Update: Two things have changed my opinion slightly since I wrote this answer. One was a comment by Lasse Birk Olesen that Bitcoin has intrinsic value in that it's a commodity that can be exchanged purely electronically without requiring a central authority, and it will retain that property regardless of whether people value it specifically as a currency. The second is something I heard Milton Friedman say in an EconTalk interview (Milton Friedman on Money): that if he were in charge, he'd just keep the monetary base constant, because the multiplier between the monetary base and broad money can expand sufficiently to accommodate any demand. This obviously would require a fractional reserve banking on top of Bitcoin, but that seems inevitable anyway. See Bitcoin Would Not Be Deflationary for a detailed explanation of why this could keep Bitcoin from being deflationary. Is the cryptocurrency Bitcoin a good idea Is the cryptocurrency Bitcoin a good idea
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