur while Bitcoins can still be mined, surely it will occur once they can't be mined any more in 2140? Won't the value appreciate as more and more Bitcoins are lost, increasing the value of those that remain? In short: Why is Bitcoin's specific mechanism of adding new Bitcoins to the available pool the right mechanism?
[Article] Debunking the theory that a "deflationary" currency cannot be the basis of a functioning economy
Many economists argue that a low level of inflation (approx 1-2%) is required in order to maintain a productive and functioning economy. This is evidenced in the fact that most central banks have low level inflation as a target of their monetary policy objectives: The European Central Bank, Bank of England, and the Federal Reserve to name a few . As a result, detractors of bitcoin say that it can never become a currency as it is deflationary in nature . That is, there will only ever be 21 million bitcoin in existence. This means that over time once all of these coins are in circulation, there will be no new supply of bitcoin, and so any demand increase will result in a price increase. Currently there is around 4.3% annual inflation of Bitcoin's supply , and by 2028 that is projected to fall to below 1% . Furthermore, if the anonymous 'Satoshi' has truly vanished then there are another 1M coins out of circulation ; and some studies suggest the total number of lost bitcoin is nearing 3M coins , a number that can only increase over time. Due to these 'missing' bitcoins, the supply of Bitcoin will become increasingly scarce, and so their value is expected to rise given a constant or increasing level of demand. This means that goods and services will fall relative to their bitcoin valuation, resulting in deflation (deflation = the price level of goods & services in an economy decreasing). The traditional argument then goes as follows: due to goods & services becoming cheaper over time, saving is incentivized. After all, why would one buy a car for 1000 bits when it can be purchased for 998 bits tomorrow? A common example people point to as evidence for this is the infamous 10,000 BTC pizza purchase in 2010 which at today's valuation costs 100M USD . However, this argument against bitcoin as a currency is flawed on two levels. (1) When pointing to examples such as the pizza purchase, or the rapid increase in bitcoin's value, people are misattributing the cause of the deflation by assuming it is to do with bitcoins supply. In fact, in the years since the pizza purchase, the total supply of bitcoin has increased from 3 million BTC to 16 million BTC. This is a more inflationary supply increase than even the USD over the same period of time . The real causes of bitcoin's price increase (and thus deflationary properties) in this period can be attributed to the parabolic nature of adoption that bitcoin has seen since its creation . When looking at the practical nature of bitcoin as a world currency, and then drawing stats from the coin in its infancy, you are committing the fallacy of false equivalency  as the evidence presented is from a period of increasing adoption while a global currency would imply full or near full adoption. At the 'early adopters' stage we will see major +/- % fluctuations regularly, however if worldwide adoption was to be achieved then these value changes would be far smaller and much less significant. For example, the dollar, the world reserve currency, fluctuates on average by 92 pips in a day (1 pip = 0.0001 USD). Applying this same level of stability to a mass adopted bitcoin, and we see that the price fluctuations would become far smaller and less significant the greater the capitalization of the currency. Thus, in order to assess the viability of bitcoin as a world currency, one must start with a situation where bitcoin is a world currency in the first place. (2) The second flaw of this argument is to assume that deflation will always lead to a deflationary spiral and thus collapse of the economy. With this same logic, one could argue that inflation will always lead to an inflationary spiral and thus an economy collapse as people see price levels rising, and thus are incentivized to spend their money NOW before they increase any further. This then leads prices to rise further and the effect to spiral out of control. CLEARLY though we can see that inflation does not always lead to an inflationary spiral as all western economies operate on an inflationary model. And thus to try use this logic that is empirically flawed as an argument of deflation is self defeating: Levels of inflation will not always lead to inflationary spirals, and levels of deflation will not always lead to deflationary spirals. It is this excessive quantity of inflation or deflation that will result in a spiral, not the attributes of inflation or deflation in isolation. In the same way that 1-2% inflation per year is small enough to not trigger an inflationary spiral of panic, a small amount of deflation on a yearly basis would not trigger this deflationary spiral. In fact, we have evidence