[ExI] Bitcoin

[Rafal Smigrodzki]

On Thu, Apr 4, 2013 at 10:31 PM, Aleksei Riikonen <aleksei at iki.fi> wrote:

>
> When someone creates a new clone of the Bitcoin system, the default outcome
> is that no-one will be interested, since they can just use Bitcoin instead
> of the new clone that no shops/etc are accepting yet anyway.

### A fascinating money theory issue is pertinent here: Since the
amount of BTC is capped, at some point the growth of trade in BTC will
bring about deflation. This is dramatically different from fiat
currencies, which through political incentives are highly unlikely to
exhibit this phenomenon. In world's economic history there are few
examples of deflation, and these occurred only in economies using true
hard currencies, like gold, and undergoing economic growth (like the
original United States of America, now long defunct).

Although deflation is nowadays the bete noire of monetary theorists, I
am inclined to think its ravages are much exaggerated - still, this is
a subject for another discussion. What is interesting here is to
consider if an equilibrium of separate competing crypto currencies
could be triggered by deflationary pressures.

As you may know, deflation increases the value of money expressed in
goods and services. This is a social benefit, since it rewards savers
and thus stimulates saving and investment over consumption. On the
other hand, very high cost of money might prompt those who do not have
it to use other means of facilitating exchanges.  Historically, silver
and copper coexisted with gold in many economies, usually filling
slightly different economic niches.

It is possible that two or more crypto currencies could eventually
coexist. Maybe the   richest, largest minds will use BTC for long-term
storage of value while poor, low-computing power creatures will make
their evanescent trades in ad hoc currencies, to be supplanted by the
next mayfly generations in mere seconds.

As I keep remarking, this will be an interesting world.

Rafal