
Ask HN: Why is Bitcoin deflationary by design - xwvvvvwx
The bitcoin protocol specifies 21 million coins as a maximum.<p>The original paper says only:<p><i>Once a predetermined number of coins have entered
circulation, the incentive can transition entirely to transaction fees and be completely inflation
free</i><p>Why is it desirable to be inflation free? What are the downsides to this approach?
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BjoernKW
This is predicated on the notion that Bitcoin transactions in contrast to fiat
money transactions aren't equal to taking out or paying back a loan:
[https://en.bitcoin.it/wiki/Deflationary_spiral](https://en.bitcoin.it/wiki/Deflationary_spiral)

Paper money essentially is an IOU with a specific value at a specific time. If
the value of the underlying currency changes after that point in time that
changes the incentive to pay back that IOU because the amount owed is still
the same but the underlying value of that amount is different.

The assumption with Bitcoin is that rather than a debt Bitcoin is an asset. If
that asset becomes more valuable relative to the market you'd simply pay less
Bitcoin for the same goods, simply because you don't have to worry about its
value relative to a loan you've either taken out in the past or you're going
to take out in the future.

That's the idea at least. Time will tell if it really works out that way but
the theory seems to be sound.

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2_listerine_pls
Why is it desirable to have inflation?

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sunseb
Because users don't spend their money to buy and sell goods, they just buy and
hold in hope of getting rich later.

Hyperinflation is bad of course, but moderate/controlled inflation is a need
to make a currency works IMHO.

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ericb
It gives bitcoin its first use-case--inflation resistance. All other currency
is continually losing value, by design. It is logical to pick the currency
that doesn't lose value by design to store your money. Everyone talks about
how bitcoin's volatility makes it a bad store of value. This is only true in
the short term, though. In the long term, an asset that trends upward is a
_more ideal_ store of value even if it is volatile.

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meric
What do you mean by desirable?

