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20 sats \ 2 replies \ @om 6 Jul 2022 \ parent \ on: How does everyone think about Bitcoin and Inflation - is a 21 million *permanent* cap correct? bitcoin
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.
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.
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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