Or neither Bitcoin nor Blockchain. The thing is, inflation is actually what keeps the entire economy moving. Deflationary currencies actively dissuade investment and lending. What would a loan even look like denominated in a deflationary currency? Lenders are incentivized not to give you the one, as their cash reserves appreciate risk-free.
Oh, and also, why trust this random ad-hoc group of self-appointed economists (the core dev team) over a selected group of professional economists with degrees an arms-length away from politics (the federal reserve)? None of it makes sense. If the core team wants to create more bitcoin they can. Just like the fed.
Inflation is not a bad thing - it's solely a regular haircut for unproductive capital. Nobody should be hoarding cash. They should invest. Salaries are indexed for inflation so they don't go down. This isn't rocket science.
> The Cantillon Effect refers to the change in relative prices resulting from a change in money supply. The change in relative prices occurs because the change in money supply has a specific injection point and therefore a specific flow path through the economy. The first recipient of the new supply of money is in the convenient position of being able to spend extra dollars before prices have increased. But whoever is last in line receives his share of new dollars after prices have increased.
This theory is fundamentally flawed, because it assumes that whoever receives the “new money” buys consumer goods. If this is indeed what happens, then prices should increase. But what if he buys bonds?
If newly produced money is used, not to buy consumer goods (or commodities), but bonds, then the injection of new money into the economy has the opposite effect on the price level, because the new money is used to improve the efficiency of production. E.g. if a producer of chickens sells a $250m bond (bought with “new money”) and invests the proceeds in a chicken plant[1], the price of chickens will decrease, due to increased productivity of producing chickens.
In the above scenario, the only price that will increase is the price of bonds, which is the same as a falling rate of interest (the rate of interest is inversely proportional to the price of the bond). And this is exactly what has been happening for the past 35 years or so[2].
Your article seems to be making a distinction between the Cantillon effects and Money Neutrality.
"In principle, it could be argued that Cantillon Effects focus on the short-term effect of changes in money supply, but that money neutrality is a long term characteristic of money. Short-run effects in resource allocation are typically not denied, usually due to the fact that they alter “sticky” prices, such as wages." It then goes on to argue that Money Neutrality shouldn't be taken as a given.
I don't think the article states money neutrality is fallacious, though, and I couldn't find any substantiating claims within it. I suppose the argument I am making is for money neutrality. That yes, the initial recipients of capital are temporarily advantaged being able to purchase assets are pre-inflation prices. However, over time, this does balance out. The market makes it so. I'm not sure, maybe I'm missing something? I'd love to read more on this if you think I am.
That said Bitcoin has a worse Gini ratio than any banana republic, worse wealth distribution and all sorts of other economic factors, and an unbounded cost to transact that as a fixed fee unfairly burdens the poor -- that just make it worse all around than the existing USD based financial system.
Actually it’s possible for any hacker to generate more Bitcoins if another bug like CVE-2018-17144 is discovered.
What Exactly Did the Bug Do?
The obvious worst part of this bug was the inflation exploit. An attack could create new bitcoins at will, exceeding the 21 million hard cap limit that is currently in place. This would absolutely destroy confidence in not only Bitcoin, but every cryptocurrency.
Yes, I know about that. But that is quite a straw man.
You could say the same thing about the implementation of the protocols that the banks use, who also store your money as an imaginary balance in their computer systems.
You can’t really though, because traditional banks are regulated, and if anyone tried to do that Theyd be investigated by the FBI and the Secret Service then any fraudulently created currency would be destroyed. Further it’s not a core tenet of Fiat Banking that more can’t exist so follow on effects would be limited. If anyone introduces new bitcoin none of that happens, all holder is just lose because decentralization. It’s almost like in the thousands of years of traditional currency people have thought of this and implemented mitigations. It is fascinating to watch bitcoin replay the entire history of traditional banking in fast forward.
> You can’t really though, because traditional banks are regulated, and if anyone tried to do that Theyd be investigated by the FBI and the Secret Service then any fraudulently created currency would be destroyed. Further it’s not a core tenet of Fiat Banking that more can’t exist so follow on effects would be limited. If anyone introduces new bitcoin none of that happens, all holder is just lose because decentralization.
Unless a hacker finds a flaw that lets them siphon off bitcoin without anyone noticing, all the holders would have to do is fork the chain with flaw fixed. Bitcoin is just an P2P shared accounting book, after all, and if someone is able to write an illegal entry in there, the entry can be scrubbed and rewritten. As long as over 50% of the miners believe it's the right thing to do, it becomes the new official record. This actually has happened before and played out exactly as I just wrote: https://en.bitcoin.it/wiki/Value_overflow_incident
If a bank is hacked, who can say really what will happen? Because of secret courts and shadowy government agencies, all you really have is blind trust. Could you go and audit the US Dollar and be sure that there isn't more being created than what the government tells us? It would take you years even if you could, and even then, I'd bet you dollars to donuts that if the government was doing something they didn't want you to know about, they'd block you from finding out.
Bitcoin can be audited by anyone at anytime. Just download the blockchain, and run a program to process it, and you'll know immediately. In fact, the official client does exactly this, and won't accept a blockchain that doesn't pass its internal audit.
> It’s almost like in the thousands of years of traditional currency people have thought of this and implemented mitigations. It is fascinating to watch bitcoin replay the entire history of traditional banking in fast forward.
In the thousands of years of traditional currency, no one was able to create a currency that limited the number of coins created in a way that anyone can publicly check, shared with the ability to transmit very quickly and anonymously large sums across the globe.
This makes cryotocurrency unique, and the old traditional ways of handling money do not apply to it.
I don’t really care though, because they don’t guarantee that no additional dollars are going to enter circulation, we know they well, and the balance of my bank account is insured by the FDIC. If there’s any counterfeiting going on, that’s going to get investigated by the Secret Service and the FBI. If anyone makes more bitcoin, holders just all lose because decentralization. It’s not meant to be a silly argument, it’s meant to be a concrete demonstration of the difference in value between traditional currencies and crypto currencies.
I don't hold it, I invest it in productive things, like I said. I sell those productive assets when I need to buy something substantial, and I use the US Dollar as a medium of exchange and unit of account. You know, a currency. I don't hold it for long enough for 3% annual inflation to make a meaningful dent in my net worth.
It's also trivially false that nobody ever forced a deflationary currency on people, the US dollar used to backed by gold. If your argument is the US dollar is/was forced on people, then the argument is moot.
Bitcoin not blockchain.