Inflation means your purchasing power goes down, deflation means your purchasing power goes up. It's the only definition that makes sense, and per that definition BTC has been, on the whole, experiencing deflation.

Alright. If you insist on that definition please re-read my post substituting the word inflation for money supply growth.

The "central bankers" say this because it is true. Deflation encourages people to hold their currency.

Does it? Who told you that? Central bankers?

Here's some economists who tested the data and found it lacking in this regard. The consumer electronics industry is another market that's been in permanent extreme deflation since basically forever and yet is doing just fine. Having something today instead of tomorrow has real value.

But regardless, the argument is circular - if a closed economy used Bitcoin and prices fell because the economy grew and the money supply didn't, then if the hoarding theory was right the economy would stop growing and prices would stop falling. There'd be an equilibrium point.

Not every company which acquires capital is as useless as a company which makes coats for penguins. Consider most companies which manufacture electronics.

Such companies should make for good investments even when there's no inflation: if your option is to do nothing with your money and either get no return (but also no loss), or more generally a return that's no better than the general rate of economic growth, then you should still want to invest. The only kind of investments that inflation can trigger are investments that people would have left on the table, except having their money vanish was even worse. These are not the kind of "investments" our society needs.

Finally, if the goal of BTC is to avoid "massive booms and busts", I'd say that it has failed thus far. In fact, BTC is much more volatile than the national economy. If that is your criticism of the current financial system, what good is BTC?

Give it time. BTC is volatile because nobody knows its future. It could be anything from "world governments ban it" to "the future currency of humanity". In such an environment it's natural you'll get massive speculation, especially because there aren't many high risk/high yield investments kicking around right now. 10 years from now Bitcoin's future will be much clearer. Government policy will have stabilised, Bitcoin's competitiveness vs the current system will be much more established, it won't be covered in the press every day and in general will be boring. Then I'd expect the currency to be rather stable.

Random guy here. I may be wrong, but I think you are confusing inflation with deflation. The value of BTC is rising against real goods. So in other words, it costs less in BTC to buy things today than it did last year. This is deflation.

One of the reasons this topic is so hard to debate is people using the same words to mean different things. In my post above, read inflation to mean "the creation of money" independent of prices. This is not how statistical agencies use it, but in the context of mining it's the one that makes the most sense.

Yes, as it happens, last year the price rose significantly and BTC became worth a lot more. However this is not guaranteed by Bitcoin's design and in fact this year the price has mostly fallen and thus prices have risen (price inflation). Whether Bitcoin prices are rising or falling varies over time.

In other words, you could get into a situation where people holding BTC are largely those who have spent a large amount of money mining it, and those who are speculating on its value. For those who wish to use BTC as a token of exchange for goods and services, it can be difficult/expensive to acquire in any quantity.

Miners have bills to pay and hardware to purchase, so they tend to immediately sell the bitcoins they earn in order to pay their costs. Mining is a highly competitive business with low barriers to entry (though they are rising fast along with the general level of professionalism involved), so over time profits should be thin. And this is indeed what we see.

For people who are holding bitcoins to speculate with them, all it means is that the price rises but that doesn't make bitcoins harder to acquire. The unit we call the "bitcoin" is entirely arbitrary: they are subdivisible into 100 million pieces. Satoshi could have placed the decimal point anywhere and it'd still work the same way. I've been using Bitcoin for years and the difficulty of doing so has never been lower.

In an inflationary system, currency essentially expires ..... this is an excellent feature because it encourages the use of the currency, allowing it to get into the hands of people who will use it for true growth

You're parroting the standard line sold to people by central bankers, yet under their watch the world has experienced a series of massive booms and busts. One of the most natural words that follows "financial" is "crisis". So be more skeptical!

Consider the following scenario. You have some savings in a currency with a stable monetary base, no new money is being created and none is being destroyed. Let's also say the economy is stagnant and not growing or shrinking. We would expect in such an environment that prices remain stable. Now someone comes to you and says they have a great business idea: he's going to knit little coats and put them on penguins in Antarctica, then charge tourists to visit and take photos. He wants you to invest in his business.

