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Comment by richardw | Hacker News Reader

Why is deflation a problem? Keep in mind that it's just one currency out of many worldwide. If inflation is required in the service of a country, nothing stops them from inflating. Same with point 4 - instant deflation would just raise the value of existing bitcoins, unless it affected the confidence levels in the currency. What would happen if somebody smoked half the gold world-wide? Deflation of gold, which most gold investors would love.

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Yes, you are right about deflation increasing the value of Bitcoins. That might make them a great investment.

But Bitcoins are supposed to be a currency, not an investment. A currency needs to be used to transfer value, not sit around appreciating.

If people sit on their Bitcoins as an investment then it will fail, because no one will ever accept it as a currency.

Ideally (from a consumer's standpoint), a currency should be relatively stable. I should be able to either buy things with it, or just keep it for the time when I need to buy something.

I don't think deflation in itself is a problem, but the current rate of deflation of BC does worry me. I wonder whether this might be caused by a relative lack of way to spend it.

The current rate is insane, yes, but it's almost solely because there's been so much attention around it lately. People want to get in on it, but don't have mining rigs handy, so they buy from an ever-decreasing supply of sellers who were around earlier. The rate will slow down significantly if it gets a lot bigger, until it's just a trickle.

In the short term, over the next year or so, there isn't going to be a deflation problem with Bitcoins; there will be significant inflation. The BTC supply is set to increase something like 30% next year.

Right now the value of BTC has been going up (relative to USD) hand over fist due to increased demand. But eventually -- and I think it's going to be pretty quickly -- the buying spree is going to end and the miners are still going to be churning out new Bitcoins.

It's going to feel more like holding Zimbabwe dollars than Krugerrands for a while, I suspect.

Long term, yes, Bitcoins are designed to deflate. If they remain popular past c.2020, prices will gradually decrease and smaller and smaller fractions of Bitcoins will need to be used for transactions. (Actually the number of Bitcoins in existence will probably go down slowly over time, as people lose Bitcoin wallets and thus take the BTC out of circulation forever. There are 9000+ BTC "lost" this way at present.)

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