If the real rate return of investments over any period of time is on average less than simply hoarding the currency (an inevitable consequence of a permanently deflationary economy) your economy is screwed up.
Bitcoin and its users have no duty to any existing "economy", and certainly don't amount to one themselves. If one's holdings of bitcoin appreciate with respect to some other commodity, eventually the wealth effect will make investment and other spending in that second commodity attractive. No one is in any sense stuck in a "bitcoin economy".
Your above points are correct; depreciation in general is a bad thing but for a "parallel currency" aiming for a particular niche like Bitcoin it's probably not an issue, especially because holding Bitcoins is definitely not without risk.
(In the unlikely event that Bitcoins ever became widely popular with speculators, then governments will tax or restrict domestic purchasers or exchanges for Bitcoins (they can't and won't be especially efficient at doing this; the US/EU don't need to be to severely damage the exchange value of a Bitcoin.).
Ok, let's say everybody in the world uses Bitcoin. Nobody invests. If that's the case, then the amount of goods and services in the economy remains constant, which means the price of Bitcoin doesn't rise. How do I make money then without investing and creating more value?
In that scenario, once you've adjusted for the risk associated with investment you'd give up all hope of "making money" - with no aggregate monetary growth(1) it would be like "investing" in a game of poker (sure, you might back the surprise winner but...). It's amazing how much less risk averse you are if you lose ~2% per annum from sitting on cash and you can make money from a slightly-worse-than-average investment portfolio (and there's a 2% return for an average investment)
Arcane hypothetical edge cases are unhelpful for exposition. It's easier to look at the conventional alternative: everybody in the world uses a means of payment which diminishes in value at a slow but stable rate. Now the average person that invests in production gains, and the average person holding cash is incentivised to convert that cash into something they want or funding the production of something others want. Isn't this better?
(1)strictly speaking we're better off looking at money as a flow, in which case the velocity of circulation comes into place, but a fixed money supply certainly wouldn't induce that to increase....
with no aggregate monetary growth it would be like "investing" in a game of poker.
This statement is wrong, because you measure profits in money rather than value. With bitcoin the amount of money in the economy stays the same, true. However the value of each unit grows as soon as you invest and produce something useful that people want. This means, you may receive back even less than you invested in absolute units of money, but more in value.
As I had replied to Eliezer, investing in a deflationary world will be tilted towards capital that yields a regular stream of real dividends: actual goods, not money. That is, there will be fewer corporations that will be expected to give money as a yield and more consumer cooperatives that will yield goods and services. Farms that yield food, NG well and that yields NG, a power plant and get a yield of electricity and so on.
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It's more because people stop investing
If the real rate return of investments over any period of time is on average less than simply hoarding the currency (an inevitable consequence of a permanently deflationary economy) your economy is screwed up.
Bitcoin and its users have no duty to any existing "economy", and certainly don't amount to one themselves. If one's holdings of bitcoin appreciate with respect to some other commodity, eventually the wealth effect will make investment and other spending in that second commodity attractive. No one is in any sense stuck in a "bitcoin economy".
If I'm misunderstanding, please clarify.
Your above points are correct; depreciation in general is a bad thing but for a "parallel currency" aiming for a particular niche like Bitcoin it's probably not an issue, especially because holding Bitcoins is definitely not without risk.
(In the unlikely event that Bitcoins ever became widely popular with speculators, then governments will tax or restrict domestic purchasers or exchanges for Bitcoins (they can't and won't be especially efficient at doing this; the US/EU don't need to be to severely damage the exchange value of a Bitcoin.).
Ok, let's say everybody in the world uses Bitcoin. Nobody invests. If that's the case, then the amount of goods and services in the economy remains constant, which means the price of Bitcoin doesn't rise. How do I make money then without investing and creating more value?
In that scenario, once you've adjusted for the risk associated with investment you'd give up all hope of "making money" - with no aggregate monetary growth(1) it would be like "investing" in a game of poker (sure, you might back the surprise winner but...). It's amazing how much less risk averse you are if you lose ~2% per annum from sitting on cash and you can make money from a slightly-worse-than-average investment portfolio (and there's a 2% return for an average investment)
Arcane hypothetical edge cases are unhelpful for exposition. It's easier to look at the conventional alternative: everybody in the world uses a means of payment which diminishes in value at a slow but stable rate. Now the average person that invests in production gains, and the average person holding cash is incentivised to convert that cash into something they want or funding the production of something others want. Isn't this better?
(1)strictly speaking we're better off looking at money as a flow, in which case the velocity of circulation comes into place, but a fixed money supply certainly wouldn't induce that to increase....
with no aggregate monetary growth it would be like "investing" in a game of poker.
This statement is wrong, because you measure profits in money rather than value. With bitcoin the amount of money in the economy stays the same, true. However the value of each unit grows as soon as you invest and produce something useful that people want. This means, you may receive back even less than you invested in absolute units of money, but more in value.
As I had replied to Eliezer, investing in a deflationary world will be tilted towards capital that yields a regular stream of real dividends: actual goods, not money. That is, there will be fewer corporations that will be expected to give money as a yield and more consumer cooperatives that will yield goods and services. Farms that yield food, NG well and that yields NG, a power plant and get a yield of electricity and so on.
Actually, it is only less for a sub-average investment. If you invest something with an above-average return, you'll be better off investing.