Anything could technically be used as currency. Historically people have always used something that is difficult to forge, because forgery results in inflation, meaning the currency which they hold loses its purchasing power over short times. It ends up not worth the labor they put in to earn it. If that were known at the time they done the labor, they would've asked for payment in something else.
Bitcoin is the best currency that has existed, because it is the first which is absolutely infeasible to forge, and it is simultaneously easy to verify its authenticity.
It's estimated that $70 million dollars in counterfeit money is in circulation in the US. At an estimate of $0.12 per kWh of electrical use Bitcoin uses approximately 70 tWh of power a year. Lets see that comes out to about $120m. At what point is the cure worse than the disease? Again this is just for Bitcoin in its current state as a semi-novelty currency/commodity. How much would it cost to operate the grid for bitcoin if it was the worlds primary reserve currency?
Before your government can create its next spending budget, it needs to pay off its debts with interest. A big chunk of every dollar of tax you pay is taken before the government can even think about what it is going to spend the rest on. This is a viscous cycle because the government can't meet public demand with the remaining money it has and needs to borrow more again!
Each time they print, it devalues the dollar in your pocket by a few cents. This means when the government needs to pay back its debt with the interest, the money it is using to pay back is not worth as much as when they borrowed it. Ooops.
The cost to operate the Bitcoin grid is unimportant, because it is voluntary, and not taken from the public purse. You can chose not to participate directly if you don't want to put in resources, and rely on some other industry much in the same way you seem keen to rely on a government to do things for you.
Deflation causes spending to stop because people hoard money, as spending stops, economies dry up, and voila... economic stagnation at best. But no one without a formal education is Economics is likely to even be remotely aware of that.
Inflation, and Keynesian economics, have empirically served the world quite well. The government's and social policies that go with them not so consistent BUT and this is the important part-- Economics doesn't give a fuck. Inflation is a tool to allow an economy to grow, deflation is a tool to shrink an economy.
Economics is the science of resource management, it's not an opinion. Your opinion is as depressing to me as it is empirically wrong.
Here's an example of deflation: Moore's Law. If computing power is going to double in 18 months, then a computer I buy now will be worth much less in 18 months. If that's the case, best not buy that computer and wait 18 months right?
Another example is a car. It loses 20% of its value on purchase and continues to lose value year on year and is eventually worth nothing.
But nobody would buy a car if that were the case!
Economic theorists are mostly employees or funded by the banks, the central banks and the governments. There's a "consensus" among them that inflation = good because it benefits the industries they work for.
Anyway, it does not matter, because Bitcoin cannot be inflated, and if people now have the choice to hold a deflationary currency or an inflationary one, let them pick! We'll see if those economists were right after all when people actually have a choice.
"No investment" being the core point - the rich may get richer currently, but they have to buy stocks, bonds, start companies in order to do so - take risks and temporarily at least hand their money to people with less.
Under a deflationary model, they don't - the incentive is to avoid spending and investment, since the 100% safe investment is holding your money. The rich get richer - the poor are forced to part with any currency they have and can never join. Of course the system collapses if you don't have to buy in (i.e. no taxes) because why should anyone join such a regressive system?
Which, incidentally, is very much the reason no one should be getting into Bitcoin - all the coins were mined by early adopters, and you getting into Bitcoin is just allowing everyone who has cheap coins to cash out.
EDIT: And Moore's law is an ideal example of this problem really - at every point you shouldn't buy a new computer unless the present value you'll gain from one is outweighed by the depreciation in the future. Turns out computers are pretty amazing so this is a lot less of a problem - but computers actually do things. Bitcoins don't.
If you use the same argument in reverse for an inflationary economy it doesn't add up. The argument would be that everyone would avoid saving. This is only true if you have hyperinflation. Small amounts of inflation are manageable. The same is true for deflation. If deflation is low, the effects it has are manageable. If we have hyperdeflation, then sure, people will avoid spending as much as possible.
If deflation is low, the amount which could be gained by holding the currency is tiny compared to the amount which could be gained by investing it in productive enterprises. The same is true in the inflationary model, because lenders must pay interest on borrowed money, their productive enterprises must earn at least the the amount lent plus the interest and the difference due to inflation, or they'd be making losses.
> Of course the system collapses if you don't have to buy in (i.e. no taxes) because why should anyone join such a regressive system?
This is why socialist types repeat the same mistakes over and fail to recognize them, or the value of free markets. The reason people would join such a system is because they want to get wealthy too!. People desire wealth. If they desire it enough, they will be productive and climb the ladder to get into the club. If they are unproductive, they will probably whine and complain that they should be entitled to other people's wealth. Socialism is a utopian ideal because it ignores human nature.
