Asset[2]: Anything that has value and can be converted to cash.
For the purpose of this or any other discussion I've made this argument, the author of the comment/post clearly confuses the two above stated words or uses them interchangeably.
Currencies, in modern economics, are control by central authorities (FED/EBC/etc) which control their performance and try to adjust them. In their optimal status, when the economy goes well currencies loose value (inflation) by 1-2%. This behavior enhances money exchange and induces a spending behavior which is viewed as good for the economy. You will buy a computer today because your money will not buy the same model/computer tomorrow. When you buy something, you fight unemployment, pay taxes to the state and so on.
The computer you buy can be an asset though. The moment you buy it, starts loosing value. You won't go to the grocery store to exchange the computer for tomatoes. You will need a medium to do that, that medium is money (and that's exactly what BTC claims to be, but up until now it's not). The computer though except from an asset is also an investment. It can help you, generate value either in form of entertainment or money (programmers/designer/etc.) but it's still not money. Sure you can exchange it for something but that's not a straight-forward process as buying beers with a currency.
The next question is: Why I should own a currency? Because the local authority (a government) impose you to use it's currency to pay taxes. Currencies are never adopted, they are always enforced to populations by supreme state governments, as means of exchange. There is no other for anyone wanting to own an inflationary currency, except for that fact that you can't do anything without it. Of course in my example, I take for granted that we're talking about a relatively healthy state. Otherwise, people will prefer a foreign, more stable (less inflationary, or deflationary if possible currency. Note that less inflationary means deflationary for them anyway).
Now, BTC introduces a currency that has some characteristics. One of them is that it's finite[4]. So, deflation is chosen here by design.
Say you have 2 credit cards: 1 from BoA with USD and one issued by a third party linked to your BTC account. You enter in a grocery store and you need to pay, which one you think most people choose? The rational choice is to use the USD because it's an inflationary currency, while BTC is not.
Then, why Satoshi choose to add deflation in BTC: Because otherwise no-one would even care holding any. What kind of value an inflationary digital (non-backed) currency could ever have? None.
Bitcoin is better viewed as Gold in digital form. Say you have 10.000.000.000 USD and you wanna convert that money into some asset. Would you chose a 5 year old asset or a 5.000 old year asset to do that? The rational (obvious) choice is gold. It's 5.000 old and pretty much stable, BTC as long as we know can turn to ~ 0 tomorrow if the big players choose to opt-out or USA/CN/EU/RU decide to ban it.
Why is all this relevant for the purpose of this discussion: Because the commenter (Aqueous iirc) is talking about bitcoin as a currency and not an as an asset.
NOTE: Currency is viewed as assets at FOREX[3] but I'm sure it's not relevant for the purpose of this discussion.
Say you have 2 credit cards: 1 from BoA with USD and one issued by a third party linked to your BTC account. You enter in a grocery store and you need to pay, which one you think most people choose? The rational choice is to use the USD because it's an inflationary currency, while BTC is not.
It doesn't matter. Say you want to maintain a portfolio of 90% bitcoins, 10% dollars. You have $100 USD and $900 worth of bitcoins. If you use the BoA card, you spend $50. Then you shift $45 from bitcoins to USD and maintain a 10/90 portfolio. If you use the Bitcoin card you instead shift $5 from dollars to bitcoins.
The only reason to choose one over the other is transaction costs. I.e., if it costs you $1 to make this transaction, and you expect a $50 USD deposit in the next month, you'll use USD to avoid the $1 transaction fee. If transaction costs are a % of the transaction size, you'll pay with the BTC card (and pay only x% of $5, rather than x% of $45).
Your post still doesn't explain why a deflationary currency will cause a person to stop consuming. Just as we could hypothesize a BTC backed credit card, we can also hypothesize an SPY backed credit card. The mechanics would basically be identical - at the point of transaction, the card company converts from the buyer's preferred asset to the seller's preferred asset. Both BTC and SPY backed credit cards already exist - it's equivalent to getting a regular USD credit card and selling BTC/SPY whenever you want to make a monthly payment (modulo a couple of extra clicks).
Incidentally, your post completely ignores the reason central banks manipulate currencies. The reason has nothing whatsoever due to the distinctions you make between currencies and assets (which, if I'm understanding correctly, is merely liquidity and the ability to pay taxes in them).
> Your post still doesn't explain why a deflationary currency will cause a person to stop consuming.
I never said will stop consuming. It will consume less. It makes sense, a consumer will spend whatever has bigger Y% of having LESS value in X time, not more!