to support this claim. In the UK over the period of 1983-2006 we had interests rates that were higher than the rate of inflation , this would mean that consumers are incentivized to save instead of spend as they would have greater purchasing power in the future(i.e. there is deflationary pressure), yet we did not see an economic meltdown during these times. What we actually saw over this time period was a DECREASE in the savings ratio of the average UK household , from around 15% of income to just under 10% despite the fact that any money saved would have compounded 5% more inflation adjusted purchasing power per annum. At first this might seem to be irrational behavior but there are some speculative reasons as to why this was the case. One theory suggests that consumers do not notice inflationary or deflationary pressures in small quantities and thus do not make economic decisions based on them. Another one would say that despite the deflationary pressures, there are some purchases that are necessary and therefore cannot be delayed. i.e. the supermarket shop might be a small % cheaper in 1 years time, but it is necessary to do it now in order to survive. Finally, it can also be argued that as deflationary pressures make consumers feel wealthier, they are more inclined to go out and spend this wealth, thus decreasing their savings rate. The arguments presented above show that perhaps Keynesian economic thinking is too narrow, and that an economy can be run on the back of a currency with deflationary pressures as these pressures in the right quantity will not result in a deflationary spiral, and have the advantage of not eroding the wealth of the population in a way that benefits the wealthy and hinders the poor (see: threshold effects of inflation for more information on this matter). While this article has argued that a deflationary currency can run an economy, it is a topic of future article to discuss which model of the economy is preferable. Till next time, Logical Crypto Sources:  https://en.wikipedia.org/wiki/Inflation_targeting#Summary  https://www.theatlantic.com/business/archive/2013/12/why-bitcoin-will-never-be-a-currency-in-2-charts/282364/  https://charts.bitcoin.com/chart/inflation#lf  https://cointelegraph.com/storage/uploads/view/1d067f3721f10f0a76439de9860a4e54.png  https://qz.com/1107843/bitcoins-btc-new-record-price-of-6000-means-satoshi-nakamoto-is-worth-5-9-billion/  http://uk.businessinsider.com/nearly-4-million-bitcoins-have-been-lost-forever-study-says-2017-11  https://en.bitcoin.it/wiki/Laszlo_Hanyecz  https://upload.wikimedia.org/wikipedia/en/5/58/MB%2C_M1_and_M2_aggregates_from_1981_to_2012.png  https://blockchain.info/charts/n-transactions-total?timespan=all  https://en.wikipedia.org/wiki/False_equivalence  https://www.economicshelp.org/wp-content/uploads/2012/01/inflation-interest-rates-1945-2011.png  https://tradingeconomics.com/united-kingdom/personal-savings
Money should be a good store of value, medium of exchange, and unit of account. There are a lot of barriers preventing bitcoin’s widespread use by the aforementioned criteria, let’s take a look and see how they might be solved.
Lack of Understanding
Bitcoin is complicated and unfamiliar. This is a huge barrier to entry because people distrust what they don’t understand, and ease-of-use and simplicity is what usually sells a new technology. If you have read this series from the beginning though, you may now see some potential upsides to such a drastically different system than what we are used to. Many resisted smartphones for a time (and a few still do). The benefits have to outweigh the costs of adoption, so we may see niche cases being the early adopters (like citizens of Venezuela or remittances payments). Also, when a new complicated technology rolls around, it sometimes takes a generation before it becomes widespread; young people are particularly adept at adopting new tech.
The tendency of bitcoin’s price to change rapidly or unpredictably is what comprises volatility. When you search for bitcoin you may find that most of the results you get (and the discussions happening on forums) are about it’s price. This is understandable, it has seen some crazy moves both up and down over the years facilitating the potential for huge gains (and huge losses). Still, over time the price certainly is increasing. Unless you bought in a single 2 month period in 2013, holding bitcoin for longer than 2 years at any point in its history would land you in a better position than when you started. And, when viewed on a logarithmic scale (used in long-term stock charts), the trend is quite clear: (Bitcoin Price 2012-2018, Logarithmic Scale (bitcoincharts.com)) There is a risk/reward to adopting new tech, and this is no exception. But, my goal is absolutely not to “sell” it to you as an investment by any means.
This is not financial advice. We’re simply looking at the pros and cons of this space, and I encourage everyone to do their own research and come to their own conclusions. Never invest anything you aren’t prepared to lose.
