Thanks Ram. I wouldn't even say Bitcoin is deflationary - it's actually inflationary until the year 2140, when inflation becomes 0. In practice, if you assume some coins get lost over time beyond 2140, then it will be deflationary.
Even though Bitcoin itself is inflationary until 2140, and then neutral, inflation or deflation (i.e. change in the aggregate price level) can still happen depending on whether the economy is growing or shrinking.
Hi Zack! Thanks for the comment. Happy to see you here!
You're right--an assumption that I made while writing this piece is that once Bitcoin becomes one of the global reserve currencies (as I believe it will), steady economic growth will render it deflationary. In reality, the economy can grow, shrink, or stagnate.
The question I am yet to find an answer to, however, is whether about the inflation/deflation rate. My best guess is in the future, it'l be deflationary with the real economy growing most of the time. But the magnitude of the deflation rate? That's something that I'm yet to find an answer to.
Would love to hear your thoughts on the subject, if you have any.
A good read, and I think that you raised some valid points.
I would argue however, that Bitcoin's attribute of being scare (that only 21 million BTC can ever exist) IS a basic Bitcoin thesis although not explicitly mentioned in the Bitcoin white paper. Bitcoin have the same properties that makes gold valuable, 1) scarcity, 2) takes time and large amounts of ressources to mine. If there were no limited cap supply on BTC, they would not be valuable, since they would not be scare. I have to admit that I am not super strong in economic theory, but as far as I understand, the the higher demand, and the lower the supply = more valuable.
I agree, actually. What I meant was "Bitcoin's value will go up purely because it's scarce" isn't a basic thesis. The fact that Bitcoin is scarce, however, as you rightly said, is. And the fact that it's scarce combined with the higher expected demand should make it increasingly valuable with time.
Thanks to you -I read Smith's article - good one; But I feel he comes across as an 'establishment' economist; He should avoid characterising folks as "schlubs", this can be easily misunderstood as being elitist.
Your article is a great response; I also feel Smith downplays "inflation" impact on regular folks under current system. Any day, give me a system that retains value - i.e. Cash can be liquidity AND saving. So help my 'savings' retain value over time without getting into ETFs, Stocks etc. Does Smith have a solution? Seems NO - he actually has not provided any solutions apart from vague mention of some fund for the poorer folks :)
He also conflates Bitcoin's scarcity (a monetary system) with crypto scarcity (artificial) - these two are entirely different!!
Correct--the problem especially with being implicitly forced to get into ETFs, stocks, etc. is that it forms massive bubbles, and the moral argument against that is pretty clearly black and white.
I do hope that he responds and we get a clarification.
Thanks Ram. I wouldn't even say Bitcoin is deflationary - it's actually inflationary until the year 2140, when inflation becomes 0. In practice, if you assume some coins get lost over time beyond 2140, then it will be deflationary.
Even though Bitcoin itself is inflationary until 2140, and then neutral, inflation or deflation (i.e. change in the aggregate price level) can still happen depending on whether the economy is growing or shrinking.
Hi Zack! Thanks for the comment. Happy to see you here!
You're right--an assumption that I made while writing this piece is that once Bitcoin becomes one of the global reserve currencies (as I believe it will), steady economic growth will render it deflationary. In reality, the economy can grow, shrink, or stagnate.
The question I am yet to find an answer to, however, is whether about the inflation/deflation rate. My best guess is in the future, it'l be deflationary with the real economy growing most of the time. But the magnitude of the deflation rate? That's something that I'm yet to find an answer to.
Would love to hear your thoughts on the subject, if you have any.
Cheers!
A good read, and I think that you raised some valid points.
I would argue however, that Bitcoin's attribute of being scare (that only 21 million BTC can ever exist) IS a basic Bitcoin thesis although not explicitly mentioned in the Bitcoin white paper. Bitcoin have the same properties that makes gold valuable, 1) scarcity, 2) takes time and large amounts of ressources to mine. If there were no limited cap supply on BTC, they would not be valuable, since they would not be scare. I have to admit that I am not super strong in economic theory, but as far as I understand, the the higher demand, and the lower the supply = more valuable.
Cheers!
Hello! Thanks for the comment!
I agree, actually. What I meant was "Bitcoin's value will go up purely because it's scarce" isn't a basic thesis. The fact that Bitcoin is scarce, however, as you rightly said, is. And the fact that it's scarce combined with the higher expected demand should make it increasingly valuable with time.
Should've worded it more clearly--apologies!
Cheers! And thank you for the subscription!
Thanks to you -I read Smith's article - good one; But I feel he comes across as an 'establishment' economist; He should avoid characterising folks as "schlubs", this can be easily misunderstood as being elitist.
Your article is a great response; I also feel Smith downplays "inflation" impact on regular folks under current system. Any day, give me a system that retains value - i.e. Cash can be liquidity AND saving. So help my 'savings' retain value over time without getting into ETFs, Stocks etc. Does Smith have a solution? Seems NO - he actually has not provided any solutions apart from vague mention of some fund for the poorer folks :)
He also conflates Bitcoin's scarcity (a monetary system) with crypto scarcity (artificial) - these two are entirely different!!
Correct--the problem especially with being implicitly forced to get into ETFs, stocks, etc. is that it forms massive bubbles, and the moral argument against that is pretty clearly black and white.
I do hope that he responds and we get a clarification.