While a bitcoin may be worth $nnn, is that the case for 0.0005 bitcoin? It could develop that the little pieces are seen to be a liability, and people might decide they're worth less than 0.0005 * $nnn. Which creates the 'risk' you're looking for.
If John's $45,000 house and Jane's $4.5M mansion are built in the same year and equally subjected to wear/tear, 20 years the value of John's house is probably less than 1 percent of Jane's mansion.
Re:Bitcoin Is Fundamentally Flawed
by dragonwriter on Monday April 08, 2013 @06:59PM
(#5515286)
> While a bitcoin may be worth $nnn, is that the case for 0.0005 bitcoin? It could develop that the little pieces are seen to be a liability, and people might decide they're worth less than 0.0005 * $nnn. Which creates the 'risk' you're looking for.
I'm not looking for risk. I'm pointing out that a currency that appreciates in value when you stuff it in your mattress makes you far less likely to lend it out to someone and assume the risk of default, especially at interest rates that will be attractive to someone who is going to be uncomfortable paying it off even without interest, since just paying of the original loan value (denominated in the appreciating currency) without interest will mean paying over time many times the value (in purchasing power) of the original loan over its life.
From the borrower side, the "you owe less over the life of the loan" option mitigates the effect of deflation on the viable of borrowing, but it exacerbates the problem it creates for lending. Specifically, if the the BTC I have in my pocket today is going to be worth 10 times as much tomorrow, what's my incentive to lend it at all? I've got a strong return without default risk if I just hold on to it. If you propose something that reduces the lenders BTC-denominated payments over the life of the loan to account to mitigate the effect deflation has on the value they are paying back, it makes it even less attractive for me to lend the money.
> Inflation is built into the current model to encourage investment and prevent concentration of capital.
Inflation doesn't prevent concentration of capital (it prevents hoarding cash, but by doing so encourages concentration of capital.) Things like progressive taxation of income are intended to prevent concentration of wealth (but this is undercut by things like favorable tax treatment of income derived from capital compared to income derived from labor.)
> Not to say bitcoin is the solution, but it's something different.
That's a bit like pointing to imperfections in representative democracy caused things like gerrymandering, and then saying "I'm not saying that hereditary monarchy is the solution, but it's something different."