But the fact dogecoin is inflationary is interesting. A currency needs to be inflationary or people hoard it instead of spending it, see bitcoin for an excellent example.
After rereading the article, I now understand that you were referring to this quote in the article : "The circulation number is not enough".
You are right, the fact that it's divisible render this point moot. I thought you were saying that dividing coins somehow decreased scarcity (Yes, I've seen many people argue that, believe it or not).
Original comment below :
I find it really mind boggling that some people don't understand that dividing a pizza into 100M pieces does not give you more pizza.
The number only matters as long as it can subdivided sufficiently to buy the smallest priced thing.
You're thinking of it as a fixed sized pie and thinking dividing it doesn't make a bigger pie. But it's not fixed, the whole pie can grow as bitcoin increases in value. It's up to one trillion dollars now.
Why would I even buy the smallest priced thing with deflationary bitcoin, when I could instead hoard it and wait for it to increase in value?
I think most people who have ever used bitcoin as a medium of exchange have kicked themselves when they realized how expensive that thing they bought was at current (very high) exchange rates.
Given the inflationary dollar, you probably wouldn't, but otherwise, you'd need to transact at some point.
Perpetual debt against assets is a common trope in tax avoidance. People do use/abuse this. If enough people abused it inflationary money would fail.
Deflationary money isn't bad, but the common belief says it is. One example that changed my mind was business investment.
Why would you loan money to a business if the money itself might be worth more later? Well you probably wouldn't. Instead, you'd buy a share of the business itself.
We've all live in a system of inflationary money and were educated by a system that teaches it's use. We should acknowledge our bias here and keep an open mind.
The problem with that is that deflationary money isn't exactly a new idea. It's been tried before, it's workable, but it has problems. However, it is an idea that favors people who already have lots of money over those who don't, which has fueled background level nostalgia (and nostalgic propaganda) for the idea.
Bitcoin had some genuine innovations, but that doesn't mean all the ideas that were baked into it were good ones.
Not arguing... Legitimately asking. Outside of gold or other materially limited resources, what are some examples?
> it is an idea that favors people who already have lots of money over those who don't
Please elaborate on this. Particularly in comparison to our current debt->create system that seems to benefit those with enough to loan.
The arguments surrounding deflation aren't necessarily wrong but it's hard to gauge the actual effects of it in practice at this stage where market forces are way more impactful.
I'm not saying the price can't increase, I'm saying that dividing coins does not reduce scarcity.
Edit: Updated my original comment, turns out I'm the one who misunderstood your point. We actually agree.
The dollar point feels more like word play. In retail there is a lower bound limit for dollars and this is 0.01 dollars. Not so with Bitcoin transactions.
If 0.00001 of bitcoin etc. Is viable tender then simply put the limited supply of bitcoin might be misleading.
In the US, fuel stations price in tenths of a cent.
Google Cloud's per-second billing prices resources with a millionth of a cent precision.
One troy ounce of gold consists of 3.36x10^27 atoms.
There is not an infinite supply of Bitcoin, dollars or gold just because you can divide them into arbitrarily small pieces.
Again (for the third time) are you aware if fractions of bitcoin can be sent from one account to another? Or does it have to be one whole bitcoin?
Again I don't know.
I'm just thinking theoretically you could convert bitcoin into bitcoin_plus and these coins represent 0.0001 of a bitcoin. And tada you have 100 million coins in circulation etc.
This sounds sustainable. /s
It completely depends on if it finds a sufficiently broad use case or not. So far, not.
It matters a little in some hypothetical world where we're actually using crypto instead of fiat currency. If you replaced all USD cash reserves with bitcoin, a Satoshi would have the same spending power of around 1.3 present day dollars. That's a kind of course unit, especially if we want to subdivide it into transaction fees and whatnot.
If the supply increases in perpetuity, that is inflationary, just at an increasingly lesser rate.
No, not at all. All you need is a sufficiently high rate of interest. The higher the rate of interest, the more you miss out on if you hoard instead of lend.
In other words: You won't get high interest without high inflation.
Also, the correlation between a rising rate of interest and rising prices is much better than high interest/high inflation . For example, from 1990 to 2000 we had relatively little inflation but the rate of interest was 5-8%.
(There are a bunch of studies for stock and property returns, or for treasuries like you linked, but that's something quite different).
I think it would be interesting to see the result, but I don’t have the data unfortunately.
