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I have no doubt that the person who designed Bitcoin was many times smarter than me but with the benefit of hindsight was the decreasing number of bitcoins a good design decision given the 'hoarding' it encourages? Wouldn't a steady and low inflation rate increase the incentive to spend bitcoins and make it more attractive to the later adopters?

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Please note that a constant production rate measured in a fixed number of coins would result in a deflationary system very much like bitcoin because the relative number of coins per block gets less (asymptotic curve). The difference of such a system would only be a psychological one. So a system with a fixed PERCENTAGE of production would be necessary to achieve what you have in mind (e.g. 3% per year). –  phelix Nov 3 '12 at 10:13
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6 Answers

The main issue with Bitcoin is not attracting late developers, but early developers. At its infancy, Bitcoin was an interesting curiosity - people would play around with it but not necessarily use it as money. But due to its scarcity and many benefits, Bitcoin came to be recognised as a digital currency.

At that point people could either wait and see if it gets bigger, or start using it. If Bitcoin's reward wasn't decreasing, probably a lot of people would put off getting into Bitcoin until it is more stable. If everyone decided to wait, Bitcoin would be going nowhere and fade into obscurity. Nobody would then care for late adopter's benefit. This is why getting early adopters on is so crucial - with them comes incentive for late adopters anyway.

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I understand the rationale and it seems to have been an effective way to gain traction. Given the amount of wealth not being utilised arstechnica.com/tech-policy/2012/10/… it unfortunately now looks to be a hindrance. Could you explain more why you think gearing a system to early adopters will encourage late adopters though? –  fj2942ks Oct 29 '12 at 23:21
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"Hoarding" is a loaded term used to denigrate saving by people who like having the government give money to bankers. To "hoard" money, what do you do? You produce something, you trade it for money, and ... well, that's it. So "hoarding" is actually just producing.

The idea that hoarding is bad is just a broken window fallacy. Hoarding means producing without consuming, giving without taking.

But at times it could be good for a country to make its own currency that can go down in value to increase export and get more tourists. To get people to use such a FIAT people in that region must pay tax in that currency.

Good for some people in that country, bad for others. Those that it is bad for will only go along with such a scheme if they have no practical choice. In other words, this is one way a government picks winners and losers and makes markets less free.

As for increasing exports, that's another fallacy. Imports are what you get from other countries. Exports are what pays for it. If you raise your exports relative to your imports, you are paying more to other countries and getting less. That's not good.

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It's an interesting point but I consider hoarding to be a symptom of people being effective at making money but less willing to spend it. If I have a system that allows me to accumulate 90% of the wealth in the world and spend only what I need to survive, although I produced, I'm also stopping the free flow of money through the system. Others can't use it so I'm hoarding. Looking at the distribution of wealth in bitcoin, this is currently the situation. –  fj2942ks Oct 29 '12 at 23:11
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@fj2942ks: Others can't use the currency. But they are absolutely free to use the real wealth that you produced. If you're going to let the world trade you pieces of paper for trucks and factories, the world should be thrilled. You can hoard all the pieces of paper or strings of digits you want. We'll all profit from driving the trucks you made and using the fruits of your labor. –  David Schwartz Oct 29 '12 at 23:32
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Bitcoin is deflationary, in modern "economy" it is deemed to be bad. The modern economist argument is that we will be hoarding, instead of spending. Because we know that tomorrow the things will cost less.

This is modern myth(=mistake), because:

  1. We always need to buy important things (food, transport fees, clothing), no matter what the price will be tommorow.
  2. Inflationary economy force us to buy useless goods. We are promoting low quality products, while those that are important for human beings are getting less capital.
  3. For sustainable economy we need to have a production of real goods. When majority of people are buying goods while creating debt. It may seem that GDP grows. But the truth is rather that the consumption is growing, not production.

Wouldn't a steady and low inflation rate increase the incentive to spend BitCoins and make it more attractive to the later adopters?

The answer would be almost the same as the previous one. You are speaking about attractivity.

In our world, there are payment systems that are inflationary.

  • They can promote economy (By QE = printing money), when there is recession.
  • When there is boom, they must draw money back.

It is not happening in most cases. We may say, that it is caused by people in power. Actualy it is mostly the problem of system and its incentives. I recommend this video. The biggest problem is that it always ends and ended with hyperinflation.

It is everybody choice: Convenience vs. Sustainability.

If you choose Bitcoin, you will use a system that gives right incentive. It may even lead into convenience.

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The amount of money I 'need' to spend and the amount of money I 'choose' to spend will be very different if by doing nothing I increase my relative wealth. –  fj2942ks Oct 29 '12 at 23:14
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With every purchase at retail with a Visa/Mastercard/etc. payment card, somewhere in the range of 3% goes to the banking system in the form of fees.

With Bitcoin, the fees are tiny fraction of that.

If the merchant will accept payment in bitcoin, then there is room to offer a discount for customers paying with bitcoins at no cost to the merchant.

So as a consumer, let's say you are given the option for your $100 purchase: $100 if paying with Visa/Mastercard $98 worth of bitcoins (at current market rate) if paying with bitcoins.

If you hoard, do you know that you can make more than 2% by holding your coins? Or is it beneficial to take the 2% discount today (and then through a bank transfer buy more bitcoins to replenish what was just spent)?

So the argument fails because there is greater value in using bitcoins in commerce than comes from the potential future increase in the exchange rate.

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This is true but to move money in and out of bitcoin costs > 3% for most people. –  fj2942ks Oct 29 '12 at 23:07
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Had Bitcoin be designed inflationary the first clone would have been a deflationary one. Given the choice most people would then have moved to the deflationary one for savings (keep or increase value). Thus an inflationary coin does not stand a chance.

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Bitcoin was designed to have potential to increase in value a lot over the long term. If not, noone would want to take the risc of adopting it, caring about it or developing tools for it. This gives it potential stability.

When people hoard it means that they have a longterm look at the value of Bitcoin. If noone was hoarding it would mean that everyone wanted to get rid of their Bitcoins as quick as possible.

And if everyone wanted to get rid of their Bitcoins, that would mean they would not want them.

Now you can be sure that people will want your Bitcoins in the future.

When people say hoarding is bad, they look at Bitcoin as if it was to replace a FIAT currency. Bitcoin is not a FIAT and must not replace any other currency, thus does not need to drive a countrys economy.

A currency that allways goes down in value such as FIAT must be forced upon people with laws. Noone would want money that goes down in value if they had a choice between money that keeps it value or goes up and money that decrease.

But at times it could be good for a country to make its own currency that can go down in value to increase export and get more tourists. To get people to use such a FIAT people in that region must pay tax in that currency.

But that currency will only be used by those that need to pay tax with it so its of no interest for example a African person or someone in india.

However a currency such as Bitcoin that can hold and will probably increase 100 fold in value is of interest to everyone on earth.

It is also in the best interest of everyone to deal in a currency that noone, not a single country can print as much of as they like. Thus Bitcoin does not give away the power to another country since there is noone who can decide to print more of it.

Thus its a excellent tool for trading across the borders, such as on the internet, something which another countrys FIAT money is not.

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