pull down to refresh

How does everyone think about Bitcoin and Inflation - is a 21 million *permanent* cap correct?
121 sats \ 25 comments \ @andyleroy 6 Jul 2022 bitcoin
Scarcity is a fundamental property of money.
Inflation, especially with the likes we see around the world, is devastating for everyone, and especially regressive.
Preserving purchasing power and savings is important for any money.
But does capping everything at 21 million go too far?
If we wave a magic wand and bitcoin takes over all forms of money, then not only is bitcoin preserving current purchasing power, but rather it is increasing purchasing power.
  • World energy consumption was 173,340 TWh in 2019, a 63% increase from 1990 energy usage.
  • World electricity consumption was 25,890 TWh in 2019, a 117% increase from 1990.
  • Our world energy needs are dramatically increasing. By 2050, we are expected to consume 39% more energy than we do today.
So in effect, a bitcoin measured in energy alone, will increase to represent a larger share of energy - so it represents a larger purchasing parity.
What incentive do savers have to invest in businesses or help pull forward economic growth, when the terminal value of every investment can be measured in predictable value increase of each bitcoin?
And what about inheritance? Does having a large amount of Bitcoin saved over generations start to form new problems of inequality, since savings will rise against purchasing power (with no risk taking involved)?
Does my bitcoin accumulated today entitle me to a larger share of purchasing power in the future, due to the efforts of everyone else in society?
Just thinking out loud on this one - and part of this goes back to my earlier question on investing in bitcoin/lightning co’s here.
If anyone has any thoughts, readings, articles to suggest I’d love to hear it…
write
preview
related posts
27 sats \ 14 replies \ @om 6 Jul 2022
will increase to represent a larger share of energy
No, same share, larger amount.
What incentive do savers have to invest
To get more bitcoin of course. The criminals who constantly print money will always tell you that nobody would ever invest a deflationary currency such as bitcoin, and that is why you need them to keep printing money. That's why nobody has ever invested any bitcoin... just kidding. The lightning network that we use here is just one way to invest your bitcoin and people do actually invest in it.
Does having a large amount of Bitcoin saved over generations start to form new problems of inequality,
The exact same problems already exist because anybody with wealth comparable to "large amount of Bitcoin" doesn't keep all of it in fiat money.
entitle me to a larger share of purchasing power in the future
No, same share, larger amount.
reply
0 sats \ 13 replies \ @andyleroy OP 6 Jul 2022
You're right, same share = larger amount. But is capturing a larger amount of societal output (energy, GDP, or any other measurement) with no risk viable for society?
The bar for getting more bitcoin (via a cashflow positive business, denominated in btc) becomes much higher. There may always be professional investors, founders, etc who work to increase this, but with bitcoin as a risk free way to capture a larger amount of society's output, is there a new downward pressure on lending and building businesses? (especially in the short term of ~20 years) as wealth transfers from fiat to btc?
reply
20 sats \ 2 replies \ @om 6 Jul 2022
But is capturing a larger amount of societal output (energy, GDP, or any other measurement) with no risk viable for society?
Yes. You can capture a share of society's output by investing in an index fund for example. You can capture a share of agricultural output by buying land.
EDIT: That is only a rough approximation. A new company may appear an invent something great but the index fund doesn't include it; or a new supertractor can get invented but you only have the land, not the supertractor. However the same approximation caveat should be given about money, because money is not the only thing that captures society's output - stocks and land do too.
is there a new downward pressure on lending and building businesses?
Yes and that's good because zero-rate interest policy provides insane and harmful upward pressure on lending and new businesses. The society can't be fixed without removing it.
reply
10 sats \ 1 reply \ @andyleroy OP 6 Jul 2022
100% and I agree on all of this.
If we enter a full 'bitcoin is the money' world, I just wonder if some level of predictable inflation is good to stimulate the aggregate level of investment and risk taking needed (or conversely worded - to prevent negative aspects of saving only), especially when technological innovation becomes such a deflationary force, to the point where hodling is the best risk-adjusted strategy for preserving (and even gaining) relative purchasing power.
I know we have some level of inflation with bitcoin until ~2140, I just wonder about how all the numbers and game theory come together.
I appreciate all your insight on this - I find I can go in mental circles all day thinking about this stuff
reply
30 sats \ 0 replies \ @om 6 Jul 2022
It might indeed happen that the risk appetite suggested by 0% inflation is not optimal. But that just begs the question of who gets the newly printed money. Currently people with political or banking connections get it so they get richer and richer.
