Because it allows you to save money without it losing value in the long term. That is, bad government policy cannot reduce the value of your Bitcoin by printing more of it.
Again, that is a feature, not a bug. Inflationary currency means that you need to invest money, not just sit on it. Deflationary currency means that an investment must provide returns more than what would be gained by just sitting on it.
Ergo inflation tends to cause malinvestment as savers want to protect as much value as possible, whereas deflation is more likely to incentivize productive investments.
After all if deflationary currency is worth more tomorrow, one wants to make sure an investment in the future is sustainable.
Notably one is especially interested to invest in a deflationary economy because the gains are multiplicative.
Bitcoin inflation rate per annum: 3.87%
USD Current inflation rate for the United States is 2.7%.
Early in Bitcoin history, by design Bitcoin went though a period of hyperinflation where Satoshi and a few users acquired most of the coins in circulation.
Aprox 4.11% of Bitcoin users (addresses) control 96.53% of all bitcoins in circulation.
Only people who have enough money to invest can do so. For the low-earner, it becomes near impossible to save up for investment because the savings either need to be devalued or put into risky investments.
Saving is a perfectly viable choice. If someone wants to save, it is not for you or your cronies to tell them they can't, or that you must shave your cut off their savings each year.
It's a myth that people won't spend. People will save the good money and spend bad money. The bad money is still getting spent, but of course, it's constantly losing its value.
The difference is the perspective on how money should be spent. Savers are low time preference people. They would rather spend their money on the future, on things that last. High time preference proponents on the other hand, only care about the next quarter, will cut corners to maximize their short term profit, and will spend their profit on cars and other depreciating assets to avoid paying the tax on their profits. They also build products which are intended to fail, so that the consumer has to buy the upgrade in a few years.
Even assuming that's all true, that's only a reason to use it as a store of value. The comment you responded to is asking why use it as a medium of exchange?
- Privacy. Yes the blockchain might be public, but good luck tying transactions to identities for selling my purchasing habits, or most other purposes outside of state actor law enforcement. (And even that is arguable with attention to opsec)
- Uncensorability. I can pay whoever I want whatever I want, with no third party able to insert themselves between me and the recipient (or dictate who can send or receive money) for any purpose.
- Irreversibility. Yes, often held up as a weakness, but has its uses. Not all transactions are physical merchandise where a third party enforcing refunds is useful.
I'd be willing to wager my life on the fact that the government, any government, lacks the ability, resource, and desire to muster the compute power necessary to reverse a single bitcoin transaction more than a few hours old.
Our government can't even stop people from distributing files containing data they don't like - what makes you think they can magically seize every single copy of a wallet that exists?
An address could be kept anonymous with good op-sec. If you know that your actions are going to attract the ire of some people with guns, you will practise op-sec.
Cash doesn't work beyond a range of a few inches? Carrying bitcoin isn't likely to get me stopped by law enforcement? The nature of bitcoin makes seizing it very difficult (given more than one person with the same wallet?)
Each of those marketing claims of Bitcoin are not true.
-Privacy: See the recent example where the state sponsored espionage involving sophisticated hackers had their activity traced though Bitcoin's blocktchain transaction log.
Even Monero's XMR is prone to statistical analysis to unmask users:
A more serious question will be what happens when the laws catch up with users using a system designed for money laundering, tax evasion, and enabling black markets?
-Uncensorability
The software which enables blockchains and proof of work is susceptible to attacks by motivated state level attackers, so far only smaller blockchains have been targeted (presumably by rival groups with expendable mining resources).
A much easier censorship attack occurs at lower network levels.
One important point: if we actually include all 7 billion
people on the earth, most of whom have zero BTC or
Ethereum, the Gini coefficient is essentially 0.99+. And
if we just include all balances, we include many dust
balances which would again put the Gini coefficient at
0.99+. Thus, we need some kind of threshold here. The
imperfect threshold we picked was the Gini coefficient
among accounts with ≥185 BTC per address, and ≥2477 ETH
per address. So this is the distribution of ownership
among the Bitcoin and Ethereum rich with $500k as of July
2017.
