There have been multiple mentions of bitcoin ending up in a deflationary spiral on the long run. At a bird’s eye view for a layman, it sounds true. However, if one takes some time to study bitcoin and understand it in details, it will become obvious that the digital currency is quite different from conventional fiat currencies, and the deflationary spiral that seems perfectly applicable to fiat currency at certain circumstances doesn’t apply to its digital counterpart.
For those who do not know about deflationary spiral, it is an economic concept which states that continued deflationary trend will lead to reduced prices, increased production and increased value of the currency with respect to the purchasing power. The increasing value of currency, combined with reduced prices will lead to a fall in the circulation of currency and ultimately its demise.
Theoretically, those who argue that bitcoin will go down the deflationary spiral, believe that with the number of bitcoins already fixed, its value over a period of time will be proportional to its demand within the same timeframe. With everyone believing it, they will end up hoarding bitcoin expecting the value to rise in the future. Mass hoarding will take bitcoin out of circulation leading to its collapse.
However, the rules that apply to fiat currency do not apply to bitcoin as it is fundamentally an asset compared to traditional currency which is based on debt. Bitcoin is a highly divisible currency and with an increase in the value of a bitcoin increases, the amount of bitcoin needed for transactions will reduce proportionally. At the same time, strengthening economy leads to stronger bitcoin in the midst of deflation, which is also good for it. The progressively increasing difficulty in bitcoin mining and reduction in rewards are designed to counter sudden deflationary effects.
Only 21 million bitcoins are ever going to be mined and this knowledge among the bitcoin users leads to controlled deflation without causing the deflationary spiral.
BitcoinNonRetard 
DougNJ 
sancho 
Colz 
Dear God, I should be a writer if rubbish like this counts as work.
Soon enough all of bitcoin will effectively be out there. With block 420k 75% BTC will be disbursed. About 8 years later 15/16ths, or 93.75% will be out and about. When the block reward is under 1BTC and 96.8% is released the supply might be less than the rate of attrition.
You got the understanding of the concept of spiral wrong. The argument isn’t that deflationary spiral leads to a collapse of the currency, but that it leads to the collapse of the economy, i.e. drop in production, mass unemployment and so on. That is why, according to the mainstream, the central bank must intervene and prevent excessive monetisation of the currency. The description you provide is a misunderstanding of the alleged problem. Just google for it if you don’t believe me.
I’m not going to discuss how the economics actually work, I just like to point out that this is an ideological, statist theory. It is based on the assumption that the central bank has magical powers that normal people do not have. If you’re not a statist, the theory makes no sense: if deflationary spiral really was a problem, then it wouldn’t be possible to solve it by a central bank.
I’d contend that all forms of money is ultimately debt.
You deliver a valuable good or service. You receive a token representing the value. Later you exchange the token for something else of value. During the time you held the token, it was a debt by the society that has agreed to use the token to you.
The nature of the token: metal, paper, encrypted bits or treasury promises, does not matter. Every from of token represents a debt. The usual risks of non-payment exist always.
The problem with deflation is that the natural progression of all forms of value is towards decay. Food rots, infrastructure erode, technology becomes obsolete etc. This tendency is basically governed by the second law of thermodynamics.
To pretend that the tokens we use for representing value may increase in value while in the real world the actual values are decreasing is violation of the laws of nature.
Except, you can just build things with the utmost of technology and innovation is limitless as physics expands its understandings. Your argument would hold true if we as a civilization were at the pinnacle of our existence… But we’re not. We haven’t even colonized another planet yet.
Yes. You may always create or find new value, but it will take work to do so. Likewise, through doing work and expending energy, you may maintain or enhance the value in an existing item.
Currency deflation creates the impression that value could increase without work. It cannot.
Value ultimately only exists in the physical world and is thus subject to it’s laws.