heh, well I know you know my reason, but for others, I will link to my attempted basic explanation. Heuristically, it would be sort of odd if this particular rather arbitrary method of generating new currency (which is irreversible) provided the optimal quantity of currency. This is especially true in the limit, when the the quantity is essentially fixed.
Actually, now I think I’m going to have to change my mind: I just destroyed ~2 bitcoins by not backing up my wallet when I reinstalled Linux (for the ~10th time) to add a 4th GPU to my rig. Inflate those bitcoins back!!!
More seriously, though, if the actual number/value of bitcoins in circulation becomes a problem for being too low, someone can start another currency with the same protocol. So long as they can achieve the same network affects, the coins will have comparable value and increase the effective “crypto-money supply”.
No, for several reasons. First, part of the premise of bitcoins is to have a known rate of inflation that is eventually limited, whereas the Fed has no systemic rules against inflation in general.
Second, bitcoins are entirely digital. The ease of a transaction for 5 bitcoins is almost identical to that for .00351 bitcoins. Making fractional coins on the other hand would make the system extremely more complicated to use.
You don’t NEED to make more bitcoins because as their scarcity relative to how many people want them goes up, you can simply and EASILY trade in fractional bitcoins to make up for it, which you can’t do if the dollar supply was limited.
1) Bitcoins do not have a known rate of inflation. The demand to hold units of a currency and the quantity of that currency determine its value together. In the limit, where the quantity of bitcoins in circulation is near the limit, so producing more is very expensive, the demand to hold bitcoins is the primary thing influencing the value of bitcoins.
2) The reason mainstream economists think that the quantity of dollars is important is for business cycle reasons, rather than the divisibility of money. Roughly: prices are sticky, so changes in the demand for money relative to the quantity of money have real effects. more.
Oh, I don’t disagree with any of that—but if you hold jsalvatier’s view (and mainstream monetary economists do), you believe it’s necessary for a currency to get, not just more divisions of the money stock, but new “coins” entirely—and therefore don’t like the fact that the currency can’t be inflated. From that perspective, the high divisibility of bitcoins is no reassurance.
stickiness is the only issue, and since bitcoins don’t have built in expectations this isn’t a problem yet. otherwise floating WRT other currencies/commodities is fine.
Now why would they want to do a damn fool thing like that, John? ;-)
heh, well I know you know my reason, but for others, I will link to my attempted basic explanation. Heuristically, it would be sort of odd if this particular rather arbitrary method of generating new currency (which is irreversible) provided the optimal quantity of currency. This is especially true in the limit, when the the quantity is essentially fixed.
Actually, now I think I’m going to have to change my mind: I just destroyed ~2 bitcoins by not backing up my wallet when I reinstalled Linux (for the ~10th time) to add a 4th GPU to my rig. Inflate those bitcoins back!!!
More seriously, though, if the actual number/value of bitcoins in circulation becomes a problem for being too low, someone can start another currency with the same protocol. So long as they can achieve the same network affects, the coins will have comparable value and increase the effective “crypto-money supply”.
That’s true. I haven’t thought extensively about the economics of competing currencies, so I’m not sure what effects this would have.
Sure you have—just think of barter as a species of competing currency. Then, put things on a continuum: from less to more money-like:
direct barter—highly liquid goods—limited-use alternative currencies—mainstream money
Oh, also, drethelin needs the lecture, or least a link to the lecture, on why being deflationary will kill a currency.
bitcoins are divisible up to umpteen decimals, so I don’t think this is really an issue
That’s like saying the Fed wouldn’t see a need to print more US dollars if we could have half-pennies, millionths of pennies, etc.
No, for several reasons. First, part of the premise of bitcoins is to have a known rate of inflation that is eventually limited, whereas the Fed has no systemic rules against inflation in general.
Second, bitcoins are entirely digital. The ease of a transaction for 5 bitcoins is almost identical to that for .00351 bitcoins. Making fractional coins on the other hand would make the system extremely more complicated to use.
You don’t NEED to make more bitcoins because as their scarcity relative to how many people want them goes up, you can simply and EASILY trade in fractional bitcoins to make up for it, which you can’t do if the dollar supply was limited.
1) Bitcoins do not have a known rate of inflation. The demand to hold units of a currency and the quantity of that currency determine its value together. In the limit, where the quantity of bitcoins in circulation is near the limit, so producing more is very expensive, the demand to hold bitcoins is the primary thing influencing the value of bitcoins.
2) The reason mainstream economists think that the quantity of dollars is important is for business cycle reasons, rather than the divisibility of money. Roughly: prices are sticky, so changes in the demand for money relative to the quantity of money have real effects. more.
Oh, I don’t disagree with any of that—but if you hold jsalvatier’s view (and mainstream monetary economists do), you believe it’s necessary for a currency to get, not just more divisions of the money stock, but new “coins” entirely—and therefore don’t like the fact that the currency can’t be inflated. From that perspective, the high divisibility of bitcoins is no reassurance.
stickiness is the only issue, and since bitcoins don’t have built in expectations this isn’t a problem yet. otherwise floating WRT other currencies/commodities is fine.