Yup, a deflationary currency cannot become widespread without becoming highly unstable.
Proponents of cryptocurrencies could easily fix this by creating one that grows by k% forever (like Friedman's k-percent rule). But they won't because this destroys the "get rich quick" aspect of the technology which they won't admit is the main thing they are drawn to.
If they were serious they would have fixed this problem and made sure bitcoins generate long run inflation.
Could bitcoin's popularity stand on its own with just its net benefits as a transaction medium after the allure of ponzi investment has been removed?
There are tons and tons of cryptocurrencies that have infinite emission schedules. Doing that doesn't appear to give any competitive advantage over other currencies. I don't know if they've decided yet, but the I wouldn't be surprised at all if the subject of this article(Ethereum) ends up with an infinite emission schedule too. It's very common among cryptocurrencies who use Proof of Stake as their decentralized consensus method of choice.
Plus, Bitcoin isn't deflationary by any standard definition of the word. It's not inherently price deflationary of course, since that's dictated by demand. And the money supply inflates, albeit at a known predictable rate which slowly decreases over time.
>There are tons and tons of cryptocurrencies that have infinite emission schedules. Doing that doesn't appear to give any competitive advantage over other currencies.
This supports the hypothesis that cryptocurrencies are not useful as currencies and people mostly like them for their ponzi investment allure. This would make them not viable in the long run, the digital equivalent of gold but with even less intrinsic fallback value.
Perhaps, but I don't think too many people are seriously arguing that Bitcoin or any other flavour of it is a serious contender to replace regular currency. Either way, there should still be some utility there if it's possible to have a secure, censorship resistant asset that provides some privacy. Maybe we're not quite there yet, but I don't think the idea is going to go away anytime soon.
Competitive advantage for the currency's speculators or for its users?
The latter I'd say are better served by a currency that encodes a price stability algorithm rather than a hyperdeflationary one. The former on the other hand...
The problem is solvable. Yes, Bitcoin is supported by subsidies, but it can also be based on fees per transactions. Inflation doesn't help - that just means old coin holders get diluted. The appeal of Bitcoin is precisely the limited supply.
Bitcoin or Altcoins are not a get rich quick scheme. They provide value for users by making transfer of wealth globally possible. The traditional infrastructure cost for this is many trillions of dollars (you pay it with taxes and inflation).
If bitcoins are to be used as a widespread stable currency, it is crucial that old coin holders get "diluted", that is that intrinsically worthless stores of value do not retain value at a real risk adjusted rate above what private markets can provide.
Otherwise, it basically blocks net aggregate marginal investment. It transforms people's savings from being tied to real physical things that are going to create value in the future when they want to redeem those savings to an accumulation of idle bits that won't be able to produce anything.
This is also the reason too low inflation in the eurozone for example, is so destructive.
The problem with fiat money is that "inflation" is not visible. ECB, Fed, BoE, BoJ are all hyper-inflating and it will end very badly. Look at the balance sheets and you'll see the hockey stick growth. Has little to do with prices, but more with debt stockpiling.
Bitcoin is volatile, but its extremely useful as money (if you live in Argentina or Zimbabwe, etc.). Descendants types will be far superior to government debt as money. Deflation basically means price-appreciation versus other assets. Inflation as its currently happening is fraudulent accounting on a unprecedented scale. The blockchain by contrast offers honest computer based accounting.
The problem with these central banks is that they have kept price inflation too low for the investment markets to clear and money has been accumulating idle instead of being invested.
Because they were late in their money printing, velocity dropped and they had to print much more getting much less effect per unit and yes did put the world at risk of future spike of inflation if this money starts moving.
Sufficient high, well controlled, early enough inflation prevents velocity from dropping, prevents the investment and labor markets from jamming, prevents from having to print too much, prevents large stockpiles of idle money from accumulating and prevents later difficult to control spikes in inflation.
> * its extremely useful as money (if you live in Argentina or Zimbabwe, etc.)*
You mean, it could be useful as money in theory, but in practice it is not. It is not practical to meet one's needs transacting in bitcoin even in affluent regions where computers, internet access and general computer literacy are ubiquitous, so those economically strained regions where citizens are struggling just to meet their basics needs are places where bitcoin is a complete non-starter; it is not at all viable.
Proponents of cryptocurrencies could easily fix this by creating one that grows by k% forever (like Friedman's k-percent rule). But they won't because this destroys the "get rich quick" aspect of the technology which they won't admit is the main thing they are drawn to.
If they were serious they would have fixed this problem and made sure bitcoins generate long run inflation.
Could bitcoin's popularity stand on its own with just its net benefits as a transaction medium after the allure of ponzi investment has been removed?