This is the fundamental characteristic of bitcoin that puzzles me. Most currencies are inflationary, which in low doses is a good thing: it disincentivizes keeping the money under the mattress, maintaining a healthy flow of currency. Bitcoin is by design deflationary: it's value increases over time.
Deflation is destructive to the economy, so if bitcoin is deflationary by design, it can't ever be a primary currency, and thus it's expansion in usage is constrained from the get go.
Now, if you assume the market is smart, then there must be some other motive, other than usage, for appreciation. I suspect an artificial bubble.
"This is the fundamental characteristic of bitcoin that puzzles me. Most currencies are inflationary, which in low doses is a good thing: it disincentivizes keeping the money under the mattress, maintaining a healthy flow of currency. Bitcoin is by design deflationary: it's value increases over time."
Thank you for this. I constantly try to explain this to bitcoin fanatics and they don't get it.
What's less clear is how damaging that actually is. If you are looking for a way to preserve value, then being deflationary might even be beneficial. There are plenty of things that are deflationary (i.e. limited in supply), such as gold, stocks of a growing company, or real estate in Manhatten. Does that make these things worthless?
To the person who just wants to save for retirement and doesn't want to invest in the rollercoaster stock market, the best thing that money could do is to at least retain its current purchasing power.
You can talk about "maintaining a healthy flow of currency", but to some people it's more like "use your dollar coupons before they expire" and they don't like playing that game.
Deflation is destructive to the economy, so if bitcoin is deflationary by design, it can't ever be a primary currency, and thus it's expansion in usage is constrained from the get go.
Now, if you assume the market is smart, then there must be some other motive, other than usage, for appreciation. I suspect an artificial bubble.