In the blockchain context only one answer is meaningful: the miners. But then if we all decide that 2% inflation would be optimal to encourage risk taking, then mining would be extra super profitable. Right now bitcoin's inflation is under 2% and people already complain about its energy footprint. Imagine now that bitcoin is all the money and the inflation is 2%, that's how profitable mining is. Then the question will be, why would anybody do anything except mining?
You might say lets do PoS instead. But PoS only pretends to be inflationary. Renormalize it by dividing everything by 1.02 (assuming 2% inflation) to the power of time and you will see that it's just tax on people who neither run a node nor delegate their money to one.
There is also Monero that is a PoW coin with linearly increasing money supply. That's fine but it's equivalent to 0% inflation target anyway, just approaching the target for an infinitely long time.
reply
0 sats \ 0 replies \ @selfish_gene 6 Jul 2022
когда 22 млн людей захотят иметь по 1 биткоину цена уже не будет иметь значения... первые это были метузиасты. вторые это мы... кто следующий?
reply
0 sats \ 8 replies \ @faithandcredit 6 Jul 2022
is capturing a larger amount of societal output (energy, GDP, or any other measurement) with no risk viable for society?
If you are not increasing your stack you are not capturing a larger part compared to others as far as I can see. It will be up to each individual to decide whether they wish to increase their stack or not. Most will probably never stop voluntarily.
reply
0 sats \ 7 replies \ @andyleroy OP 6 Jul 2022
I think some of this depends on population growth. If society continues to grow (in population), then my BTC grows to represent a larger share of GDP per capita
reply
0 sats \ 6 replies \ @faithandcredit 6 Jul 2022
GDP per capita is a rather meaningless statistic. For example USA has one the highest numbers and if I live in NY that's great, but if I live in a rural village in Alaska it doesn't rly help me. My point is that the economy is more complex and more local than some ppl think. You can have boom in one area and bust in another. Some sectors and areas at some times are worth investing in, others not so much and then the next year it changes. Bitcoin doesn't change this.
reply
0 sats \ 5 replies \ @andyleroy OP 6 Jul 2022
I agree, lots of economic indicators have their flaws.
But just a hypothetical example to go very basic:
Suppose we have a society with 4 people (a farmer, a tailor, a carpenter, and a toy maker), we denominate everything in bitcoin (capped at 100), everyone makes their living, we can see money velocity, output, GDP, all the basics. And let's assume everyone ends the year with 25 BTC.
If the farmer has a child who helps in the fields, society's output increases, but is still denominated in 100 BTC.
Sure money will flow based on tradeoffs between food, housing, other goods, but my 25 BTC is now worth more value (not just the same purchasing power). It just seems that a capped money supply favors saving - which is great - but does this diminish incentives for investment in the future?
reply
0 sats \ 3 replies \ @om 6 Jul 2022
a capped money supply favors saving - which is great - but does this diminish incentives for investment in the future?
Sure. Something that encourages saving must at the same time discourage either spending or investment. What else can you do with your money other than spend, save or invest?
reply
0 sats \ 2 replies \ @faithandcredit 6 Jul 2022
More savings = more potential for investing. Over a period of time you are going to have the same if not more investment imo.
view replies
0 sats \ 0 replies \ @faithandcredit 6 Jul 2022
No
reply
10 sats \ 2 replies \ @moon 6 Jul 2022
But does capping everything at 21 million go too far?
What argument are you trying to make? Because there's only 2 possibilities: either it's capped or it isn't capped, which means inflation. Actually with time some coins are bound to be lost, so the supply is always slowly shrinking.
During this phase, when bitcoin is still growing in adoption, yes it will not only preserve but increase your purchasing power. It's an investment and there's risk, like other investments. If this is not ok, then we can't have free markets.
reply
10 sats \ 1 reply \ @andyleroy OP 6 Jul 2022
I don't have a specific answer, mainly curious in everyone's arguments (for/against)...
