I’m not an economist, but if a currency with a fixed supply is infinitely divisible, can it be inflationary?
165 sats \ 0 replies \ @F 31 Jul 2022
Suppose I have a pizza, and cut it into 2 slices, one for me and one for you. You decide to cut your pizza into 100 million pieces. It doesn't make more pizza, it just makes the pieces smaller.
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This is a somewhat common misunderstanding that new folks in this space can have.
And my unpopular opinion is that it's understandable and it's definitely not your fault. I always try to get to the bottom of where is any given misunderstanding coming from (rather than to dismiss it with food slices...).
In this case I believe it very much depends on what facts about Bitcoin you learn first:
E.g. you first hear about bitcoin and the only facts that you learn are
  • Bitcoin is some form of money that has something to do with computers.
  • Bitcoin is infinitely divisible.
  • Bitcoin is on a computer as some code.
Then you could end up with a conclusion that the valuable thing is "one piece of code". If you have two pieces of code you have twice the value and you can buy 2 beers instead of just one. And so if you can infinitely split it up you will get more of it - hence inflation.
The clear point that I want to make here is that if Bitcoin would be designed (drastically) differently, then there could indeed be situation where we give value to individual "pieces" and those pieces are hardcoded to have "unit value". E.g. one piece is 1 coin.
Luckily this is not the case. The main key to understanding is: the whole network will ever only have 21 millions of bitcoins. The network cannot be divided differently. The network is not arbitrarily/infinitely divisible. Now the thing that actually is divisible is each individual bitcoin. Each individual bitcoin can be infinitely divided into fractions.
I believe actually part of this confusion stems from what we call Bitcoin... whether we are talking about the single one coin or whether we are talking about the system+network as a whole.
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47 sats \ 1 reply \ @m4 31 Jul 2022
You confuse division with multiplication.
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I don't think that's the case here. Would you mind explaining where should OP use multiplication instead?
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No 🙃
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Could it have inflationary tendencies?
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So, it’s like you have one pizza right.
You can divide it into infinitely small parts but it’s still gonna be one pizza
Like it won’t be able to feed a 100 people even if you divide it into small pieces. So, not really. 🙃
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It is a common (and very understandable) misconception, but Bitcoin is not infinitely divisible. See this comment for an explanation why.
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