The Capital
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The Capital

A Bitcoin Inflation Dialogue

By Jon Gulson on ALTCOIN MAGAZINE

The Big Mac Index as a measure of currency stability

A private message exchange on twitter followed from a recent blog, whose abstract was costs of mediating contractual trust come to limit financial growth in times of low inflation.

The dialogue arising revolves around two points made by the reader, whose background is Central Banking:

  1. Bitcoin is not a macroeconomic variable, it’s microeconomic and therefore, incongruous to a Central Bank’s understanding of inflation.
  2. Mediation decreases transaction costs, not increase(s) them, as Satoshi Nakamoto stated.

Macroeconomic Variables

The first contention came from the assertion made [that] an energy-based international unit can subject fiats to the same “inflation” rate — the Bitcoin price.

It was reasonably pointed out the inflation rate of a fiat currency means the increase in the price level of those goods and services that are generally bought with that particular fiat currency.

It was also furthered if in country A and B people buy completely different goods, then it makes no sense to compare their inflation rates, and that the Bitcoin price is such a small component of the total consumption basket in both those countries, it makes no difference.

It was observed — again reasonably — that coordinating inflation between different countries only makes sense if the economies in those countries are similar [and] consume more or less similar goods, for example, the EU single market.

It was further observed a Big Mac could serve just as well as Bitcoin in understanding whether currencies are at their correct level — the Economist once produced a light-hearted index to this regard.

The Cost of Mediation

The second point made is self-explanatory and again reasonable: that mediation decreases costs of transactions — in the way it provides a formal basis for trust between counterparties and which is why payments ARE centralized.

Principles and Edicts

I am thankful for the dialogue with my peer, whose working understanding of Central banking I find clear, informative and trustworthy.

It also provides an insight into how Central Banks generally regard Bitcoin: as a microeconomic “phenomena” which doesn’t pose a threat, currently at least, to financial stability.

I feel other parts of the blog from where the dialogue originated, lays enough ground for broad principles of trust, contracts, and inflation to be seen interchangeable in such a way that pinpointing them would be difficult to edict and limiting [to dialogue].

It may be relevant to highlight — as risible as it may seem — the Bitcoin price itself is subject to fiat inflation — for example, £100 today would buy less bitcoin than it would have four years ago.

That ideals are transitional to the extent they can and do “subject” themselves to each other in the way Nietzsche spoke of a “will to power”.

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Jon Gulson

Jon Gulson

Ideas in games, language, and trust.

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