Perhaps you think that this is a remarkably stupid business idea that is unlikely to turn a profit, so you politely decline his generous offer. You would rather keep the money as savings for retirement instead.

Now reconsider the same scenario, but in a world where your savings are being confiscated at 2%-5% per year. Recall that due to the mathematics of compounding, at a relatively modest sounding 5% price inflation rate, after 20 years $1 has turned into just 0.35 cents: you lost most of it. Very small changes in the CPI can create huge changes in how much you end up with when you're old. In this world, you listen to the penguin pitch with interest. Sure, you think, it's very unlikely that tourists will pay large sums of money to go to Antarctica just to see slightly cuter penguins, but if you do nothing you're guaranteed to lose more than half your money. If you pay for penguin coat knitting, you'll probably lose more than half your money, but you might not. You might lose, say, only 10%, or possibly even break even. So you invest.

From the perspective of a central planner, er, central banker, this is great! Investment is happening! Employment is created! GDP goes up! But what they cannot see through the thick plastic windows of their statistics is that the economic activity their policies created is fundamentally not useful. Nobody really cares if the penguins have little coats. Heck it probably would make them overheat and hurt them. In a stable environment nobody would "invest" in this obviously stupid waste of time. But inflation makes the stupid suddenly seem like a good plan, and you get pets.com or housing bubbles.

When I see how much hardware and electricity is being wasted on these various mining processes, I can only shake my head.

Bitcoin developer here. Yes, by all means shake your head, it's clear that the current level of mining is a large waste of resources. Nobody has been reporting double spends caused by hashpower attacks, which is what mining is designed to stop, suggesting that right now there's too much security.

But what else would you expect? Inflation causes misallocation of resources. This is basic economics and is the reason Bitcoin is designed to eventually target a stable monetary base. Yet you cannot create a new currency from scratch without inflation, by definition, because the money has to come from somewhere. What's more you can't create a currency fairly if you simply give yourself all the money (pre mining), so there has to be a fairly long drawn out allocation process so everyone gets a chance of taking part in that initial inflation.

This initial misallocation of resources towards excessive security is annoying, but tolerable - existing currencies inflate all the time and this causes huge misallocation of resources towards things like asset bubbles. If we're going to misallocate towards something, more security against rollback attacks is perhaps not the worst thing we could want, especially as market incentives should push people towards using renewable power over the next few years.

I'm not sure when BTC is slated to have all of its coins mined, but it will be instructive to see what happens to it at that point.

The rate halves every four years. It rounds to zero in 2140 but will presumably become irrelevant long before that. How irrelevant really depends on Bitcoin's long term value in dollar/euro/fiat terms though, which is impossible to predict.

At that point mining will be supported entirely by fees. How much mining takes place will depend on how much security the Bitcoin user community really needs, which I am expecting to be determined by letting it fall until double spending attacks start to become commonplace and an actual risk to business. Then the game theory becomes quite complicated because mining is a public good, but I'm expecting merchants and other big sellers who need the security to form assurance contracts with each other to incentivise mining. In theory this solves the problem of people not wanting to subsidise their competitors, but the use of assurance contracts for continuous goods like hash power is a rather under-researched area. I'm looking forward to reading papers written by academic economists and game theorists over the coming years to learn more about what the post-inflation world will look like.

It improves security by preventing card cloning, which is one of the key ways the US card system is defrauded. It is not "broken" in Europe, so your latter question is irrelevant. You are probably thinking of academic papers which did what academics do: probe the system for weaknesses and published their research, which often led to fixes (except when their attacks were so convoluted nobody actually does them in practice). This is common to all security systems everywhere and is one way they get better. However magstripe cards don't incrementally improve this way because they're so fundamentally broken there's no point researching them.

If you need further encouragement, consider that America has 5% of the worlds population, 25% of the worlds credit cards and over 50% of the worlds credit card fraud.

Tor added 10,000 users which for a country the size of Turkey is lost in the noise. Meanwhile a commercial competitor, HotSpot Shield added about quarter of a million Turkish users in just 12 hours. It'd be nice if the Tor guys made a version that relaxed some of the ultra-paranoid things they do and made a single-hop proxying service for users who don't care much about anonymity and just want to evade censorship.

