Excessive hoarding is obviously dangerous to a currency though.

Imagine a fixed supply of 1.000.000 coins and suppose 99 people managed to nab 10.000 coins initially and are just sitting on them.

The bitcoin economy will then run as though the remaining 10.000 coins is the entire economy, but 99 people will have spending power equal to the value of the entire economy.

First, Moore's law is technological hyperdeflation. Your dollar buys more computer power in 18 months than it does today. Yet people still buy computers. And computers are the one bright spot in this otherwise Fed-bubble-governed economy.

Second, a deflationary currency is inherently viral. The more people in it, the more valuable it is.

Third, 99 median powers are better than one government having power over the whole world currency. Power over the economy is linked to the capacity to delay gratification, rather than the ability to maintain a monopoly on counterfeiting dollars through violence against alternate currency providers (see Executive Order 6102, Bernard von Nothaus, e-gold, et alia).

In your scenario, spending by those guys would drive down the value of the currency. But they couldn't do so to an infinite extent; at best one guy could devalue it by 50%. USG by contrast has devalued the dollar 96% since 1913. Moreover, their purchasing power will rapidly decline as they sell more and more off. Finally, the blockchain will show the global distribution of holdings, making "monetary policy" of this kind more predictable than the opacity of the Fed.

People have gotten into this mindset that inflation and infinite debt are good. But I'll go with something backed by computer science over macroeconomic pseudoscience anyday. At best, consider this a controlled experiment, Satoshi vs. Bernanke. I know what side my mine is on.

Computers are in no way deflationary.

They're manufactured. Better ones are made. There are so many computers in the world now compared to demand that their value has simply inflated away, making them accessible to everyone.

If the computer market were deflationary, then computers would really only be affordable by the 5 richest men in the world.

You seem to under the mistaken assumption that money itself is an investment. It's not. Investments produce value - which hoarding money does not. Neither does hoarding computers for that matter. The moment you buy a computer it decreases in value, so unless you use it productively it really is just inflated away - much faster then your money is.

Let's focus on a single parallel:

True or false: under Moore's law, your dollar can buy K transistors today and 2K transistors in 18 months (ignoring inflation for now). Nevertheless, people do buy and sell computers in immense volume.

True or false: under hyperdeflation, your bitcoin can buy K dollars today and (at least) 2K dollars in 18 months. Nevertheless, people are trading Bitcoin in large and exponentially increasing volume (see blockchain.info/charts).

Now, I agree that the mechanisms behind the deflation in each case are different. Technological improvements are behind Moore's law while Bitcoin's ramp is due to the controlled currency supply. But what I'm getting at is that we've already faced a situation in which people could "hoard" dollars indefinitely to buy an increasingly valuable asset, namely computer power. The empirical result: they don't hoard indefinitely despite this exponential rise. In fact, they buy by the billion.

Computers do not increase in value with time. The relative value of your money with respect to the computer market increases. But your money is subject to inflation, and interest, and other markets - computer purchases can be valued against the interest accrued in not buying a computer vs the expected returns of doing so. Which, if you don't have a computer, might be forgoing a massive amount of return profit (starting a startup, running a home office, being entertained).

Deflationary currency is a very different matter entirely. Because the currency gains value relative to every other thing you could spend it on. Money you might spend on a computer, does not.

These situations are not analogous in the slightest.

If you want to treat computers as a currency (money-like object), then the reality is that computers are a currency experiencing hyper-inflation. They don't hold any value at all, to the point that people consume them as commodities instead.

Agreed!

And he also conveniently forgets to mention that computers increasing in power comes from research & technological advancement.

Both these things are possible because of investments. Why would someone build a 2b$ factory to produce new chip when they could sit on their money selling the same chip forever.

The only reason prices get so low in the first place is that no one wants to buy anything. The same amount of goods is now divided among much fewer people. Which makes the people who aren't hoarding incredibly rich at the expense of the hoarders, since the hoarders aren't getting any of it.

The second the hoarders "cash out" prices go up back to normal to cover the increased demand. They only gain insofar as the actual amount of goods in the economy increases (which is natural deflation.)

And in a real economy most people who save money do so by investing it or putting it in a bank, which lends out 90% of it back into the economy anyways. At the end of the day, the loans are paid back and they get the same amount of bitcoins back, so its all the same to them, but they also get interest.

The analogy I like is that traditional currencies work in the same way, the money supply is the 10,000 coins and the central bank represents the 99 people and has the 1,000,000 coins. (In practice they have an infinite amount but whatever)

In traiditional currency systems the central back adds more money to the supply by buying financial products

In your scenario the 99 people add currency to the money supply by buying whatever they opt to buy.

The differences are that the central backs can print as much currency as they want rather than being limited to what they bought earlier and that it's many people vs one institution with some mandate to keep the currency and economy stable.

