Deflationary structure does not provide incitation for use of money

If you had $12k USD fiat today, instead of spending it, you could buy BTC/EUR/XAU/AMZN/X that could be worth $17k USD tomorrow. In other words, any economy where its participants can speculate and invest have the property of being implicitly deflationary. Is there anything wrong with this reasoning?

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This doesn’t make for a good liquid currency though. The reason people use dollars in everyday purchases is because a dollar today is pretty close to what a dollar tomorrow will be worth. If you knew that the $20 dollars in your pocket was going to be worth $100 tomorrow you wouldn’t spend it, but if you thought that the $20 dollars in your pocket might be worth $20.02 tomorrow you might go ahead and spend on stuff you need and save more.

US dollars used to be deflationary as well, as we’ve turned to inflation policies and low interest rates people are enticed to spend, and now everyone is in major debt.

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I believe it could easily be solved with two coins, ADA and ADA-CASH. ADA floats freely and is used for savings (store of value) while ADA-CASH is pegged to the US dollar and used for daily transactions. Daedalus should be able to easily store both and change from one to another with ease, perhaps with a built in exchange? ADA is fixed in supply while ADA-CASH can grow on demand by adding one zero to all wallets at once so there won’t be first receivers who have an advantage over the rest (FED/GOVT).

I hope somebody tries to implement this solution soon and I would like to be part of it.

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This is a very complex topic and I don’t think any of us have enough background in macroeconomics to discuss this properly (does anybody here have a Ph.D. in Economics?). In any case, I’m not convinced by OP’s argument nor I understands yours: first of all, we should separate the current speculative pricing of cryptocurrencies as these are not defined by them but by the market; the extreme volatility of Bitcoin is not related to the cost of mining (which is attached to the current difficulty, reward, electricity cost, hardware development, weather, etc.). I see the deflationary property defined by the controlled supply algorithm similar to how we can keep our fiat savings in a normal savings bank account. I know that I could buy US bonds today and have more fiat tomorrow, but if I want a new laptop today I will buy it today… it’s not like I am buying a laptop today because USD is inflationary (since the inflation rate is only significative in long periods of time). The only time when this pressure of buying things ASAP happens is when you have hyperinflation.

My hypothesis basically is that while the rate of inflation or deflation is lower than the growth rate of a stock market or a real estate market, people will not take decisions based on some inflationary/deflationary properties of their default currency.

Absolutely @Ikarus , that was exactly my thought in a previous post above

We don’t need any economic background to identify the pain points we face as daily users of commerce instruments and cryptocurrencies which are the first step in recognizing the need for solutions.

The most important social pain points are:

  • Volatility (Merchants won’t be changing prices on every crypto tick)
  • Fractionality (Consumers won’t buy a loaf of bread for 0.00634512 ADAs)
  • Convertibility (Consumers and merchants are resistant to make conversions from fiat to crypto)

The most important usability pain points are:

  • Instant confirmation (Some cryptos excel at this)
  • Vanity numbers (Sending money to 1-800-MYSHOP instead of 1a53380170f384699a45f09ed952edbed)
  • Simplified wallet (Easy conversion from fiat to crypto)

The most important technical improvements:

  • Scalable to millions of transactions per second (World commerce)
  • Minerless (Energy conciousness)
  • Low transaction fees (Pennies not dollars)

See, we should understand these pain points as users not as developers so the solutions come from ergonomics first and not from technology first, technology should facilitate the solution not impose it regardless of ergonomics or there will be high resistance in the adoption.

And that’s why a pegged crypto is the first step in that direction but nobody wants to face reality that everybody wants to get rich quick so currencies without profit are not even considered, and that sentiment comes from investors and programmers alike, while merchants and consumers (the real users) are ignored. And that’s why after a thousand cryptos nobody has cracked that nut yet, they’re all looking in the wrong direction. And that’s why the proposed solution implies the use of both a floating and a pegged currency, easily interchangeable, with a simple and powerful wallet every mere mortal can use and not just savvy geeks.

I firmly believe that’s the direction we should take in the crytpocurrency world whether it is Cardano or any other team. Cardano will provide the tools, we should provide the solutions.

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I agree 100%, you formulated my thoughts much better than me. ADA, like all cryptos, is designed for speculation (so far) on getting rich quick, while ADA-Cash would be the true solution for merchants and users, because its price would be stable.