This meteoric rising (and crashing) of the “price” (which, I’ll point out, might just as well be considered an exchange rate) understandably makes it pretty difficult to use bitcoin as a currency. If it moves a few percent in a day, and can move a few hundred percent in a month, purchasing a car or a house could cost you significantly more by the time your finished closing. That’s just not viable, and certainly not a good unit of account. However, I see the volatility in price simply as growing pains. It is the market that dictates the price of bitcoin, quite literally, it’s traded like a stock. This is referred to as speculation (“the purchase of an asset with the hope that it will become more valuable at a future date”). Speculation happens between national currencies already, but they are generally stable in comparison so it’s not lucrative. People are unsure of how this whole bitcoin thing is going to play out. It’s not like anything we’ve ever seen, it’s difficult to understand (and use), and it’s not accepted at every corner store or online business. Many in the space are just here for a quick buck, and they sell it when the price rises to get back “real” money we are used to, that is “stable” in price against other currencies, and can predictably buy goods and services. The way I see it, all of these will concerns diminish in time. Though Amazon or Target don’t yet accept bitcoin, Microsoft and Overstock.com do. Some cities and towns across the world are embracing it a lot more than others. It’s not surprising to see San Francisco accommodating the new technology. But, other cities like Portsmouth in New Hampshire with numerous cafes and shops accepting bitcoin (and “Dash coin”) might surprise you. There are maps available to see where crypto-currencies are accepted at locations near you, and the amount of them are increasing, albeit slowly. It’s a bit of a chicken-and-egg situation, but that hasn’t stopped revolutions from happening before. Consider when cars first came about, roads were dirt and mud which cars didn’t do well with. It took building massive infrastructure before cars could ever become mass-adopted, but we spent the time, money, and effort because we saw the potential advantages. It will be trivial for businesses to accept bitcoin compared with pouring hundreds of millions of dollars in asphalt to connect our world. Other parallels include train tracks, phone lines, electricity lines, communication satellites, etc. Each of these replaced or iterated on previous functional technologies, and required massive upfront costs before the benefits were available. It’s clear now that we made some good choices there but there were doubts at the time. Despite some pretty major setbacks, bitcoin’s trend is up. Interest is growing and more businesses and individuals are actually using it. But due to the trading mentality, the uncertainty with regulations, uncertainty in the technology itself, uncertainty that the price will not drop, and other factors, emotion and greed encourages people to sell in flocks if the price climbs high enough. Furthermore, right now with a large enough stack of money one can influence this market in drastic ways, and cries of manipulation of the price are not unfounded. So-called “whales” can buy and sell huge amounts of coins and the price can jump a bit each time. Coupled with uncertainty in the space, and so many “investors” trying to time the markets, we end up with a pretty volatile landscape where the price is not stable. My argument is that this is diminishing as it gains in popularity, and it is gaining value because its utility is growing (see the network effect”) and the utility itself is slowly becoming more apparent.
Volatility is actually decreasing.
Bitcoin Volatility Over Time(bitvol.info) In the period from 2011 to 2014 bitcoin’s volatility often spikes into the 15% range. But from 2014 to the present, volatility has only just spiked above 7% twice, spending most of it’s time below 5%. Even the large boom and bust in price at the end of 2018 seems tame compared to the early years. The trends show the price going up over time, and volatility going down. The more actual use the coin has (people saving and buying with bitcoin), the percentage of people entering the space to use it the way it was intended increases, the percentage of “stock traders” declines. And as more capital enters the space, the less influence whales have (because the current against which they swim is getting stronger). And as the price stabilizes, traders will become less interested. There is a critical point where this becomes a negative feedback loop. I could be wrong, but the idea is at least founded in reality, and it would solve the unit of account issue if the price could stabilize to within a few percent per year. Similarly, as a store of value, bitcoin becomes more viable in this scenario. This is coupled with the fact that although bitcoin is somewhat inflationary now as the supply is increasing (bitcoins are “discovered” as rewards for mined blocks), the amount of discovered coins are cut in half every few years. This “halving” is logarithmic, meaning eventually the amount of coins discovered is infinitesimally small, and total supply will asymptotically approach 21 million coins (the maximum supply that we will ever see). This model of supply is actually meant to mimic gold because it’s a well-known store of value and monetary device throughout history (though it is not easily divisible, and not as portable as bitcoin). In both bitcoin and gold, mining is more fruitful in the beginning, and as we extract the low-hanging-fruit, mining requires