Bitcoiners think they’ve found the currency of the future, so let’s act like they have for a second. If you treat Bitcoin like a regular currency, you find a deflationary spiral, in which the price of goods in terms of Bitcoins fell by about 98.5 percent. It’s the kind of pattern that would doom a regular, state-issued currency, as people would just wait for the currency to gain even more value before spending any of it. That’s what happened when German Chancellor Heinrich BrÃ¼ning imposed a policy of deflation as the Great Depression hit in 1930, and at risk of violating Godwin’s law, the consequences of that wereâ€¦suboptimal, to use the understatement of the century.
Luckily, we don’t live in a Bitcoin economy, so this doesn’t actually reduce spending by consumers and businesses, but in any case, this isn’t a pattern you’d want a unit of account, a store of value, or a medium of exchange to have. Bitcoin has plenty of time to grow up into a real currency, but it’s not there yet.
Click “Know More” to read Peter Coy on the Bitcoin deflation “crisis.”