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We don’t need a PhD in economics to discuss this topic. Inflation/Deflation on the US dollar is not strong enough to impact your spending decision on buying a laptop, this was exactly my point. You need the currency to be stable enough so that people can transact in it with the knowledge that the rate isn’t going to fluctuate wildly over the next day. Speculation is driving much of the volatility right now, and you are right that it isn’t tied to mining. In the end deflation still promotes saving, while inflation promotes spending. US dollars are inflationary, but only since the 1970s.

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I am sorry I didn’t understand that that was your point. I don’t think there is anything a decentralized cryptocurrency can do to avoid the volatility caused by the speculation of the market. This is why: Let us suppose we develop an inflationary altcoin, this could be accomplished in several ways (e.g. constant difficulty). What happens if the market suddenly have a lot of interest in this altcoin and start buying as much as they can? the supply will reduce and the price will increase, because even that in the long term more tokens will be minted, in the short term supply will be scarce, so whoever needs to use this altcoint will have to pay market price. What if we could just control the supply? how we could do that? for instance, we could let the network decide the reward based on the demand, but then the problem is how to quantify this demand. And then there is also the problem that some part of the network will probably have more interest in creating artificial scarcity than controlling the volatility.

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That’s the whole point of brainstorming, instead of saying no upfront.

Welcome to the discussion, we need more heads proposing solutions not more mouths saying it can’t be done.

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Continuing with the proposals, it’s a good idea to do some research on what has been done up to now and how they performed in the market, what were their good and bad points and why their failure.

I remember time ago there was a coin controlled by stakers that minted on demand and bought on supply to keep it pegged to the dollar, unfortunately don’t remember its name/symbol. Also right now we have USDT Tether which besides being in the eye of the storm it has accomplished that goal to perfection.

What else?

But, we could get some phd macro economics to join the debate… i mean, Cardano foundation is a group of phd and engineers wich makes every step they make a little more strong.

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Accomplished what goal exactly? Tether is 100% centralized, and people using USDT have to trust in iFinex Inc.

A crypto pegged 1:1 to the USD?

That’s the point. ADA-CASH would be semi-centralized (some replicator supernodes come to mind) and Cardano would be the gatekeeper (coordinator). Remember we are trying to introduce a non-volatile coin pegged to the USD to handle million of transactions in world commerce and need to propose different approaches. Cardano will keep ADA as store of value and Daedalus will easily handle both accounts.

Keep your savings in ADA and your daily expenses in ADA-CASH.

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First of all I am so happy to see this kind of questions. It shows the maturity of the people here. Keep it up!

Now on topic: This is a very good question. First we should ask ourselfs what gives the dollar, eu etc. its value? Why is Eu right now more valuble than dollar? When this question is answered, maybe we can apply the same model into cryptocurrencies?

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IMO, I prefer a currency that has greater purchasing power in the future vs a constant or inflationary one. I’m better-off if I can buy a meal for less money than I expected compared to going to the store and realizing my money that could purchase 3 full meals before can’t even buy a slice of bread. It just means my money will last longer than a constant value or inflationary one. If I can’t split the value in very small quantities; and transaction fees are proportionally constant to the value of a unit of the currency then this will be an issue. But it does not appear to be the case with ADA.

Oh… and why do we put our money in a bank on time deposit? So we can fight-off inflation (only a bit).

i dont think it will be deflationary forever. it’s still an early stage for all crypto, few investors are holding and prices are sensible to speculation. But even in a volatile market ada is more stable than other currencies due to the number of available coins. billions in pumps and dumps can move only a few cents of the price.

5 billions to move 0.111…

30 b/ 45b = 0.66
35 b/ 45b = 0.77

300 b /45b = 6.66
305b / 45b = 6.77

in the future if we save ada we could spend ada or convert to a fiat currency when needed.

the conversions may be easier and cheaper, some debit cards already can do this (with btc, dash, usd, euro) but the rates are still unfair… but more services like this will show up soon.

to do many payments we could convert some ada to iota to minimize fees, when these coins become widely accepted.

Like steem and steem dollar?

Hey everyone, thanks for the answers! Let’s review what is being said here. About the comments realtive to having a Phd in economics, I have myself a Ms in economics. I specialised in Microeconomics, but the cases we talk about are mainly relative to economics 101.

Via the governance system everyone can decide if it is better to have capped, constant inflation or variable inflation.