Also if lending becomes more profitable than hoarding everyone offers to lend which obviously pushes lending returns down. So in the end there will be a balance between lending and hoarding but both will return profit so there is no reason to buy something today if you could buy it cheaper tomorrow. The effect for this is exactly the same with or without lending.
It wrecks the supply chains because it becomes financially acceptable to run out of stuff rather than buy reserves and any long term investment becomes high risk. Maintenance becomes irresponsible waste of money you'd rather wait until something breaks than pay upfront to keep it running.
Essentially it slowly slows down and destroys the economy as we know it. All while people get "rich" and think it doesn't affect them because "money can buy you anything" until something essential can no longer be bought no matter how much money you have then the whole thing collapses because the money turn worthless if the real buying power turns out to be zero.
At some point people will spend it, it just won't be the artificially early spending that fiat forces us into.
That would cause the aforementioned economic collapse not to happen at all...
In such scenario the smart person is not the one who postpones gratification by storing the marshmallow, but the one who eats it now because there is no future
It's really interesting, BTC moves the analysis from balance sheets to people's psyche.
Correct, although also incorrect because both of these limits are arbitrary and human made and can be changed any time. Its an absurd belief that this is somehow "set in stone" its not, its written in code, code that humans can update whenever they want.
Absolutely nothing stops people form making something smaller than a satoshi. We just dont know if the majority of the miners will accept the change to the code. If not it can only be applied to a fork which the majority then will declare as "not the real bitcoin". But every time bitcoin forks, the number of "bitcoins" grow whether an individual declares the forks as not real doesn't really matter.
I don't think people are going to starve to death because they know their coins will buy more food next week. But if it stops people spending on unnecessary things, is that such a bad thing?
you're missing the demand curve. As fees increase, transaction volumes go down, until there's an equilibrium. The opposite occurs as well: if transaction volume dries up, the demand for block space will decrease and eventually the fees will drop.
If bitcoin was to be the dominant currency, it needs a lot of mining to secure the network, otherwise attacks would be very appealing. But a lot of mining means a high transaction fee.
1. Have liquid cash for spending
2. Emergency money where you're willing to pay the interim exchange for security
- Doge is the best performing asset class of the last decade.
- Doge is the best performing asset class of all time.
- Doge has lower transaction fees ($1.24 vs $20).
- Doge has 10x as many blocks, so much more capacity.
- Doge transactions are much faster.
- Doge has a dog on it.
Frankly it's better in every way than Bitcoin and this makes the maxis very sweaty. It's making them scared for their paper windfalls.
BTC was $1 in 2011, so 50,000% gain in a decade.
Definitely not better performing of all time, as before 2011 Bitcoin was also worth pennies at various points (just like DOGE). Except now BTC is worth $50k and DOGE is worth $0.30.
With regards to "all time", DOGE has more units but its market cap is still lower than BTC (in fact its 5th best by market cap), so I remain confused as how it is the best performing asset class of all time.
In any case, ETH is better performing by all metrics compared to DOGE. Infinite performance since 2011 and a higher market cap.
Would you be willing to use it?
No worse than NFT's, sure, but NFT's are crazy.
Many countries who manage their money supply have wildly unstable currencies. Turkey for example.
On the other hand many economists belive Nobel Prize winner Milton Friedman's assertion that "Inflation is always and everywhere a monetary phenomenon" (more economists disagree with this probably, my point being that these are not settled matters)
And we have absolutely zero long term evidence of how currencies with pre determined supplies behave.
So, sure, state your case, you might be right, but don't make it out to be like this is some law of physics.
This is true, Erdogan decided to take control over the money supply, which is generally the job of the central bank which is an independent branch of the government. Countries with independent central banks usually have stable currencies.
>On the other hand many economists belive Nobel Prize winner Milton Friedman's assertion that "Inflation is always and everywhere a monetary phenomenon" (more economists disagree with this probably, my point being that these are not settled matters)
What Turkey needs is reforms and financial aid for the agriculture sector not control over the money supply because "inflations" aren't caused by interest rates, they are caused by shortages in the relevant sector. If there is enough food for everyone, then food inflation will go away and it could go away despite the money printing.
Under EIP 1559, each block will burn ETH — the amount of ETH burned increases as blocks fill up. The ETH burned can offset & exceed the ETH block issuance.
Over time, if ETH block space is full, the amount of ETH will decrease.