That said, if I was one of those 99 I would be careful and probably collude with the other 98, if I tried to cash out too fast I would collapse the value of bitcoin and the rest of my investment would be rendered valueless. So they do have an implicit motivation to preserve stability.

You actually have an incentive to collude and carefully manage the market, then crash it and buy all the money back and go back to hoarding it.

With sufficient deflation, you end up spending less on necessities (food) then the rate of increase in the value of your horde. Making you the permanent upper class, and making everyone else the permanent lower class. It's a return to feudalism.

"Buy an economy" is a meaningless term. They can either buy products and services or invest. And this is dangerous why? If they decide to start spending their money, this would indeed mean temporary inflation as the money supply circulating would increase. But this also means that they themselves, the rich ones, will lose a lot of the value of their remaining money. Also, they wouldn't be able to spend it all at once, so with each new chunk of investment the value of their money will be less and less and less.

The truth, as it turns out, that in a deflationary system rich are only rich as long as they don't spend too much and invest wisely. Thus the incentive is there to continue hoarding, even though this incentive is quite different from the incentive of the poor: for the poor in a deflationary system the incentive to hoard is making money. For rich the incentive is not losing them.

I don't think you're thinking this through properly. The same loss of value will happen no matter how they spend or invest their money, so a rational wealthy person should conclude that it was never really "worth" the face value in the first place. (What good is money that only holds its value if you never spend it?) So that's not an incentive against spending.

It's not really a left or right thing. You have to have inflation via devaluation of currency to fuel investment.

In a fiat system based on devaluing currencies and inflating prices, money shrinks if it is not moved, invested, paid interest on. Why invest otherwise? Just have a feudal-based gold backed system and sit on your gold like a king, loans will lock up creating depression without inflation/interest over deflating reserves to fuel investment.

This is why non fiat currencies or gold backed would put too great a power in mining kingpins like oil does on groups like OPEC. I'd rather have the inflationary system controlled by bankers or algorithms that can keep economies going when they lock up.

A fiat currency where the rates are a throttle mechanism but the throttle has to be watched closely and as public as possible for trust. A currency bound to a physical thing like gold is no longer a good system.

Bitcoins, adjust in currency and value by mining new circulation via algorithm/time/market.

"The money supply is automated and given to servers or "bitcoin miners" that confirm bitcoin transactions as they add them to a decentralized and archived transaction log approximately every 10 minutes." - devaluation built in, we'll see if it is is enough of a lever and who controls the lever or spigot as they say with oil, that sets the price. More importantly, who do you want controlling that?

The article has a great circulation graph that shows it is almost linear, is that enough to make it through large crashes? http://blockchain.info/charts/total-bitcoins?timespan=all... Will it draw slow circulation if there is a crash? Will it pick up circulation if there is too big a bubble? This is where a centralized oversight starts to look good.

Best thing about bitcoin markets, they never close! No after hours shenanigans and rushes at open and close.

  You have to have inflation via devaluation of currency to 
  fuel investment.

Incorrect assertion presented as fact. Why does anyone invest in hyperdeflating computer power, which rises exponentially in value relative to the fiat dollar? Inflation disincentivizes investment in the asset losing value in real terms, namely dollars. People are flooding into bitcoins because they have the opposite trend from dollars. And yet they will spend on things they need, rather than things they want, just like people still spend on computers. Hyperdeflation followed by moderate steady deflation means the death of the 30 year mortgage, the student loan, and all the other mechanisms of debt slavery. Deflation incentivizes production over consumption, savings over debt. These concepts are alien to the America of 2013 but weren't always so.

Just like anything, you have to have the right balance of deflation/inflation in the market + devaluation of currency. This is why the throttle is key, who controls it, on what basis. I think this is the exact opposite, I think devaluation of a currency over time allows markets, investment, loans to thrive. If your money is shrinking you have to invest, the market will beat the mattress stash over time always due to this.

When you invest you create bigger dollars. Someone paying interest their actual value of their dollar might be .85-.95 where the person collecting 5% interest is collecting 1.05 during that same period simply by investing rather than money sitting at 1.00 doing nothing or shrinking due to devaluation.

I sum it up as this, poor people pay interest, rich people collect it. Without devaluation of currency and if the currency just naturally grows at a rate at or higher than inflation or deflation for too long, why invest then, why take the risk if your money grows without investing? The feudal gold conundrum - the mere fact of people being born makes you richer because they have less and there is limited supply? Supplies have to increase, thus currencies have to be devalued. Devalued currencies lessen risk of investment because if you aren't investing you are holding smaller dollars over time. This fuels products like the 30 year mortgage even more, without this banks wouldn't loan as easy. People don't invest as much in deflation because they are overpaying or buying high, holding onto cash is better during those times, so increasing circulation and spending actually fuel investment due to devaluation. It is all a balance and has and will continue to evolve, it works for the most part with fiat levers to get through turbulence and momentary irrational behavior.