My initial thought is that on the outset the capped supply gives great scarcity properties, but over time it could be a hindrance with any of:
  • decreased mining (security) incentives
  • technology increases pose deflation (thus a bitcoin grows in purchasing power and proportion over time)
  • population increases pose purchasing power increases over time
This growing in adoption phase for bitcoin is so volatile and has so much upside that the exact inflation rate over time may not matter right now, but it may even pose other issues? Such as hindering investment in the ecosystem in the short term? #40456
reply
20 sats \ 0 replies \ @moon 6 Jul 2022
decreased mining (security) incentives
yeah this I'm also curious how it will turn out, but we probably won't be here to see
technology increases pose deflation (thus a bitcoin grows in purchasing power and proportion over time)
it seems that with or without bitcoin this is already the direction we are going
population increases pose purchasing power increases over time
how does that work? I think population is peaking soon
Thanks for the link, I'll reply on that other thread about that topic.
reply
10 sats \ 2 replies \ @nerd2ninja 6 Jul 2022
What incentive do savers have to invest in businesses or help pull forward economic growth, when the terminal value of every investment can be measured in predictable value increase of each bitcoin?
Oh hey, I got this one. First I would like to start with a basic fallacy lots on Kensians make. Its the mistake the Federal Reserve made about inflation. Do not assume any variable will be increasing at a contant rate.
So the msot simple economic equation is productivity = wealth. The Kenesian system (which is a system designed to prop up the business of usury) sees that the bubble that debt creates causes a reccession as prices need to adjust to the new money supply as the money is being destroyed (you have to understand that credit or debt is spendable as money just as much as money. Therefore, debt is money creation). They argue for bailouts and "liquidity" to effectively bail out the bank business model and keep the supply of money the same. It is a way of making the inflation caused by borrowing, official. It takes debt is technically money because its just as spendable, to here's some more money for your debt.
Now, get rid of debt. Money remains constant. People don't get suddenly rug pulled by a debt bubble burst. People plan around the economic situation they have as things are.
Bitcoin only becomes more valuable as people work to be more productive
So why would savers invest in businesses to pull forward economic growth? Because the value of Bitcoin will not increase without it. As a result, savers will invest in businesses they believe will outpace the productivity of everyone else and if a business venture does not seem to be able to outpace the growth of the larger economy, then may I suggest, such a business venture is not worth pursuing. It would indicate that there are more productive things we can do with our value and time.
Sorry edit: I want to add in the implications this has on volunteering and charity work as well because volunteerism does have a measurable impact on GDP, but I've already written an article here.
reply
0 sats \ 1 reply \ @andyleroy OP 6 Jul 2022
Totally follow all of this - but it's that last paragraph I'm hung up on from an incentives/game theory perspective.
If I know you have a large stack of bitcoin, and will work to increase its value (by becoming more productive), why should I bother working harder or taking any risks? My bitcoin savings will increase the same (proportionally) to yours, and I didn't do any extra work?
reply
10 sats \ 0 replies \ @nerd2ninja 6 Jul 2022
So you don't, if you don't think you can outpace the productivity increase that my investment will have.
This is on purpose. I've heard the argument that there is a lot of time wasted by having everyone try to become an investor. Not everyone knows exactly what will and won't work.
Now if you don't work at all, this is a different problem. Now, you're looking at running out of money because you still have to buy food to eat and pay rent or buy a house or what have you.
Now if you own a business and you aren't looking at being more productive, now you're looking at the problem of more productive businesses earning money and nobody buying from your store.
reply
0 sats \ 0 replies \ @selfish_gene 6 Jul 2022
я могу греть дом с помощью биткоина и платить из кормана меньше чем когда либо. это меняет суть отопления и майнинга.
reply
0 sats \ 2 replies \ @faithandcredit 6 Jul 2022
Energy consumption is going up because we live in an era of cheap credit and low inflation. But this is changing and energy consumption will not rise as fast as some analysts predicts.
If BTC becomes as valuable as you say, more valuable than energy, then ppl will prefer it over spending energy which lowers the cost of energy until more ppl prefer to spend some btc in exchange for it. Don't know if that makes sense.
reply
0 sats \ 1 reply \ @andyleroy OP 6 Jul 2022
I should have perhaps added in energy production as well, since we can only consume as much as we produce. And I just added energy as a base for reference for comparisons over time (vs GDP or any other 'society output' metric). It just seems that hodling bitcoin gives outsized capture of value in society with little to no risk...
reply
10 sats \ 0 replies \ @faithandcredit 6 Jul 2022
If you aren't increasing your stack your aren't capturing anything, at best you are keeping what you earned and if productivity in the economy is going up while you are idling then you also benefit from that. But the guy who is working and increasing his stack will gain the "no risk benefit" of BTC while also making more BTC.
Ps. BTC is not no risk atm! This is a potential future where btc is extremely widespread and there is plenty of money for miners. To put it simply.
reply