There is no equilibrium at either everyone being a spender or everyone being a hoarder, thus the self-balancing nature.
And I don't think it can be. Economics is ultimately the study of people's behaviour, and that is subject to irrationality, emotions, culture, and times.
I agree there are a lot of people involved with Bitcoin that have trust issues (justified or unjustified... you be the judge) but this statement is a generalisation.
Currently cryptocurrencies are the only way for me to be the custodian of my money in a digital form.
If I leave money in the bank while I save up for a deposit for a home loan at the moment I get basically no interest and the bank gets to loan around 17x that money to others to buy residential property.
Meanwhile the cost of housing is increasing because those who have sufficient funds in their account are better off parking that money in the property market (with or without an accompanying loan)
Can you see why people want out of this perverse system?
Oh silly me. Here I was thinking that it had something to do with the cheap debt available (courtesy of government, banks and my savings for a home loan deposit), negative gearing and lax foreign investment laws that incentivise individuals to purchase residential properties for investment purposes.
Like I said. I just want to be the custodian of my money in a secure digital form so that it cannot be used against me. Why is that so unacceptable?
"3.(economics) A decline in the value of money.
4. (economics) An increase in the quantity of money, leading to a devaluation of existing money."
This comment implies price instability taking USD as a reference. Who cares what is the USD value of BTC? Once all coins have been mined 1 BTC will always represent the same fraction of the total supply of BTC, i.e.: 1 / 21,000,000. This is not true for any of the fiat currencies.
If we take gold as a reference then USD lost 95%+ of its purchasing power over the last century.
Source (one of so many): https://www.officialdata.org/us/inflation/1900?amount=100
As for central bank paranoia, opening a history book should help (keyword: uncontrolled inflation periods + Germany || Hungary || Yugoslavia || Greece || France || Venezuela || Iran || Turkey and I am sure I miss plenty I am not aware of). There's a good reason why the EU has removed this power from its member states to give it to a central bank uncontrolled by the political power.
If one does not want to look at history then simply looking at FY2020 and how much USD currency have been debased should help:
Make no mistake, large corporations with billions of cash on hands start to understand that if not invested, that money is worth less and less year after year and at an unprecedented pace.
Bitcoin adjusts its supply automatically and without interference from a governing body. It is deflationary since it's supply is capped and because it's purchasing power increases continually.
> Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. 
It's not a strange paranoia. Do you know how many currencies go through hyperinflation and die?
The list is much longer than currencies that have lasted 200 years.
More stuff + same money supply = lower price per stuff. The math is unavoidable. Governing bodies don't play a role in that.
And then the question is, well, is the coin more or less valuable when it is held by more people? It seems to me that it would be more valuable, since there would be more people using it.
So even if the immediate effect of the whales cashing out was to lower the price (to something above absolute zero, assuming there will still be buyers), the long-term effect would be more adoption, and increased value.
I'm sure there are holes somewhere in that logic, feel free to point them out.
Supply is only half the puzzle. No cryptos actually take into account supply and velocity when attempting to control inflation which is something any economist would tell you is trivially flawed.
Substantially every crypto talking head conflates supply increase with inflation, but they are not the same thing, not by a long shot.
Or maybe they're not solely interested in causing inflation, and are concerned about other effects as well? eg. preventing hyperinflation. If all you wanted to do is cause inflation, you can do so very easily with helicopter money.
However, Japan makes me wonder why it is a problem in the first place. I mean, why does a problem need helicopter money as the solution? Why is no other method capable?
Consider this, if you increase the money supply and inflation doesn't happen, then there must be a deflationary force that is equal to the newly created inflation caused by increasing the money supply. This could be enough explain the ineffectiveness of low interest rates (debt must be paid back and therefore no inflation happens) but it is not enough to explain why QE didn't work because the Fed can sit on financial assets forever, if necessary.
: fixed over the short run.
Also prices are sticky and velocity is irregular. Pumping out money is not going to increase prices in the immediate months following regardless.
Inflation shows how much prices have risen in a given year, not how many new dollars are in circulation.
You can measure inflation in the US economy using any currency - gold, USD, BTC.
The earlier definition does not match observable reality.
If what you are interested in is money supply, and you call that inflation, then it doesn't matter what you do with the money, you can store it, you can burn it, you can spend it, is all the same. It doens't matter if prices go up either, that is irrelevant under this definition of inflation.
