What is inflation? | Hacker News Reader

What is inflation?

coinbase.com

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Crypto influencers and companies use "inflation" incorrectly. "Inflation" has 2 means; the physical meaning and the economic meaning.

The physical meaning is the increase in size of an object.

The economic meaning is the decrease in purchasing power of a currency.

Bitcoin will become deflationary (physical term) one day, which means with time total accessible supply of bitcoin will decrease. But this is will be true only when;

number of lost bitcoins > number of mined bitcoins

We can assume this to be true after 24 years perhaps when mining reward will be too low. But at the current time bitcoin is probably inflationary (physical term).

Bitcoin's inflation (economic term) is a function of demand and supply. It is not a function of its reduced mining rewards because that does not say anything about demand. Whenever the price of bitcoin vs USD drops we can safely say the bitcoin has inflated (economic term). Over a period of last 5 years yes bitcoin has been highly deflationary (economic term). It might continue to be deflationary (economic term) for the next 100 years. Which means Bitcoin might continue to rise in value against USD.

I think no one should fool people to say that Bitcoin is deflationary (economic term) just because of limited supply. Limited supply tell us nothing about the demand. Someone's shitcoin is limited in supply too but they can't surely sell it for an ever increasing price. There has to be demand.

A lot of the Bitcoin are owned by early adopters that no longer have access to them. Bitcoin loss is happening at a pretty high rate because of that. It won't take 24 years.

> even Bitcoin experiences inflation as more of it is mined (as does gold).

Surprisingly they don't understand what inflation means despite having just quoted its definition a few paragraphs above.

Inflation doesn't mean that we "have more of something", it means we "need more of that something" to buy the same good over time.

Do we today need more bitcoins to buy a pizza compared to 2013?

Redefining words and ideas is common in 2021. I’m not surprised

Yeah this is my problem with crypto - even the big institutions around it come out with absolute bullshit. Sorry but no, stable coins aren’t a reasonable place to store your savings and it’s insane to be telling people that.

Stablecoins have 4-6%apr yields. much better than my other savings.

This statement makes no sense. For a start, stablecoins provide no yield. What you can do is lend your stablecoins and obtain a yield, in the same way that you can lend any currency. The yield is provided by the borrower. Second, the expected return on an investment doesn't tell us whether such an investment is better than another. In order to compare investments, we have to look at the risk-adjusted return.

The risk-adjusted return is just whether the contract gets hacked or not. You get a yield for providing liquidity. Granted that yield might be 4-7%, but it's not risky in the traditional sense of i could 'Lose' a percentage like i could with stocks. I have confidence that uniswap isn't going to get hacked, but do i ever have confidence a stock is only going to go up?

If that's true, making them more similar in terms of both risk and yield to investing in the stock market than putting your money in savings. Plenty provide no yeild - hence why they're stable coins.

Inflation is a change in the price of money relative to the prices of all goods & services in the economy, and prices are set by the market. This means a currency cannot be made by design to produce low or high inflation rates, contrary to what the article claims. Only a monetary authority with the power to change the money supply can theoretically achieve that goal.

Well, public perception can also change it. BTC, for example, has experienced the most rapid deflation in the history of money, and it has nothing to do with a contraction in its supply.

The irony is the USD actually is designed to achieve predictable and low inflation, whereas cryptocurrencies, whose demand bears little relation to current demand to hold it, lurch wildly in value

I agree but the USD isn't designed to achieve low inflation. The Fed has a public mandate to achieve low inflation, which isn't quite the same thing.

It's a moot point, but I'd consider the Fed and its mandate and operating procedures and target as part of the design of the modern USD (just as other regimes like Bretton Woods were also specific policy choices intended to achieve specific ends, not something which spontaneously appeared or naturally evolved)

Well bitcoin does have an intrinsic monetary policy despite not having a monetary authority.

It is possible to engineer currencies to be inflationary/deflationary without an external authority.

It just cannot be a guarantee as there are many other factors to take into account.

Indeed, bitcoin has an intrinsic monetary policy, but such a policy doesn't and can't have an inflation target. This is why claims that bitcoin is inflationary or deflationary are nonsense.

It reads like those old TV infomercials selling you gold or silver coins.

What the article forgets or ignores is that Bitcoin is just a piece of software. The reason that there is "only" one is that is a brand, an agreement amongst miners and exchanges that this particular one is the Bitcoin and the others are Bitcoin cash, BSV etc. Anyone can take the Bitcoin software and start a new chain or fork out of the current Bitcoin chain. In that way the supply is infinite.

Archived for those who retreat in disgust at being served a captcha for a blog post.

https://archive.is/5IqU3

They don’t even really answer their own headline question. This is 99% BTC shilling and 1% economics.

I don’t like that the BTC community is back to discussing BTC as a currency. When the narrative switched to a “gold substitute,” I gave them a plausible chance. But as a currency, BTC is functionally useless, and the anti-inflation angle is simply an effort to take advantage of people who think currency should have more value than experts in macroeconomics believe.

Interesting that they don't mention that the controlled inflation for bitcoin has (and will) lead to higher transaction costs. The piper must be paid somehow.

Not really. Transaction fees are determined by supply and demand. Supply is currently limited to 1MB/10min more or less, and demand is however many people wanting to make bitcoin ttandactions.

The bitcoin production schedule has nothing to do with TX fees.

And the security of the system is proportional to the total amount spent in transaction fees (plus block rewards, which taper off). Yet security concerns play no role in setting tx fees.

Right now the security guards are being paid with the block reward. Once that is over each transaction has to pay for the security guards.

Right now security guard are being paid way too much and use their money to waste too much energy. When the block reward will decrease, so will the energy use. But the transaction cost is not impacted by the reward.

Dogecoin should have been included in the inflation conversation.

https://provscons.com/is-dogecoin-capped/

Thanks for the "helpful" auto-redirect to the local language version.

Please don't do that, don't be like Google.

Cryptocurrencies can have inflation too. All it takes is to change a few settings in code. Some cryptos already changed their monetary policies.

And somehow daily trading volume is 10x higher than actual transactions on network. It is almost like someone is printing money out if thin air.

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