greater effort and yields less return. World population is increasing which leads to bitcoin becoming deflationary in the future if demand continues (the supply won’t increase beyond 21 million). And, I argue that it will become more valuable in time due to the network effect as bitcoin use becomes more widespread (the value of being able to exchange with more people anywhere, any time, and without permission from anyone). This is a positive feedback loop, and shows how bitcoin is deflationary long-term. While deflation is generally considered negative by economists, the main reason is based around debt which isn’t possible in the same way with bitcoin because bitcoins cannot be created out of thin air like fiat currency. The discussion of deflation vs inflation is an important one, and bitcoin’s monetary policy is an outlier compared with national currencies which are typically inflationary. The US dollar for example averaged 3% inflation since the year 1900. That means that over the last 100 years, a dollar has lost over 95% of its purchasing power. You could buy 95% more stuff with $1,000 last century, or, saving $1,000 from 100 years ago would buy you 95% less stuff at present. Put another way, purchasing power is cut in half after about 25 years, a concern for anyone retiring for over 20 years with a fixed retirement sum. Some other national currencies have higher inflation rates, and there are numerous cases of inflationary spirals over the years. A few examples include Germany 1923, Hungary 1945, China 1947, Vietnam 1988, Peru 1990, Yugoslavia 1992, Zimbabwe 2008, and right now in Venezuela 2018. Entire countries of people have lost essentially all of their money, and it keeps happening over and over. A wise man would tell you it’s dangerous to say “it could never happen here”. *UPDATE: Turkey is also now in financial crisis. This is our money with which we hold and exchange value, our earnings, our savings, our livelihoods. Maybe it’s time we had, at least, another option outside of government control. An option that governments can’t destroy through mismanagement. A neutral option that ignores all borders, is open to everyone, and can be accessed anytime from anywhere.
The Fear of “Hacks”
It’s a very real threat to have all your money stolen, if your bank was robbed you are protected by FDIC (in most cases only up to $100,000). The vast majority of coins that have been stolen have come from hackers attacking “exchanges” and getting away with millions. These exchanges are websites where you can trade bitcoin for other crypto-currencies (or “alt-coins”). You can also buy and sell bitcoin on them, and subsequently people end up storing a lot of coins on these exchanges, and the exchanges hold the “private keys” so they can execute trades. Cryptographic private keys are analogous to a key that opens a door, or, a key that locks a message in a box before it is sent to the recipient. In our case the door opened allows you to sign your message and spend coins, and the message is your transaction on the bitcoin network. Anyone with your private keys can spend your coins. Exchanges are a honey pot of thousands of private keys that represent a lot of money. If a hacker can break into the exchange and steal the keys all at once, their work will pay off. This is why any crypto guru will advise you not to store large amounts of coins on exchanges, and rather transfer them in your own wallets where you hold the private keys. The mantra is “your keys, your money; not your keys, NOT YOUR MONEY!” Of course your own computer can be hacked, but you are not as big a target as an exchange which may hold vast sums of money. There are also some pretty safe ways to store your coins if done right. Centralized exchanges are a necessary evil for many people because they facilitate acquiring and trading coins easily. But decentralized exchanges are becoming more common because they allow you to trade while keeping your coins in your control at all times. They need some work and more users, but it’s a promising solution to this problem. Summarizing the above, the big hacks you read about are virtually eliminated if your keys are in your control and you keep them safe.
Transaction fees are generally negligible in a bitcoin transaction, but in many ways “fees” are holding us back. Interestingly, this is a symptom of being in the very early days. Firstly, there is a lot of work on “scaling” crypto-currencies (making fees even lower than they already are and increasing transaction speeds). This is just an engineering problem, and many people are working on solving it in many different ways. Other currencies like NANO or IOTA have different underlying tech and have zero fees and instantaneous transactions. In fact, most fees people encounter aren’t fees from bitcoin transactions; instead, they get hit with fees when exchanging between national currencies and bitcoins. In order to electronically trade USD($), EUR(€), or YEN(¥) with bitcoin, we need to hook into the closed-off for-profit banking network and we need third-parties to do so (and they take their cut). But even these fees could be avoided in time. For example, you can buy bitcoins with cash directly from a person (localbitoins.com). And, it might seem distant, but in the future you may end up receiving bitcoins as your salary, from a friend, or from accepting them in your place of business. Likewise you can spend your bitcoins directly to other bitcoin users. Getting coins directly eliminates all the exchanging and associated fees because once your money is on the bitcoin network, fees will be negligible (especially as these networks evolve).