Heh. I don't get what you're so exited about. There's 2 possibilities. 1) You're wrong 2) You're right

Now let's analyse the situation: 1) pretty obvious. Everyone who invested into bitcoin loses a bundle. When media attention dies down for some reason, or negative attention comes (e.g. a -partial- hack of bitcoin, last exchange shuts down, ...) the value crashes to zero.

"Debt slavery" continues.

2) Exactly what you claim happens will indeed happen : "People are flooding into bitcoins because they have the opposite trend from dollars". If this is true, then nothing will be able to stop it, and bitcoin will win over traditional currencies.

This will be followed by exactly what you say "the death of the 30 year mortgage, the student loan, and all the other mechanisms of debt slavery. Deflation incentivizes production over consumption, savings over debt".

Now let's assume you're born to parents with average wealth worldwide in a world where bitcoin is the only currency, and loans are impossible, due to the savings imperative of bitcoins. You can't get loans.

Everybody who today can't buy a house without a mortgage will have NO WAY to buy a house (saving houses will be just as imperative as saving bitcoins, and leaving them in your own property will be more valuable than ever selling a house). Result : most of "the 1%" does not even have financial means to buy a house in anything within 50 km or so of any major city.

You can't get student loans ... but that does not lower the cost of getting an education. So what happens ? Again anyone outside of "the 1%" cannot get anything but basic education for their children, if that. Keep in mind that we're not even 50 years removed from a time when my family could only get high school level education for ONE child (and the church paid for my father's university studies), the others would never get anything exceeding 7th grade. Even sending one child to university required both parents to work, work better jobs than most in their town could get, AND 2 children to work. This did not enable them to provide comfortable education (own room was completely out of the question).

The cost of an education beyond 12-13 years of age is essentially 20-25% of whatever wage you earn, not in a year, but in a LIFETIME. (because you'll be studying from 13 years up to 22-25 years, depending, which are years you could be productive. You were expected to be productive from 13 to 55 or so. So it represents ~25% of your lifetime wage to send ONE kid to school).

Even that 20-25% is assuming that everybody earns essentially the same, which is obviously not true. Let's say that you earn 50% less than what you would earn given that every job, president or cow herder, would give you the same amount of money. That makes the cost of sending one kid to university 50% of what you earn in a lifetime, give or take.

In other words : no university education anymore, except for the superrich.

Now in option 2 you might think that you'll be among the superrich. But we've had this situation in history many times, with limited money supplies. It can be summarized easily : it takes 30-50 years for the elite to shrink down to less than 1 in 100000 people, after which there is a revolution where all those rich are decapitated or worse, and we start over with a new set of rich. Are you really sure that when you take the 100000 people around you, that you are the best businessman/negotiator/... whatever makes one rich ? I can believe you can best 10 people, 100 if you're good, 0 if you're a geek. Best in 100000 ? I don't believe that.

Even if you do become part of the superrich, read some accounts of the french, russian, or various eastern european revolutions to read what happens to the rich after maybe a decade of luxury.

Also please keep in mind that the wealth debt slavery provides (the "value", the thing money's supposed to represent, but is not equivalent to) is vastly more than the value that is provided by mercantilist or feudal systems. The superrich in the bitcoin world will not have the standard of living that todays debt slaves enjoy, with one exception : their ability to hire others. Humans (and human life) will be cheap. A private tap with running water (not warm) requires being in the 1% richest. Computer access is effectively limited to 1000 people worldwide. Private computer access will be unheard of (fortunately, this will obviously destroy bitcoin).

Bitcoin represents a return to the monetary system of the dark ages. It may win, but that is not the outcome anyone wants to see, at all.

I'll take debt slavery, thank you very much. So will the rest of the 99%, and if you use bitcoin to drive it to the point where it takes killing anyone who own bitcoin to restore debt slavery, it is a matter of time until we call your bluff.

Of course, knowing human nature we'll pick option 2 and start killing eachother after a decade or so, and then a century later we'll resume the debt slavery thing and know a century of progress again.

You seem like you are interested in a reasonable conversation. I'll do my best to tamp down the rhetoric and go a few rounds if you're game. Let's start with this:

  Everybody who today can't buy a house without a mortgage 
  will have NO WAY to buy a house

This is the root of our disagreement. Our fundamental premise is that housing is artificially expensive because Bernanke is printing 85 billion dollars per month to buy mortgage backed securities, diluting you down in real terms and simultaneously bidding up the prices of houses and enriching the banks. QE makes the banks richer and you poorer.

In the absence of this artificial demand, house prices come back down to much more reasonable levels. And you won't need to go in debt to buy a house (people had houses before mortgages existed, just like college used to be less expensive!). A sharp drop in housing prices is where the market was headed after 2008 until Bernanke started propping up prices with endless rounds of QE (literally endless, QE4 is to continue indefinitely.)

