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Based on the fact that the bitcoin "production" will stop around 21 million bitcoins, could this lead to a bitcoin flow freeze?

What I mean is, if we produce all 21 million bitcoins, and keep using them nicely (without inflation issues because there will be no more making of them) wouldn't some pals need more bitcoins than others? And a lot of users wouldn't want to use them through stores, debit cards and/or gift cards? Then how will the currency recycle?

  • I think a better title for this question might be "Will the decreasing Bitcoin production cause a liquidity crisis?" – Murch Aug 17 '15 at 13:24
  • This question appears to be closely related to "Does hoarding really hurt Bitcoin?". Do I understand correctly that you mean to ask, whether it will cause problems when some parties accumulate large amounts of Bitcoin (e.g. the earnings from their business) and thus the amount of bitcoins in circulation gets reduced? If yes, we could probably find a clearer phrasing for your question. :) – Murch Aug 19 '15 at 11:31
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Just to clarify, I understand the question as: Is it possible that the accumulation of bitcoins by successful participants in the Bitcoin economy will cause a liquidity crisis?

As suggested by the question and described in the answers of "Does hoarding really hurt Bitcoin?", individuals or institutions amassing bitcoins would reduce the supply of Bitcoin. However, as the value of Bitcoin would increase to evade the demand pressure, the exchange rate would rebalance at a point where one could transfer the same value with less bitcoins, retaining liquidity at a lower supply. Should this trend persist, additional divisibility of Bitcoin might become necessary to sustain liquidity.

This form of deflation is a huge problem in regular currencies, as we live in debt-based economies: During deflationary periods debt becomes increasingly costly to repay, and similarly it becomes harder for companies to maintain wages of their workers as they are denominated in the same currency. Either the companies would have to succeed at contentious wage cuts or let workers go.

Today, Bitcoin is rarely used as a Unit of Account. Mostly, prices are displayed in other currencies and their Bitcoin values automatically adjusted to remain stable to the underlying price. As long as this remains the case, deflation in Bitcoin would cause little economic anguish. Deflation would mostly spell "investment opportunity". (See T. Lee's article 'No, Bitcoins Aren't In Danger from "Hyperdeflation"')

[Hereafter sheer speculation:] Should Bitcoin ever become widely used as a Unit of Account, it will be after significant portions of the global economy transact in Bitcoin. As it would be widely used, Bitcoin's volatility would have decreased and thus the value stabilized. Economic growth and technological progress would manifest in a sustained slight deflation. At that point, as investment opportunities would have to compete with the benefits of saving during deflation, the wealth accumulation of rich parties could strongly amplify deflation.

  • Murch, that was a very detailed answer! Thanks a lot for your time! – DedSecz Aug 21 '15 at 22:43
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It is almost impossible to have a liquidity crisis in Bitcoin. To confirm in trading terms, liquidity is the size of the supply and demand market. Because Bitcoin is divisible up 100 000 000x (i.e. one satoshi) that means that even if one individual owned and held 99% of Bitcoin, there would still be enough Bitcoin in the world for most of the population to trade with.

E.g. 17 000 000 (current coins) 0.01 (percent left over) = 170 000 bitcoins left. That would mean for Bitcoin to not be practically usable anymore (let's say unable to get less than a cent) then it's price would have to be B170 000 $1 000 000.

In other words a huge price and even if that moment came the community would probably come to a consensus to further divisibility in the code. The 21m bitcoin limit is frivolous and really is just a random number.

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    Bitcoin's reward rate isn't constant - it halves every 4 years, and eventually stops entirely in 2140.

    https://en.bitcoin.it/wiki/File:Controlled_supply-supply_over_block_height.png

    bitcoin supply from bitcoin wiki

    See also: The End of Mining

    • But what about the holders of the bitcoins? I mean, if everyone at the end spends his bitcoins, the only ones who have access to them would be banks and vendors. – DedSecz Aug 16 '15 at 7:43
    • Vendors and banks generally have costs - they're not collecting Bitcoins for fun. – Nick ODell Aug 16 '15 at 8:44
    • Oh ok, thanks, I see... So I guess there will be no flow issues since the currency will keep going around! Thanks a lot Nick ODell! Btw, do you think that 21 million btc are enough? :) – DedSecz Aug 16 '15 at 12:18
    • Even one btc would be quite enough as it is infinitely divisible. It would just be more valuable. – kibitzer Aug 17 '15 at 7:56
    • I have the feeling that the question is talking about liquidity (flow) not necessarily new bitcoins? – Jannes Aug 17 '15 at 12:32

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