Secondly: Have you tried buying/selling bitcoins? If you use a bank it's a pretty straight forward process but has huge costs.
Thirdly: Do you buy products using bitcoin? Do you think that people uses bitcoin to buy products online? Because all the transactions I'm aware off are either illegal (hard to track) or perceive bitcoin as an asset.
Central manipulate currencies in order to adjust the economy of a certain group, which is under their authority, as far as I know.
The distinction I make between currencies and assets come from ~ 300 BC (at least, probably way back) and I don't understand why even is a topic of discussion. BitCoin is treated by 99% of it's users as an ASSET not as a CURRENCY. No one is buying services in Bitcoin, if does not want to hide. Isn't it weird that while Silk Road used BTC as it's main currency, Amazon, eBay, Apple and every other big player, doesn't even care? You think it's out of spike or anything?
I'm not making any assumptions here, I'm stating facts. It's you who are suddenly re-writing 2000 years of economic history by assuming that buying with Gold (bitcoin) is the same as buying with FIAT.
I'm not arguing with your distinctions between currencies and assets. I don't care what label you choose to apply to BTC or SPY. I'm asking why a positive real rate of return on BTC will cause consumption to drop in a manner that a positive rate of return on Gold or SPY would not.
I strongly suggest you go read an economics textbook that actually does the math. Working the models will help you avoid arguing with yourself about definitions (a pointless exercise even if you had a partner http://lesswrong.com/lw/np/disputing_definitions/ ).
Asset[2]: Anything that has value and can be converted to cash.
For the purpose of this or any other discussion I've made this argument, the author of the comment/post clearly confuses the two above stated words or uses them interchangeably.
Currencies, in modern economics, are control by central authorities (FED/EBC/etc) which control their performance and try to adjust them. In their optimal status, when the economy goes well currencies loose value (inflation) by 1-2%. This behavior enhances money exchange and induces a spending behavior which is viewed as good for the economy. You will buy a computer today because your money will not buy the same model/computer tomorrow. When you buy something, you fight unemployment, pay taxes to the state and so on.
The computer you buy can be an asset though. The moment you buy it, starts loosing value. You won't go to the grocery store to exchange the computer for tomatoes. You will need a medium to do that, that medium is money (and that's exactly what BTC claims to be, but up until now it's not). The computer though except from an asset is also an investment. It can help you, generate value either in form of entertainment or money (programmers/designer/etc.) but it's still not money. Sure you can exchange it for something but that's not a straight-forward process as buying beers with a currency.
The next question is: Why I should own a currency? Because the local authority (a government) impose you to use it's currency to pay taxes. Currencies are never adopted, they are always enforced to populations by supreme state governments, as means of exchange. There is no other for anyone wanting to own an inflationary currency, except for that fact that you can't do anything without it. Of course in my example, I take for granted that we're talking about a relatively healthy state. Otherwise, people will prefer a foreign, more stable (less inflationary, or deflationary if possible currency. Note that less inflationary means deflationary for them anyway).
Now, BTC introduces a currency that has some characteristics. One of them is that it's finite[4]. So, deflation is chosen here by design.
Say you have 2 credit cards: 1 from BoA with USD and one issued by a third party linked to your BTC account. You enter in a grocery store and you need to pay, which one you think most people choose? The rational choice is to use the USD because it's an inflationary currency, while BTC is not.
Then, why Satoshi choose to add deflation in BTC: Because otherwise no-one would even care holding any. What kind of value an inflationary digital (non-backed) currency could ever have? None.
Bitcoin is better viewed as Gold in digital form. Say you have 10.000.000.000 USD and you wanna convert that money into some asset. Would you chose a 5 year old asset or a 5.000 old year asset to do that? The rational (obvious) choice is gold. It's 5.000 old and pretty much stable, BTC as long as we know can turn to ~ 0 tomorrow if the big players choose to opt-out or USA/CN/EU/RU decide to ban it.
Why is all this relevant for the purpose of this discussion: Because the commenter (Aqueous iirc) is talking about bitcoin as a currency and not an as an asset.
NOTE: Currency is viewed as assets at FOREX[3] but I'm sure it's not relevant for the purpose of this discussion.
[1] http://en.wikipedia.org/wiki/Currency
[2] http://en.wikipedia.org/wiki/Asset
[3] http://en.wikipedia.org/wiki/Foreign_exchange_market
[4] 20,999,999.9769 BTC. - https://en.bitcoin.it/wiki/FAQ#How_long_will_it_take_to_gene...