Right now it’s easier than ever to acquire some bitcoin. People can download “Coinbase” or “Square App” on their smartphone and purchase some using a credit card in a few minutes. Depending on which service you use and how much you want to buy, you may need to send a picture of your license for KYC regulations. However, as I mentioned above, there are risks to storing all your coins on exchanges, especially with large amounts. I always recommend transferring them to a wallet where you control the private keys. But using wallets and storing private keys (and “seeds”) securely, is not as straightforward as we would like. This is a major factor holding back adoption, because if it’s not easy to use, people will consider it too much effort. The next post in this series digs into wallets and storing your coins.
Been hodling since 2013. Let me tell you what happened then and how it looks exactly the same as it does now.
Been in this shit since 92 13. Bitcoin's price rose and rose fast. It went from $400 to $1100 in what seemed like no time. People were talking about it going to $10,000 soon. Sound familiar? You know what happened though? It crashed back down to $600. And then down to $500. And it stayed there for two years Yea yea. Maybe this time is different. We got this and that. It wasn't inflated from Mt Gox etc. I know. I'm with you on all of this. I'm just saying, be careful. It's fun to see the money you've made. It's fun to imagine "If BTC goes to X then I can buy Y!" When everything looks like it's too good to be true it likely is. Hodl on tight and the zoom out. But better yet. Dig dipper on why you decided to buy Bitcoin. Was it just to make a quick buck? Or was it something greater? Understand the technology behind it. Read up on the technology. Here's some things I think may help you out in your journey. Read up on Lightning and what that can do. Check out On-chain Atomic Swaps. Understand the "deflation spiral" and why it isn't what you were told. That can get your started. Big, BIG things are ahead. You're still early.
My grandparents emailed me an article in The Atlantic this morning: http://www.theatlantic.com/business/archive/2013/12/why-bitcoin-will-never-be-a-currency-in-2-charts/282364/ It's another attempt to demonstrate that bitcoin = deflation = fail. Here's my response to them... Hey Grandparents, This is what's known as the "deflationary spiral" argument, and has been hurled at Bitcoin advocates since Bitcoin's inception. The argument is that when people expect their money to be worth more tomorrow, they won't spend it today. On the surface, it makes sense. In reality, it's at best entirely exaggerated, and at worst a complete fallacy. The deflationary spiral argument has been used by inflationistas (people who believe in endless money printing to achieve prosperity) to justify their horrible central planning and monetary debasement. It is the main argument economists use to denounce gold as money (because gold isn't produced at the same rate as economic growth, thus meaning the value of gold may appreciate relative to goods - similar to Bitcoin). Of course, the fact that 19th century America was on a gold standard and saw its strongest period of wealth creation and economic growth ever hasn't seemed to bother gold's detractors. Fortunately, now that Bitcoin exists, and exhibits not just deflationary tendencies but MASSIVE deflationary tendencies (it's up 10,000% this year, etc), we have an amazing real world laboratory to see if the deflationary spiral truly is as terrible as alleged. From what I've seen in Bitcoinland, we can debunk it as a myth. People absolutely spend, even when they think the money will be worth more tomorrow. They may spend less... but that is not a bad thing. It means they spend only on the things they really want, instead of rampant consumption. It makes buyers think twice before buying. This is wise and prudent. It encourages saving, and discourages consumption. Indeed in my own experience, I buy things with Bitcoin all the time... and I KNOW it will be worth more in the future. Am I a fool? Or do I merely realize that money is not wealth - that its only value is in exchanging for real wealth. I need to eat. I need a home. I need a car and clothes and some entertainment. These things are wealth, and so I trade bitcoins for them. I'm just more prudent in how I do it. Detractors would claim that when people are prudent with their own finances, that this is bad for the economy. I believe the opposite - when people are imprudent with finances, that is when the economy suffers. Of course, imprudence means exaggerated spending today, which boosts GDP figures (because GDP is just a measure of spending). This seems to have tricked most modern economists into thinking that consumption is the cause of economic growth. I disagree. Consumption doesn't drive an economy - it is the result of the economy. Consumption is the reward for production and savings. Besides... if the deflationary spiral was actually a dire runaway phenomenon, then are the detractors saying that Bitcoin will rise in price