So: do you agree with the premise that housing prices will decline if Bernanke was not printing $1T/year ($85B/month) to buy mortgage backed securities? And if not, why not?

Sure people had houses before mortgages. They had sucky self-built houses on land they didn't own but rented, and nobody had any incentive to sell land, especially not to small time buyers. The UK still has the remains of that system, though there it's watered down enormously.

Do you agree that bitcoin massively disincentivizes spending anything but tiny amounts of currency ? Or at least, that it would have that effect if it was the only currency.

Hoarding is not saving.

Saving generally involves investing, the money is used in a variety of other ways. The money grows (hopefully ahead of inflation) by being used to fuel growth. Savings that are not invested slowly lose value, a good incentive to either invest or spend and keep everything flowing.

Hoarding BTC is much the same as stuffing cash into a mattress, it's totally unproductive. A currency that rewards hoarders is not useful.

Also this is not a left-right issue. You'll find many on the right who are in favour of a small, controlled amount of inflation.

When I first read you saying;

> And now we are finally going to have an empirical test where the left can't wave a gun at the right to force them into inflation.

I thought you were being hyperbolic, and then a few responses down;

> I'll take debt slavery, thank you very much. So will the rest of the 99%, and if you use bitcoin to drive it to the point where it takes killing anyone who own bitcoin to restore debt slavery, it is a matter of time until we call your bluff.

I can't believe that there are people that honestly hold this position and are completely OK with it, give me debt slavery or I will kill you or die trying.

Fuck this species.

The Left, in fact, is anti-capitalist entirely. Please stop trying to build false dichotomies to support your right-wing views.

Oh, I agree with you, though this is not often explicitly admitted after the late unpleasantness of 1917-1991. Bernankeist inflation seizes money for the central government slowly via dilution, while the USSR/Maoist PRC variety seized it more overtly. Same leftism, only a difference of degree. Though with Cyprus we begin to see chronic Bernankeism drop the mask. With Cyprus we begin to see the anti-capitalist core come to the surface: "all your moneys are belong to them". 100% seizure of all bank accounts over 100,000 is de facto communism.

But the anti-capitalists need to understand that they are soon to be completely undone by technology. It is going to be impossible for central governments to seize wealth once Bitcoin ramps up, just as defcad.org has made it impossible for them to seize guns. The universities? Nuked by MOOCs. The media? Bankrupted by the Internet. All the left's citadels are aflame.

And it is glorious.

Actually, you're continuing to operate according to the idiotic American Rightist definition of "the Left": "THEY WANNA TAKE OUR MONIES, OH NO!"

Yeah, no. Cryptocurrency presumes a proprietarian-capitalist legal system in the first place.

Capitalism is about private ownership of the means of production. Its financial superstructure can and will vary.

For that matter, his portrayal of the right is oversimplified, but that's politics for you.

Saving and hoarding are not the exact same thing. Saving is invested (on any variety of forms and risks), meaning that it is actively used in the economy to (at least try to) generate more value. Hoarding is just sitting on top of it, which is not a great for economy.

Unfortunately, this notion of saving is based on a rather antiquated understanding of how banks work. In modern banking, lending is not constrained by the amount of deposits or reserves that a bank has. The only thing limiting the amount of loans given out are capital requirements, and of course risk/return considerations of the bank.

The result is that putting money into a savings account of a bank does cause the bank to increase its lending volume.

Rather, the amount of bank lending is determined by how many willing and credit-worthy borrowers approach the bank. This in turn depends much more on the overall state of the economy (e.g., whether households are confident enough in the job situation to take on a mortgage, and whether businesses are confident enough of future demand to expand).

Note that saving actually tends to be a drag on those factors, because the first-order effect of increased saving is a reduction of aggregate demand.

The reason some economists believe that saving is good at a macroeconomic level is that they believe interest rates will adjust to such an extent that banks will be approached by more willing borrowers. The problem with that notion is that loan demand is not actually all that sensitive to interest rates. Even worse is the fact that (nominal) interest rates cannot drop below zero, and (real) interest rates cannot drop below minus the rate of inflation. This makes the conservative position on the economy (disregard the demand side and target low inflation) completely untenable, but I digress...

Fuck yeah. Great time to be a cypherpunk.

'the right prizes deflation' - clearly you know what you're talking about, not.

Deflation is the worst nightmare of every government - all governments, pretty much, want low steady inflation so people keep spending money (ie not whats happening in Japan for 10 years - which they are now fixing).

I think you are completely wrong: in your characterization of the left, in your characterization of the right, and in the ability of governments to affect the use of bitcoin. But you've got an interesting viewpoint, so you've got my upvote.