Bitcoin is extremely risky at this point, and was even more so 9 years ago. The people who invested then took massive risks in doing so. People investing now are taking huge risks. It will be a risky investment until it becomes pervasive. There will probably many more cycles of inflation and deflation because adoption does not match the supply rate. If people earn money from taking this risk, good on them. If people don't take the risk, they're not going to be part of the club. You've got to be in it to win it. Bitcoin is not like land rights which are exclusively granted by rulers or taken by force. There is no restriction and anybody can be an equal party.
The early adopters who have mined coins need to pay their electricity bills. It's not free money. They've had to sell the coins into a market. The distribution of coins is much more widespread than the mining process because of this. People hodl bitcoin even during inflationary periods because they believe it has a strong selling point which will give it leverage in the longer term. (They're low time preference people. Not necessarily the already wealthy.)
> And Moore's law is an ideal example of this problem really - at every point you shouldn't buy a new computer unless the present value you'll gain from one is outweighed by the depreciation in the future. Turns out computers are pretty amazing so this is a lot less of a problem - but computers actually do things. Bitcoins don't.
This is precisely my point. People still buy computers. The thing they spend their money on is more useful than the money itself. This is true of anything really. People need things to live, they need leisure and entertainment, and they're willing to spend a bit of money on it now, even though it will be cheaper later. It applies to most commodities: they lose value over time faster than the currency does. This is what makes the currency desirable to hold over those other commodities when people don't need to spend.
Inflation has the perverse incentive that it encourages people to spend when they don't need to spend. People are trained to have high time preference lifestyles, which are extremely hard to escape from if you're a low earner. You see the behaviours of low earners often do not help their situations at all, which is why they often get stuck in their economic position. The argument that economies should encourage spending (particularly among low earners) obviously doesn't help them either. They should be encouraged to save. The idea of intentionally building things to only last a few years, so that they need to buy a new one every few years doesn't help them (or landfills) either, but is supposedly "good for the economy."
Only in the presence of a Reserve Bank, which Bitcoin doesn't have. There's no ability for any authority to increase the number of Bitcoins possible, which means it's permanently deflationary.
Inflationary currencies pay interest via Reserve Bank policies in order to be managed. Bitcoin has no such mechanisms, nor can any be implemented.
> The reason people would join such a system is because they want to get wealthy too!
Which is why ICOs are so popular. Why pay tribute to the original Bitcoin miners when you can just become you're own, recognizing that the only thing holding up the value is irrational in the first place (doesn't mean it's not a real way to get people to part with their money).
> The thing they spend their money on is more useful than the money itself.
Computers are one good in many-faceted economy. Deflationary currency means the currency is worth more against everything in the economy with each passing day. So not only will I not buy a computer with it, I will also not put it in a bank (why risk it?), not buy stocks, bonds, or even really loan it to anyone. In fact the right thing to do (if there was anything pinning it's value) would be to first spend all my non-Bitcoin money on necessities, and acquire and sit on, in offline wallets, as much Bitcoin as possible. But Bitcoin is a currency - to even be useful people have to actually use it.
So why don't people do this? For the aforementioned reasons - no one can actually require me to hold Bitcoin to pay taxes or extinguish debts. So just sitting on it is foolish since there's no real way to predict when the irrational market will end - except over the long term, I do know the price must crash since every Bitcoin market participant must eventually cash-out to pay taxes and electricity bills and what have you. So in fact there's nothing holding it up. The only actual reason anyone has to hold Bitcoins is when they get ramsomware'd.
Thank god there is no reserve bank. Markets do a far better job than individual people nearly every time.
Eventually, deflation in bitcoin will be very low and will be only down to people losing their private keys. In practice, I think this will become less common as people realize the importance of having redundant and secure storage of keys, perhaps involving several distinct parties.
If the human population begins to shrink, which is expected after a while based on observations from developed economies of reduced birth rates, then eventually bitcoin may have less demand and therefore lose purchasing power. Before then, we will see demand which far outpaces the rate of supply.
> Which is why ICOs are so popular. Why pay tribute to the original Bitcoin miners when you can just become you're own, recognizing that the only thing holding up the value is irrational in the first place (doesn't mean it's not a real way to get people to part with their money).
Yes, people want to get rich, and ICOs will continue to be a think for as long as people get away with it. I think many people have begun to realize the nature of them though, because they've had their gambles and been left holding useless bags. Some get rich, some lose money. You can't prevent greed, nor stupidity. Some people don't learn after repeated failure, as we see with gambling addicts all over. Those are fine, because they're throwing away their money at government sanctioned businesses. (Unlicensed gambling not OK of course!)