forever? If so, why aren't they buying some? And if they aren't sure that it will rise forever, then this defeats their argument, because once it is no longer rising, people would be happy to spend it, thus correcting the deflation problem. Examined carefully, one should realize that to the extent the deflationary spiral exists, it is a self-correcting phenomenon (as are most pricing issues in an open market). And for a final anecdotal nail in the coffin... last year on Bitcoin Black Friday, BitPay (the largest merchant processor for Bitcoin payments) processed 99 orders globally. This year on Bitcoin Black Friday, despite the fact that Bitcoin rose from $13 to $1000, BitPay processed 6,296 orders globally. I have not seen evidence that "deflation" is hampering growth... in fact, quite the opposite. -Erik BitPay article: http://www.washingtonpost.com/blogs/the-switch/wp/2013/12/02/black-friday-set-a-record-for-bitcoin-commerce-bitpay-says/
1/ The Bitcoin (double) Standard A deep dive into the cognitive dissonance of nocoiners, and the ridiculous double standard they have for Bitcoin. Thread 👇 2/ Manipulation Over the last decade, banks globally have been fined with more than $200 billion in penalties, following investigations into manipulation of various markets/instruments: FX, metals, LIBOR, etc. Those cumulative fines are 2x the current total crypto market cap. 3/ Intrinsic Value Complaining it has no intrinsic value when their primary currency has absolutely no intrinsic value. “Bitcoin units have no intrinsic value… the U.S. dollar, the euro, and the Swiss franc, have no intrinsic value either.” https://t.co/bssEa3U3S5 4/ Money Laundering Approximately $2T a year globally is laundered, Americans spend $100B on drugs annually, Crypto market cap is $109B as of this tweet storm. “Cryptocurrency [represent a] “low risk” for money laundering and terrorist financing activities... according to FATF 5/ Complexity Consumers don’t understand how their existing financial system works, nor their cell phone, microwave, etc. There is minimal new training needed for them to be literate/enjoy basic interactions, just like any new technology in their life. 6/ Volatility The only constant in markets is volatility. No one says “Gold isn’t a good SoV because the price fluctuates” but we hear that all the time with #bitcoin. What did you expect with a new emerging sound money? It certainly wasn’t going to be a linear price path. 7/ Energy Consumption 🚨 Electricity police! 🚨 Complaining about energy consumption, without first comparing it to the energy consumption of gold mining, the financial system, government, courts, military, selfies, or watching the Kardashians. https://t.co/4ONTBlKRrA 8/ Monetary Policy Worried about deflationary spirals when they most they’ve spent studying deflation is the 15 second dismissal argument from their econ 101 professor 9/ Control Worries that it was created by an anonymous “hacker” vs highly flawed founding individuals of their government/financial system. Worries that no one “controls” the monetary policy vs a group of old white men they can’t even name 10/ FUD What all of this FUD represents is the magnitude change Bitcoin brings. Any new technology evokes FUD, which is proportional to the impact it will have on the world. Humans don’t like change, FUD is a representation of the change that a new technology rings. 11/ History rhymes When the bicycle debuted in 1800s, it was blamed for all sorts of problems—from turning people insane to destroying women’s morals In the future, we’ll look at these double standards as we do now with bicycle objections: with laughter https://t.co/hTrn2xpnqx
Let me clarify common misconceptions about Bitcoin. Myth # 1. It's just something similar to other virtual currencies, nothing new All other virtual currencies are controlled by their regulatory center. This means that: they can be printed on the subjective whims of the currency regulator; they could be destroyed by an attack on this regulatory center.; arbitrary rules can be imposed by the currency regulator. Bitcoins, being initially a decentralized currency, solve all these problems. Myth # 2. Bitcoins do not solve any problems that gold and/or Fiat money cannot solve Unlike gold bitcoins: easy to carry and store; easy to authenticate. Unlike Fiat money, bitcoins: have predictable and decreasing emissions; not controlled by any regulatory center. Unlike Fiat electronic money, bitcoins: can be anonymous (like cash); there's no way the accounts can be frozen. Myth # 3. Bitcoins are secured by CPU time It is incorrect to say that bitcoins are secured by CPU time. When it is said that a currency is "secured" by something, it is meant to be centrally tied to something at the exchange rate. You can not exchange bitcoins for the computing power spent on their generation (it is too high). In this sense, bitcoins are not secured by anything. This is a self-valuable product. Think, unless gold is provided with something? No, it's just gold. It's the same with bitcoins. Bitcoin currency is created with the use of processor power: the integrity