My argument is about currencies not inflation or deflation.
The primary service provided by a currency is facilitating the exchange of goods. Being inflationary is imperative for the population to use it. It is true that currencies are forced upon population by governments (or any form of governance) and it's true that anyone would rather be holding an asset that will not lose value over time compared to one that will.
Inflation is an indirect motive to spend money today and not hoard.
Now the above is the generally accepted truth in micro-economics and social theory, so I'm not feeling any heat proving the dominant view on this. It's how our world uses currencies actually.
All in all, to me makes sense: a currency SHOULD lose a small (1% or 0.5%) amount of purchasing power over time, to boost commerce/spending and so on. It's an indirect way but works. Until we find another way, I think we are stuck with it.
Bitcoin in my view, will never be a largely used currency because it does not have this imperative characteristic any currency should have. So people would rather spend dollars (as a user already said about PPCoin for example..) or any other inflationary currency instead of spending an asset.
>Inflation is an indirect motive to spend money today and not hoard.
Why is spending good? If I spend money on the things I don't really need because I'm afraid I'm gonna lose otherwise, why do you think it's good for the economy? Some spending is good, some spending is bad. If everyone spends money on cars while they don't really need that many cars, why is it good? Inflation might create some jobs, but those jobs wouldn't be secure for long, because workers would be producing things people really don't want. I don't understand how scaring people into spending is a good idea.
>Bitcoin in my view, will never be a largely used currency because it does not have this imperative characteristic any currency should have. So people would rather spend dollars
Since you argue that people would rather spend dollars, here's a thought experiment. Let's say Bitcoin is accepted in most places. Say you store your wealth in Bitcoin. Now you want to buy something. Why would you want to exchange it into USD, pay commission to the exchange and then make a purchase instead of paying it in Bitcoin in the first place?
You want people to eat each other in a complete anarchy? We need some minor group of accountable well-educated lawyers and bankers to decide the laws and issues of life and death. That'd be more civilised. And this requires people to fork off a part of their income. It's a social contract, man.
Maybe you need to provide a complete frame, because I'm not sure I follow.
ps. I have a deep respect for Anarchism, as I have for Communism (Marx/Engels), although I don't endorse their views about society. That said, believing that bitcoin is in any way close to anarchy because you don't pay taxes is wrong. As Prof. Shamir (the 'S' in RSA) showed some time back, 98% of BTC is controlled by 2% of portfolios. If you have a financial background you can see how this is deeply flawed and extremely centralized.
No one says you shouldn't pay taxes, of course. But just think about what taxes really are. A group of people calling themselves "a government" claims it has the right to collect part of the created value to provide some products and services that they claim nobody else is able to provide at the same or better quality and price. And because the government not just offers those services, but simply orders people to give money (or go to jail), almost nobody is able to compete with government - if a consumer wanted an alternative, he still would have to buy this service from government and then put extra money for the alternative. Needless to say, people are reluctant to do that. That's why private schools are mostly for rich parents who can afford paying taxes and paying for a private school. That's why in Europe private hospitals are for rich people. That's why protection services are for rich people, but the poor get abused by government police force.
What Bitcoin is able to do is to break this vicious cycle. Of course, governments are not going to give up easily, but fighting a war against mathematics is arguably a bad idea.
As for 98% of BTC being controller by 2% of portfolios - same can be argued for almost any currency, that's the state of the world. The difference with Bitcoin is that although those players can shift the market, they have a lot less power than any government. They can't force me to buy from them. And they arguably didn't get their money by stealing it from others.
I think that the BTC 2% has the same power as a government inside their ecosystem, no responsibility (ethical or other) given the complete anonymity and thus can not be held directly or indirectly accountable in any way, while a gov can.
The fact is that you know who runs the FED. You don't know who owns 95% of BTC in circulation.
They didn't stole directly, but it's a perfect Ponzi scheme if they choose to liquidate their BTC overnight :-) ... They are in a position to create "money" out of thin air. Money issued by people trusting BTC. So there is no difference from a trading Wall Street crook who sells garbage stocks for gold to naive investors (calling Goldman Sachs)...
Do you realise that for something to be money or currency (e.g. medium of exchange), it must have value? How do people know what is the value of 1 BTC or 1 dollar or 1 ounce of gold? They look at how much other people are willing to pay to hold it. Why would people hold gold, dollars or bitcoins? Not only in speculation that they will be worth more tomorrow. But also because they are more marketable than groceries and no one know exactly what you want to buy tomorrow. So we want to hold some cash for the short-term and long-term future - we never know what exactly we'd want to buy.
For transactions the exact value does not matter, only matters how liquid this value is. And liquidity is measured by number of people willing to buy that assets at that price. In case of Bitcoin, the more people want to hold it, the higher the price will be (because they need to buy them from someone and outbid others).
