Isn’t Bitcoin’s fixed money supply going to create deflationary problems?

By Timothy B. Lee Updated Nov 3, 2015, 10:03pm EST

Economics teaches that an excessively tight money supply can cause economic problems. But the harms from deflationary monetary policy mostly occur when wages, rents, mortgages, and other long-term financial arrangements are based on a currency such as the dollar. In economics jargon: deflation is harmful when a currency is used as an an economy’s unit of account.

But hardly anyone uses Bitcoin this way. Most merchants who accept bitcoins price their goods in a conventional currency, converting to an equivalent number of bitcoins at the time of sale. Even the Bitcoin Foundation, which pays its staff in bitcoins, sets salaries in dollars and converts peoples’ paychecks to bitcoins on payday.

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