of the block chain is protected from all sorts of attacks by the existence of a large computer network. That's it. Myth # 4. Bitcoins are worthless because they are not secured by anything Gold is not secured by anything, but is used and valued everywhere. See the previous myth. Myth # 5. The value of bitcoins is based on how much electricity and processing power is required to generate them This myth is an attempt to apply labor value theory to bitcoins, which is not applicable to them and is probably false. Just because something requires X resources to create doesn't mean that the final product will cost X. it can cost more or less X, depending on the usefulness to users. In fact, there is a broken causal relationship (this applies to the above theory as a whole). The value of bitcoins is based on how valuable they are. If bitcoins rise in price, more people will try to generate them (because bitcoin generation becomes more profitable), this will increase the difficulty of generating, which in turn only leads to the difficulty of mining them. If bitcoins fall in price, then the reverse process occurs. These processes maintain a balance between the cost of generation and the cost of bitcoins generated. Myth # 6. Bitcoins have no value of their own (unlike some other things) Many things have their own value, but it is usually well below the market value of the thing. Consider gold: if it were not used as an inflation-resistant value, and used only for industrial purposes, it would not have today's value, since the industrial need for gold is much lower than it is available. Historical value has helped establish some things as a means of exchange, but it is certainly not a necessary condition. Perhaps bitcoins will not be used as a raw material for industrial purposes, but they have many other useful qualities that are necessary for the means of exchange. The value of bitcoins is determined solely by people's desire to trade them - supply and demand. Myth # 7. Bitcoins are illegal because they are not a legal tender Short answer: chickens are not a legal tender, but bartering with chickens is not illegal. There are many currencies that are not legal tender. Currency, after all, is just a convenient unit of account. Although national laws may vary from country to country (you should definitely check the laws of your state), in General - trading with any commodity exchange, including digital goods (e.g.: bitcoins, virtual worlds second Life or WoW game currencies), is not illegal. Myth # 8. Bitcoins are a form of domestic terrorism because they only harm the economic stability of the state and the state currency Read the relevant Wikipedia article. Action will not be considered terrorism if it is not violent. Bitcoins are not imposed on anyone with violence, so they are not terrorism. Also, bitcoins are not "internal". It's a worldwide product. Look at the auto-generated node map. Myth # 9. Bitcoins will only facilitate tax evasion, which will lead to a possible fall of civilization It's up to you whether you follow the laws of the country or face the consequences of breaking the laws. Myth # 10. Bitcoins can print/mint everyone, therefore they're useless To generate coins requires significant computing power, in addition, over time, all the coins will be generated. Myth # 11. Bitcoins are useless because they are based on unverified / unproven cryptography The Sha-256 and ECDSA algorithms that are used in the #Bitcoin program are well-known industrial encryption standards. Myth # 12. First bitcoin users are unfairly rewarded The first users were rewarded for taking on a higher risk of losing their time and money. From a more pragmatic point of view, the term "equity" is a conditional concept, making it unlikely to be agreed upon by a large number of people. Establishing "fairness" is not the goal of the Bitcoin project, as it would be simply impossible. The vast majority of the 21 million bitcoins still haven't been distributed among people. If you start generating or purchasing bitcoins today, you can become one of the "first users"yourself. Myth # 13. 21 million coins is not enough, it is not commensurate with the needs of mankind In fact, the Bitcoin project will exist 2099999997690000 (just over two quadrillions) of the maximum possible indivisible units. One bitcoin is 100 million (one hundred million) of them. In other words, each bitcoin can be divided into 10^8 parts. If the value of bitcoins rises too much, then people for convenience can start working with smaller pieces such as Milli-bitcoins (mBTC) and micro-bitcoins (µbtc). However, it is possible and denomination with coefficients 1:10, 1: 100 and so on. Myth # 14. Bitcoins are stored in wallet files, just copy the wallet and get more coins! No, Your wallet file contains secret private keys that give you the right to dispose of your bitcoins. Imagine that you have a key issued by your Bank to manage your account. If you give it to someone else, it will not increase the funds in your Bank account. The funds will be spent either by You or by this third party. Myth # 