Is there any risk of bitcoin inflation for cryptocurrencies?

Is there any risk of bitcoin inflation for cryptocurrencies?

Crypto enthusiasts and those who are interested in making money on virtual assets strongly believe that cryptocurrencies have a lot of advantages, including the immune to the bitcoin inflation as well. Here there is no craftiness from a technical point of view, since cryptomoney can not be printed additionally as it often happen in the situation with traditional money and thereby cause inflationary processes. The maximum number of coins is fixed in the program code and cannot be changed manually.
 
Table of content:
- The nature, types and reasons of inflation
- Some specificities of the BTC emission
- Deflation as one more threat for the crypto
- Conclusion: all depends on the USD
 
What is inflation?
 
Every adult person who is forced to make money for a living is upset when prices for goods and services grow, and his or her income remains at the same level. Money depreciates, and the purchasing power of the population becomes lower. There are three types of inflation. The first one is called creeping. Prices increase by an average of 4% per year, which is acceptable for the developed countries. A moderate inflationary process is considered a positive factor, as it increases demand, optimizes production and investments.
 
Galloping inflation, when prices rise to 50% a year, is observed in many developing countries, but hyperinflation is considered the most disastrous process for the economy and the standard of living of the population. Crysis, wars, local conflicts force the government to print money to some extent keep the state afloat. As it is often in such cases, price increase reaches fantastic amounts. There are quite a few examples of countries where there are “hundreds of thousands” and “million” bills are in circulation.
 
 
Do the laws of the traditional financial and economic sphere of the world impact on the
cryptocurrency? Can the inflation affect the cost of bitcoin in 2018 and later? Let's analyze each of them.
 
1. GDP (Gross Domestic Product) is declining, the money supply remains at the same level
 
As already noted, the amount of crypto coins is strictly limited by the program code, so they will remain in the existing volume. The gross domestic product is in no way tied to the cryptocurrency.
 
2. The issue of money and the growth of the government spending
 
It can be suggested that in the future bitcoin will become an alternative to fiat money, and used to cover government spending. As for emissions, even with all the desire “to switch a printing unit” is unrealistic.
 
3. A sharp increase in lending to enterprises and the public
 
Cryptocurrency loans are still at the dawn of their formation. Of course, there are opportunities and special services that allow obtaining a bitcoin loan on certain conditions, but this does not affect the state financial system.
 
There are also reasons why inflation may occur in the traditional financial environment, but anyway, they are all related to the state policy, the economy, including the domestic and world one. Bitcoin as a decentralized and independent digital currency so far stands aside from all these processes. Is it possible to assert that inflation does not threaten a crypto coin? To understand this issue, it is necessary to study the emission of bitcoins in detail. It will be discussed in the next chapter.
 
How is bitcoin issued?
 
Traditional currencies are regulated by the central bank of a single state. Their number corresponds to the volume of goods and services produced in a certain country. The state pursues a policy of price stabilization. The regulator has several effective tools to tame the uncontrolled processes when they appear. With regard to fully decentralized systems, here the software works so that a person can not make changes in emissions. A special cryptographic algorithm is used for this purpose. It strictly monitors the work of the P2P system, namely:
• Specifies the frequency and number of currency units
• Instantly responds to attempts to crack the algorithm
• Performs a continuous check of transactions on each individual node
 
Bitcoins are limited-emission cryptocurrency. As we know, these coins appear in the system after finding a new block. This process is specified by the software method and it is constant, i.e. miners can only find 6 blocks per hour. It is also a well-known fact that the volume of new bitcoins in each block is getting smaller and every four years is reduced by half. Thus, we see that the system is working on a clear schedule, and that more than 21 preset millions of bitcoins will not be exceeded.
 
The creators of bitcoin took gold as an example, the amount of which is limited. The extraction of this valuable metal occurs at a low speed and in extremely small volumes, while the human needs remain high. Apparently, this ratio will continue in the future and the giant deposits of gold that could depreciate its value, does not exist in the nature. Those people, who are engaged in generating blocks on the special equipment, by analogy with gold miners, are called bitcoin miners. The number of coins is regulated not by the natural laws, but an algorithm.
 
Deflation as the great threat to the cryptocurrency
 
While we are talking about bitcoin inflation, the reverse process, which is called deflation, can cause big problems for both the coin itself and its investors. Since the volume of bitcoins is not subject to increase, deflationary processes will start sooner or later, especially if the crypto becomes popular and becomes a full-fledged financial instrument along with traditional or so-called fiat money. The discussions among economists about the extent to which the deflation has a great effect on the economic growth are ongoing.
 
People start to put more "in a jar" instead of giving money into the circulation, investing in business and creating new businesses. Other specialists see it as a positive development. They believe that deflation will benefit businessmen and investors. Costs and earnings will be balanced, demand is going to be at the same level, and savings in a passive form will not "sink to the bottom" anyway and they’ll use the cryptocurrency for investing not in the domestic but in the world production as well.
 
Conclusion
 
As we see since bitcoin has been positioned as the alternative for the fiat money all the processes have affected on it.
The phenomenon of bitcoin inflation is carefully studied by many experts and technicians, and it is too early to say what the consequences of its influence will be in the future. Theoretically, bitcoin and its altcoins are protected from excessive emissions, but all of them have a close relationship with the dollar (we can buy the cryptocurrency for USD, including a credit card, etc.).
Any changes in the USD environment - both positive and negative - entail metamorphoses in the cryptocurrency world.
 
 
 
 
 
 



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