Hacker News Reader

Comment by blueprint | Hacker News Reader

> Cryptocurrencies are inherently deflationary

How so?

Eventually all the BTC will have been mined and no new BTC will ever be created again, unlike regular currencies in which the money supply can always rise alongside the expansion of the economy.

BTC will eventually become a fiscal straight jacket. It may take quite a while to take effect, but is inevitable and the more BTC become integrated into the economy, the more eventual pain it will cause down the line.

All cryptocurrencies are inherently deflationary because one example of an attempt at a cryptocurrency (BTC) is inherently deflationary?

All current attempts at cryptocurrencies, of which there are very, very many have been inherently deflationary. Can you point me to a single one either current or even planned that isn't? We are discussing the real world.

Both Ether and Monero are uncapped and deflationary. So 2 out of the top 10 at the moment. I didn't bother checking beyond that.

If you have a limited supply of currency in a growing economy, it's inherently deflationary. So far I haven't seen proposals for cryptocurrencies that can grow as a function of the underlying economy. Maybe there are some.

The 'main reason' BTC is deflationary is because it's not used as a currency, and as prices rise, people want to 'hold' thereby creating less liquidity etc.

It's a funny thing to watch.

The only way cryptocurrency would be a straightjacket on the economy is if there were only one cryptocurrency. Actually there are hundreds, and it's trivial to make more. Rather than a digital gold standard, we have a system of competing privately-issued currencies, which Hayek advocated in his book The Denationalization of Money.

> Actually there are hundreds, and it's trivial to make more.

Good argument. But people will slowly realize that, to introduce good innovations in new blockchains, they should be setup as side-chains, to not create inflation in the crypto world.

Maybe. I'm just saying cryptocurrency won't give us deflationary constraints, since we can always create new currencies if we want to. If it turns out we do fine just sticking with a few main ones, that's ok too.

What's the analogy of a fiscal straight jacket mean? BTC value could increase indefinitely but you can always trade smaller and smaller fractions of BTC.

You have a finite amount trying to represent a growing economy. Work yesterday becomes worth more than work today and the fruits of economic output are retained by those who hold currency.

Most of the so-far released ones have a specific cap on how many tokens will be mined. Bitcoin does, for example. But it's not a hard requirement of cryptocurrencies, I think.

Bitcoin is also designed to make future coins harder to mine, thus more expensive. The only incentive to sell bitcoin is if you think the entire thing is about to fail.

Bitcoin isn't really designed to do that. It is designed to increase difficulty with competition. If no one was interested in mining bitcoin it would be exactly the same difficulty to mine today as it was one day one.

Doesn't the reward halve every 210000 blocks?

The size of the reward doesn't actually change the difficulty though.

There's a limited amount of bitcoin to go around.

Wouldn't that make the value of a token rise, as there is demand but no supply?

Yes, that is what deflation is, is it not? More goods for the same amount of currency?

You're right, my bad.

There are other cryptocurrencies aside from Bitcoin, even if Bitcoin is not able to be a true currency (e.g. fungibility issue). See Monero. It has a tail emission.

Every cryptocurrency based on Bitcoin mechanics has the same problems as Bitcoin. That, as you rightly pointed out, does not discount other cryptocurrencies without these issues. I was aiming solely at Bitcoin (and similar cryptocurrencies).

Reply on news.ycombinator.com