You appear to think criticising something without having any constructive suggestions for improvement is useful, and that people choose how to invest their spare time based on what "leaders" (there are none, really) pronounce. That's not how things work.

Eh? I was drinking with the executive director of the Foundation and routinely work with Gavin, who is maintainer of the core software. I guess they are the closest you're going to get to "developers and leaders" by your description. Obviously they're concerned about all this. But the alternatives aren't there yet. One Bitcoin developer, Gregory Maxwell, has proposed protocols that allow exchanges to prove solvency - but they're complex and of course, do not address the root problem that large piles of coins make tempting targets for hackers.

Decentralised exchanges are very interesting and the way to go, but the technology to do them well isn't here yet.

People who keep their coins on deposit with an exchange aren't even really Bitcoin users. What they've done is wire money to a company and received an IOU for bitcoins which they then have not exercised. Given that the whole point of the system is that you don't need to trust third parties, it's frustrating to see people turn around and do exactly that (then get burned by exactly the same kind of financial instability that's so common in the existing system).

The other problem is what "trust" means here. Most people would, in the absence of other context, say it means something like "Joe is a good guy and I don't think he's bad or malicious". But what trust really means in the PGP sense is "Joe is capable of securing his private key and verifying identities reliably". That is totally different and impossible to judge based just on social knowledge.

In the CA world we build trust in "Joe" through audits and standards processes to ensure that private keys are stored in hardware modules, root keys are stored offline, keys have threshold access and so on. The standards setters are the developers of widely used programs. Because securing private keys and verifying identities is not particularly interesting there aren't millions of CA's but rather hundreds; still, this turns out to be plenty.

In the WoT world there aren't really any standards and there's no real way to build confidence in any particular WoT member. Also, those members are just as vulnerable to government coercion - perhaps more vulnerable as they lack money for lawyers.

Extend it how? Facebook has the densest social graph in the world and they think two strangers can reach each other within 4 hops, mostly. But that's what it'd be if "everyone in the world" (or close to it) was a part of the WoT. This will never happen or even get close. So in practice you probably don't have a great way to extend your WoT in this way unless you happen to be a part of the very small security geek community, and even then, it's probably not easy.

Keys (and certs) contain email addresses.

But do you really think there is a single US CA out there that would say no to a national security letter requiring them to issue a torproject.org certificate if they actually needed it?

NSL's request data. You're probably thinking of a court order. And of course the answer is no, they'd follow the order. But what makes you think a person taking part in the WoT would refuse a court order where a CA would roll over? Jail time sucks the same for both. The idea that CA's are uniquely vulnerable doesn't really make sense, given that the WoT lets you see who trusts who and serve a court order on anyone in the chain.

Stuxnet actually proves another part of why the CA system is utterly broken. Because they just had to break in *somewhere* in order to get a key signed by *any* CA in order to sign their stuff.

I think you are confused. Yes, Windows will load any driver signed by a member of the Windows hardware program. How else do you think it's supposed to work? Once code is loaded into the kernel it can do anything it likes and theres not much technical way to stop it with current-gen kernels, so there's no way to issue a certificate for one kind of driver but not another kind, it would be meaningless. Regardless, even if there was, the decision about how much power a signing key has for Windows is entirely Microsoft's decision, it has nothing to do with CAs.

I suspect you are thinking of the "any CA can sign for any domain name" issue in SSL. It has both weaknesses and strengths. The weakness is if any CA is compromised, they have full power. The strength is there's lots of competition which helps keeps prices down and makes revocation actually a realistic threat, because the customers of a CA that's about to be revoked DigiNotar style can go to any other CA to get fresh certs. You're never in a situation where the CA you want to revoke is the last man standing for some class of names.

Bitcoin is not an authentication mechanism. If you can prove that a CA is signing bogus certificates for intelligence agencies please do so - nobody had been able to show this so far and it would move the debate forward at a critical time.

You're sort of getting close to what the certificate transparency project does.

So can you find a path to the genuine keys through your personal web of trust?