15. Lost coins cannot be replaced, which is bad The minimum bitcoin unit is 0.00000001, so this is not a problem. If you lose coins, all other coins will rise in price a little. Consider this a donation to all other bitcoin users. There is a related question (and the answer to it). Why is there no mechanism to replace lost coins? It is impossible to distinguish between the lost coin and the one that is simply not used at the moment and waiting in someone's purse of his time to be useful. Myth # 16. It's a giant pyramid scheme. In financial pyramids (see Ponzi scheme and MMM), the founders convince investors that they will be in profit. Bitcoins do not give such guarantees. There is no regulatory center, there is just a group of people who are building a new economy. However, one should not confuse bitcoins by themselves with various projects on the Internet, which can accept bitcoins as a contribution and be financial pyramids. Myth # 17. Limited emissions and lost coins generate a deflationary spiral Both deflationary forces can manifest themselves, and economic factors such as hoarding counteract the human factor, which can reduce the chances of a deflationary spiral. Myth # 18. The idea of bitcoin may not work because there is no way to control inflation Inflation is simply an increase in prices over time, which is usually a consequence of currency depreciation. It is a function of supply and demand. Given the fact that the supply of bitcoins is fixed (due to the peculiarities of their issue), unlike Fiat money, the only way out of control of inflation is the disappearance of demand for bitcoins. It should also be taken into account that bitcoins are a currency with a predictable decentralized issue. If demand falls to almost zero, then bitcoins will be doomed in any case. However, it is unlikely that this can actually happen. The key point here is that bitcoins cannot be impaired by a sharp increase in inflation by any person, organization or government, since there is no way to increase the supply too much due to the peculiarities of the issue. In fact, a more likely scenario is an increase in demand for bitcoins due to the growing popularity, which should lead to a constant increase in the exchange rate and deflation. Myth # 19. Bitcoin community is anarchists, conspiracy theorists, supporters of the gold standard and geeks Confirm. However, it is necessary to consider that it is only a part of all color of community. https://preview.redd.it/qkk7hybryqg21.jpg?width=1980&format=pjpg&auto=webp&s=a373d5483cc87c1e2c651ff864fc324273fa3f08
Deflation has been a point of debate among the various schools of economic thought for a very long time. One one hand, the Keynesians and Neo-Keynesians argue that deflation is a very negative economic phenomenon and constantly warn of a “deflationary death spiral,” in which people will stop spending indefinitely—in constant anticipation of lower prices—and businesses will fail. Deflationary spiral is an economic argument that proposes that runaway deflation can eventually lead to the collapse of the currency given certain conditions and constraints. It is a common criticism made against the viability of Bitcoin . Despite their burgeoning popularity and widespread acceptance, economists continue to warn investors that Bitcoin will eventually fall into a deflationary spiral. The Fear of Bitcoin Deflation These economist’s reasoning is that, because there is a fixed amount of bitcoins in the world (21 million), people will eventually begin to hoard them ... Bitcoin’s deflation problem. One of the most common critiques of Bitcoin and related crypto-coin systems, is the supply cap (in the case of Bitcoin 21 million) and the associated deflationary nature of the system, which could be damaging to the economy. ... Deflation and the deflationary debt spiral. Many economists have been debating the ... What makes a bitcoin so expensive and why does it keep appreciating compared to regular currencies? Should we compare it’s economics to gold or tulips? Deflation 101. Let’s start with what deflation means and take you back to your high school economics class. Deflation is when the price of a basket of goods denominated in a currency decreases.
BITCOIN COLLAPSE? RECESSION - DEFLATION ft Ivan on Tech
Keywords/phrases: Bitcoin's monetary policy is simulated to resemble precious metals, restricted supply without fractional reserve. 21 million is the maximum number of coins that will ever be created. - Deflationary spiral and role of monetary policy. - Phillips curve: understanding the relation between unemployment and inflation - Impact of Inflation on borrowers and creditors. Creeping ... British anarchist Dylan Leighton gives a quick overview of inflationary fiat currencies verses the deflationary Bitcoin virtual currency, which has seen rises of 100,000% since its inception just ... Basics of Inflation and Deflation with respect to the USD and Bitcoin. Fiat money can buy less and less over time, underlining the value of scarce assets. As the macroeconomic outlook has recently changed, there’s a lot discussi...