Well, I used the term "inflation" as a synonym for the rate of change in the total monetary supply. Obviously, in a fast growing economy increasing the money supply by 1% per year may actually translate into price deflation.

In any case, increasing Bitcoin's money supply in a fixed pre-determined rate is actually trivially easy. If, for example, you want the increase in money supply to asymptotically approach 0%, all you have to do is to let the block mining reward forever be 50 BTC. Therefore, there is nothing in Bitcoin's architecture that prevents the usage of a different algorithm for increasing money supply.

In fact, I think it is very likely that we will witness the emergence of a competitor to Bitcoin that is based on the same architecture and crypto (perhaps even forking the same source code), but whose sole difference will be the elimination of the 21 million coin hard-cap. Though most hardline Bitcoin supporters will dismiss this alternative system as doomed to fail because of the built-in inflation, I suspect it may actually succeed because people will be more inclined to use it as currency instead of just hoarding.

From the beginning there have been people alerting that Bitcoin, while technically impressive, has dubious economic fundamentals. Namely, the built-in hard-cap on the total number of Bitcoins that will ever be generated (21 million) will result in deflation dynamics once new currency stops being generated, and may induce hoarding, speculation, and the formation of a bubble much sooner than that.

The USD/BTC index for the past few months and the overall mentality seen in the Bitcoin forums seems to be confirming the worst case scenario described by critics of Bitcoin's economic model. People are talking of Bitcoins not as a currency but as a store of value. Instead of spending them to kickstart the economy, people are instead hoarding them with the expectation they will continue to multiply in value. And indeed, the steady influx of new users with the same expectation of a once-in-a-lifetime opportunity has caused the value of the currency to soar. However, without an actual economy taking off, there is the danger that sooner or later there may be a massive loss of confidence in the currency, leading to a catastrophic crash.

I suspect that the above dynamics could have been prevented with a simple tweak to the algorithm: instead of a hard-cap, let the total number of coins continuously increase in such a way that the inflation rate approaches a small, but positive number (say 0.1%). This small change would have multiple advantages:

• a) Miners would always have an incentive beyond just transaction fees. This means lower fees in the long run.
• b) Though in practice there may not be much of a difference between an inflation rate of -0.1% and one of 0.1%, human psychology is such that the latter scenario would likely not lead to hoarding and speculative behaviour.
• c) The inflation rate would still be low enough as to make inflationary erosion of value an irrelevant issue.

With all of the above in mind, my question is as follows: would you agree that the strict adherence to Austrian Economics espoused by most members of the Bitcoin community may render them too dismissive of the dangers of the built-in deflation, and thus end up being Bitcoin's Achilles' Heel?

Isn't Portugal's current prime-minister (Jose Socrates) notorious for his close association with everything Microsoft?

And isn't he currently at the center of a national scandal involving serious corruption charges?

And didn't his government recently try to sell the notion that the Intel Classmate they are introducing into public schools is a "portuguese invention"?

Anyway, this sort of report does not surprise me one bit...