Now, imagine Bitcoin and Freicoin. Freicoin loses value ("demurrage") over time. So people would be motivated to hold bitcoin instead. So Bitcoin will gain bigger liquidity and higher value. People will see that Bitcoin is more sellable on the market and thus is wider accepted. So they can rely on Bitcoin's price when doing transactions. While Freicoin remains less liquid and thus less suitable for exchanges.
The currency is the most marketable, most valuable asset. And to make it so it must be the cheapest to store and transport, hardest to produce and impossible to counterfeit.
Currencies are not chosen by the population. They are forced upon them via specific organizations.
The USD Gov allows to you to pay taxes in USD, not in BTC. Even if BTC get taxed you still will have to pay your taxes in USD.
If and when the US gov will start accepting taxes in BTC all this reasoning might have a solid ground. Until then, it's a utopia.
ps. The above, will never going to happen though. It's insane/stupid/unthinkable for a state to give such power to unknown people (%98 of BTC are located in 2% of portfolios) instead of controlling it's own currency by a central authority (FED, ECB, ...).
Shamir's paper is bullshit (RSA and SSSS are cool, though). 98% of bitcoins belong to exchanges or web wallets that manage money for their users. This distribution says nothing about actual users and there is no way to find this out. Yes, technically there are big "owners" of a lot of coins, but that's temporary delegates, not primary investors. Also, by scanning HTML printout of blockchain from block explorer they only demonstrated their incompetence in this matter - blockchain is always readily available for analysis in bitcoind.
Unfortunately, the state is cutting the tree they are sitting on. Their massively inflated money supply is going to hit them hard when China and other foreign nations will refuse to accept USD as a reserve currency and all that printed nonsense will hit US economy and destroy it by hyperinflation. Or, USG will put up massive capital controls to avoid that thus closing the country in an iron curtain. Considering that externalised inflation destroyed a lot of production inside the country, isolating people from global market will also destroy what remains of the economy. In no theory it is sustainable in the long run to print shitload of money and not have its value massively dropped at some point of time. Each day it doesn't happen only makes the inevitable hit harder.
Once people all over the world start tasting Bitcoin and moving savings off fiat currencies, they will naturally hyper inflate - people will be trying to get rid of them quickly. This has nothing to do with orders of the state: it'll happen legally or illegally. And policemen will be among those people who try to save what's left of their savings.
Also: did you notice what Obama said when he asked Congress to raise debt ceiling? He said he wouldn't be able to mail the social security cheques. In other words, he admitted that there's absolutely no money that was extracted from people is available in form of cash or real investments. That he must have to issue new debt to pay that debt. Isn't it a good enough proof that the whole monetary system is going to collapse any time Link: http://www.dailymotion.com/video/x14y4cx_obama-tells-america...
I don't think Shamir's paper is BS. I think it shows how early adopters have a huge advantage over other players, exactly like a Ponzi scheme.
As for the fact that they can't force you to buy from them it's totally irrelevant. They (or he) can drive the market back to 0.5USD : 1BTC in less than 24 hours should they choose to do so, and there's nothing stopping them. The fact the you don't know who this player is, makes things a lot worst compared to FIAT controlled by the state.
The monetary system is a total mess, but that's because of abuse from those in power, than by design. BitCoin is a good thing to have, but it will never replace the USD and it wasn't suppose to IMHO. It's properties attracted only the illegal market and various low level speculators so far.
The fact that BTC went up instead of down after SK bust shoes clearly that the general consent has little to do with its price. BTC became famous because of SK. Now will be used even less as a currency. Instead it became even more expensive.
Boosting commerce and spending is a fine goal, but a larger value of mild inflation is that it boosts investment. Deflation of course has an opposite effect, you get risk free gains by making your capital idle rather than investing in productive assets.
The primary service provided by a currency is facilitating the exchange of goods. Being inflationary is imperative for the population to use it. It is true that currencies are forced upon population by governments (or any form of governance) and it's true that anyone would rather be holding an asset that will not lose value over time compared to one that will.
Inflation is an indirect motive to spend money today and not hoard.
Now the above is the generally accepted truth in micro-economics and social theory, so I'm not feeling any heat proving the dominant view on this. It's how our world uses currencies actually.
All in all, to me makes sense: a currency SHOULD lose a small (1% or 0.5%) amount of purchasing power over time, to boost commerce/spending and so on. It's an indirect way but works. Until we find another way, I think we are stuck with it.
Bitcoin in my view, will never be a largely used currency because it does not have this imperative characteristic any currency should have. So people would rather spend dollars (as a user already said about PPCoin for example..) or any other inflationary currency instead of spending an asset.