But transaction costs of freicoin are lower than those of bitcoin.
If people spend freicoins, they don't pay 5% tax to miners.
If they hoard freicoins for a long time, they pay 5% tax.
This essentially encourages spending and investments.
It's an interesting system.
You mean using freicoin to fight the inflation problem once the population starts to shrink? It's other way round, demurrage creates more of inflation-like environment. Thus, savings would suffer not only from inflation, but would be further diluted by demurrage fees.
As for freicoin itself, the intersting question is what would make anyone use currency with demurrage fees when there's one available without the fees (bitcoin). Back then, citizens of Worgl were happy to use the freigeld because the official currency fared even worse (it was in the middle of a crisis). That lack of better options doesn't seem to be the case today.
Both coins will end up with fixed amounts of coins, and both coins may display similar characters when it comes to inflation. But, as you said, freicoin isn't attractive with 5% demurrage fee. Unattractive money is wanted by less people, and if less people want it, it goes through inflation.
Inflation may or may not lead to problems, and I should ask two questions.
Will population decrease reduce actual purchasing power of people?
Will population decrease encourage unfair distribution of wealth?
There is no meaning in talking about deflation or inflation tendencies of bitcoins. But we should talk about deflation and inflation tendencies of digital currencies as a whole. Bitcoin is not the only one, there is virtually infinite number of possible digital currencies. They all (will) serve the same purposes and compete for demand. While the demand for digital currencies is a kind of limited (you know, the goods and services we want to exchange and the money we are able to save…), their supply is unlimited. Therefore the only logical answer is that digital currencies have inflation tendencies in the long term much stronger than classical currencies.
That would be true if there was a constant influx of new successful digital currencies.
The only way that I can imagine that the dymamics like that could emerge is if the new currencies are used for gambling rather than for storing value.
In such case there's not much point in talking about inflation/deflation. You would be able to buy goods/services for the digital currency only as much as you can buy them for lottery tickets.
Well, actually money per se are used mostly for gambling. The total daily turnover in speculative financial products is much much much (about one "much" for each order of magnitude) bigger then the daily turnover of all physical goods and services traded.
What stops governments and central banks from flooding economy with new (fiat) money? The new amount of money leads to inflation on all goods that are traded in that currency. (this is a bit different for the global currency - dollar, because its inflationary effect spills all over the world, slightly) This usually means increasing prices of local goods and depreciation of domestic savings. And this leads to voters' anger which can overthrow the government. This is the negative feedback in the loop which acts as a brake.
But there is no such a feedback in the world of digital currencies. The creators (often anonymous) do not need to fear voters' anger. They are not responsible for anything. They just create a currency, do some internet hype for it and hope that some of the speculative demand will move from existing digital currencies (which may now seem as overpriced) to the new one (which seems underprices considering its speculative potential). The creators are the first owners of the digital currency, therefore that can make a really big money if they succeed. For this reason the digital currencies will IMO never have any stable value…
Currently there already are many digital currencies traded on several exchanges. Bitcoin in not the only one, it is just the best known one.
The total daily turnover in speculative financial products is much much much (about one "much" for each order of magnitude) bigger then the daily turnover of all physical goods and services traded.
Interesting. Are you speaking of currency & currency derivatives trading here or do you include the stock trading?
As for the whole point: I believe that reasoning about "digital currencies" as a single thing won't work well, given that the prices fluctuate independently. Nobody's thinking "I want to buy so more virtual currency now." They want to buy either Bitcoin or Dogecoin, the disctinction is in no way irrelevant.
That being the case, there's no way to print new money easily. You can create new currency that nobody will use and that will not affect other currencies in any way, but that's it.
Isn't the deflation problem with regard to BTC a false dilemma? At the end of the day this supposition is that there would not be enough units of money to carry out the volume of transactions as well as the divisibility of the currency to handle the smallest cost of a particular transaction? If the 8 decimal places is someday not enough more decimal places could be added.
This false dilemma is trotted out by those that benefit from or control centralized fiat currency systems mainly because they would not have the ability to bring currency into existence for any number of endless state and quasi-state endeavors.
Generally if you are a saver and a user of a currency deflation is in the short and long term. As production becomes more efficient the cost savings can be realized by market participants. Could there be deflation in wages to compensate? Perhaps.
The flip side is that inflation hurts savers and most participants in the economy unless they are lenders paying back debts with money that is worth less in the future.
Offering no judgement as to which is better the pros and cons are readily apparent and different for the average citizen vs nation states, banks and other institutions that have first access to fiat.
At the end of the day this supposition is that there would not be enough units of money to carry out the volume of transactions as well as the divisibility of the currency to handle the smallest cost of a particular transaction?
The stated problem, as I understand it, is rather that with value of currency and thus the savings increasing there's less incentive to spend (don't buy one car today; wait and buy two for the same price tomorrow). And less spending means lower GDP and thus, by definition, stagnation.
"not enough units of money to carry out the volume of transactions" is an equivalent of "inches are too big, we can't measure microbes". See http://mises.org/library/deflation-biggest-myths
