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I live in Europe, and more than a decade ago our national currency was replaced by the Euro. For a few years, everyone calculated back the price in Euro to the old currency when buying something, because it was hard to get a 'feeling' of the price. You can say that once Bitcoin matures, people will also get that feel for it, and don't need the calculate back to USD anymore when shopping, but I have a question about that.

A loaf of bread costs about 1 EUR, and that price has been pretty stable for years. I guess inflation ensures that it will so slowly increase in price, that people get time to adapt. If a loaf of bread costs 0.1 BTC today, it can be doubled or halved in a year, because the speculation causes so much volatility. So I won't develop a real feeling how many loaves of breads I can buy with that anytime soon. And by the time it's widely adopted (and should be stable), all 21M coins will be mined, so deflation will cause the price of bread to fall so much faster than it will rise using an inflationary fiat like EUR/USD.

So how does one develop a phsychological feeling for what 1 BTC is worth?

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Technology is helping with this.

For instance, I don't know what the fair price is for a GPS device that I see for sale at Best Buy, for instance. I whip out my mobile and do Amazon price check to see what the price is elsewhere.

This app could just as easily display the price in BTCs. So therefore, we already are getting in the habit of distancing from our memory the price of a good and using technology to provide the answer for us.

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    I think you right, e.g. after I got my first cell phone I stopped trying to memorize phone numbers, and now I don't remember any including my own.
    – Serith
    Commented Jul 27, 2012 at 21:17
  • including your own? lol
    – hedgedandlevered
    Commented Mar 17, 2017 at 23:00
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It is very interesting question.

Psychology in those things work this way: You see a price of something in BTC, then you can buy it or not. You will probably memorize the price (if you bought it, the incentive will be bigger). It will become your experience including the information of price and the thing it represents.

This way you will know about many things and its prices.

But once the price is replaced by different price you are going to forget the old price and there will be the new one only.

The whole process is automatic and subconscious. There is no reason to be concerned. It (the notion of price) just comes to you naturaly.

And when you said that the price of bread will rise in BTC. It seems impossible. The deflationary characteristic of bitcoin will cause the price to go down.

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  • You are indeed going to forget the old price, and adjust to the new situation, but only if the changes are slow. Bread price rises maybe 0.10 USD in 15 years, so you have a lot of time to adapt to that. But with BTC instead of 15 years, you have to forget the old price almost every day.
    – Maestro
    Commented Jul 27, 2012 at 17:40
  • This will not happen as you told. The price would get really stable while it will be used as important currency. And there will also be another psychological aspect - you will be getting to much informations, so you will feel that the time is running faster but ultimately this will lead to faster adaptation
    – Comodore
    Commented Jul 27, 2012 at 18:46
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IT industry is a great example of deflation, those products get cheaper over time, and it doesn't cause any distress when you need to calculate what you can buy with your money.

Psychological feeling that you are referring to comes from the ability to anticipate the value change of 1 BTC. In case of a stable change such as deflation it is easy, but if the value shifts because of volatility then no one can anticipate that and it is more convenient to display prices in USD.

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  • That is what retailers already do now: have fixed prices in USD, and display dynamicly derived (from current market price) BTC prices next too it. But I think it will hurt Bitcoin in the future, because all it becomes is a way to pay USD.
    – Maestro
    Commented Jul 27, 2012 at 17:33
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    Your first version of the question was a bit vague.
    – Serith
    Commented Jul 27, 2012 at 18:21
  • Yes but even so that is a slow process. The amount of computer I can get for $1000 (USD) is a LOT more than it was 5, 10 or 20 years ago, but in practice no different then it was 2 weeks ago. Right now Bit coin is very volatile so prices will go all over the place
    – Zachary K
    Commented Jul 31, 2012 at 16:51
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Firstly I think you assume too much that wide adoption of Bitcoin will bring stability. Is the gold market stable because it's probably currently (close to) the biggest it's ever been? No, it's still volatile.

There are organisations that try to bring stability to govt currencies. For example, the Reserve Bank of New Zealand has a guideline to keep inflation of the NZ price indices between 1% and 3%. However, I'm not aware of any similar attempts to achieve such a feat in the gold market, perhaps because it gives others a chance to manipulate the market. Note that I'm definitely not claiming the gold market is free of manipulation (quite the opposite!).

I see Bitcoin as behaving in a similar way to gold in the long term because of the limited supply. Value might double every year for many years on end, but that doesn't mean it's not going to crash back down again at some point. Speculation on gold is rife, and I would expect the same on Bitcoin. For that reason, I believe Bitcoin won't ever be a particularly reliable store of value, although depending on circumstances it may compare well with other options.

Here in NZ, the Rabodirect bank advertises itself as "Your significant other bank" because you can't use it as a transaction account. Perhaps Bitcoin will end up as "Your significant other currency" because it's not a reliable store of value.

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