0 sats \ 13 replies \ @andyleroy OP 6 Jul 2022 \ parent \ on: How does everyone think about Bitcoin and Inflation - is a 21 million *permanent* cap correct? bitcoin
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?
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.
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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
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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.
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когда 22 млн людей захотят иметь по 1 биткоину цена уже не будет иметь значения... первые это были метузиасты. вторые это мы... кто следующий?
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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.
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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
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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.
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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?
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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?
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More savings = more potential for investing. Over a period of time you are going to have the same if not more investment imo.
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This is not the definition of saving that I would subscribe to.
You save = you plan to consume later.
If you plan to invest your money later, then this money is not savings, it's the cash part of your investment portfolio.
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I appreciate the distinction but I dont believe it changes the argument because wether ppl save to invest or consume it still means more potential investment because consumption also drives investment
No
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