Comment Re:Why anyone would think this is a good thing (Score 1) 339
I think you are vastly overstating the deflation rates likely to be seen with Bitcoin. Once new bitcoins stop being generated, the deflation rate will equal the growth rate of goods and services paid for using bitcoins plus the natural loss rate of bitcoins.
Because the number of bitcoins will be (essentially) fixed, every additional credit that needs to be represented will require a corresponding reduction in average value of a bitcoin to allow the sum total of all bitcoins to be large enough to cover that additional credit.
Add into that the natural loss of bitcoins to things like forgotten passwords, deaths while holding bitcoins that cannot be recovered, loss of computing equipment, hard drive crashes, etc, and I think you get the total deflation rate of the currency.
Normal economic growth is something lie 2% - 7% per year isn't it? So let's assume that deflation due to economic growth is 2% - 7% or so. Now add in the deflation due to loss - 5%? - and you get a deflation rate that caps out in the low teens.
This is quite a bit less than the 50% deflation rate that you cited, and the economic effects are considerably easier to bear.
Essentially under bitcoin all goods and services become very similar to rapidly-improving technology products - say, iPhones. People decide to spend $200 on an iPhone this year and then a year later they find that they could have either gotten the same iPhone for 50% less had they waited, or complain that if they had waited they could have gotten a much better iPhone for the same $200.
This is very similar to how all goods and services would seem with a deflationary currency - you'd always have to balance the current value of the good or service versus the future value of the currency you are spending it on. This doesn't mean that nobody would spend bitcoins or that it would be so onerous to do so that people would nearly starve themselves to death rather than spend a coin. It just means that there would be a little bit more care put into purchasing decisions - just like people put more care into deciding when to buy their iPhone than when to buy their $200 pair of sunglasses.
Would a world where everyone thought much harder about how to spend their money wisely, and correspondingly were less incented to spend and more incented to save, be a bad thing? I doubt it, but then again, I don't think we'll ever know. Certainly bitcoin isn't going to achieve the level of success necessary to test these waters, but this is for technical reasons (I've written at length in the past on the technical problems built into the bitcoin protocol - in short, it requires a volume of data transfer that cannot be sustained by any end-user which means that the pipe dream of people exchanging the currency pseudo-anonymously without requiring intermediaries is impossible).
In essense, bitcoin is self-defeating beause it requires popularity in order to be viable, but popularity makes it unusable by end-users, and end-user features are what would make it popular; therefore, it can never get beyond a low transaction count, speculator hoarding stage. That's where it is now and that's as far as it will go.