The desire to get rich is not the only usecase for bitcoin though - it is just a particularly prevalent attitude towards the currency because most people do not understand austrian economics and its practical use as a medium to enable free trade in a way that existing currencies do not.
Bitcoin also enables an economy of microtransactions which were previously not possible. People will be able to pay per article they read, per video they watch, in real time.
> Deflationary currency means the currency is worth more against everything in the economy with each passing day. So not only will I not buy a computer with it, I will also not put it in a bank (why risk it?), not buy stocks, bonds, or even really loan it to anyone. In fact the right thing to do (if there was anything pinning it's value) would be to first spend all my non-Bitcoin money on necessities, and acquire and sit on, in offline wallets, as much Bitcoin as possible. But Bitcoin is a currency - to even be useful people have to actually use it.
People will use Bitcoin when they want goods or services from people who accept it. They'll also hodl it, because most of them have a low time preference. Also, given they hold both bitcoin and fiat, they will typically spend the fiat before digging into their Bitcoin. This is Gresham's Law - bitcoin is the better money.
As I've mentioned. People will still pay for goods and services which are useful and valuable to them. They will be more reluctant to spend if deflation is high. If deflation is low, they will probably not pay much attention similar to how people generally pay little attention to low inflation.
Bitcoin is currently volatile and moving between inflation and deflation. It is inflationary when demand is not meeting the supply, which is still increasing. It is deflationary when demand exceeds the rate of supply, as was the case throughout 2017. We will see many more such cycles, because the demand for economic freedom exists, and other currencies are not able to provide a solution to it.
> So why don't people do this? For the aforementioned reasons - no one can actually require me to hold Bitcoin to pay taxes or extinguish debts. So just sitting on it is foolish since there's no real way to predict when the irrational market will end - except over the long term, I do know the price must crash since every Bitcoin market participant must eventually cash-out to pay taxes and electricity bills and what have you. So in fact there's nothing holding it up. The only actual reason anyone has to hold Bitcoins is when they get ramsomware'd.
It is that nobody is requiring you to hold bitcoin which is its main selling point. It is voluntary. There is a high demand for voluntary trade, and it is not being provided by governments. This might be mainly black markets or grey markets right now, but those terms are whatever the government wants to label them, which changes all the time. This can be seen for example in Toronto, where not long ago, the narrative was "drugs are bad." Now it's "cannabis good!" (As long as you buy it from a licensed seller so we can collect some of the money, and if you dare try to sell it without a license, we'll send in the guns).
People are fed up of being told what they can and can't do. If they want drugs, they'll get drugs, and they'll acquire the currency the drug sellers take if they have to. The same thing applies to many markets which the government does not allow because of stupid laws, or because they hold the monopoly which they can only maintain with the use of force.
This is not how deflation works. There's plenty of online material on this subject, you would do well to get familiar with it: https://en.wikipedia.org/wiki/Deflation
>the choice to hold a deflationary currency or an inflationary one, let them pick! We'll see if those economists were right after all when people actually have a choice.
We have them already. They just aren’t called currencies because their price instability makes them somewhat useless as currencies. See: gold.
Right. The deflationary argument is that people won't spend money because the money appreciates in value over time versus the things they would spend it on. Those examples, and there are many others tell a different story. People will buy things which have utility, even if they lose value relative to the currency over time.
>We have them already. They just aren’t called currencies because their price instability makes them somewhat useless as currencies. See: gold.
You say the price of gold is unstable, because you're taking a dollar as your reference point. Dollars are actually far more volatile than gold because they can be printed arbitrarily, where gold is only found in limited amounts. If you measure the value of the dollar in terms of gold, over time, you'll see which is really the useless one!
The reason gold is not used much any more is largely due to the historical practices of confiscation and outlawing of possession. Admittedly, it is not the best commodity to use as currency due to its weight and difficulty to verify the authenticity of.
Thankfully, Bitcoin can solve all of those problems. It can't necessarily be confiscated if you manage your keys correctly. Possession can be plausibly deniable. It doesn't have the problems of transport, and it is trivial to verify the authenticity of. As a bonus, it is well suited to our digital age where much of commerce is conducted remotely.
Kenysian and austrian concepts are not mutually exclusive
The normal funding cycle is this: government issues bond in exchange for cash now. These are treasury auctions and they happen constantly.
There is no injection of money in this process. If you don’t believe that, ask yourself this. Why did the exact same process work when the US dollar was backed by gold?