this post was submitted on 15 Nov 2023
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Bitcoin. Heard you can buy a digital coin that has no use for only 20 cents. Why would I want a fake coin that can't be used for anything?
This comment strikes me as uninformed. The creator of bitcoin wasn’t an entrepreneur. It wasn’t a business idea, at all. It’s a technological experiment.
Bitcoin isn’t about “having a fake coin.” It was about a global, decentralized, (theoretically) secure and impossible to hack technology that would allow anyone in the world with internet to access effective banking services.
If I want to send money to someone in Japan right now, how do I do that? We both need banks, we both need accounts, I have to tell my bank to send money to his bank, it has to go through clearing houses, exchange rates, etc. And if there are political issues that prevent capital exchange, you can’t do it.
With bitcoin, the global network was decentralized and secure. That was the goal of it. Saying “it’s fake money” is just meaningless; ALL money that is not heavily commoditized, all fiat money, including US Dollars, are fake
The real problem with bitcoin, the reason that IMO it cannot ever become ubiquitous as an actual currency, is that it is deflationary by nature. Everything I’ve ever learned about economics tells me that deflationary currencies don’t work.
Can you please roughly describe the issue with deflationary currency? I've only looked into it briefly but I just found people saying it encourages saving, not spending, which isn't exactly a bad thing.
What happens to the acute price of a currency when holders overwhelmingly decide to save rather than spend? Too much friction for the price of the currency to go up. Crypto is a zero-sum game.
I view it more as a financial instrument with unique properties. You don't necessarily have to use it as a day to day currency. But if you want something in your portfolio that is a hedge against inflation then it certainly has it's place.
We know that people don't stop spending when saving generates more wealth, because:
The vast majority of people spend most of their money on necessities, so they can't save more than they spend by default.
Those with additional wealth can choose to invest it for a greater return than inflation, essentially being in the same position as having deflationary wealth, and instead still have a social life, hobbies, entertainment, vacation, impulsive spending, and needless waste.
People will still spend on these things. Those that care about finances more than the above are already investing rather than spending.
I'm talking deflationary currency as an idea, but specifically about crypto as I don't know enough to say.
Deflationary currencies can work. The problem was always divisiblility. You start working with decimals.
And you also inverse the problem with wages. The richest need to constantly keep up with what the actual price of a banana (rather than the poorest need to keep up with the value of their labor).