Yes, understood. However, this is just asserting that if the hash rate falls, the difficulty will adjust. The problem isn't the difficult level, but the falling hash rate (reducing the barrier against a network attack).


Sure, I'm fine with this too. I asserted that 'if the transaction rate becomes stable', then so will the competition for block space. In turn, this implies a stable hash rate (fluctuations considered, ofc).


I asserted that 'mining ceases to be profitable' as a boundary condition. I'm not convinced that miners drive the price of Bitcoin; It's the people who value Bitcoin that dictate the price. If it becomes too expensive to mine at the market rate, mining will not be done. Therefore, I'm not convinced that miners will necessarily step up to increase the hash rate.

To conclude, I am still unconvinced that this thread is moot. The hash rate needs to increase proportionately to Moore's Law and I'm not certain this will happen automatically (without some relatively minor alternations).

I'm happy to be proved wrong though, if you think I'm still missing something.

That's not true. If it were, no one would hold inflationary cash, as they would be spending it today, rather than lose value tomorrow. It would also mean that no one would buy any computers.

Just as contracts can account for inflation, they can also account for deflation. The only real difference is psychological - more stuff has to be better than less stuff, right?

There is nothing to stop people taking out inflation rate trackers, which can go negative. That is, the repayments get reduced during a deflation. The real value remains positive regardless.

Ok, so let's assume everything is constant except for Moore's Law. By Moore's Law, the cost to produce a fixed level of hashing power will decrease over time. With all other things being equal, mining becomes more profitable. Now other potential miners will take note of this, so more miners will join, incentivised by the increased profit margin. Thus - all other things being equal - the hashing power will increase with Moore's Law.

I think your point about the price of Bitcoin is right - but that should be obvious. Bitcoin being less valuable means exactly that - it's less valuable, therefore it's only right that less hashing power is devoted to it. In this case, less hashing power is the effect of Bitcoin being less valuable, not the cause.

Maybe you'll see it more clearly if you look at the same argument in the context of an inflationary currency or good that's appreciating in value. Suppose the price of gas has been rising continuously and fairly predictably, either because the currency is dropping in value or because the demand for gas is increasing. Are gas stations going to close down for a few weeks so that they can sell gas for higher prices in the future?

The answer is clearly no. Because if they were going to do so, that would simply mean the price of gas wasn't high enough *today*. You don't see a gas station closing because they'd prefer to sell their gas later when the price is higher. The price is already high enough -- supply and demand ensures it.

The same is true of a deflationary currency. If it's actually encouraging hoarding, that would simply mean the price of goods wasn't low enough *today* to encourage people to buy them and the price would fall until it is low enough. But of course, that will have already happened -- having a deflationary currency means the price of goods has dropped.

That's very dangerous because there is no way to know when it has peaked and there's always a risk that the price will fall before you can sell the oil you held back. Certainly some people will do that, but it's not a universally winning strategy.

The problem is that the predictable aspects of the future price are already baked into the present price. If the price wasn't rising fast enough, people would hold back oil, and the price would just rise faster.

All of these affects are already cancelled out in the present price. The present price must be fair to sellers, or it would rise. The present price must be fair to buyers, or it would drop. For any reasonably-liquid commodity priced in any reasonably-liquid currency, the price will be tend towards the price that is equally fair to the typical buyer and the typical seller.

I don't thing fees will be necessary.

All electronic devises capable of performing a financial transaction will have Avalon SHA256 Asics built into the processor.  Everyone who is invested in making such transaction will be contributing. (if not everyone then all the serves providers who collect payments will.)

The value of Bitcoin will increase exponentially until it has some huge value. Once it does anyone with a single Bitcoin will be running a miner on their PC with an integrated SHA256 Asics just to secure their 1BTC on the network. Redundant relic SHA256 Asics will be on standby with monitors to detect any opportunity to profit from delayed transactions and auto power up.

If fees are even necessary, it will be determined democratically by choice in mining software, the idea that fees will be charges will create a huge buzz in the world, the talk will be all about the lucky winners in the lottery.  

Conglomerates mining pools will form to process the transactions, users will switch mines in coordinated efforts to try and keep free money transactions,  Conglomerates mining pools, will be kept in cheque ever increasing there SHA256 processing power to ensure they have the dominant mining software to maintain the fee structure necessary to manage their efforts. All the while users benefit  by either increased security, or reduced costs, and it will be technology and news that drive the different trends.    

If I got 1000$ in my bank account and 1000 $ worth of BTC I would rather buy the new iPhone with my fiat-money than my BTC since the dollars decrease in value every year and the bitcoin increase in value every year. To compare currencies with iCrap is just foolish since some people are even ready to sell their organs for a new iPad...

If I buy the iPhone with bitcoins and want to buy new bitcoins I have to transfer money to MtGox which costs money and take time, and I have to pay 0,6% fee to MtGox to buy bitcoin. And I also risk that buy back the bitcoins at a much higher price when I have funded my MtGox account.. the price might have moved 50% in two weeks.
Or I can just pay for the new iPhone with fiat$ and keep my coins. Much easier and I dont have to spend money on transactions or possible pice rise on bitcoin.

Right, but in exchange, you get to offer the seller the currency they want most. If your assumption that people would much rather hold Bitcoins than dollars is correct, the seller should significantly reward you for giving them the currency they prefer. The costs you mention above are miniscule. There's no need for you to risk buying Bitcoins at a much higher price, you can buy them immediately. If Bitcoins are underpriced, you would have already funded your Mt. Gox account. The fact that you didn't shows you don't really believe Bitcoins are underpriced.

Right, but you'll pay much more for no reason. If your assumption that people would significantly prefer to hold Bitcoins over dollars is correct, you'd be giving the seller something they value much more highly. Unless the seller is irrational, they should make that well worth your while, and all your additional costs in doing so are miniscule.