Great analysis.
However you don't really explain why inflationary money is better and I think that argument is based on an assumption of overall economic growth which is in turn dependent on population growth. These assumptions don't hold.
We are now very clearly facing a demographic death spiral of far more deaths than births, declining population and a top heavy reverse population pyramids.
This is the case in almost every first and second world economy.
95% of the world's productive capacity is dying off.
It is impossible to have real economic growth with constant decline in the number of productive people in the economy. Governments have been covering this up with money printing and debt. It is unsustainable.
Bitcoin as a deflationary currency is perfectly suited to a world in massive demographic and economic decline. In a system with fewer people, less money is needed to make things work and thus inflationary currencies just cause runaway price inflation.
It is OK to have inflation in something starting off from small like a new cryptocurrency, but once mass adoption is reached there should be no more money created because there are no more people being created to use it.
The flaw in your argument is that it assumes that productivity remains the same which is incorrect. Take agriculture for example: in the past society needed to have the majority of the population working on food production but now only a small fraction is required (with a much higher output).
The problem with a currency that has a static supply is that it motivates hording instead of it being put to use to promote economic activity. A superior currency would be one that has a supply that is flexible. As far as a know nobody has designed a currency that can do that.
In a world dominated by a currency with a finite supply the prices of goods and services would be under a permanent downward pressure (since the circulating supply is capped the effective demand cannot grow). It would be like living in a world under a constant economic recession.
Why would anyone invest their Bitcoin in producing goods and services that have declining prices if they can just hoard and see their wealth appreciate over time?
Both a deflationary and an inflationary currency are just as bad in totally opposite ways.
You seem to be assuming that productivity will keep rising when populations are rapidly falling and the workforce shrinking and aging.
A lot of people think that population decline is OK because productivity will keep rising. But the opposite is true.
Declining populations lead to declining skill sets and productivity. There is a short lag (which is what we are experiencing now) but soon we will have both population and productivity decline.
Its really quite simple when you think about it. The vast majority of people only have the ability and motivation to learn new skills and technology when they are young. As the number of young people continues to decline there is less and less innovation and whole skill sets start to be lost.
It is no coincidence that the country producing by far the most innovation per capita is the only advanced economy with high fertility and a growing younger cohort. To put this in context, this small country has consistently produced far more innovation and productivity improving tech than the whole of the EU. In the last 5 months alone its high tech startups have raised over $10 billion. This is an order of magnitude more than EU startups in the same period.
Population decline caused by low fertility has leads to skill loss and productivity decline consistently throughout history. From Tasmania's pre-history to the Greek Dark Ages to the fall of Rome and the European dark ages.
When populations and productivity are declining there is no downward pressure on prices because of a fixed supply of money. There is stable prices and sound money that allows productive investment.
Bitcoin is perfectly suited to such a world and may just have the ability to bring us out of this demographic death spiral.
There are strong arguments that this demographic death spiral is at least partially caused by central bank money printing.
See https://econimica.blogspot.com/2021/02/global-depopulation-two-paths-one.html
I am going to need citations of studies that prove this statement.
In the mean time I have couple of objections:
The claim that fertility rates lead to decline in populations in the past is questionable at best. Only in modern times humanity has introduced effective birth control methods.
Population declines in the past are more likely linked to the destruction of individual civilizations due to war, famine caused by extended draught and epidemics or to the exhaustion in the available supply of slave labor (which was the bedrock of the economy of ancient mediterranean civilizations).
The article that you cited shows a lot of correlations but we all know that correlations do not equal causation.
Another objection that I have is that you equate productivity to skills of the workforce (which is part of it) but the higher economic outputs that we have seen in the last two centuries have more to do with innovations in technology.
You are right in asserting that I assume that productivity will continue to increase...the pace of technological improvements keeps accelerating on a global scale and shows no signs of stopping any time soon (barring a black swan event).
I'll do a full post about this with the sources and will link it here when ready.
If the Bitcoin network just decided to double the amount of Bitcoin in everyone's wallet, would it matter? On a very real level inflation doesn't matter. What matters is who controls the inflation and how many buyers are lined up to support a given price.
The advantage of hyperinflationary assets is that they can maintain unit-of-account status while also generating exponential growth. The growth doesn't come in the form of an increasing token value, as price is offset by exponential yield and new money. It is in this way that crypto can become a store of value, a medium of exchange, and a unit-of-account all at the same time. Bitcoin can't do that. It will never be a unit-of-account due to deflation.
Yes it would matter. It would destroy it.
Whatever percentage you think that is, triple it for the 3rd world economies.