Bitcoin Needs Inflation to Work as Money, Says Professor

Bitcoin Needs Inflation to Work as Money, Says Professor

Satoshi Nakamoto would probably have built inflation into the Bitcoin protocol to avoid mining centralization – if he could start over again – says a professor known for his controversial Bitcoin statements.

Also read: Venezuela Will Need a Bigger Chart for Its BTC Trading Volume

Inflation for Bitcoin?

Jorge Stolfi
Jorge Stolfi

Brazilian computer science professor Jorge Stolfi wrote in a Reddit thread that a small amount of built-in inflation would function as a “demurrage tax” – this would discourage Bitcoin as an investment, make mining less of a high-profit activity and therefore prevent mining activity coalescing into the large factory-sized operations we see today.

This would also mean Bitcoin would probably not be worth over $600 today, and would probably not have seen huge speculative spikes like that of November 2013. Stolfi wrote:

Satoshi expected the number of transactions per day to grow less than 20% per year. Taking that as a measure of the value of all payments done using bitcoin, that prediction would imply that the price would increase less than 20% per year.

Any comments recommending inflation or flexible money supply are likely to be anathema to Bitcoin traders and long-term holders – as well as sound-money economists, who see Bitcoin’s 21 million BTC upper limit as integral to its value and viability as a currency.

Stolfi’s comments received several replies in support and opposition, with one suggesting that if inflation were automated and kept very low (eg 1%) it would avoid the kind of government interference that has seen fiat currency buying power plunge over the decades.

Bane of Bitcoiners

The professor has made contentious comments about Bitcoin price speculation in the past, most recently when he opposed a Bitcoin exchange-traded fund (ETF) listing in a written submission to the US SEC. He said Bitcoin tokens are “shares for a company with no assets, no products and no staff”.

He has also suggested that Bitcoin is way overpriced even now, and that holders expecting long-term riches and wild price fluctuations make Bitcoin unattractive as money.

If You Were Satoshi…

lifestyle-inflation-1940x1440Stolfi’s latest remarks were in response to a Reddit post asking readers how they would have improved Bitcoin and possibly avoided today’s mining centralization, if they were Satoshi and could start from scratch.

Controversial suggestions from other readers included: making the original proof-of-work algorithm more resistant to ASICs (like Scrypt), and opposing views such as increasing block sizes or even setting the entire protocol in stone from the beginning, meaning it could never be altered.

Many readers, however, said they were happy with the original Bitcoin as it is, and any improvements could be made in time if required.

[Note: The views reported in this article are not necessarily endorsed by the author or Bitcoin.com.]

Did Professor Stolfi make valid, if unpopular, suggestions? Could Bitcoin have been improved from the beginning, or is it perfect as-is?


Images courtesy of Pixabaytopmeaning.com

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Jon Southurst has been interested in bitcoin since reading Neal Stephenson's 'Cryptonomicon' in 2012. A long-time tech writer, he has been a regular contributor at CoinDesk and has written for Kaiko.com, DeepDotWeb and ancient print publications. He lives on an artificial island in Tokyo.