Similarly, bitcoin is deflationary because of the fixed supply.
Its completely irrelevant what the price of Bitcoin is for its usefulness as a medium of exchange.
This medium of exchange aspect is very important because it makes banks no longer special since its possible in time to make payments without a banking system. Thus the role of the state in regulating banks can disappear eventually - no deposit insurance, no bailouts and no too big to fail.
Credit can be provided by funds because the information asymmetry of banks no longer applies when you can port your banking records via API.
"This medium of exchange aspect is very important because it makes banks no longer special since its possible in time to make payments without a banking system."
Most people don't want to have the whole of their wealth reliant on a hash they could lose though. They want to be able to talk to "customer service" if they need to.
Are you saying that gold can be a currency but Bitcoin cannot?
> Bitcoin or any cryptocurrency can work as an asset but not as a currency given the current design.
Why can't it be both? If I expect my Bitcoin to appreciate 5% per year I might be willing to spend it to buy my weekly groceries.
No.
> Why can't it be both? If I expect my Bitcoin to appreciate 5% per year I might be willing to spend it to buy my weekly groceries.
You might be or might not be. I assure you, the majority will not be willing to buy groceries using a deflationary currency. They'll switch to an inflationary currency instead.
> No.
Hmm... so gold cannot be a currency?
I'll bite the bullet though:
> Hmm... so gold cannot be a currency?
Everything can be a currency. Ascorbic acid could be a currency in the future if the humankind moves to planets where Citreae are hard to find.
If I'm not mistaken, the topic was about the effectiveness of bitcoin as a currency.
You said earlier that "Currencies are enforced and controlled by central, powerful authorities". There is no central authority for gold yet it has been a currency for thousands of years. You seem to accept the special status of gold by implying that a cryptocurrency could be effective as a currency if it was backed by gold. So my question is what makes gold so special? Why can't the current design of cryptocurrencies be just like gold, only more convenient?
I see, the correct version would be: Fiat currencies [...].
> My point is that gold has similar properties to Bitcoin.
I agree with your point.
> Why can't the current design of cryptocurrencies be just like gold, only more convenient?
Cryptocurrencies are a lot like gold. But as you said, gold is around for centuries. Can you bet 10 million USD that bitcoin will be around next year?
Now bitcoin has built-in a hard limit. Which makes the currency, inherently inflationary. I have no evidence, but I believe that this was a strategic choice by Satoshi. Why would you buy a currency made out of cpu cycles, with no backing if not for it's future value? Without being a state (e.g. selling trust) or having huge amounts of gold to back up a new currency, the only reason someone would wanna buy it, is indeed, the future value that could hold. Hence, Bitcoin or any cryptocurrency can work as an asset but not as a currency given the current design.
Y. Varoufakis, spoke of a centralised digital currency in his solution for the Greek crisis. That could be a digital currency, that anyone can use. But was a fully controlled digital currency issued in the form of IOUs by the state.
NOTE: Talking about adoption of a decentralised currency a-la bitcoin, by a state or group of states to replace entities like the FED or the ECB shows a poor understanding of the most basic principles of the financial systems.