I did not found meaningful info about this governance system. However, if your voting rights are granted in PoS way, it means that the richest users will detain the power. The incitation then for these whales is to limit the supply of the money (in a HODL fashion), in order to make its value go up. However this will increase deflation and prevent a widespread use of the token. That’s why central banks are independent : to avoid capture of their power by private interests (state included).

An alternative allocation of voting rights could be to grant them to users depending on the volume of transactions done in the past: hence the monetary policy would be geared toward the users and not the hoarders.

GDP - compile it from Cardano - then I would know what GDP really is.

A simple way is to evaluate a use metric is to evaluate of goods and services exchanged using Cardano. If we kept a register of the companies accepting Cardano in exchange of tangible good and service (i.e not exchanges), we could monitor their transaction levels (either by automatic reporting on their part, or by analysing transaction data) and derivate an activity index. That’s what national statistics service do.

In other words, any economy where its participants can speculate and invest have the property of being implicitly deflationary.

This is called a liquidity trap, and this is one of the worst scenario you can imagine for your economy.

if you thought that the $20 dollars in your pocket might be worth $20.02 tomorrow you might go ahead and spend on stuff you need and save more.
US dollars used to be deflationary as well, as we’ve turned to inflation policies and low interest rates people are enticed to spend, and now everyone is in major debt.

Indeed, a very slow deflation isn’t a big deal usually. However, it is a major drag for the adoption of currencies, as we explained before. It’s like saying to a sick person that once he will be healed, he will be able to drink a glass of wine a day, so why not drinking a bottle now?

US dollars used to be deflationary as well, as we’ve turned to inflation policies and low interest rates people are enticed to spend, and now everyone is in major debt.

I see often this argument about debt. Well, americans, you’re not the world and many countries can manage a modern capitalist system while saving their money. (link)

ADA and ADA-CASH

Interesting idea addressing the technical problems that @Ikarus addresses later. Maybe we could expand it in another thread. The way I understant It is that you’d have your Ada-cash wallet representing the $ value of your Ada wallet. Just like those bitcoin credit card, but with a fluctuating account balance and a payment in Ada-cash. Is that is?

The most important social pain points are: (etc…)

Clearly the best analysis. Devs read this!

I remember time ago there was a coin controlled by stakers that minted on demand and bought on supply to keep it pegged to the dollar, unfortunately don’t remember its name/symbol. Also right now we have USDT Tether which besides being in the eye of the storm it has accomplished that goal to perfection.

Indeed Tether is backed by the belief that Bitfinex has 1$ for every Tether out there, which allows it to totally control the price of the currency. Modulating money emission is an effective way to control the currency price : that’s effectively what central banks usually do, in addition of having massive monetary and securities reserves for emergency.

First we should ask ourselfs what gives the dollar, eu etc. its value?

Inside the USA, you are legally binded to accept it as a mean of payment. Besides, you can only pay your taxes with $, so that creates a supply and a demand. Also, there’s a massive payment infrastructure that makes it the easiest way to transact.

Outside the USA, you need dollars to buy oil, which is the main ressource of every modern economy. Thus it creates an artificial demand for the currency. A lot of international lending is done in $, so you have as well to get dollars in order to reimburse it => extra demand. This explains why the USA has had a negative account balance for so many years without a collapse of its money : everyone needs dollars to transact.

Some may say that this right is enforced by military power and violence of the american army : all of the recent wars in the gulf have a link with oil and switch from to another trading currency. Others may argue about the currency manipulation of some countries, such as China, who buy in order to devaluate the Yuan.

IMO, I prefer a currency that has greater purchasing power in the future vs a constant or inflationary one. I’m better-off if I can buy a meal for less money than I expected compared to going to the store and realizing my money that could purchase 3 full meals before can’t even buy a slice of bread.

Yeah good for you but then it will be like gold, and not be used for daily exchange. You could buy bitcoins, since the cardano improvements are not really useful in that case. Besides, unlike gold, your currency doesn’t have intrinsic value, so when the market crashes…

I dont think it will be deflationary forever.

Well if you have a limited supply and a growing use, it’s the case. Unless use is already at its peak and your economy experiences a recession. But then you may cry because you can’t pull the lever of monetary policy.

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So we need meters about the circulating of Ada outside exchanges to have a dinámic Ada Emission policies wich will generate enough Ada per year to have a debatible Deflation/Inflation?