this post was submitted on 14 Sep 2023
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You’ve basically explained why crypto can’t work.
Deflationary currencies don’t make sense to spend because their future value will be higher.
The outcome is people hold onto them in the hopes they gain value. The exact opposite of what you want for a currency.
This makes perfect sense in theory, but after multiple years of 8% to 10% inflation I'm not so keen on the "inflation always" line of thinking. Some kind of "generally stable" currency that alternates unpredictably would be best.
I'll take 8% inflation for life versus 8% deflation for life.
A deflationary currency would simply cause people to be more careful with their spending. You still need food, shelter, transportation, entertainment, etc. An inflinflationary currency encourages overconsumption, because material things hold value better than money.
If you’d like a world with zero discretionary spending then yeah, deflationary currency is for you.
I don’t think that’s an economy you want to live in though.
As a counterpoint: From the perspective of the Bitcoin network, Bitcoin is not inherently deflationary as long as mining continues to introduce new coins. Mining rewards do drop over time, but new Bitcoin will continue to be generated until the year ~2140.
I think the view of Bitcoin being deflationary now is based on its increasing/volatile value against other currencies which does encourage people to hold with the expectation that they can sell for more in the future. I'd argue that this is price discovery and not deflation. If it remains where it is now, then I agree that it will just be another casino. If the value stabilizes eventually, then it does offer some benefits, especially in countries where the local currency is a less reliable way to hold money.
Disclosure: I do hold some crypto and obviously would prefer it to go up but it won't change my life. I just think it's an interesting experiment at the end of the day.
For sure. Also, the inherent unscalability of blockchain as a technology makes for a payment system far too slow for your typical payment scenarios, which makes transferring Bitcoin a pain in the ass, further incentivising hodling.
(Just to address some of the "akshully"s I'm probably going to get for the above, you can make blockchain fast if you centralize it like Solana does, but if you're going to centralize it, you're better off using Postgres than blockchain.)
I think largely the argument that convinces some people that cryptocurrency is worth "investing in" is that it's going to revolutionize the way we pay for things. In which case the fact that it doesn't work as a currency completely robs it of any legitimacy as a security.
If you want something that does have potential to improve the way we go about buying groceries, look into GNU Taler.