Bulldozer00's Blog

For only $39.95 USD plus tax, you can become a trillionaire in Zimbabwe. Woot! The downside is that your trillion dollars won’t even be enough to buy a loaf of bread.

Since central bankers and free spending governments have been stoking the flame of inflation forever, people have been hoodwinked into thinking that inflation is, like gravity, a force we must live with.

In an inflationary environment, people, knowing their hard earned money will lose value over time (minute by minute in a hyper-inflationary apocalypse), are motivated to spend and borrow as soon as possible. Inflation works just like compound interest does – but in reverse. It doesn’t make economic sense to save for the future when you know that the $1 you earned today will be worth much less in 5-10-20-30 years.

Everyone knows that rampant inflation can quickly destroy a society, but to most textbook economists a “little” inflation is required to keep an economy growing by catalyzing buying, borrowing, and investing behaviors. But, how much is a “little” inflation?

With deflation, your money doesn’t just retain its value over time, its purchasing power increases. In contrast to a little inflation, classical economists theorize that any level of deflation is bad for economies because it encourages people to save their money (they call it “hoarding” to give it a negative connotation) and discourages investment in the future.

If deflation is so bad, why has it has worked so splendidly in the computer industry? Relentless price decreases for computer hardware over time has not stopped companies from competing with each other, or investing in new products, or innovating for the future. Deflation hasn’t stopped people from buying a $1000 computer today that they know will cost $500 next year.

Unlike all fiat currencies backed by “the full faith and credit” of untrustworthy governments, bitcoins are deflationary. The Bitcoin protocol is designed to dispassionately stop the minting presses when 21 million bitcoins have been created and issued. If you own some bitcoins and the Bitcoin economy manages to survive the mighty external AND internals forces vying to tear it apart, you’ll be a happy camper some time down the road.