In what kind of situation would a thresholded metric like
this be interesting? Perhaps in a scenario similar to the
ongoing IRS Coinbase issue, where the IRS is seeking
information on all holders with balances >$20,000.
Conceptualized in terms of an attack, a high Gini
coefficient would mean that a government would only need
to round up a few large holders in order to acquire a
large percentage of outstanding cryptocurrency — and with
it the ability to tank the price.
With that said, two points. First, while one would not
want a Gini coefficient of exactly 1.0 for BTC or ETH (as
then only one person would have all of the digital
currency, and no one would have an incentive to help boost
the network), in practice it appears that a very high
level of wealth centralization is still compatible with
the operation of a decentralized protocol. Second, as we
show below, we think the Nakamoto coefficient is a better
metric than the Gini coefficient for measuring holder
concentration in particular as it obviates the issue of
arbitrarily choosing a threshold.
...However, the maximum Gini coefficient has one obvious
issue: while a high value tracks with our intuitive notion
of a “more centralized” system, the fact that each Gini
coefficient is restricted to a 0–1 scale means that it
does not directly measure the number of individuals or
entities required to compromise a system.
Specifically, for a given blockchain suppose you have a
subsystem of exchanges with 1000 actors with a Gini
coefficient of 0.8, and another subsystem of 10 miners
with a Gini coefficient of 0.7. It may turn out that
compromising only 3 miners rather than 57 exchanges may be
sufficient to compromise this system, which would mean the
maximum Gini coefficient would have pointed to exchanges
rather than miners as the decentralization bottleneck.
Conversely, if one considers “number of distinct countries
with substantial mining capacity” an essential subsystem,
then the minimum Nakamoto coefficient for Bitcoin would
again be 1, as the compromise of China (in the sense of a
Chinese government crackdown on mining) would result in
>51% of mining being compromised.
- Irreversibility
Again, PoW is not immune to "Irreversibility" it actually constantly has a known attack surface for reversing transactions and double spending. The only thing preventing it is so far no only a limited amount of attacks on smaller blockchains have taken place.
As a good example of getting a discount, I've made several purchases through purse.io and saved plenty of money. A proper immediate and legal use-case, that people can exchange their otherwise illiquid Amazon credits for Bitcoin by taking a small loss.
Because it allows you to save money without it losing value in the long term.
That has yet to be seen. Except for true believers I yet have to find a serious economist who suggests crypto currencies as a store of value due to its volatility.
I made the point of specifying long term (by this, I mean say 5 years). Bitcoin is unpredictable short-term because demand can change significantly on a day to day basis, where supply is predictable. If you take any point in the bitcoin history, and check its value compared to 3 years earlier, there is no point where value was lost over a 3 year period.
Also, another way to look at it, is that your Bitcoin will be worth exactly the same in Bitcoin in three years. The bitcoin you own as a proportion of the total supply is fixed. Compared to fiat markets, the proportion you own to what is printed is declining year on year.
Bitcoin will eventually become not less volatile, but involatile. This is because you won't be measuring its value in USD, but you will be measuring the value of USD in Bitcoins.
>Bitcoin will eventually become not less volatile, but involatile. This is because you won't be measuring its value in USD, but you will be measuring the value of USD in Bitcoins.
Accepting a hypothetical future where other currencies are generally compared against bitcoins, bitcoins would still not be "involatile." While markets tend to use one currency as a reference point for another, there are other reference points available. Economists often use a basket of staple goods, like milk and eggs, to get a sense of how much the dollar has fluctuated in value. As you're aware Bitcoin was designed to be deflationary. If we expect human population to rise, and bitcoins to be stagnant in number while remaining a cornerstone of the economy, our hypothetical future should see the value of bitcoins continuing to grow in the long term.
>> "...bad government policy cannot reduce the value of your Bitcoin by printing more of it."
The spirit of your comment is totally true, but I have a pendatic (though vitally important!) objection.
Governments in most countries don't create money and government policy in general neither controls nor influences money creation; instead, money is created by private companies (aka "banks") or a consortium of private companies (aka the owners of "central banks.")
You're right, but on paper at least, the government sets the rules by which the central bank operates. However, we all know that the governments have been bought and paid for by the banks for a long time now.