Inflation used to mean money supply. Inflation now means price increases.
People thinking they are talking about the same thing when they use the word inflation is where the confusion is coming from.
False: "Everyone in the crypto world believed that this virtual coin would one day change how we use money. It will free us from governments and banks’ control over our financial system. But that goal no longer exists in the crypto world."
False: "The circulation number [of bitcoin] is not enough."
False: "As of this moment, Bitcoin mining is not profitable anymore, including the Bitcoin rewards."
The value of a coin is determined by the expectation of selling it in the future at a higher price, nothing else.
These expectations are affected by the supply level only via auction dynamics: lots of newly mined coins in a short timeframe tend to result in big sell orders and downward pressure on the price.
That's an effective but also very limited way to impact the price.
For instance the increase in supply of a non-speculative asset reduces its marginal utility: the more oil available the less useful it becomes.
But there's no theoretical limit to the price of a coin and therefore no limit to the return one can expect!
As it's all about auction dynamics, a highly inflationary speculative asset with well-timed and strategic increase in supply could very well defy any macro supply-demand logic.
stopped reading here. People have hoped to profit from bitcoin since the beginning.
And while there probably aren't a lot of crypto people thinking that BTC will become the medium of (common) exchange, ending government fiat control of currencies is certainly a primary concern among people in the space, and many are building "layer 2" solutions (such as Lightning) with the goal of facilitating smaller and faster transactions and using bitcoin (or other) as the settlement layer.
Just 18 more months, my friends. It'll work as designed in 18 months from wherever you are in time.
As an asset, at some point, all the money that will go into it will go into it, and it won't grow anymore, the get-rich-quick game will be over, and people will start to sell, and the price will crater. This can even by triggered by the $30 billion dollars in new money required to pay miners each year.
LN is perfect because unless you squint it's a plausible attempt to solve some of the limitations of the underlying asset.
But here in reality, opening and closing a single LN channel for everyone on earth would take over 150 years. It would cost 1/3 of a trillion dollars in transaction fees. If you broadcast an old wallet state you'll lose your coins. If any intermediate node goes down, it'll lock up your funds. It suffers from terrible illiquidity.
The same number of channels now as 3 years ago. Usage is not growing. It's not a viable solution. It is, however, great distraction.
Just 18 more months!
It’s indistinguishable from cash app to the user. Except that it works internationally and very low fees. It’s better solution than cash app but with crypto (abstracted from the user).
I mean they don't even allow anyone else to connect to their lightning nodes.
 oh I get it, they don't want to register as money transmitters haha, it's just to avoid regulation.
It’s using the Lightning Network to replace traditional interbank networks like Swift. Or ACH (at least for outgoing payments) If you don’t see this as a valuable thing, I’m sorry.
It also allows arbitrary payments to lightning invoices denominated in USD, you can pay any user of the app, or any lightning invoices.
You don’t need to connect to lightning nodes - it is a network and if you need to route through them, it will.
Why bitcoin? Because they don’t need to maintain a liquidity pools and use swift to balance the USD pools. They can use cheap LN payments to instead of swift for settlement. Note that LN is unfairly cheap to use. An order cheaper than swift.
It's designed to be a fundamental building block that can be configured and built on top of in many different ways, some of which will be ease of use for a non technical end user, though that will still take a lot of work.
It might be the case that self custody of coins is just unavoidably hard, and only those willing to go to some abnormal effort can realistically "be their own bank". But no crypto has solved this. Self custody is just intrinsically complicated and riddled with pitfalls.
Also don't let Lightning fool you. It still doesn't work and is forever 18 months from ready. Its developed and run by a private company and is very centralized, how is that better than fiat or anywhere near what bitcoin's white paper laid out?
And yet we laugh on flat Earthers. Look at what I found here.
This could work if you were only making transactions with people you trust, at least in the short term. The main risk here is anyone with the private key could transfer the contents of the wallet. The seller could even sell the same wallet to multiple people. So you need to get the blockchain involved and transfer it to a wallet that the previous seller no longer has access to.
add a few more steps (to prevent your counterparty from cheating you) and you got the lightning network.
This is: https://fred.stlouisfed.org/series/BOGMBASE/
That source seems to be "U.S. city averages" (relative) while your source seems to be " Monetary Base by Millions of USD" (absolute). You'd have to convert it into relative values in order to compare it I guess.
I remember having them on my computer, but can't find them.